DOLLAR RESERVES
11 Hanover Square, New York, NY 10005 1-888-503-FUND for Investment Information
1-888-503-VOICE for Shareholder Services www.mutualfunds.net
February 10, 1999
Fellow Shareholders:
It is a pleasure to welcome shareholders of the Fund who have joined us
since our June 30, 1998 Report, either by opening accounts directly, or through
their Bull & Bear Securities discount brokerage accounts, where customer's cash
balances are promptly put to work by being automatically swept into shares of
the Fund.
The Fund's approach of investing exclusively in short term U.S. Government
securities, the income from which is generally free from state income and
personal property taxes, makes it a sound choice for safety conscious investors.
The Fund also offers the added convenience of free, unlimited check writing and
no charge for the personalized checks for your account.
Review and Outlook
The Federal Reserve's Open Market Committee lowered its target Federal
Funds rate by 0.25% at two regularly scheduled fall meetings, and by an
additional 0.25% in an unusual inter-meeting adjustment. Most recently, the
Federal Reserve left its target level for short term rates unchanged at 4.75% in
December, and to our mind has signaled a reluctance to lower rates until the
impact of the previous cuts have been felt, or unless economic or market
conditions shift sufficiently.
The change in Federal Reserve Policy ended one and a half years of 5.5%
short term rates. During the unsettled conditions of the fall, yields on
three-month Treasury bills fell from over 5% to briefly as low as 3.6% as
investors worldwide sought safety and liquidity. The Federal Reserve's decisive
actions in reducing rates appear to have been successful in restoring calm to
financial markets, and Treasury bill yields have risen to 4.4%. It is noteworthy
that during the fall, when the Federal Reserve was lowering interest rates, the
economy grew at a robust 3.7% annual rate, and the unemployment rate averaged
less than 4.5%. The economy remained strong in the fourth quarter as well,
growing at a robust 5.6% rate.
Looking forward, with inflation as measured by the Consumer Price Index up
only 1.6% over the last year, and rising only 0.8% in the fourth quarter _ the
lowest in 40 years _ the 4.75% Federal Funds rate is still somewhat high by
historic measures of inflation adjusted interest rates. Along with these
relatively high "real" interest rates, the $70 billion Federal budget surplus
also dampens the economy, yet the economic expansion continues. We believe the
reduced impact of traditional monetary and fiscal policy may be attributed to
declining import and commodity prices, high levels of industrial capacity, and
increases in productivity.
Posing a potential threat to the low rate of inflation, however, is the
rapid growth in the M3 measure of dollars in circulation. The Federal Reserve
reported that M3 surged by 11.3% in 1998, the highest rate of growth since the
12 months ended April 1982, during which period the inflation rate was 6.6%.
Unless offset by continuing productivity gains and weak commodity prices, this
rapid monetary expansion will put upward pressure on the inflation rate.
At this point in time, we do not anticipate a change in Federal Reserve
policy. Should imbalances re-emerge
<PAGE>
in financial markets, we have every confidence that the Federal Reserve will act
decisively to contain any damage. Investors can be assured that the Fund will
continue to invest in short term U.S. Government securities with the goal of
providing maximum current income consistent with preservation of capital and
maintenance of liquidity.
A Convenient Way to Grow Your Account
The Fund's all-weather, income and safety conscious approach makes it an
ideal vehicle for a program of steady monthly investing. To make investing in
the Fund as easy, safe, convenient and affordable as possible, we offer the
Investor Service Center Automatic Investment Program, with three different Plans
to facilitate an automatic monthly investment of $100 or more into your regular,
IRA or other type Fund account.
o The Investor Service Center Bank Transfer Plan lets you purchase Fund
shares on a certain day each month by transferring electronically the
dollar amount you specify from your regular checking account, NOW
account, or bank money market deposit account.
o In the Investor Service Center Salary Investing Plan, part or all of
your salary may be invested electronically in shares of the Fund on
each pay date, depending upon your employer's direct deposit program.
o The Investor Service Center Government Direct Deposit Plan allows you
to deposit automatically into your Fund account part or all of certain
U.S. Government payments, such as Social Security, pension benefits,
military or retirement benefits, salary, veteran's benefits and most
other recurring payments.
