ANNUAL REPORT
[GRAPHIC OMITTED]
LEGACY MINNESOTA MUNICIPAL
BOND FUND
[GRAPHIC OMITTED]
SEPTEMBER 30, 1999
TABLE OF CONTENTS
PAGE
Shareholder Letter.......................................... 1
Cumulative Rate of Return Graph............................. 2
Statement of Assets and Liabilities......................... 3
Statement of Operations..................................... 4
Statement of Changes in Net Assets.......................... 5
Financial Highlights........................................ 6
Schedule of Investments..................................... 7
Notes to the Financial Statements........................... 13
Report of Independent Public Accountants.................... 16
------------------------------------------------
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.
November 17, 1999
Dear Shareholder:
Welcome to your first annual report for the Legacy Minnesota Municipal Bond
Fund. On April 12, 1999, Richfield Bank & Trust Co. and Bremer Trust, N.A.
converted their respective Minnesota tax-exempt common trust funds to form the
Legacy Minnesota Municipal Bond Fund. The enclosed annual report contains
information on your fund including its performance, expenses and holdings.
Since the conversion we have implemented several strategies. Our first strategy
was to consolidate the number of positions. We have reduced the number of bond
holdings by 20% over the past six months. Our second objective was to improve
the quality of the portfolio, which we have done. The average credit quality is
up to Aa1. Interest rates have risen since the fund's inception. This rise in
interest rates has had the impact of lowering the fund's share price. With bond
yields up we extended the average maturity of the portfolio to take advantage of
these higher interest rates. The duration of the fund has been increased from
4.3 years to 4.8 years.
We believe that tax-exempt bonds currently offer excellent value for investors
in higher tax brackets. We thank you for your business and appreciate the
opportunity to be of service to you.
Sincerely,
/s/ /s/
Paul Gifford Jr., CFA Harvey R Peck, CFA
Portfolio Manager Portfolio Manager
4/12/99 6/30/99 9/30/99
Legacy Fund (No-Load) $10,000 $9,910 $9,904
Legacy Fund (Load-Adjusted 2.75%) $10,000 $9,640 $9,634
Lipper Minnesota Municipal Debt Funds $10,000 $9,834 $9,713
Cumulative rate of return (%)
4/12/991 through
September 30, 1999
---------------------------------
Legacy Fund (No-Load) -0.96%
Legacy Fund (Load-Adjusted 2.75%) -3.66%
Lipper Minnesota Municipal Debt Fund -2.87%
The Lipper Minnesota Municipal Debt Fund Index is an equally weighted index
comprised of the top ten Minnesota Municipal Bond Funds with an average
duration of 7.2 years. This chart assumes an initial gross investment of
$10,000 made on 4/12/99 (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.
1 Commencment of operations.
<TABLE>
<CAPTION>
=================================================================================================================
LEGACY MINNESOTA MUNICIPAL BOND FUND
=================================================================================================================
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
- ---------------------------------------------------------------------------- ------------------------------
<S> <C>
ASSETS:
Investments, at market value
(Cost of $58,876,116) $57,514,193
Cash 450,638
Interest receivable 787,115
Other assets 4,058
-------------------------
Total assets 58,756,004
-------------------------
LIABILITIES:
Payable to Investment Adviser 25,949
Payable for investments purchased 883,520
Dividends payable 202,020
Payable for Fund shares redeemed 374,925
Accrued expenses and other liabilities 48,741
-------------------------
Total liabilities 1,535,155
-------------------------
NET ASSETS $57,220,849
=========================
NET ASSETS CONSIST OF:
Capital stock $58,786,416
Distributions in excess of book net investment income (163,386)
Accumulated undistributed net realized loss on investments (40,258)
Net unrealized depreciation on investments (1,361,923)
=========================
Total Net Assets $57,220,849
=========================
Shares outstanding
(50 million shares authorized for each Fund, $ .0001 par value) 5,895,693
=========================
Net Asset Value and Redemption Price Price Per Share $9.71
=========================
Maximum Offering Price Per Share $9.98
=========================
SEE NOTES TO THE FINANCIAL STATEMENTS.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================================================
LEGACY MINNESOTA MUNICIPAL BOND FUND
=========================================================================================================================
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 12, 19991 THROUGH SEPTEMBER 30, 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest income $ 1,199,209
-------------------------
EXPENSES:
Investment advisory fees 149,719
Administration fees 14,851
Shareholder servicing and accounting costs 34,895
Distribution fees 5,445
Custody fees 5,160
Federal and state registration 16,230
Professional fees 5,273
Reports to shareholders 6,195
Directors' fees and expenses 836
Other 487
-------------------------
Total expenses 239,091
-------------------------
NET INVESTMENT INCOME 960,118
-------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments (186,076)
Change in unrealized depreciation on investments (1,361,923)
-------------------------
Net realized and unrealized loss on investments (1,547,999)
-------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (587,881)
