<PAGE>
August 15, 1996
Fellow Shareowners:
It is a pleasure to submit this Annual Report and to welcome our many new
shareowners who have joined us since our last Report by opening regular,
Gifts/Transfers to Minors and qualified retirement plan accounts. Interestingly,
shareowner investments through Bull & Bear IRA, SEP-IRA, Profit Sharing/ Money
Purchase, 403(b) and Keogh accounts represent more than 37% of the Fund's total
net assets. We believe the Fund's approach of investing in U.S. Government
securities with attractive yields makes it a sound high quality investment
choice for safety-conscious investors.
Bull & Bear U.S. Government Securities' total return for the year ended June
30, 1996 was 1.18%, reflecting declining bond prices for the period. For the
past five and ten years, the annual compound total return was 6.56% and 7.07%,
respectively. Reflecting these results is the long term record of the Fund
illustrated in the accompanying chart. As shown, an initial investment of
$10,000 with subsequent investments of $100 per month for 10 years resulted in
an ending value of $36,278, 66% more than the investments for the period of
$21,900.
The most significant factors impacting fixed income securities were the
accelerated pace of job creation and economic activity on the one hand, and the
persistence of low levels of inflation on the other. During the first half of
the year, over 1.6 million new jobs were created, and the unemployment rate fell
5.3%. Other measures of employment, such as average work week length, overtime
hours, and average hourly earnings confirm increased demands for labor.
Tightness in labor markets creates the potential for inflationary pressure on
wages, because as personal income rises, the demand for goods and services
throughout the economy rises. In fact, the strength of the economy is reflected
in the increase in Gross Domestic Product by 2.2% and 4.2% in the first two
quarters, compared to an average of 1.3% per quarter increase in 1995. Concern
that increased levels of employment would lead to an overheated economy and a
<PAGE>
resurgence of inflation caused long term interest rates to increase by a
percentage point from late 1995. Short term interest rates have increased by one
quarter to one half percent over the same time period.
Currently, however, few signs of overheating have emerged even though more
Americans are working and are earning more. A variety of factors help explain
the lack of inflationary price pressures, including gains in productivity,
consumer resistance to price increases, and the competitive nature of an
increasingly global economy. We anticipate no more than modest increases in
interest rates over the balance of the year.
The Fund's ongoing strategy will be to continue to invest for consistent
returns in U.S. Government securities which have a high degree of safety and
liquidity, with the goal of optimizing shareowner results by investing in those
securities which offer the highest level of relative value at the time of
purchase.
On June 26, 1996, the Board of Directors approved a proposal to convert the
Fund from open-end to closed-end status. As a closed-end fund, it is expected
that the Fund's shares would be listed on the American Stock Exchange or traded
on Nasdaq, and they would no longer be redeemable at net asset value. Proxy
materials providing detailed information concerning the proposal will be mailed
to shareholders of record and available to investors in August 1996.
If you have any questions or would like information on any of the Bull & Bear
Funds, the Bull & Bear No-Fee IRA/(R)/ or opening a discount brokerage account
at Bull & Bear Securities, where you can earn American Airlines/(R)
/AAdvantage/(R)/ miles on every trade, we would be pleased to hear from you.
Just call 1-800-847-4200, and an Investor Service Representative will be glad to
assist you, as always, without any obligation on your part.
Sincerely,
[SIGNATURE OF ROBERT D. ANDERSON] [SIGNATURE OF STEVEN A. LANDIS]
Robert D. Anderson Steven A. Landis
Vice Chairman Senior Vice President
Portfolio Manager
2
<PAGE>
[LOGO OF BULL & BEAR APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------------------------------------------------------------
INCOME FUNDS-- MONEY . BULL & BEAR A high quality money
MARKET, DOLLAR RESERVES market fund investing in
U.S. GOVERNMENT, U.S. Government
MUNICIPAL AND securities. Income is
GLOBAL generally free from state
income and intangible
. Monthly Dividends personal property taxes.
(For Bull & Bear
. Free, Unlimited Performance Plus/(R)/
Check Writing -----
($250 minimum discount brokerage
per check) accounts, there is no
check writing minimum.)
