N-2: Initial filing of a registration statement on Form N-2 for closed-end investment companies
Published on February 24, 1998
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 23, 1998
REGISTRATION NOS. 33-_____
811-08025
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. ____
POST-EFFECTIVE AMENDMENT NO. ___
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 1
BULL & BEAR GLOBAL INCOME FUND, INC.
(Exact name of Registrant as specified in its charter)
11 HANOVER SQUARE, NEW YORK, NEW YORK 10005
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 785-0900
-----------------------
THOMAS B. WINMILL
CO-PRESIDENT AND GENERAL COUNSEL
11 HANOVER SQUARE
NEW YORK, NEW YORK 10005
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Copies to:
THOMAS A. HALE, ESQ. LEONARD B. MACKEY, JR., ESQ.
SKADDEN, ARPS, SLATE, MEAGHER ROGERS & WELLS LLP
& FLOM (ILLINOIS) 200 PARK AVENUE
333 WEST WACKER DRIVE NEW YORK, NEW YORK 10166
CHICAGO, ILLINOIS 60606
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE
OF THIS REGISTRATION STATEMENT.
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(1) Includes [388,876] shares of Common Stock to cover an increase by
the Fund of 25% of the number of Shares of Common Stock subject to
subscriptions.
(2) Estimated solely for purposes of calculating the registration fee.
(3) Estimated pursuant to Rule 457(c) under the Securities Act of 1933
on the basis of market price per share on February 19, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
BULL & BEAR GLOBAL INCOME FUND, INC.
Form N-2
Cross-Reference Sheet
PART A Caption Location in Prospectus
- ------ ------- ----------------------
Item No. 1 Outside Front Cover................. Cover Page
Item No. 2 Inside Front and Outside Back
Cover Page........................ Front Cover; Back Cover
Item No. 3 Fee Table and Synopsis.............. Fee Table
Item No. 4 Financial Highlights................ Financial Highlights
Item No. 5 Plan of Distribution................ The Offer; Distribution
Arrangements; Taxes;
Dividend Reinvestment
Plan
Item No. 6 Selling Shareholder................. Not Applicable
Item No. 7 Use of Proceeds..................... Use of Proceeds
Item No. 8 General Description of the
Registrant....................... The Fund; Capital
Stock; The Fund's
Investment Program;
Special Considerations
and Risk Factors; Taxes
Item No. 9 Management.......................... Investment Manager
Item No. 10 Capital Stock, Long-Term Debt,
and Other Securities............. Capital Stock
Item No. 11 Defaults and Arrears on Senior
Securities...................... Not Applicable
Item No. 12 Legal Proceedings................... Not Applicable
Item No. 13 Table of Contents of the Statement
of Additional Information........ Table of Contents of
the Statement of
Additional Information
Location in the
Statement of Additional
PART B Caption Information
- ------ ------- -----------------------
Item No. 14 Cover Page.......................... Cover Page
Item No. 15 Table of Contents................... Cover Page
Item No. 16 General Information and History..... Not Applicable
Item No. 17 Investment Objective and Policies... The Fund's Investment
Program; Investment
Restrictions
Item No. 18 Management.......................... Officers and Directors;
The Investment Manager
Item No. 19 Control Persons and Principal
Holders of Securities............ Officers and Directors;
The Investment Manager;
Investment Management
Agreement
Item No. 20 Investment Advisory and Other
Services......................... The Investment Manager;
Investment Management
Agreement
Item No. 21 Brokerage Allocation and Other
Practices........................ Allocation of Brokerage
Item No. 22 Tax Status.......................... Taxes
Item No. 23 Financial Statements................ See Prospectus, Experts
PART C - Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C to this Registration
Statement
PRELIMINARY PROSPECTUS DATED FEBRUARY 23, 1998
SUBJECT TO COMPLETION
BULL & BEAR GLOBAL INCOME FUND, INC.
1,554,802 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE FOR SUCH SHARES
Bull & Bear Global Income Fund, Inc. (the "Fund") is issuing to its
shareholders of record ("Record Date Shareholders") as of the close of
business on ________ 1998 (the "Record Date") non-transferable rights
("Rights") entitling the holders thereof to subscribe for an aggregate of
1,554,802 shares ("Shares") of the Fund's common stock, par value $0.01
per share (the "Offer"). Each Record Date Shareholder is being issued one
Right for each whole share of the Fund's common stock ("Common Stock")
owned on the Record Date. The Rights entitle the Record Date Shareholder
to acquire at the Subscription Price (as hereinafter defined) one Share
for every [two] Rights held (one for [two]). Shareholders who fully
exercise their Rights will be entitled to request to subscribe for
additional shares of Common Stock pursuant to an Over-Subscription
Privilege, as defined and described herein. Shares requested pursuant to
the Over-Subscription Privilege may be subject to allotment. The Fund may
increase at its discretion the number of shares of Common Stock subject
to subscription by up to 25% of the Shares, or 388,700 Shares, for an
aggregate total of 1,943,502 Shares. Fractional Shares will not be issued
upon the exercise of Rights. Accordingly, Shares may be purchased only
pursuant to the exercise of Rights in integral multiples of [two]. The
Rights are non-transferable and will not be admitted for trading on the
American Stock Exchange or any other exchange. See "The Offer." THE
SUBSCRIPTION PRICE PER SHARE (THE "SUBSCRIPTION PRICE") WILL BE __% OF
THE LOWER OF (i) THE AVERAGE OF THE LAST REPORTED SALES PRICE OF A SHARE
OF THE FUND'S COMMON STOCK ON THE AMERICAN STOCK EXCHANGE ON THE DATE OF
THE EXPIRATION OF THE OFFER (THE "PRICING DATE") AND ON THE FOUR
PRECEDING BUSINESS DAYS THEREOF AND (ii) THE NET ASSET VALUE PER SHARE AS
OF THE CLOSE OF BUSINESS ON THE PRICING DATE.
The Board of Directors of the Fund has authorized the filing of a
registration statement, of which this preliminary prospectus is a part,
but has not as of the date hereof yet approved the Offer. In the event
the Offer is approved, the Fund would announce the Offer after the
close of trading on the American Stock Exchange on ________, 1998.
Shares of the Common Stock trade on that exchange under the symbol
"BBZ." The last reported net asset value per share of Common Stock at the
close of business on ___________, 1998 and ___________, 1998 was $____
and $____, respectively, and the last reported sale price of a share of
the Fund's Common Stock on that exchange on those dates was $____ and
$____, respectively.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
_______________, 1998 (THE "EXPIRATION DATE"), UNLESS EXTENDED AS
DESCRIBED HEREIN.
Upon the completion of the Offer, Record Date Shareholders who do
not fully exercise their Rights will own a smaller proportional interest
in the Fund than would otherwise be the case if the Offer had not been
made. In addition, because the Subscription Price per Share will be less
than the current net asset value per share, the Offer will result in
dilution of net asset value per share for all shareholders. If the
Subscription Price per Share were to be substantially less than the
current net asset value per share, such dilution would be substantial.
Shareholders will have no right to rescind their subscriptions after
receipt of their payment for Shares by the Subscription Agent. See "Risk
Factors and Special Considerations--Certain Effects of the Offer."
(continued on the following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Estimated Estimated
Subscription Estimated Proceeds to
Price (1) Sales Load (2) The Fund (3)(4)
------------ -------------- ---------------
Per Share...............
Total Maximum (5).......
(notes on following page)
FIRST ALBANY CORPORATION
The date of this Prospectus is __________, 1998
(Cover page continued)
If you have questions or need further information about the Offer,
please call Shareholder Communications Corporation, the Fund's
information agent for the Offer (the "Information Agent"), at (800)
___-____ extension ___.
The primary investment objective of the Fund, a diversified,
closed-end management investment company, is to provide for its
shareholders a high level of income. This primary investment objective is
fundamental and may not be changed without shareholder approval. The
Fund's secondary investment objective, which may be changed by the Board
of Directors of the Fund without shareholders' approval, is capital
appreciation. The Fund pursues its investment objectives by investing
primarily in a global portfolio of investment grade fixed income
securities. There can be no assurance that the Fund will achieve its
investment objectives. See "The Fund's Investment Program." The Fund uses
financial leverage from time to time to purchase or carry securities.
Such financial leverage is speculative and increases both investment
opportunity and investment risk. See "Risk Factors and Special
Considerations." Bull & Bear Advisers, Inc. serves as the Fund's
investment manager. The address of the Fund is 11 Hanover Square, New
York, New York 10005, and the Fund's telephone number is (212) 785-0900.
This Prospectus sets forth information about the Fund that a
prospective investor ought to know before investing and should be
retained for future reference. A Statement of Additional Information
dated __________, 1998 (the "SAI") containing additional information
about the Fund has been filed with the Securities and Exchange Commission
(the "SEC" or the "Commission") and is incorporated by reference in its
entirety into this Prospectus. A copy of the SAI, the table of contents
of which appears on page __ of this Prospectus, may be obtained without
charge by contacting the Information Agent at (800) __________ extension
___ or by calling the Fund toll-free at 1-888-847-4200.
------------------
(notes from previous page)
(1) Estimated on the basis of __% of the [net asset value per
share] on __________, 1998. See "The Offer--Subscription
Price."
(2) In connection with the Offer, First Albany Corporation
(the "Dealer Manager") and other broker-dealers
soliciting the exercise of Rights will receive
aggregate soliciting fees equal to 2.375% of the
Subscription Price per Share for each Share issued upon
exercise of the Rights and pursuant to the
Over-Subscription Privilege. The Fund has also agreed
to pay the Dealer Manager a fee for financial advisory
services and marketing assistance in connection with
the Offer equal to 1.625% of the Subscription Price per
Share for Shares issued upon exercise of the Rights and
pursuant to the Over-Subscription Privilege. The Fund
has agreed to indemnify the Dealer Manager against
certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities
Act").
(3) Before deduction of offering expenses incurred by the
Fund, estimated at _____, including an aggregate of up
to $100,000 to be paid to the Dealer Manager as partial
reimbursement for its expenses.
(4) Funds received by check prior to the final due date of
this Offer will be deposited into a segregated interest
bearing account (which interest will be paid to the
Fund regardless of whether shares are issued or not by
the Fund) pending proration and distribution of Shares.
(5) Assumes all Rights are exercised at the Estimated
Subscription Price. Pursuant to the Over-Subscription
Privilege, the Fund may at its discretion increase the
number of Shares subject to subscription by up to 25%
of the Shares offered hereby. If the Fund increases the
number of Shares subject to subscription by 25%, the
aggregate maximum Estimated Subscription Price,
Estimated Sales Load and Estimated Proceeds to the Fund
will be __________, __________ and __________,
respectively.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information included elsewhere in this Prospectus and SAI.
PURPOSE OF THE OFFER
As a consideration to making the Offer (as defined below), the
Fund's Board of Directors will have determined that the Offer would be in
the best interests of the Fund and its shareholders to increase the
assets of the Fund available for investment, thereby allowing the Fund to
more fully take advantage of available investment opportunities and
increase the diversification of its portfolio, consistent with the Fund's
investment objectives. The Rights Committee of the Board of Directors has
recommended to the Board, and the Board has approved, the filing of a
registration statement of which this Preliminary Prospectus is a part.
The Board of Directors has not yet approved the Offer. In reaching a
decision to approve the Offer, the Board of Directors will be advised by
Bull & Bear Advisers, Inc. (the "Investment Manager") as to opportunities
provided to the Fund by the availability of new funds for future income
and growth by taking advantage of new investments without having to
liquidate current holdings. The Investment Manager also has advised the
Board of Directors of its belief that increasing the total assets of the
Fund may permit the Fund to obtain better execution prices for certain
portfolio transactions.
In reaching any such decision, the Board of Directors will
consider, among other matters, advice by the Investment Manager that a
well-subscribed rights offering may reduce the Fund's expense ratio,
which may be of long-term benefit to shareholders. In addition, the Board
of Directors will consider that such a rights offering could result in an
improvement in the liquidity of the trading market for shares of the
Fund's common stock ("Common Stock") on the American Stock Exchange,
where the shares are listed and traded. The Board of Directors will also
consider the proposed terms of the Offer, including the expenses of the
Offer, and its dilutive effect, including the effect on non-exercising
shareholders of the Fund. The Board of Directors will also consider the
impact of the Offer on its current policy to distribute, subject to
market conditions, an amount equal to a percentage of the Fund's net
asset value. For further discussion of the impact of the Offer on the
Fund's dividends, please see "Risk Factors and Special
Considerations--Dividends and Distributions; Return of Capital."
In considering the Offer and its effect on the best interests of
the Fund and its shareholders, the Board of Directors retained the Dealer
Manager to provide the Fund with financial advisory and marketing
services relating to the Offer, including the structure, timing and terms
of the Offer. In addition to the foregoing, the Board of Directors will
consider, among other things, the benefits and drawbacks of conducting a
non-transferable versus a transferable rights offering, the pricing
structure of the Offer, the effect on the Fund if the Offer is
undersubscribed and the experience of the Dealer Manager in conducting
rights offerings.
Since the Investment Manager's fees are based on the Fund's net
assets, the Investment Manager will benefit from an increase in the
Fund's assets resulting from the Offer. See "The Offer-Certain Impact on
Fees."
The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and
on terms which may or may not be similar to the Offer. Any such future
rights offering will be made in accordance with the Investment Company
Act of 1940, as amended (the "1940 Act").
TERMS OF THE OFFER
The Fund is issuing to its shareholders of record ("Record Date
Shareholders") as of the close of business on __________, 1998 (the
"Record Date") non-transferable rights ("Rights") entitling the holders
thereof to subscribe for an aggregate of 1,554,802 shares ("Shares") of
the Fund's Common Stock, par value $0.01 per share (the "Offer"). Each
Record Date Shareholder is being issued one Right for each whole share of
Common Stock owned on the Record Date. The Rights entitle the Record Date
Shareholder to acquire at the Subscription Price (as hereinafter defined)
one Share for every [two] Rights held (one for [two]). Rights may be
exercised at any time during the offering period (the "Subscription
Period"), which commences on __________, 1998 and ends at 5:00 p.m., New
York City time, on __________, 1998 (the "Expiration Date"), unless
extended by the Fund until 5:00 p.m., New York City time, on a date no
later than __________, 1998. The right to acquire one Share for every
[two] Rights held during the Subscription Period at the Subscription
Price is hereinafter referred to as the "Primary Subscription."
Record Date Shareholders, where the context requires, shall also
include beneficial owners whose Shares are held of record by Cede & Co.
("Cede"), nominee for The Depository Trust Company, or by any other
depository or nominee. In the case of shares held of record by Cede or
any other depository or nominee, beneficial owners for whom Cede or any
other depository or nominee is the holder of record will be deemed to be
the holders of the Rights that are issued to Cede or such other
depository or nominee on their behalf, including for purposes of
determining the maximum number of Shares a Record Date Shareholder may
acquire pursuant to the Offer.
The first regular monthly dividend to be paid on Shares acquired
upon exercise of Rights will be the first monthly dividend, the record
date for which occurs after the issuance of such Shares following the
Expiration Date. It is the Fund's present policy to pay dividends on the
[last] business day of each month to shareholders of record [seven] days
prior to the payment date. Assuming the Subscription Period is not
extended, it is expected that the first dividend received by shareholders
acquiring Shares in the Offer would be paid on the [last] business day of
, 1998.
OVER-SUBSCRIPTION PRIVILEGE
Any Record Date Shareholder who fully exercises all Rights issued
to such shareholder is entitled to request to subscribe for Shares which
were not otherwise subscribed for by others in the Primary Subscription
(the "Over-Subscription Privilege"). If sufficient Shares are not
available to honor all requests for over-subscriptions, the Fund may, at
its discretion, issue shares of Common Stock up to an additional 25% of
the Shares available pursuant to the Offer (up to 388,700 Shares) in
order to satisfy such over-subscription requests. Shares requested
pursuant to the Over-Subscription Privilege may be subject to allotment,
which is more fully discussed under "The Offer--Over-Subscription
Privilege."
SUBSCRIPTION PRICE
The subscription price per Share (the "Subscription Price") will be
__% of the lower of (i) the average of the last reported sales price of a
share of the Fund's Common Stock on the American Stock Exchange on the
Expiration Date (the "Pricing Date") and on the four preceding business
days thereof and (ii) the net asset value per share as of the close of
business on the Pricing Date. See "The Offer--Subscription Price."
NON-TRANSFERABILITY OF RIGHTS
The Rights are non-transferable and, therefore, may not be
purchased or sold. The Rights will not be admitted for trading on the
American Stock Exchange or any other exchange. However, the Shares to be
issued pursuant to the Rights will be admitted for trading on the
American Stock Exchange.
METHOD OF EXERCISE OF RIGHTS
Rights will be evidenced by subscription certificates
("Subscription Certificates") that will be mailed to Record Date
Shareholders, or if shares are held by Cede & Co. ("Cede"), the nominee
for The Depository Trust Company, or any other depository or nominee, to
Cede or such other depository or nominee. Rights may be exercised by
completing and signing a Subscription Certificate and delivering it,
together with payment in full for the Shares (at the Estimated
Subscription Price shown on the cover of this Prospectus of $_____ per
share), by check, to __________ (the "Subscription Agent"). Rights may
also be exercised by contacting your broker, banker or trust company
which can arrange on your behalf to guarantee delivery of payment and of
a properly completed and executed Subscription Certificate (a "Notice of
Guaranteed Delivery"). Shareholders who exercise their Rights will have
no right to rescind their subscription after the Subscription Agent has
received payment therefor. See "The Offer--Subscription Agent" and "The
Offer--Method of Exercise of Rights."
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to Record Date
Shareholders whose record addresses are outside the United States (for
these purposes the United States includes its territories and possessions
and the District of Columbia) ("Foreign Record Date Shareholders"). The
Rights to which such Subscription Certificates relate will be held by the
Subscription Agent for such Foreign Record Date Shareholder's accounts
until instructions are received to exercise the Rights. If no
instructions are received prior to the Expiration Date, such Rights will
expire.
IMPORTANT DATES TO REMEMBER
EVENT DATE*
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Record Date _______, 1998
Subscription Period _______, 1998 to
_______, 1998
(i) Subscription Certificates and Payment for
Shares or (ii) Notice of Guaranteed Delivery Due _______, 1998
Expiration and Pricing Date _______, 1998
Subscription Certificates and Payment for
Guarantees of Delivery Due _______, 1998
Confirmation to Purchasers _______, 1998
Final Payment for Shares Due _______, 1998
* Unless the Offer is extended to a date not later than _______, 1998.
INFORMATION AGENT
The Information Agent for the Offer (the "Information Agent") is:
SHAREHOLDER
COMMUNICATIONS CORPORATION
17 State Street
New York, New York 10004
Toll Free: (800) 774-4117, Extension 308.
Shareholders calling from outside the United States may call
collect 212-805-7000.
DISTRIBUTION ARRANGEMENTS
First Albany Corporation will act as the dealer manager for the
Offer. The Fund has agreed to pay the Dealer Manager a fee for its
financial advisory services and marketing assistance equal to 1.625% of
the Subscription Price per Share for Shares issued upon exercise of the
Rights and pursuant to the Over-Subscription Privilege, and to pay
broker-dealers, including the Dealer Manager, aggregate fees for their
soliciting efforts equal to 2.375% of the Subscription Price per Share
for each Share issued upon exercise of the Rights and the
Over-Subscription Privilege. See "Distribution Arrangements."
INFORMATION REGARDING THE FUND
The primary investment objective of the Fund, a diversified,
closed-end management investment company, is to provide for its
shareholders a high level of income. This primary investment objective is
fundamental and may not be changed without shareholder approval. The
Fund's secondary investment objective, which may be changed by the Board
of Directors of the Fund (the "Directors") without shareholder approval,
is capital appreciation. There can be no assurance that the Fund will
achieve its investment objectives.
The Fund pursues its investment objectives by investing primarily
in a global portfolio of investment grade fixed income securities. The
Fund will normally invest at least 65% of its net assets in investment
grade fixed income securities which are rated, at the time of purchase,
BBB or better by Standard & Poor's Ratings Group ("S&P"), Baa or better
by Moody's Investors Service, Inc. ("Moody's") or, if unrated, are
determined by the Investment Manager to be of comparable quality. The
Fund may also invest up to 35% of its assets in fixed income securities
rated BB, B, or CCC by S&P or Ba, B, or Caa by Moody's or, if unrated,
securities determined by the Investment Manager to be of comparable
quality and may invest in other securities (including common stocks,
warrants, options and securities convertible into common stock), when
such investments are consistent with its investment objectives or are
acquired as part of a unit consisting of a combination of fixed income
securities and other securities. As of January 31, 1998, the Fund had
approximately 77% of its total assets invested in fixed income securities
with an actual or deemed investment grade rating, approximately 20% of its
total assets in fixed income securities with an actual or deemed ratings
below investment grade and approximately 2% of its total assets in securities
other than fixed income securities. The Fund currently expects to invest
predominately in the United States, Western Europe, Latin America, the
Pacific Rim, South Africa, and Canada. The Fund will normally invest in at
least three different countries, but may invest in fixed income securities
of only one country for temporary defensive purposes. The Fund may use
leverage from time to time to purchase or carry securities. Such leverage is
speculative and increases both investment opportunity and investment
risk. See "The Fund's Investment Program." As of January 31, 1998, the
Fund held investments in 15 countries, distributed as follows:
COUNTRY Distribution
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Argentina 21.2%
Bulgaria 2.0%
Chile 2.8%
China 2.7%
Colombia 2.9%
Dominican Republic 1.4%
Lithuania 5.6%
Mexico 7.6%
Panama 2.8%
Poland 2.5%
Qatar 1.4%
Russia 2.5%
Turkey 1.3%
United Kingdom 4.0%
United States 39.3%
Bull & Bear Advisers, Inc. anticipates that investment of the net
proceeds of the Offer, in accordance with the Fund's investment
objectives and policies, will take approximately up to two months from
their receipt by the Fund, depending on market conditions and the
availability of appropriate securities. See "Use of Proceeds." The Common
Stock is listed and traded on the American Stock Exchange under the
symbol "BBZ." As of January 31, 1998, the net assets of the Fund were
approximately $_____ million.
The Fund commenced operations as a diversified, closed-end
management investment company on February 7, 1997. Prior to that date the
Fund was a diversified series of shares designated Bull & Bear Global
Income Fund (and prior to October 29, 1992 and
since September 1, 1983, Bull & Bear High Yield Fund) of Bull & Bear
Funds II, Inc., an open-end management investment company organized in
1974 and operating under the name Bull & Bear Incorporated until October
29, 1993.
It is the Fund's present policy, which may be changed by the Board
of Directors, to pay dividends on a monthly basis to holders of Common
Stock. The Fund recently adopted a managed distribution policy to
distribute on a monthly basis 0.83% of the Fund's net asset value (10% on
an annual basis). This policy is intended to provide shareholders with a
stable cash flow and to reduce any market price discount to its net asset
value. There can be no assurance that the Fund will be able to maintain
its current level of dividends, and the Board of Directors may, in its
sole discretion, change the Fund's current dividend policy or its current
level of dividends in response to market or other conditions. From the
commencement of the Fund's operations as a closed-end investment company
to the adoption of the managed distribution policy described above,
the Fund's shares generally traded in the market at a discount to net
asset value. Since the adoption of the managed distribution policy, the
Fund's shares generally have traded at or above net asset value.
