SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
Filed by the Registrant / /
Filed by a Party other than the Registrant /X/
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the
/ / Definitive Proxy Statement Commission Only (as permitted by
/ / Definitive Additional Materials Rule 14a-6(e)(2))
/ / Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
BULL & BEAR U.S. GOVERNMENT SECURITIES FUND, INC.
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(Name of Registrant as Specified in Its Charter)
KARPUS MANAGEMENT, INC. d/b/a KARPUS INVESTMENT MANAGEMENT
-----------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: Not
applicable.
(2) Aggregate number of securities to which transaction applies: Not
applicable.
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): Not applicable.
(4) Proposed maximum aggregate value of transaction: Not applicable.
(5) Total fee paid: Not applicable.
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: Not applicable.
(2) Form, Schedule or Registration Statement No.: Not applicable.
(3) Filing Party: Not applicable.
(4) Date Filed: Not applicable.
BULL & BEAR U.S. GOVERNMENT SECURITIES FUND, INC.
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PROXY STATEMENT FOR SPECIAL MEETING
OF KARPUS MANAGEMENT, INC. d/b/a
KARPUS INVESTMENT MANAGEMENT
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This Proxy Statement is furnished in connection with a solicitation
of proxies by Karpus Management, Inc. doing business as Karpus Investment
Management ("KIM"), to be used at a Special Meeting of Shareholders of Bull &
Bear U.S. Government Securities Fund, Inc. After reviewing the proxy
statement, PLEASE TAKE THIS OPPORTUNITY TO SIGN AND RETURN THE PROXY CARD.
YOUR VOTE IS CRITICAL. KARPUS MANAGEMENT, INC. RECOMMENDS THAT YOU VOTE
AGAINST THE PROPOSALS RECOMMENDED BY THE BOARD OF DIRECTORS AND VOTE FOR THE
KIM PROPOSALS.
To the Stockholders:
A special Meeting of Stockholders of Bull & Bear U.S. Government
Securities Fund, Inc. (the "Fund") will be held at the offices of Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, 34th Floor, New York, New York,
on___________, 1998 at 8:00 a.m. Karpus Management, Inc. d/b/a Karpus
Investment Management, Inc. is soliciting proxies for the following purposes:
I. TO TERMINATE THE MANAGEMENT CONTRACT OF BULL & BEAR
ADVISERS IN RESPECT TO THE FUND.
II. UPON PROPOSAL #1 PASSING BY THE MAJORITY OF
SHAREHOLDERS THEN KARPUS MANAGEMENT, INC. d/b/a
KARPUS INVESTMENT MANAGEMENT, INC. BE NAMED AS THE
REPLACING INVESTMENT ADVISER AND MANAGER FOR THE
FUND.
III. TO RETAIN THE FUND'S CURRENT INVESTMENT OBJECTIVE
AND INVESTMENT POLICIES.
IV. TO RETAIN THE CURRENT NAME OF THE FUND
IV. TO REMAIN A DIVERSIFIED INVESTMENT COMPANY.
This Proxy Statement is furnished in connection with a solicitation
of proxies by Karpus Management, Inc. to be used at the Special Meeting of
Stockholders ("Meeting") of the Fund to be held on _____________________, 1998
at 8:00 a.m. at the offices of Stroock & Stroock & Lavan LLP, 180 Maiden Lane,
34th Floor, New York, New York. Stockholders of record at the close of
business on ____________,1998 ("Record Date") are entitled to be present and
to vote on matters at the meeting. Stockholders are entitled to one vote for
each Fund share held and fractional votes for each fractional Fund share held.
Stockholders of the Fund will vote as a single class and will vote separately
on each proposal. Shares represented by executed and unrevoked proxies will be
voted in accordance with the specifications made thereon. If the enclosed form
or proxy is executed and returned, it nevertheless may be revoked by another
proxy or by letter or telegram directed to the Fund, which must indicate the
stockholder's name. To be effective, such revocation must be received prior to
the Meeting. In addition, any stockholder who attends the Meeting in person
may vote by ballot at the Meeting, thereby canceling any proxy previously
given. As of the Record Date, the Fund had __________ shares of common stock
issued and outstanding.
