<PAGE> 1
- --------------------------------------------------------------------------------
ANNUAL REPORT
======================================================
BREMER INVESTMENT FUNDS, INC.
======================================================
Bremer Growth Stock Fund
Bremer Bond Fund
SEPTEMBER 30, 1997
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<PAGE> 2
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TABLE OF CONTENTS
Page
----
Shareholder Letter...................................... 1
Growth Stock Fund Cumulative Rate of Return Graph....... 2
Bond Fund Cumulative Rate of Return Graph............... 3
Statement of Assets and Liabilities..................... 4
Statement of Operations................................. 5
Statement of Changes in Net Assets...................... 6
Financial Highlights.................................... 7
Growth Stock Fund Schedule of Investments............... 8
Bond Fund Schedule of Investments....................... 11
Notes to the Financial Statements....................... 15
Report of Independent Public Accountants................ 18
------------------------------------------------
NOTICE TO INVESTORS
Shares of the Funds are not deposits or obligations of, or
guaranteed or endorsed by, any bank, nor are they insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other agency. An investment in the Funds involves
investment risk, including possible loss of principal, due to
fluctuation in each Fund's net asset value.
- --------------------------------------------------------------------------------
<PAGE> 3
November 12, 1997
Dear Fellow Shareholders:
It has been a tremendous year for your mutual funds. Assets have grown to
$124.8 million between the Bremer Growth Stock Fund ($51.1 million) and the
Bremer Bond Fund ($73.7 million). The Bremer Growth Stock Fund achieved a
solid total return of 19.00% since inception on January 27, 1997 to September
30, 1997, and the Bremer Bond Fund returned a respectable 5.33% during the same
period.
The individual stocks that contributed the most to the Bremer Growth Stock
Fund's return were: 1) Intel Corporation 2) General Electric and 3) Pfizer.
The Fund favors the following sectors: technology, consumer cyclicals, health
care and finance. The stock market has experienced an increase in short-term
volatility since September with records set for point movements, both positive
and negative. Trading volume topped 1 billion shares in a day for the first
time. We continue to invest for long term growth and focus on companies that
should do well over the next 3-5 years.
Bonds have also performed well. Interest rates have fallen on average 0.20% to
0.40% since inception through September 30, 1997. Rates also continued to fall
during October. Falling interest rates generally mean an increase in the price
of your Fund. Benign inflation and moderate growth have been key factors to the
falling interest rates. The Bremer Bond Fund targets three primary bond
sectors: U.S. Government obligations and its agencies, mortgage-backed
securities and investment grade corporate bonds. We currently favor the U.S.
Government agencies and corporate bonds, as we expect rates to fall.
Thank you for your business and we wish you success in 1998.
Sincerely,
STEVEN A. LARAWAY
President, Bremer Investment Funds, Inc.
-1-
<PAGE> 4
[LINE GRAPH]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/27/97 2/28/97 3/31/97 4/30/97 5/31/97 6/30/97 7/31/97 8/31/97 9/30/97
Bremer Growth Stock Fund $10,000 $ 9,940 $9,600 $10,051 $10,780 $11,161 $12,060 $11,590 $11,899
S&P 500 $10,000 $10,361 $9,935 $10,528 $11,169 $11,670 $12,598 $11,893 $12,544
Lipper Growth Managers $10,000 $ 9,923 $9,469 $ 9,885 $10,569 $10,964 $11,873 $11,434 $12,088
</TABLE>
Cumulative rate of return (%)
January 27, 1997
through
September 30, 1997
-----------------------
Bremer Growth Stock Fund 19.00%
S&P 500 24.44%
Lipper Growth Managers 20.88%
The Standard & Poor's 500 (S&P 500) is a capital-weighted index, representing
the aggregate market value of the common equity of 500 stocks primarily traded
on the New York Stock Exchange. The Lipper Growth Managers Index is an index
composed of 30 funds which invests in companies whose long-term earnings are
expected to grow significantly faster than the earnings of the stocks
represented in the major unmanaged stock indices. This chart assumes an initial
gross investment of $10,000 made on 1/27/97 (commencement of operations).
Returns shown include the reinvestment of all dividends. Past performance is not
predictive of future performance. Investment return and principal value will
fluctuate, so that your shares, when redeemed, may be worth more or less than
the original cost.