. BULL & BEAR Investing for a high
U.S. GOVERNMENT level of current income,
SECURITIES FUND liquidity and safety of
principal.
. BULL & BEAR Investing for the highest
MUNICIPAL INCOME FUND possible income exempt
from Federal income tax
that is consistent with
preservation of
principal.
. BULL & BEAR Investing for a high
GLOBAL INCOME FUND level of income from a
global portfolio of
primarily investment
grade fixed income
securities.
- -------------------------------------------------------------------------------
GROWTH FUNDS-- . BULL & BEAR Invests worldwide for the
U.S., GLOBAL U.S. AND OVERSEAS FUND highest possible total
AND PRECIOUS return.
METALS
. BULL & BEAR Invests aggressively for
SPECIAL EQUITIES FUND maximum capital
appreciation.
. BULL & BEAR Seeks long term capital
GOLD INVESTORS appreciation in
investments with the
potential to provide a
hedge against inflation
and preserve the
purchasing power of the
dollar.
Call our toll-free number for a prospectus
containing more complete information, including
charges and expenses. Please read it carefully
before you invest.
- -------------------------------------------------------------------------------
DISCOUNT . BULL & BEAR Receive the investment
BROKERAGE SECURITIES, INC. information you need and
SERVICES the low commissions you
expect. Plus you can earn
CALL TOLL FREE American Airlines/(R)/
1-800-VIP-4200 AAdvantage/(R)/ miles
every time you trade. And
you can save an
additional 10% off our
already low commission
rates when you use Bull &
Bear PC OnLine Investment
Center/SM/ and/or Bull &
Bear TeleQuote/
TeleTrade/SM/. (There is
no check writing minimum
for Bull & Bear
Performance Plus/(R)/
-----
accounts.)
Total Return Performance. For the periods ended June
30, 1996, Bull & Bear U.S. Government Securities
Fund's total return for one year was 1.18%, average
annual total return for the past five years was
6.56% and for the past ten years was 7.07%. Past
performance does not guarantee future results.
Investment return will fluctuate, so shares when
redeemed may be worth more or less than their cost.
Dollar cost averaging does not assure a profit or
protect against loss in a declining market, and
investors should consider their ability to make
purchases when prices are low.
</TABLE>
3
<PAGE>
BULL & BEAR U.S. GOVERNMENT SECURITIES FUND
SCHEDULE OF PORTFOLIO INVESTMENTS--JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET VALUE
- ---------- ------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS (48.8%)
$2,500,000 U.S. Treasury Bills, due 8/15/96 . . . . . . . . . $2,483,681
1,300,000 U.S. Treasury Notes, 5.625%, due 11/30/00 . . . . 1,258,563
2,000,000 U.S. Treasury Notes, 6.50%, due 5/31/01 . . . . . 2,000,622
1,000,000 U.S. Treasury Notes, 6.875%, due 5/15/06 . . . . . 1,011,250
----------
Total U.S. Government Obligations (cost:
$6,756,915). . . . . . . . . . . . . . . . . . 6,754,116
----------
U.S. GOVERNMENT AGENCIES (49.3%)
2,000,000 Federal National Mortgage Assn., 6.08%, due 9/25/00 1,961,092
1,000,000 Federal National Mortgage Assn., 6.29%, due 10/4/00 988,137
1,000,000 Federal National Mortgage Assn., 7.375%, due
3/28/05 . . . . . . . . . . . . . . . . . . . . . 1,026,699
2,900,680 Government National Mortgage Assn., 6.50%--8%,
due 7/15/08--5/15/26 . . . . . . . . . . . . . . 2,850,786
----------
Total U.S. Government Agencies (cost: $6,912,979) 6,826,714
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
- --------
<S> <C> <C>
Preferred Stock (1.98%)
10,600 Tennessee Valley Authority, 8% Pfd., due 3/31/45
(cost: $279,328) . . . . . . . . . . . . . . . . . . 266,325
-----------
TOTAL INVESTMENTS (COST: $13,949,222) (100.0%) . . . $13,847,155
===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investment at market value
(cost: $13,949,222) (note 1) . . . . . . $13,847,155
Cash . . . . . . . . . . . . . . . . . . 143,346
Receivables:
Securities sold . . . . . . . . . . . . 1,994,554
Interest and dividends . . . . . . . . . 116,028
Fund shares sold . . . . . . . . . . . . 9,799
-----------
Total assets . . . . . . . . . . . . . 16,110,882
-----------
LIABILITIES:
Payables:
Securities purchased . . . . . . . . . . 3,007,760
Distributions . . . . . . . . . . . . . 11,157
Fund shares redeemed . . . . . . . . . . 9,941
Accrued expenses . . . . . . . . . . . . 38,859
Accrued management and distribution fees 7,929
-----------
Total liabilities . . . . . . . . . . . 3,075,646
-----------
NET ASSETS: (applicable to 884,157
outstanding shares: 250,000,000 shares of
$.01 par value authorized) . . . . . . . $13,035,236
