<PAGE> 1
- --------------------------------------------------------------------------------
ANNUAL REPORT
===========================================================
BREMER INVESTMENT FUNDS, INC.
===========================================================
Bremer Growth Stock Fund
Bremer Bond Fund
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
Growth Stock Fund Statement of Changes in Net Assets................................... 6
Bond Fund Statement of Changes in Net Assets........................................... 7
Growth Stock Fund Financial Highlights................................................. 8
Bond Fund Financial Highlights......................................................... 9
Growth Stock Fund Schedule of Investments.............................................. 10
Bond Fund Schedule of Investments...................................................... 13
Notes to the Financial Statements...................................................... 17
Report of Independent Public Accountants............................................... 20
------------------------------------------------
</TABLE>
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 18, 1998
Dear Shareholders:
WHAT A DIFFERENCE A YEAR MAKES! Investment markets have experienced much more
volatility worldwide due to economic difficulties in many nations of the world.
Foreign markets have been the hardest hit, with countries such as Thailand,
Korea, Japan and Russia, among others, experiencing dramatic economic shifts.
Those international concerns have even begun to weigh on U.S. investment markets
in recent months.
Thus, the United States economy has been showing signs of slowing and corporate
earnings estimates are dropping. That resulted in the worst quarter (ended
September 30, 1998) for domestic stocks in eight years. Meanwhile, the Federal
Reserve Board recently took the initiative to lower key interest rates to steer
the domestic economy through these confusing times and assist the international
arena as well. As a result, the U.S. economy should be able to maintain a
moderate growth rate with minimal inflation and low interest rates.
The performance of both Bremer Funds reflects the economic changes of the past
fiscal year. The Bremer Bond Fund benefited from a significant decline in
interest rates during the year (over one percentage point in the intermediate
range of the yield curve), so it returned a solid 8.59% for the year ended
September 30, 1998, which was a better than coupon rate of return. The Bond Fund
manager continues to be bullish on interest rates and is taking advantage of the
widened spreads between U.S. Treasury bond interest rates and the interest rates
on government agencies, mortgage-backed securities and corporate bonds.
The Bremer Stock Fund returned a positive 3.61% for the year ended September 30,
1998, which compared favorably versus the Lipper Growth Managers return of
3.07%. The large cap growth stocks that are the basis of the fund's portfolio
actually held up much better than many other sectors of the equity investment
markets during this roller coaster year. Key sectors overweighted in the fund
include technology, consumer staples, consumer cyclicals and healthcare. The
largest individual holdings at September 30, 1998 were Cisco Systems, Inc.,
General Electric Company, Pfizer, Inc., Carnival Corporation and Microsoft
Corporation. We continue to focus our attention on earnings growth estimates in
this period of uncertain economic growth.
The total net assets in your funds have grown from $124.8 million on September
30, 1997 to $136.9 million on September 30, 1998, a good year considering the
market's recent volatility. All of us at the Bremer Funds would like to thank
you for your business and we wish you success in 1999.
Sincerely,
STEVEN A. LARAWAY
President
Bremer Investment Funds, Inc.