=========================
1 COMMENCEMENT OF OPERATIONS.
SEE NOTES TO THE FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
=============================================================================================================
LEGACY MINNESOTA MUNICIPAL BOND FUND
=============================================================================================================
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------
April 12, 1999 1
through
September 30, 1999
----------------------------
<S> <C>
OPERATIONS:
Net investment income $ 960,118
Net realized loss on investments (186,076)
Change in unrealized depreciation on investments (1,361,923)
----------------------------
Net decrease in net assets resulting from operations (587,881)
----------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (960,118)
Distributions in excess of book net investment income (180,525)
----------------------------
Total dividends and distributions (1,140,643)
----------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 5,409,540
Proceeds from trust fund conversion 58,062,480
Proceeds from shares issued to holders in reinvestment of
dividends 117
Cost of shares redeemed (4,522,764)
----------------------------
Net increase in net assets resulting from
capital share transactions 58,949,373
----------------------------
TOTAL INCREASE IN NET ASSETS 57,220,849
----------------------------
NET ASSETS:
Beginning of period -
----------------------------
End of period (including distributions in excess of book
net investment income of $163,386) $57,220,849
============================
1 COMMENCEMENT OF OPERATIONS.
SEE NOTES TO THE FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
===========================================================================================================
LEGACY MINNESOTA MUNICIPAL BOND FUND
===========================================================================================================
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------
April 12, 1999 1
through
September 30, 1999
----------------------------
<S> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
----------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.16
Net realized and unrealized gain (loss)
on investments (0.26)
----------------------------
Total from investment operations (0.10)
----------------------------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income (0.16)
Distributions in excess of net investment income (0.03)
----------------------------
----------------------------
Total dividends and distributions (0.19)
----------------------------
NET ASSET VALUE, END OF PERIOD $9.71
============================
TOTAL RETURN (0.96%)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $57,220,849
Ratio of net expenses to average net assets 0.88%
Ratio of net investment income to average net assets 3.53%
Portfolio turnover rate 18.86%
1 COMMENCEMENT OF OPERATIONS.
2 NOT ANNUALIZED.
3 ANNUALIZED.
SEE NOTES TO THE FINANCIAL STATEMENTS.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
=======================================================================================================================
LEGACY MINNESOTA MUNICIPAL BOND FUND
=======================================================================================================================
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRINCIPAL
AMOUNT VALUE
------------------------------------------------------------------
LONG TERM INVESTMENTS - 99.3%
------------------------------------------------------------------
