AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 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. 2
POST-EFFECTIVE AMENDMENT NO. ___
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 3
BULL & BEAR GLOBAL INCOME FUND, INC.0
(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
11 HANOVER SQUARE
NEW YORK, NEW YORK 10005
-----------------------
Copies to:
THOMAS A. HALE, ESQ. LEONARD B. MACKEY, JR., ESQ.
SKADDEN, ARPS, SLATE, MEAGHER ROGERS & WELLS LLP
& FLOM (ILLINOIS) 200 PARK AVENUE
333 WEST WACKER DRIVE NEW YORK, NEW YORK 10166
CHICAGO, ILLINOIS 60606
-----------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS
REGISTRATION STATEMENT.
Title of Proposed Maximum Proposed Aggregate Amount of
Securities Being Amount Being Offering Price Maximum Offering Registration
Registered Registered(1) Per Share(2)(3) Price Fee(3)
- ---------------- ------------- ---------------- ------------------ ------------
Shares of Common 1,970,585 $8.00 $15,764,680 $4,651
Stock
(1) Includes 394,117 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) $4,694 previously paid. Estimated pursuant to Rule 457(c) under the
Securities Act of 1933 on the basis of market price per share on
April 24, 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; Risk Factors and
Special Considerations;
Taxes
Item No. 9 Management.......................... The 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
Statement of Additional
Information
Location in the Statement
PART B Caption 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................ Financial Statements;
Auditors
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
BULL & BEAR GLOBAL INCOME FUND, INC.
1,576,468 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 May 20, 1998 (the "Record Date") non-transferable rights
("Rights") entitling the holders thereof to subscribe for an aggregate of
1,576,468 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 394,117 Shares, for an aggregate total of 1,970,585 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
93% 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 Fund announced its intention to make the Offer after the close of
trading on the American Stock Exchange on April 30, 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 April 24, 1998 (the last trading date on which the Fund publicly
reported its net asset value prior to the announcement of the Offer) )and
May 1, 1998 (the last trading date on which the Fund publicly reported its
net asset value prior to the date of this Prospectus) was $7.85 and $7.86,
respectively, and the last reported sale price of a share of the Fund's
Common Stock on that exchange on those dates was $8.00 and $8.1875,
respectively.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JUNE 10,
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 Sub scription 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.............. $7.31 $0.29 $7.02
Total Maximum (5)...... $11,523,981 $457,176 $11,066,805
(notes on following page)
FIRST ALBANY CORPORATION
The date of this Prospectus is May 5, 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 1-888-200-4398.
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 May 5,
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
the last page of this Prospectus, may be obtained without charge by
contacting the Information Agent at 1-888-200-4398 or by calling the Fund
toll-free at 1-800-847- 4200.
------------------
(notes from previous page)
(1) Estimated on the basis of 93% of the net asset value per
share on May 1, 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 $300,000, 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
$14,404,976, $571,470 and $13,833,506, 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 has determined that it 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 Offer. 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. In reaching a decision to
approve the Offer, the Board of Directors was 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 capital
appreciation by taking advantage of new investments without having to
liquidate current holdings. The Investment Manager also 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 such decision, the Board of Directors considered, 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
considered 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 also considered 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 also considered 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 considered,
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 May 20, 1998 (the "Record
Date") non-transferable rights ("Rights") entitling the holders thereof to
subscribe for an aggregate of 1,576,468 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
May 20, 1998 and ends at 5:00 p.m., New York City time, on June 10, 1998
(the "Expiration Date"), unless extended by the Fund until 5:00 p.m., New
York City time, on a date no later than June 17, 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 July 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 394,117 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
93% 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 $7.31 per share), by check, to State Street Bank and
Trust Company (the "Subscription Agent"). Rights may also be exercised by
contacting your broker, bank 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 May 20, 1998
Subscription Period May 20, 1998 to
June 10, 1998*
(i) Subscription Certificates and Payment for
Shares or (ii) Notice of Guaranteed Delivery Due June 10, 1998*
Expiration and Pricing Date June 10, 1998*
Subscription Certificates and Payment for Guarantees
of Delivery Due June 16, 1998*
Confirmation to Purchasers June 22, 1998*
Final Payment for Shares Due July 7, 1998*
- ------------
* Unless the Offer is extended to a date not later than June 17, 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: 1-888-200-4398
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 March
31, 1998, the Fund had approximately 68.25% of its total assets invested in
fixed income securities with an actual or deemed investment grade rating,
approximately 26.38% of its total assets in fixed income securities with an
actual or deemed ratings below investment grade and approximately 5.37% of
its total assets in securities other than fixed income securities. The Fund
currently expects to invest predominately in the United States, Europe,
Latin America and the Pacific Rim. 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 March 31, 1998, the Fund
held investments in 18 countries, distributed as follows:
Country Distribution
------- ------------
Argentina 16.7%
Brazil 3.9%
Bulgaria 2.1%
Chile 2.6%
China 1.2%
Colombia 5.4%
Dominican Republic 1.4%
France 1.3%
Lithuania 5.4%
Japan 0.9%
Mexico 6.9%
Poland 2.4%
Qatar 1.4%
Russia 5.6%
Turkey 1.3%
United Kingdom 7.7%
United States 31.5%
Venezuela 2.3%
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
March 31, 1998, the net assets of the Fund were approximately $25 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 $7.31 per share (which is 93% of the Fund's net asset value per share at
May 1, 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 $0.38 per share or 4.8%. The dilution in net
asset value will disproportionately affect shareholders who do not exercise
their rights.
Foreign Investments. Investors should understand and consider
carefully the substantial risks involved in investing in foreign
securities. Foreign securities, which are generally denominated in foreign
currencies, and utilization of forward contracts on foreign currencies
involve certain considerations comprising both risk and opportunity not
typically associated with investing in U.S. securities. These
considerations include: fluctuations in currency exchange rates;
restrictions on foreign investment and repatriation of capital; costs of
converting foreign currencies into U.S. dollars; greater price volatility
and trading illiquidity; less public information on issuers of securities;
difficulty in enforcing legal rights outside of the United States; lack of
uniform accounting, auditing, and financial reporting standards; the
possible imposition of foreign taxes, exchange controls, and currency
restrictions; and possible political, economic, and social instability of
developing as well as developed countries including without limitation
nationalization, expropriation of assets, and war. Furthermore, individual
foreign economies may differ favorably or unfavorably from the U.S. economy
in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency, and balance of payments
position. Securities of many foreign companies may be less liquid and their
prices more volatile than securities issued by comparable U.S. issuers.
Transactions in foreign securities may be subject to less efficient
settlement practices. These risks are often heightened when the Fund's
investments are concentrated in a small number of countries. In addition,
because transactional and custodial expenses for foreign securities are
generally higher than for domestic securities, the expense ratio of the
Fund can be expected to be higher than investment companies investing
exclusively in domestic securities. Foreign securities trading practices,
including those involving securities settlement where Fund assets may be
released prior to receipt of payment, may expose the Fund to increased risk
in the event of a failed trade or insolvency of a foreign broker/dealer.
Legal remedies for defaults and disputes may have to be pursued in foreign
courts, whose procedures differ substantially from those of U.S. courts.
The Fund may invest in securities of issuers located in emerging
market countries. The risks of investing in foreign securities may be
greater with respect to securities of issuers in, or denominated in the
currencies of, emerging market countries. The economies of emerging market
countries generally are heavily dependent upon international trade and
accordingly, have been and may continue to be adversely affected by trade
barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been and may
continue to be adversely affected by economic conditions in the countries
with which they trade. The securities markets of emerging market countries
are substantially smaller, less developed, less liquid and more volatile
than the securities markets of the U.S. and other developed countries.
Disclosure and regulatory standards in many respects are less stringent in
emerging market countries than in the U.S. and other developed countries.
There also may be a lower level of monitoring and regulation of emerging
markets and the activities of investors in such markets, and enforcement of
existing regulations may be extremely limited. Investing in local markets,
particularly in emerging market countries, may require the Fund to adopt
special procedures, seek local government approvals or take other actions,
each of which may involve additional costs to the Fund. Emerging market
countries may also restrict investment opportunities in issuers in
industries deemed important to national interests.