It is estimated that proxy materials will be mailed to stockholders
of record on or about____________________, 1998. The Fund's principal
executive offices are located at 11 Hanover Square, New York, New York 10005.
Copies of the Fund's most recent Annual and Semi-Annual Reports are available
without charge upon written request to the Fund at 11 Hanover Square, New
York, New York 10005m or by calling toll-free 1-888-847-4200. Bull & Bear
Advisers, Inc. (the "Investment Manger"), located at 11 Hanover Square, New
York, New York 10005 is the Fund's investment manager.
PROPOSAL I: TO TERMINATE THE MANAGEMENT
CONTRACT OF BULL & BEAR ADVISERS, INC.
IN RESPECT TO THE FUND
KIM is proposing the termination of the management contract of Bull &
Bear Advisers in respect to the Fund due to inferior investment performance
and uncontrolled expenses. KIM believes that the Fund has generated inadequate
investment returns for shareholders. On October 4, 1996, Fund management
recommended the conversion of the Fund from an open-end format to closed-end
format. This was subsequently approved by the shareholders. From this date
(10/4/96) through and including June 30, 1998 shares of the Fund have
experienced a -11.7647% price decline. The market price on October 4, 1996 was
$14.75 per share, whereas the June 30, 1998 market price was $13.125 per
share. (Based on closing prices.) The total return of the Fund including
dividends being reinvested in shares equaled an annual equivalent of 0.0462%
(10/4/96 through 6/30/98). During this same time period the Merrill Lynch 1-10
Year U.S. Government Index generated an annualized return of 7.33%.
The net asset value of the Fund has also seriously underperformed
appropriate market indices. As computed on Bloomberg Analytics, the simple
price appreciation of the NAV of the Fund from February 7, 1997 (this is the
first reported NAV to Bloomberg) to June 30, 1998 equaled a -1.8573% annual
equivalent. With dividends being reinvested in the security the Fund returned
5.3707% for the same time period.
As reported in The Wall Street Journal on June 30, 1998 according to
Lipper Analytical Services, Inc., Bull & Bear U.S. Government Securities Fund.
Inc. ranked in the BOTTOM 10 PERFORMERS IN THE CLOSED-END BOND CATEGORY.
Bull & Bear U.S. Government Bond Fund, Inc.'s net asset value return
from June 30, 1997 to June 30, 1998 was reported to be 5.40% which was the
last place performance out of 118 closed-end bond funds in the Wall Street
Journal Quarterly Closed-End Funds Review. (This included categories of U.S.
Gov't Bond Funds, U.S. Mortgage Bond Funds, Investment Grade Bond Funds, Loan
Participation Funds, High Yield Bond Funds, and Other Domestic Taxable Bond
Funds.)
As reported in Barron's, Lipper Mutual Funds reports the 52 week net
asset value performance to be 5.40%, which is the poorest performing fund in
the U.S. Government Bond Fund category.
KIM believes that the Fund's management is not holding expenses at
reasonable levels. Expenses for the six month period ending December 31, 1997
were $245,504, compared to $239,566 for the FULL fiscal year ending June 30,
1997. More than 50% of the income generated by the Fund for the six month
period ending December 31, 1997 was dedicated to expenses. It is KIM's
opinion, a shareholder owning 1,000 Fund shares has paid $331.91 worth of
expenses for this time period. (Based on 739,664 shares outstanding) The
August 23, 1996 proxy statement cited under Reasons for Conversion- "The
Directors believe that the Conversion will provide the Fund with greater
flexibility to seek its investment objective with lower operating expenses."
This did not happen, in fact expenses escalated. High expenses are depriving
investors of additional investment return.