-1-
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1/27/97 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98
Bremer Growth Stock Fund $10,000 $9,600 $11,161 $11,899 $12,038 $13,725 $14,126 $12,329
S&P 500 $10,000 $9,935 $11,670 $12,544 $12,904 $14,704 $15,189 $13,678
Lipper Growth Managers $10,000 $9,469 $10,964 $12,088 $12,169 $13,676 $14,064 $12,459
</TABLE>
Cumulative rate of return (%)
Fiscal Year Ended
September 30, 1998
-----------------------------
Bremer Growth Stock Fund 3.61%
S&P 500 9.05%
Lipper Growth Managers 3.07%
The Standard & Poor's 500 Index (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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1/27/97 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98
Bremer Bond Fund $10,000 $10,009 $10,270 $10,534 $10,720 $10,860 $11,063 $11,439
LB Int. Govt./Corp. $10,000 $10,008 $10,302 $10,580 $10,806 $10,975 $11,181 $11,683
</TABLE>
Cumulative rate of return (%)
Fiscal Year Ended
September 30, 1998
-----------------------------
Bremer Bond Fund 8.59%
LB Int. Govt./Corp. 10.43%
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 3.34 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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------
GROWTH BOND
STOCK FUND FUND
-------------------------
<S> <C> <C>
ASSETS:
Investments, at market value
(Cost of $42,575,689 and $79,468,675, respectively $54,163,107 $82,082,151
Dividends receivable 41,291 --
Interest receivable 7,429 1,097,322
Organizational expenses, net of accumulated amortization 18,167 18,167
Other assets 1,587 2,232
----------- -----------
Total assets 54,231,581 83,199,872
----------- -----------
LIABILITIES:
Payable to Investment Adviser 32,654 49,427
Dividends payable -- 365,951
Accrued expenses and other liabilities 24,370 28,480
----------- -----------
Total liabilities 57,024 443,858
----------- -----------
NET ASSETS $54,174,557 $82,756,014
=========== ===========
NET ASSETS CONSIST OF:
Capital stock $42,128,132 $79,883,597
Accumulated undistributed net investment income 157,119 --
Accumulated undistributed net realized gain on investments
and option contracts expired or closed 301,888 258,941
Net unrealized appreciation on investments 11,587,418 2,613,476
----------- -----------
Total Net Assets $54,174,557 $82,756,014
=========== ===========
Shares outstanding
(100 million shares authorized for each Fund, 4,412,150 7,903,353
$.0001 per value) =========== ===========
Net Asset Value, Redemption Price and Offering Price Per Share $ 12.28 $ 10.47
=========== ===========
</TABLE>
See Notes to the Financial Statements.
- --------------------------------------------------------------------------------
-4-
<PAGE> 7
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
STATEMENT OF OPERATIONS
Year Ended September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------
GROWTH BOND
STOCK FUND FUND
-----------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividend income (net of withholding tax of $914 and $0, respectively) $ 530,394 $ --
Interest income 144,594 5,007,710
---------- ----------
Total investment income 674,988 5,007,710
---------- ----------
EXPENSES:
Investment advisory fees 400,600 551,392
Administration fees 29,642 38,644
Shareholder servicing and accounting costs 47,290 57,531
Custody fees 11,739 18,475
Federal and state registration 4,943 6,670
Professional fees 12,911 13,799
Reports to shareholders 3,399 3,736
Amortization of organizational expenses 5,475 5,475
Directors' fees and expenses 2,372 2,372
Other 2,412 2,406
---------- ----------
Total expenses 520,783 700,500
---------- ----------
NET INVESTMENT INCOME 154,205 4,307,210
---------- ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments and option contracts
expired or closed 301,927 240,538
Change in unrealized appreciation on investments 1,488,913 2,036,415
---------- ----------
Net realized and unrealized gain on investments 1,790,840 2,276,953
---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,945,045 $6,584,163
========== ==========
</TABLE>
See Notes to the Financial Statements.
- --------------------------------------------------------------------------------
-5-
<PAGE> 8
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------
GROWTH STOCK FUND
--------------------------------------------
January 27, 1997(1)
Year Ended through
September 30, 1998 September 30, 1997
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 154,205 $ 132,652
Net realized gain on investments and option contracts
expired or closed 301,927 76,308
Change in unrealized appreciation on investments 1,488,913 5,623,711
------------------ -------------------
Net increase in net assets from operations 1,945,045 5,832,671
------------------ -------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (134,687) --
Net realized gains (76,348) --
------------------ -------------------
Total dividends and distributions (211,035) --
------------------ -------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 9,224,864 20,452,900
Proceeds from common and commingled trust fund conversions -- 27,496,387
Proceeds from shares issued to holders in reinvestment of
dividends 2,085 --
Cost of shares redeemed (7,890,044) (2,678,316)
------------------ -------------------
Net increase in net assets from capital share
transactions 1,336,905 45,270,971
------------------ -------------------
TOTAL INCREASE IN NET ASSETS 3,070,915 51,103,642
------------------ -------------------
NET ASSETS:
Beginning of period 51,103,642 0
------------------ -------------------
End of period (including undistributed net investment
income of $157,119 and $134,645, respectively) $ 54,174,557 $ 51,103,642
================== ===================
</TABLE>
(1)Commencement of Operations.
See Notes to the Financial Statements.