THE INVESTMENT MANAGER
The Investment Manager of the Fund is Bull & Bear Advisers, Inc.
(the "Investment Manager"). The Fund's Portfolio Manager is Steven A.
Landis. Mr. Landis has been principally responsible for the Fund's
portfolio investment decisions since April ___, 1995 and is also Senior
Vice President and a member of the Investment Policy Committee of the
Investment Manager with overall responsibility for the Bull & Bear fixed
income funds. Mr. Landis was formerly Associate Director - Proprietary
Trading at Barclays De Zoete Wedd Securities Inc. from 1993 to 1995 and
was Director, Bond Arbitrage at WG Trading Company from 1992 to 1993.
For its services, the Investment Manager receives an investment
management fee, payable monthly and based on the average weekly net
assets of the Fund, at the annual rate of 7/10 of 1% of the first $250
million, 5/8 of 1% from $250 million to $500 million, and 1/2 of 1% over
$500 million. From time to time, the Investment Manger may reimburse all
or part of this fee to improve the Fund's yield and total return. The
Investment Manager provides certain administrative services to the Fund
at cost.
Since the Investment Manager's fees are based on the Fund's net
assets, the Investment Manager will benefit from an increase in the
Fund's assets resulting from the Offer. See "The Offer--Certain Impact on
Fees."
USE OF PROCEEDS
The Fund expects that, subject to market conditions, substantially
all of the net proceeds of the Offer will be invested in accordance with
the Fund's investment objectives and policies within approximately two
months from the date of their receipt by the Fund. Pending such
investment, the proceeds will be invested in short-term debt instruments.
See "The Fund's Investment Program."
RISK FACTORS AND SPECIAL CONSIDERATIONS
The following summarizes certain matters that should be considered,
among others, in connection with an exercise of Rights and an additional
investment in the Fund. See "Risk Factors and Special Considerations."
Certain Effects of the Offer. Upon the completion of the Offer,
shareholders who do not fully exercise their Rights will own a smaller
proportional interest in the Fund than would be the case if the Offer had
not been made. In addition, an immediate dilution of the net asset value
per share will be experienced by all shareholders as a result of the
Offer because the Subscription Price will be less than the then current
net asset value per share, the Fund will bear the expenses of the Offer
and the number of shares outstanding after the Offer will have increased
proportionately more than the increase in the size of the Fund's net
assets. Although it is not possible to state precisely the amount of such
a decrease in net asset value because it is not known at this time how
many Shares will be subscribed for or what the Subscription Price will
be, such dilution might be substantial. For example, assuming all Rights
are exercised by Record Date Shareholders at the Estimated Subscription
Price of $_____ per share (which is 95% of [the Fund's net asset value
per share at __________ ___, 1998 the Fund's net asset value per share
(after payment of the Dealer Manager and soliciting fees and estimated
offering expenses) would be reduced by approximately $_____ per share or
____%. The dilution in net asset value will disproportionately affect
shareholders who do not exercise their rights.
Foreign Investments. Investors should understand and consider
carefully the substantial risks involved in investing in foreign
securities. Foreign securities, which are generally denominated in
foreign currencies, and utilization of forward contracts on foreign
currencies involve certain considerations comprising both risk and
opportunity not typically associated with investing in U.S. securities.
These considerations include: fluctuations in currency exchange rates;
restrictions on foreign investment and repatriation of capital; costs of
converting foreign currencies into U.S. dollars; greater price volatility
and trading illiquidity; less public information on issuers of
securities; difficulty in enforcing legal rights outside of the United
States; lack of uniform accounting, auditing, and financial reporting
standards; the possible imposition of foreign taxes, exchange controls,
and currency restrictions; and possible political, economic, and social
instability of developing as well as developed countries including
without limitation nationalization, expropriation of assets, and war.
Furthermore, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payments position. Securities of many
foreign companies may be less liquid and their prices more volatile than
securities issued by comparable U.S. issuers. Transactions in foreign
securities may be subject to less efficient settlement practices. These
risks are often heightened when the Fund's investments are concentrated
in a small number of countries. In addition, because transactional and
custodial expenses for foreign securities are generally higher than for
domestic securities, the expense ratio of the Fund can be expected to be
higher than investment companies investing exclusively in domestic
securities. Foreign securities trading practices, including those
involving securities settlement where Fund assets may be released prior
to receipt of payment, may expose the Fund to increased risk in the event
of a failed trade or insolvency of a foreign broker/dealer. Legal
remedies for defaults and disputes may have to be pursued in foreign
courts, whose procedures differ substantially from those of U.S. courts.
The Fund may invest in securities of issuers located in emerging
market countries. The risks of investing in foreign securities may be
greater with respect to securities of issuers in, or denominated in the
currencies of, emerging market countries. The economies of emerging
market countries generally are heavily dependent upon international trade
and accordingly, have been and may continue to be adversely affected by
trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade. These economies also have been and
may continue to be adversely affected by economic conditions in the
countries with which they trade. The securities markets of emerging
market countries are substantially smaller, less developed, less liquid
and more volatile than the securities markets of the U.S. and other
developed countries. Disclosure and regulatory standards in many respects
are less stringent in emerging market countries than in the U.S. and
other developed countries. There also may be a lower level of monitoring
and regulation of emerging markets and the activities of investors in
such markets, and enforcement of existing regulations may be extremely
limited. Investing in local markets, particularly in emerging market
countries, may require the Fund to adopt special procedures, seek local
government approvals or take other actions, each of which may involve
additional costs to the Fund. Emerging market countries may also restrict
investment opportunities in issuers in industries deemed important to
national interests.
Fixed Income Securities. The Fund will normally invest at least 65%
of its net assets in investment grade fixed income securities. Securities
rated BBB or better by S&P or Baa or better by Moody's are investment
grade but Moody's considers securities rated Baa to have speculative
characteristics. Changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity for issuers of such
securities to make principal and income payments than is the case for
higher-rated securities. The Fund also may invest up to 35% of its assets
in fixed income securities rated below investment grade but not lower
than CCC by S&P or Caa by Moody's. These securities are deemed by those
agencies to be in poor standing and predominantly speculative; the
issuers may be in default on such securities or deemed without capacity
to make scheduled payments of income or repay principal, involving major
risk exposure to adverse conditions. The Fund is also permitted to
purchase fixed income securities that are not rated by S&P or Moody's but
that the Investment Manager determines to be of comparable quality to
that of rated securities in which the Fund may invest. Such securities
are included in percentage limitations applicable to the comparable rated
securities. The values of fixed income securities will change as market
interest rates fluctuate. During periods of falling interest rates, the
values of outstanding fixed income securities generally rise. Conversely,
during periods of rising interest rates, the values of such securities
generally decline. The magnitude of these fluctuations generally will be
greater for securities with longer maturities.
Lower rated fixed income securities generally offer a higher
current yield than that available on 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 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 principal
and income and increase the possibility of default. In addition, such
issuers may not have more traditional methods of financing available to
them, and may be unable to repay debt at maturity by refinancing. The
risk of loss due to default by such issuers is significantly greater
because such securities frequently are unsecured and subordinated to the
prior payment of senior indebtedness.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements. In such agreements, the Fund sells the underlying
security to a creditworthy securities dealer or bank and the Fund agrees
to repurchase it at an agreed-upon date and price reflecting a market
rate of interest. Such agreements are considered to be borrowings and
involve leveraging which is speculative and increases both investment
opportunity and investment risk. When the Fund enters into reverse
repurchase agreements, its custodian will set aside in a segregated
account cash or liquid securities whose value is marked to the market
daily with a market value at least equal to the repurchase price. If
necessary, assets will be added to the account daily so that the value of
the account will not be less than the amount of the Fund's purchase
commitment. Such agreements are subject to the risk that the benefit of
purchasing a security with the proceeds of the sale by the Fund will be
less than the cost to the Fund of transacting the reverse repurchase
agreement. Such agreements will be entered into when, in the judgment of
the Investment Manager, the risk is justified by the potential advantage
of greater total return to shareholders.
Leverage. From time to time the Fund borrows money from banks
(including its custodian bank) engages in reverse repurchase agreements,
and issues senior securities, including debt and preferred stock, to
purchase and carry securities and pays interest thereon. These practices
are referred to as leverage, are speculative, and increase both investment
opportunity and investment risk. If the investment income on securities
purchased with leverage exceeds the interest paid on the leverage, the
Fund's income will be correspondingly higher. If the investment income
fails to cover the Fund's costs, including interest on leverage, or if
there are losses, the net asset value of the Fund's shares will decrease
faster than would otherwise be the case. When the Fund is leveraged, the
1940 Act requires the Fund to have asset coverage of at least 200% for
preferred securities it has issued and 300% for its borrowings or the
debt securities it has issued. Interest on money borrowed is an expense
the Fund would not otherwise incur, and it may therefore have little or
no investment income during periods of substantial borrowings.
Use of leverage by the Fund would increase the Fund's total return
to shareholders if the Fund's returns on its investments out of the
proceeds of such leverage exceed the cost of such leverage. Although
there can be no assurance that the use of leverage will be successful,
the Investment Manager believes that the ability to employ leverage may
potentially increase yields and total returns.
The Fund has a committed bank line of credit and the interest rate
is equal to the Federal Reserve Funds Rate plus 1.00 percentage points. At
December 31, 1997, there was no balance outstanding. For the six months
ended December 31, 1997, the weighted average interest rate was 6.40% based
on the balances outstanding from the line of credit and reverse repurchase
agreements during the period and the weighted average amount outstanding was
$7,679,271 or __% of the Fund's weighted average total assets.
Illiquid Securities. The Fund may invest without limit in illiquid
securities, including securities with legal or contractual conditions or
restrictions on resale. Investing in such securities entails certain
risks. The primary risk is that the Fund may not be able to dispose of a
security at the desired price at the time it wishes to make such
disposition. In addition, such securities often sell at a discount from
liquid and freely tradable securities of the same class or type, although
they are also usually purchased at an equivalent discount which enhances
yield while the securities are held by the Fund. Such securities may also
be more difficult to price accurately.
Dividends and Distributions; Return of Capital. It is the Fund's
present policy, which may be changed by the Board of Directors, to pay
dividends on a monthly basis to holders of Common Stock. The Fund
recently adopted a managed distribution policy to distribute on a monthly
basis 0.83% of the Fund's net asset value (10% on an annual basis). This
policy is intended to provide shareholders with a stable cash flow and to
reduce any market price discount to its net asset value. There can be no
assurance that the Fund will be able to maintain its current level of
dividends, and the Board of Directors may, in its sole discretion, change
the Fund's current dividend policy or its current level of dividends in
response to market or other conditions. The Fund's ability to maintain
this distribution policy is a function of the yield generated by the
Fund's investments and the Fund's ability to realize capital gains, which
depends on market conditions at the time those investments are made and
on the performance of those investments. To the extent that the Fund's
portfolio investments generate returns exceeding that which is required
to pay any target level of dividends set by the Board of Directors, the
Fund may decide to retain and accumulate that portion of the Fund's
return which exceeds such dividend level and may pay applicable taxes
thereon, including any federal income or excise taxes. Alternatively, to
the extent that the Fund's current return is not sufficient to pay a
target level of dividends set by the Board of Directors, the Fund may
distribute to holders of its Common Stock all or a portion of any
retained earnings or make a return of capital to maintain such target
level. Based upon current market conditions, the Investment Manager
believes that the net proceeds of the Offer may be invested in securities
producing a rate of return equal to or above the rate of return that the
Fund is currently earning on its portfolio. Accordingly, the Investment
Manager believes that earnings from new investments derived from the net
proceeds of the Offer will better enable the Fund to maintain its current
level of dividends. The Investment Manager also believes that the
increase in total net assets of the Fund resulting from a well-subscribed
rights offering may result in certain economies of scale and,
accordingly, a lower expense ratio for the Fund. Based upon information
provided by the Investment Manager and current market conditions, the
Board of Directors will have determined that the Offer will not result in
any material adverse change to the Fund's current dividend policy or its
ability to maintain its current level of dividends. Should the Fund's
annual total return (on a net asset value basis), inclusive of earned
income and capital appreciation, be less than 10%, however, the current
level of dividends per share paid pursuant to the managed 10%
distribution policy described above, may decline. Whether the Offer is
subscribed for or not, however, there can be no assurance that the Fund
can or will maintain its current dividend policy or current level of
dividends.
Market Value and Net Asset Value. Shares of closed-end investment
companies frequently trade at a discount to net asset value. This
characteristic of shares of a closed-end fund is a risk separate and
distinct from the risk that the Fund's net asset value may decrease. The
Fund cannot predict whether its shares will trade at, below or above net
asset value. In addition, changes in market yields will affect the Fund's
net asset value since prices of fixed-income securities generally
increase when interest rates decline and decrease when interest rates
rise. Since the commencement of the Fund's operations as a closed-end
investment company until the adoption of the managed distribution policy
described above the Fund's shares generally traded in the market at a
discount to net asset value. Since the adoption of the managed
distribution policy, the Fund's shares generally have traded at or above
net asset value. See "Net Asset Value" and "Common Stock."
FEE TABLE
The following table sets forth certain fees and expenses of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of the
Subscription Price per Share)(1)...................... 4.00%
ANNUAL EXPENSES (as a percentage of net assets)
Management Fees......................................... 0.70%
Interest Payments on Borrowed Funds..................... 0.71%
Other Expenses(2)....................................... [1.30]%
TOTAL ANNUAL EXPENSES(2) 2.71%
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------ ------- ------- --------
You would pay the following
expenses on a $1,000 investment
assuming a 5% annual return(3).... $59 $100 $143 $262
- ---------
(1) The Dealer Manager and the other broker-dealers soliciting the
exercise of Rights will receive aggregate soliciting fees equal to
2.375% of the Subscription Price per Share for each Share issued
upon exercise of the Rights and pursuant to the Over-Subscription
Privilege. The Fund has also agreed to pay the Dealer Manager a fee
for financial advisory and marketing services in connection with
the Offer equal to 1.625% of the Subscription Price per Share for
Shares issued upon exercise of the Rights and pursuant to the
Over-Subscription Privilege. These fees will be borne by the Fund
and indirectly by all of the Fund's shareholders, including those
shareholders who do not exercise their Rights.
(2) Based upon annual expenses for the fiscal year ended June 30, 1997
as a percentage of average net assets and on the net assets of the
Fund after giving effect to the anticipated net proceeds of the
Offer, including proceeds from the issuance of up to 25% of the
Shares pursuant to the Over-Subscription Privilege. Does not
include expenses of the Fund incurred in connection with the Offer,
estimated at $________.
(3) The example reflects the Sales Load and other expenses (exclusive of
interest expense) of the Fund incurred in connection with the Offer
and assumes that all of the Rights are exercised.
THE PURPOSE OF THE FOREGOING TABLE AND EXAMPLE IS TO ASSIST
SHAREHOLDERS IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT AN
INVESTOR IN THE FUND BEARS, DIRECTLY OR INDIRECTLY, BUT SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RATE OF RETURN.
THE ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR LESS THAN THOSE SHOWN.
For more complete descriptions of certain of the Fund's costs and
expenses, see "The Investment Manager" below and "The Investment
Management Agreement" in the SAI.
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial data for a share of
Common Stock outstanding throughout each period presented. The per share
operating performance and ratios for each of the periods, other than the
six month period ended December 31, 1997 (which is unaudited), have been
derived from financial statements audited by Tait, Weller & Baker, the
Fund's independent accountants, as stated in their report which is
incorporated by reference into the SAI. The following information should
be read in conjunction with the Financial Statements and Notes thereto,
which are incorporated by reference into the SAI.
PER SHARE OPERATING PERFORMANCE
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------
* Per share income and operating expenses 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.
** Annualized.
(a) Ratios excluding interest expense were 1.73% and 2.00% for the six
months ended December 31, 1997 and for the year ended June 30, 1997,
respectively.
(b) Ratio after transfer agent and custodian credits was 1.53%** for the
six months ended December 31, 1997.
(c) Ratios including interest expense were 6.91%** and 6.64% for the six
months ended December 31, 1997 and for the year ended June 30, 1997,
respectively.
THE OFFER
PURPOSE OF THE OFFER
As a consideration to making the Offer (as defined below), the
Fund's Board of Directors will have determined that the Offer would be in
the best interests of the Fund and its shareholders to increase the
assets of the Fund available for investment, thereby allowing the Fund to
more fully take advantage of available investment opportunities and
increase the diversification of its portfolio, consistent with the Fund's
investment objectives. The Rights Committee of the Board of Directors has
recommended to the Board, and the Board has approved, the filing of a
registration statement of which this Preliminary Prospectus is a part.
The Board of Directors has not yet approved the Offer. In reaching a
decision to approve the Offer, the Board of Directors will be advised by
the Investment Manager as to opportunities provided to the Fund by the
availability of new funds for future income and growth by taking
advantage of new investments without having to liquidate current
holdings. The Investment Manager also has advised the Board of Directors
of its belief that increasing the total assets of the Fund may permit the
Fund to obtain better execution prices for certain portfolio
transactions.
In reaching any such decision, the Board of Directors will
consider, among other matters, advice by the Investment Manager that a
well-subscribed rights offering may reduce the Fund's expense ratio,
which may be of long-term benefit to shareholders. In addition, the Board
of Directors will consider that such a rights offering could result in an
improvement in the liquidity of the trading market for shares of the
Fund's common stock ("Common Stock") on the American Stock Exchange,
where the shares are listed and traded. The Board of Directors will also
consider the proposed terms of the Offer, including the expenses of the
Offer, and its dilutive effect, including the effect on non-exercising
shareholders of the Fund. The Board of Directors will also consider the
impact of the Offer on its current policy to distribute, subject to
market conditions, an amount equal to a percentage of the Fund's net
asset value. For further discussion of the impact of the Offer on the
Fund's dividends, please see "Risk Factors and Special
Considerations--Dividends and Distributions; Return of Capital."
In considering the Offer and its effect on the best interests of
the Fund and its shareholders, the Board of Directors retained the Dealer
Manager to provide the Fund with financial advisory and marketing
services relating to the Offer, including the structure, timing and terms
of the Offer. In addition to the foregoing, the Board of Directors will
consider, among other things, the benefits and drawbacks of conducting a
non-transferable versus a transferable rights offering, the pricing
structure of the Offer, the effect on the Fund if the Offer is
undersubscribed and the experience of the Dealer Manager in conducting
rights offerings.
The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and
on terms which may or may not be similar to the Offer. Any such future
rights offering will be made in accordance with the 1940 Act.
TERMS OF THE OFFER
The Fund is issuing to Record Date Shareholders Rights to subscribe
for Shares pursuant to the exercise of such Rights. Each Record Date
Shareholder is being issued one Right for each whole share of Common
Stock owned on the Record Date. The Rights entitle the Record Date
Shareholder to acquire at the Subscription Price one Share for every
[two] Rights held (one for [two]). Fractional Shares will not be issued
upon the exercise of Rights. Accordingly, Shares may be purchased only
pursuant to the exercise of Rights in integral multiples of [two]. Rights
may be exercised at any time during the Subscription Period, which
commences on __________, 1998 and ends at 5:00 p.m., New York City time,
on __________, 1998, unless extended by the Fund until 5:00 p.m., New
York City time, to a date not later than __________, 1998 (such date, as
it may be extended being referred to as the "Expiration Date"). A Record
Date Shareholder's right to acquire one Share for every [two] Rights held
during the Subscription Period at the Subscription Price is hereinafter
referred to as the "Primary Subscription." The Rights are evidenced by
Subscription Certificates, which will be mailed to Record Date
Shareholders, except as discussed below under "Foreign Restrictions."
Any Record Date Shareholder who fully exercises all Rights issued
to such shareholder will be entitled to request to subscribe for
additional Shares pursuant to the Over-Subscription Privilege. Shares
requested pursuant to the Over-Subscription Privilege are subject to
allotment and may be subject to increase in the event the Fund increases
the number of shares available pursuant to the Over-Subscription
Privilege, which is more fully discussed below under "Over-Subscription
Privilege." Record Date Shareholders, where the context requires, shall
also include beneficial owners whose Shares are held of record by Cede,
the nominee for The Depository Trust Company, or by any other depository
or nominee. In the case of Shares held of record by Cede or any other
depository or nominee, beneficial owners for whom Cede or any other
depository or nominee is the holder of record will be deemed to be the
holders of Rights that are issued to Cede or such other depository or
nominee on their behalf, including for purposes of determining the
maximum number of Shares such beneficial owner may acquire pursuant to
the Offer.
As fractional Shares will not be issued, Record Date Shareholders
who are issued or have remaining after exercise fewer than [two] Rights
will be unable to purchase Shares relating to such Rights in the Primary
Subscription and will not be entitled to receive any cash in lieu
thereof. Such shareholders, however, may request to subscribe for Shares
pursuant to the Over-Subscription Privilege provided such shareholders
have fully exercised the Rights issued to them pursuant to the Primary
Subscription. Shareholders will have no right to rescind their subscriptions
after receipt of their payment for Shares by the Subscription Agent.
The first regular monthly dividend to be paid on Shares acquired
upon exercise of Rights will be the first monthly dividend, the record
date for which occurs after the issuance of such Shares following the
Expiration Date. It is the Fund's present policy to pay dividends on the
[last] business day of each month to shareholders of record [seven] days
prior to the payment date. Assuming the Subscription Period is not
extended, it is expected that the first dividend received by shareholders
acquiring Shares in the Offer would be paid on the [last] business day of
____________, 1998.
OVER-SUBSCRIPTION PRIVILEGE
To the extent Record Date Shareholders do not exercise all of the
Rights issued to them, the underlying Shares represented by such Rights
will be offered by means of the Over-Subscription Privilege to Record
Date Shareholders who have exercised all the Rights issued to them
pursuant to the Primary Subscription and who desire to acquire additional
Shares. Only Record Date Shareholders who exercise all such Rights may
indicate on the Subscription Certificate the number of additional Shares
desired pursuant to the Over-Subscription Privilege. If sufficient Shares
remain as a result of unexercised Rights, all over-subscriptions may be
honored in full. If sufficient Shares are not available to honor all
requests for over-subscriptions, the Fund may, at its discretion, issue
shares of Common Stock up to an additional 25% of the Shares available
pursuant to the Offer (up to 388,700 Shares) in order to satisfy such
over-subscription requests. Regardless of whether the Fund issues such
additional Shares, to the extent Shares are not available to honor all
over-subscriptions, the available Shares will be allocated among those
who over-subscribe based on the number of Rights originally issued to
them by the Fund, so that the number of Shares issued to Record Date
Shareholders who subscribe pursuant to the Over-Subscription Privilege
will generally be in proportion to the number of shares owned by them in
the Fund on the Record Date. The allocation process may involve a series
of allocations in order to assure that the total number of Shares
available for over-subscriptions is distributed on a pro rata basis.
The Fund will not sell any Shares that are not subscribed for
pursuant to the Primary Subscription or the Over-Subscription Privilege.
SUBSCRIPTION PRICE
The Subscription Price for each Share to be issued pursuant to the
Rights will be __% of the lower of (i) the average of the last reported
sales price of a share of the Fund's Common Stock on the American Stock
Exchange on the Pricing Date and on the four preceding business days
thereof and (ii) the net asset value per share as of the close of
business on the Pricing Date. For example, if the average of the last
reported sales price on the American Stock Exchange on the Pricing Date
and on the four preceding business days thereof of a share of the Fund's
Common Stock is $____, and the net asset value as of the close of
business on the Pricing Date is $____, the Subscription Price will be
$____ (__% of $____). If, however, the average of the last reported sales
price of a share on that exchange on the Pricing Date and on the four
preceding business days thereof is $____, and the net asset value as of
the close of business on the Pricing Date is $____, the Subscription
Price will be $____ (__% of $____). See "Common Stock."