-2-
<PAGE> 5
[LINE GRAPH]
<TABLE>
<CAPTION>
1/27/97 2/28/97 3/31/97 4/30/97 5/31/97 6/30/97 7/31/97 8/31/97 9/30/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bremer Bond Fund $10,000 $10,067 $10,009 $10,103 $10,183 $10,270 $10,469 $10,411 $10,534
LB int. Govt./Corp. $10,000 $10,078 $10,008 $10,125 $10,209 $10,302 $10,511 $10,459 $10,580
</TABLE>
Cumulative rate of return (%)
January 27, 1997
through
September 30, 1997
----------------------------
Bremer Bond Fund 5.33%
LB Int. Govt./Corp. 5.79%
The Lehman Brothers Intermediate Government/Corporate Bond Index (LB Int.
Govt./Corp.) is a weighted index comprised of publicly traded intermediate and
long-term government and corporate debt with a duration of 3.31 years. This
chart assumes an initial gross investment of $10,000 made on 1/27/97
(commencement of operations). Returns shown include the reinvestment of all
dividends. Past performance is not predictive of future performance. Investment
return and principal value will fluctuate, so that your shares, when redeemed,
may be worth more or less than the original cost.
-3-
<PAGE> 6
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------- ----
GROWTH BOND
STOCK FUND FUND
---------- ----
<S> <C> <C>
ASSETS:
Investments, at market value
(Cost of $41,250,842 and $72,291,452, respectively) $ 51,349,347 $72,868,514
Dividends receivable 36,376 ---
Interest receivable 12,694 860,847
Organizational expenses, net of accumulated amortization 23,642 23,642
Other assets 3,870 3,940
-------------- -----------
Total assets 51,425,929 73,756,943
-------------- -----------
LIABILITIES:
Bank overdraft 267,732 ---
Payable to Investment Adviser 25,070 34,579
Accrued expenses and other liabilities 29,485 38,721
-------------- -----------
Total liabilities 322,287 73,300
-------------- -----------
NET ASSETS $ 51,103,642 $73,683,643
============== ===========
NET ASSETS CONSIST OF:
Capital stock $ 40,794,184 $73,072,502
Accumulated undistributed net investment income 134,645 37,744
Accumulated undistributed net realized gain (loss) on
investments 76,308 (3,665)
Net unrealized appreciation on investments 10,098,505 577,062
-------------- -----------
Total Net Assets $ 51,103,642 $73,683,643
============== ===========
Shares outstanding
(100 million shares authorized for each Fund, $ .0001 4,294,568 7,238,271
par value)
Net Asset Value, Redemption Price and Offering Price Per $ 11.90 $ 10.18
Share ============== ===========
</TABLE>
See Notes to the Financial Statements
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-4-
<PAGE> 7
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
STATEMENT OF OPERATIONS
January 27, 1997(1) through September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------- ----
Growth Bond
Stock Fund Fund
---------- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividend Income $242,213 $5,000
Interest Income 115,261 1,858,930
---------- -----------
Total investment income 357,474 1,863,930
---------- -----------
EXPENSES:
Investment advisory fees 149,729 197,482
Administration fees 12,415 12,415
Shareholder servicing and accounting costs 20,495 24,304
Custody fees 6,087 6,307
Federal and state registration 22,889 31,262
Professional fees 4,498 4,496
Reports to shareholders 1,204 1,204
Amortization of organizational expenses 3,690 3,690
Directors' fees and expenses 1,337 1,337
Other 2,478 2,479
---------- -----------
Total expenses 224,822 284,976
---------- -----------
NET INVESTMENT INCOME 132,652 1,578,954
---------- -----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 76,308 437
Change in unrealized appreciation on investments 5,623,711 693,976
---------- -----------
Net realized and unrealized gain on investments 5,700,019 694,413
---------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $5,832,671 $2,273,367
========== ==========
(1) Commencement of Operations
</TABLE>
See Notes to the Financial Statements
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-5-
<PAGE> 8
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
STATEMENT OF CHANGES IN NET ASSETS
January 27, 1997(1) through September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Growth Bond
Stock Fund Fund
---------- ----
<S> <C> <C>
OPERATIONS:
Net investment income $132,652 $1,578,954
Net realized gain on investments 76,308 437
Change in unrealized appreciation on investments 5,623,711 693,976
---------- -----------
Net increase in net assets from operations 5,832,671 2,273,367
---------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income --- (1,547,305)
---------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 20,452,900 36,235,356
Proceeds from common and commingled trust fund conversions 27,496,387 44,960,417
Proceeds from shares issued to holders in reinvestment of
dividends --- 12,089
Cost of shares redeemed (2,678,316) (8,250,281)
---------- -----------
Net increase in net assets from capital share transactions 45,270,971 72,957,581
---------- -----------
TOTAL INCREASE IN NET ASSETS 51,103,642 73,683,643
---------- -----------
NET ASSETS:
Beginning of period 0 0
---------- -----------
End of period (including undistributed net investment
income of $134,645 and $37,744, respectively) $51,103,642 $73,683,643
=========== ===========
(1) Commencement of Operations
</TABLE>
See Notes to the Financial Statements
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-6-
<PAGE> 9
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
FINANCIAL HIGHLIGHTS
January 27, 1997(1) through September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------- ----
Growth Bond
Stock Fund Fund
---------- ----
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.35
Net realized and unrealized gain on investments 1.87 0.17
------- -------
Total from investment operations 1.90 0.52
------- -------
Less dividends from net investment income --- (0.34)
------- -------
NET ASSET VALUE, END OF PERIOD $11.90 $10.18
======= =======
TOTAL RETURN(2) 19.00% 5.33%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $51,103,642 $73,683,643
Ratio of net expenses to average net assets(3) 1.05% 1.01%
Ratio of net investment income to average net assets(3) 0.62% 5.60%
Portfolio turnover rate 11.30% 38.35%
Average commission rate paid $0.1316 n.a.