PROPOSAL II: UPON PROPOSAL #1 PASSING BY THE MAJORITY OF
SHAREHOLDERS THEN KARPUS MANAGEMENT, INC.
d/b/a KARPUS INVESTMENT MANAGEMENT, INC. BE
NAMED AS THE REPLACING INVESTMENT ADVISER
AND MANAGER FOR THE FUND.
WHY SHAREHOLDERS SHOULD HIRE KARPUS TO MANAGE THE FUND
Karpus Management, Inc. d/b/a Karpus Investment Management, Inc.
("KIM") is located at 14 A Tobey Village Office Park in Pittsford, New York (a
suburb of Rochester). Formed in May of 1986 by George W. Karpus. President,
KIM specializes in conservative fixed income investment management. As of May
31, 1998 Karpus currently has approximately $340,000,000 under management
comprised of 176 client relationships, with an average account size of
$1,700,000. KIM currently employs 16 staff members, nine of which are
professionals.
Karpus Investment Management is well regarded for it's expertise in
the fixed income market. KIM is ranked among the "Worlds Best Money Managers"
by Nelson's in eight fixed income categories for the period ending December
31, 1997. KIM is also ranked by Mobius in the top quartile of all fixed income
managers for the quarter, year, 3 year, 5 year, and ten year period ending
December 31, 1997.
KIM proposes if selected as the replacing investment manager for the
Fund, that there will be an automatic reduction in management fees by 5 % from
the current level presently charged by Bull & Bear Advisers. This reduction in
fees may slightly increase returns for shareholders.
KIM presently represents beneficial ownership, on behalf of its
clients, of 119,250 shares of the Fund or approximately 16.12% of the
outstanding shares. As the largest shareholder of the Fund. KIM will dedicate
its efforts to reducing expenses, improving investment returns, lowering
management fees, and being responsive to shareholders of the Fund. KIM will
initiate activities to attempt to close the discount to net asset value of the
Fund which may increase shareholder value. KIM has no previous experience in
managing a mutual fund, however currently manages five accounts that are
larger than the Fund.
IF KIM is not successful in it's opposition to Bull & Bear Advisers,
Inc., KIM may be forced to sell shares in the open market. IF THE SHAREHOLDERS
APPROVE THE NEW INVESTMENT GUIDELINES PROPOSED BY MANAGEMENT OF THE FUND, KIM
WILL BE FORCED TO SELL SHARES IN THE OPEN MARKET. It is the opinion of KIM
that the market discount to net asset value may have been wider if it was not
for the market participation of KIM. The total volume traded for the Fund from
December 3, 1996 through June 30, 1998 equaled 754,500 shares. The current
holding of the Accounts at 119,250 shares represented 15.80% of this total
volume. KIM believes that the activity generated by KIM helped support the
price of the Fund and allowed liquidity for shareholders who wanted to sell
their shares.
The accounts managed by KIM that hold shares of the Fund are
prohibited in their investment guidelines from owning funds that contain the
investments proposed by the Board of Directors. If this change is approved by
the shareholders it would cause KIM to sell shares of Bull & Bear U.S.
Government Securities Fund, Inc. which could result in a reduced market price
and further widening of the discount to NAV at which the Fund currently
trades. This could cause investors to see the market value
of their shares to decline substantially. Management of the Fund is fully
aware of this fact, which was disclosed to the Fund in September of 1997 when
the Fund previously proposed to become a "Balanced Fund."
