Bull & Bear
U.S. Government Securities Fund
Investing for a high level of current income, liquidity and safety of principal.
Annual Report
December 31, 1996
Bull & Bear U.S. Government Securities Fund
11 Hanover Square, New York, NY 10005
1-800-847-4200
1-212-363-1100
http://www.bull-and-bear.com
February 14, 1997
Dear Shareowner,
We are very pleased to submit this First Report since shareowners voted
to convert Bull & Bear U.S. Government Securities Fund to closed-end status at
their Special Meeting held on September 19, 1996. The conversion was effective
October 4, 1996 and the Fund's shares are now listed and traded on the American
Stock Exchange (symbol: BBG). The Fund's Board of Directors anticipates that the
change may help reduce the Fund's operating expenses. This, together with the
greater investment flexibility now available to the Fund, is expected to enhance
the potential for a higher yield and total return as the Fund seeks a high level
of current income, liquidity, and safety of principal for its shareowners.
Review and Outlook
During the second half of the year, the economy was characterized by
moderate growth and consistently low levels of inflation, with "overall" and
"core" Consumer Price Index figures up just 3.3% and 2.6%, respectively.
Reflecting this, the Federal Reserve has maintained its targeted Federal Funds
rate, the amount banks charge each other for overnight loans, at a relatively
low level of 5.25% since January 1996. This is the longest period of unchanged
rates since 1993, and confirms the modestly expanding overall economy and
acceptable rates of inflation we have enjoyed throughout this period.
Over 1.2 million new jobs were created in the United States during the last
six months of 1996. Although this was about 25% less than were created during
the first half of the year, the unemployment rate nevertheless fell to its
lowest level since 1989. Other measures of employment, such as the length of the
average work week and overtime hours also continue to confirm increased demands
for labor. Tightness in labor markets needs to be monitored closely because it
creates the potential for inflationary pressure on wages, and as personal income
rises, the demand for goods and services rises throughout the economy.
Looking ahead, we see several variables that support the continuation of
last year's moderate growth and low inflation experience. While personal income
continues to grow at
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a rapid pace, demand pressures should be moderated by high levels of consumer
debt. Demographic trends should also restrain consumption, particularly demand
related to housing and durable goods.
Dividend Reinvestment Plan
The Bull & Bear U.S. Government Securities Fund Dividend Reinvestment
Plan is particularly attractive because quarterly dividend distributions are
reinvested at the lower of net asset value per share or market price. The market
price is determined by averaging the closing ex-dividend prices of the Fund on
the American Stock Exchange for the five trading days prior to the payment date.
Reinvesting at the lower of net asset value or market price per share can be a
considerable advantage for shareowners, and can contribute importantly to
growing your investment over time.
We appreciate your support and look forward to continuing to serve your
investment needs.
Sincerely,
Robert D. Anderson Thomas B. Winmill
Vice Chairman Co-President
<PAGE>
Mutual Funds
Bull & Bear Dollar Reserves
A high quality moneymarket fund investing in U.S. Government securities. Income
is generally free from state income and intangible personalproperty taxes. Free,
unlimited check writing with only a $250 minimum per check.
Bull & Bear Gold Investors
Seeks long term capital appreciation in investments with the potential to
provide a hedge against inflation and preserve the purchasing power of the
dollar.
Bull & Bear Special Equities Fund
Invests aggressively for maximum capital appreciation.
Bull & Bear U.S. and Overseas Fund
Invests worldwide for the highest possible total return.
Call our toll-free number for a prospectus
containing more complete information,
including charges and expenses. Please read it
carefully before you invest.
Closed-end
investment companies
listed on the
American Stock
Exchange
Bull & Bear Investing for a high level of income from a
Global Income Fund global portfolio of primarily investment
grade fixed income securities.
Bull & Bear Investing for the highest possible income
Municipal Income exempt from Federal income tax that is
Fund consistent with preservation of principal.
Bull & Bear U.S. Investing for a high level of current income,
Government liquidity and safety of principal.
Securities Fund
Discount Brokerage
Services
Bull & Bear
Securities, Inc.
Receive the investment information you need and the low commissions you expect.
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And you can save an additional 10% off our already low commission rates when you
use Bull & Bear PC OnLine Investment CenterSM and/or Bull & Bear TeleQuote/
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Plus(R) accounts.)