The Fund announced the Offer after the close of trading on the
American Stock Exchange on __________, 1998. The last reported net asset
value per share of Common Stock at the close of business on __________,
1998 and __________, 1998 was $____ and $____, respectively, and the last
reported sales price of a share of the Fund's Common Stock on the
American Stock Exchange on those dates was $____ and $____, respectively.
NON-TRANSFERABILITY OF RIGHTS
The Rights are non-transferable and, therefore, may not be
purchased or sold. The Rights will not be admitted for trading on the
American Stock Exchange or any other exchange. However, the Shares to be
issued pursuant to the Rights will be admitted for trading on the
American Stock Exchange. [Rights are offered to Record Date Shareholders,
which term, for purposes of the Offer, includes (i) the person or persons
who are the owners, co-owners and beneficiaries of the account(s) in
which the shares of Common Stock are held (collectively, the "Designated
Persons") and (ii) any account (including a trust, Individual Retirement
Account, qualified plan account or other similar arrangement) of which
any Designated Person is directly or indirectly an owner, a co-owner or
beneficiary.]
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York City time, on
__________, 1998, unless extended by the Fund until 5:00 p.m., New York
City time, on a date not later than __________, 1998. Rights will expire
on the Expiration Date and thereafter may not be exercised. Since the
Expiration Date and the Pricing Date will be the same date, Record Date
Shareholders who decide to acquire Shares during the Primary Subscription
or pursuant to the Over-Subscription Privilege will not know, when they
make such decision, the purchase price for such Shares. Any extension of
the Offer will be followed as promptly as practical by an announcement
thereof. Without limiting the manner in which the Fund may choose to make
such announcement, the Fund will not, unless otherwise required by law,
have any obligation to publish, advertise or otherwise communicate any
such announcement other than by making a release to the Dow Jones News
Service or such other means of announcement as the Fund deems
appropriate.
SUBSCRIPTION AGENT
The Subscription Agent is ____________________________ which will
receive, for its administrative, processing, invoicing and other services
as subscription agent, a fee estimated to be $______, plus reimbursement
for its out-of-pocket expenses related to the Offer. SIGNED SUBSCRIPTION
CERTIFICATES TOGETHER WITH PAYMENT OF THE ESTIMATED SUBSCRIPTION PRICE
MUST BE SENT TO ____________________ by one of the methods described
below. The Fund will accept only Subscription Certificates actually
received on a timely basis at the address listed below:
(1) BY FIRST CLASS MAIL/HAND/OVERNIGHT COURIERS:
(2) BY FACSIMILE (TELECOPY)
FOR NOTICE OF GUARANTEED DELIVERY ONLY
_________with the original Subscription Certificate to be sent by
method (1) above. Confirm facsimile by telephone at _____________.
DELIVERY TO AN ADDRESS OTHER THAN THOSE SET FORTH ABOVE DOES NOT
CONSTITUTE GOOD DELIVERY.
METHOD OF EXERCISE OF RIGHTS
Rights will be evidenced by Subscription Certificates that will be
mailed to Record Date Shareholders, or if shares are held by Cede or any
other depository or nominee, to Cede or such other depository or nominee
except as discussed under "Foreign Restrictions" below. Rights may be
exercised by completing and signing the Subscription Certificate and
mailing it in the envelope provided, or otherwise delivering the
completed and signed Subscription Certificate, together with payment for
the Shares as described below under "Payment for Shares," to the
Subscription Agent. Rights may also be exercised by contacting your
broker, banker or trust company, which can arrange, on your behalf, to
guarantee delivery of payment and of a properly completed and executed
Subscription Certificate (a "Notice of Guaranteed Delivery"), as set
forth below under "Payment for Shares." A fee may be charged for this
service. As fractional Shares will not be issued, Record Date
Shareholders who are issued or have remaining after exercise fewer than
[two] Rights will be unable to purchase Shares relating to such Rights in
the Primary Subscription and will not be entitled to receive any cash in
lieu thereof. Such shareholders, however, may request to subscribe for
Shares pursuant to the Over-Subscription Privilege provided such
shareholders have fully exercised the Rights issued to them pursuant to
the Primary Subscription. Completed Subscription Certificates or Notices of
Guaranteed Delivery must be received by the Subscription Agent prior to 5:00
p.m., New York City time, on the Expiration Date at the office of the
Subscription Agent at the address set forth above.
Shareholders Who Are Record Owners. Shareholders who are record
owners can choose between either option set forth under "Payment for
Shares" below. If time is of the essence, option (2) will permit delivery
of the completed Subscription Certificate and payment after the
Expiration Date.
Investors Whose Shares Are Held By A Nominee. Shareholders whose
shares are held by a nominee, such as a broker or trustee, must contact
that nominee to exercise their Rights. In that case, the nominee will
complete the Subscription Certificate on behalf of the investor and
arrange for proper payment by one of the methods set forth under "Payment
for Shares" below.
Nominees. Nominees who hold shares for the account of others should
notify the beneficial owners of such shares as soon as possible to
ascertain such beneficial owners' intentions and to obtain instructions
with respect to the Rights. If the beneficial owner so instructs, the
nominee should complete the Subscription Certificate and submit it to the
Subscription Agent with the proper payment described under "Payment for
Shares" below.
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to Record Date
Shareholders whose record addresses are outside the United States (for
these purposes the United States includes its territories and possessions
and the District of Columbia). The Rights to which those Subscription
Certificates relate will be held by the Subscription Agent for such
Foreign Record Date Shareholders' accounts until instructions are
received to exercise the Rights. If no instructions are received prior to
the Expiration Date, such Rights will expire.
INFORMATION AGENT
Any questions or requests for assistance may be directed to the
Information Agent at its telephone number listed below:
THE INFORMATION AGENT FOR THE OFFER IS:
SHAREHOLDER
COMMUNICATIONS CORPORATION
17 State Street
New York, New York 10004
Toll Free: (800) 774-4117, Extension 308.
Shareholders calling from outside the United States may call
collect 212-805-7000. Shareholders may also contact their brokers or
nominees for information with respect to the Offer. The Information Agent
will receive a fee estimated to be $__________ plus reimbursement for its
out-of-pocket expenses related to the Offer.
PAYMENT FOR SHARES
Shareholders who acquire Shares during the Primary Subscription or
pursuant to the Over-Subscription Privilege may choose between the
following methods of payment:
(1) A shareholder can send the completed Subscription
Certificate together with payment for the Shares acquired during
the Primary Subscription and for additional Shares subscribed for
pursuant to the Over-Subscription Privilege to the Subscription
Agent, calculating the total payment on the basis of an estimated
Subscription Price of $____ per Share (the "Estimated Subscription
Price"). To be accepted, such payment, together with the properly
executed and completed Subscription Certificate, must be received
by the Subscription Agent at one of the Subscription Agent's
offices at the addresses set forth above prior to 5:00 p.m., New
York City time, on the Expiration Date. A PAYMENT PURSUANT TO THIS
METHOD MUST BE IN UNITED STATES DOLLARS BY MONEY ORDER OR CHECK
DRAWN ON A BANK LOCATED IN THE UNITED STATES OF AMERICA, MUST BE
PAYABLE TO BULL & BEAR GLOBAL INCOME FUND, INC. AND MUST ACCOMPANY
AN EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION
CERTIFICATE TO BE ACCEPTED.
(2) Alternatively, a subscription will be accepted by the
Subscription Agent, if, prior to 5:00 p.m., New York City time on
the Expiration Date, the Subscription Agent has received a Notice
of Guaranteed Delivery by facsimile (telecopy) or otherwise from a
bank, trust company, or New York Stock Exchange member guaranteeing
delivery to the Subscription Agent of (i) payment of the full
Subscription Price for the Shares subscribed for during the Primary
Subscription and any additional Shares subscribed for pursuant to
the Over-Subscription Privilege, and (ii) a properly completed and
executed Subscription Certificate. The Subscription Agent will not
honor a Notice of Guaranteed Delivery if a properly completed and
executed Subscription Certificate, together with payment, is not
received by the Subscription Agent by the close of business on the
third business day after the Expiration Date.
Within eight business days following the Pricing Date (the
"Confirmation Date"), a confirmation will be sent by the Subscription
Agent to each Record Date Shareholder (or, if the shareholder's shares
are held by Cede or any other depository or nominee, to Cede or such
depository or nominee), showing (i) the number of Shares acquired
pursuant to the Primary Subscription, (ii) the number of Shares, if any,
acquired pursuant to the Over-Subscription Privilege, (iii) the per Share
and total purchase price for the Shares, and (iv) any additional amount
payable by such shareholder to the Fund or any excess to be refunded by
the Fund to such shareholder, in each case based on the Subscription
Price as determined on the Pricing Date. No other evidence of title will
be sent to shareholders unless delivery of a stock certificate has been
requested at the time of exercise of the Rights. See "Delivery of Stock
Certificates" below. Any additional payment required from a shareholder
must be received by the Subscription Agent within ten business days after
the Confirmation Date. Any excess payment to be refunded by the Fund to a
shareholder will be mailed by the Subscription Agent to such shareholder
within a reasonable time after the Expiration Date. No interest will be
paid by the Fund on any such excess payment. All payments by a
shareholder must be in U.S. dollars by money order or check drawn on a
bank located in the United States of America and payable to BULL & BEAR
GLOBAL INCOME FUND, INC.
The Subscription Agent will deposit all checks received by it prior
to the final due date into a segregated interest bearing account (which
interest will accrue to the benefit of the Fund regardless of whether
shares are issued or not by the Fund) pending distribution of the Shares.
Whichever of the two payment methods described above is used,
issuance and delivery of evidence of title for the Shares purchased are
subject to collection of checks and actual payment pursuant to any Notice
of Guaranteed Delivery.
SHAREHOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION AFTER
RECEIPT OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT.
If a shareholder who acquires Shares pursuant to the Primary
Subscription or the Over-Subscription Privilege does not make payment of
any additional amounts due, the Fund reserves the right to take any or
all of the following actions: (i) sell such subscribed and unpaid-for
Shares to other shareholders, (ii) apply any payment actually received by
it toward the purchase of the greatest whole number of Shares which could
be acquired by such holder upon exercise of the Primary Subscription
and/or Over-Subscription Privilege, and/or (iii) exercise any and all
other rights or remedies to which it may be entitled, including, without
limitation, set-offs against payments actually received by it with
respect to such subscribed Shares and/or to enforce the relevant guaranty
of payment.
The method of delivery of Subscription Certificates and payment of
the Subscription Price to the Fund will be at the election and risk of
the Rights holders, but if sent by mail it is recommended that such
certificates and payment be sent by registered mail, properly insured,
with return receipt requested, and that a sufficient number of days be
allowed to ensure delivery to the Fund and clearance of payment prior to
5:00 p.m. Eastern time on the Expiration Date. Because uncertified
personal checks may take at least five business days to clear,
subscribing shareholders are strongly urged to pay, or arrange for
payment, by means of certified or cashier's check or money order.
All questions concerning the timeliness, validity, form and
eligibility of any exercise of Rights will be determined by the Fund,
whose determinations will be final and binding. The Fund in its sole
discretion may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as it may determine, or
reject the purported exercise of any Right. Subscriptions will not be
deemed to have been received or accepted until all irregularities have
been waived or cured within such time as the Fund determines in its sole
discretion. The Fund will not be under any duty to give notification of
any defect or irregularity in connection with the submission of
Subscription Certificates or incur any liability for failure to give such
notification.
DELIVERY OF STOCK CERTIFICATES
Stock certificates for Shares acquired during the Primary
Subscription and pursuant to the Over-Subscription Privilege will be
issued only upon request made at the time of exercise of the Rights.
Stock certificates requested to be delivered will be mailed promptly
after the Confirmation Date and after payment for the Shares subscribed
for has cleared. Participants in the Fund's Dividend Reinvestment Plan
(the "Plan") will have any Shares acquired during the Primary
Subscription or pursuant to the Over-Subscription Privilege credited to
their accounts in the Plan. Stock certificates will not be issued for
Shares credited to Plan accounts. Shareholders whose shares of Common
Stock are held of record by Cede or by any other depository or nominee on
their behalf or their broker-dealers' behalf will have any Shares
acquired during the Primary Subscription or pursuant to the
Over-Subscription Privilege credited to the account of Cede or such other
depository or nominee.
FEDERAL INCOME TAX CONSEQUENCES
For United States federal income tax purposes, neither the receipt
nor the exercise of the Rights by Record Date Shareholders will result in
taxable income to holders of Common Stock, and no loss will be realized
if the Rights expire without exercise. The holding period of a Right
received by a Record Date Shareholder includes the holding period of the
Common Stock with respect to which the Right is issued. A shareholder's
holding period for a Share acquired upon exercise of a Right begins with
the date of exercise. A shareholder's basis for determining gain or loss
upon the sale of a Share acquired upon the exercise of a Right will be
equal to the sum of the Subscription Price per Share, any servicing fee
charged to the shareholder by the shareholder's broker, bank or trust
company and the shareholder's basis, if any, in the Rights exercised (as
discussed below). A shareholder's gain or loss recognized upon a sale of
a Share acquired upon the exercise of a Right will be a capital gain or
loss (assuming the Share is held as a capital asset at the time of sale).
In the case of non-corporate shareholders, such gain or loss will be (i)
short-term gain or loss taxed at ordinary income tax rates for Shares
held one year or less, (ii) mid-term gain or loss taxed at a maximum
capital gains rate of 28% for Shares held more than one year but not more
than 18 months and (iii) long-term gain or loss taxed at a maximum
capital gains rate of 20% for Shares held more than 18 months. Capital
gains or losses recognized by corporate shareholders are subject to tax
at the ordinary income tax rates applicable to corporations. Shareholders
should consult their own tax advisors regarding the availability and
effect of a certain tax election to mark-to-market Shares held on January
1, 2001.
If the fair market value of the Rights on the date of distribution
is less than 15% of the fair market value of the shares of Common Stock
with respect to which they are issued, on that date the basis of a Right
will be zero unless a Record Date Shareholder elects to allocate his
basis in those shares of the Fund which he originally owned between such
shares and the Rights issued in the Offer. This allocation is based upon
the relative fair market value of such shares and the Rights as of the
date of distribution of the Rights. Thus, if such an election is made,
the shareholder's basis in the shares originally owned will be reduced by
an amount equal to the basis allocated to the Rights. This election must
be made in a statement attached to the shareholder's federal income tax
return for the year in which the Offer occurs. If the fair market value
of the Rights on the date of distribution is equal to or greater than 15%
of the fair market value of the shares of Common Stock with respect to
which they are issued, a Record Date Shareholder must allocate his basis
in those shares of the Fund which he originally owned between such shares
and the Rights issued in the Offer based upon their relative fair market
values on the date of distribution. However, if a shareholder does not
exercise the Rights, no loss will be recognized and no portion of the
shareholder's basis in the shares will be allocated to the unexercised
Rights. If a shareholder exercises the Rights, the basis of any Shares
acquired through exercise of the Rights will be increased by the basis
allocated to such Rights. Accordingly, shareholders should consult their
own tax advisors regarding the advisability of making the election
described above if the shareholder intends to exercise the Rights.
The Fund will be required to backup-withhold and remit to the U.S.
Treasury 31% of reportable payments paid on an account if the holder of
the account fails to provide the Fund with a taxpayer identification
number, provides an incorrect taxpayer identification number or otherwise
fails to certify that such holder is not subject to backup withholding.
Certain shareholders of the Fund, such as corporations and tax-exempt
entities, are exempt from backup withholding. Backup withholding is not
an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal income tax liability provided the required
information is furnished to the Internal Revenue Service.
The foregoing is a general summary of the material United States
federal tax consequences of the receipt and exercise of Rights by Record
Date Shareholders that are United States persons within the meaning of
the Internal Revenue Code of 1986, as amended (the "Code"), and any other
persons who would be subject to U.S. federal income tax upon the sale or
exchange of the Shares acquired upon the exercise of the Rights. The
discussion is based upon applicable provisions of the Code, U.S. Treasury
regulations and other authorities currently in effect, and does not cover
state, local or foreign taxes. The Code, regulations and administrative
and judicial interpretations thereof are subject to change, possibly with
retroactive effect. Shareholders should consult their tax advisors
regarding specific questions as to federal, state, local or foreign
taxes. See "Distributions and Taxes" in the SAI.
EMPLOYEE BENEFIT PLAN CONSIDERATIONS
Shareholders that hold their shares through employee benefit plans
that are subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (including corporate savings and 401(k) plans, Keogh
Plans of self-employed individuals and Individual Retirement Accounts
(collectively, "Benefit Plans")) should be aware of the complexity of the
rules and regulations governing Benefit Plans and the penalties for
noncompliance, and should consult their counsel and tax advisors
regarding the consequences under ERISA and the Code of their exercise of
the Rights.
CERTAIN EFFECTS OF THE OFFER
Upon the completion of the Offer, shareholders who do not fully
exercise their Rights will own a smaller proportional interest in the
Fund than would be the case if the Offer had not been made. In addition,
because the Subscription Price per Share will be less than the then
current net asset value per share of the Fund's Common Stock, the Offer
will result in a dilution of net asset value per share for all
shareholders, which will disproportionately affect shareholders who do
not exercise their Rights. Although it is not possible to state precisely
the amount of such decrease in net asset value because it is not known at
the date of this Prospectus how many Shares will be subscribed for, or
what the Subscription Price will be, such dilution might be substantial.
For example, assuming all Rights are exercised at the Estimated
Subscription Price, including up to an additional 25% of the Shares which
may be issued to satisfy over-subscriptions, the Fund's current net asset
value of $____ per share would be reduced by approximately $___ or ____%,
taking into account the expenses of the Offer.
CERTAIN IMPACT ON FEES
The Investment Manager will benefit from the Offer because
investment management fees are based on the net assets of the Fund. See
"The Investment Manager." It is not possible to state precisely the
amount of additional compensation the Investment Manager will receive as
a result of the Offer because it is not known how many Shares will be
subscribed for and because the proceeds of the Offer will be invested in
additional portfolio securities which will fluctuate in value. However,
assuming all Rights are exercised at the Estimated Subscription Price,
including up to an additional 25% of the Shares which may be issued to
satisfy over-subscriptions, the annual compensation to be received by the
Investment Manager would be increased by approximately $______. Three of
the Fund's directors who will vote to authorize the Offer are "interested
persons" of the Fund within the meaning of the 1940 Act because of their
position with the Investment Manager. These directors could benefit
indirectly from the Offer because of their affiliation. The other two
directors are not "interested persons" of the Fund. See "Officers and
Directors" in the SAI.
NOTICE OF NET ASSET VALUE DECLINE
The Fund has, as required by the SEC's registration form,
undertaken to suspend the Offer until it amends this Prospectus, if
subsequent to __________ ___, 1998 (the effective date of the Fund's
Registration Statement), the Fund's net asset value declines more than
10% from its net asset value as of that date. Accordingly, the Expiration
Date would be extended and the Fund would notify Record Date Shareholders
of any such decline and permit Record Date Shareholders to cancel their
exercise of Rights.
IMPORTANT DATES TO REMEMBER
EVENT DATE*
----- ----
Record Date ________, 1998
Subscription Period ________, 1998 to
________, 1998
(i) Subscription Certificates and Payment for
Shares or (ii) Notice of Guaranteed Delivery Due ________, 1998
Expiration and Pricing Date ________, 1998
Subscription Certificates and Payment for
Guarantees of Delivery Due ________, 1998
Confirmation to Participants ________, 1998
Final Payment for Shares ________, 1998
* Unless the Offer is extended to a date not later than __________, 1998.
THE FUND
The primary investment objective of the Fund, a diversified,
closed-end management investment company, is to provide for its
shareholders a high level of income. This primary investment objective is
fundamental and may not be changed without shareholder approval. The
Fund's secondary investment objective, which may be changed by the Board
of Directors of the Fund (the "Directors") without shareholders approval,
is capital appreciation. There can be no assurance that the Fund will
achieve its investment objectives.
The Fund pursues its investment objectives by investing primarily
in a global portfolio of investment grade fixed income securities. The
Fund will normally invest at least 65% of its net assets in investment
grade fixed income securities which are rated, at the time of purchase,
BBB or better by Standard & Poor's Ratings Group ("S&P"), Baa or better
by Moody's Investors Service, Inc. ("Moody's") or, if unrated, are
determined by the Investment Manager to be of comparable quality. The
Fund may also invest up to 35% of its assets in fixed income securities
rated BB, B, or CCC by S&P or Ba, B, or Caa by Moody's or, if unrated,
securities determined by the Investment Manager to be of comparable
quality and may invest in other securities (including common stocks,
warrants, options and securities convertible into common stock), when
such investments are consistent with its investment objectives or are
acquired as part of a unit consisting of a combination of fixed income
securities and other securities. As of January 31, 1998, the Fund had
approximately 77% of its total assets invested in fixed income securities
with an actual or deemed investment grade rating, approximately 20% of its
total assets in fixed income securities with an actual or deemed ratings
below investment grade and approximately 2% of its total assets in securities
other than fixed income securities. The Fund currently expects to invest
predominately in the United States, Western Europe, Latin America, the
Pacific Rim, South Africa, and Canada. The Fund will normally invest in at
least three different countries, but may invest in fixed income securities
of only one country for temporary defensive purposes. The Fund may use
leverage from time to time to purchase or carry securities. Such leverage is
speculative and increases both investment opportunity and investment
risk. As of January 31, 1998, the Fund held investments in 15 countries,
distributed as follows:
COUNTRY Distribution
------- ------------
Argentina 21.2%
Bulgaria 2.0%
Chile 2.8%
China 2.7%
Colombia 2.9%
Dominican Republic 1.4%
Lithuania 5.6%
Mexico 7.6%
Panama 2.8%
Poland 2.5%
Qatar 1.4%
Russia 2.5%
Turkey 1.3%
United Kingdom 4.0%
United States 39.3%
The Fund commenced operations as a diversified, closed-end
management investment company on February 7, 1997. Prior to that date the
Fund was a diversified series of shares designated Bull & Bear Global
Income Fund (and prior to October 29, 1992 and since September 1, 1983,
Bull & Bear High Yield Fund) of Bull & Bear Funds II, Inc., an open-end
management investment company organized in 1974 and operating under the name
Bull & Bear Incorporated until October 29, 1993.
It is the Fund's present policy, which may be changed by the Board
of Directors, to pay dividends on a monthly basis to holders of Common
Stock. The Fund recently adopted a managed distribution policy to
distribute on a monthly basis 0.83% of the Fund's net asset value (10% on
an annual basis). This policy is intended to provide shareholders with a
stable cash flow and to reduce any market price discount to its net asset
value. There can be no assurance that the Fund will be able to maintain
its current level of dividends, and the Board of Directors may, in its
sole discretion, change the Fund's current dividend policy or its current
level of dividends in response to market or other conditions. From the
commencement of the Fund's operations as a closed-end investment company
to the adoption of the managed distribution policy described above the
Fund's shares generally traded in the market at a discount to net asset
value. Since the adoption of the managed distribution policy, the Fund's
shares generally have traded at or above net asset value.