===========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE ($13,035,236 / 884,157) . $14.74
======
At June 30, 1996, net assets consisted of:
Paid-in capital . . . . . . . . . . . . . $15,907,487
Accumulated net realized loss on
investments. . . . . . . . . . . . . . . (2,770,184)
Net unrealized depreciation on
investments . . . . . . . . . . . . . . (102,067)
-----------
$13,035,236
===========
</TABLE>
STATEMENT OF OPERATIONS
Year Ended June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . $ 929,444
Dividends . . . . . . . . . . . . . . . . . . 10,600
---------
Total investment income . . . . . . . . . . 940,044
---------
EXPENSES:
Investment management (note 3) . . . . . . . 103,792
Professional (note 3) . . . . . . . . . . . . 49,363
Distribution (note 3) . . . . . . . . . . . . 37,069
Transfer agent . . . . . . . . . . . . . . . 31,576
Custodian . . . . . . . . . . . . . . . . . . 30,682
Registration (note 3) . . . . . . . . . . . . 20,363
Shareholder administration (note 3) . . . . . 14,231
Printing . . . . . . . . . . . . . . . . . . 10,167
Directors . . . . . . . . . . . . . . . . . . 6,099
Miscellaneous . . . . . . . . . . . . . . . . 7,552
---------
Total expenses . . . . . . . . . . . . . . 310,894
---------
Net investment income . . . . . . . . . . . 629,150
---------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss from security transactions (68,278)
Unrealized depreciation of investments during
the period . . . . . . . . . . . . . . . . . (342,666)
---------
Net realized and unrealized loss on
investments. . . . . . . . . . . . . . . . (410,944)
---------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . $ 218,206
=========
</TABLE>
See the accompanying notes to financial statements
5
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended June 30,
<TABLE>
<CAPTION>
1996 1995
----------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income . . . . . . . . . . . . . $ 629,150 $ 825,647
Net realized loss from security transactions . (68,278) (217,869)
Unrealized appreciation (depreciation) of
investments during the period . . . . . . . . (342,666) 821,547
----------- -----------
Net change in net assets resulting from
operations . . . . . . . . . . . . . . . . . 218,206 1,429,325
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.64
and $.76 per share, respectively) . . . . . . (630,604) (859,743)
CAPITAL SHARE TRANSACTIONS:
Change in net assets resulting from capital
share transactions (a) . . . . . . . . . . . . (2,929,650) (1,969,546)
----------- -----------
Total change in net assets . . . . . . . . . . (3,342,048) (1,399,964)
NET ASSETS:
Beginning of period . . . . . . . . . . . . . . 16,377,284 17,777,248
----------- -----------
End of period (including undistributed net
investment income of $1,377 in 1995) . . . . . $13,035,236 $16,377,284
=========== ===========
</TABLE>
- ---------
(a) Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
SHARES VALUE SHARES VALUE
--------- ------------ --------- --------------
<S> <C> <C> <C> <C>
Shares sold . . . . . . 56,994 $ 866,467 372,514 $ 5,445,720
Shares issued in
reinvestment of
distributions . . . . . 32,182 487,951 46,042 671,549
Shares redeemed . . . . (282,543) (4,284,068) (555,963) (8,086,815)
-------- ----------- -------- -----------
Net decrease . . . . . . (193,367) $(2,929,650) (137,407) $(1,969,546)
======== =========== ======== ===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) The Fund is a diversified series of common stock of Bull & Bear Funds II,
Inc. (the "Company"), which is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. Bull & Bear
Dollar Reserves and Bull & Bear Global Income Fund are the other series of the
Company. 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. 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 $13,949,222, gross
unrealized appreciation and gross unrealized depreciation were $83,809 and
$185,876, respectively at June 30, 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 undertaken that the operating expenses of the Fund
for each fiscal year (including management fees, but excluding taxes, interest,
brokerage commissions and distribution plan expenses), expressed as a percentage
of average daily net assets, will not exceed the lowest rate prescribed by any
state in which shares of the Fund are qualified for sale. Currently, such
limitation is 2 1/2% of the first $30 million of such assets, 2% of the next $70
million and 1 1/2 % of the remaining net assets. If the Fund's expenses exceed
such rates, the Investment Manager will reimburse the Fund for any excess.