Fixed Income Securities. The Fund will normally invest at least 65%
of its net assets in investment grade fixed income securities. Securities
rated BBB or better by S&P or Baa or better by Moody's are investment grade
but Moody's considers securities rated Baa to have speculative
characteristics. Changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity for issuers of such securities
to make principal and income payments than is the case for higher-rated
securities. The Fund also may invest up to 35% of its assets in fixed
income securities rated below investment grade but not lower than CCC by
S&P or Caa by Moody's. These securities are deemed by those agencies to be
in poor standing and predominantly speculative; the issuers may be in
default on such securities or deemed without capacity to make scheduled
payments of income or repay principal, involving major risk exposure to
adverse conditions. The Fund is also permitted to purchase fixed income
securities that are not rated by S&P or Moody's but that the Investment
Manager determines to be of comparable quality to that of rated securities
in which the Fund may invest. Such securities are included in percentage
limitations applicable to the comparable rated securities. The values of
fixed income securities will change as market interest rates fluctuate.
During periods of falling interest rates, the values of outstanding fixed
income securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline. The
magnitude of these fluctuations generally will be greater for securities
with longer maturities.
Lower rated fixed income securities generally offer a higher current
yield than that available on higher grade issues. However, lower rated
securities involve higher risks, in that they are especially subject to
adverse changes in general economic conditions and in the industries in
which the issuers are engaged, to changes in the financial condition of the
issuers, and to price fluctuations in response to changes in interest
rates. During periods of economic downturn or rising interest rates, highly
leveraged issuers may experience financial stress which could adversely
affect their ability to make payments of principal and income and increase
the possibility of default. In addition, such issuers may not have more
traditional methods of financing available to them, and may be unable to
repay debt at maturity by refinancing. The risk of loss due to default by
such issuers is significantly greater because such securities frequently
are unsecured and subordinated to the prior payment of senior indebtedness.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements. In such agreements, the Fund sells the underlying
security to a creditworthy securities dealer or bank and the Fund agrees to
repurchase it at an agreed-upon date and price reflecting a market rate of
interest. Such agreements are considered to be borrowings and involve
leveraging which is speculative and increases both investment opportunity
and investment risk. When the Fund enters into reverse repurchase
agreements, its custodian will set aside in a segregated account cash or
liquid securities whose value is marked to the market daily with a market
value at least equal to the repurchase price. If necessary, assets will be
added to the account daily so that the value of the account will not be
less than the amount of the Fund's purchase commitment. Such agreements are
subject to the risk that the benefit of purchasing a security with the
proceeds of the sale by the Fund will be less than the cost to the Fund of
transacting the reverse repurchase agreement. Such agreements will be
entered into when, in the judgment of the Investment Manager, the risk is
justified by the potential advantage of greater total return to
shareholders.
Leverage. From time to time the Fund borrows money from banks
(including its custodian bank), engages in reverse repurchase agreements
and issues senior securities, including debt and preferred stock, to
purchase and carry securities and pays interest thereon. These practices
are referred to as leverage, are speculative, and increase both investment
opportunity and investment risk. If the investment income on securities
purchased with leverage exceeds the interest paid on the leverage, the
Fund's income will be correspondingly higher. If the investment income
fails to cover the Fund's costs, including interest on leverage, or if
there are losses, the net asset value of the Fund's shares will decrease
faster than would otherwise be the case. When the Fund is leveraged, the
1940 Act requires the Fund to have asset coverage of at least 200% for
preferred securities it has issued and 300% for its borrowings or the debt
securities it has issued. Interest on money borrowed is an expense the Fund
would not otherwise incur, and it may therefore have little or no
investment income during periods of substantial borrowings.
Use of leverage by the Fund would increase the Fund's total return to
shareholders if the Fund's returns on its investments out of the proceeds
of such leverage exceed the cost of such leverage. Although there can be no
assurance that the use of leverage will be successful, the Investment
Manager believes that the ability to employ leverage may potentially
increase yields and total returns.
The Fund has a committed bank line of credit and the interest rate is
equal to the Federal Reserve Funds Rate plus 1.00 percentage points. At
December 31, 1997, there was no balance outstanding. For the six months
ended December 31, 1997, the weighted average interest rate was 6.40% based
on the balances outstanding from the line of credit and reverse repurchase
agreements during the period and the weighted average amount outstanding
was $7,679,271 or 20.9% 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 has 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)...................................... 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)...... $74 $144 $217 $407
(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 $300,000. Such offering expenses will be charged against paid-in
capital of the Fund.
(3) The example reflects the Sales Load and other expenses 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 OPERATING PERFORMANCE
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE FOR THE FISCAL YEARS ENDED JUNE 30,
SIX MONTHS
ENDED
DECEMBER 1997 1996 1995 1994 1993
31, ---- ---- ---- ---- ----
1997
(UNAUDITED)
Net asset value, beginning of
period............................ $ 8.43 $ 7.92 $ 8.00 $ 8.25 $ 9.39 $ 8.56
========== ========== ========== ========== ========== ==========
Net investment income* ......... .29 .51 .26 .17 .60 .66
Net realized and unrealized gain
(loss) on investment* ....... (.50) .59 .23 .18 (1.02) .92
---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations .................. (.21) $ 1.10 $ .49 $ .35 $ (.42) $ 1.58
---------- ---------- ---------- ---------- ---------- ----------
Distributions:
Dividends from net investment
income ......................... (.42) (.59) (.26) (.17) (.60) (.66)
Dividends in excess of net
realized gains ................. -- -- -- -- (.12) (.09)
Dividends from paid-in-capital.. -- -- (.31) (.43) -- --
Total distributions ............ (.42) (.59) (.57) (.60) (.72) (.75)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period ... $ 7.80 $ 8.43 $ 7.92 $ 8.00 $ 8.25 $ 9.39
========== ========== ========== ========== ========== ==========
Per share market value:
End of period .................. $ 8.25 $ 8.50 n/a n/a n/a n/a
========== ==========
Total return on net asset value
basis .......................... (2.59%) 14.71% 6.26% 4.52% (5.12)% 19.39%
========== ========== ========== ========== ========== ==========
Total return on market value
basis(d) ....................... 2.19% 15.71% n/a n/a n/a n/a
========== ==========
Net assets, end of period (000's
omitted) ......................... $ 24,148 $ 25,361 $ 30,865 $ 39,180 $ 44,355 $ 51,768
========== ========== ========== ========== ========== ==========
Ratio of operating expenses to
average net as sets(a)(b) ........ 3.72%** 2.71% 2.18% 2.21% 1.98% 1.95%
---------- ---------- ---------- ---------- ---------- ----------
Ratio of net investment income
to average net assets(c) ......... 8.90%** 7.35% 6.55% 6.20% 6.58% 7.44%
---------- ---------- ---------- ---------- ---------- ----------
Portfolio turnover rate .......... 196% 475% 585% 385% 223% 172%
---------- ---------- ---------- ---------- ---------- ----------
Senior securities - collateral
for securities loaned:
Total amount outstanding ....... $2,456,150 -- -- -- -- --
Asset coverage ................. 1083% -- -- -- -- --
Average market value(e) ........ $1,814,469 -- -- -- -- --
(notes on following page)
FOR THE FISCAL YEARS ENDED JUNE 30,
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
Net asset value, beginning of
period.............................. $ 7.97 $ 8.67 $ 9.73 $ 10.83 $ 13.04
------- ------- ------- ------- --------
Net investment income* ........... .77 .81 .99 1.27 1.41
Net realized and unrealized gain
(loss) on investment* ............ .54 (.64) (.97) (1.13) (2.19)
------- ------- ------- ------- --------
Total from investment operations . $ 1.31 $ .17 $ .02 $ .14 $ (.78)
------- ------- ------- ------- --------
Distributions:
Dividends from net investment
income ........................... (.72) (.82) (.98) (1.24) (1.43)
Dividends in excess of net
realized gains ................... -- -- -- -- --
Dividends from paid-in-capital ... -- (.05) (.10) -- --
------- ------- ------- ------- -------
Total distributions .............. $ (.72) $ (.87) $ (1.08) $ (1.24) $ (1.43)
------- ------- ------- ------- --------
Net asset value, end of period ..... $ 8.56 $ 7.97 $ 8.67 $ 9.73 $ 10.83
======= ======= ======= ======= ========
Per share market value:
End of period .................... n/a n/a n/a n/a n/a
Total return on a net asset value
basis ............................ 17.09% 2.45% .54% 1.34% (5.99)%
======= ======= ======= ======= ========
Total return on a market value
basis ............................ n/a n/a n/a n/a n/a
Net assets, end of period (000's
omitted) ........................... $44,323 $42,515 $51,318 $82,520 $124,095
======= ======= ======= ======= ========
Ratio of operating expenses to
average net assets ................. 1.93% 1.95% 1.72% 1.68% 1.71%
------- ------- ------- ------- --------
Ratio of net investment income to
average net assets ................ 9.25% 10.08% 10.99% 12.08% 11.96%
------- ------- ------- ------- --------
Portfolio turnover rate ............ 206% 555% 134% 122% 124%
------- ------- ------- ------- --------
Senior securities-
collateralsecurities loaned:
Total amount outstanding ......... -- -- -- -- --
Asset coverage ................... -- -- -- -- --
Average market value(e) .......... -- -- -- -- --
* 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. Since such date, the Fund has calculated total return on
market value basis 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 on the
payment date or the average of closing market price for the five days
preceding the payment date.