USE OF PROCEEDS
Assuming all Shares offered pursuant to the Primary Subscription
are sold at the Estimated Subscription Price, the net proceeds of the
Offer are estimated to be $_____________, after payment of the Dealer
Manager's fees, the soliciting fees and the estimated offering expenses.
These expenses will be borne by the Fund and will reduce the net asset
value of the Common Stock. If the Fund increases the number of Shares
subject to the Offer by 25%, or 388,700 Shares, in order to satisfy
over-subscription requests, the additional net proceeds will be
approximately $__________. The Fund expects that, subject to market
conditions, substantially all of the net proceeds of the Offer will be
invested in accordance with the Fund's investment objectives and policies
approximately within two months from the date of their receipt by the
Fund. Pending such investment, the proceeds will be invested in certain
short-term debt instruments, as described under "The Fund's Investment
Program." Please see "The Fund's Investment Program." The Fund's
Investment Manager is Bull & Bear Advisers, Inc.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should consider the following special considerations
associated with an exercise of Rights and an additional investment in the
Fund.
CERTAIN EFFECTS OF THE OFFER
Upon the completion of the Offer, shareholders who do not fully
exercise their Rights will own a smaller proportional interest in the
Fund than would be the case if the Offer had not been made. In addition,
an immediate dilution of the net asset value per share will be
experienced by all shareholders as a result of the Offer because the
Subscription Price will be less than the then current net asset value per
share, the Fund will bear the expenses of the Offer and the number of
shares outstanding after the Offer will have increased proportionately
more than the increase in the size of the Fund's net assets. Although it
is not possible to state precisely the amount of such a decrease in
value, because it is not known at this time how many Shares will be
subscribed for or what the Subscription Price will be, such dilution
might be substantial. For example, if the Subscription Price per Share is
$____, representing a price that is __% of an assumed net asset value per
share of $____, assuming that all Rights are exercised, including an
additional 25% of the Shares which may be issued to satisfy
over-subscription requests, the Fund's net asset value per share would be
reduced by approximately $___ per share. If, on the other hand, the
Subscription Price represents a price that is less than __% of the Fund's
then net asset value, which would be the case if the Subscription Price
is set at a time when the market price per share is lower than the net
asset value per share, the dilution would be greater. For example, if the
Subscription Price per Share is $____, representing a price which is __%
of the net asset value per share, assuming that all Rights are exercised,
including an additional 25% of the Shares which may be issued to satisfy
over-subscription requests, the Fund's net asset value per share would be
reduced by approximately $___ per share. The foregoing examples use
assumed Subscription Prices of $____ and $____ per Share, respectively.
The actual Subscription Price may be greater or less than such assumed
Subscription Prices. This dilution of net asset value per share will
disproportionately affect shareholders who do not exercise their Rights.
FOREIGN INVESTMENTS
Investors should understand and consider carefully the substantial
risks involved in investing in foreign securities. Foreign securities,
which are generally denominated in foreign currencies, and utilization of
forward contracts on foreign currencies involve certain considerations
comprising both risk and opportunity not typically associated with
investing in U.S. securities. These considerations include: fluctuations
in currency exchange rates; restrictions on foreign investment and
repatriation of capital; costs of converting foreign currencies into U.S.
dollars; greater price volatility and trading illiquidity; less public
information on issuers of securities; difficulty in enforcing legal
rights outside of the United States; lack of uniform accounting,
auditing, and financial reporting standards; the possible imposition of
foreign taxes, exchange controls, and currency restrictions; and possible
political, economic, and social instability of developing as well as
developed countries including without limitation nationalization,
expropriation of assets, and war. Furthermore, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in
such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency, and balance of payments
position. Securities of many foreign companies may be less liquid and
their prices more volatile than securities issued by comparable U.S.
issuers. Transactions in foreign securities may be subject to less
efficient settlement practices. These risks are often heightened when the
Fund's investments are concentrated in a small number of countries. In
addition, because transactional and custodial expenses for foreign
securities are generally higher than for domestic securities, the expense
ratio of the Fund can be expected to be higher than investment companies
investing exclusively in domestic securities. Foreign securities trading
practices, including those involving securities settlement where Fund
assets may be released prior to receipt of payment, may expose the Fund
to increased risk in the event of a failed trade or insolvency of a
foreign broker/dealer. Legal remedies for defaults and disputes may have
to be pursued in foreign courts, whose procedures differ substantially
from those of U.S. courts.
Since investments in foreign securities usually involve foreign
currencies and since the Fund may temporarily hold funds in bank deposits
in foreign currencies in order to facilitate portfolio transactions, the
value of the assets of the Fund as measured in U.S. dollars may be
affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations. For example, if the value of the
U.S. dollar decreases relative to a foreign currency in which a Fund
investment is denominated or which is temporarily held by the Fund to
facilitate portfolio transactions, the value of such Fund assets and the
Fund's net asset value per share will increase, all else being equal.
Conversely, an increase in the value of the U.S. dollar relative to such
a foreign currency will result in a decline in the value of such Fund
assets and its net asset value per share. The Fund may incur additional
costs in connection with conversions of currencies and securities into
U.S. dollars. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis, or by entering into
forward contracts. The Fund generally will not enter into a forward
contract with a term of greater than one year.
The Fund may invest in securities of issuers located in emerging
market countries. The risks of investing in foreign securities may be
greater with respect to securities of issuers in, or denominated in the
currencies of, emerging market countries. The economies of emerging
market countries generally are heavily dependent upon international trade
and accordingly, have been and may continue to be adversely affected by
trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade. These economies also have been and
may continue to be adversely affected by economic conditions in the
countries with which they trade. The securities markets of emerging
market countries are substantially smaller, less developed, less liquid
and more volatile than the securities markets of the U.S. and other
developed countries. Disclosure and regulatory standards in many respects
are less stringent in emerging market countries than in the U.S. and
other developed countries. There also may be a lower level of monitoring
and regulation of emerging markets and the activities of investors in
such markets, and enforcement of existing regulations may be extremely
limited. Investing in local markets, particularly in emerging market
countries, may require the Fund to adopt special procedures, seek local
government approvals or take other actions, each of which may involve
additional costs to the Fund. Emerging market countries may also restrict
investment opportunities in issuers in industries deemed important to
national interests.
Foreign government securities, depending on where and how they are
issued, may be subject to some of the risks discussed above with respect
to foreign securities. In addition, investments in foreign government
debt securities involve special risks. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be
unable or unwilling to pay interest or repay interest or repay principal
when due in accordance with the terms of such debt, and the Fund may have
limited legal recourse in the event of default. Political conditions,
especially a sovereign entity's willingness to meet the terms of its debt
obligations, are of considerable significance.
FIXED INCOME SECURITIES
The Fund will normally invest at least 65% of its net assets in
investment grade fixed income securities. Securities rated BBB or better
by S&P or Baa or better by Moody's are investment grade but Moody's
considers securities rated Baa to have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity for issuers of such securities to make
principal and income payments than is the case for higher-rated
securities. The Fund also may invest up to 35% of its assets in fixed
income securities rated below investment grade but not lower than CCC by
S&P or Caa by Moody's. These securities are deemed by those agencies to
be in poor standing and predominantly speculative; the issuers may be in
default on such securities or deemed without capacity to make scheduled
payments of income or repay principal, involving major risk exposure to
adverse conditions. The Fund is also permitted to purchase fixed income
securities that are not rated by S&P or Moody's but that the Investment
Manager determines to be of comparable quality to that of rated
securities in which the Fund may invest. Such securities are included in
percentage limitations applicable to the comparable rated securities. The
values of fixed income securities will change as market interest rates
fluctuate. During periods of falling interest rates, the values of
outstanding fixed income securities generally rise. Conversely, during
periods of rising interest rates, the values of such securities generally
decline. The magnitude of these fluctuations generally will be greater
for securities with longer maturities.
Ratings of fixed income securities represent the rating agencies'
opinions regarding their quality, are not a guarantee of quality, and may
be lowered after the Fund acquires 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 income
payments and do not evaluate the risk of fluctuations in market value.
Also, rating agencies may fail to make timely changes in credit ratings
in response to subsequent events, so that an issuer's financial condition
may be better or worse than the rating indicates. The Fund may invest in
unrated securities determined by the Investment Manager to be of
comparable quality to the appropriate rating category of S&P and Moody's.
In such instances, the Fund will be more reliant on the Investment
Manager's determination of credit quality than is the case with respect
to rated securities. See the Appendix to the SAI for a further
description of S&P and Moody's ratings.
Lower rated fixed income securities generally offer a higher
current yield than that available on 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 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 principal
and income and increase the possibility of default. In addition, such
issuers may not have more traditional methods of financing available to
them, and may be unable to repay debt at maturity by refinancing. The
risk of loss due to default by such issuers is significantly greater
because such securities frequently are unsecured and subordinated to the
prior payment of senior indebtedness.
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 securities declined substantially,
reflecting an expectation that many issuers of such securities might
experience financial difficulties. As a result, the yields on lower rated
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 price
declines will not recur. The market for lower rated securities generally
is thinner and less active than that for higher quality securities, which
may limit the Fund's ability to sell such securities at fair value in
response to changes in the economy or financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the value and liquidity of lower rated
securities, especially in a thinly traded market.
During its fiscal year ended June 30, 1997, of its total
investments the Fund invested: [86%] in bonds that had received a rating
from S&P or Moody's. Of the [86%] invested in bonds that had received a
rating from S&P or Moody's, the Fund had the following percentages of its
total investments invested in bonds rated: [AAA--4%, AA--3%, A--4%,
BBB--58%, BB--8%, B--8%; CCC--1%]. Ten percent of the Fund's total
investments were in unrated bonds determined by the Investment Manager to
be of comparable quality to rated bonds in the following categories:
AAA--0%; AA--0%; A--0%; BBB--2%; BB--5%; B--3%; CCC--0%. The remaining
[4%] can be classified as other fixed income securities, equities and
other net assets. It should be noted that this information reflects the
dollar-weighted average composition of the Fund's total investments
(computed monthly) during the fiscal year ended June 30, 1997 and is not
necessarily representative of the Fund's total investments or net assets
as of the end of that fiscal year, the current year or at any time in the
future.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. In such
agreements, the Fund sells the underlying security to a creditworthy
securities dealer or bank and the Fund agrees to repurchase it at an
agreed-upon date and price reflecting a market rate of interest. Such
agreements are considered to be borrowings and involve leveraging which
is speculative and increases both investment opportunity and investment
risk. When the Fund enters into reverse repurchase agreements, its
custodian will set aside in a segregated account cash or liquid
securities whose value is marked to market daily with a market value at
least equal to the repurchase price. If necessary, assets will be added
to the account daily so that the value of the account will not be less
than the amount of the Fund's purchase commitment. Such agreements are
subject to the risk that the benefit of purchasing a security with the
proceeds of the sale by the Fund will be less than the cost to the Fund
of transacting the reverse repurchase agreement. Such agreements will be
entered into when, in the judgment of the Investment Manager, the risk is
justified by the potential advantage of total return.
LEVERAGE
From time to time the Fund borrows money from banks (including its
custodian bank) and issues senior securities, including debt and preferred
stock, engages in repurchase agreements to purchase and carry securities
and pays interest thereon. These practices are referred to as leverage, are
speculative, and increase both investment opportunity and investment risk.
If the investment income on securities purchased with leverage exceeds the
interest paid on the leverage, the Fund's income will be correspondingly
higher. If the investment income fails to cover the Fund's costs, including
interest on leverage, or if there are losses, the net asset value of the
Fund's shares will decrease faster than would otherwise be the case. When
the Fund is leveraged, the 1940 Act requires the Fund to have asset coverage
of at least 200% for preferred securities it has issued and 300% for its
borrowings or the debt securities it has issued. Interest on money borrowed
is an expense the Fund would not otherwise incur, and it may therefore have
little or no investment income during periods of substantial borrowings.
Use of leverage by the Fund would increase the Fund's total return
to shareholders if the Fund's returns on its investments out of the
proceeds of such leverage exceed the cost of such leverage. Although
there can be no assurance that the use of leverage will be successful,
the Investment Manager believes that the ability to employ leverage may
potentially increase yields and total returns.
Leverage is a speculative investment technique and, as such,
entails two primary risks. The first risk is that the use of leverage
magnifies the impact on the common shareholders of changes in net asset
value. For example, a fund that uses leverage of one third of its total
assets will show a 1.5% increase or decline in net asset value for each
1% increase or decline in the value of its total assets. The second risk
is that if the cost of leverage exceeds the return on the securities
acquired with the proceeds of that leverage, it will diminish rather than
enhance the return to common shareholders. These two risks would
generally make the Fund's total return to common shareholders more
volatile. However, if the Fund is able to provide total returns on its
assets exceeding the costs of leverage, the use of leverage would over
the longer term enhance the Fund's yields and total returns, although
there can be no assurance that this can be achieved.
The Fund has a committed bank line of credit and the interest rate
was equal to the Federal Reserve Funds Rate plus 1.00 percentage points. At
December 31, 1997, there was no balance outstanding For the six months
ended December 31, 1997, the weighted average interest rate was 6.40% based
on the balances outstanding from the line of credit and the reverse repur-
chase agreements during the period and the weighted average amount
outstanding was $7,679,271 or ___% of the Fund's weighted average total
assets.
The following table illustrates the effect of leverage on the return
of a holder of Common Stock, assuming a Fund portfolio of approximately $37
million, the annual returns set forth in such table, the use of $10 million
of reverse repurchase agreements assuming an annual interest rate of 6.40%:
Assumed Return on Portfolio
(Net of Expenses Except
Interest)...................... -10% -5% 0% 5% 10%
Corresponding Return to
Common Stockholder............. -16.07 -9.22 -2.37 4.48 11.33
The purpose of the foregoing table is to assist the investor in
understanding the effects of leverage. The figures in the table are
hypothetical and the assumed form and amount of leverage employed may be
different from and less than the amount of leverage shown, the assumed
interest rate may be higher or lower and the actual returns to a holder of
Common Stock may be greater or less than those appearing in the table.
SECURITIES LENDING
Pursuant to an agency arrangement with an affiliate of its
custodian, the Fund may lend portfolio securities or other assets through
such affiliate for a fee to other parties. The Fund's agreement requires
that the loans be continuously secured by cash, securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, or
any combination of cash and such securities, as collateral equal at all
times to at least the market value of the assets lent. Including such
collateral as part of the Fund's total assets, the securities on loan are
not to exceed one-third of its total assets. There are risks to the Fund
of delay in receiving additional collateral and risks of delay in
recovery of, and failure to recover, the assets lent should the borrower
fail financially or otherwise violate the terms of the lending agreement.
Loans will be made only to borrowers deemed to be of good standing. Any
loan made by the Fund will provide that it may be terminated by either
party upon reasonable notice to the other party.
ILLIQUID SECURITIES
The Fund may invest without limit in illiquid securities, including
securities with legal or contractual conditions or restrictions on
resale. Investing in such securities entails certain risks. The primary
risk is that the Fund may not be able to dispose of a security at the
desired price at the time it wishes to make such disposition. In
addition, such securities often sell at a discount from liquid and freely
tradable securities of the same class or type, although they are also
usually purchased at an equivalent discount which enhances yield while
the securities are held by the Fund. Such securities may also be more
difficult to price accurately.
MARKET VALUE AND NET ASSET VALUE
The Fund converted from a diversified series of shares of an
open-end management investment company to a diversified, closed-end
management investment company in February 1997. Shares of closed-end
investment companies are bought and sold in the open market and may trade
at either a premium to or discount from net asset value, although they
frequently trade at a discount. This is a risk separate and distinct from
the risk that the value of the Fund's portfolio securities, and as a
result its net asset value, may decrease. The Fund cannot predict whether
its shares will trade at, above or below net asset value. Shareholders
will incur brokerage and possibly other transaction costs to buy and sell
shares in the open market, provided, however, that the Investment Manager
has arranged with its affiliate, Bull & Bear Securities, Inc., that for
two years after February 7, 1997, Fund shares may be bought or sold at
the market price without commission through Bull & Bear Securities, Inc.
Since the commencement of the Fund's operations as a closed-end
investment company until the adoption of the managed distribution policy
described above the Fund's shares generally traded in the market at a
discount to net asset value. Since the adoption of the managed
distribution policy, the Fund's shares generally have traded at or above
net asset value.
A decline in net asset value could affect the Fund's ability to pay
dividends, make capital gain distributions or effect any share
repurchases with respect to its Common Stock if the Fund has outstanding
any preferred stock or debt securities, because the Fund would be
required by the 1940 Act to have asset coverage immediately after such
dividend, distribution or repurchase of two hundred percent for any
preferred stock and three hundred percent for any debt securities, in
each case after giving effect to such dividend, distribution or
repurchase. In addition, if the Fund's current investment income were not
sufficient to meet dividend requirements on any outstanding preferred
stock, the Fund may be required to sell a portion of its portfolio
securities when it might be disadvantageous to do so, which would reduce
the net asset value attributable to the Fund's Common Stock.
DIVIDENDS AND DISTRIBUTIONS; RETURN OF CAPITAL
It is the Fund's present policy, which may be changed by the Board
of Directors, to pay dividends on a monthly basis to holders of Common
Stock. The Fund recently adopted a managed distribution policy to
distribute on a monthly basis 0.83% of the Fund's net asset value (10% on
an annual basis). This policy is intended to provide shareholders with a
stable cash flow and to reduce any market price discount to its net asset
value. There can be no assurance that the Fund will be able to maintain
its current level of dividends, and the Board of Directors may, in its
sole discretion, change the Fund's current dividend policy or its current
level of dividends in response to market or other conditions. The Fund's
ability to maintain this distribution policy is a function of the yield
generated by the Fund's investments and the Fund's ability to realize
capital gains, which depends on market conditions at the time those
investments are made and on the performance of those investments. To the
extent that the Fund's portfolio investments generate returns exceeding
that which is required to pay any target level of dividends set by the
Board of Directors, the Fund may decide to retain and accumulate that
portion of the Fund's return which exceeds such dividend level any may
pay applicable taxes thereon, including any federal income or excise
taxes. Alternatively, to the extent that the Fund's current return is not
sufficient to pay any target level of dividends set by the Board of
Directors, the Fund may distribute to holders of its Common Stock all or
a portion of any retained earnings or make a return of capital to
maintain such target level. Based upon current market conditions, the
Investment Manager believes that the net proceeds of the Offer may be
invested in securities producing a rate of return equal to or above the
rate of return that the Fund is currently earning on its portfolio.
Accordingly, the Investment Manager believes that earnings from new
investments derived from the net proceeds of the Offer will better enable
the Fund to maintain its current level of dividends. The Investment
Manager also believes that the increase in total net assets of the Fund
resulting from a well-subscribed rights offering may result in certain
economies of scale and, accordingly, a lower expense ratio for the Fund.
Based upon information provided by the Investment Manager and current
market conditions, the Board of Directors will have determined that the
Offer will not result in any material adverse change to the Fund's
current dividend policy or its ability to maintain its current level
dividends. Should the Fund's annual total return (on a net asset value
basis), inclusive of earned income and capital appreciation, be less than
10%, however, the current level of dividends per share paid pursuant to
the managed 10% distribution policy described above, may decline. Whether
the Offer is subscribed for or not, however, there can be no assurance
that the Fund can or will maintain its current dividend policy or current
level of dividends. See "Financial Highlights" and "The Offer --Purpose
of the Offer."
THE FUND'S INVESTMENT PROGRAM
The Fund's primary and fundamental investment objective is to
provide a high level of income. The Fund's secondary, non-fundamental,
investment objective is capital appreciation. The Fund pursues its
investment objectives by investing primarily in a global portfolio of
investment grade fixed income securities. There can be no assurance that
the Fund will achieve its investment objectives.
The Fund will normally invest at least 65% of its net assets in
investment grade fixed income securities which are rated, at the time of
purchase, BBB or better by Standard & Poor's Ratings Group ("S&P"), Baa
or better by Moody's Investors Service, Inc. ("Moody's") or, if unrated,
are determined by the Investment Manager to be of comparable quality. The
Fund may also invest up to 35% of its assets in fixed income securities
rated BB, B, or CCC by S&P or Ba, B, or Caa by Moody's or, if unrated,
securities determined by the Investment Manager to be of comparable
quality and may invest in other securities (including common stocks,
warrants, options and securities convertible into common stock), when
such investments are consistent with its investment objectives or are
acquired as part of a unit consisting of a combination of fixed income
securities and other securities. The Fund currently expects to invest
predominately in the United States, Western Europe, Latin America, the
Pacific Rim, South Africa, and Canada. The Fund will normally invest in
at least three different countries, but may invest in fixed income
securities of only one country for temporary defensive purposes. Pending
investment or for temporary defensive purposes, the Fund may commit all
or any portion of its assets to cash (U.S. dollars and/or foreign
currencies) or invest in money market instruments of U.S. and foreign
issuers, including repurchase agreements. In seeking to achieve the
Fund's investment objectives, the Investment Manager bases its investment
decisions on fundamental market attractiveness, interest rates and
trends, currency trends, and credit quality.
The Investment Manager undertakes several measures in seeking to
achieve the Fund's objectives:
o First, the fixed income securities purchased by the Fund will
be primarily rated at the time of purchase in the top four
categories by S&P or Moody's or, if unrated, are determined
by the Investment Manager to be of comparable quality.
Ratings are not a guarantee of quality and ratings can change
after a security is purchased by the Fund. Moreover,
securities rated Baa by Moody's are deemed by that rating
agency to have speculative characteristics.
o Second, the Investment Manager actively manages the average
maturity of the Fund's portfolio in response to expected
interest rate movements in pursuit of capital appreciation or
to protect against depreciation. Debt securities generally
change in value inversely to changes in interest rates.
Increases in interest rates generally cause the market values
of debt securities to decrease, and vice versa. Movements in
interest rates typically have a greater effect on the prices
of longer term bonds than on those with shorter maturities.
When anticipating a decline in interest rates, the Investment
Manager will attempt to lengthen the portfolio's maturity to
capitalize on the appreciation potential of such securities.
Conversely, when anticipating rising rates, the Investment
Manager will seek to shorten the Fund's maturity to protect
against capital depreciation. The Fund's portfolio may
consist of securities with long, intermediate, and short
maturities. Consistent with seeking to maximize current
income, the proportion invested in each category can be
expected to vary depending upon the Investment Manager's
evaluation of the market outlook.
o Third, the Investment Manager may employ certain investment
techniques to seek to reduce the Fund's exposure to risks
involving foreign currency exchange rates. An increase in the
value of a foreign currency relative to the U.S. dollar (the
dollar weakens) will increase the U.S. dollar value of
securities denominated in that foreign currency. Conversely,
a decline in the value of a foreign currency relative to the
U.S. dollar (the dollar strengthens) causes a decline in the
U.S. dollar value of these securities. The percentage of the
Fund's investments in foreign securities that will be hedged
back to the U.S. dollar will vary depending on anticipated
trends in currency prices and the relative attractiveness of
such techniques and other strategies.
There is, of course, no guarantee that these investment strategies
will accomplish their objectives.
U.S. AND FOREIGN GOVERNMENT SECURITIES
The U.S. Government securities in which the Fund may invest include
direct obligations of the U.S. Government (such as U.S. Treasury bills,
notes and bonds) and obligations issued by U.S. Government agencies and
instrumentalities. Agencies and instrumentalities include executive
departments of the U.S. Government and independent Federal organizations
supervised by Congress. The types of support for these obligations can
range from the full faith and credit of the United States (for example,
U.S. Treasury securities) to the creditworthiness of the issuer (for
example, securities of the Federal National Mortgage Association, 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
United States, 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 United States
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.