<PAGE>
BULL & BEAR U.S. GOVERNMENT SECURITIES FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS - DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
PRINCIPAL MARKET
AMOUNT VALUE
U.S. GOVERNMENT OBLIGATIONS (40.5%)
<C> <C>
$1,750,000 U.S. Treasury Note, 6.50%, due 5/31/01...................... $ 1,770,234
750,000 U.S. Treasury Note, 6.625%, due 7/31/01..................... 762,187
800,000 U.S. Treasury Note, 6.50%, due 10/15/06..................... 804,750
1,000,000 U.S. Treasury Bond 6.50%, due 11/15/26...................... 981,562
--------------
Total U.S. Government Obligations (cost: $4,320,160).... 4,318,733
-------------
U.S. GOVERNMENT AGENCIES (54.8%)
2,000,000 Federal National Mortgage Assn., 6.08%, due 9/25/00......... 1,988,706
1,000,000 Federal National Mortgage Assn., 7.375%, due 3/28/05........ 1,046,997
902,935 Government National Mortgage Assn., 6.50%, due 7/15/08...... 892,213
772,539 Government National Mortgage Assn., 7.0%, due 6/15/23....... 756,846
125,973 Government National Mortgage Assn., 7.0%, due 5/15/24....... 123,414
1,004,253 Government National Mortgage Assn., 8.0%, due 5/15/26....... 1,025,593
-------------
Total U.S. Government Agencies (cost: $5,805,758)....... 5,833,769
-------------
Shares PREFERRED STOCK (4.7%)
20,000 Tennessee Valley Authority, 7.50% Pfd. (cost: $502,000).... 500,000
--------------
TOTAL INVESTMENTS (COST: $10,627,918) (100.0%)............. $10,652,502
===========
</TABLE>
See accompanying notes to financial statements.
U.S. Government Securities
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996 (Unaudited)
<TABLE>
ASSETS:
<S> <C>
Investment at market value (cost: $10,627,918) (note 1)................... $10,652,502
Cash...................................................................... 60,671
Interest and dividends receivable......................................... 128,056
Other assets.............................................................. 816
---------------
Total assets....................................................... 10,842,045
------------
LIABILITIES:
Other liabilities......................................................... 49,709
Accrued expenses.......................................................... 34,408
Accrued management fees................................................... 6,439
---------------
Total liabilities.................................................. 90,556
---------------
NET ASSETS: (applicable to 726,009 outstanding shares: 10,000,000 shares
of $.01 par value authorized)............................................... $10,751,489
===========
NET ASSET VALUE PER SHARE ($10,751,489 / 726,009 shares outstanding)........ $14.81
======
At December 31, 1996, net assets consisted of:
Paid-in capital........................................................... $13,499,372
Accumulated net realized loss on investments.............................. (2,776,397)
Net unrealized appreciation on investments................................ 24,584
Undistributed net investment income....................................... 3,930
---------------
$10,751,489
</TABLE>
See accompanying notes to financial statements.
U.S. Government Securities
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended December 31, 1996 (Unaudited)
<TABLE>
INVESTMENT INCOME:
<S> <C>
Interest............................................................. $380,511
Dividends............................................................ 9,375
-----------
Total investment income............................................ 389,886
---------
EXPENSES:
Investment management (note 3)....................................... 41,583
Transfer agent....................................................... 18,211
Professional (note 3)................................................ 11,703
Custodian ........................................................... 11,482
Distribution (note 3)................................................ 8,256
Registration (note 3)................................................ 7,810
Printing............................................................. 6,162
Directors............................................................ 4,023
Shareholder administration (note 3).................................. 3,357
Miscellaneous........................................................ 9,392
-----------
Total expenses................................................... 121,979
---------
Net investment income............................................ 267,907
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from security transactions......................... (6,214)
Unrealized appreciation of investments during the period............. 126,651
---------
Net realized and unrealized gain on investments.................. 120,437
---------
Net increase in net assets resulting from operations............. $388,344
========
</TABLE>
See accompanying notes to financial statements.