(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 has determined that it 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 Offer. 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. In reaching a decision to
approve the Offer, the Board of Directors was 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 such decision, the Board of Directors considered, 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
considered 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 also considered 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 also considered 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 considered,
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 May 20, 1998 and ends at
5:00 p.m., New York City time, on June 10, 1998, unless extended by the
Fund until 5:00 p.m., New York City time, to a date not later than June 17,
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.
Fractional Shares will not be issued upon the exercise of Rights. If
a Record Date Shareholder's total ownership is fewer than two shares, such
Record Date Shareholder may subscribe for one Share. 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
July, 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 394,117 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 93% 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
$8.00, and the net asset value as of the close of business on the Pricing
Date is $7.85, the Subscription Price will be $7.30 (93% of $7.85). 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 $7.75, and the net asset value as of the close of business on
the Pricing Date is $7.85, the Subscription Price will be $7.21 (93% of
$7.75). See "Common Stock."
The Fund announced the Offer after the close of trading on the
American Stock Exchange on April 30, 1998. The last reported net asset
value per share of Common Stock at the close of business on April 24, 1998
(the last trading date on which the Fund publicly reported its net asset
value prior to the announcement of the Offer)) and May 1, 1998 (the last
trading date on which the Fund publicly reported its net asset value prior
to the date of this Prospectus) was $7.85 and $7.86, respectively, and the
last reported sale price of a share of the Fund's Common Stock on that
exchange on those dates was $8.00 and $8.1875, 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 June 10,
1998, unless extended by the Fund until 5:00 p.m., New York City time, on a
date not later than June 17, 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 9573
Boston, Massachusetts 02205-9573
U.S.A.
(2) BY EXPRESS MAIL OR OVERNIGHT COURIER
State Street Bank and Trust Company
Corporate Reorganization
70 Campanelli Drive
Braintree, Massachusetts 02184
U.S.A.
(3) BY HAND:
Securities Transfer & Reporting Services, Inc.
c/o Boston EquiServe LP
55 Broadway -- 3rd Floor
New York, New York 10006
U.S.A.
(4) BY FACSIMILE (TELECOPY)
FOR NOTICE OF GUARANTEED DELIVERY ONLY
(781) 794-6333 with the original Subscription Certificate to be sent
by method (1) above. Confirm facsimile by telephone at (781) 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. Fractional Shares will not
be issued upon the exercise of Rights. If a Record Date Shareholder's total
ownership is fewer than two shares, such Record Date Shareholder may
subscribe for one Share. Shareholders will have no right to rescind their
subscriptions after receipt of their payment for Shares by the Subscription
Agent. 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
Carlstadt, New Jersey 07072-82586
Toll Free: 1-888-200-4398
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 $7.31 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
or (ii) long-term gain or loss taxed at a maximum capital gains rate of (a)
28% for Shares held more than one year but not more than 18 months or (b)
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 is irrevocable and 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 "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 $7.86 per share
would be reduced by approximately $0.38 or 4.8%, 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 $94,735. 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 May
5, 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 May 20, 1998
Subscription Period May 20, 1998 to
June 10, 1998*
(i) Subscription Certificates and Payment for
Shares or (ii) Notice of Guaranteed Delivery Due June 10, 1998*
Expiration and Pricing Date June 10, 1998*
Subscription Certificates and Payment for Guarantees
of Delivery Due June 16, 1998*
Confirmation to Participants June 22, 1998*
Final Payment for Shares July 7, 1998*
- ----------
* Unless the Offer is extended to a date not later than June 17, 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 March
31, 1998, the Fund had approximately 68.25% of its total assets invested in
fixed income securities with an actual or deemed investment grade rating,
approximately 26.38% of its total assets in fixed income securities with an
actual or deemed ratings below investment grade and approximately 5.37% of
its total assets in securities other than fixed income securities. The Fund
currently expects to invest predominately in the United States, Europe and
Latin America. 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 March 31,
1998, the Fund held investments in 18 countries, distributed as follows:
COUNTRY Distribution
------- ------------
Argentina 16.7%
Brazil 3.9%
Bulgaria 2.1%
Chile 2.6%
China 1.2%
Colombia 5.4%
Dominican Republic 1.4%
France 1.3%
Lithuania 5.4%
Japan 0.9%
Mexico 6.9%
Poland 2.4%
Qatar 1.4%
Russia 5.6%
Turkey 1.3%
United Kingdom 7.7%
United States 31.5%
Venezuela 2.3%
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 $10,766,805, 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 394,117 Shares, in order to satisfy over-subscription requests, the
additional net proceeds will be approximately $2,766,701. 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, assuming all Rights are exercised by Record Date Shareholders at
the Estimated Subscription Price of $7.31 per share (which is 93% of the
Fund's net asset value per share at May 1, 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 $0.38 per
share or 4.8%. The actual Subscription Price may be greater or less than
the Estimated Subscription Price. 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, which may include 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 20.9% of the Fund's 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 has 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, Europe, Latin America, and the Pacific Rim. 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.
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 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, which may include 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 20.9% 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 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.
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
with respect to 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 dividends and distributions are unlikely to
be eligible for the 70% dividends received deduction, since the Fund does
not anticipate investing substantially in stocks of domestic corporations.
Distributions out of net capital gain (the excess of net long term capital
gain over net short term capital loss) 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), taxable at a maximum rate of 28% or 20% depending on the Fund's
holding period for the assets sold that generated such net capital gain.
Distributions out of net capital gain will not be eligible for the 70%
corporate dividends received deduction. 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.
If the Fund has net capital gain, the Fund reserves the authority to
retain and not distribute all or part of such net capital gain in any
year. If an amount of net capital gain is not distributed, a shareholder must
include in taxable income as long-term capital gain his share of such
amount. However, the Fund will pay the taxes imposed on any such un-
distributed net capital gain and such shareholder will receive a credit or
refund for taxes on his share of such amount. 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. Dividends and other
distributions may also be subject to state, local or foreign taxes.
The Fund will be required to backup withhold an amount equal to 31%
of a shareholder's dividend or distribution of net capital gain 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.
A notice detailing the amounts and tax status of dividends and
distributions paid by the Fund, the amount of undistributed net capital
gain (if any) and the portions of the Fund's distributions of net capital
gain (if any) that are subject to the 28% and 20% maximum tax rates will be
mailed annually to the Fund's shareholders.
The sale of shares (including transfers in connection with a
redemption or repurchase of shares) will be a taxable transaction for
federal income tax purposes. Selling shareholders will generally recognize
gain or loss in an amount equal to the difference between their adjusted
tax basis in the shares and the amount received. If such shares are held as
a capital asset, the gain or loss will be a capital gain or loss and will
be long-term if such shares have been held for more than one year. In the
case of non-corporate shareholders, such long-term capital gain or loss
will be taxed at a maximum rate of (i) 28% if such shares were held for
more than one year but not more than 18 months or (ii) 20% if such shares
were held for more than 18 months. Capital gains or losses realized upon
the sale of shares held for one year or less will be taxed at ordinary
income tax rates. 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. A loss on the sale of Fund
shares that were held for six months or less will be treated as a long-term
(rather than a short-term) capital loss to the extent the selling
shareholder received any distributions of net capital gain attributable to
those shares.
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 on 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 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. The following description relates to the issued and
outstanding shares of common stock of the Fund and is subject to the terms
and conditions of any such preferred stock, if and when issued. The Fund's
stock is fully paid and non-assessable. 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 of common stock entitles the
holder to one vote for all purposes. Shares have no preemptive rights.
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 vote 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, unless previously approved by a majority of
the Continuing Directors (defined as the initial Directors of the Fund and
directors whose election is approved by a majority of the Continuing
Directors then on the Board), in which event such conversion would require
the affirmative vote of the holders of a majority of votes entitled to be
cast thereon. In addition, the affirmative vote of the holders of 80% of
the outstanding shares of the Fund (other than shares held by any
interested stockholder or any affiliate thereof) is required to authorize
any business combination or certain issuance of securities and sale or
transfer of assets, 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 (including votes of voting stock held by any interested
stockholder or affiliate thereof) 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 previously 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 entitled to be cast on the
matter 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 Continuing 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 3,094,983
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 5,065,568.