The foreign government securities in which the Fund invests include
obligations issued or supported by national, state or provincial
governments or similar political subdivisions or obligations of
supranational agencies, such as the International Bank for Reconstruction
and Development (the World Bank). Supranational agencies rely on funds
from participating countries, often including the United States, from
which they must request funds. Such requests may not always be honored.
See "Risk Factors and Special Considerations--Foreign Investments."
SECURITIES OF PRIVATE ISSUERS
The securities of U.S. and foreign private issuers in which the
Fund invests may be denominated in U.S. dollars or other currencies,
including obligations of U.S. and foreign issuers payable in U.S. dollars
outside the United States ("Euros") and obligations of foreign issuers
payable in U.S. dollars and issued in the United States ("Yankees"). The
securities of private issuers may include corporate bonds, notes and
commercial paper, as well as certificates of deposit, time deposits,
bankers' acceptances and other obligations of U.S. banks and their
branches located outside the United States, U.S. branches of foreign
banks, foreign branches of foreign banks and U.S. agencies of foreign
banks and wholly owned banking subsidiaries of foreign banks located in
the United States. The securities of private issuers also may include
common stocks and other equity securities such as warrants, options and
securities convertible into common stock, when such investments are
consistent with the Fund's investment objectives or are acquired as part
of a unit consisting of fixed income and equity securities. See "Risk
Factors and Special Considerations--Foreign Investments."
FIXED INCOME SECURITIES
The Fund will normally invest at least 65% of its net assets in
investment grade fixed income securities. Securities rated BBB or better
by S&P or Baa or better by Moody's are investment grade but Moody's
considers securities rated Baa to have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity for issuers of such securities to make
principal and income payments than is the case for higher-rated
securities. The Fund also may invest up to 35% of its assets in fixed
income securities rated below investment grade but not lower than CCC by
S&P or Caa by Moody's. These securities are deemed by those agencies to
be in poor standing and predominantly speculative; the issuers may be in
default on such securities or deemed without capacity to make scheduled
payments of income or repay principal, involving major risk exposure to
adverse conditions. The Fund is also permitted to purchase fixed income
securities that are not rated by S&P or Moody's but that the Investment
Manager determines to be of comparable quality to that of rated
securities in which the Fund may invest. Such securities are included in
percentage limitations applicable to the comparable rated securities.
Investors should be aware of and should consider the negative impact on a
portfolio of fixed income securities of a rise in market interest rates.
See "Risk Factors and Special Considerations--Fixed Income Securities."
PREFERRED SECURITIES
The fixed income securities in which the Fund may invest includes
preferred share issues of U.S. and foreign companies. Such securities
involve greater risk of loss of income than debt securities because
issuers are not obligated to pay dividends. In addition, preferred
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.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities which are bonds,
debentures, notes, preferred stocks or other fixed income securities that
may be converted into or exchanged for a specified amount of common stock
of the same or a different issuer within a particular period of time at a
specified price or formula. A convertible security entitles the holder to
receive interest generally paid or accrued on debt or the dividend paid
on preferred stock until the convertible security matures or is redeemed,
converted or exchanged. Convertible securities have unique investment
characteristics in that they generally (i) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (ii)
are less subject to fluctuation in value than the underlying stock since
they have fixed income characteristics and (iii) provide the potential
for capital appreciation if the market price of the underlying common
stock increases.
The value of a convertible security is a function of its
"investment value" (determined by its yield in comparison with the yields
of other securities of comparable maturity and quality that do not have a
conversion privilege) and its "conversion value" (the security's worth,
at market value, if converted into the underlying common stock). The
investment value of a convertible security is influenced by changes in
interest rates, with investment value declining as interest rates
increase and increasing as interest rates decline. The credit standing of
the issuer and other factors also may have an effect on the convertible
security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common
stock. If the conversion value is low relative to the investment value,
the price of the convertible security is governed principally by its
investment value and generally the conversion value decreases as the
convertible security approaches maturity. To the extent the market price
of the underlying common stock approaches or exceeds the conversion
price, the price of the convertible security will be increasingly
influenced by its conversion value. In addition, a convertible security
will sell at a premium over its conversion value determined by the extent
to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security. The Fund will
exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock when, in the Investment Manager's
opinion, the investment characteristics of the underlying common shares
will assist the Fund in achieving its investment objectives. Otherwise,
the Fund may hold or trade convertible securities. In selecting
convertible securities for the Fund, the Investment Manager evaluates the
investment characteristics of the convertible security as a fixed income
instrument and the investment potential of the underlying equity security
for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the Investment Manager considers
numerous factors, including the economic and political outlook, the value
of the security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and the issuer's management
capability and practices.
OTHER INVESTMENT PRACTICES
Hedging and Income Strategies. The Fund may purchase call options
on securities that the Investment Manager intends to include in the
Fund's portfolio in order to fix the cost of a future purchase or to
attempt to enhance return by, for example, participating in an
anticipated price increase of a security. The Fund may purchase put
options to hedge against a decline in the market value of securities held
in the Fund's portfolio or to attempt to enhance return. The Fund may
write (sell) covered put and call options on securities in which it is
authorized to invest. The Fund may purchase and write straddles, purchase
and write put and call options on bond indexes, and take positions in
options on foreign currencies to hedge against the risk of foreign
exchange rate fluctuations on foreign securities the Fund holds in its
portfolio or that it intends to purchase. The Fund may purchase and sell
interest rate futures contracts, bond index futures contracts and foreign
currency futures contracts, and may purchase put and call options and
write covered put and call options on such contracts.
The Fund may enter into forward currency contracts to set the rate
at which currency exchanges will be made for contemplated or completed
transactions. The Fund may also enter into forward currency contracts in
amounts approximating the value of one or more portfolio positions to fix
the U.S. dollar value of those positions. For example, when the
Investment Manager believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, the
Fund may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such foreign
currency. The Fund has no specific limitation on the percentage of assets
it may commit to foreign currency exchange contracts, except that it will
not enter into a forward contract if the amount of assets set aside to
cover the contract would impede portfolio management or the Fund's
ability to meet redemption requests.
Strategies with options, financial futures, and forward currency
contracts may be limited by market conditions, regulatory limits and tax
considerations, and the Fund may not employ any of the strategies
described above. There can be no assurance that any strategy used will be
successful. The loss from investing in futures transactions is
potentially unlimited. Options and futures may fail as hedging techniques
in cases where price movements of the securities underlying the options
and futures do not follow the price movements of the portfolio securities
subject to the hedge. Gains and losses on investments in options and
futures depend on the Investment Manager's ability to predict correctly
the direction of stock prices, interest rates, and other economic
factors. In addition, the Fund will likely be unable to control losses by
closing its position where a liquid secondary market does not exist and
there is no assurance that a liquid secondary market for hedging
instruments will always exist. It also may be necessary to defer closing
out hedged positions to avoid adverse tax consequences. The percentage of
the Fund's assets segregated to cover its obligations under options,
futures, or forward currency contracts could impede effective portfolio
management or meeting redemptions or other current obligations. See "The
Fund's Investment Program-Options, Futures and Forward Currency Contract
Strategies" in the SAI.
Repurchase Agreements. The Fund may enter into repurchase
agreements with U.S. banks or dealers involving securities in which the
Fund is authorized to invest. A repurchase agreement is an instrument
under which the Fund purchases securities from a bank or dealer and
simultaneously commits to resell the securities to the bank or dealer at
an agreed upon date and price. The Fund's custodian maintains custody of
the underlying securities until their repurchase; thus the obligation of
the bank or dealer to pay the repurchase price is, in effect, secured by
such securities. The Fund's risk is limited to the ability of the seller
to pay the agreed upon amount on the repurchase date; if the seller
defaults, the security constitutes collateral for the seller's obligation
to pay. If, however, the seller defaults and the value of the collateral
declines, the Fund may incur loss and expenses in selling the collateral.
To attempt to limit the risk in engaging in repurchase agreements, the
Fund enters into repurchase agreements only with banks and dealers
believed by the Investment Manager to present minimum credit risks in
accordance with guidelines established by the Board.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements. In such agreements, the Fund sells the underlying
security to a creditworthy securities dealer or bank and the Fund agrees
to repurchase it at an agreed-upon date and price reflecting a market
rate of interest. Such agreements are considered to be borrowings and
involve leveraging which is speculative and increases both investment
opportunity and investment risk. When the Fund enters into reverse
repurchase agreements, its custodian will set aside in a segregated
account cash or liquid securities whose value is marked to the market
daily with a market value at least equal to the repurchase price. If
necessary, assets will be added to the account daily so that the value of
the account will not be less than the amount of the Fund's purchase
commitment. Such agreements are subject to the risk that the benefit of
purchasing a security with the proceeds of the sale by the Fund will be
less than the cost to the Fund of transacting the reverse repurchase
agreement. Such agreements will be entered into when, in the judgment of
the Investment Manager, the risk is justified by the potential advantage
of total return.
Leverage. From time to time the Fund borrows money from banks
(including its custodian bank), engages in reverse repurchase agreements
and issues senior securities, including debt and preferred stock, to
purchase and carry securities and pays interest thereon. These
practices are referred to as leverage, are speculative, and increase both
investment opportunity and investment risk. If the investment income on
securities purchased with leverage exceeds the interest paid on the
leverage, the Fund's income will be correspondingly higher. If the
investment income fails to cover the Fund's costs, including interest on
leverage, or if there are losses, the net asset value of the Fund's
shares will decrease faster than would otherwise be the case. When the
Fund is leveraged, the 1940 Act requires the Fund to have asset coverage
of at least 200% for preferred securities it has issued and 300% for its
borrowings or the debt securities it has issued. Interest on money
borrowed is an expense the Fund would not otherwise incur, and it may
therefore have little or no investment income during periods of
substantial borrowings.
Use of leverage by the Fund would increase the Fund's total return
to shareholders if the Fund's returns on its investments out of the
proceeds of such leverage exceed the cost of such leverage. Although
there can be no assurance that the use of leverage will be successful,
the Investment Manager believes the ability to employ leverage may
potentially increase yields and total returns. See "Risk Factors and
Special Considerations -- Leverage."
The Fund has a committed bank line of credit and the interest rate
was equal to the Federal Reserve Funds Rate plus 1.00 percentage points.
At December 31, 1997, there was no balance outstanding. For the six
months ended December 31, 1997, the weighted average interest rate was
6.40% based on the balances outstanding form the line of credit the
reserve repurchase agreements during the period and the weighted average
amount outstanding was $7,679,271 or __% of the Fund's weighted average
total assets.
Private Placements and Rule 144A Securities. The Fund may purchase
securities in private placements or pursuant to the Rule 144A exemption
from Federal registration requirements. Because an active trading market
may not exist for such securities, the sale of such securities may be
subject to delay and greater discounts than the sale of registered
securities. Investing in such securities could have the effect of
increasing the level of Fund illiquidity to the extent that qualified
institutional buyers become less interested in buying these securities.
When-Issued Securities. The Fund may purchase securities on a
"when-issued" basis. In such transactions delivery and payment occur at a
date subsequent to the date of the commitment to make the purchase.
Although the Fund will enter into when-issued transactions with the
intention of acquiring the securities, the Fund may sell the securities
prior thereto for investment reasons, which may result in a gain or loss.
Acquiring securities in this manner involves a risk that yields available
on the delivery date may be higher than those received in such
transactions, as well as the risk of price fluctuation. When the Fund
purchases securities on a when-issued basis, its custodian will set aside
in a segregated account cash or liquid securities whose value is marked
to the market daily with a market value at least equal to the amount of
the commitment. If necessary, assets will be added to the account daily
so that the value of the account will not be less than the amount of the
Fund's purchase commitment. Failure of the issuer to deliver the security
may result in the Fund incurring a loss or missing an opportunity to make
an alternative investment.
Lending. Pursuant to an arrangement with its custodian, the Fund
may lend portfolio securities or other assets of the Fund. If the Fund
engages in lending transactions, it will enter into agreements that
require that the loans be continuously secured by cash, securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities,
or any combination of cash and such securities, as collateral equal at
all times to at least the market value of the assets lent. To the extent
of such activities, the custodian will apply credits against its
custodial charges. There are risks to the Fund of delay in receiving
additional collateral and risks of delay in recovery of, and failure to
recover, the assets lent should the borrower fail financially or
otherwise violate the terms of the lending agreement. Loans will be made
only to borrowers deemed to be of good standing. Any loan made by the
Fund will provide that it may be terminated by either party upon
reasonable notice to the other party.
Portfolio Turnover. Given the investment objectives of the Fund,
the rate of portfolio turnover will not be a limiting factor when the
Investment Manager deems changes in the composition of the portfolio
appropriate, and the investment strategy pursued by the Fund therefore
includes the possibility of short term transactions. The Fund's portfolio
turnover rate will vary from year to year depending on world market
conditions. For the fiscal years ended June 30, 1997 and 1996, the
portfolio's turnover rate was 475% and 585%, respectively. Higher
portfolio turnover involves correspondingly greater transaction costs and
increases the potential for short term capital gains and taxes. See
"Dividends, Distributions and Taxes."
Illiquid Securities. The Fund may invest without limit in illiquid
securities, including securities with legal or contractual conditions or
restrictions on resale. Investing in such securities entails certain
risks. The primary risk is that the Fund may not be able to dispose of a
security at the desired price at the time it wishes to make such
disposition. In addition, such securities often sell at a discount from
liquid and freely tradable securities of the same class or type, although
they are also usually purchased at an equivalent discount which enhances
yield while the securities are held by the Fund. Such securities may also
be more difficult to price accurately.
Other Information. The Fund is not obligated to deal with any
particular broker, dealer or group thereof. Certain broker/dealers that
the Investment Manager and its affiliates do business with may, from time
to time, own more than 5% of the publicly traded Class A non-voting
Common Stock of Bull & Bear Group, Inc., the parent of the Investment
Manager, and may provide clearing services to Bull & Bear Securities,
Inc., a broker/dealer affiliate of the Investment Manager.
The Fund's primary investment objective of providing a high level
of income is fundamental and may not be changed without shareholder
approval. The Fund is also subject to certain investment restrictions,
set forth in the SAI, that are fundamental and cannot be changed without
shareholder approval. The Fund's secondary investment objective of
capital appreciation and the other investment policies described herein,
unless otherwise stated, are not fundamental and may be changed by the
Directors without shareholder approval.
THE INVESTMENT MANAGER
The Investment Manager acts as general manager of the Fund, being
responsible for the various functions assumed by it, including the
regular furnishing of advice with respect to portfolio transactions. The
Investment Manager manages the investment and reinvestment of the assets
of the Fund, subject to the control and oversight of the Directors. The
Investment Manager is authorized to place portfolio transactions with
Bull & Bear Securities, Inc., an affiliate of the Investment Manager, and
may allocate brokerage transactions by taking into account the sale of
shares of the Fund and other affiliated investment companies. The
Investment Manager may also allocate portfolio transactions to
broker/dealers that remit a portion of their commissions as a credit
against the Fund's expenses. For its services, the Investment Manager
receives an investment management fee, payable monthly, based on the
average weekly net assets of the Fund, at the annual rate of 7/10 of 1%
of the first $250 million, 5/8 of 1% from $250 million to $500 million,
and 1/2 of 1% over $500 million. From time to time, the Investment
Manager may reimburse all or part of this fee to improve the Fund's yield
and total return. The Investment Manager provides certain administrative
services to the Fund at cost. During the fiscal year ended June 30, 1997,
the investment management fees paid by the Fund represented 0.70% of its
average daily net assets. The Investment Manager is a wholly owned
subsidiary of Bull & Bear Group, Inc. ("Group"). Group, a publicly owned
company whose securities are listed and traded on the NASDAQ Stock
Market, is a New York based manager of mutual funds and discount
brokerage services. Bassett S. Winmill may be deemed a controlling person
of Group and, therefore, may be deemed a controlling person of the
Investment Manager. The address of the Investment Manager is 11 Hanover
Square, New York, New York 10005.
The Fund's Portfolio Manager is Steven A. Landis. Mr. Landis has
been principally responsible for the Fund's portfolio investment
decisions since April, 1995 and is also Senior Vice President and a
member of the Investment Policy Committee of the Investment Manager with
overall responsibility for the Bull & Bear fixed income funds. Mr. Landis
was formerly Associate Director - Proprietary Trading at Barclays De
Zoete Wedd Securities Inc. from 1993 to 1995 and was Director, Bond
Arbitrage at WG Trading Company from 1992 to 1993.
DIVIDEND REINVESTMENT PLAN
The Directors have adopted a Dividend Reinvestment Plan (the
"Plan"). Under the Plan, each dividend and capital gain distribution, if
any, declared by the Fund on outstanding shares will, unless elected
otherwise by each shareholder by notifying the Fund in writing at any
time prior to the record date for a particular dividend or distribution,
be paid on the payment date fixed by the Directors in additional shares
in accordance with the following: whenever the Market Price (as defined
below) per share is equal to or exceeds the net asset value per share at
the time shares are valued for the purpose of determining the number of
shares equivalent to the cash dividend or capital distribution (the
"Valuation Date"), participants will be issued additional shares equal to
the amount of such dividend by the Fund's net asset value per share.
Whenever the Market Price per share is less than such net asset value on
the Valuation Date, participants will be issued additional shares equal
to the amount of such dividend divided by the Market Price. The Valuation
Date is the dividend or distribution payment date or, if that date is not
an American Stock Exchange trading day, the next trading day. For all
purposes of the Plan: (a) the Market Price of the shares on a particular
date shall be the average closing market price on the five trading days
the shares traded ex-dividend on the Exchange prior to such date or, if
no sale occurred on the Exchange prior to such date, then the mean
between the closing bid and asked quotations for the shares on the
Exchange on such date, and (b) net asset value per share on a particular
date shall be as determined by or on behalf of the Fund. Upon a
shareholder's request to receive a certificate for shares, a certificate
will be issued for such shares in whole share amounts and fractional
share amounts will be paid in cash. There are no sales or other charges
in connection with the reinvestment of dividends and capital gain
distributions. There can be no assurance that the Fund will pay any
dividends or distribute any realized capital gains.
Investors Fiduciary Trust Company (the "Transfer Agent") maintains
all shareholder accounts in the Plan and furnishes written confirmations
of all transactions in the account, including information needed by
shareholders for personal and tax records. Shares in the account of each
Plan participant will be held by the Transfer Agent in non-certificated
form in the name of the participant, and each shareholder's proxy will
include those shares purchased pursuant to the Plan, unless otherwise
requested by a shareholder.
In the case of shareholders such as banks, brokers or nominees,
which hold shares for others who are the beneficial owners, the Transfer
Agent will administer the Plan on the basis of the number of shares
certified from time to time by the shareholder as representing the total
amount registered in the shareholder's name and held for the account of
beneficial owners who participate in the Plan.
There is no charge to participants for reinvesting dividends or
capital gain distributions payable in either stock or cash. The Transfer
Agent's fees for handing the reinvestment of such dividends and capital
gain distributions are paid by the Fund. There are no brokerage charges
with respect to shares issued directly by the Fund as a result of
dividends or capital gain distributions payable in stock or in cash.
However, each participant bears a pro rata share of brokerage commissions
incurred with respect to open market purchases in connection with the
reinvestment of dividends or capital gain distributions. The automatic
reinvestment of dividends and distributions will not relieve participants
of any income tax which may be payable on such dividends or
distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan
and any dividend or distribution paid subsequent to written notice of the
change sent to the members of the Plan at least 30 days before the record
date for such dividend or distribution. The Plan also may be amended or
terminated by the Transfer Agent on at least 30 days' written notice to
participants in the Plan. All correspondence concerning the Plan should
be directed to the Transfer Agent at P.O. Box 419507, Kansas City, MO
64141.
TAXES
The Fund has qualified and intends to continue to qualify as a
"regulated investment company" under Subchapter M of the Code. If the
Fund complies with certain income, asset, diversification and
distribution requirements, the Fund will be relieved of Federal income
tax on that part of its net investment income and realized capital gain
which it distributes to its shareholders.
To qualify as a regulated investment company, the Fund must meet
certain complex tests. The loss of such status would result in the Fund
being subject to federal income tax on its taxable income and gain
without regard to dividends and distributions paid to shareholders.
Dividends out of net investment income and distributions of net
realized short-term capital gain are taxable to the recipient
shareholders as ordinary income whether paid in cash or additional
shares. In the case of corporate shareholders, such distributions are
unlikely to be eligible for the 70% dividends received deduction, since
the Fund does not anticipate investing in stocks of domestic
corporations. Distributions out of net capital gain of which shareholders
will be notified are taxable to the recipient as long-term capital gain,
whether paid in cash or additional shares and regardless of the
recipient's holding period. Shareholders receiving distributions in the
form of additional shares will have a cost basis in each share received
equal to the fair market value of a share of the Fund on the distribution
date.
Generally, dividends paid by the Fund are treated as received in
the taxable year in which the distribution is made. However, any dividend
declared by the Fund in October, November or December of any calendar
year, payable to shareholders of record on a specified date in such month
and actually paid during January of the following year, will be treated
as received by shareholders on December 31 of the year in which declared.
In any year, if the Fund has excess net realized long-term capital
gain over its net realized short-term capital losses, the Fund reserves
the authority not to distribute such excess in any year. If such excess
is not distributed, a shareholder must include in taxable income as
long-term capital gain his share of the excess. However, the Fund will
pay the taxes imposed on any such undistributed gain and such shareholder
will receive a credit or refund for taxes on his share of the excess. If,
for any year, the total distributions exceed the Fund's current and
accumulated earnings and profits, the excess will generally be treated as
a tax-free return of capital (up to the amount of such shareholder's tax
basis in his shares). The amount treated as a tax-free return of capital
will reduce the shareholder's adjusted basis in his shares, thereby
increasing his potential gain (or decreasing his potential loss) on the
sale of his shares. In the event the Fund distributes amounts in excess
of its net investment income and net realized capital gain, such
distributions will decrease the Fund's total assets and, therefore, will
have the likely effect of increasing the Fund's expense ratio.
The Fund will be required to backup-withhold an amount equal to 31%
of a shareholder's dividend or capital gain distribution or the proceeds
of a redemption unless such shareholder furnishes the Fund with his
taxpayer identification number (a social security number in the case of
an individual) and certifies that the number is correct and that he has
not been notified by the Internal Revenue Service that he is subject to
backup withholding.
In order to make distributions, the Fund may be required to sell a
portion of its investment portfolio at a time when independent investment
judgment might not dictate such action. Such sales, if they involve
stocks and securities held for less than three months, could also
adversely affect the Fund's status as a regulated investment company
since, in order for the Fund to qualify as a regulated investment
company, for each taxable year, less than 30% of the Fund's gross income
must be derived from gain realized on the sale or other disposition of
stocks or securities held for less than three months. Under recently
enacted tax legislation, the requirement described in the preceding
sentence regarding stocks and securities held for less than three months
will no longer apply to the Fund for its tax years beginning after June
30, 1998.
The foregoing is a general and abbreviated summary of the
provisions of the Code applicable to an investment in the Fund. Dividends
and distributions declared by the Fund may also be subject to state,
local or foreign taxes. Prior to investing in shares of the Fund,
prospective shareholders are urged to consult their tax advisors
concerning the federal, state, local or foreign tax consequences of such
investment.