- --------------------------------------------------------------------------------
-6-
<PAGE> 9
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------
BOND FUND
--------------------------------------------
January 27, 1997(1)
Year Ended through
September 30, 1998 September 30, 1997
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 4,307,210 $ 1,578,954
Net realized gain on investments 240,538 437
Change in unrealized appreciation on investments 2,036,415 693,976
------------------ -------------------
Net increase in net assets from operations 6,584,163 2,273,367
------------------ -------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (4,302,898) (1,547,305)
Net realized gains (22,945) --
------------------ -------------------
Total dividends and distributions (4,325,843) (1,547,305)
------------------ ------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 20,352,435 36,235,356
Proceeds from common and commingled trust fund conversions -- 44,960,417
Proceeds from shares issued to holders in reinvestment of
dividends 36,235 12,089
Cost of shares redeemed (13,574,619) (8,250,281)
------------------ -------------------
Net increase in net assets from capital share
transactions 6,814,051 72,957,581
------------------ -------------------
TOTAL INCREASE IN NET ASSETS 9,072,371 73,683,643
------------------ -------------------
NET ASSETS:
Beginning of period 73,683,643 0
------------------ -------------------
End of period (including undistributed net investment
income of $0 and $37,744, respectively) $ 82,756,014 $ 73,683,643
================== ===================
</TABLE>
(1)Commencement of Operations.
See Notes to the Financial Statements.
- --------------------------------------------------------------------------------
-7-
<PAGE> 10
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------
GROWTH STOCK FUND
-----------------------------------------
January 27, 1997(1)
Year Ended through
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.90 $ 10.00
------------------ ------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.04 0.03
Net realized and unrealized gain on investments 0.39 1.87
------------------ ------------------
Total from investment operations 0.43 1.90
------------------ ------------------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income (0.03) --
Distributions from net realized gains (0.02) --
------------------ ------------------
Total dividends and distributions (0.05) --
------------------ ------------------
NET ASSET VALUE, END OF PERIOD $ 12.28 $ 11.90
================== ==================
TOTAL RETURN 3.61% 19.00%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $ 54,174,557 $ 51,103,642
Ratio of net expenses to average net assets 0.91% 1.05%(3)
Ratio of net investment income to average net assets 0.27% 0.62%(3)
Portfolio turnover rate 13.15% 11.30%
</TABLE>
(1)Commencement of Operations.
(2)Not annualized.
(3)Annualized.
See Notes to the Financial Statements.
- --------------------------------------------------------------------------------
-8-
<PAGE> 11
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------
BOND FUND
-----------------------------------------
January 27, 1997(1)
Year Ended through
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.18 $ 10.00
------------------ ------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.56 0.35
Net realized and unrealized gain on investments 0.29 0.17
------------------ ------------------
Total from investment operations 0.85 0.52
------------------ ------------------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income (0.56) (0.34)
------------------ ------------------
Total dividends and distributions (0.56) (0.34)
------------------ ------------------
NET ASSET VALUE, END OF PERIOD $ 10.47 $ 10.18
================== ==================
TOTAL RETURN 8.59% 5.33%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $ 82,756,014 $ 73,683,643
Ratio of net expenses to average net assets 0.89% 1.01%(3)
Ratio of net investment income to average net assets 5.46% 5.60%(3)
Portfolio turnover rate 66.66% 38.35%
</TABLE>
(1)Commencement of Operations.
(2)Not annualized.
(3)Annualized.
See Notes to the Financial Statements.