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
29,811 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.
Quarterly
Trading Premium(Discount)
Quarter Ended Market Price Volume Net Asset Value to Net Asset
Value(%) High Low (thousand) High Low High Low
March 31, 1997............... $8 3/8 $6 7/8 295 $8.32 $8.36 0.7% (17.8)%
June 30, 1997................ 9 1/16 6 3/4 520 8.43 8.22 7.5% (17.9)%
September 30, 1997........... 9 1/4 8 3/16 321 8.41 8.39 10.0% (2.4)%
December 31, 1997............ 9 1/4 7 1/2 265 8.52 7.83 8.6% (4.2)%
March 31, 1998............... 8 9/16 7 13/16 327 7.89 7.82 8.5% (0.1)%
The last reported net asset value per share of Common Stock at the
close of business on April 24, 1998 (the last trading date on which the
Fund publicly reported its net asset value prior to the announcement of the
Offer) )and May 1, 1998 (the last trading date on which the Fund publicly
reported its net asset value prior to the date of this Prospectus) was
$7.85 and $7.86, respectively, and the last reported sale price of a share
of the Fund's Common Stock on that exchange on those dates was $8.00 and
$8.1875, 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 WHICH SUCH
OFFER OR SOLICITATION WOULD BE 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 BULL & BEAR
FACTS AS SET FORTH IN THE PROSPECTUS OR GLOBAL INCOME FUND, INC.
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.
------------------
TABLE OF CONTENTS 1,576,468 SHARES OF
COMMON STOCK ISSUABLE UPON
PAGE EXERCISE OF RIGHTS TO SUBSCRIBE
TO SUCH SHARES
Prospectus Summary ................1
Fee Table..........................8
Financial Highlights...............9
The Offer.........................11 ------------------
The Fund..........................18
Use of Proceeds...................19
Risk Factors and PROSPECTUS
Special Considerations..........19 May 5, 1998
The Fund's Investment Program.....23
The Investment Manager............28
Dividend Reinvestment Plan........28 ------------------
Taxes.............................29
Repurchase of Shares..............30
Capital Stock.....................30
Custodian, Transfer Agent and FIRST ALBANY CORPORATION
Dividend Disbursing Agent.......32
Distribution Arrangements.........32
Legal Matters.....................32
Experts...........................32
Further Information...............33
Table of Contents of Statement
of Additional Information.......33
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 May 5, 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 1-800-847-4200.
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 May 5, 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, 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, and President of the Investment Manager and Investor Service
Center, Inc. (the "Distributor"). He was born June 25, 1959. 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 - Chief Compliance Officer, Secretary and Vice
President. She is Chief Compliance Officer, Secretary and Vice President of
the investment companies in the Funds Complex and of the Investment Manager
and its affiliates. From 1993 through 1994 she was the Blue Sky Paralegal
for SunAmerica Asset Management Corporation and from 1992 through 1993 she
was Compliance Administrator and Blue Sky Administrator with Prudential
Securities and Prudential Mutual Fund Management, Inc. She earned her Juris
Doctor at Hofstra University School of Law. She was born June 13, 1969.
* Bassett S. Winmill, Mark C. Winmill and Thomas B. Winmill are
"interested persons" of the Fund as defined by the 1940 Act, because of
their positions and other relationships with the Investment Manager.
COMPENSATION TABLE
TOTAL
COMPENSATION
FROM
PENSION OR REGISTRANT
RETIREMENT ESTIMATED AND
AGGREGATE BENEFITS ANNUAL INVESTMENT
NAME OF COMPENSATION ACCRUED AS BENEFITS COMPANY
PERSON, FROM PART OF FUND UPON COMPLEX PAID
POSITION REGISTRANT EXPENSES RETIREMENT TO DIRECTORS
George B. Langa $13,250 None None $13,250 from
Director 1 Investment
Company
Peter K. Werner $13,250 None None $13,250 from
Director 1 Investment
Company
Bassett S. Winmill $0 None None $0 from
Director 3 Investment
Companies
Mark C. Winmill $0 None None $0 from
Director 8 Investment
Companies
Thomas B. Winmill $0 None None $0 from
Director 9 Investment
Companies
No officer, Director or employee of the Investment Manager receives
any compensation from the Fund for acting as an officer, Director or
employee of the Fund. As of December 31, 1997, officers and Directors of
the Fund owned less than 1% of the outstanding shares of the Fund. As of
December 31, 1997, no shareholder of record owned more than 5% of the
outstanding shares of the Fund.
THE INVESTMENT MANAGER
The Investment Manager acts as general manager of the Fund, being
responsible for the various functions assumed by it, including the regular
furnishing of advice with respect to portfolio transactions. The other
principal subsidiaries of Group include Investor Service Center, Inc., a
registered broker/dealer, Midas Management Corporation and Rockwood
Advisers, Inc., registered investment advisers, and BBSI, a registered
broker/dealer providing discount brokerage services.
Group is a publicly owned company whose securities are listed and
traded on the NASDAQ Stock Market. Bassett S. Winmill may be deemed a
controlling person of Group on the basis of his ownership of 100% of
Group's voting stock and, therefore, of the Investment Manager. The Fund
and its affiliated investment companies had net assets in excess of
$290,000,000 as of February 18, 1997.
INVESTMENT MANAGEMENT AGREEMENT
Under the Investment Management Agreement, the Fund assumes and pays
all expenses required for the conduct of its business including, but not
limited to, custodian and transfer agency fees, accounting and legal fees,
investment management fees, fees of disinterested Directors, association
fees, printing, salaries of certain administrative and clerical personnel,
necessary office space, all expenses relating to the registration or
qualification of the shares of the Fund under Blue Sky laws and reasonable
fees and expenses of counsel in connection with such registration and
qualification, miscellaneous expenses and such non-recurring expenses as
may arise, including actions, suits or proceedings affecting the Fund and
the legal obligation which the Fund may have to indemnify its officers and
Directors with respect thereto.
For its services, the Investment Manager receives an investment
management fee, payable monthly, based on the average weekly net assets of
the Fund, at the annual rate of 7/10 of 1% of the first $250 million, 5/8
of 1% from $250 million to $500 million, and 1/2 of 1% over $500 million.
The Investment Manager has agreed in the Investment Management Agreement
that it will waive all or part of its fee or reimburse the Fund monthly if
and to the extent that the Fund's aggregate operating expenses exceed the
most restrictive limit imposed by any state in which shares of the Fund are
qualified for sale, although the Fund is not currently subject to any such
limits. Certain expenses, such as brokerage commissions, taxes, interest,
distribution fees, certain expenses attributable to investing outside the
United States and extraordinary items, are excluded from this limitation.
For the fiscal years ended June 30, 1995, 1996 and 1997, the Fund paid to
the Investment Manager investment management fees of $288,533, $251,003 and
$197,279 respectively.
If requested by the Directors, the Investment Manager may provide
other services to the Fund such as, without limitation, the functions of
billing, accounting, certain shareholder communications and services,
administering state and Federal registrations, filings and controls and
other administrative services. Any services so requested and performed will
be for the account of the Fund and the costs of the Investment Manager in
rendering such services will be reimbursed by the Fund, subject to
examination by those directors of the Fund who are not interested persons
of the Investment Manager or any affiliate thereof. For the fiscal years
ended June 30, 1995, 1996 and 1997 the Fund reimbursed the Investment
Manager $16,064, $16,889 and $10,585, respectively, for such services.
The Investment Management Agreement provides that the Investment
Manager will not be liable to the Fund or any shareholder of the Fund for
any error of judgment or mistake of law or for any loss suffered by the
Fund in connection with the matters to which the agreement relates. Nothing
contained in the Investment Management Agreement, however, shall be
construed to protect the Investment Manager against any liability to the
Fund by reason of willful misfeasance, bad faith, or gross negligence in
the performance of its duties or by reason of its reckless disregard of
obligations and duties under the Investment Management Agreement.
The Investment Management Agreement will continue in effect, unless
sooner terminated as described below, for successive periods of twelve
months, provided such continuance is specifically approved at least
annually by (a) the Directors or by the holders of a majority of the
outstanding voting securities of the Fund as defined in the 1940 Act and
(b) a vote of a majority of the Directors who are not parties to the
Investment Management Agreement, or interested persons of any such party.
The Investment Management Agreement may be terminated without penalty at
any time either by a vote of the Directors or the holders of a majority of
the outstanding voting securities of the Fund, as defined in the 1940 Act,
on 60 days' written notice to the Investment Manager, or by the Investment
Manager on 60 days' written notice to the Fund, and shall immediately
terminate in the event of its assignment.