REPURCHASE OF SHARES
The Fund is a closed-end, management investment company and as such
its shareholders do not have the right to redeem their shares. The Fund
may repurchase its shares from time to time if and when the Fund deems
such a repurchase advisable, although the Fund does not currently intend
to repurchase shares and no assurance can be given that the Fund will
decide to repurchase shares in the future, or, if undertaken, that such
repurchases will reduce any market discount that may develop. Pursuant to
the 1940 Act, the Fund may repurchase shares on a securities exchange
(provided that the Fund has informed the shareholders within the
preceding six months of its intention to repurchase such shares) or as
otherwise permitted in accordance with Rule 23c-1 under the 1940 Act.
Under that Rule, certain conditions must be met regarding, among other
things, distribution of net income from the preceding fiscal year,
identity of the seller, price paid, brokerage commissions, prior notice
to the shareholders of an intention to purchase shares and purchasing in
a manner and on a basis which does not discriminate unfairly against the
other shareholders through their interest in the Fund. While the Fund
does not currently intend to repurchase shares, its officers and
directors and the Investment Manager and its affiliates may do so from
time to time.
Shares repurchased by the Fund will constitute authorized and
unissued shares of the Fund available for reissuance. The Fund may incur
debt to finance share repurchase transactions. Any gain in the value of
the investments of the Fund during the term of the borrowing that exceeds
the interest paid the amount borrowed would cause the net asset value of
its shares to increase more rapidly than in the absence of borrowing.
Conversely, any decline in the value of the investments of the Fund would
cause the net asset value of the Shares to decrease more rapidly than in
the absence of borrowing. Borrowing money thus creates an opportunity for
greater capital gain at the risk of greater exposure to capital loss.
When the Fund repurchases its shares for a price below their net
asset value, the net asset value of those shares that remain outstanding
will be enhanced, but this does not necessarily mean that the market
price of those outstanding shares will be affected, either positively or
negatively. Further, interest on borrowings to finance share repurchase
transactions will reduce the net income of the Fund except to the extent
the gross income attributed to such shares exceeds the costs of such
borrowings.
The Fund does not currently have an established tender offer
program or an established schedule for considering tender offers. No
assurance can be given that the Directors will decide to undertake any
tender offers in the future, or if undertaken, that a tender offer would
affect the market price of the Fund's shares.
CAPITAL STOCK
The Fund's Articles of Incorporation (the "Charter") were filed on
December 12, 1996. The Fund's stock is fully paid and non-assessable and
is freely assignable by way of pledge (as, for example, for collateral
purposes), gift, settlement of an estate, and also by an investor to
another investor. In case of dissolution or other liquidation of the
Fund, shareholders will be entitled to receive ratably per share the net
assets of the Fund. Shareholders vote for Directors with each share
entitled to one vote. Each share entitles the holder to one vote for all
purposes. Shares have no preemptive or conversion rights. The Fund is
authorized to issue up to twenty million (20,000,000) shares ($.01 par
value). The Directors can reclassify unissued shares as preferred stock
with such terms and conditions as determined by the Directors.
Anti-Takeover Provisions. The Fund presently has provisions in its
Charter and By-Laws (collectively, the "Governing Documents") which could
have the effect of limiting (i) the ability of other entities or persons
to acquire control of the Fund, (ii) the Fund's freedom to engage in
certain transactions, or (iii) the ability of the Fund's directors or
shareholders to amend the Governing Documents or effectuate changes in
the Fund's management. These provisions of the Governing Documents of the
Fund may be regarded as "anti-takeover" provisions. The Directors are
divided into five classes, each having a term of five years (except, to
ensure that the term of a class of the Fund's directors expires each
year, the first class of the Fund's directors will serve an initial
one-year term and five-year terms thereafter, the second class of its
directors will serve an initial two-year term and five-year terms
thereafter, the third class will serve an initial three-year term and
five-year terms thereafter, and the fourth class will serve an initial
four-year term and five-year terms thereafter). Each year the term of one
class of directors will expire. Accordingly, only those directors in one
class may be changed in any one year, and it would require three years to
change a majority of the Directors. Such system of electing directors may
have the effect of maintaining the continuity of management and, thus,
make it more difficult for the shareholders of the Fund to change the
majority of directors. A director of the Fund may be removed only with
cause by a vote of eighty percent (80%) of the shares then entitled to be
cast for the election of directors. In addition, the affirmative vote of
the holders of 80% of the outstanding shares of the Fund is required to
authorize its conversion from a closed-end to an open-end investment
company, to amend certain provisions of the Charter involving conversion
to an open-end fund, or to authorize any business combination (including
any merger, consolidation, or share exchange with any interested
shareholder or any affiliate thereof), unless approved by the vote of at
least a majority of the Continuing Directors, in which case the
affirmative vote of the holders of at least a majority of the votes
entitled to be cast by holders of voting stock is required. Reference is
made to the Governing Documents, on file with the SEC, for the full text
of these provisions.
Except as otherwise provided in the Charter and notwithstanding any
other provision of the Maryland General Corporation Law to the contrary,
any action submitted to a vote by stockholders requires the affirmative
vote of at least 80% of the outstanding shares of all classes of voting
stock, voting together, in person or by proxy at a meeting at which a
quorum is present, unless such action is approved by the vote of a
majority of the Continuing Directors, in which case such action requires
(A) if applicable, the proportion of votes required by the 1940 Act, or
(B) the lesser of (1) a majority of all the votes cast at a meeting at
which a quorum is present in person or by proxy with the shares of all
classes of voting stock voting together, or (2) if such action may be
taken or authorized by a lesser proportion of votes under applicable law,
such lesser proportion. In the absence of action by the Directors to
remove the foregoing 80% requirement, such requirement would have the
effect of making it very difficult for stockholders to elect Directors or
modify the composition of the Board. The Fund has elected not to be
governed by any provision of Section 3-602 of Subtitle 6 of the Maryland
General Corporation Law relating to voting requirements in certain
business combinations.
The provisions of the Governing Documents described above could
have the effect of depriving owners of shares in the Fund of
opportunities to sell their shares at a premium over prevailing market
prices, by discouraging a third party from seeking to obtain control of
the Fund in a tender offer or similar transaction. The overall effect of
these provisions is to render more difficult the accomplishment of a
merger or the assumption of control by a third party, unless approved by
the Directors.
Set forth below is information with respect to the Common Stock as
of December 31, 1997:
Amount Held by Fund
Amount Authorized For Its Own Account Amount Outstanding
----------------- ------------------- ------------------
20,000,000 Shares 0 Shares 3,109,604
The number of shares outstanding as of December 31, 1997, adjusted
to give effect to the issuance of all the Shares pursuant to the Offer,
including up to 25% of the Shares available for issuance pursuant to the
Over-Subscription Privilege, would be [5,055,387].
The Fund's shares are listed and traded on the American Stock
Exchange. The average weekly trading volume of the Common Stock on the
American Stock Exchange from February 7, 1997 through December 31, 1997
was __________ shares. The following table sets forth for the quarters
indicated the high and low sales prices on the American Stock Exchange
per share of Common Stock and the net asset value and the premium or
discount from net asset value at which the Common Stock was trading,
expressed as a percentage of net asset value, at each of the high and low
sales prices provided.
The net asset value per share of the Fund's Common Stock at the
close of business on __________ ___, 1998 (the last trading date on which
the Fund publicly reported its net asset value prior to the announcement
of the Offer) and on __________ ___, 1998 (the last trading date on which
the Fund publicly reported its net asset value prior to the Record Date
of the Offer) was $_____ and $_____, respectively, and the last reported
sales price of a share of the Fund's Common Stock on the Exchange on
those dates was $_____ and $_____, respectively.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Investors Fiduciary Trust Company, P.O. Box 419507, Kansas City, MO
64141, acts as custodian of the Fund's assets, performs certain
accounting services for the Fund, and acts as the Fund's transfer and
dividend disbursing agent.
DISTRIBUTION ARRANGEMENTS
First Albany Corporation, located at 53 State Street, Boston,
Massachusetts 02109, will act as Dealer Manager for the Offer. Under the
terms and subject to the conditions contained in a Dealer Manager
Agreement, the Dealer Manager will provide financial advisory services
and marketing assistance in connection with the Offer and will solicit
the exercise of Rights by Record Date Shareholders. The Offer is not
contingent upon any number of Rights being exercised. The Fund has agreed
to pay the Dealer Manager a fee for financial advisory and marketing
services equal to 1.625% of the Subscription Price per Share for shares
issued upon exercise of the Rights and the Over-Subscription Privilege
and to pay broker-dealers, including the Dealer Manager, fees for their
soliciting efforts ("Soliciting Fees") of 2.375% of the Subscription
Price per Share for each Share issued upon exercise of the Rights and the
Over-Subscription Privilege. Soliciting Fees will be paid to the
broker-dealer designated on the applicable portion of the Subscription
Certificates, or if no broker-dealer is so designated, to the Dealer
Manager.
The Fund has also agreed to reimburse the Dealer Manager up to
$100,000 for its reasonable expenses incurred in connection with the
Offer. The Fund has agreed to indemnify the Dealer Manager or to
contribute for losses arising out of certain liabilities including
liabilities under the Securities Act. The Dealer Manager Agreement also
provides that the Dealer Manager will not be subject to any liability to
the Fund in rendering the services contemplated by the Agreement except
in instances involving the bad faith, willful misfeasance, or gross
negligence of the Dealer Manager or the reckless disregard by the Dealer
Manager of its obligations and duties under the Agreement.
The Fund has agreed, subject to certain exceptions, not to offer or
sell, or enter into any agreement to sell, any equity or equity related
securities of the Fund or securities convertible into such securities for
a period of 180 days after the date of the Dealer Manager Agreement
without the prior consent of the Dealer Manager.
LEGAL MATTERS
With respect to matters of United States law, the validity of the
shares offered hereby will be passed on for the Fund by Skadden, Arps,
Slate, Meagher & Flom LLP and its affiliated entities. Certain legal
matters will be passed on for the Dealer Manager by Rogers & Wells LLP,
New York, New York.
EXPERTS
The financial statements of the Fund as of June 30, 1997 have been
incorporated by reference into the Annual Report of the Fund for the
fiscal year ended June 30, 1997, which Annual Report is available without
charge by calling the Fund at the number on the cover page of this
Prospectus. Such financial statements have been prepared in reliance on
the report of Tait, Weller & Baker, independent accountants, given on the
authority of that firm as experts in accounting and auditing. Tait,
Weller & Baker is located at Eight Penn Center, Suite 800, Philadelphia, PA
19103-2108.
FURTHER INFORMATION
Further information concerning these securities and their issuer
may be found in the Registration Statement of which this Prospectus
constitutes a part on file with the Securities and Exchange Commission.
The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains the Prospectus, material incorporated by
reference and other information regarding registrants, such as the Fund,
that file electronically with the Commission.
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
Page
THE FUND'S INVESTMENT PROGRAM................................... 2
INVESTMENT RESTRICTIONS......................................... 9
OFFICERS AND DIRECTORS.......................................... 10
THE INVESTMENT MANAGER.......................................... 13
INVESTMENT MANAGEMENT AGREEMENT................................. 13
DETERMINATION OF NET ASSET VALUE................................ 14
ALLOCATION OF BROKERAGE......................................... 14
TAXES........................................................... 15
REPORTS TO SHAREHOLDERS......................................... 17
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT............... 17
AUDITORS........................................................ 17
FINANCIAL STATEMENTS............................................ 18
APPENDIX A - DESCRIPTION OF BOND RATINGS........................ A-1
NO DEALER, SALESPERSON, OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN
THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND, THE
FUND'S INVESTMENT MANAGER OR THE
DEALER MANAGER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER
THAN THE SHARES OF COMMON STOCK
OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO
BUY SHARES OF COMMON STOCK BY
ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY BULL & BEAR
CIRCUMSTANCES, CREATE AN GLOBAL INCOME FUND, INC.
IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE FACTS AS SET FORTH IN
THE PROSPECTUS OR IN THE AFFAIRS OF
THE FUND SINCE THE DATE HEREOF.
HOWEVER, IF ANY MATERIAL CHANGE
OCCURS WHILE THIS PROSPECTUS IS [1,555,504] SHARES OF
REQUIRED BY LAW TO BE DELIVERED, COMMON STOCK ISSUABLE UPON
THIS PROSPECTUS WILL BE AMENDED OR EXERCISE OF RIGHTS TO
SUPPLEMENTED ACCORDINGLY. SUBSCRIBE TO SUCH SHARES
------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary ............ 1 ----------------------
Fee Table...................... 7
Financial Highlights........... 8 PROSPECTUS
The Offer...................... 10
The Fund....................... 17 __________ ___, 1998
Use of Proceeds................ 17
Risk Factors and Special ----------------------
Considerations............... 17
The Fund's Investment Program.. 22
The Investment Manager......... 26
Dividend Reinvestment Plan..... 26
Taxes.......................... 27
Repurchase of Shares........... 28
Capital Stock.................. 28
Custodian, Transfer Agent and
Dividend Disbursing Agent.... 30
Distribution Arrangements...... 30
Legal Matters.................. 31
Experts........................ 31
Further Information............ 31
Table of Contents of Statement
of Additional Information.... 32
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 23, 1998
SUBJECT TO COMPLETION
BULL & BEAR GLOBAL INCOME FUND, INC.
11 Hanover Square
New York, NY 10005
Toll-free 1-888-847-4200
Bull & Bear Global Income Fund, Inc. (the "Fund") is a diversified,
closed-end management investment company organized as a Maryland
corporation. Until February 7, 1997, the Fund was a diversified series of
shares of Bull & Bear Funds II, Inc. (the "Corporation"), an open-end
management investment company organized in 1974 as a Maryland
corporation. Prior to October 29, 1993, the Corporation operated under
the name Bull & Bear Incorporated. This Statement of Additional
Information regarding the Fund is not a prospectus and should be read in
conjunction with the Fund's prospectus dated February __, 1998. The
prospectus is available without charge upon written request to the Fund
at 11 Hanover Square, New York, NY 10005, or by calling toll-free at
1-888-847-4200.
TABLE OF CONTENTS
Page
THE FUND'S INVESTMENT PROGRAM..................................... 2
INVESTMENT RESTRICTIONS........................................... 9
OFFICERS AND DIRECTORS............................................ 10
THE INVESTMENT MANAGER............................................ 13
INVESTMENT MANAGEMENT AGREEMENT................................... 13
DETERMINATION OF NET ASSET VALUE.................................. 14
ALLOCATION OF BROKERAGE........................................... 14
TAXES............................................................. 15
REPORTS TO SHAREHOLDERS........................................... 17
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT................. 17
AUDITORS.......................................................... 17
FINANCIAL STATEMENTS.............................................. 18
APPENDIX A - DESCRIPTION OF BOND RATINGS.......................... A-1
Statement of Additional Information dated February __, 1998
THE FUND'S INVESTMENT PROGRAM
The following information supplements the information concerning
the investment objectives, policies and limitations of the Fund found in
the prospectus.
LOAN PARTICIPATIONS
The Fund may invest in loan participations in which the Fund
purchases from a lender a portion of a larger loan to a U.S. or foreign
private or governmental entity. The Fund receives a portion of the amount
due the lender, except for any servicing fees received by the lender.
Investing in loan participations may enable the Fund to obtain undivided
interests in loans that Bull & Bear Advisers, Inc. (the "Investment
Manager") considers attractive, but which would not be available to the
Fund otherwise. Although normally available without recourse to the
lender, such loans may be backed by a letter of credit and may include
the right to demand accelerated payment of principal and interest. Loan
participations may be subject to credit risks of the borrower, the lender
or both. Loans to foreign borrowers may involve risks not typically
associated with domestic investments. The Fund has no current intention
to engage in loan participations in excess of 5% of total net assets of
the Fund.
COLLATERALIZED MORTGAGE OBLIGATIONS
Collateralized Mortgage Obligations ("CMOs") are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. The
CMOs in which the Fund invests are collateralized by GNMA certificates or
other government mortgage-backed securities (such collateral are called
mortgage assets). Multi-class pass-through securities are interests in
trusts that are comprised of mortgage assets and that have multiple
classes similar to those in CMOs. Unless the context indicates otherwise,
references herein to CMOs include multi-class pass-through securities.
Payments of principal and interest on the mortgage assets, and any
reinvestment income thereon, provide the means to pay debt service on the
CMOs or to make scheduled distributions on the multi-class pass-through
securities. Principal prepayments on the mortgage assets may cause the
CMOs to be retired substantially earlier than their stated maturities or
final distribution dates. Rising interest rates may cause prepayments to
occur at a slower than expected rate, which is known as "extension risk".
Extension risk may effectively change a security which was considered
short or intermediate term at the time of purchase into a long term
security. Long term securities generally fluctuate more widely in
response to changes in interest rates than short or intermediate term
securities.
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 securities
equivalent in kind or amount. 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. 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.
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 Commodity
Futures Trading Commission ("CFTC"). Certain special characteristics of
and risks associated with using these instruments are discussed below. In
addition to the investment guidelines (described below) adopted by the
Fund to govern investment in these instruments, use of options, forward
currency contracts and futures by the Fund is subject to the applicable
regulations of the Securities and Exchange Commission ("SEC"), the
several options and futures exchanges upon which such instruments may be
traded, the CFTC and the various state regulatory authorities.
In addition to the products, strategies and risks described below
and in the prospectus, the Investment Manager expects to 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 these strategies
and will, when required, either (1) set aside cash or liquid assets in a
segregated account with its custodian in the prescribed amount, or (2)
hold securities, currencies or other options or futures contracts whose
values are expected to offset ("cover") its obligations thereunder.
Securities, currencies or other options or futures contracts used for
cover and securities held in a segregated account cannot be sold or
closed out while the strategy is outstanding, unless they are replaced
with similar assets. As a result, there is a possibility that the use of
cover or segregation involving a large percentage of the Fund's assets
could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
Option Income and Hedging Strategies. The Fund may purchase and
write (sell) both exchange-traded options and options traded on the
over-the-counter ("OTC") market. Currently, options on debt securities
are primarily traded on the OTC market. Although many options on
currencies are exchange-traded, the majority of such options currently
are traded on the OTC market. Exchange-traded options in the United
States 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 or currencies underlying the option.
Failure by the dealer to do so would result in the loss of any premium
paid by the Fund as well as the loss of the expected benefit of the
transaction.
The Fund may purchase call options on securities (both equity and
debt) that the Investment Manager intends to include in the Fund's
portfolio in order to fix the cost of a future purchase. Call options
also may be used as a means of enhancing returns by, for example,
participating in an anticipated price increase of a security. In the
event of a decline in the price of the underlying security, use of this
strategy would serve to limit the potential loss to the Fund to the
option premium paid; conversely, if the market price of the underlying
security increases above the exercise price and the Fund either sells or
exercises the option, any profit eventually realized would be reduced by
the premium paid.
The Fund may purchase put options on securities in order to hedge
against a decline in the market value of securities held in its portfolio
or to attempt to enhance return. The put option enables the Fund to sell
the underlying security at the predetermined exercise price; thus, the
potential for loss to the Fund below the exercise price is limited to the
option premium paid. If the market price of the underlying security is
higher than the exercise price of the put option, any profit the Fund
realizes on the sale of the security would be reduced by the premium paid
for the put option less any amount for which the put option may be sold.
The Fund may on certain occasions wish to hedge against a decline
in the market value of securities held in its portfolio at a time when
put options on those particular securities are not available for
purchase. The Fund may therefore purchase a put option on other carefully
selected securities, the values of which historically have a high degree
of positive correlation to the value of such 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
or at the end of 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 to a level in excess of the option's exercise price,
and the option is exercised, the Fund would be obligated to sell the
security at less than its market value. 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).
The Fund generally would give up the ability to sell any portfolio
securities used to cover the call option while the call option was
outstanding.
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 security where the exercise price of the put is less than or
equal to the exercise price on the call. The Fund would enter into a long
straddle when the Investment Manager believes that it is likely that
securities prices will be more volatile during the term of the options
than is implied by the option pricing. A short straddle is a combination
of a call and a put written on the same security where the exercise price
on the put is less than or equal to the exercise price of the call where
the same issue of the security is considered "cover" for both the put and
the call. The Fund would enter into a short straddle when the Investment
Manager believes that it is unlikely that securities prices will be as
volatile during the term of the options as is implied by the option
pricing. In such case, the Fund will set aside cash or liquid assets in a
segregated account with its custodian equivalent in value to the amount,
if any, by which the put is "in-the-money," that is, that amount by which
the exercise price of the put exceeds the current market value of the
underlying security.
Foreign Currency Options and Related Risks. The Fund may take
positions in options on foreign currencies to hedge against the risk of
foreign exchange rate fluctuations on foreign securities that the Fund
holds in its portfolio or that it intends to purchase. For example, if
the Fund enters into a contract to purchase securities denominated in a
foreign currency, it could effectively fix the maximum U.S. dollar cost
of the securities by purchasing call options on that foreign currency.
Similarly, if the Fund held securities denominated in a foreign currency
and anticipated a decline in the value of that currency against the U.S.
dollar, the Fund could hedge against such a decline by purchasing a put
option on the currency involved. The Fund's ability to establish and
close out positions in such options is subject to the maintenance of a
liquid secondary market. Although many options on foreign currencies are
exchange-traded, the majority are traded on the OTC market. The Fund will
not purchase or write such options unless, in the Investment 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 securities or currencies under a call or put option it has
purchased, the Fund may sell an option of the same series as the option
held; this is known as a closing sale transaction. Closing transactions
essentially permit the Fund to realize profits or limit losses on its
options positions prior to the exercise or expiration of the option.
In considering the use of options to enhance returns or to hedge
the Fund's portfolio, particular note should be taken of the following:
(1) The value of an option position will reflect, among other
things, the current market price of the underlying security, securities
index or currency, the time remaining until expiration, the relationship
of the exercise price to the market price, the historical price
volatility of the underlying security, securities index or currency and
general market conditions. For this reason, the successful use of options
depends upon the Investment Manager's ability to forecast the direction
of price fluctuations in the underlying securities or currency markets
or, in the case of securities index options, fluctuations in the market
sector represented by the selected index.
(2) Options normally have expiration dates of up to three years.
The exercise price of the options may be below, equal to or above the
current market value of the underlying security, securities index or
currency. Purchased options that expire unexercised have no value. Unless
an option purchased by the Fund is exercised or unless a closing
transaction is effected with respect to that position, the Fund will
realize a loss in the amount of the premium paid and any transaction
costs.
(3) A position in an exchange-listed option may be closed out only
on an exchange that provides a secondary market for identical options.
Most exchange-listed options relate to stocks. Although the Fund intends
to purchase or write only those exchange-traded options for which there
appears to be a liquid secondary market, there is no assurance that a
liquid secondary market will exist for any particular option at any
particular time. Closing transactions may be effected with respect to
options traded in the OTC markets (currently the primary markets for
options on debt securities and a significant market for foreign
currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market
exists. Although the Fund will enter into OTC options with dealers that
agree to enter into, and that are expected to be capable of entering
into, closing transactions with the Fund, there can be no assurance that
the Fund would be able to liquidate an OTC option at a favorable price at
any time prior to expiration. In the event of insolvency of the
contra-party, the Fund may be unable to liquidate an OTC option.