(1) Commencement of Operations
(2) Not annualized
(3) Annualized
</TABLE>
See Notes to the Financial Statements
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-7-
<PAGE> 10
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
SCHEDULE OF INVESTMENTS - September 30, 1997
Growth Stock Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
----------------------------------------------------------
COMMON STOCKS - 97.0%
----------------------------------------------------------
APPAREL - 1.1%
23,000 Intimate Brands, Inc. $536,188
----------
BANKING & FINANCIAL SERVICES - 8.8%
10,932 Banc One Corporation 610,142
7,000 Citicorp 937,562
17,500 Equifax, Inc. 550,156
24,200 Federal Home Loan Mortgage Corporation 853,050
15,700 KeyCorp 998,913
14,000 Providian Financial Corporation 555,625
----------
4,505,448
----------
BUSINESS SERVICE - 5.9%
27,000 Cisco Systems, Inc. * 1,972,687
14,500 Computer Associates International, Inc. 1,041,281
----------
3,013,968
----------
CAPITAL GOODS - 7.5%
9,500 Dover Corporation 644,812
10,600 Emerson Electric Company 610,825
20,600 General Electric Company 1,402,087
15,750 Thermo Electron Corporation * 630,000
20,000 Westinghouse Electric Corporation 541,250
----------
3,828,974
----------
COMMUNICATIONS & MEDIA - 1.7%
17,250 Interpublic Group of Companies, Inc. 885,141
----------
CONSUMER PRODUCTS - 1.4%
18,000 Cognizant Corporation 733,500
----------
COSMETICS & SOAP - 2.6%
10,400 Colgate-Palmolive Company 724,750
6,972 Gillette Company 601,771
----------
1,326,521
----------
DRUGS - 6.4%
18,400 Medtronic, Inc. 864,800
8,500 Merck & Company, Inc. 849,469
20,000 Mylan Laboratories Inc. 448,750
18,000 Pfizer, Inc. 1,081,125
----------
3,244,144
----------
ENERGY - 9.0%
5,000 Amoco Corporation 481,875
6,000 Chevron Corporation 499,125
9,500 El Paso Natural Gas Company 575,344
11,400 Enron Corporation 438,900
9,600 Exxon Corporation 615,000
11,000 Halliburton Company 572,000
9,000 Mobil Corporation 666,000
9,000 Schlumberger Ltd. 757,688
----------
4,605,932
----------
</TABLE>
See Notes to the Financial Statements
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-8-
<PAGE> 11
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
SCHEDULE OF INVESTMENTS - September 30, 1997
GROWTH STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
ENTERTAINMENT & LEISURE - 0.7%
11,500 Viacom, Inc. * $363,688
---------
FOOD, BEVERAGE & TOBACCO - 4.0%
5,500 CPC International, Inc. 509,437
18,000 PepsiCo, Inc. 730,125
19,500 Philip Morris Companies, Inc. 810,469
---------
2,050,031
---------
HEALTH CARE - 5.7%
16,166 Boston Scientific Corporation * 892,161
14,000 Healthcare COMPARE Corporation * 894,250
26,250 Quorum Health Group, Inc. * 641,484
12,000 Vencor, Inc. * 495,000
---------
2,922,895
---------
INSURANCE - 4.6%
3,450 Aegon N.V. ADR 274,922
11,250 AFLAC, Inc. 610,312
8,563 American International Group, Inc. 883,595
4,800 MBIA, Inc. 602,100
---------
2,370,929
---------
LODGING - 1.2%
25,500 La Quinta Inns, Inc. 600,844
---------
MANUFACTURING - 2.1%
11,000 Crown Cork & Seal Company, Inc. 507,375
11,000 Kimberly-Clark Corporation 538,313
---------
1,045,688
---------
RESTAURANT - 3.5%
20,000 Cracker Barrel Old Country Store, Inc. 647,500
11,300 McDonald's Corporation 538,163