------------------------------------------------------------------
MUNICIPAL BONDS - 99.3%
------------------------------------------------------------------
EDUCATION - 20.4%
Albany Minnesota Independent School District No. 745
$ 500,000 Series A, 5.600%, 02/01/05 $ 521,414
Albany Minnesota Independent School District No. 745
500,000 Series A, 5.800%, 02/01/07 525,313
Alexandria Minnesota Independent School District No. 206
600,000 Series A, 6.100%, 02/01/05 625,989
Alexandria Minnesota Independent School District No. 206
1,000,000 Series A, 5.375%, 02/01/13 1,001,920
Anoka Hennepin Minnesota Independent School District No. 11
250,000 Series C, 4.950%, 02/01/08 250,364
Crookstone Minnesota Independent School District No. 593
500,000 6.050%, 04/01/08 531,271
Edina Minnesota Independent School District No. 273
500,000 5.750%, 02/01/08 516,030
Faribault Minnesota Independent School District No. 656
500,000 5.900%, 06/01/07 529,366
Minneapolis Minnesota Special School District No. 001
500,000 5.600%, 02/01/07 518,396
Minneapolis Minnesota Special School District No. 001
1,110,000 Series A, 5.900%, 02/01/12 1,151,397
Minneapolis Minnesota Special School District No. 001
1,100,000 5.000%, 02/01/12 1,066,441
Osseo Minnesota Independent School District No. 279
340,000 Series B, 4.700%, 02/01/05 340,298
Osseo Minnesota Independent School District No. 279
250,000 5.400%, 02/01/04 256,648
Park Rapids Minnesota Independent School District No. 309
500,000 4.750%, 02/01/13 469,805
Red Wing Minnesota Independent School District No. 256
600,000 Series A, 5.250%, 02/01/03 614,318
Sartell Minnesota Independent School District No. 748
275,000 Series A, 5.200%, 02/01/07 281,081
St. Louis Park Minnesota Independent School District No. 283
150,000 5.900%, 02/01/06 152,508
St. Paul Minnesota Independent School District No. 625
500,000 Series C, 5.850%, 02/01/08 519,502
St. Paul Minnesota Independent School District No. 625
300,000 Series A, 4.300%, 02/01/07 290,980
St. Paul Minnesota Independent School District No. 625
205,000 Series B, 6.000%, 02/01/05 213,253
Stillwater Minnesota Independent School District No. 834
300,000 5.375%, 02/01/05 305,041
White Bear Lake Minnesota Independent School District No. 624
1,000,000 Series C, 5.700%, 02/01/06 1,037,158
-----------------
-----------------
11,718,493
-----------------
SEE NOTES TO THE FINANCIAL STATEMENTS.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
EDUCATION (HIGHER) - 5.4%
Minnesota State Higher Education Facility Authority
$ 250,000 Series 3-R2, 5.350%, 09/01/06 $ 256,614
Minnesota State Higher Education Facility Authority
720,000 Series 4-L, 5.350%, 10/01/17 677,964
Minnesota State Higher Education Facility Authority
800,000 Series 3-R1, 5.350%, 10/01/06 821,454
Minnesota State Higher Education Facility Authority
350,000 Series 3-R1, 5.500%, 10/01/08 358,432
Minnesota State Higher Education Facility Authority
500,000 Series 4-N, 5.300%, 11/01/12 501,932
Minnesota State Higher Education Facility Authority
200,000 Series 3-J, 6.300%, 03/01/14 209,137
Northfield Minnesota College Facility
225,000 6.150%, 10/01/05 237,757
-----------------
-----------------
3,063,290
-----------------
ELECTRIC - 6.1%
Northern Municipal Power Agency Minnesota Electric
500,000 Series A, 7.250%, 01/01/00 504,516
Northern Municipal Power Agency Minnesota Electric
500,000 Series A, 5.400%, 01/01/02 512,194
Southern Minnesota Municipal Power Agency Power Supply
320,000 Series A, 5.400%, 01/01/02 327,597
Southern Minnesota Municipal Power Agency Power Supply
165,000 Series A, 5.700%, 01/01/05 172,744