If you have any questions or would like information on any of the Investor
Service Center Funds, the Investor Service Center No-Fee Traditional, Roth or
Education IRA, we would be very pleased to hear from you. Just call toll-free
1-888-503-FUND (3863), and an Investor Service Representative will be glad to
assist you, as always, without any obligation on your part.
Sincerely,
Thomas B. Winmill Steven A. Landis
President Senior Vice President
Portfolio Manager
<PAGE>
BULL & BEAR DOLLAR RESERVES
Schedule of Portfolio Investments - December 31, 1998
Principal
Amount Yield* Value**
- --------- ------ ---------
U.S. Government Agencies (100%)
$ 500,000......Federal Farm Credit, due 1/05/99 ............5.00% $ 499,990
625,000.........FederalFarm Credit, due 1/15/99 .............5.00 623,838
1,000,000.......Federal Farm Credit, due 2/01/99 ............5.00 1,000,000
1,719,000.......Federal Farm Credit, due 2/08/99 ............5.00 1,710,290
1,510,000.......Federal Farm Credit, due 3/01/99 ............5.00 1,509,591
1,500,000.......Federal Farm Credit, due 3/02/99 ............5.00 1,500,487
595,000.........Federal Farm Credit, due 3/15/99 ............5.00 589,269
425,000.........Federal Farm Credit, due 3/16/99 ............4.96 420,667
820,000.........Federal Farm Credit, due 3/16/99 ............5.00 811,657
580,000.........Federal Farm Credit, due 3/23/99 ............5.00 573,462
2,000,000.......Federal Farm Credit, due 4/01/99 ............5.00 2,002,015
700,000.........Federal Farm Credit, due 4/14/99 ............5.00 690,186
374,000.........Federal Farm Credit, due 7/15/99 ............5.00 364,479
280,000.........Federal Farm Credit, due 7/16/99 ............5.00 272,835
1,000,000.......Federal Home Loan Banks, due 1/07/99 ........5.00 999,147
750,000.........Federal Home Loan Banks, due 1/08/99 ........5.45 749,268
4,426,000.......Federal Home Loan Banks, due 1/13/99 ........5.00 4,418,924
480,000.........Federal Home Loan Banks, due 1/14/99 ........5.00 479,107
1,547,000.......Federal Home Loan Banks, due 1/15/99 ........5.00 1,544,106
967,000.........Federal Home Loan Banks, due 1/20/99 ........5.00 964,440
3,217,000.......Federal Home Loan Banks, due 1/22/99 ........5.00 3,207,973
3,000,000.......Federal Home Loan Banks, due 1/27/99 ........5.00 2,989,578
950,000.........Federal Home Loan Banks, due 1/27/99 ........5.00 950,289
415,000.........Federal Home Loan Banks, due 1/29/99 ........5.00 413,386
2,500,000.......Federal Home Loan Banks, due 2/02/99 ........5.43 2,499,952
650,000.........Federal Home Loan Banks, due 2/05/99 ........5.00 646,815
774,000.........Federal Home Loan Banks, due 2/10/99 ........5.00 769,872
1,250,000.......Federal Home Loan Banks, due 2/17/99 ........5.45 1,242,020
505,000.........Federal Home Loan Banks, due 2/19/99 ........5.00 501,604
866,000.........Federal Home Loan Banks, due 2/19/99 ........5.45 860,201
6,185,000.......Federal Home Loan Banks, due 2/24/99 ........5.00 6,138,539
3,685,000.......Federal Home Loan Banks, due 2/26/99 ........5.00 3,656,522
2,000,000.......Federal Home Loan Banks, due 2/26/99 ........5.00 1,997,887
3,500,000.......Federal Home Loan Banks, due 2/26/99 ........5.86 3,501,186
1,200,000.......Federal Home Loan Banks, due 3/04/99 ........5.00 1,190,080
1,000,000.......Federal Home Loan Banks, due 3/11/99 ........5.58 1,000,022
1,000,000.......Federal Home Loan Banks, due 3/12/99 ........5.61 1,000,075
1,000,000.......Federal Home Loan Banks, due 3/24/99 ........5.00 988,736
850,000.........Federal Home Loan Banks, due 3/24/99 ........5.45 849,811
1,500,000.......Federal Home Loan Banks, due 4/30/99 ........5.00 1,502,179
1,500,000.......Federal Home Loan Banks, due 5/06/99 ........5.72 1,500,507
695,000.........Student Loan Marketing Assn., due 2/10/99 ...5.00 694,974
1,000,000.......Student Loan Marketing Assn., due 2/22/99 ...5.00 998,845
5,000,000.......Student Loan Marketing Assn., due 12/02/99 ..5.00 4,998,666
Total Investments (100%) $65,823,477
* Represents annualized yield at date of purchase for discount securities, or
coupon for coupon-bearing securities. **Cost of investments for financial
reporting and for Federal income tax purposes is the same as value.
