N-2/A: Initial filing of a registration statement on Form N-2 for closed-end investment companies
Published on April 6, 1998
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1998
REGISTRATION NOS. 333-46765
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. 1
POST-EFFECTIVE AMENDMENT NO. ___
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 2
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 & FLOM (ILLINOIS) ROGERS & WELLS LLP
333 WEST WACKER DRIVE 200 PARK AVENUE
CHICAGO, ILLINOIS 60606 NEW YORK, NEW YORK 10166
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS
REGISTRATION STATEMENT.
(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 Consents of the Statement of
Additional Information.......... Table of Contents of the
Statement of Additional
Information
PART B Caption Location in the Statement
of Additional 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 APRIL 3,1998
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)
(continued from previous page)
If you have questions or need further information about the Offer,
please call Corporate Investor Communications Inc., the Fund's information
agent for the Offer (the "Information Agent"), at (800) 633-1822.
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) 633-1822 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. The Sales
Load and other offering expenses will be charged
against paid-in capital of the Fund.
(Cover page, continued)
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 Rights
Committee of the Board of Directors consists of the two Directors who are
not "interested persons" of the Fund under the Investment Company Act of
1940, as amended (the "1940 Act"). See "Officers and Directors" in the SAI.
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 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 approximately fifteen
days prior to the payment date. Assuming the Subscription Period is not
extended, it is expected that the first dividend, if any, 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*
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:
CORPORATE INVESTOR
COMMUNICATIONS, INC.
111 Commerce Road
Carlstadt, New Jersey 07072-2586
Toll Free: (800) 633-1822
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
- ------- ------------
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 SecuritiThe 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."
Year 2000 Risks. Like other investment companies and financial and
business organizations around the world, the Fund will be adversely
affected if the computer systems used by Bull & Bear Advisers, Inc. and the
Fund's other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Fund is taking steps that it
believes are reasonably designed to address the Year 2000 Problem with
respect to the computer systems it uses and to obtain satisfactory
assurances that comparable steps are being taken by each of the Fund's
major service providers. The Fund does not expect to incur any significant
costs in order to address the Year 2000 Problem. However, at this time
there can be no assurances that these steps will be sufficient to avoid any
adverse impact on the Fund.
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)0........................ 4.00%
ANNUAL EXPENSES (as a percentage of net assets)
Management Fees............................................. 0.70%
Interest Payments on Borrowed Funds......................... 1.99%
Other Expenses (2).......................................... 0.66%
TOTAL ANNUAL EXPENSES (2) 3.35%
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)....... $53 $81 $111 $197
(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 annualized expenses for the six month period ended December
31, 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 offering
expenses of the Fund incurred in connection with the Offer, estimated
at $________. Such offering expenses will be charged against paid-in
capital of the Fund.
(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
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 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.
(d) Effective February 7, 1997, the Fund converted from an open-end
management investment company to a closed-end management investment
company. Prior to February 7, 1997, total return was calculated based
upon the net asset values of the Fund. Subsequent to February 7, 1987,
the Fund calculated total return based upon purchases and sales of
shares of the Fund at current market values and reinvestment of
dividends and distributions at the lower of the per share net asset
value or the closing market price.
(e) Average of all month-end market values of collateral for securities
loaned during the period.
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 Rights
Committee of the Board of Directors consists of the two Directors who are
not "interested persons" of the Fund under the Investment Company Act of
1940, as amended (the "1940 Act"). See "Officers and Directors" in the SAI.
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 approximately fifteen
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 State Street Bank and Trust Company which
will receive, for its administrative, processing, invoicing and other
services as subscription agent, a fee estimated to be $15,000, 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 State Street Bank and Trust Company 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:
State Street Bank and Trust Company
Corporate Reorganization
P.O. Box 9061
Boston, Massachusetts 02205-8686
U.S.A.
(2) BY EXPRESS MAIL OR OVERNIGHT COURIER
State Street Bank and Trust Company
Corporate Reorganization
c/o Boston EquiServe
70 Campbell Drive
Braintree, Massachusetts 02184
U.S.A.
(3) BY HAND:
Bank of Boston
c/o Boston EquiServe
Corporate Reorganization
55 Broadway -- 3rd Floor
New York, New York 10006
U.S.A.
(4) BY FACSIMILE (TELECOPY)
FOR NOTICE OF GUARANTEED DELIVERY ONLY
(617) 794-6333 with the original Subscription Certificate to be
sent by method (1) above. Confirm facsimile by telephone at (617)
794-6388.
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:
CORPORATE INVESTOR
COMMUNICATIONS, INC.
111 Commerce Road
Carstadt, New Jersey 07072-82586
Toll Free: (800) 633-1822.
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 $3,500 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), 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.
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 (including the amount borrowed) 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
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.
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 and 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, 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."
YEAR 2000 RISKS
Like other investment companies, financial and business
organizations around the world, the Fund will be adversely affected if the
computer systems used by Bull & Bear Advisers, Inc. and the Fund's other
service providers do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known
as the "Year 2000 Problem." The Fund is taking steps that it believes are
reasonably designed to address the Year 2000 Problem with respect to the
computer systems it uses and to obtain satisfactory assurances that
comparable steps are being taken by each of the Fund's major service
providers. The Fund does not expect to incur any significant costs in order
to address the Year 2000 Problem. However, at this time there can be no
assurances that these steps will be sufficient to avoid any adverse impact
on the Fund.
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
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
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 from 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 BULL & BEAR
WHICH SUCH OFFER OR SOLICITATION WOULD BE GLOBAL INCOME FUND, INC.
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN 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 REQUIRED BY LAW TO
BE DELIVERED, THIS PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY.
----------------------
1,554,802 SHARES OF
COMMON STOCK ISSUABLE UPON
EXERCISE OF RIGHTS TO SUBSCRIBE
TABLE OF CONTENTS TO SUCH SHARES
----------------------
PAGE
Prospectus Summary .........................1 PROSPECTUS
Fee Table...................................7 __________ ___, 1998
Financial Highlights........................8 ----------------------
The Offer..................................10
The Fund...................................17
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 FIRST ALBANY CORPORATION
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 APRIL 3, 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 April 3, 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 April 3, 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.