<PAGE>
U.S. GOVERNMENT SECURITIES FUND American Stock Exchange Symbol: BBG
================================================================================
11 Hanover Square, New York, NY 10005
August 15, 1997
Dear Shareholder:
In an interesting and unusual coincidence, net asset value per share was
unchanged for the year, closing at $14.74 on June 30, 1996 and again at $14.74
on June 30, 1997. Total return for the period on a net asset value basis was
5.58%, reflecting distributions paid for the 12 month period. The Fund's shares
have traded on the American Stock Exchange (symbol: BBG) since October 4, 1996,
following the vote of shareholders to convert the Fund to closed-end status.
With a recent closing market price on the Exchange of $12 3/4 per share, the
opportunity to invest in shares of the Fund at these levels has appeal.
Review and Outlook
The first half of 1997 will be remembered as a time of strong economic
growth, low levels of unemployment and moderate inflation. It will also be
remembered that in March, the Federal Reserve Bank increased short term rates by
0.25%, ending one of the longest periods of unchanged rates in recent history.
While debt markets were volatile during the first half of the year, we believe
that U.S. Government securities offer unusually attractive rates of return for
investors.
Looking ahead, we believe that the economy over the balance of the year
and into 1998 will continue to be characterized by low rates of inflation,
further gains in corporate profits and moderate levels of growth, although
different economic sectors or geographic regions may experience varying periods
of strength or weakness. The Fund will continue to invest for consistent returns
with the goal of optimizing shareholder results.
Reinvestment Plan Offers Important Advantage
The Bull & Bear U.S. Government Securities Fund Dividend Reinvestment
Plan is particularly attractive because quarterly dividend distributions are
reinvested without charge at the lower of net asset value per share or market
price, which can contribute significantly to growing your investment over time.
We appreciate your support and look forward to continuing to serve your
investment needs.
Sincerely,
/s/ Thomas B. Winmill /s/ Steven A. Landis
Thomas B. Winmill Steven A. Landis
President Senior Vice President
Portfolio Manager
<PAGE>
BULL & BEAR U.S. GOVERNMENT SECURITIES FUND, INC.
Schedule of Portfolio Investments - June 30, 1997
Principal Market
Amount Value
- ---------- -----------
U.S. Government Obligations (43.9%)
$ 275,000 U.S. Treasury Note, 5.625%, due 11/30/98............... $ 273,797
1,000,000 U.S. Treasury Note, 6.50%, due 5/31/01................. 1,005,937
750,000 U.S. Treasury Note, 6.625%, due 7/31/01................ 757,734
2,000,000 U.S. Treasury Note, 6.50%, due 10/15/06................ 1,991,874
2,000,000 U.S. Treasury Note, 6.625%, due 5/15/07................ 2,016,874
-----------
Total U.S. Government Obligations (cost: $6,011,692)... 6,046,216
-----------
U.S. Government Agencies (56.1%)
2,000,000 Federal National Mortgage Assn., 6.08%, due 9/25/00.... 1,984,256
838,936 Government National Mortgage Assn., 6.50%, due 7/15/08. 826,876
2,075,263 Government National Mortgage Assn., 7.0%, due 11/15/10. 2,083,541
693,652 Government National Mortgage Assn., 7.0%, due 6/15/23.. 681,731
117,436 Government National Mortgage Assn., 7.0%, due 5/15/24.. 115,417
966,290 Government National Mortgage Assn., 8.0%, due 5/15/26.. 988,333
1,053,619 Government National Mortgage Assn., 7.25%, due 1/15/27. 1,046,542
-----------
Total U.S. Government Agencies (cost: $7,709,662). 7,726,696
-----------
Total Investments (cost: $ 13,721,354) (100.0%).... $13,772,912
===========
See accompanying notes to financial statements.
2
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
ASSETS:
Investments at market value
(cost: $13,721,354) (note 1) ........... $ 13,772,912
Cash ..................................... 20,140
Interest receivable ...................... 138,430
Other assets ............................. 1,100
------------
Total assets ......................... 13,932,582
------------
LIABILITIES:
Payables:
Borrowings - reverse repurchase
agreement ............................ 3,046,990
Interest ............................... 3,349
Accrued expenses ....................... 35,594
Accrued management fees and
distribution fees ...................... 6,218
Other liabilities ........................ 49,227
------------
Total liabilities .................... 3,141,378
------------
NET ASSETS: (applicable to 732,339
outstanding shares: 250,000,000 shares
of $.01 par value authorized) ............ $ 10,791,204
============
NET ASSET VALUE PER SHARE:
($10,791,204 / 732,339 shares outstanding) $14.74
======
At June 30, 1997, net assets consisted of:
Paid-in capital .......................... $ 13,259,836
Accumulated net realized loss
on investments ......................... (2,520,190)
Net unrealized appreciation on investments 51,558
------------
$ 10,791,204
============
STATEMENT OF OPERATIONS
Year Ended June 30, 1997
INVESTMENT INCOME:
Interest ................................... $ 749,951
Dividends .................................. 9,375
---------
Total investment income .................. 759,326
---------
EXPENSES:
Investment management (note 3) ............. 78,786
Transfer agent ............................. 42,482
Custodian .................................. 22,066
Professional (note 3) ...................... 20,818
Interest ................................... 19,569
Registration (note 3) ...................... 9,519
Distribution (note 3) ...................... 8,256
Directors .................................. 7,898
Printing ................................... 7,688
Shareholder administration (note 3) ........ 3,357
Miscellaneous .............................. 19,127
---------
Expenses ................................. 239,566
Custodian credits (note 4) ............... (6,480)
Net expenses ............................. 233,086
---------
Net investment income .................... 526,240
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized loss from security transactions (61,091)
Unrealized appreciation of investments
during the period ........................ 153,626
---------
Net realized and unrealized gain
on investments ......................... 92,535
---------
Net increase in net assets resulting
from operations ........................ $ 618,775
=========
-------------
