U.S. GOVERNMENT SECURITIES FUND
11 HANOVER SQUARE
NEW YORK, NY 10005
1-888-847-4200
AMERICAN STOCK EXCHANGE SYMBOL:
BBM
February 12, 1998
Fellow Shareholders:
We are pleased to report that the Fund's total return, based on the
change in market price of the shares on the American Stock Exchange and
dividends, was +6.38% for the six months ended December 31, 1997, the first half
of the Fund's fiscal year, and approximately 6.28% so far in 1998. On a net
asset value basis, the gain was +4.60% and 1.68%, respectively. The Fund's
current net asset value per share is $15.10. With a recent closing market price
on the Exchange of $13.75 per share, we believe this represents an opportunity
to purchase shares at an attractive discount from their underlying value.
DIVIDEND DISTRIBUTION INCREASE REFLECTS NEW POLICY
We are also pleased to report that beginning with the fourth quarter of
1997, the Fund's quarterly dividend distribution was increased to $.30 per share
from $.19 previously. This substantial increase is a result of the Fund's Board
of Directors recently adopting a managed 8% distribution policy. The policy is
intended to provide shareholders with a stable cash flow and eliminate or reduce
the amount by which net asset value per share exceeds the market price.
Quarterly distributions of 2% of the Fund's net asset value per share (8% on an
annual basis) will be paid primarily from ordinary income and any capital gains
with the balance coming from return of capital. We believe shares of the Fund
are a sound value for safety conscious income oriented investors.
REVIEW AND OUTLOOK
During the second half of 1997, investors in fixed income markets had to
reconcile the lowest rates of unemployment seen in a generation with significant
declines in intermediate and long term yields. The resolution to this apparent
contradiction was found in extremely low levels of inflation, the decline in the
Federal deficit, and purchases of U.S. Government securities as both a safe
haven from global financial turmoil and in anticipation of an economic slowdown.
The decline in rates began slowly during the summer and accelerated
during the fall, as the Asian financial crisis took center stage. Thirty year
U.S. Treasury bonds began the second half yielding 6.90%, and closed the year
yielding 5.97%. This decline of almost a full percentage point was not
duplicated in short maturities. Three month Treasury bill yields spent most of
the second half in a range around their 5.17% average, reaching a low of 4.90%
in late October due to a "flight to quality" at the height (so far) of the Asian
crisis, and increased to 5.47% at year end.
Many economists believe that a neutral monetary stance, which will cause
the economy to neither accelerate nor slow down, will result from a Federal
Funds rate between 1.5 and 2.0 percentage points above the rate of inflation.
Over the past year, the four most widely used measures of inflation ranged from
- -1.2% for the overall Producer Price Index, to +2.2% for the Core Consumer Price
Index. Using the highest measure of inflation, 2.2%, and the widest measure of
monetary neutrality, 2.0%, implies a neutral rate of 4.2%. We continue to
believe that with the Federal Funds rate currently at 5.5%, monetary policy at
this time is restrictive. Accordingly, we expect that the next move by the
Federal Reserve will be to lower the rate
<PAGE>
toward a more neutral stance. It is noteworthy that Treasury securities with
maturities as long as ten years have recently yielded less than the 5.5%
overnight Federal Funds rate and that the yield on Treasury two year notes has
been 0.375% less, reflecting market expectations of lower interest rates.
Another reason interest rates declined in 1997 was the improvement in
the Federal Budget. In 1997, the Federal deficit was $22 billion, down from $107
billion in 1996. As we have noted before, the demand for Treasury securities
remains high, while the supply continues to decline. The possibility of a budget
surplus in 1998 also supports lower interest rates.
We recognize that many market observers remain concerned that current
low levels of unemployment might lead to higher interest rates. We continue to
believe, however, that competitive price pressures will prevent producers from
passing on increased labor costs, and that they will absorb such costs through
reduced profit margins and/or by increases in productivity. We anticipate low
inflation, declining inflation premiums, somewhat lower interest rates, and
rising bond prices ahead.
AN EASY WAY TO GROW YOUR ACCOUNT
The Fund's Dividend Reinvestment Plan provides an attractive opportunity
to add to your holdings, particularly since the Fund's quarterly dividends are
reinvested without charge at the net asset value per share or market price,
whichever is lower.
At the Annual Stockholders Meeting held November 20, 1997, the Fund's
slate of directors was elected and the selection of Tait, Weller & Baker as the
Fund's independent accountants was ratified. We appreciate your support and look
forward to continuing to serve your investment needs.