27,500 Wendy's International, Inc. 584,375
---------
1,770,038
---------
RETAIL - GENERAL - 4.3%
3,700 Albertson's, Inc. 129,037
13,500 Dayton Hudson Corporation 809,156
40,000 OfficeMax, Inc. * 607,500
4,000 Wal-Mart Stores, Inc. 146,500
20,000 Walgreen Company 512,500
---------
2,204,693
---------
TECHNOLOGY - 20.4%
24,500 American Power Conversion Corporation * 689,062
20,000 Atmel Corporation * 728,750
14,528 Boeing Company, The 790,868
15,000 Diebold, Inc. 710,625
15,000 Electronic Data Systems Corporation 532,500
19,000 First Data Corporation 713,687
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
-9-
<PAGE> 12
==========================================================================
BREMER INVESTMENT FUNDS, INC.
==========================================================================
SCHEDULE OF INVESTMENTS - September 30, 1997
GROWTH STOCK FUND
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
TECHNOLOGY (continued) - 20.4%
8,500 Hewlett-Packard Corporation $591,281
15,400 Intel Corporation 1,421,613
9,148 Lucent Technologies, Inc. 744,418
6,200 Microsoft Corporation * 820,338
9,000 Motorola, Inc. 646,875
25,500 Oracle Corporation * 929,156
22,000 3Com Corporation * 1,127,500
-----------
10,446,673
-----------
TELECOMMUNICATIONS - 2.0%
10,200 American Telephone and Telegraph Corporation 451,988
1,800 Ameritech Corporation 119,700
15,000 MCI Communications Corporation 440,625
-----------
1,012,313
-----------
TRAVEL & RECREATION - 4.1%
22,500 Carnival Corporation 1,040,625
13,000 Walt Disney Company, The 1,048,125
-----------
2,088,750
-----------
TOTAL COMMON STOCKS (Cost of $39,457,853) 49,556,358
------------------------------------------------------------
SHORT-TERM INVESTMENTS - 3.5%
------------------------------------------------------------
INVESTMENT COMPANIES - 2.5%
1,292,989 Portico Institutional Money Market Fund 1,292,989
-----------
<CAPTION>
Principal Amount
<S> <C> <C>
COMMERCIAL PAPER -1.0%
$500,000 Paine Webber Group 500,000
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost of $1,792,989) 1,792,989
-----------
TOTAL INVESTMENTS - 100.5% (Cost of $41,250,842) 51,349,347
Liabilites in Excess of Other Assets - (0.5%) (245,705)
-----------
TOTAL NET ASSETS - 100.0% $51,103,642
===========
* Non-income producing security.
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
-10-
<PAGE> 13
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
SCHEDULE OF INVESTMENTS - September 30, 1997
BREMER BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
or Shares Value
--------- -----
<S> <C> <C>
---------------------------------------------------------
LONG-TERM INVESTMENTS - 93.9%
---------------------------------------------------------
---------------------------------------------------------
CORPORATE BONDS AND NOTES - 33.9%
---------------------------------------------------------
BANK & BANK HOLDING CO. - 8.4%
First Union National Bank - North Carolina #
$3,190,000 6.18%, 02/15/36 $3,092,666
Korea Development Bank
500,000 7.125%, 09/17/01 503,128
Societe Generale-NY
2,542,000 7.40%, 06/01/06 2,631,244
------------
6,227,038
------------
FINANCIAL SERVICES - 14.9%
BHP Finance USA Ltd.#
1,395,000 6.42%, 03/01/26 1,393,638
Chrysler Financial Corporation
500,000 6.625%, 08/15/00 506,055
Ford Capital B.V.