- --------------------------------------------------------------------------------
-9-
<PAGE> 12
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
SCHEDULE OF INVESTMENTS - September 30, 1998
GROWTH STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----
-------------------------------------------
COMMON STOCKS - 97.0%
-------------------------------------------
<S> <C> <C>
APPAREL - 1.0%
29,000 Intimate Brands, Inc. $ 549,188
-----------
549,188
-----------
BANKING & FINANCIAL SERVICES - 12.0%
13,125 Banc One Corporation 559,453
5,000 Citicorp 464,687
17,500 Equifax, Inc. 624,531
10,000 Fannie Mae 642,500
24,200 Freddie Mac 1,196,388
31,400 KeyCorp 906,675
26,000 Norwest Corporation 931,125
14,000 Providian Financial Corporation 1,187,375
-----------
6,512,734
-----------
BUSINESS SERVICE - 7.7%
46,500 Cisco Systems, Inc. * 2,874,281
21,750 Computer Associates International, Inc. 804,750
16,500 National Data Corporation 509,438
-----------
4,188,469
-----------
CAPITAL GOODS - 7.9%
23,500 Boeing Company, The 806,344
19,000 Dover Corporation 586,625
10,600 Emerson Electric Company 659,850
25,000 General Electric Company 1,989,061
14,000 United States Filter Corporation * 224,000
-----------
4,265,880
-----------
COMMUNICATIONS & MEDIA - 2.8%
25,000 CBS Corporation 606,250
17,250 Interpublic Group of Companies, Inc. 930,422
-----------
1,536,672
-----------
COSMETICS & SOAP - 2.3%
10,400 Colgate-Palmolive Company 712,400
13,944 Gillette Company 533,358
-----------
1,245,758
-----------
DRUGS - 5.9%
7,000 Merck & Company, Inc. 906,938
35,000 Mylan Laboratories Inc. 1,032,500
12,000 Pfizer, Inc. 1,271,250
-----------
3,210,688
-----------
ENERGY - 5.6%
10,000 Amoco Corporation 538,750
19,000 El Paso Natural Gas Company 616,312
11,400 Enron Corporation 602,062
</TABLE>
See Notes to the Financial Statements.
- --------------------------------------------------------------------------------
-10-
<PAGE> 13
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
SCHEDULE OF INVESTMENTS - September 30, 1998
GROWTH STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
ENERGY (continued) - 5.6%
12,000 Halliburton Company $ 342,750
9,000 Mobil Corporation 683,438
5,000 Schlumberger Ltd. 251,563
-----------
3,034,875
-----------
FOOD, BEVERAGE & TOBACCO - 3.7%
11,000 Bestfoods 532,812
20,000 PepsiCo, Inc. 588,750
19,500 Philip Morris Companies, Inc. 898,219
-----------
2,019,781
-----------
HEALTH CARE - 8.3%
20,166 Boston Scientific Corporation * 1,036,028
34,000 First Health Group Corp. * 824,500
18,000 IMS Health Incorporated 1,114,875
18,400 Medtronic, Inc. 1,064,900
26,250 Quorum Health Group, Inc. * 426,563
-----------
4,466,866
-----------
INSURANCE - 4.6%
6,949 Aegon N.V. ADR 541,153
16,000 AFLAC, Inc. 457,000
12,844 American International Group, Inc. 988,988
9,600 MBIA, Inc. 515,400
-----------
2,502,541
-----------
MANUFACTURING - 1.9%
15,000 Crown Cork & Seal Company, Inc. 401,250
15,000 Kimberly-Clark Corporation 607,500
-----------
1,008,750
-----------
RESTAURANT - 3.8%
20,000 Cracker Barrel Old Country Store, Inc. 455,000
17,000 McDonald's Corporation 1,014,687
25,000 Wendy's International, Inc. 554,688
-----------
2,024,375
-----------
RETAIL - GENERAL - 7.7%
3,700 Albertson's, Inc. 200,262
30,000 Dayton Hudson Corporation 1,072,500
50,000 OfficeMax, Inc. * 490,625
21,000 Saks Incorporated 471,188
18,000 Wal-Mart Stores, Inc. 983,250
22,000 Walgreen Company 969,375
-----------
4,187,200
-----------
TECHNOLOGY - 14.3%
24,500 American Power Conversion Corporation * 923,344
35,000 Atmel Corporation * 317,187
15,000 Cognos, Inc. 251,250
19,000 First Data Corporation 446,500
</TABLE>
See Notes to the Financial Statements.