PROPOSAL III TO RETAIN THE FUND'S CURRENT INVESTMENT
OBJECTIVE AND INVESTMENT POLICIES
Currently the Fund's portfolio is invested in U.S. Treasury Notes and
Bonds and U.S. Government Agency Bonds. This conservative portfolio maintains
the highest possible credit quality. The Fund's Management proposed changes to
the investment objective and management policies only 50% of the value of the
total assets would be invested in U.S. Government Securities, obligations of
other U.S. Government agencies or instrumentality's, including
inflation-indexed instruments, and money market instruments. The Fund would
then invest the remainder of its total assets primarily in securities of
selected growth companies that, in the Investment Manager's opinion, will grow
faster than the economy as a whole, and securities issued by companies that
invest or deal in natural resources or commodities. This would permit the Fund
to invest in equity securities, such as common or preferred stock, convertible
securities, non-municipal debt securities, mortgage-related securities, asset
backed securities, warrants, loan participation interests, securities of other
investment companies, and securities issued by companies that invest of deal
in natural resources or commodities. Issuers of these securities may include
U.S. and foreign entities, including small capitalization companies and
private companies, and such securities may be denominated in U.S. dollars or
foreign currencies. This would also allow for investment in securities that
are rated lower than investment grade or non-rated securities. There would be
a greater risk of timely repayment of principal and interest or dividends on
these securities. Securities ratted BB or lower by S&P or Ba by Moody's are
often referred to in the financial press as "junk bonds" and may include
issuers that are in default. It is proposed by management of the Fund that no
more than 5% of the total assets of the Fund may be invested in this manner.
The Fund may also invest in securities that are currently in bankruptcy if the
Manager believes that the issuer will emerge from bankruptcy. THE NEW
OBJECTIVE AND POLICIES WOULD BE NON-FUNDAMENTAL. This would empower the Board
of Directors with the authority to change investment policies at any time.
Management of the Fund, in the opinion of Karpus Investment
Management, has previously made decisions that where not in the best interests
of the Fund, for example recommending the change in format of the Fund from
open-end to closed-end. This decision caused shareholders invested in the Fund
at that time to lose 10% of the market value of the shares. It is also the
opinion of KIM that the 8% distribution policy could possibly erode the net
asset value of the Fund in the future. Shareholders may possibly experience
further market losses. .
IV. TO RETAIN THE CURRENT NAME OF THE FUND
Karpus Investment Management proposes to continue the current name of
the Fund. By being defined as Bull & Bear U.S. Government Securities Fund,
Inc. this insures investors that 65% of the assets of the Fund must be
invested in U.S. Government Securities. This current name provides investors
with the high quality securities in which they have originally chosen to
invest.
V. TO REMAIN A DIVERSIFIED INVESTMENT COMPANY.
The Fund currently is classified as a "diversified" investment
company, which by definition of the 1940 Act generally to limit its
investment, with respect to 75% of its total assets, to not more than 5% of
such assets in the securities of a single issuer and to not more than 10% of
the outstanding voting securities of such issuer.
The 1940 Act was established as a guideline for diversification
within a Fund. The possible change to a "non-diversified" investment company
would permit the Fund to allow a relatively high percentage of the Fund's
assets to be invested in the securities of a limited number of issuers and in
more than 10% of the outstanding voting securities of issuers, including small
capitalization companies and private companies."
This change would make the portfolio less liquid, and in the opinion
of KIM substantially increase the volatility and risk level within the Fund.
OTHER MATTERS
KIM and the following advisory clients for whom it acts as investment
adviser will bear the cost of soliciting proxies: Acra-Local 725 Pension Trust
of Dade, Amalgamated Transit Union Local #1342, Cardinal American Corporation,
Jeffrey I Cooper, Elderwood Affiliates, Inc. Retirement Plan, Seymour Fisher
Marital Tr., Fish Furniture Profit Sharing Tr., The William and Estelle Golub
Foundation, Inc., Hammer Lithograph Corp. Deferred Profit Sharing, Peter
Russo, Trustee U/W William Henderson FBO F. Elizabeth, City of Hialeah Police
Pension Fd., InterMetro Ind. Corp. Salaried Employees Pension Trust, James E.