U.S. Government Securities
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended December 31, 1996 (Unaudited) and the Year Ended June
30, 1996
<TABLE>
DECEMBER 31, JUNE 30,
1996 1996
----- -----
OPERATIONS:
<S> <C> <C>
Net investment income............................................................ $ 267,907 $ 629,150
Net realized loss from security transactions..................................... (6,214) (68,278)
Unrealized appreciation (depreciation) of investments during the period.......... 126,651 (342,666)
-------------- --------------
Net change in net assets resulting from operations............................. 388,344 218,206
Subtractions from paid in capital (note 6)....................................... (73,428) --
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.34 and $.64 per share, respectively). (263,976) (630,604)
CAPITAL SHARE TRANSACTIONS:
Change in net assets resulting from capital share transactions (a)............... (2,334,687) (2,929,650)
-------------- ------------
Total change in net assets................................................... (2,283,747) (3,342,048)
NET ASSETS:
Beginning of period 13,035,236 16,377,284
------------ -----------
End of period (including undistributed net investment income of $3,930 at
December 31, 1996)............................................................... $10,751,489 $13,035,236
=========== ===========
- --------------
(a) Transactions in capital shares were as follows:
</TABLE>
<TABLE>
DECEMBER 31, JUNE 30,
1996 1996
---------------------------------- --------------
Shares Value shares Value
<S> <C> <C> <C> <C>
Shares sold 8,064 $ 118,783 56,994 $ 866,467
Shares issued in reinvestment of distributions.. 10,694 149,278 32,182 487,951
Shares redeemed (176,906) (2,602,748) (282,543) (4,284,068)
--------- ------------- --------- -----------
Net decrease (158,148) $(2,334,687) (193,367) $(2,929,650)
========= ============ ========= ============
</TABLE>
See accompanying notes to financial statements.
U.S. Government Securities
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) The Fund, a Maryland corporation, is registered under the Investment Company
Act of 1940, as amended, as a diversified closed-end management investment
company. The Fund's shares are listed on the American Stock Exchange. The
investment objective of the Fund is to provide investors with a high level of
income, liquidity, and safety of principal. The fund seeks to achieve its
investment objective by investing primarily in securities backed by the full
faith and credit of the United States, as set forth in its prospectus. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements. With respect to
security valuation, securities listed or traded on a national securities
exchange or the Nasdaq National Market System ("NMS") are valued at the last
quoted sales price on the day the valuations are made. Such listed securities
that are not traded on a particular day and securities traded in the
over-the-counter market that are not on the NMS are valued at the mean between
the current bid and asked prices. Securities for which quotations from the
national securities exchange or the NMS are not readily available or reliable
and other assets may be valued based on over-the-counter quotations or at fair
value as determined in good faith by or under the direction of the Board of
Directors. Debt obligations with remaining maturities of 60 days or less are
valued at cost adjusted for amortization of premiums and accretion of discounts.
Investment transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual basis. In
preparing financial statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(2) The Fund intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable investment income and net capital gains, if
any, after utilization of any capital loss carryforward, to its shareholders and
therefore no Federal income tax provision is required. At June 30, 1996, the
Fund had an unused capital loss carryforward of approximately $2,591,000, of
which $311,000 expires in 1997, $1,716,000 in 1998, $361,000 in 2003 and
$203,000 in 2004. Based on Federal income tax cost of $10,627,918, gross
unrealized appreciation and gross unrealized depreciation were $123,161 and
$98,577, respectively at December 31, 1996.
(3) The Fund retains Bull & Bear Advisers, Inc. as its Investment Manager. Under
the terms of the Investment Management Agreement, the Investment Manager
receives a management fee, payable monthly, based on the average daily 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 to waive all or part of its fee or reimburse
the Fund monthly if and to the extent the aggregate operating expenses of the
Fund exceed the most restrictive limit imposed by any state in which shares of
the Fund are qualified for sale, although currently the Fund is not subject to
any such limits. Certain officers and directors of the Fund are officers and
directors of the Investment Manager and Investor Service Center, Inc., the
Fund's former distributor. The Fund reimbursed the Investment Manager $2,339 for
providing certain administrative and accounting services at cost for the six
months ended December 31, 1996.
The Fund had a plan of distribution pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "12b-1 Plan"). Pursuant to the 12b-1 Plan, the Fund
paid the Distributor a fee in an amount of one-quarter of one percent per annum
of the Fund's average daily net assets as compensation for distribution and
service activities. The fee was intended to cover personal services provided to
shareholders in the Fund and the maintenance of shareholder accounts and all
other activities and expenses primarily intended to result in the sale of the
Fund's shares. Effective with the conversion of the Fund to a closed-end
management investment company, the 12b-1 plan was terminated. Investor Service
Center also received $3,357 for shareholder administration services which it
provided to the Fund at cost for the period from July 1, 1996 to October 4,
1996.