500,000 9.375%, 05/15/01 547,896
Ford Motor Credit Company
750,000 8.20%, 02/15/02 799,449
General Electric Capital Corporation#,##
1,000,000 6.66% *, 05/01/18 1,011,685
Goldman Sachs Group, L.P.**
1,100,000 6.375%, 06/15/00 (Acquired 01/24/97, Cost of $1,089,436) 1,100,271
John Deere Capital Corporation
500,000 6.00%, 02/01/99 500,427
Lehman Brothers Holdings, Inc.
1,250,000 Zero coupon, 05/16/98 1,203,822
657,000 Zero coupon, 05/16/98# 632,729
1,000,000 6.625%, 11/15/00 1,007,495
Salomon, Inc.
1,250,000 7.125%, 08/01/99 1,270,779
1,000,000 7.25%, 01/15/00 1,020,753
------------
10,994,999
------------
FOOD, BEVERAGE & TOBACCO - 2.6%
Philip Morris, Inc.
1,145,000 7.125%, 10/01/04 1,161,118
750,000 7.20%, 02/01/07 760,486
------------
1,921,604
------------
INDUSTRIAL - 2.7%
Hercules, Inc.#
2,000,000 6.60%, 08/01/27 1,991,202
------------
RETAIL - GENERAL - 1.4%
J.C. Penney & Company, Inc.#
1,000,000 6.90%, 08/15/26 1,023,543
------------
SAVINGS & LOAN - 0.7%
Anchor Savings Bank#
500,000 5.759%*, 8/15/08 499,355
------------
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
-11-
<PAGE> 14
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
SCHEDULE OF INVESTMENTS - September 30, 1997
BREMER BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
or Shares Value
--------- -----
<S> <C> <C>
TRAVEL AND ENTERTAINMENT - 3.2%
Hilton Hotels Corporation
$500,000 9.80%, 10/15/98 $ 517,233
1,750,000 7.70%, 07/15/02 1,809,293
------------
2,326,526
------------
TOTAL CORPORATE BONDS
AND NOTES (Cost of $24,765,628) 24,984,267
------------
----------------------------------------------------------
U.S. GOVERNMENT AGENCY AND
AGENCY-BACKED ISSUES - 40.4%
----------------------------------------------------------
Federal Farm Credit Bank
750,000 5.70%, 03/05/01 742,735
670,000 6.32%, 06/04/01 675,745
------------
1,418,480
------------
Federal Home Loan Bank
500,000 5.00%*, 05/10/00 488,730
------------
Federal Home Loan Mortgage Corporation (FHLMC),
Participation Certificates:
1,270,000 6.07%, 11/20/98 # 1,270,118
1,000,000 6.81%, 03/11/04 # 1,001,586
397,531 Pool 256723, 6.00%, 03/01/09 391,071
960,256 Pool E00389, 6.50%, 07/01/10 957,587
1,333,142 Pool E63742, 6.50%, 04/01/11 1,326,876
------------
4,947,238
------------
Federal Home Loan Mortgage Corporation (FHLMC),
1,902,978 Adjustable Rate Mortgage, 8.133%*, 07/01/24 2,005,757
------------
Federal Home Loan Mortgage Corporation (FHLMC),
Real Estate Mortgage Investment Conduits (REMIC):
150,641 Series 1513, Class A, 4.60%, 05/15/98 150,135
420,000 Series 1808, Class A, 5.00%, 10/15/07 384,710
1,011,796 Series 1475, Class O, 7.00%, 02/15/08 1,011,656
600,000 Series 1480, Class LE, 6.50%, 07/15/08 595,848
390,460 Series 1351, Class TA, 7.00%, 09/15/18 394,110
121,070 Series 1255, Class E, 7.50%, 01/15/19 120,544
1,070,000 Series 1206, Class GC, 7.00%, 02/15/20 1,074,205
1,000,000 Series 1466, Class PI, 7.00%, 08/15/20 1,005,300
350,000 Series 1492, Class G, 6.50%, 09/15/20 346,328
1,065,191 Series 1559, Class WA, 6.00%, 07/15/22 1,055,116
500,000 Series 1862, Class A, 7.75%, 04/15/23 510,757
------------
6,648,709
------------
Federal Housing Authority (FHA),
494,375 Adjustable Rate Mortgage, Pool #008680, 7.125%*, 08/20/20 510,783
------------
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
-12-
<PAGE> 15
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
SCHEDULE OF INVESTMENTS - September 30, 1997
BREMER BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
or Shares Value
--------- -----
<S> <C> <C>
Federal National Mortgage Association (FNMA),
Pass-Thru Certificates:
$1,000,000 6.375%, 10/13/00 ## $1,003,757