- --------------------------------------------------------------------------------
-11-
<PAGE> 14
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
SCHEDULE OF INVESTMENTS - September 30, 1998
GROWTH STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
TECHNOLOGY (continued) - 14.3%
8,500 Hewlett-Packard Corporation $ 449,969
15,400 Intel Corporation 1,320,550
17,000 Lucent Technologies, Inc. 1,174,062
12,400 Microsoft Corporation * 1,364,775
25,500 Oracle Corporation * 742,688
25,000 3Com Corporation * 751,563
-----------
7,741,888
-----------
TELECOMMUNICATIONS - 3.0%
12,000 American Telephone and Telegraph Corporation 701,250
18,658 MCI WorldCom, Inc. * 911,910
-----------
1,613,160
-----------
TRAVEL & RECREATION - 4.5%
45,000 Carnival Corporation 1,431,563
39,000 Walt Disney Company, The 987,187
-----------
2,418,750
-----------
TOTAL COMMON STOCKS (Cost of $40,940,157) 52,527,575
-----------
-----------------------------------------------
SHORT-TERM INVESTMENTS - 3.0%
-----------------------------------------------
-----------------------------------------------
INVESTMENT COMPANIES - 1.6%
-----------------------------------------------
876,532 Firstar Institutional Money Market Fund 876,532
-----------
Principal
Amount
------ -----------------------------------------------
VARIABLE RATE DEMAND NOTES - 1.4%
-----------------------------------------------
$ 294,851 American Family Financial Services, 4.9628% ** 294,851
32,753 General Mills, Inc., 4.9487%** 32,753
18,396 Warner - Lambert Corporation, 4.9630% ** 18,396
413,000 Wisconsin Electric Power Company, 4.9628%** 413,000
-----------
759,000
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost of $1,635,532) 1,635,532
-----------
TOTAL INVESTMENTS - 100.0% (Cost of $42,575,689) 54,163,107
-----------
Other assets in excess of liabilities - 0.0% 11,450
-----------
TOTAL NET ASSETS - 100.0% $54,174,557
===========
</TABLE>
* Non-income producing security.
** Variable rate security. The rates listed are as of
September 30, 1998.
See Notes to the Financial Statements.
- --------------------------------------------------------------------------------
-12-
<PAGE> 15
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
SCHEDULE OF INVESTMENTS - September 30, 1998
BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
or Shares Value
--------- -----
---------------------------------------------
LONG-TERM INVESTMENTS - 98.4%
---------------------------------------------
---------------------------------------------
CORPORATE BONDS & NOTES - 30.4%
---------------------------------------------
<S> <C> <C>
BANK & BANK HOLDING CO. - 6.6%
First Union National Bank - North Carolina#
$3,190,000 6.18%, 02/15/36 $3,274,956
Societe Generale - New York
2,000,000 7.40%, 06/01/06 2,150,290
----------
5,425,246
----------
FINANCIAL SERVICES - 12.2%
BHP Finance USA Ltd.#
1,395,000 6.42%, 03/01/26 1,421,604
Ford Capital B.V.
1,000,000 9.375%, 05/15/01 1,097,115
Ford Motor Credit Company
750,000 8.20%, 02/15/02 815,515
Lehman Brothers Holdings, Inc.
1,000,000 6.375%, 10/23/00 993,395
1,375,000 6.625%, 11/15/00 1,371,597
Reliastar Financial Corporation
648,000 7.125%, 03/01/03 684,771
St. Paul Companies, Inc.
1,000,000 7.37%, 08/20/07 1,117,293
Salomon, Inc.
1,000,000 7.25%, 01/15/00 1,019,512
1,000,000 6.25%, 05/15/03 1,023,124
Sears Roebuck Acceptance Corp.
570,000 6.60%, 10/09/01 589,773
----------
10,133,699
----------
FOOD, BEVERAGE & TOBACCO - 3.1%
Philip Morris Companies, Inc.
1,145,000 7.125%, 10/01/04 1,243,100
Supervalu, Inc.
1,250,000 6.56%, 06/09/05 1,319,210
----------
2,562,310
----------
INDUSTRIAL - 2.6%
Hercules, Inc.#
2,000,000 6.60%, 08/01/27 2,181,144
----------
2,181,144
----------
TRAVEL AND ENTERTAINMENT - 2.8%
Hilton Hotels Corporation
500,000 9.80%, 10/15/98 500,502
1,750,000 7.70%, 07/15/02 1,793,165
----------
2,293,667
----------
</TABLE>
See Notes to the Financial Statements.
- --------------------------------------------------------------------------------
-13-
<PAGE> 16
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
SCHEDULE OF INVESTMENTS - September 30, 1998
BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
or Shares Value
--------- -----
<S> <C> <C>
UTILITIES - 3.1%
SBC Communications, Inc.
$1,356,000 6.625%, 11/01/09 $ 1,487,703
Western Resources, Inc.