Accordingly, it may not be possible to effect closing transactions with
respect to certain options, which would result in the Fund having to
exercise those options that it has purchased in order to realize any
profit. With respect to options written by the Fund, the inability to
enter into a closing transaction may result in material losses to the
Fund. For example, because the Fund must maintain a covered position with
respect to any call option it writes on a security, currency or
securities index, the Fund may not sell the underlying securities or
currency (or invest any cash or securities used to cover the option)
during the period it is obligated under such option. This requirement may
impair the Fund's ability to sell a portfolio security or make an
investment at a time when such a sale or investment might be
advantageous.
(4) Securities index options are settled exclusively in cash. If
the Fund writes a call option on an index, the Fund will not know in
advance the difference, if any, between the closing value of the index on
the exercise date and the exercise price of the call option itself and
thus will not know the amount of cash payable upon settlement. In
addition, a holder of a securities index option who exercises it before
the closing index value for that day is available, runs the risk that the
level of the underlying index may subsequently change.
(5) The Fund's activities in the options markets may result in a
higher portfolio turnover rate and additional brokerage costs and taxes;
however, the Fund also may save on commissions by using options as a
hedge rather than buying or selling individual securities in anticipation
or as a result of market movements.
Futures and Related Options Strategies. The Fund may engage in
futures strategies for hedging purposes to attempt to reduce the overall
investment risk that would normally be expected to be associated with
ownership of the securities in which it invests. This may involve, among
other things, using futures strategies to manage the effective duration
of the Fund. If the Investment Manager wishes to shorten the effective
duration of the Fund, the Fund may sell a futures contract or a call
option thereon, or purchase a put option on that futures contract. If the
Investment Manager wishes to lengthen the effective duration of the Fund,
the Fund may buy a futures contract or a call option thereon, or sell a
put option.
The Fund may use interest rate futures contracts and options
thereon to hedge its portfolio against changes in the general level of
interest rates and in other circumstances permitted by the CFTC. The Fund
may purchase an interest rate futures contract when it intends to
purchase debt securities but has not yet done so. This strategy may
minimize the effect of all or part of an increase in the market price of
the debt security that the Fund intends to purchase in the future. A rise
in the price of the debt security prior to its purchase may either be
offset by an increase in the value of the futures contract purchased by
the Fund or avoided by taking delivery of the debt securities under the
futures contract. Conversely, a fall in the market price of the
underlying debt security may result in a corresponding decrease in the
value of the futures position. The Fund may sell an interest rate futures
contract in order to continue to receive the income from a debt security,
while endeavoring to avoid part or all of the decline in market value of
that 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 securities index futures as a partial anticipatory hedge and
may write covered call options on securities index futures as a partial
hedge against a decline in the prices 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 currencies in
relation to the U.S. dollar. In addition, the Fund may sell foreign
currency futures contracts when the Investment Manager anticipates a
general weakening of the foreign currency exchange rate that could
adversely affect the market value of the Fund's foreign securities
holdings or interest payments to be received in that foreign currency. In
this case, the sale of futures contracts on the underlying currency may
reduce the risk to the Fund of a reduction in market value caused by
foreign currency exchange rate variations and, by so doing, provide an
alternative to the liquidation of securities positions and resulting
transaction costs. When the Investment Manager anticipates a significant
foreign exchange rate increase while intending to invest in a security
denominated in that currency, the Fund may purchase a foreign currency
futures contract to hedge against the increased rates pending completion
of the anticipated transaction. Such a purchase would serve as a
temporary measure to protect the Fund against any rise in the foreign
currency exchange rate that may add additional costs to acquiring the
foreign security position. The Fund may also purchase call or put options
on foreign currency futures contracts to obtain a fixed foreign currency
exchange rate at limited risk. The Fund may purchase a call option on a
foreign currency futures contract to hedge against a rise in the foreign
currency exchange rate while intending to invest in a security
denominated in that currency. The Fund may purchase put options on
foreign currency futures contracts as a hedge against a decline in the
foreign currency exchange rates or the value of its foreign portfolio
securities. The Fund may write a covered put option on a foreign currency
futures contract as a partial anticipatory hedge and may write a covered
call option on a foreign currency futures contract as a partial hedge
against the effects of declining foreign currency exchange rates on the
value of foreign 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 securities prices will be as volatile during the term of
the options as is implied by the option pricing. In such case, the Fund
will set aside cash or 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
certain 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 performance bond or good-faith deposit on the contract
that is returned to the Fund upon termination of the transaction,
assuming all obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Fund may be
required by an exchange to increase the level of its initial margin
payment. Additionally, initial margin requirements may be increased
generally in the future by regulatory action. Subsequent payments, called
"variation margin," to and from the broker, are made on a daily basis as
the value of the futures or options position varies, a process known as
"marking to the market." For example, when the Fund purchases a contract
and the value of the contract rises, the Fund receives from the broker a
variation margin payment equal to that increase in value. Conversely, if
the value of the futures position declines, the Fund is required to make
a variation margin payment to the broker equal to the decline in value.
Variation margin does not involve borrowing to finance the futures
transaction but rather represents a daily settlement of the Fund's
obligations to or from a clearing organization.
Buyers and sellers of futures positions and options thereon can
enter into offsetting closing transactions, similar to closing
transactions on options on 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 or 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.
(5) Purchasers of options on futures contracts pay a premium at the
time of purchase. This amount and the transaction costs are all that is
at risk. Sellers of options on futures contracts, however, must post
initial margin and are subject to additional margin calls that could be
substantial in the event of adverse price movements. In addition,
although the maximum amount at risk when the Fund purchases an option is
the premium paid for the option and the transaction costs, there may be
circumstances when the purchase of an option on a futures contract would
result in a loss to the Fund when the use of a futures contract would
not, such as when there is no movement in the level of the underlying
securities index value or the securities or currencies being hedged.
(6) As is the case with options, the Fund's activities in the
futures markets may result in a higher portfolio turnover rate and
additional transaction costs in the form of added brokerage commissions
and taxes; however, the Fund also may save on commissions by using
futures contracts or options thereon as a hedge rather than buying or
selling individual securities or currencies in anticipation or as a
result of market movements.
Special Risks Related to Foreign Currency Futures Contracts and
Related Options. Buyers and sellers of foreign currency futures contracts
are subject to the same risks that apply to the use of futures generally.
In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated
with options on foreign currencies described above.
Options on foreign currency futures contracts may involve certain
additional risks. The ability to establish and close out positions on
such options is subject to the maintenance of a liquid secondary market.
Compared to the purchase or sale of foreign currency futures contracts,
the purchase of call or put options thereon involves less potential risk
to the Fund because the maximum amount at risk is the premium paid for
the option (plus transaction costs). However, there may be circumstances
when the purchase of a call or put option on a foreign currency futures
contract would result in a loss, such as when there is no movement in the
price of the underlying currency or futures contract, when the purchase
of the underlying futures contract would not.
Forward Currency Contracts. The Fund may use forward currency
contracts to protect against uncertainty in the level of future foreign
currency exchange rates.
The Fund may enter into forward currency contracts with respect to
specific transactions. For example, when the Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency,
or the Fund anticipates the receipt in a foreign currency of dividend or
interest payments on a security that it holds or anticipates purchasing,
the Fund may desire to "lock in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such payment, as the case may be, by
entering into a forward contract for the purchase or sale, for a fixed
amount of U.S. dollars or foreign currency, of the amount of foreign
currency involved in the underlying transaction. The Fund will thereby be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the currency exchange rates during the
period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are
made or received.
The Fund also may hedge by using forward currency contracts in
connection with portfolio positions to lock in the U.S. dollar value of
those positions, to increase the Fund's exposure to foreign currencies
that the Investment Manager believes may 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 of 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. See "Distributions and Taxes."
The precise matching of the forward contract amounts and the value
of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between
the date the forward contract is entered into and the date it matures.
Accordingly, it may be necessary for the Fund
to purchase additional foreign currency on the spot (that is, cash)
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is
obligated to deliver and if a decision is made to sell the security and
make delivery of the foreign currency. Conversely, it may be necessary to
sell on the spot market some of the foreign currency received upon the
sale of the portfolio security if the market value of the 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 investment decisions made with
regard to overall diversification strategies. However, the Investment
Manager believes that it is important to have the flexibility to enter
into such forward contracts when it determines that the best interests of
the Fund will be served.
At or before the maturity date of a forward contract requiring the
Fund to sell a currency, the Fund may either sell a portfolio security
and use the sale proceeds to make delivery of the currency or retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on
the same maturity date, the same amount of the currency that it is
obligated to deliver. Similarly, the Fund may close out a forward
contract requiring it to purchase a specified currency by entering into a
second contract entitling it to sell the same amount of the same currency
on the maturity date of the first contract. The Fund would realize a gain
or loss as a result of entering into such an offsetting forward currency
contract under either circumstance to the extent the exchange rate or
rates between the currencies involved moved between the execution dates
of the first contract and the offsetting contract.
The cost to the Fund of engaging in forward currency contracts
varies with factors such as the currencies involved, the length of the
contract period, and the market conditions then prevailing. Because
forward currency contracts are usually entered into on a principal basis,
no fees or commissions are involved. The use of forward currency
contracts does not eliminate fluctuations in the prices of the underlying
securities the Fund owns or intends to acquire, but it does fix a rate of
exchange in advance. In addition, although forward currency contracts
limit the risk of loss due to a decline in the value of the hedged
currencies, at the same time they limit any potential gain that might
result should the value of the currencies increase.
Although the Fund values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. The Fund may convert foreign currency from
time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do 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.
INVESTMENT RESTRICTIONS
The following fundamental investment restrictions 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 will not be considered to be
violated unless an excess over the percentage occurs immediately after,
and is caused by, an acquisition of securities or assets of, or borrowing
by, the Fund. The Fund may not:
(1) Purchase a security if, as a result, more than 5% of the Fund's
total assets would be invested in the securities of any one issuer
or the Fund would own or hold 10% of the outstanding securities of
that issuer, except that up to 25% 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) Purchase a security, if as a result, 25% or more of the value of
the Fund's total assets would be invested in the securities of
issuers in a single industry, provided that this limitation does
not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
(3) Purchase or sell real estate (although it may purchase securities
of companies whose business involves the purchase or sale of real
estate);
(4) Invest in commodities or commodities 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;
(5) Lend its assets, except as permitted by applicable law;
(6) 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
authorized investments; or
(7) Issue senior securities as defined in the Investment Company Act of
1940, as amended (the "1940 Act") (including borrowing money),
except as permitted by applicable law.
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 investment objectives, policies and
restrictions as the Fund.
The Directors have established the following non-fundamental
investment restrictions that may be changed by the Board without
shareholder approval:
(i) The Fund may not make short sales of securities or purchase
securities on margin, except (a) the Fund may buy and sell options,
futures contracts, options on futures contracts, and forward
currency contracts, (b) the Fund may obtain such short term credits
as may be necessary for the clearance of transactions, (c) the Fund
may make initial margin deposits and variation margin payments in
connection with transactions in futures contracts and options
thereon, and forward currency contracts, and (d) the Fund may sell
"short against the box" where, by virtue of its ownership of the
other securities, the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold
and, if the right is conditional, the sale is made upon the same
conditions;
(ii) The Fund may not purchase the securities of any investment company
except (a) by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchase, provided
that immediately after such purchase no more than: 10% of the
Fund's total assets are invested in securities issued by investment
companies, 5% of the Fund's total assets are invested in securities
issued by any one investment company, or 3% of the voting
securities of any one such investment company are owned by the
Fund, or (b) when such purchase is part of a plan of merger,
consolidation, reorganization or acquisition of assets; and
(iii) With respect to financial and foreign currency futures and related
options (including options traded on a commodities exchange), the
Fund will not purchase or sell futures contracts or related options
other than for bona fide hedging purposes if, immediately
thereafter, the sum of the amount of initial margin deposits on the
Fund's existing futures positions and related options and premiums
paid for related options would exceed 5% of the Fund's total
assets.
OFFICERS AND DIRECTORS
The Directors and the officers, their respective offices, dates of
birth and principal occupations during the last five years are set forth
below. Unless otherwise noted, the address of each is 11 Hanover Square,
New York, NY 10005.
BASSETT S. WINMILL* - Chairman of the Board. He is Chairman of the
Board of two of the other investment companies advised by the Investment
Manager and its affiliates (the "Funds Complex") and of the parent of the
Investment Manager, Bull & Bear Group, Inc. ("Group"). He was born
February 10, 1930. He is a member of the New York Society of Security
Analysts, the Association for Investment Management and Research and the
International Society of Financial Analysts. He is the father of Mark C.
Winmill and Thomas B. Winmill.
PETER K. WERNER - Director. He is Director of Communications, since
May 1997, and from July 1996 to May 1997, Director of Admissions, of the
Governor Dummer Academy. From March 1993 to August 1995, he was Director
of Annual Giving and Alumni Relations at the Williston Northampton
School. From January 1991 to February 1993, he was Vice President - Money
Market Trading at Lehman Brothers. His address is Governor Dummer
Academy, 1 Elm Street, Byfield, Massachusetts 01922. He was born August
16, 1959.
GEORGE B. LANGA - Director. He is President of Langa Communications
Corp., a multi-media production company. His address is 187 East Market
Street, Rhinebeck, New York 12572. He was born August 31, 1962.
MARK C. WINMILL* - Director and Co-President. He is Co-President of
the Funds Complex and of Group and certain of its affiliates, Chairman of
the Investment Manager and Investor Service Center, Inc. (the
"Distributor"), and President of Bull & Bear Securities, Inc. ("BBSI").
He was born November 26, 1957. He received his M.B.A. from the Fuqua
School of Business at Duke University in 1987. From 1983 to 1985 he was
Assistant Vice President and Director of Marketing of E.P. Wilbur & Co.,
Inc., a real estate development and syndication firm and Vice President
of E.P.W. Securities, its broker/dealer subsidiary. He is a son of
Bassett S. Winmill and brother of Thomas B. Winmill. He is also a
Director of other investment companies in the Funds Complex.
THOMAS B. WINMILL* - Director, Co-President, Chief Executive
Officer, and General Counsel. He is Co-President, Chief Executive
Officer, and General Counsel of the Funds Complex and of Group and
certain of its affiliates, President of the Investment Manager and the
Distributor, and Chairman of BBSI. He was born June 25, 1959. He was
associated with the law firm of Harris, Mericle & Orr from 1984 to 1987.
He is a member of the New York State Bar and the SEC Rules Committee of
the Investment Company Institute. He is a son of Bassett S. Winmill and
brother of Mark C. Winmill. He is also a Director of other investment
companies in the Funds Complex.
STEVEN A. LANDIS - Senior Vice President. He is Senior Vice
President of the Funds Complex, the Investment Manager and certain of its
affiliates. He was born March 1, 1955. From 1993 to 1995, he was
Associate Director - Proprietary Trading at Barclays De Zoete Wedd
Securities Inc., from 1992 to 1993 he was Director, Bond Arbitrage at WG
Trading Company, and from 1989 to 1992 he was Vice President of Wilkinson
Boyd Capital Markets.
JOSEPH LEUNG, CPA - Treasurer and Chief Accounting Officer (since
1995). He is Treasurer and Chief Accounting Officer of the Funds Complex,
the Investment Manager and its affiliates. From 1992 to 1995 he held
various positions with Coopers & Lybrand L.L.P., a public accounting
firm. From 1991 to 1992, he was the accounting supervisor at Retirement
Systems Group, a mutual fund company. From 1987 to 1991, he held various
positions with Ernst & Young, a public accounting firm. He is a member of
the American Institute of Certified Public Accountants. He was born
September 15, 1965.
DEBORAH A. SULLIVAN - Vice President and Secretary. She is Vice
President and Secretary of the Funds Complex, the Investment Manager and
its affiliates.
* Bassett S. Winmill, Mark C. Winmill and Thomas B. Winmill are
"interested persons" of the Fund as defined by the 1940 Act, because of
their positions and other relationships with the Investment Manager.
COMPENSATION TABLE
TOTAL
COMPENSATION
FROM
PENSION OR REGISTRANT
RETIREMENT ESTIMATED AND
AGGREGATE BENEFITS ANNUAL INVESTMENT
NAME OF COMPENSATION ACCRUED AS BENEFITS COMPANY
PERSON, FROM PART OF FUND UPON COMPLEX PAID
POSITION REGISTRANT EXPENSES RETIREMENT TO DIRECTORS
George B. Langa $13,250 None None $13,250 from
Director 1 Investment
Company
Peter K. Werner $13,250 None None $13,250 from
Director 1 Investment
Company
Bassett S. Winmill $0 None None $0 from
Director 3 Investment
Companies
Mark C. Winmill $0 None None $0 from
Director 8 Investment
Companies
Thomas B. Winmill $0 None None $0 from
Director 9 Investment
Companies
No officer, Director or employee of the Investment Manager receives
any compensation from the Fund for acting as an officer, Director or
employee of the Fund. As of December 31, 1997, officers and Directors of
the Fund owned less than 1% of the outstanding shares of the Fund. As of
December 31, 1997, no shareholder of record owned more than 5% of the
outstanding shares of the Fund.
THE INVESTMENT MANAGER
The Investment Manager acts as general manager of the Fund, being
responsible for the various functions assumed by it, including the
regular furnishing of advice with respect to portfolio transactions. The
other principal subsidiaries of Group include Investor Service Center,
Inc., a registered broker/dealer, Midas Management Corporation and
Rockwood Advisers, Inc., registered investment advisers, and BBSI, a
registered broker/dealer providing discount brokerage services.
Group is a publicly owned company whose securities are listed and
traded on the NASDAQ Stock Market. Bassett S. Winmill may be deemed a
controlling person of Group on the basis of his ownership of 100% of
Group's voting stock and, therefore, of the Investment Manager. The Fund
and its affiliated investment companies had net assets in excess of
$290,000,000 as of February 18, 1997.
INVESTMENT MANAGEMENT AGREEMENT
Under the Investment Management Agreement, the Fund assumes and
pays all expenses required for the conduct of its business including, but
not limited to, custodian and transfer agency fees, accounting and legal
fees, investment management fees, fees of disinterested Directors,
association fees, printing, salaries of certain administrative and
clerical personnel, necessary office space, all expenses relating to the
registration or qualification of the shares of the Fund under Blue Sky
laws and reasonable fees and expenses of counsel in connection with such
registration and qualification, miscellaneous expenses and such
non-recurring expenses as may arise, including actions, suits or
proceedings affecting the Fund and the legal obligation which the Fund
may have to indemnify its officers and Directors with respect thereto.
For its services, the Investment Manager receives an investment
management fee, payable monthly, based on the average weekly net assets
of the Fund, at the annual rate of 7/10 of 1% of the first $250 million,
5/8 of 1% from $250 million to $500 million, and 1/2 of 1% over $500
million. The Investment Manager has agreed in the Investment Management
Agreement that it will waive all or part of its fee or reimburse the Fund
monthly if and to the extent that the Fund's aggregate operating expenses
exceed the most restrictive limit imposed by any state in which shares of
the Fund are qualified for sale, although the Fund is not currently
subject to any such limits. Certain expenses, such as brokerage
commissions, taxes, interest, distribution fees, certain expenses
attributable to investing outside the United States and extraordinary
items, are excluded from this limitation. For the fiscal years ended June
30, 1995, 1996 and 1997, the Fund paid to the Investment Manager
investment management fees of $288,533, $251,003 and $197,279
respectively.
If requested by the Directors, the Investment Manager may provide
other services to the Fund such as, without limitation, the functions of
billing, accounting, certain shareholder communications and services,
administering state and Federal registrations, filings and controls and
other administrative services. Any services so requested and performed
will be for the account of the Fund and the costs of the Investment
Manager in rendering such services will 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 the fiscal years ended June 30, 1995, 1996 and 1997 the Fund
reimbursed the Investment Manager $16,064, $16,889 and $10,585,
respectively, for such services.
The Investment Management Agreement provides that the Investment
Manager will not be liable to the Fund or any shareholder of the Fund for
any error of judgment or mistake of law or for any loss suffered by the
Fund in connection with the matters to which the agreement relates.
Nothing contained in the Investment Management Agreement, however, shall
be construed to protect the Investment Manager against any liability to
the Fund by reason of willful misfeasance, bad faith, or gross negligence
in the performance of its duties or by reason of its reckless disregard
of obligations and duties under the Investment Management Agreement.
The Investment Management Agreement will continue in effect, unless
sooner terminated as described below, for successive periods of twelve
months, provided such continuance is specifically approved at least
annually by (a) the Directors or by the holders of a majority of the
outstanding voting securities of the Fund as defined in the 1940 Act and
(b) a vote of a majority of the Directors who are not parties to the
Investment Management Agreement, or interested persons of any such party.
The Investment Management Agreement may be terminated without penalty at
any time either by a vote of the Directors or the holders of a majority
of the outstanding voting securities of the Fund, as defined in the 1940
Act, on 60 days' written notice to the Investment Manager, or by the
Investment Manager on 60 days' written notice to the Fund, and shall
immediately terminate in the event of its assignment.
Group has granted the Fund a non-exclusive license to use various
service marks, including "Bull & Bear," "Bull & Bear Performance Driven,"
and "Performance Driven" under certain terms and conditions on a royalty
free basis. Such license will be withdrawn in the event the investment
manager of the Fund is not the Investment Manager or another subsidiary
of Group. If the license is terminated, the Fund will eliminate all
reference to "Bull & Bear" in its corporate name and cease to use any of
such service marks or any similar service marks in its business.
DETERMINATION OF NET ASSET VALUE
Net asset value will normally be calculated (a) no less frequently
than weekly, (b) on the last business day of each month and (c) at any
other time determined by the Directors. Net asset value is calculated by
dividing the value of the Fund's net assets (the value of its assets less
its liabilities) by the total number of shares of its common stock
outstanding. All securities for which market quotations are readily
available, which include the options and futures in which the Fund may
invest, are valued at the last sales price on the primary exchange on
which they are traded prior to the time of determination, or, if no sales
price is available at that time, at the closing price quoted for the
securities (but if bid and asked quotations are available, at the mean
between the last current bid and asked prices, rather than the quoted
closing price). Securities that are traded in the unregulated market are
valued, if bid and asked quotations are available, at the mean between
the current bid and asked prices. If bid and asked quotations are not
available, then such securities are valued as determined in good faith
pursuant to procedures established by the Directors.
ALLOCATION OF BROKERAGE
The Fund seeks to obtain prompt execution of orders at the most
favorable net prices. The Fund is not currently obligated to deal with
any particular broker, dealer or group thereof. Fund transactions in debt
and OTC securities generally are with dealers acting as principals at net
prices with little or no brokerage costs. In certain circumstances,
however, the Fund may engage a broker as agent for a commission to effect
transactions for such securities. Purchases of securities from
underwriters include a commission or concession paid to the underwriter,
and purchases from dealers include a spread between the bid and asked
price. While the Investment Manager generally seeks reasonably
competitive spreads or commissions, payments of the lowest spread or
commission is not necessarily consistent with obtaining the best net
results. Accordingly, 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, and allocation of commissions to the Fund's Custodian.
With respect to brokerage and research services, consideration may be
given in the selection of broker/dealers to brokerage or research
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, or other applicable law are
met. Section 28(e) 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 to 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, 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 (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 any
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.