Southern Minnesota Municipal Power Agency Power Supply
225,000 Series B, 5.800%, 01/01/07 238,625
Southern Minnesota Municipal Power Agency Power Supply
395,000 Series B, 5.800%, 01/01/07 410,699
Western Minnesota Municipal Power Agency
1,325,000 Series A, 5.500%, 01/01/11 1,351,283
-----------------
-----------------
3,517,658
-----------------
HOSPITAL - 10.7%
Bloomington Minnesota Health Care Facility
500,000 5.450%, 07/01/03 517,943
Duluth Minnesota Economic Development Authority Health Care Facilities
500,000 6.000%, 02/15/12 520,889
Minneapolis-St. Paul Minnesota Housing & Redevelopment Health Care System
1,000,000 Series A, 5.000%, 11/15/06 1,010,450
Minneapolis Minnesota Health Care Facility
150,000 5.000%, 11/15/04 153,391
SEE NOTES TO THE FINANCIAL STATEMENTS.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
HOSPITAL (CONTINUED) - 10.7%
Robbinsdale Minnesota Hospital
$ 1,000,000 Series B, 5.300%, 05/15/07 $ 1,024,335
Rochester Minnesota Health Care Facilities
595,000 Series I, 5.800%, 11/15/07 628,866
Saint Cloud Minnesota Hospital Facilities
250,000 Series B, 7.000%, 07/01/20 266,600
Saint Cloud Minnesota Hospital Facilities
900,000 Series A, 5.000%, 07/01/12 871,077
St. Louis Park Minnesota Hospital
300,000 Series A, 7.000%, 07/01/00 310,563
St. Paul Minnesota Housing & Redevelopment Authority Hospital
800,000 5.300%, 05/15/06 826,633
-----------------
-----------------
6,130,747
-----------------
HOUSING - 11.9%
Burnsville Minnesota Multi-Family Housing
50,000 5.375%, 07/01/04 51,516
Coon Rapids Minnesota Single Family Housing
70,000 5.400%, 03/01/01 71,279
Coon Rapids Minnesota Single Family Housing
60,000 5.600%, 09/01/03 62,236
Coon Rapids Minnesota Single Family Housing
85,000 5.700%, 09/01/04 88,502
Dakota County Minnesota Housing & Redevelopment Auth. Single Family Housing
135,000 4.900%, 10/01/04 136,491
Minneapolis Minnesota Multifamily Housing
145,000 6.750%, 10/01/01 149,500
Minnesota State Housing Agency
220,000 Series J, 5.200%, 01/01/06 224,688
Minnesota State Housing Agency
245,000 Series D, 5.150%, 02/01/04 249,841
Minnesota State Housing Agency
250,000 4.950%, 01/01/03 254,868
Minnesota State Housing Agency
245,000 Series F, 5.450%, 07/01/04 254,311
Minnesota State Housing Agency
245,000 Series F, 5.550%, 07/01/05 252,879
Minnesota State Housing Agency
325,000 Series E, 5.250%, 08/01/02 328,444
Minnesota State Housing Agency
150,000 Series E, 5.400%, 08/01/04 150,160
Minnesota State Housing Agency
100,000 6.100%, 07/01/01 103,410
Minnesota State Housing Agency
100,000 6.200%, 07/01/02 103,757
Minnesota State Housing Agency
290,000 5.150%, 07/01/02 293,984
Minnesota State Housing Agency
200,000 Series C, 5.300%, 01/01/04 205,726
Minnesota State Housing Agency
300,000 Series C, 5.300%, 07/01/04 307,564
Minnesota State Housing Agency
260,000 5.200%, 01/01/03 266,222
SEE NOTES TO THE FINANCIAL STATEMENTS.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
HOUSING (CONTINUED) - 11.9%
Minnesota State Housing Agency
$ 185,000 5.200%, 07/01/03 $ 189,413
Minnesota State Housing Agency
135,000 Series A, 5.500%, 01/01/08 137,678
Minnesota State Housing Agency
325,000 Series A, 5.600%, 07/01/09 331,314
Minnesota State Housing Agency
600,000 Series B, 5.000%, 07/01/13 581,391
Olmsted County Minnesota Housing & Redevelopment
200,000 7.000%, 02/01/13 207,345
St. Paul Minnesota Housing & Redevelopment Authority
650,000 Series J, 5.125%, 03/01/12 635,955
St. Paul Minnesota Housing & Redevelopment Authority
500,000 5.100%, 09/01/03 512,999
Washington County Minnesota Housing & Redevelopment Authority