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended June 30,
OPERATIONS:
Net investment income ........................................................... $ 526,240 $ 629,150
Net realized loss from security transactions .................................... (61,091) (68,278)
Unrealized appreciation (depreciation) of investments during the period ......... 153,626 (342,666)
------------ ------------
Net change in net assets resulting from operations ............................ 618,775 218,206
Subtractions from paid in capital (note 6) ...................................... (73,428) --
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.71 and $.64 per share, respectively) (533,200) (630,604)
CAPITAL SHARE TRANSACTIONS:
Change in net assets resulting from capital share transactions (a) (note 6) ..... (2,256,179) (2,929,650)
------------ ------------
Total decrease in net assets .................................................. (2,244,032) (3,342,048)
NET ASSETS:
Beginning of period ............................................................. 13,035,236 16,377,284
------------ ------------
End of period ................................................................... $ 10,791,204 $ 13,035,236
============ ============
</TABLE>
- ----------
(a) Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
Shares Value Shares Value
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Shares sold .................................... 8,064 $ 118,784 56,994 $ 866,467
Shares issued in reinvestment of distributions . 17,044 228,039 32,182 487,951
Shares redeemed ................................ (176,926) (2,603,002) (282,543) (4,284,068)
-------- ----------- -------- -----------
Net decrease ................................... (151,818) $(2,256,179) (193,367) $(2,929,650)
======== =========== ======== ===========
</TABLE>
3
<PAGE>
Notes to Financial Statements
(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, 1997, the
Fund had an unused capital loss carryforward of approximately $2,508,000, of
which $1,716,000 expires in 1998, $361,000 in 2003, $202,000 in 2004 and
$229,000 in 2005. Based on Federal income tax cost of $13,721,354, gross
unrealized appreciation and gross unrealized depreciation were $128,390 and
$76,832, respectively at June 30,1997.
(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 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 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 $4,003 for
providing certain administrative
4
<PAGE>
and accounting services at cost for the year ended June 30, 1997. 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 $30,406,318 and $28,090,166, respectively, for
the year ended June 30, 1997. Under an agreement with the custodian, custodian
fees are reduced by credits for cash balances. Such reductions amounted to
$6,480 during the year ended June 30, 1997
(5) The Fund has a committed bank line of credit for temporary or emergency
purposes. At June 30, 1997, there was no balance outstanding and the interest
rate was equal to the Federal Reserve Funds Rate plus 1.75 percentage points.
For the year ended June 30, 1997, the weighted average interest rate was 5.12%
based on the balances outstanding from the line of credit and the reverse
repurchase agreement during the year and the weighted average amount outstanding
was $405,632.
(6) Effective October 4, 1996, the Fund converted from an open-end management
investment company to a closed-end management investment company. 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 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.
5
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period .................... $ 14.74 $ 15.20 $ 14.63 $ 15.53 $ 14.80
------- ------- ------- ------- -------
Income from investment operations:
Net investment income .................................. .70 .64 .73 .78 .78
Net realized and unrealized gain (loss) on investments . .01 (.46) .60 (1.03) .75
------- ------- ------- ------- -------
Total from investment operations ..................... .71 .18 1.33 (.25) 1.53
Less distributions:
Distributions from net investment income ............... (.71) (.64) (.76) (.65) (.80)
------- ------- ------- ------- -------
Increase (decrease) in net asset value ............... -- (.46) .57 (.90) .73
------- ------- ------- ------- -------
Net asset value at end of period .......................... $ 14.74 $ 14.74 $ 15.20 $ 14.63 $ 15.53
======= ======= ======= ======= =======
Per share market value at end of period ................... $ 12.63
=======
TOTAL RETURN ON NET ASSET VALUE BASIS ..................... 5.58% 1.18% 9.40% (1.76)% 10.75%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) ............... $10,791 $13,035 $16,377 $17,777 $22,636
======= ======= ======= ======= =======
Ratio of expenses to average net assets (a) ............... 1.94% 2.10% 2.00% 1.85% 1.91%
======= ======= ======= ======= =======
Ratio of net investment income to average net assets ...... 4.68% 4.25% 4.96% 4.16% 5.38%
======= ======= ======= ======= =======
Portfolio turnover rate ................................... 246% 762% 482% 261% 176%
======= ======= ======= ======= =======
</TABLE>
- ----------
(a) The ratio for the year ended June 30, 1997 after the reduction of
custodian fees under a custodian agreement was 1.88%. Prior to July
1, 1996, there was no reduction of custodian fees.
6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Bull & Bear U.S. Government Securities Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Bull & Bear U.S. Government Securities Fund, Inc., including the schedule of
portfolio investments as of June 30, 1997, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Bull & Bear U.S. Government Securities Fund, Inc. as of June 30,
1997, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
July 11, 1997
7
<PAGE>
U.S. GOVERNMENT
SECURITIES FUND
================================================================================
11 Hanover Square
New York, NY 10005
1-888-847-4200
- --------------------------------------------------------------------------------
Tait, Weller & Baker
Independent Accountants
U.S. GOVERNMENT
SECURITIES FUND
================================================================================
American Stock
Exchange Symbol:
BBG
- --------------------------------------------------------------------------------
Annual Report
June 30, 1997
BULL & BEAR_____________________________________________________________________
Performance Driven(R)