(4) Purchases and proceeds of sales of U.S. government obligations other than
short term investments aggregated $16,284,039 and $17,121,662, respectively, for
the six months ended December 31, 1996.
(5) The Fund has a committed bank line of credit for temporary or emergency
purposes. At December 31, 1996, there was no balance outstanding and the
interest rate was equal to the Federal Reserve Funds Rate plus 1.75 percentage
points. For the six months ended December 31, 1996, the weighted average
interest rate was 7.10% based on the balances outstanding during the six months
and the weighted average amount outstanding was $12,019.
U.S. Government Securities
<PAGE>
(6) A Special Meeting of Shareholders ("Special Meeting") of Bull & Bear U.S.
Government Securities Fund, a series of Bull & Bear Funds II, Inc. (the "Series
Fund") was held on September 19, 1996 pursuant to notice given to all
shareholders of record at the close of business on August 8, 1996. At the
Special Meeting, shareholders approved a proposal to convert the Series Fund
from a diversified series of a registered open-end management investment company
to a registered closed-end management investment company with 374,572 shares
voting in favor of the conversion, 89,682 shares voting against the conversion,
and 29,886 shares abstaining.
Effective October 4, 1996, the Fund converted from an open-end management
investment company to a closed-end management investment company pursuant to the
vote of the Fund's shareholders on September 19, 1996. In connection with the
conversion, costs of approximately $73,428 have been charged against paid-in
capital. In addition, the Fund has 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 gain distribution (the "Valuation Date"), participants will be issued
additional shares equal to the amount of such dividend divided 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 oc curred 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.
U.S. Government Securities
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Six Months Years ended June 30,
Ended
December 31,
1996*
1996 1995 1994 1993 1992
-------- ------ ------- --------- -------
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..................... $ 14.74 $ 15.20 $ 14.63 $ 15.53 $ 14.80 $ 13.82
------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income (a)................................ .34 .64 .73 .78 .78 .90
Net realized and unrealized gain (loss) on investments... .07 (.46) .60 (1.03) .75 1.00
---------- --------- ----------- --------- --------- ----------
Total from investment operations....................... .41 .18 1.33 (.25) 1.53 1.90
Less distributions:
Distributions from net investment income................. (.34) (.64) (.76) (.65) (.80) (.92)
---------- --------- ----------- --------- --------- ----------
Increase (decrease) in net asset value................. .07 (.46) .57 (.90) .73 .98
---------- --------- ----------- --------- --------- ----------
Net asset value at end of period........................... $ 14.81 $ 14.74 $ 15.20 $ 14.63 $ 15.53 $ 14.80
======= ======== ======== ======== ======== ========
Per share market value at end of period.................... $ 12.81
=======
TOTAL RETURN............................................... 2.77% 1.18% 9.40% (1.76)% 10.75% 14.10%
========= ========= ========== ========= ========= =========
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)............... .$10,751 $13,035 $16,377 $17,777 $22,636 $26,187
======= ======= ======= ======= ======= =======
Ratio of expenses to average net assets.................... 2.05%** 2.10% 2.00% 1.85% 1.91% 1.86%
========= ========= ========== ======== ========= ==========
Ratio of net investment income to average net assets....... 4.51%** 4.25% 4.96% 4.16% 5.38% 6.40%
========= ========= ========== ======== ========= ==========
Portfolio turnover rate.................................... 145% 762% 482% 261% 176% 140%
====== ========== ========== ========== ========== ==========
(a) For the six months ended December 31, 1996, net investment income per
share has been computed using the average number of shares outstanding.
These computations had no effect on net asset value.
* Unaudited.
** Annualized.
</TABLE>
U.S. Government Securities
<PAGE>
Bull & Bear U.S. Government Securities Fund
11 Hanover Square
New York, NY 10005
1-800-847-4200
1-212-363-1100
http://www.bull-and-bear.com
Call toll-free for Fund performance, telephone purchases, exchanges among the
Bull & Bear Funds, and to obtain information concerning your account.
1-800-847-4200
1-212-363-1100
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Fund. The report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective Prospectus.
U.S. Government Securities
<PAGE>