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
ASSETS:
Investments at value which equals
amortized cost (note 1) $65,823,477
Cash 9,685
Interest receivable 371,737
Receivable for fund shares sold 8,938
Other assets 7,731
Total assets 66,291,568
LIABILITIES:
Payables:
Fund shares redeemed 654,098
Dividend 1,723
Accrued expenses 81,769
Accrued management fees 18,773
Total liabilities 756,363
NET ASSETS: (applicable to 65,535,205
outstanding shares: 500,000,000 shares
of $.01 par value authorized) $65,535,205
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
($65,535,205 / 65,535,205) $1.00
At December 3
Paid-in capital $65,540,618
Accumulated net realized loss on
investments (5,413)
$65,535,205
STATEMENTS OF OPERATIONS
For the six months ended December 31, 1998 and the
year ended June 30, 1998
December 31, June 30,
1998 1998
INVESTMENT INCOME:
Interest.....................................$1,689,236 $3,502,320
EXPENSES:
Investment management (note 3)..................157,444 314,628
Distribution (note 3)...............................78,786 57,314
Transfer agent...................................40,049 66,981
Professional (note 3)............................38,095 58,115
Custodian........................................25,564 50,262
Registration (note 3)............................27,554 40,078
Shareholder administration (note 3)..............13,265 31,267
Directors.........................................3,112 9,661
Other............................................24,910 23,334
Total expenses...............................408,779 51,640
Investment management
fees and distribution plan
expenses waived (note ...................(115,529) (211,225)
Net expenses.................................293,250 540,415
Net investment income......................1,395,986 2,961,905
NET REALIZED GAIN FROM
SECURITY TRANSACTION.................................2,607 774
Net increase in net assets
resulting from operatio...................$1,398,593 $2,962,679
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the six months ended December 31, 1998 and for the years ended
June 30, 1998 and 1997
December 31, 30-Jun 30-Jun
1998 1998 1997
OPERATIONS:
<S> <C> <C> <C>
Net investment income .......................$1,395,986 $2,961,905 $3,026,307
Net realized gain from security
transactions .....................................2,607 774 401
Net increase in net assets
resulting from operations ................1,398,593 2,962,679 3,026,708
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.022, $0.047 and $0.047 per share,
respectively) ............................(1,395,986) (2,961,905) (3,025,265)
Distributions in excess of net realized
gains ($0.000 per share) .....................(2,607) - -
Distributions from paid-in capital
($0.001 per share) ............................... - (70,279) -
CAPITAL SHARE TRANSACTIONS:
Change in net assets resulting from
capital share transactions (a) ............3,932,762 (1,235,973) 439,197
Total increase (decrease) in net assets ....3,932,762 (1,305,478) 440,640
NET ASSETS:
Beginning of period .........................61,602,443 62,907,921 62,467,281
End of period ..............................$65,535,205 $61,602,443 $62,907,921
a) Transactions in capital shares were as follows:
Shares sold................................$24,217,074 $49,705,407 $66,841,991
Shares issued in reinvestment
of distributions..........................1,381,063 2,981,463 2,945,036
Shares redeemed............................(21,665,375) (53,922,843) (69,347,830)
Net increase (decrease)...................$ 3,932,762 $(1,235,973) $ 439,197
</TABLE>
Notes to Financial Statements
(1) The Fund is a diversified series of common stock of Bull & Bear Funds II,
Inc. (the "Company"), a Maryland corporation registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund's investment objective is to provide its shareholders maximum current
income consistent with preservation of capital and maintenance of liquidity. The
Fund invests exclusively in obligations of the U.S. Government, its agencies and