Group has granted the Fund a non-exclusive license to use various
service marks, including "Bull & Bear," "Bull & Bear Performance Driven,"
and "Performance Driven" under certain terms and conditions on a royalty
free basis. Such license will be withdrawn in the event the investment
manager of the Fund is not the Investment Manager or another subsidiary of
Group. If the license is terminated, the Fund will eliminate all reference
to "Bull & Bear" in its corporate name and cease to use any of such service
marks or any similar service marks in its business.
DETERMINATION OF NET ASSET VALUE
Net asset value will normally be calculated (a) no less frequently
than weekly, (b) on the last business day of each month and (c) at any
other time determined by the Directors. Net asset value is calculated by
dividing the value of the Fund's net assets (the value of its assets less
its liabilities) by the total number of shares of its common stock
outstanding. All securities for which market quotations are readily
available, which include the options and futures in which the Fund may
invest, are valued at the last sales price on the primary exchange on which
they are traded prior to the time of determination, or, if no sales price
is available at that time, at the closing price quoted for the securities
(but if bid and asked quotations are available, at the mean between the
last current bid and asked prices, rather than the quoted closing price).
Securities that are traded in the unregulated market are valued, if bid and
asked quotations are available, at the mean between the current bid and
asked prices. If bid and asked quotations are not available, then such
securities are valued as determined in good faith pursuant to procedures
established by the Directors.
ALLOCATION OF BROKERAGE
The Fund seeks to obtain prompt execution of orders at the most
favorable net prices. The Fund is not currently obligated to deal with any
particular broker, dealer or group thereof. Fund transactions in debt and
OTC securities generally are with dealers acting as principals at net
prices with little or no brokerage costs. In certain circumstances,
however, the Fund may engage a broker as agent for a commission to effect
transactions for such securities. Purchases of securities from underwriters
include a commission or concession paid to the underwriter, and purchases
from dealers include a spread between the bid and asked price. While the
Investment Manager generally seeks reasonably competitive spreads or
commissions, payments of the lowest spread or commission is not necessarily
consistent with obtaining the best net results. Accordingly, the Fund will
not necessarily be paying the lowest spread or commission available.
The Investment Manager directs portfolio transactions to
broker/dealers for execution on terms and at rates which it believes, in
good faith, to be reasonable in view of the overall nature and quality of
services provided by a particular broker/dealer, including brokerage and
research services, and allocation of commissions to the Fund's Custodian.
With respect to brokerage and research services, consideration may be given
in the selection of broker/dealers to brokerage or research provided and
payment may be made of a fee higher than that charged by another
broker/dealer which does not furnish brokerage or research services or
which furnishes brokerage or research services deemed to be of lesser
value, so long as the criteria of Section 28(e) of the Securities Exchange
Act of 1934, as amended, or other applicable law are met. Section 28(e) was
adopted in 1975 and specifies that a person with investment discretion
shall not be "deemed to have acted unlawfully or to have breached a
fiduciary duty" solely because such person has caused the account to pay a
higher commission than the lowest available under certain circumstances. To
obtain the benefit of Section 28(e), the person so exercising investment
discretion must make a good faith determination that the commissions paid
are "reasonable in relation to the value of the brokerage and research
services provided . . . viewed in terms of either that particular
transaction or his overall responsibilities with respect to the accounts as
to which he exercises investment discretion." Thus, although the Investment
Manager may direct portfolio transactions without necessarily obtaining the
lowest price at which such broker/dealer, or another, may be willing to do
business, the Investment Manager seeks the best value to the Fund on each
trade that circumstances in the market place permit, including the value
inherent in on-going relationships with quality brokers.
Currently, it is not possible to determine the extent to which
commissions that reflect an element of value for brokerage or research
services might exceed commissions that would be payable for execution
alone, nor generally can the value of such services to the Fund be
measured, except to the extent such services have a readily ascertainable
market value. There is no certainty that services so purchased, if any,
will be beneficial to the Fund, and it may be that other affiliated
investment companies will derive benefit therefrom. Such services being
largely intangible, no dollar amount can be attributed to benefits realized
by the Fund or to collateral benefits, if any, conferred on affiliated
entities. These services may include (1) furnishing advice as to the value
of securities, the advisability of investing in, purchasing or selling
securities and the availability of securities or purchasers or sellers of
securities, (2) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts, and (3) effecting securities transactions
and performing functions incidental thereto (such as clearance, settlement,
and custody). Pursuant to arrangements with certain broker/dealers, such
broker/dealers provide and pay for various computer hardware, software and
services, market pricing information, investment subscriptions and
memberships, and other third party and internal research of assistance to
the Investment Manager in the performance of its investment decision-making
responsibilities for transactions effected by such broker/dealers for the
Fund. Commission "soft dollars" may be used only for "brokerage and
research services" provided directly or indirectly by the broker/dealer and
under no circumstances will cash payments be made by such broker/dealers to
the Investment Manager. To the extent that commission "soft dollars" do not
result in the provision of any "brokerage and research services" by a
broker/dealer to whom such commissions are paid, the commissions,
nevertheless, are the property of such broker/dealer. To the extent any
such services are utilized by the Investment Manager for other than the
performance of its investment decision-making responsibilities, the
Investment Manager makes an appropriate allocation of the cost of such
services according to their use.
BBSI, a wholly owned subsidiary of Group and the Investment Manager's
affiliate, provides discount brokerage services to the public as an
introducing broker clearing through unaffiliated firms on a fully disclosed
basis. The Investment Manager is authorized to place Fund brokerage through
BBSI at its posted discount rates and indirectly through a BBSI clearing
firm. The Fund will not deal with BBSI in any transaction in which BBSI
acts as principal. The clearing firm will execute trades in accordance with
the fully disclosed clearing agreement between BBSI and the clearing firm.
BBSI will be financially responsible to the clearing firm for all trades of
the Fund until complete payment has been received by the Fund or the
clearing firm. BBSI will provide order entry services or order entry
facilities to the Investment Manager, arrange for execution and clearing of
portfolio transactions through executing and clearing brokers, monitor
trades and settlements and perform limited back-office functions including
the maintenance of all records required of it by the NASD.
In order for BBSI to effect any portfolio transactions for the Fund,
the commissions, fees or other remuneration received by BBSI must be
reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during
a comparable period of time. The Directors have adopted procedures in
conformity with Rule 17e-1 under the 1940 Act to ensure that all brokerage
commissions paid to BBSI are reasonable and fair. Although BBSI's posted
discount rates may be lower than those charged by full cost brokers, such
rates may be higher than some other discount brokers and certain brokers
may be willing to do business at a lower commission rate on certain trades.
The Directors have determined that portfolio transactions may be executed
through BBSI if, in the judgment of the Investment Manager, the use of BBSI
is likely to result in price and execution at least as favorable as those
of other qualified broker/dealers and if, in particular transactions, BBSI
charges the Fund a rate consistent with that charged to comparable
unaffiliated customers in similar transactions. Brokerage transactions with
BBSI are also subject to such fiduciary standards as may be imposed by
applicable law. The Investment Manager's fees under its agreement with the
Fund are not reduced by reason of any brokerage commissions paid to BBSI.
During the fiscal years ended June 30, 1995, 1996 and 1997 the Fund
paid total brokerage commissions of $958, $16,243 and $7,221 respectively.
Of such commissions $0, $10,756 and $6,596 were allocated to broker/dealers
that provided research in the years 1995, 1996 and 1997, respectively. No
transactions were directed to broker/dealers during such periods for
selling shares of the Fund or any other affiliated investment companies.
During the Fund's fiscal years ended June 30, 1995, 1996 and 1997 the Fund
paid brokerage commissions of $958, $5,487 and $625, respectively, to BBSI,
representing approximately 100%, 34% and 9%, respectively of the total
commissions paid by the Fund and involving approximately 100%, 3% and
0.47%, respectively, of the aggregate dollar amount of transactions
involving the payment of commissions.
Investment decisions for the Fund and for other affiliated investment
companies managed by the Investment Manager or its affiliates are made
independently based on each Fund's investment objectives and policies.