BBSI, a wholly owned subsidiary of Group and the Investment
Manager's affiliate, provides discount brokerage services to the public
as an introducing broker clearing through unaffiliated firms on a fully
disclosed basis. The Investment Manager is authorized to place Fund
brokerage through BBSI at its posted discount rates and indirectly
through a BBSI clearing firm. The Fund will not deal with BBSI in any
transaction in which BBSI acts as principal. The clearing firm will
execute trades in accordance with the fully disclosed clearing agreement
between BBSI and the clearing firm. BBSI will be financially responsible
to the clearing firm for all trades of the Fund until complete payment
has been received by the Fund or the clearing firm. BBSI will provide
order entry services or order entry facilities to the Investment Manager,
arrange for execution and clearing of portfolio transactions through
executing and clearing brokers, monitor trades and settlements and
perform limited back-office functions including the maintenance of all
records required of it by the NASD.
In order for BBSI to effect any portfolio transactions for the
Fund, the commissions, fees or other remuneration received by BBSI must
be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. The Directors
have adopted procedures in conformity with Rule 17e-1 under the 1940 Act
to ensure that all brokerage commissions paid to BBSI are reasonable and
fair. Although BBSI's posted discount rates may be lower than those
charged by full cost brokers, such rates may be higher than some other
discount brokers and certain brokers may be willing to do business at a
lower commission rate on certain trades. The Directors have determined
that portfolio transactions may be executed through BBSI if, in the
judgment of the Investment Manager, the use of BBSI is likely to result
in price and execution at least as favorable as those of other qualified
broker/dealers and if, in particular transactions, BBSI charges the Fund
a rate consistent with that charged to comparable unaffiliated customers
in similar transactions. Brokerage transactions with BBSI are also
subject to such fiduciary standards as may be imposed by applicable law.
The Investment Manager's fees under its agreement with the Fund are not
reduced by reason of any brokerage commissions paid to BBSI.
During the fiscal years ended June 30, 1995, 1996 and 1997 the Fund
paid total brokerage commissions of $958, $16,243 and $7,221
respectively. Of such commissions $0, $10,756 and $6,596 were allocated
to broker/dealers that provided research in the years 1995, 1996 and
1997, respectively. No transactions were directed to broker/dealers
during such periods for selling shares of the Fund or any other
affiliated investment companies. During the Fund's fiscal years ended
June 30, 1995, 1996 and 1997 the Fund paid brokerage commissions of $958,
$5,487 and $625, respectively, to BBSI, representing approximately 100%,
34% and 9%, respectively of the total commissions paid by the Fund and
involving approximately 100%, 3% and 0.47%, respectively, of the
aggregate dollar amount of transactions involving the payment of
commissions.
Investment decisions for the Fund and for other affiliated
investment companies managed by the Investment Manager or its affiliates
are made independently based on each Fund's investment objectives and
policies. The same investment decision, however, may occasionally be made
for two or more Funds. In such a case, the Investment Manager may combine
orders for two or more Funds for a particular security if it appears that
a combined order would reduce brokerage commissions and/or result in a
more favorable transaction price. Combined purchase or sale orders are
then averaged as to price and allocated as to amount according to a
formula deemed equitable to each Fund. While in some cases this practice
could have a detrimental effect upon the price or quantity available of
the security with respect to the Fund, the Investment Manager believes
that the larger volume of combined orders can generally result in better
execution and prices. The Fund is not obligated to deal with any
particular broker, dealer or group thereof. Certain broker/dealers that
the Funds Complex does business with may, from time to time, own more
than 5% of the publicly traded Class A non-voting Common Stock of Group,
the parent of the Investment Manager, and may provide clearing services
to BBSI.
The Fund's portfolio turnover rate may vary from year to year and
will not be a limiting factor when the Investment Manager deems portfolio
changes appropriate. The portfolio turnover rate is calculated by
dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the
monthly average value of securities in the portfolio during the year.
TAXES
The Fund has qualified and intends to continue to qualify for
treatment as a regulated investment company ("RIC") under the Internal
Revenue Code of 1986, as amended (the "Code"). To qualify for such
treatment, the Fund must distribute to its shareholders for each taxable
year at least 90% of its investment company taxable income (consisting
generally of net investment income, net short term capital gain and net
gains from certain foreign currency transactions) ("Distribution
Requirement") and must meet several additional requirements. Among these
requirements are the following: (1) at least 90% of the Fund's gross
income each taxable year must be derived from dividends, interest,
payments with respect to securities loans, and gains from the sale or
other disposition of securities or foreign currencies, or other income
(including gains from options, futures, or forward contracts) derived
with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) the Fund must derive less than 30%
of its gross income each taxable year from the sale or other disposition
of securities, or any of the following, that were held for less than
three months - options, futures, or forward contracts (other than those
on foreign currencies), or foreign currencies (or options, futures, or
forward contracts thereon) that are not directly related to the Fund's
principal business of investing in securities (or options and futures
with respect thereto) ("Short-Short Limitation"), although this
limitation will no longer apply to the Fund after June 30, 1998; and (3)
the Fund's investments must satisfy certain diversification requirements.
In any year during which the applicable RIC provisions of the Code are
satisfied, the Fund will not be liable for federal income tax on its net
investment income and net capital gains (net long-term capital gains in
excess of the sum of net short-term capital losses and capital loss
carryovers from prior years, if any) that it distributes to its
shareholders. To the extent the Fund retains its net capital gains for
investment, it will be subject under current tax rates to federal income
tax at a maximum effective rate of 35% on the amount retained. If for any
taxable year the Fund does not qualify for treatment as a RIC, all of its
taxable income will be taxed at corporate rates, and distributions to its
shareholders will not be deductible by the Fund in computing its taxable
income. In addition, in the event of failure to qualify as a RIC, the
Fund's distributions, to the extent derived from the Fund's current or
accumulated earnings and profits, will constitute dividends (eligible for
the corporate dividends-received deduction) which are taxable to
shareholders as ordinary income, even though those distributions might
otherwise (at least partially) have been treated in the shareholders'
hands as long-term capital gains. If the Fund fails to qualify as a RIC
for any year, it generally must pay out its earnings and profits
accumulated in that year less an interest charge to the U.S. Treasury on
50% of such earnings and profits before it can again qualify as a RIC.
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 selling shareholder 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
tax. Dividends and other distributions may also be subject to state,
local or foreign 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) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the
calendar year, (2) at least 98% of its capital gain net income
(determined on an October 31 fiscal year basis), plus (3) generally,
income and gain not distributed or not subject to corporate tax in the
prior calendar year. The Fund intends to avoid imposition of the Excise
Tax by making adequate distributions.
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 (the "IRS") 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
the Fund. 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's portfolio may include zero coupon bonds. Zero coupon
bonds are original issue discount ("OID") bonds that pay no current
interest. OID is the excess, if any, of the stated redemption price at
maturity of a debt instrument over the issue price of the instrument.
Original issue discount on a taxable obligation is require to be
currently included in the income of the holder of the obligation
generally on a constant interest rate basis resembling the economic
accrual of interest. The tax basis of the holder of an OID debt
instrument is increased by the amount of OID thereon properly included in
the holder's gross income as determined for federal income tax purposes.
Current inclusion in gross income of the OID on a taxable debt instrument
is required, even though no cash is received at the time the OID is
required to be included in gross income. Because such income may not be
matched by a corresponding cash distribution to the Fund, the Fund may be
required to borrow money or dispose of other securities to be able to
make distributions to shareholders. The extent to which the Fund may
liquidate securities at a gain may be limited by the Short-Short
Limitation discussed above (but only through June 30, 1998).
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 income 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 will 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 such amounts are not
distributed to the Fund. These amounts likely would have to be
distributed to satisfy the Distribution Requirement and avoid imposition
of the Excise Tax. In most instances it will be very difficult, if not
impossible, to make this election because of certain requirements.
The Fund's use of hedging strategies, such as selling (writing) and
purchasing options and futures contracts and entering into forward
contracts, involves complex rules that will determine for federal income
tax purposes the timing of recognition and character of the gains and
losses the Fund realizes in connection therewith. These provisions may
also require the Fund to mark-to-market certain types of positions in its
portfolio (i.e., treat them as if they were disposed of at their fair
market value at the close of the taxable year), which may cause the Fund
to recognize income without receiving cash with which to make
distributions in the amounts necessary to satisfy the 90% Distribution
Requirement for avoiding federal income tax and the 98% distribution
requirement for avoiding the Excise Tax. The Fund will monitor its
transactions, make appropriate tax elections and make the appropriate
entries in its books and records when it acquires any foreign currency,
option, futures contract, forward contract or hedged investment in order
to mitigate the effect of these rules, prevent disqualification of the
Fund as a RIC and minimize the imposition of federal income and excise
taxes. Gains from the disposition of foreign currencies (except certain
gains that may be excluded by future regulations), and gains from
options, futures, and forward contracts derived by the Fund with respect
to its business of investing in securities or foreign currencies, will
qualify as permissible income under the Income Requirement. However,
income from the disposition of options, futures, and forward contracts
(other than those on foreign currencies) will be subject to the
Short-Short Limitation if they are held for less than three months.
Income from the disposition of foreign currencies, and options, futures,
and forward contracts on foreign currencies, also will be subject to the
Short-Short Limitation if they are held for less than three months and
are not directly related to the Fund's principal business of investing in
securities (or options and futures with respect thereto).
If the Fund satisfies certain requirements, any increase in value
of a position that is part of a "designated hedge" will be offset by any
decrease in value (whether realized or not) of the offsetting hedging
position during the period of the hedge for purposes of determining
whether the Fund satisfies the Short-Short Limitation. Thus, only the net
gain (if any) from the designated hedge will be included in gross income
for purposes of that limitation. The Fund will consider whether it should
seek to qualify for this treatment for its hedging transactions. To the
extent the Fund does not so qualify, it may be forced to defer the
closing out of certain options, futures, forward contracts and foreign
currency positions beyond the time when it otherwise would be
advantageous to do so, in order for the Fund to continue to qualify as a
RIC.
The foregoing discussion of federal tax consequences is based on
the United States federal tax laws in effect on the date of this
Statement of Additional Information, which are subject to change by
legislative, judicial, or administrative action, possibly with
retroactive effect. The Fund may be subject to state, local or foreign
tax in jurisdictions in which it may be deemed to be doing business.
Shareholders and prospective shareholders are advised to consult their
own tax advisors with respect to the application to their particular
circumstances of the foregoing general taxation rules, and with respect
to the state, local or foreign tax consequences to them of an investment
in shares of the Fund.
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 June 30.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Investors Fiduciary Trust Company, P.O. Box 419507, Kansas City, MO
64141, has been retained by the Fund to act as Custodian of the Fund's
investments and may appoint one or more subcustodians. The Custodian also
performs certain 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. The Custodian is also
the Fund's Transfer and Dividend Disbursing Agent.
AUDITORS
Tait, Weller & Baker, Eight Penn Center Plaza, Suite 800,
Philadelphia, PA 19103, are the independent accountants for the Fund.
Financial statements of the Fund are audited annually.
FINANCIAL STATEMENTS
The Fund's Financial Statements in the Annual Report for the fiscal
year ended June 30, 1997 (the "Report"), which either accompany this SAI
or has previously been provided to the person to whom this Prospectus is
being sent, are incorporated herein by reference with respect to all
information other than the information set forth in the Letter to
Shareholders included therein. The Fund will furnish, without change, a
copy of its Report upon request at 11 Hanover Square, New York, New York
10005, 212-785-0900.
APPENDIX A
DESCRIPTIONS OF BOND RATINGS
Moody's Investors Service, Inc. A brief description of the
applicable Moody's Investment Service, Inc. ("Moody's"), rating symbols
and their meanings (as published by Moody's) follows:
Aaa Bonds which are rated "Aaa" are judged to be of the best quality
and carry the smallest degree of investment risk. Interest
payments are protected by a large or an exceptionally stable
margin and principle is secure. While the various protective
elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by
all standards and, together with the Aaa group, comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities of fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the longer term risks appear somewhat larger in Aaa
securities.
A Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa Bonds which are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of a
desirable investment. Assurance of interest and principal
payments of maintenance of other terms of the contract over any
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 as "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C Bonds which are rated "C" are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Con (...Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated
conditionally. These bonds are secured by (a) earnings of
projects under construction, (b) earnings of projects unseasoned
in operation experience, (c) rentals which begin when facilities
are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis
of condition.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are
designated by the symbols Aa1, A1, Baa1, Ba1 and B1.
Standard's & Poor's Rating Group. A brief description of the
applicable Standard Poor's Ratings Group ("S&P") rating symbols and their
meanings (as published by S&P) follows:
AAA Bonds rated "AAA" have the highest rating assigned by S&P to a
debt obligation and indicates an extremely strong capacity to pay
interest and repay principal.
AA Bonds rated "AA" also qualify as high quality debt obligations.
Capacity to pay interest and repay principal is very strong, and
in the majority of instances they differ from AAA issues only in
small degree.
A Bonds rated "A" have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Bonds rated "BBB" are regarded as having adequate capacity to pay
interest and repay principal. Whereas they normally exhibit
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for bonds in this capacity than
for bonds in higher rated categories.
Debt rated "BB," "B," "CCC," and "C" is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or
economic conditions, which could lead to inadequate capacity to
meet timely interest and principal payments. The "BB" rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied "BB" or "BB-" rating.
CCC Debt rated "CCC" has a current identifiable vulnerability to
default, and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied "B or "B-" rating.
CC The rating "CC" is typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" debt
rating.
C The rating "C" is typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC-" rating.
The "C" rating category may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are
continued.
CI The rating "CI" is reserved for income bonds on which no interest
is being paid.
D Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period. The "D" rating category also will be used upon the
filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
BULL & BEAR GLOBAL INCOME FUND, INC.
Part C. Other Information
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
i. Financial Statements.*
ii. (i) Articles of Incorporation**
(ii) Amended By-Laws ++
(iii) Not applicable*
(iv) Specimen stock certificate**
(v) Automatic Dividend Reinvestment Plan**
(vi) Not applicable
(vii) Investment Management Agreement**
(viii) (a) Form of Dealer Manager Agreement between Registrant
and Dealer Manager +
(b) Form of Soliciting Dealer Agreement between Registrant
and Soliciting Dealer +
(b) Form of Subscription Certificates +
(c) Form of Notice of Guarantee Delivery +
(d) Form of DTC Participant Over-Subscription Form +
(e) Form of Nominee Holder Over-Subscription Form +
(f) Form of Subscription Agency Agreement +
(ix) Not applicable
(x) Custody and Investment Accounting Agreement++
(xi) (a) IFTC Transfer Agency Agreement++
(b) Credit Facilities Agreement
(c) Securities Lending Authorization Agreement
(d) Segregated Account Procedural
(xii) Opinion of Skadden, Arps, Slate, Meagher & Flom, LLP+
(xiii) Not applicable
(xiv) Consent of Independent Accountants for Registrant++
(xv) Not applicable
(xvi) Not applicable
(xvii) Not applicable
- ---------------
* Incorporated by reference from Registrant's Annual Report for the
fiscal year ended June 30, 1997, accession number
0001031235-97-000014 and from Registrant's Semi-Annual Report for
the six-months ended December 31, 1997, accession number ______.
** Incorporated by reference from Registrant's Registration Statement
on Form N-2, File No. 811-08025, as filed with the Securities and
Exchange Commission on January 23, 1997.
+ To be filed by Amendment.
++ Filed herewith.
ITEM 25. MARKETING ARRANGEMENTS
See Form of Dealer Manager Agreement, filed as Exhibit 8(a).
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses expected to
be incurred in connection with the offering described in this
Registration Statement:
Securities and Exchange
Commission Registration fees.............................. $ 3,182
National Association of Securities
Dealers, Inc. fee............................................ 2,091
American Stock Exchange additional
listing fee...............................................
Printing (other than stock certificates).....................
Accounting fees and expenses.................................
Legal fees and expenses......................................
Reimbursement of Dealer Manager expenses.....................
Subscription Agent fee and expenses..........................
Information Agent fees and expenses..........................
Miscellaneous................................................
Total.....................................................
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Insofar as the following have substantially identical boards
of directors or trustees, they may be deemed with the Registrant to be
under common control: Bull & Bear Dollar Reserves, a series of shares
issued by Bull & Bear Funds II, Inc.; Bull & Bear Municipal Income Fund,
Inc.; Bull & Bear U.S. Government Securities Fund, Inc.; Bull & Bear Gold
Investors Ltd.; Bull & Bear U.S. and Overseas Fund, a series of Bull &
Bear Funds I, Inc.; Bull & Bear Special Equities Fund, Inc.; Rockwood
Fund, Inc.; and Midas Fund, Inc.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Number of Record Holders
Title of Class (as of February 18, 1998)
Shares of Common Stock 38
$0.01 par value
ITEM 29. 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.
The Registrant's Articles of Incorporation: (1) provide that, to
the maximum extent permitted by applicable law, a director or officer
will not be personally liable to the Registrant or its stockholders; (2)
require the Registrant to indemnify and advance expenses as provided in
the By-laws to its present and past directors, officers, employees,
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 Articles of
Incorporation or By-laws or adoption or modification of any provision of
the Articles of Incorporation or By-laws 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 and advance of expenses
available to any person covered by the indemnification provisions of the
Articles of Incorporation and By-laws.
Section 1 of Article 10 of the By-Laws sets forth the procedures by
which the Registrant will indemnify its directors, officers, employees
and agents. Section 2 of Article 10 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.
The Registrant's Investment Management Agreement between the
Registrant and Bull & Bear Advisers, Inc. (the "Investment Manager")
provides that the Investment Manager shall not be liable to the
Registrant or any shareholder of the Registrant for any error of judgment
or mistake of law or for any loss suffered by the Registrant in
connection with the matters to which the Investment Management Agreement
relates. However, the Investment Manager is not protected against any
liability to the Registrant 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.
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.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The directors and officers of Bull & Bear Advisers, Inc., the
Investment Manager, are also directors and officers of the other Funds
managed by the Investment Manager, a wholly-owned subsidiary of Bull &
Bear Group, Inc. (the "Bull & Bear Funds"). In addition, such officers
are officers and directors of Bull & Bear Group, Inc. and its
other subsidiaries: Investor Service Center, Inc.,
the distributor of the Bull & Bear Funds and a registered broker/dealer;
Midas Management Corporation and Rockwood Advisers, Inc., registered
investment advisers; and Bull & Bear Securities, Inc., a discount
brokerage firm. Bull & Bear Group, Inc.'s predecessor was organized in
1976. In 1978, it acquired control of and subsequently merged with
Investors Counsel, Inc., a registered investment adviser organized in
1959. The principal business of both companies since their founding has
been to serve as investment manager to registered investment companies.
The Investment Manager serves as investment manager of Bull & Bear Dollar
Reserves, a series of shares issued by Bull & Bear Funds II, Inc.; Bull &
Bear Municipal Income Fund, Inc.; Bull & Bear Gold Investors Ltd.; Bull &
Bear U.S. and Overseas Fund, a series of Bull & Bear Funds I, Inc.; Bull
& Bear Special Equities Fund, Inc.; and Bull & Bear U.S. Government
Securities Fund, Inc.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The minute books of Registrant and copies of its filings with the
Commission are located at 11 Hanover Square, New York, NY 10005 (the
offices of the Registrant and its Investment Manager). All other records
required by Section 31(a) of the Investment Company Act of 1940 are
located at Investors Fiduciary Trust Company, 1004 Baltimore, Kansas
City, MO 64105 (the offices of the Registrant's Custodian, Transfer and
Dividend Disbursing Agent). Copies of certain of the records located at
Investors Fiduciary Trust Company are kept at 11 Hanover Square, New
York, NY 10005 (the offices of Registrant and the Investment Manager).
ITEM 32. MANAGEMENT SERVICES--NONE
ITEM 33. UNDERTAKINGS
The Registrant hereby undertakes:
1. To suspend the offering of shares of Common Stock covered hereby until
the prospectus contained herein is amended if (a) subsequent to the
effective date of its registration statement, the net asset value per
share of Common Stock declines more than ten percent from its net asset
value per share of Common Stock as of the effective date of this
registration statement or (b) the net asset value per share of Common
Stock increases to an amount greater than its net proceeds as stated in
the prospectus contained herein.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. Not applicable.
6. That for the purpose of determining any liability under the Securities
Act of 1933, as amended, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
under Rule 497(h) under the Securities Act of 1933 shall be deemed to be
part of this registration statement as of the time it was declared
effective.
7. That for purposes of determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering thereof.
8. To send by first class mail or other means designed to ensure equally
prompt delivery, within two business days of receipt of a written or oral
request, any Statement of Additional Information or Annual Report.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the
"Securities Act") and the Investment Company Act of 1940 (the "Investment
Company Act"), the Registrant has duly caused this Pre-Effective
Amendment to the Registration Statement to be filed pursuant to the
Securities Act and has duly caused this Amendment to the Registration
Statement to be filed pursuant to the Investment Company Act and to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, State of New York, on the 23rd of February, 1998.
BULL & BEAR GLOBAL INCOME FUND, INC.
By: /s/ Thomas B. Winmill
________________________________
Thomas B. Winmill
Co-President
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 date indicated.
Signature Capacity Date
--------- -------- ----
/s/ Basset S. Winmill
- ---------------------- Chairman and Director February ___, 1998
(Basset S. Winmill)
/s/ Mark C. Winmill
- ---------------------- Co-President and Director February ___, 1998
(Mark C. Winmill)
/s/ Thomas B. Winmill
- ---------------------- Co-President and Director February ___, 1998
(Thomas B. Winmill) (Principal Executive
Officer)
/s/ Joseph Leung
- ---------------------- Treasurer (Principal February ___, 1998
(Joseph Leung) Financial and Accounting
Officer)
/s/ George B. Langa
- ---------------------- Director February ___, 1998
(George B. Langa)
/s/ Peter K. Werner
- ---------------------- Director February ___, 1998
(Peter K. Werner)
SCHEDULE OF EXHIBITS TO FORM N-2
Exhibit Page
Number Exhibit Number
i. Financial Statements.*
ii. (i) Articles of Incorporation**
(ii) Amended By-Laws ++
(iii) Not applicable*
(iv) Specimen stock certificate**
(v) Automatic Dividend Reinvestment Plan**
(vi) Not applicable
(vii) Investment Management Agreement**
(viii) (a) Form of Dealer Manager Agreement between
Registrant and Dealer Manager +
(b) Form of Soliciting Dealer Agreement between
Registrant and Soliciting Dealer +
(b) Form of Subscription Certificates +
(c) Form of Notice of Guarantee Delivery +
(d) Form of DTC Participant Over-Subscription Form +
(e) Form of Nominee Holder Over-Subscription Form +
(f) Form of Subscription Agency Agreement +
(ix) Not applicable
(x ) Custody and Investment Accounting Agreement++
(a) IFTC Transfer Agency Agreement
(b) Credit Facilities Agreement
(c) Securities Lending Authorization Agreement
(d) Segregated Account Procedural
(xi) Transfer Agent Agreement++
(xii) Opinion of Skadden, Arps, Slate, Meagher & Flom, LLP+
(xiii) Not applicable
(xiv) Consent of Independent Accountants for Registrant++
(xv) Not applicable
(xvi) Not applicable
(xvii) Not applicable
- ------------
* Incorporated by reference from Registrant's Annual Report for the
fiscal year ended June 30, 1997, accession number
0001031235-97-000014 and from Registrant's Semi-Annual Report for
the six months ended December 31, 1997, accession number _______.
** Incorporated by reference from Registrant's Registration Statement
on Form N-2, File No. 811-08025, as filed with the Securities and
Exchange Commission on January 23, 1997.
+ To be filed by Amendment.
++ Filed herewith.