instrumentalities, as set forth in its prospectus. On March 4, 1998, the Board
of Directors of the Fund approved a change in the fiscal year end to December
31. Previously, the fiscal year end was June 30. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements. The market value of the Fund's
portfolio securities is cost adjusted for amortization of premiums and accretion
of discounts. Premiums and discounts are amortized in accordance with income tax
regulations. Dividends from net investment income (investment income less
expenses plus or minus all realized gains or losses on the Fund's portfolio
securities) are declared daily and reinvested or paid monthly. Security
transactions are accounted for on the trade date (the 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 December 31, 1998, the
Fund had an unused capital loss carryforward of approximately $5,400 of which
$5,200 and $200 expire in 2002 and 2003, respectively.
(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 .50 of 1% of the first $250 million,
.45 of 1% from $250 million to $500 million, and .40 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. The Investment Manager voluntarily waived $36,743 of its
management fee for the six months ended December 31, 1998. 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 $17,039 for providing certain administrative and accounting
services at cost for the six months ended December 31, 1998. 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 may pay 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. The distribution fees were waived by Investor Service
<PAGE>
Center for the six months ended December 31, 1998. Investor Service Center also
received $13,265 for shareholder administration services it provided to the Fund
at cost for the six months ended December 31, 1998.
(4) The Fund has a committed bank line of credit. At December 31 1998, there was
no balance outstanding and the interest rate was equal to the Federal Reserve
Funds Rate plus 1.00 percentage point. For the six months ended December 31,
1998, the weighted average interest rate was 6.19% based on the balances
outstanding during the period and the weighted average amount outstanding was
$66,134.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Six Months
Ended
31-Dec-98 1998 1997 1996 1995
PER SHARE DATA ---------- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income 0.022 0.047 0.047 0.044 0.026
Less distributions:
Distributions from net investment income (0.022) (0.047) (0.047) (0.044) (0.026)
Distributions from paid-in capital _ _ _ _ _
Net asset value at end of period $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN 4.46%** 4.83% 4.81% 4.53% 2.59%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $65,535 $62,908 $62,467 $65,278 $76,351
Ratio of expenses to average net assets (a) .93%** 0.71% 0.90% 0.89% 0.89%
Ratio of net investment income to average net
assets (b) 4.43%** 4.73% 4.70% 4.41% 2.56%
</TABLE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of Bull & Bear Dollar Reserves, a series
of Bull & Bear Funds II, Inc.:
We have audited the accompanying statement of assets and liabilities of
Bull & Bear Dollar Reserves, a series of Bull & Bear Funds II, Inc., including
the schedule of portfolio investments as of December 31, 1998, and the related
statements of operations, the statements of changes in net assets, and the
financial highlights for each of the periods indicated thereon. 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
December 31, 1998, 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 Dollar Reserves as of December 31, 1998, the results of its
operations, the changes in its net assets, and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 15, 1999
For Fund prospectuses and other
investment information, call toll-free
1-888-503-FUND
1-888-503-3863
For shareholder services by
Direct Access, call toll-free
1-888-503-VOICE
1-888-503-8642
Or, access the Fund on the web at
www.mutualfunds.net