Morris IRA Rollover, Monro Muffler Brake, Inc. Retirement Plan, Painters Local
150 Annuity Fund, Plumbers & Pipefitters Local 138 Pension Fund, Roman
Catholic Diocese of Syracuse, Inc., Sheet Metal Workers Local 46 Annuity
Fund., Sheet Metal Workers Local 46 Pension Fund, YWCA of Rochester and Monroe
County- Board Designated Fd. and YWCA of Rochester & Monroe County- Endowment
Fund. In addition to the use of the mails, proxies may be solicited
personally, by telephone or by other means and such clients may pay persons
holding Fund shares in their names or those of their nominees for their
expenses in sending soliciting materials to their principals. Solicitations
will be made by regular employees of KIM. In addition, the Fund will retain
Georgeson & Company Inc., Wall Street Plaza, New York, New York 10005 to
solicit proxies on behalf of the Board for a fee estimated at $20,000 plus
expenses. Additional costs and expenditures, including fees for attorneys,
printing, and mailing are anticipated to be approximately $50,000. KIM intends
to seek reimbursement to itself and its advisory clients of some or all of
their costs of solicitation from the Fund.
KIM has been advised by The Fund, which advise is applicable to
proxies, as follows:
If a proxy is properly executed and returned accompanied by
instructions to withhold authority to vote, represents a broker
"non-vote" ( that is, a proxy from a broker or nominee indicating
that such person has not received instructions from the beneficial
owner or other person entitled to vote shares of the Fund on a
particular matter with respect to which the broker or nominee does
not have discretionary power) or is marked with an abstention
(collectively "abstentions") the Fund's shares represented thereby
will be considered to be present at the Meeting for purposes of
determining the existence of a quorum for the transaction of business.
Under Maryland law, abstentions do not constitute a vote "for" or
"against" a matter and will be disregarded in determining "votes cast"
on an issue.
In the event that a quorum is not present at the Meeting, or
if a quorum is present but sufficient votes to approve any of the
proposals are not received, the persons names as proxies may propose
one or more adjournments of the Meeting to permit further
solicitation of proxies. In determining whether to adjourn the
meeting the following factors any be considered: the nature of the
proposals that are the subject of the Meeting, the percentage of
votes actually cast, the percentage of negative votes cast,
the nature of any further solicitation, and the information to be
provided to stockholders with respect to the reasons for the
solicitation. Any adjournment will require the affirmative vote
of a majority of those shares affected by the adjournment that
are represented at the meeting in person or by proxy. A stockholder
vote may be taken for one or more of the proposals in this Proxy
Statement prior to any adjournment if sufficient votes have been
received for approval. If a quorum is present, the persons named
as management proxies will vote those proxies which they are
entitled to vote "for" a Proposal in favor of adjournment, and will
vote those proxies required to be voted "against" a Proposal against
any adjournment. A quorum is constituted with respect to the Fund by
the presence in person or by proxy of the holders of a majority of the
outstanding shares of the Fund entitled to vote at the Meeting.
Many allegations of improper actions have been alleged by the Fund
and KIM. These matters have yet to come to a determination. Karpus Investment
Management has fully funded the legal fees needed to promote a proxy contest,
obtain a list of holders of the Fund, along with defending itself against
pending legal action by the Fund. The Board of Directors of the Fund has
continuously approved these outrageous expenses through their Audit Committee.
YOUR SUPPORT IS CRUCIAL TO REMOVE MANAGEMENT OF THE FUND. PLEASE VOTE
THE ENCLOSED PROXY CARD FOR THE KARPUS INVESTMENT MANAGEMENT PROPOSALS. IF YOU
HAVE ANY
QUESTIONS, WE URGE SHAREHOLDERS TO CONTACT KIM TO DISCUSS ANY ISSUES WHICH MAY
BE OF CONCERN. PLEASE CALL 800-646-4005 ANYTIME BETWEEN 8:30 AM TO 5:00 PM.
YOUR VOTE IS IMPORTANT, PLEASE SIGN DATE AND RETURN THE ENCLOSED
PROXY CARD IN THE ENCLOSED ENVELOPE.
GOODKIND LABATON RUDOFF & SUCHAROW LLP
100 Park Avenue
New York, New York 10017-5563
Telephone: (212) 907-0700
Facsimile: (212) 818-0477
INTERNET ADDRESS
negrinj@glrs.com
July 10, 1998
Charles J. Hecht, Esq.