1,000,000 6.875%, 08/01/04 1,075,979
------------
2,563,682
------------
TOTAL CORPORATE BONDS &
NOTES (Cost of $24,145,766) 25,159,748
------------
--------------------------------------------
U.S. GOVERNMENT AGENCY AND
AGENCY-BACKED ISSUES - 64.2%
--------------------------------------------
Federal Farm Credit Bank
2,000,000 6.37%, 10/30/07 2,200,780
------------
2,200,780
------------
Federal Home Loan Bank
1,000,000 6.00%, 02/11/00 (##) 1,000,808
500,000 5.00%*, 05/10/00 503,622
2,000,000 6.00%, 11/03/00 2,053,498
1,000,000 6.085%, 12/23/02 1,053,427
1,500,000 6.00%, 05/08/03 (##) 1,550,496
1,000,000 6.00%, 07/21/03 (##) 1,025,206
1,065,000 5.44%, 10/15/03 1,097,131
1,250,000 6.15%, 10/14/04 1,339,800
1,750,000 6.12%, 08/26/08 1,828,501
------------
11,452,489
------------
Federal Home Loan Mortgage Corporation (FHLMC),
Participation Certificates
809,282 Pool #N97167, 7.50%, 12/01/03 829,113
1,000,000 6.81%, 03/11/04 (##) 1,008,442
205,619 Pool #256723, 6.00%, 03/01/09 208,148
1,548,776 Pool #E00541, 5.50%, 01/01/13 1,545,693
1,236,806 Pool #E00562, 5.50%, 06/01/13 1,233,061
------------
4,824,457
------------
Federal Home Loan Mortgage Corporation (FHLMC),
956,743 Adjustable Rate Mortgage, 7.955%*, 07/01/24 1,013,277
------------
1,013,277
------------
Federal Home Loan Mortgage Corporation (FHLMC),
Real Estate Mortgage Investment Conduits (REMIC)
587,533 Series 1475, Class O, 7.00%, 02/15/08 598,495
600,000 Series 1480, Class LE, 6.50%, 07/15/08 618,568
500,000 Series 24, Class VB, 6.50%, 07/25/10 503,895
48,915 Series 1351, Class TA, 7.00%, 09/15/18 48,900
1,070,000 Series 1206, Class GC, 7.00%, 02/15/20 1,079,984
1,000,000 Series 1466, Class PI, 7.00%, 08/15/20 1,016,947
350,000 Series 1492, Class G, 6.50%, 09/15/20 356,402
2,000,000 Series 16, Class M, 7.00%, 08/25/23 2,002,414
------------
6,225,605
------------
</TABLE>
See Notes to the Financial Statements.
- --------------------------------------------------------------------------------
-14-
<PAGE> 17
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
SCHEDULE OF INVESTMENTS - September 30, 1998
BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
or Shares Value
--------- -----
<S> <C> <C>
Federal National Mortgage Association (FNMA),
Pass-Thru Certificates
$1,250,000 7.55%, 04/22/02 $ 1,367,951
5,000,000 6.80%, 01/10/03 5,405,785
1,250,000 5.75%, 06/15/05 1,310,105
1,230,739 Pool #432293, 6.00%, 06/01/13 1,244,439
2,514,465 Pool #303922, 6.00%, 05/01/16 2,529,236
------------
11,857,516
------------
Federal National Mortgage Association (FNMA),
216,138 Adjustable Rate Mortgage, Pool #066396, 6.131%*, 03/01/18 216,084
561,634 Adjustable Rate Mortgage, Pool #066186, 6.131%*, 09/01/18 562,336
575,741 Adjustable Rate Mortgage, Pool #197747, 7.218%*, 12/01/22 604,152
------------
1,382,572
------------
Federal National Mortgage Association (FNMA),
Real Estate Mortgage Investment Conduits (REMIC)
384,633 Series 1992-3, Class F, 4.917%, 01/25/99 383,315
500,000 Series 1993-134, Class L, 6.50%, 08/25/08 519,254
756,981 Series X-13B, Class B, 6.50%, 03/25/09 760,851
437,746 Series 1993-187, Class E, 5.75%, 11/25/16 438,882
70,706 Series 1992-36, Class PH, 7.50%, 02/25/18 70,576
500,000 Series 1989-69, Class G, 7.60%, 10/25/19 526,790
1,049,000 Series G92-66, Class HB, 4.00%, 06/25/20 1,015,039
1,000,000 Series 1992-125, Class J, 6.50%, 05/25/21 1,008,476
575,000 Series 1993-167, Class J, 6.75%, 12/25/22 600,314
1,007,213 Series 1993-223, Class EA, 6.50%, 12/25/23 1,008,844
392,285 Series 1997-50, Class CA, 7.00%, 07/18/27 392,925
1,500,000 Series 1998-50, Class DN, 6.25%, 09/25/28 1,512,010
1,235,204 Series 1998-50, Class EN, 6.50%, 09/25/28 1,254,281
------------
9,491,557
------------
Government National Mortgage Association (GNMA),
Adjustable Rate Mortgages
268,288 Pool #008332, 6.875%*, 03/20/18 275,480