1,250,000 7.55%, 04/22/02 1,319,112
1,066,723 Pool #190255, 6.50%, 02/01/09 1,064,536
1,917,877 Pool #320470, 6.50%, 08/01/10 1,908,441
------------
5,295,846
------------
Federal National Mortgage Association (FNMA),
610,907 Adjustable Rate Mortgage, Pool #197747, 5.878%*, 12/01/2 634,513
------------
Federal National Mortgage Association (FNMA):
Real Estate Mortgage Investment Conduits (REMIC):
882,387 Series X-13B, Class B, 6.50%, 03/25/09 871,152
480,667 Series 1993-187, Class E, 5.75%, 11/25/16 476,360
300,000 Series 1992-36, Class PH, 7.50%, 02/25/18 304,315
500,000 Series 1989-69, Class G, 7.60%, 10/25/19 514,149
1,000,000 Series 1992-124, Class PH, 7.00%, 05/25/20 1,003,868
1,049,000 Series G92-66, Class HB, 4.00%, 06/25/20 900,871
500,000 Series 1992-125, Class J, 6.50%, 05/25/21 491,866
575,000 Series 1993-167, Class J, 6.75%, 12/25/22 578,950
------------
5,141,531
------------
Government National Mortgage Association (GMNA),
Adjustable Rate Mortgages:
327,153 Pool #008332, 7.00%*, 03/20/18 336,984
362,807 Pool #008162, 7.00%*, 03/20/23 373,397
597,951 Pool #008542, 6.875%*, 11/20/24 614,664
------------
1,325,045
------------
Student Loan Marketing Association (SLMA)
350,000 5.55%, 12/15/99 347,388
------------
Tenessee Valley Authority ##
300,000 6.25%, 08/01/99 301,139
700,000 6.125%, 07/15/03 692,352
------------
993,491
------------
TOTAL U.S. GOVERNMENT AGENCY AND
AGENCY-BACKED ISSUES (Cost of $29,423,276) 29,757,511
------------
----------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 19.6%
----------------------------------------------------------
U.S. Treasury Notes:
760,000 5.00%, 01/31/99 752,876
500,000 5.25%, 01/31/01 490,469
985,000 5.50%, 4/15/00 977,305
2,000,000 5.75%, 10/31/00 1,991,252
3,250,000 5.75%, 08/15/03 3,201,253
1,350,000 5.875%, 8/15/98 1,352,532
1,000,000 5.875%, 11/15/99 1,000,938
1,000,000 5.875%, 2/15/04 990,001
900,000 6.00%, 10/15/99 904,219
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
-13-
<PAGE> 16
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
SCHEDULE OF INVESTMENTS - September 30, 1997
BREMER BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
or Shares Value
--------- -----
<S> <C> <C>
U.S. Treasury Notes (continued):
$1,040,000 6.25%, 2/15/03 $1,050,401
400,000 7.50%, 5/15/02 424,125
1,250,000 7.75%, 12/31/99 1,299,610
------------
TOTAL U.S. TREASURY OBLIGATIONS (Cost of $14,410,793) 14,434,981
------------
TOTAL LONG-TERM INVESTMENTS
(Cost of $68,599,697) 69,176,759
------------
-----------------------------------------------------------
SHORT-TERM INVESTMENTS - 5.0%
-----------------------------------------------------------
COMMERCIAL PAPER - 2.4%
-----------------------------------------------------------
1,000,000 Norfolk Southern Corp. 995,392
750,000 Paine Webber Group 750,000
------------
1,745,392
------------
-----------------------------------------------------------
VARIABLE RATE DEMAND NOTES - 2.6%
-----------------------------------------------------------
376,000 American Family Financial Services 376,000
329,373 General Mills 329,373
395,000 Johnson Controls, Inc. 395,000
670,027 Pitney Bowes, Inc. 670,027
175,963 Wisconsin Electric Power Company 175,963
------------
1,946,363
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost of $3,691,755) 3,691,755
------------
TOTAL INVESTMENTS - 98.9% (Cost of $72,291,452) 72,868,514
Other Assets in Excess of Liabilities - 1.1% 815,129
------------
TOTAL NET ASSETS - 100% $73,683,643
============
# Putable.
## Callable.
* Variable rate security. The rates listed are as of September 30, 1997.