Sincerely,
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 - DECEMBER 31, 1997 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
U.S. GOVERNMENT OBLIGATIONS (45.8%)
$1,000,000 U.S. Treasury Note, 5.75%, due 10/31/02.................$ 1,001,563
3,825,000 U.S. Treasury Note, 6.125%, due 8/15/07...................3,932,582
1,400,000 U.S. Treasury Note, 6.25%, due 11/15/27 ..................1,438,938
Total U.S. Government Obligations (cost: $6,329,594).....6,373,083
U.S. GOVERNMENT AGENCIES (54.2%)
2,000,000 Federal National Mortgage Assn., 6.08%, due 9/25/00.......2,011,990
779,616 Government National Mortgage Assn., 6.50%,
due7/15/08........................................784,001
1,944,595 Government National Mortgage Assn., 7.0%, due 11/15/10....1,983,487
654,810 Government National Mortgage Assn., 7.0%, due 6/15/23.......660,540
116,606 Government National Mortgage Assn., 7.0%, due 5/15/24.......117,626
950,246 Government National Mortgage Assn., 8.0%, due 5/15/26.......986,474
978,841 Government National Mortgage Assn., 7.25%, due 1/15/27......995,512
Total U.S. Government Agencies (cost: $7,392,808)........7,539,630
TOTAL INVESTMENTS (COST: $13,722,402 ) (100.0%)................. $13,912,713
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997 (Unaudited)
ASSETS:
Investments at market value (cost: $13,722,402) (note 1)..... $13,912,713
Cash ...................................................... 21,153
Collateral for securities loaned, at market value (note 4)..... 2,636,156
Interest receivable.............................................. 174,215
Other assets......................................................... 959
Total assets........................................... 16,745,196
LIABILITIES:
Payables:
Borrowings - reverse repurchase
agreement......................................................3,091,213
Interest.......................................................... 632
Collateral for securities loaned (note 4)........................2,636,156
Accrued expenses.......................................................18,478
Accrued management fees ................................................6,570
Other liabilities....................................................6,778
Total liabilities............................................5,759,827
NET ASSETS: (applicable to 739,664 outstanding shares:
250,000,000 shares of $.01 par value authorized).............$10,985,369
<PAGE>
NET ASSET VALUE PER SHARE:($10,985,369 /
739,664 shares outstanding)............................................$14.85
At December 31, 1997, net assets consisted of:
Paid-in capital...................................................$13,315,408
Accumulated deficit in net investment income.........................(178,604)
Accumulated net realized losson investments........................(2,341,746)
Net unrealized appreciation on investments...........................(190,311)
...................$10,985,369
STATEMENT OF OPERATIONS
For the Six Months Ended Ended December 31, 1997 (Unaudited)
INVESTMENT INCOME:
Interest ............................................. $426,584
EXPENSES:
Professional (note 3)..................................................81,526
Interest ............................................... 54,281
Investment management (note 3).........................................38,957
Printing ............................................... 24,681
Transfer agent.........................................................13,106
Custodian..............................................................12,098
Registration (note 3)...................................................4,335
Directors ................................................. 3,781
Miscellaneous..........................................................12,739
Expenses......................................................... 245,504
Net investment income ...........................................181,080
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from security transactions..........................178,444
Unrealized appreciation of investments during the period..............138,753
Net realized and unrealized gain on investments....................317,197
Net increase in net assets resulting from operations..............$498,277
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended December 31, 1997 (Unaudited) and for the Year Ended
June 30, 1997
DECEMBER 31, JUNE 30,
1997 1997
OPERATIONS:
Net investment income $181,080 $526,240
Net realized gain (loss)
from security transactions 178,444 (61,091)
Unrealized appreciation of investments
during the period 138,753 153,626
Net change in net assets resulting
from operations 498,277 618,775
Subtractions from paid in capital (note 6) (39,253) (73,428)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($.49 and $.71 per share, respectively) (359,684) (533,200)
CAPITAL SHARE TRANSACTIONS:
Change in net assets resulting from capital
share transactions (a) (note 6) 94,825 (2,256,179)
Total increase (decrease) in net assets 194,165 (2,244,032)
NET ASSETS:
Beginning of period 10,791,204 13,035,236
End of period (including accumulated
deficit in net investment
income of ($178,604) at December 31, 1997) $10,985,369 $10,791,204
See accompanying notes to financial statements.
DECEMBER 31, 1997 JUNE 30, 1997
SHARES VALUE SHARES VALUE
Shares sold - - 8,064 $118,784
Shares issued in
reinvestment of distributions 7,325 $94,825 17,044 228,039
Shares redeemed - - (176,926) (2,603,002)
Net decrease 7,325 $94,825 (151,818) $(2,256,179)
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
<PAGE>
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 $13,722,402, gross
unrealized appreciation and gross unrealized depreciation were $212,503 and
$22,192, respectively at December 31,1997.