The same investment decision, however, may
occasionally be made for two or more Funds. In such a case, the Investment
Manager may combine orders for two or more Funds for a particular security
if it appears that a combined order would reduce brokerage commissions
and/or result in a more favorable transaction price. Combined purchase or
sale orders are then averaged as to price and allocated as to amount
according to a formula deemed equitable to each Fund. While in some cases
this practice could have a detrimental effect upon the price or quantity
available of the security with respect to the Fund, the Investment Manager
believes that the larger volume of combined orders can generally result in
better execution and prices. The Fund is not obligated to deal with any
particular broker, dealer or group thereof. Certain broker/dealers that the
Funds Complex does business with may, from time to time, own more than 5%
of the publicly traded Class A non-voting Common Stock of Group, the parent
of the Investment Manager, and may provide clearing services to BBSI.
The Fund's portfolio turnover rate may vary from year to year and
will not be a limiting factor when the Investment Manager deems portfolio
changes appropriate. The portfolio turnover rate is calculated by dividing
the lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time
of acquisition were one year or less) by the monthly average value of
securities in the portfolio during the year.
TAXES
The Fund has qualified and intends to continue to qualify for
treatment as a regulated investment company ("RIC") under the Internal
Revenue Code of 1986, as amended (the "Code"). To qualify for such
treatment, the Fund must distribute to its shareholders for each taxable
year at least 90% of its investment company taxable income (consisting
generally of net investment income, net short term capital gain and net
gains from certain foreign currency transactions) ("Distribution
Requirement") and must meet several additional requirements. Among these
requirements are the following: (1) at least 90% of the Fund's gross income
each taxable year must be derived from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition
of securities or foreign currencies, or other income (including gains from
options, futures, or forward contracts) derived with respect to its
business of investing in securities or those currencies ("Income
Requirement"); (2) the Fund must derive less than 30% of its gross income
each taxable year from the sale or other disposition of securities, or any
of the following, that were held for less than three months - options,
futures, or forward contracts (other than those on foreign currencies), or
foreign currencies (or options, futures, or forward contracts thereon) that
are not directly related to the Fund's principal business of investing in
securities (or options and futures with respect thereto) ("Short-Short
Limitation"), although this limitation will no longer apply to the Fund
after June 30, 1998; and (3) the Fund's investments must satisfy certain
diversification requirements. In any year during which the applicable RIC
provisions of the Code are satisfied, the Fund will not be liable for
federal income tax on its net investment income, net short-term capital
gains and net capital gains (net long-term capital gains in excess of the
sum of net short-term capital losses and capital loss carryovers from prior
years, if any) that it distributes to its shareholders. To the extent the
Fund retains its net capital gains for investment, it will be subject under
current tax rates to federal income tax at a maximum effective rate of 35%
on the amount retained. If for any taxable year the Fund does not qualify
for treatment as a RIC, all of its taxable income will be taxed at
corporate rates, and distributions to its shareholders will not be
deductible by the Fund in computing its taxable income. In addition, in the
event of failure to qualify as a RIC, the Fund's distributions, to the
extent derived from the Fund's current or accumulated earnings and profits,
will constitute dividends (eligible for the corporate dividends-received
deduction) which are taxable to shareholders as ordinary income, even
though those distributions might otherwise (at least partially) have been
treated in the shareholders' hands as long-term capital gains. If the Fund
fails to qualify as a RIC for any year, it generally must pay out its
earnings and profits accumulated in that year less an interest charge to
the U.S. Treasury on 50% of such earnings and profits before it can again
qualify as a RIC.
The Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2)
at least 98% of its capital gain net income (determined on an October 31
fiscal year basis), and (3) generally, income and gain not distributed or
not subject to corporate tax in the prior calendar year. The Fund intends
to avoid imposition of the Excise Tax by making adequate distributions.
Interest received by the Fund may be subject to income, withholding,
or other taxes imposed by foreign countries and U.S. possessions that would
reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign
taxes, however, and many foreign countries do not impose taxes on capital
gains in respect of investments by foreign investors. If more than 50% of
the value of the Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be eligible
to, and may, file an election with the Internal Revenue Service (the "IRS")
that would enable its shareholders, in effect, to receive the benefit of
the foreign tax credit with respect to any foreign and U.S. possessions'
income taxes paid by the Fund. Pursuant to the election, the Fund would
treat those taxes as dividends paid to its shareholders and each
shareholder would be required to (1) include in gross income, and treat as
paid by the shareholder, the shareholder's proportionate share of those
taxes, (2) treat the shareholder's share of those taxes and of any dividend
paid by the Fund that represents income from foreign or U.S. possessions
sources as the shareholder's own income from those sources, and (3) either
deduct the taxes deemed paid by the shareholder in computing the
shareholder's taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against the shareholder's
federal income tax. The Fund will report to its shareholders shortly after
each taxable year their respective shares of the Fund's income from sources
within, and taxes paid to, foreign countries and U.S. possessions if it
makes this election.
The Fund's portfolio may include zero coupon bonds. Zero coupon bonds
are original issue discount ("OID") bonds that pay no current interest. OID
is the excess, if any, of the stated redemption price at maturity of a debt
instrument over the issue price of the instrument. Original issue discount
on a taxable obligation is require to be currently included in the income
of the holder of the obligation generally on a constant interest rate basis
resembling the economic accrual of interest. The tax basis of the holder of
an OID debt instrument is increased by the amount of OID thereon properly
included in the holder's gross income as determined for federal income tax
purposes. Current inclusion in gross income of the OID on a taxable debt
instrument is required, even though no cash is received at the time the OID
is required to be included in gross income. Because such income may not be
matched by a corresponding cash distribution to the Fund, the Fund may be
required to borrow money or dispose of other securities to be able to make
distributions to shareholders. The extent to which the Fund may liquidate
securities at a gain may be limited by the Short-Short Limitation discussed
above (but only through June 30, 1998).
The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general,
meets either of the following tests: (1) at least 75% of its gross income
is passive income or (2) an average of at least 50% of its assets produce,
or are held for the production of, passive income. Under certain
circumstances, the Fund will be subject to federal income tax on a portion
of any "excess distribution" received on the stock of a PFIC or of any gain
from disposition of the stock (collectively, "PFIC income"), plus interest
thereon, even if the Fund distributes the PFIC income as a taxable dividend
to its shareholders. The balance of the PFIC income will be included in the
Fund's taxable income and, accordingly, will not be taxable to it to the
extent that income is distributed to its shareholders. If the Fund invests
in a PFIC and elects to treat the PFIC as a "qualified electing fund," then
in lieu of the foregoing tax and interest obligation, the Fund will be
required to include in income each year its pro rata share of the qualified
electing fund's annual ordinary earnings and net capital gain (the excess
of net long term capital gain over net short term capital loss), even if
such amounts are not distributed to the Fund. These amounts likely would
have to be distributed to satisfy the Distribution Requirement and avoid
imposition of the Excise Tax. In most instances it will be very difficult,
if not impossible, to make this election because of certain requirements.
For its tax years beginning after December 31, 1997, the Fund may
make an election to annually mark-to-market certain publicly traded PFIC
stock (a "PFIC Mark-to-Market Election") as an alternative to making the
above-described election to treat the PFIC as a qualified electing fund.
"Marking-to-market," in this context, means recognizing as ordinary income
or loss each year an amount equal to the difference between the Fund's
adjusted tax basis in such PFIC stock and its fair market value. Losses
will be allowed only to the extent of net mark-to-market gain previously
included by the Fund pursuant to the election for prior taxable years. The
Fund may be required to include in its taxable income for the first taxable
year in which it makes a PFIC Mark-to-Market Election an amount equal to
the interest charge that would otherwise accrue with respect to
distributions on, or dispositions of, the PFIC stock. This amount would not
be deductible from the Fund's taxable income. The PFIC Mark-to-Market
Election applies to the taxable year for which made and to all subsequent
taxable years, unless the PFIC stock ceases to be publicly traded or the
Internal Revenue Service consents to revocation of the election. By making
the PFIC Mark-to-Market Election, the Fund could ameliorate the adverse tax
consequences arising from its ownership of PFIC stock, but in any
particular year may be required to recognize income in excess of the
distributions it receives from the PFIC and proceeds from the dispositions
of PFIC stock.
Some of the Fund's investment practices, such as selling (writing)
and purchasing options and futures contracts and entering into forward
contracts, involve complex rules that will determine for federal income tax
purposes the amount, timing of recognition and character of the gains and
losses the Fund realizes in connection therewith. These provisions may also
require the Fund to recognize income or gain without receiving cash with
which to make distributions in the amounts necessary to satisfy the 90%
Distribution Requirement for avoiding federal income tax and the 98%
distribution requirement for avoiding the Excise Tax. The Fund will monitor
its transactions, make appropriate tax elections and make the appropriate
entries in its books and records when it acquires any foreign currency,
option, futures contract, forward contract or hedged investment in order to
mitigate the effect of these rules, prevent disqualification of the Fund as
a RIC and minimize the imposition of federal income and excise taxes. Gains
from the disposition of foreign currencies (except certain gains that may
be excluded by future regulations), and gains from options, futures, and
forward contracts derived by the Fund with respect to its business of
investing in securities or foreign currencies, will qualify as permissible
income under the Income Requirement. However, income from the disposition
of options, futures, and forward contracts (other than those on foreign
currencies) will be subject to the Short-Short Limitation if they are held
for less than three months. Income from the disposition of foreign
currencies, and options, futures, and forward contracts on foreign
currencies, also will be subject to the Short-Short Limitation if they are
held for less than three months and are not directly related to the Fund's
principal business of investing in securities (or options and futures with
respect thereto).