379,038 Pool #008680, 7.00%*, 08/20/20 389,375
276,091 Pool #008162, 6.875%*, 03/20/23 283,218
430,275 Pool #008542, 7.00%*, 11/20/24 441,435
478,636 Pool #859287, 6.00%*, 07/20/26 484,670
------------
1,874,178
------------
Tennessee Valley Authority
2,000,000 6.50%, 8/20/01 2,090,154
700,000 6.125%, 7/15/03 (##) 715,340
------------
2,805,494
------------
TOTAL U.S. GOVERNMENT AGENCY AND
AGENCY-BACKED ISSUES (Cost of $51,646,029) 53,127,925
------------
</TABLE>
See Notes to the Financial Statements.
- --------------------------------------------------------------------------------
-15-
<PAGE> 18
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
SCHEDULE OF INVESTMENTS - September 30, 1998
BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
or Shares Value
--------- -----
<S> <C> <C>
--------------------------------------------
U.S. TREASURY OBLIGATIONS - 3.8%
--------------------------------------------
U.S. Treasury Notes
$2,000,000 5.75%, 10/31/00 $ 2,054,376
U.S. Treasury Bonds
800,000 11.625%, 11/15/04 1,106,250
--------------
TOTAL U.S. TREASURY OBLIGATIONS (Cost of $3,043,028) 3,160,626
--------------
TOTAL LONG-TERM INVESTMENTS
(Cost of $78,834,823) 81,448,299
--------------
------------------------------------------------
SHORT-TERM INVESTMENTS - 0.8%
------------------------------------------------
------------------------------------------------
VARIABLE RATE DEMAND NOTES - 0.8%
------------------------------------------------
493,226 American Family Financial Services, 4.9628% * 493,226
140,626 Warner-Lambert Co., 4.9630% * 140,626
--------------
TOTAL VARIABLE RATE DEMAND NOTES (Cost of $633,852) 633,852
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost of $633,852) 633,852
--------------
TOTAL INVESTMENTS - 99.2% (Cost of $79,468,675) 82,082,151
--------------
Other assets in excess of liabilities - 0.8% 673,863
--------------
TOTAL NET ASSETS - 100.0% $ 82,756,014
==============
</TABLE>
# Putable.
## Callable.
* Variable rate security. The rates listed are as of September
30, 1998.
See Notes to the Financial Statements.
- --------------------------------------------------------------------------------
-16-
<PAGE> 19
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
- --------------------------------------------------------------------------------
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 principal investment
objective of the Growth Stock Fund is long-term appreciation of capital.
Dividend income, if any, is a secondary consideration. The principal
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 Funds 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 for the fiscal year ended September 30, 1997, 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 Changes in Net Assets for the fiscal year ended September 30,
1997, does not reflect the $4,474,794 and ($116,914) in 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 have complied to date with the provisions of the
Internal Revenue Code applicable to regulated investment companies and
intend to continue to so comply in future years and to distribute
investment company
- --------------------------------------------------------------------------------
-17-
<PAGE> 20
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
- --------------------------------------------------------------------------------
net taxable income and net capital gains to shareholders.
c) Written Option Accounting - Each Fund may write call options on
securities either held in its portfolio, or which it has the right to
obtain without payment or further consideration, or for which it has
segregated cash in the amount of additional consideration. When a Fund
writes an option, an amount equal to the premium received is entered into
the Fund's accounting records as an asset and an equivalent liability.