Hecht & Steckman, P.C.
60 East 42nd Street, Suite 5101
New York, New York 10165-5101
Re: Karpus Investment Management, Inc. ("KIM")
and Bull & Bear U.S. Government Securities
Fund, Inc. (the "Fund")
------------------------------------------
Dear Mr. Hecht:
This letter is in response to your letter dated July 2, 1998
to Mark S. Arisohn of this office, which purported to be in response to a
letter dated May 27, 1998 from George W. Karpus, President of KIM, to the
individual Directors of the Fund. It is distressing that the Fund's Management
is expending the resources of its shareholders to respond to correspondence to
its individual Directors.
Your letter presents Mr. Karpus's statements out of context.
The expenses incurred by the Fund from July 1 through December 31, 1997 were
excessive. Your reference to the Fund's expenses earlier in the year and your
attempt to shift the blame for subsequent expenses to KIM are misleading. KIM
exercised its rights as a shareholder of the Fund to solicit proxies in
opposition to the current Board of Directors. KIM was not responsible for the
inordinate expenditures by Management, which we have been advised and
expressmailing to each and every shareholder, even those who only held one
share of stock in the Fund. Management, including the Board of Directors,
should respond to Kim's reasonable inquiry: How much did Management spend on
the
proxy contest?
The Fund's Proxy Statement dated October 20, 1997 stated
that "The Fund will bear the cost of soliciting proxies. In addition to the
use of the mails, proxies may be solicited personally, by telephone, or by
other means, an the Fund may pay persons holding its shares in their name or
those of their nominees for their expenses in sending soliciting materials to
their principals. In addition, the Fund will retain Shareholder Communications
Corporation, 17 State Street, New York, New York 1004, to solicit proxies of
behalf of the Board for a fee estimated at $10,000 plus expenses." It was the
duty of the Board of Directors and its Audit Committee to the shareholders to
ensure that the Fund did not pay inordinate expenses to entrench the Fund's
Management, including its Board of Directors and Bull & Bear Advisers, Inc.
the Funds Adviser.
The statement in the Fund's Proxy Statement that "the Fund
will bear the cost of soliciting proxies," did not state whose expenses would
be reimbursed. Accordingly, KIM's Proxy Statement reasonably stated that "KIM
intends to seek reimbursement to itself and its advisory clients of some or
all of their costs of solicitation for the Fund." It is the massive
expenditures by the Fund's Management, not KIM's modest and reasonable
suggestion, that is offensive to the Fund's shareholders.
KIM believes that the proxy contest was not successful for
several reasons, including insufficient time to respond to Management's
repeated misleading mailings, a lack of access to shareholder records, and
votes cast by shareholders who were confused as to whom they were actually
supporting.
KIM has not violated Section 10(b) or Section 16(b) of the
Securities Exchange Act of 1934, as amended, or any other securities laws,
rules, or regulations. Your repeated allegations do not alter this reality.
KIM has rejected your claims in Court and the repetition in your
correspondence does not improve your client's position.
KIM is also concerned with the possible misstatement of the
net asset value ("NAV") of the Fund. KIM's repeated requests for the actual
expenses incurred by the Fund for KIM's Proxy Statement mailing have fallen on
deaf ears. KIM believes that the Fund's Management overcharged KIM for this
mailing. The Fund only mailed approximately one half of the solicitation
packages, that KIM originally requested. If the overcharged amount is being
carried as an asset of the Fund, then the NAV is erroneous.
The purpose of KIM's letter of May 27, 1998 was to advise
the Board of Directors of the Fund that they are not fulfilling their
fiduciary duty to the shareholders of the Fund. The members of the Board, who
are also members of the Audit Committee, should exercise tighter control over
excessive expenditure and the calculation of NAV.
If the Directors have nothing to hide, individual responses
would be appropriate. We now pose this additional question: How much did your
letter to us in response to KIM's letter tot the individual Board members cost
the shareholders?
Very truly yours,
Joel Negrin