If the Fund satisfies certain requirements, any increase in value of
a position that is part of a "designated hedge" will be offset by any
decrease in value (whether realized or not) of the offsetting hedging
position during the period of the hedge for purposes of determining whether
the Fund satisfies the Short-Short Limitation. Thus, only the net gain (if
any) from the designated hedge will be included in gross income for
purposes of that limitation. The Fund will consider whether it should seek
to qualify for this treatment for its hedging transactions. To the extent
the Fund does not so qualify, it may be forced to defer the closing out of
certain options, futures, forward contracts and foreign currency positions
beyond the time when it otherwise would be advantageous to do so, in order
for the Fund to continue to qualify as a RIC.
The foregoing discussion of federal tax consequences is based on the
United States federal tax laws in effect on the date of this Statement of
Additional Information, which are subject to change by legislative,
judicial, or administrative action, possibly with retroactive effect. The
Fund may be subject to state, local or foreign tax in jurisdictions in
which it may be deemed to be doing business. Shareholders and prospective
shareholders are advised to consult their own tax advisors with respect to
the application to their particular circumstances of the foregoing general
taxation rules, and with respect to the state, local or foreign tax
consequences to them of an investment in shares of the Fund.
REPORTS TO SHAREHOLDERS
The Fund issues, at least semi-annually, reports to its shareholders
including a list of investments held and statements of assets and
liabilities, income and expense, and changes in net assets of the Fund. The
Fund's fiscal year ends on June 30.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Investors Fiduciary Trust Company, P.O. Box 419507, Kansas City, MO
64141, has been retained by the Fund to act as Custodian of the Fund's
investments and may appoint one or more subcustodians. The Custodian also
performs certain accounting services for the Fund. As part of its agreement
with the Fund, the Custodian may apply credits or charges for its services
to the Fund for, respectively, positive or deficit cash balances maintained
by the Fund with the Custodian. The Custodian is also the Fund's Transfer
and Dividend Disbursing Agent.
AUDITORS
Tait, Weller & Baker, Eight Penn Center Plaza, Suite 800,
Philadelphia, PA 19103, are the independent accountants for the Fund.
Financial statements of the Fund are audited annually.
FINANCIAL STATEMENTS
The Fund's Financial Statements in the Annual Report for the fiscal
year ended June 30, 1997 and in the Semi-Annual Report for the six months
ended December 31, 1997 (the "Reports"), which either accompany this SAI or
have previously been provided to the person to whom this Prospectus is
being sent, are incorporated herein by reference with respect to all
information other than the information set forth in the Letter to
Shareholders included therein. The Fund will furnish, without charge, a
copy of its Report upon request at 11 Hanover Square, New York, New York
10005, 212-785-0900.
APPENDIX A
DESCRIPTIONS OF BOND RATINGS
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investment Service, Inc. ("Moody's"), rating symbols and their
meanings (as published by Moody's) follows:
Aaa Bonds which are rated "Aaa" are judged to be of the best quality
and carry the smallest degree of investment risk. Interest payments
are protected by a large or an exceptionally stable margin and
principle is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards and, together with the Aaa group, comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities of fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the longer term risks appear somewhat larger in Aaa securities.
A Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Bonds which are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds which are rated "B" generally lack characteristics of a
desirable investment. Assurance of interest and principal payments
of maintenance of other terms of the contract over any period of
time may be small.
Caa Bonds which are rated "Caa" are of poor standing. Such issues may
be in default or there may be present elements of danger with
respect to principal or interest.
Ca Bonds which are rated as "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C Bonds which are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Con(...)Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated
conditionally. These bonds are secured by (a) earnings of projects
under construction, (b) earnings of projects unseasoned in
operation experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated
by the symbols Aa1, A1, Baa1, Ba1 and B1.
Standard's & Poor's Rating Group. A brief description of the
applicable Standard Poor's Ratings Group ("S&P") rating symbols and their
meanings (as published by S&P) follows:
AAA Bonds rated "AAA" have the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay
interest and repay principal.
AA Bonds rated "AA" also qualify as high quality debt obligations.
Capacity to pay interest and repay principal is very strong, and in
the majority of instances they differ from AAA issues only in small
degree.
A Bonds rated "A" have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than debt in higher rated categories.
BBB Bonds rated "BBB" are regarded as having adequate capacity to pay
interest and repay principal. Whereas they normally exhibit
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this capacity than for
bonds in higher rated categories.
Debt rated "BB," "B," "CCC," and "C" is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or
economic conditions, which could lead to inadequate capacity to
meet timely interest and principal payments. The "BB" rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal
repayments. Adverse business, financial or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
CCC Debt rated "CCC" has a current identifiable vulnerability to
default, and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business, financial
or economic conditions, it is not likely to have the capacity to
pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied "B or "B-" rating.
CC The rating "CC" is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" debt rating.
C The rating "C" is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC-" rating. The "C"
rating category may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest
is being paid.
D Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period. The "D" rating category also will be used upon the
filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
BULL & BEAR GLOBAL INCOME FUND, INC.
Part C. Other Information
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
i. Financial Statements.*
ii. (i) Articles of Incorporation**
(ii) Amended By-Laws ***
(iii) Not applicable*
(iv) Specimen stock certificate**
(v) Automatic Dividend Reinvestment Plan**
(vi) Not applicable
(vii) Investment Management Agreement**
(viii)(a) Form of Dealer Manager Agreement between Registrant and
Dealer Manager +
(b) Form of Soliciting Dealer Agreement between Registrant
and Soliciting Dealer +
(c) Form of Subscription Certificate +
(d) Form of Notice of Guaranteed Delivery +
(e) Form of Nominee Holder Over-Subscription Form +
(f) Form of Information Agent Agreement +
(g) Form of Subscription Agency Agreement +
(ix) Not applicable
(x) Custody and Investment Accounting Agreement ***
(xi) (a) IFTC Transfer Agency Agreement ***
(b) Credit Facilities Agreement ***
(c) Securities Lending Authorization Agreement ***
(d) Segregated Account Procedural ***
(xii) Opinion of Skadden, Arps, Slate, Meagher & Flom, LLP+
(xiii) Not applicable
(xiv) Consent of Independent Accountants for Registrant +
(xv) Not applicable
(xvi) Not applicable
(xvii) Not applicable
(xviii) Powers of Attorney ****
* Incorporated by reference from Registrant's Annual Report for the
fiscal year ended June 30, 1997, accession number
0001031235-98-000012 and from Registrant's Semi-Annual Report for the
six-months ended December 31, 1997, accession number
0001031235-98-000013.
** Incorporated by reference from Registrant's Registration Statement on
Form N-2, File No. 811-08025, accession number 0000950172-97-000049
as filed with the Securities and Exchange Commission on January 23,
1997.
*** Incorporated by reference from Registrant's Semi-Annual Report on
FORM N-SAR for period ending December 31, 1997, accession number
0001031235-98-000011, as filed with Securities and Exchange
Commission on February 27, 1998.
**** Incorporated by reference from Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-2, File Nos. 333-46765
and 811-08025, accession number 0000950172-98-000329 as filed with
the Securities and Exchange Commission on April 3, 1998.
+ Filed herewith.
ITEM 25. MARKETING ARRANGEMENTS
See Form of Dealer Manager Agreement, filed as Exhibit 8(a).