The amount of the liability is subsequently marked-to-market to reflect
the current value of the option written. When an option expires, or if
the Fund enters into a closing purchase transaction, the Fund realizes a
gain (or loss if the cost of a closing transaction exceeds the premium
received when the option was sold).
d) Income and Expenses - The Funds are charged for those expenses that are
directly attributable to each portfolio, such as 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.
e) 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 daily and paid monthly.
Prior to June 1, 1998, dividends from net investment income for the Bond
Fund were declared and paid monthly. Distributions of the Funds' net
realized capital gains, if any, will be declared at least annually.
f) 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.
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 year ended September 30, 1998,
were as follows:
<TABLE>
<CAPTION>
GROWTH FUND BOND FUND
----------- -----------
<S> <C> <C>
Shares sold 720,961 1,982,703
Shares issued
to holders in
reinvestment
of dividends 174 3,541
Shares redeemed (603,553) (1,321,162)
----------- -----------
Net increase 117,582 665,082
=========== ===========
</TABLE>
Transactions in shares of the Funds for the period January 27, 1997 through
September 30, 1997, were as follows:
<TABLE>
<CAPTION>
GROWTH FUND BOND FUND
------------ -----------
<S> <C> <C>
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
============ ===========
</TABLE>
-18-
<PAGE> 21
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1998
- --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments, excluding short-term
investments, by the Funds for the year ended September 30, 1998, were as
follows:
<TABLE>
<CAPTION>
GROWTH FUND BOND FUND
----------- ---------
<S> <C> <C>
Purchases
U.S. Government $ 0 $ 48,794,014
Other 8,291,134 9,989,799
Sales
U.S. Government 0 38,654,067
Other 7,084,695 10,111,550
</TABLE>
During the year ended September 30, 1998, the Growth Stock Fund wrote the
following options:
<TABLE>
<CAPTION>
Number of
contracts Premium
--------- -------
<S> <C> <C>
Outstanding at
beginning of year 0 $ 0
Options written 135 29,514
Options expired (75) (10,366)
Options exercised (60) (19,148)
-------- --------
Outstanding at
end of year 0 $ 0
-------- ========
</TABLE>
At September 30, 1998, gross unrealized appreciation and depreciation of
investments for tax purposes were as follows:
<TABLE>
<CAPTION>
GROWTH FUND BOND FUND
------------- -----------
<S> <C> <C>
Appreciation $15,409,054 $2,667,016
(Depreciation) (3,821,636) (59,977)
----------- ----------
Net appreciation
on investments $11,587,418 $2,607,039
============ ===========
</TABLE>
At September 30, 1998, the cost of investments for federal income tax
purposes was $42,575,689 and $79,475,112 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 Bank Milwaukee, N.A., a subsidiary of Firstar Corporation, a
publicly held bank holding company, serves as custodian for the Funds.
Firstar Mutual Fund Services, LLC, a wholly owned limited liability company
of Firstar Bank Milwaukee, N.A., serves as 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 Adviser has voluntarily agreed to waive
12b-1 fees during the first two years of each Fund's operation.
6. INCOME TAX INFORMATION
The Bond Fund hereby designates $17,232 as 20% rate capital gain
distributions for purposes of the dividends paid deduction.
7. DISTRIBUTIONS
Seventy-one percent of the dividends paid by the Growth Stock Fund during
the fiscal year ended September 30, 1998, qualifies for the dividend
received deduction available to corporate shareholders.
8. RELATED PARTIES
First American Trust, N.A. clients and First American Trust, N.A. affiliated
clients held 4,398,444 and 7,900,380 outstanding shares of the Growth Stock
Fund and Bond Fund, respectively, as of September 30, 1998.
-19-
<PAGE> 22
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 30,1998, and the related statement of operations for the year then
ended and the statements of changes in net assets for the year ended September
30, 1998 and the period from January 27, 1997 (commencement of operations)
through September 30,1997, and the financial highlights for each of the periods
indicated. 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
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
September 30,1998, 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 Bremer
Investment Funds, Inc. as of September 30, 1998, and the results of its
operations for the year then ended and changes in its net assets for the year
ended September 30, 1998 and the period from January 27, 1997 (commencement of
operations) through September 30,1997, and its financial highlights for each of
the periods indicated, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
October 23,1998.
-20-
<PAGE> 23
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
AND TRANSFER AGENT
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
CUSTODIAN
Firstar Bank Milwaukee, N.A.
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