** Restricted security.
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
-14-
<PAGE> 17
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
Septmber 30, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION
Bremer Investment Funds, Inc. (the "Company") was incorporated
on August 26, 1996, as a Maryland Corporation and is registered as
an open-end management investment company under the Investment
Company Act of 1940. The Bremer Growth Stock Fund and the Bremer
Bond Fund (the "Funds") are separate, diversified investment
portfolios of the Company. The principle investment objective of
the Growth Stock Fund is long-term appreciation of capital.
Dividend income, if any, is a secondary consideration. The
principle investment objective of the Bond Fund is to maximize
total return. The Investment Adviser held one share of the Growth
Stock Fund capital stock and 9,999 shares of the Bond Fund capital
stock at $10 per share on January 15, 1997. The Fund commenced
operations on January 27, 1997.
All assets of the commingled trust funds from First American
Trust, N.A. (a subsidiary of Bremer Financial Corporation, a bank
holding company), which consisted solely of funds covered under
ERISA, and thus exempt from federal income taxes, were transferred
to Bremer Investment Funds, Inc. as of January 27, 1997. The
securities were transferred at market value, and the original cost
basis was replaced with market. All assets of the common trust
funds from First American Trust, N.A., which are maintained
exclusively for collective investment of separate accounts, were
transferred as of September 12, 1997, and under Section 584(h) of
the Internal Revenue Code were treated as a tax-free event. To
qualify as a tax-exempt transaction, the securities were
transferred at market value, and the original cost basis and
purchase dates were retained for book and tax purposes. Proceeds
from commingled and common trust fund conversions, as shown on the
Statement of Changes in Net Assets, represents the market value of
the commingled and common trust funds at the respective dates of
conversion. The change in unrealized appreciation on investments
on the Statement of Operations does not reflect the $4,474,794 and
($116,914) unrealized appreciation (depreciation) for the Bremer
Growth Stock Fund and Bremer Bond Fund, respectively, that existed
at the date of the common trust fund transfer.
The costs incurred in connection with the organization, initial
registration and public offering of shares, aggregating $27,332 and
$27,332 for the Growth Stock Fund and Bond Fund, respectively, have
been paid by the Funds. These costs are being amortized over the
period of benefit, but not to exceed sixty months from the Fund's
commencement of operations.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Funds in the preparation of their
financial statements. These policies are in conformity with
generally accepted accounting principles.
a) Investment Valuation - Securities that are listed on a
securities exchange are valued at the last quoted sales
price on the day the valuation is made. Price information
on listed stocks is taken from the exchange where the
security is primarily traded. Securities which are listed
on an exchange but which are not traded on the valuation
date are valued at the mean between the latest bid and asked
prices. Unlisted securities for which market quotations are
readily available are valued at the last sale price, or if
no sale, at the mean between the latest bid and asked price.
Other assets and securities for which no quotations are
readily available are valued at fair value as determined by
the Investment Adviser under the supervision of the Board of
Directors. Instruments with a remaining maturity of 60 days
or less are valued at an amortized cost, which approximates
market value.
b) Federal Income Taxes - No provision for federal income
taxes has been made since the Funds intend to comply
with the provisions of the Internal Revenue Code available
to regulated investment companies in the current and future
years.
c) Income and Expenses - The Funds are charged for those
expenses that are directly attributable to each
portfolio, such as
-15-
- --------------------------------------------------------------------------------
<PAGE> 18
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
Septmber 30, 1997
- --------------------------------------------------------------------------------
advisory, administration and certain shareholder
service fees. Expenses that are not directly attributable
to a portfolio are typically allocated among the Company's
portfolios in proportion to their respective net assets,
number of shareholder accounts or net sales, where
applicable.
d) Distributions to Shareholders - Dividends from net
investment income of the Growth Stock Fund are declared
and paid annually. Dividends from net investment income of
the Bond Fund are declared and paid monthly. Distributions
of the Funds' net realized capital gains, if any, will be
declared at least annually.
e) Use of Estimates - The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
f) Restricted Security - The Bond Fund owns a certain
investment security which is unregistered and thus
restricted to resale. This security is valued by the Fund
after giving due consideration to pertinent factors including
recent private sales, market conditions and the issuer's
financial performance. Where future disposition of this
security requires registration under the Securities Act of
1933, the Fund has the right to include their security in
such registration, generally without cost to the Fund. The
Fund has no right to require registration of unregistered
securities.