Certain officers and directors of the Fund are officers and directors of the
Investment Manager and Investor Service Center, Inc., the Fund's distributor.
The Fund reimbursed the Investment Manager $10,434 for providing certain
administrative and accounting services at cost for the year ended June 30, 1996.
7
<PAGE>
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"). Pursuant to the Plan, the Fund pays
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 is 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. Investor Service Center also received $14,231 for shareholder
administration services which it provided to the Fund at cost for the year ended
June 30, 1996.
(4) Purchases and proceeds of sales of U.S. government obligations other than
short term investments aggregated $102,798,206 and $107,123,622, respectively,
for the year ended June 30, 1996.
(5) The Fund has a committed bank line of credit for temporary or emergency
purposes. As part of the agreement the Fund is required to pledge securities it
holds in its portfolio if there is an outstanding balance. At June 30, 1996,
there was no balance outstanding and the interest rate was equal to the Federal
Reserve Funds Rate plus 1.75 percent. For the year ended June 30, 1996 the
weighted average interest rate was 7.4% based on the balances outstanding during
the year and the weighted average amount outstanding was $9,799.
-----------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------------
1996 1995 1994 1993 1992
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at
beginning of period . . $ 15.20 $ 14.63 $ 15.53 $ 14.80 $ 13.82
------- ------- ------- ------- -------
Income from investment
operations:
Net investment income . .64 .73 .78 .78 .90
Net realized and
unrealized gain (loss)
on investments . . . (.46) .60 (1.03) .75 1.00
------- ------- ------- ------- -------
Total from investment
operations. . . . . .18 1.33 (.25) 1.53 1.90
Less distributions:
Distributions from net
investment income . . (.64) (.76) (.65) (.80) (.92)
------- ------- ------- ------- -------
Increase (decrease) in
net asset value . . . (.46) .57 (.90) .73 .98
------- ------- ------- ------- -------
Net asset value at end of
period . . . . . . . . . $ 14.74 $ 15.20 $ 14.63 $ 15.53 $ 14.80
======= ======= ======= ======= =======
TOTAL RETURN . . . . . . 1.18% 9.40% (1.76)% 10.75% 14.10%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (000's omitted) . $13,035 $16,377 $17,777 $22,636 $26,187
======= ======= ======= ======= =======
Ratio of expenses to
average net assets . . . 2.10% 2.00% 1.85% 1.91% 1.86%
======= ======= ======= ======= =======
Ratio of net investment
income to average net
assets . . . . . . . . . 4.25% 4.96% 4.16% 5.38% 6.40%
======= ======= ======= ======= =======
Portfolio turnover rate . 762% 482% 261% 176% 140%
======= ======= ======= ======= =======
</TABLE>
8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Bull & Bear U.S. Government Securities Fund,
a series of Bull & Bear Funds II, Inc.:
We have audited the accompanying statement of assets and liabilities of Bull &
Bear U.S. Government Securities Fund, a series of Bull & Bear Funds II, Inc.,
including the schedule of portfolio investments as of June 30, 1996, and the
related statement of operations for the year then ended, the statement 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 audit.
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, 1996, by correspondence with the custodian and brokers. 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 as of June 30, 1996, 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 12, 1996
9