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses expected to be
incurred in connection with the offering described in this Registration
Statement:
Securities and Exchange
Commission Registration fees............................$ 4,651
National Association of Securities
Dealers, Inc. fee.......................................... 2,114
American Stock Exchange additional
listing fee............................................. 17,500
Printing (other than stock certificates)................... 12,500
Accounting fees and expenses............................... 3,500
Legal fees and expenses.................................... 125,000
Reimbursement of Dealer Manager expenses................... 100,000
Subscription Agent fee and expenses........................ 17,500
Information Agent fees and expenses........................ 3,500
Miscellaneous.............................................. 13,735
Total................................................... 300,000
=======
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Insofar as the following have substantially identical boards of
directors or trustees, they may be deemed with the Registrant to be under
common control: Bull & Bear Dollar Reserves, a series of shares issued by
Bull & Bear Funds II, Inc.; Bull & Bear Municipal Income Fund, Inc.; Bull &
Bear U.S. Government Securities Fund, Inc.; Bull & Bear Gold Investors
Ltd.; Bull & Bear U.S. and Overseas Fund, a series of Bull & Bear Funds I,
Inc.; Bull & Bear Special Equities Fund, Inc.; Rockwood Fund, Inc.; and
Midas Fund, Inc.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Number of Record Holders
Title of Class (as of April 28, 1998)
Shares of Common Stock 42
$0.01 par value
ITEM 29. INDEMNIFICATION
The Registrant is incorporated under Maryland law. Section 2- 418 of
the Maryland General Corporation Law requires the Registrant to indemnify
its directors, officers and employees against expenses, including legal
fees, in a successful defense of a civil or criminal proceeding. The law
also permits indemnification of directors, officers, employees and agents
unless it is proved that (a) the act or omission of the person was material
and was committed in bad faith or was the result of active or deliberate
dishonesty, (b) the person received an improper personal benefit in money,
property or services or (c) in the case of a criminal action, the person
had reasonable cause to believe that the act or omission was unlawful.
The Registrant's Articles of Incorporation: (1) provide that, to the
maximum extent permitted by applicable law, a Continuing Director or
officer will not be liable to the Registrant or its stockholders for
monetary damages; (2) require the Registrant to indemnify and advance
expenses to its present and past Continuing Directors, officers, employees,
agents, and persons who are serving or have served at the request of the
Registrant as a director, officer, employee or agent in similar capacities
for other entities; (3) allow the Registrant to purchase insurance for any
present or past director, officer, employee, or agent; and (4) require that
any repeal or modification of the Articles of Incorporation or By-laws or
adoption or modification of any provision of the Articles of Incorporation
or By-laws inconsistent with the indemnification provisions, be prospective
only to the extent such repeal or modification would, if applied
retrospectively, adversely affect any limitation on the liability of or
indemnification and advance of expenses available to any person covered by
the indemnification provisions of the Articles of Incorporation and
By-laws.
Section 1 of Article 10 of the By-Laws sets forth the procedures by
which the Registrant will indemnify its directors, officers, employees and
agents. Section 2 of Article 10 of the By-Laws further provides that the
Registrant may purchase and maintain insurance or other sources of
reimbursement to the extent permitted by law on behalf of any person who is
or was a director or officer of the Registrant, or is or was serving at the
request of the Registrant as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in or arising out of
his or her position.
The Registrant's Investment Management Agreement between the
Registrant and Bull & Bear Advisers, Inc. (the "Investment Manager")
provides that the Investment Manager shall not be liable to the Registrant
or any shareholder of the Registrant for any error of judgment or mistake
of law or for any loss suffered by the Registrant in connection with the
matters to which the Investment Management Agreement relates. However, the
Investment Manager is not protected against any liability to the Registrant
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under the Investment Management Agreement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant and the investment advisor and any
underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the event that a
claim for indemnification for such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person or the Registrant and the principal underwriter in
connection with the successful defense of any action, suit or proceeding)
is asserted against the Registrant by such director, officer or controlling
person or underwriter in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in such Act and will be governed by the final
adjudication of such issue.
The Registrant undertakes to carry out all indemnification provisions
of its Articles of Incorporation and By-Laws and the above-described
Investment Management Agreement in accordance with Investment Company Act
Release No. 11330 (September 4, 1980) and successor releases.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The directors and officers of Bull & Bear Advisers, Inc., the
Investment Manager, are also directors and officers of the other Funds
managed by the Investment Manager, a wholly-owned subsidiary of Bull & Bear
Group, Inc. (the "Bull & Bear Funds"). In addition, such officers are
officers and directors of Bull & Bear Group, Inc. and its other
subsidiaries: Investor Service Center, Inc., the distributor of the Bull &
Bear Funds and a registered broker/dealer; Midas Management Corporation and
Rockwood Advisers, Inc., registered investment advisers; and Bull & Bear
Securities, Inc., a discount brokerage firm. Bull & Bear Group, Inc.'s
predecessor was organized in 1976. In 1978, it acquired control of and
subsequently merged with Investors Counsel, Inc., a registered investment
adviser organized in 1959. The principal business of both companies since
their founding has been to serve as investment manager to registered
investment companies. The Investment Manager serves as investment manager
of Bull & Bear Dollar Reserves, a series of shares issued by Bull & Bear
Funds II, Inc.; Bull & Bear Municipal Income Fund, Inc.; Bull & Bear Gold
Investors Ltd.; Bull & Bear U.S. and Overseas Fund, a series of Bull & Bear
Funds I, Inc.; Bull & Bear Special Equities Fund, Inc.; and Bull & Bear
U.S. Government Securities Fund, Inc.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The minute books of Registrant and copies of its filings with the
Commission are located at 11 Hanover Square, New York, NY 10005 (the
offices of the Registrant and its Investment Manager). All other records
required by Section 31(a) of the Investment Company Act of 1940 are located
at Investors Fiduciary Trust Company, 1004 Baltimore, Kansas City, MO 64105
(the offices of the Registrant's Custodian, Transfer and Dividend
Disbursing Agent). Copies of certain of the records located at Investors
Fiduciary Trust Company are kept at 11 Hanover Square, New York, NY 10005
(the offices of Registrant and the Investment Manager).
ITEM 32. MANAGEMENT SERVICES--NONE
ITEM 33. UNDERTAKINGS
The Registrant hereby undertakes:
1. To suspend the offering of shares of Common Stock covered hereby until
the prospectus contained herein is amended if (a) subsequent to the
effective date of its registration statement, the net asset value per share
of Common Stock declines more than ten percent from its net asset value per
share of Common Stock as of the effective date of this registration
statement or (b) the net asset value per share of Common Stock increases to
an amount greater than its net proceeds as stated in the prospectus
contained herein.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. Not applicable.
6. That for the purpose of determining any liability under the Securities
Act of 1933, as amended, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
under Rule 497(h) under the Securities Act of 1933 shall be deemed to be
part of this registration statement as of the time it was declared
effective.
7. That for purposes of determining any liability under the Securities Act
of 1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering thereof.
8. To send by first class mail or other means designed to ensure equally
prompt delivery, within two business days of receipt of a written or oral
request, any Statement of Additional Information or Annual Report.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the
"Securities Act") and the Investment Company Act of 1940 (the "Investment
Company Act"), the Registrant has duly caused this Pre-Effective Amendment
to the Registration Statement to be filed pursuant to the Securities Act
and has duly caused this Amendment to the Registration Statement to be
filed pursuant to the Investment Company Act and to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 4th of May, 1998.
BULL & BEAR GLOBAL INCOME FUND, INC.
By: /s/Thomas B. Winmill
___________________________
Thomas B. Winmill
Co-President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
Signature Capacity Date
/s/Basset S. Winmill* Chairman and Director May 4, 1998
- ---------------------
(Basset S. Winmill)
/s/Mark C. Winmill* Co-President and May 4, 1998
- ------------------- Director
(Mark C. Winmill)
/s/Thomas B. Winmill Co-President and May 4, 1998
- -------------------- Director
(Thomas B. Winmill) (Principal Executive
Officer
/s/Joseph Leung* Treasurer (Principal May 4, 1998
- -------------------- Financial and
(Joseph Leung) Accounting Officer)
/s/George B. Langa* Director May 4, 1998
- -------------------
(George B. Langa)
/s/Peter K. Werner* Director May 4, 1998
- -------------------
(Peter K. Werner)
/s/Thomas B. Winmill
- ----------------------
(Thomas B. Winmill)
Attorney-in-fact
* Signed pursuant to power-of-attorney, previously filed.
SCHEDULE OF EXHIBITS TO FORM N-2
Exhibit Page
Number Exhibit Number
(viii)(a) Form of Dealer Manager Agreement between Registrant
and Dealer Manager
(b) Form of Soliciting Dealer Agreement between Registrant
and Soliciting Dealer
(c) Form of Subscription Certificate
(d) Form of Notice of Guaranteed Delivery
(e) Form of Nominee Holder Over-Subscription Form
(f) Form of Information Agent Agreement
(g) Form of Subscription Agency Agreement
(xii) Opinion of Skadden, Arps, Slate, Meagher & Flom, LLP
(xiv) Consent of Independent Accountants for Registrant