g) Other - Investment and shareholder transactions
are recorded on trade date. The Funds determine the
gain or loss realized from the investment transactions by
comparing the original cost of the security lot sold with the
net sales proceeds. Dividend income is recognized on the
ex-dividend date or as soon as information is available to
the Funds, and interest income is recognized on an accrual
basis. Generally accepted accounting principles require that
permanent financial reporting and tax differences be
reclassified to capital stock.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds for the period January 27,
1997 through September 30, 1997, were as follows:
Growth Fund Bond Fund
----------- ---------
Shares sold 1,997,948 3,592,988
Shares issued as
a result of
common and
commingled trust
fund conversions 2,537,938 4,461,380
Shares issued
to holders in
reinvestment
of dividends 0 1,199
Shares redeemed (241,318) (817,296)
----------- -----------
Net increase 4,294,568 7,238,271
=========== ===========
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments, excluding
short-term investments, by the Funds for the period January 27, 1997
through September 30, 1997, were as follows:
Growth Fund Bond Fund
----------- ---------
Purchases
U.S. Government $ 0 $ 47,128,826
Other 42,397,896 34,300,192
Sales
U.S. Government 0 6,570,324
Other 3,017,925 6,793,848
At September 30, 1997, gross unrealized appreciation and
depreciation of investments for tax purposes were as follows:
Growth Fund Bond Fund
----------- ---------
Appreciation $ 10,677,178 $ 743,756
(Depreciation) (578,673) (173,131)
Net appreciation ------------ ---------
on investments $ 10,098,505 $ 570,625
============ =========
- --------------------------------------------------------------------------------
-16-
<PAGE> 19
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
Septmber 30, 1997
- --------------------------------------------------------------------------------
At September 30, 1997, the cost of investments for federal
income tax purposes was $41,250,842 and $72,297,889 for the Growth
Stock Fund and Bond Fund, respectively.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Funds have entered into an Investment Advisory Agreement
with First American Trust, N.A., a wholly owned subsidiary of Bremer
Financial Corporation. Pursuant to its advisory agreement with the
Funds, the Investment Adviser is entitled to receive a fee,
calculated daily and payable monthly, at the annual rate of 0.70% as
applied to the Fund's daily net assets.
Firstar Trust Company, a subsidiary of Firstar Corporation, a
publicly held bank holding company, serves as custodian, transfer
agent, administrator and accounting services agent for the Funds.
The Funds have adopted a written plan of distribution (the
"Plan") in accordance with Rule 12b-1 under the Investment Company
Act of 1940. The Plan authorizes the Funds to make payments in
connection with the distribution of shares at an annual rate of up
to 0.25% of a Fund's average daily net assets. The Investment
Advisor has voluntarily agreed to waive 12b-1 fees during the first
year of each Fund's operation.
6. RELATED PARTIES
First American Trust, N.A. clients and First American Trust,
N.A. affiliated clients held 4,289,819 and 7,237,911 outstanding
shares of the Growth Stock Fund and Bond Fund, respectively, as of
September 30, 1997.
- --------------------------------------------------------------------------------
-17-
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Bremer Investment Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of Bremer
Investment Funds, Inc. (a Maryland corporation, which includes the Bremer
Growth Stock Fund and the Bremer Bond Fund), including the schedule of
investments, as of September 30, 1997, and the related statements of operations
and changes in net assets from January 27, 1997 (commencement of operations)
through September 30, 1997, and the financial highlights for the period from
January 27, 1997 (commencement of operations) through September 30, 1997.
These financial statements and financial highlights are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit 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. 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
audit provides 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
Bremer Investment Funds, Inc. as of September 30, 1997, and the results of its
operations and changes in its net assets for the period from January 27, 1997
(commencement of operations) through September 30, 1997 and its financial
highlights for the period from January 27, 1997 (commencement of operations)
through September 30, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
October 24, 1997.
-18-
<PAGE> 21
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
First American Trust, N.A.
Cold Spring Center
4150 Second Street South
St. Cloud, MN 56302-0986
ADMINISTRATOR, DIVIDEND PAYING AGENT,
SHAREHOLDERS' SERVICING AGENT,
CUSTODIAN AND TRANSFER AGENT
Firstar Trust Company
Mutual Fund Services
615 East Michigan Street
Milwaukee, WI 53202
COUNSEL
Briggs and Morgan
2400 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, WI 53202
DIRECTORS
Steven A. Laraway
John M. Bishop
John V. Botsford
John J. Feda
William H. Lipschultz
- --------------------------------------------------------------------------------