(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 $1,909 for
providing certain administrative and accounting services at cost for the six
months ended December 31, 1997. The Annual Meeting of Shareholders ("Annual
Meeting") of the Fund was held on November 20, 1997 pursuant to notice given to
all shareholders of record at the close of business on October 1, 1997. At the
Annual Meeting, shareholders were asked to elect directors to serve for a
specified term and to ratify the selection by the Board of Directors of the
Fund's independent auditors. Shareholders elected Frederick A. Parker, Jr.,
Douglas Wu, Mark C. Winmill, Thomas B. Winmill and Bassett S. Winmill Directors
of the Fund with 262,816.53, 262,816.53, 261,964.53, 261,661.53, and 261,661.53
shares, respectively, voting in favor of election, and 6,526.43, 6,526.43,
7,378.43, 7,681.43 and 7,681.43 shares, respectively, voting to abstain.
Shareholders did not elect Kenneth P. Liesegang, Brad Orvieto, Bruno A. Sniders,
Donald R. Chambers and George W. Karpus. They received 205,281.64, 205,281.64,
205,281.64, 205,281.64 and 205,281.64 shares, respectively, voting in favor of
their nomination, and 4,171.71, 4,171.71, 4,171.71, 4,171.71, and 4,171.71,
shares, respectively, voting to abstain. Additionally, shareholders ratified the
selection of Tait, Weller & Baker as the Fund's independent auditors with
258,580.68 shares voting in favor of ratification, 4,072.36 shares voting
against ratification and 6,689.92 shares voting to abstain.
(4) Purchases and proceeds of sales of U.S. government obligations other than
short term investments aggregated $12,577,579 and $12,434,379, respectively, for
the six months ended December 31, 1997. As of December 31, 1997, the Fund loaned
securities having a value of $2,593,965 and received cash of $2,636,156 for the
loan.
(5) The Fund has a committed bank line of credit. At December 31, 1997, there
was no balance outstanding and the interest rate was equal to the Federal
Reserve Funds Rate plus 1.00 percentage points. For the six months ended
December 31, 1997, the weighted average interest rate was 6.03% 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
$1,785,252.
(6) Effective October 4, 1996, the Fund converted from an open-end management
investment company to
<PAGE>
a closed-end management investment company. In connection with the conversion,
costs of approximately $112,700 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.
<PAGE>
<TABLE>
<CAPTION>
Years Ended June 30
Six Months
Ended
Dec 31,
1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $14.74 $14.74 $15.20 $14.63 $15.53 $14.80
Income from investment operations:
Net investment income .25 .70 .64 .73 .78 .78
Net realized and unrealized gain (loss)
on investments .35 .01 (.46) .60 (1.03) .75
Total from investment operations .60 .71 .18 1.33 (.25) 1.53
Less distributions:
Distributions from net investment income (.49) (.71) (.64) (.76) (.65) (.80)
Increase(decrease)in net asset value .11 - (.46) .57 (.90) .73
Net asset value at end of period $14.85 $14.74 $14.74 $15.20 $14.63 $15.53
Per share market value at end of period $12.94 $12.63
TOTAL RETURN ON NET ASSET VALUE BASIS 4.60% 5.58% 1.18% 9.40% (1.76)% 10.75%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $10,985 $10,791 $13,035 $16,377 $17,777 $22,636
Ratio of expenses to average net assets (a)(b) 3.35%** 1.94% 2.10% 2.00% 1.85% 1.91%
Ratio of net investment income to average net
assets (c) 4.13%** 4.68% 4.25% 4.96% 4.16% 5.38%
Portfolio turnover rate 93% 246% 762% 482% 261% 176%
</TABLE>
(a) The ratio for the year ended June 30, 1997 after custodian fee credits was
1.88%. Prior to July 1,1996, there was no reduction of custodian fees.
(b) Ratio including interest expense was 4.30%** for the six months ending
December 31, 1997.
(c) Ratio including interest expense was 3.18%** for the six months ending
December 31, 1997.
* Unaudited.
** Annualized.
U.S. GOVERNMENT SECURITIES FUND
11 HANOVER SQUARE
NEW YORK, NY 100051-888-847-4200
U.S. GOVERNMENT SECURITIES FUND
AMERICAN STOCK EXCHANGE SYMBOL:BBG
SEMI-ANNUAL REPORT
DECEMBER 31, 1997