630,000 5.000%, 02/01/06 635,733
-----------------
-----------------
6,787,206
-----------------
PUBLIC FACILITIES & IMPROVEMENTS - 25.7%
Bloomington Minnesota
500,000 5.500%, 02/01/08 515,084
Burnsville Minnesota
300,000 Series B, 5.800%, 02/01/01 306,782
Chanhassen Minnesota
500,000 Series F, 4.350%, 02/01/04 494,529
Hennepin County Minnesota
250,000 5.200%, 12/01/04 256,665
Hennepin County Minnesota
480,000 Series A, 5.000%, 12/01/11 473,515
Mankato Minnesota
800,000 Series D, 6.050%, 02/01/05 840,486
Maple Grove Minnesota
300,000 Series A, 4.900%, 02/01/07 302,221
Metropolitan Counsil Minnesota Sports Facilities
500,000 6.000%, 10/01/09 521,217
Metropolitan Counsil Minnesota
600,000 Series A, 5.750%, 12/01/00 614,263
Minneapolis Minnesota
500,000 Series D, 5.000%, 12/01/16 472,413
Minneapolis Minnesota
500,000 5.900%, 04/01/02 505,329
Minneapolis Minnesota
500,000 6.100%, 04/01/04 505,823
Minneapolis Minnesota
500,000 6.250%, 10/01/07 525,787
Minneapolis Minnesota
200,000 6.250%, 04/01/12 209,831
SEE NOTES TO THE FINANCIAL STATEMENTS.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
PUBLIC FACILITIES & IMPROVEMENTS (CONTINUED) - 25.7%
Minneapolis Minnesota
$ 250,000 5.750%, 09/01/10 $ 254,683
Minneapolis Minnesota
550,000 4.800%, 04/01/04 558,897
Minneapolis Minnesota
600,000 4.700%, 12/01/08 593,363
Minnesota State
500,000 4.625%, 08/01/06 499,101
Minnesota State
1,300,000 4.850%, 08/01/12 1,251,790
Minnesota State
245,000 5.000%, 08/01/04 250,122
Minnesota State
750,000 5.250%, 08/01/12 750,000
Minnesota State
250,000 5.600%, 10/01/06 262,197
Plymouth Minnesota
445,000 7.000%, 04/01/12 449,166
Ramsey County Minnesota
500,000 Series C, 5.500%, 12/01/03 521,678
Sartell Minnesota
560,000 Series B, 5.000%, 02/01/09 557,898
St. Paul Minnesota
300,000 Series A, 4.900%, 04/01/03 303,944
St. Paul Minnesota
250,000 Series A, 5.000%, 03/01/06 253,661
St. Paul Minnesota
500,000 Series D, 5.600%, 03/01/00 503,911
St. Paul Minnesota
600,000 Series A, 5.000%, 02/01/01 607,386
Steele County Minnesota
245,000 Series A, 5.600%, 02/01/07 255,493
Steele County Minnesota
260,000 Series A, 5.700%, 02/01/08 272,149
-----------------
-----------------
14,689,384
-----------------
TRANSPORTATION - 7.1%
Bloomington Minnesota Port Authority
500,000 Series A, 5.250%, 02/01/03 512,399
Bloomington Minnesota Port Authority
250,000 Series A, 5.100%, 02/01/05 254,183
Bloomington Minnesota Port Authority
400,000 Series A, 5.350%, 02/01/13 406,147
Bloomington Minnesota Port Authority
750,000 Series A, 4.750%, 02/01/11 721,315
Minneapolis & St. Paul Minnesota Metropolitan Airports Commission
250,000 Series 10, 4.700%, 01/01/01 251,951
Minnesota State Infastructure Development
500,000 6.600%, 08/01/00 512,005
Seaway Port Authority Duluth Minnesota
500,000 Series B, 6.800%, 05/01/12 529,351
St. Cloud Minnesota Infastructure Management
880,000 Series 1999A, 4.800%, 03/01/08 878,157
-----------------
-----------------
4,065,508
-----------------
SEE NOTES TO THE FINANCIAL STATEMENTS.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
WASTE DISPOSAL - 5.1%
Anoka County Minnesota Solid Waste Disposal
$ 250,000 6.950%, 02/01/08 $ 258,253
East Central Minnesota Solid Waste Commission
500,000 4.700%, 06/01/04 504,160
Hennepin County Minnesota Solid Waste Disposal
250,000 5.300%, 10/01/01 255,712
Hennepin County Minnesota Solid Waste Disposal
250,000 5.500%, 10/01/03 259,992
Hennepin County Minnesota Solid Waste Disposal
500,000 5.750%, 10/01/10 515,303
Wright County Minnesota Solid Waste Disposal
590,000 Series A, 5.700%, 12/01/09 608,564
Wright County Minnesota Solid Waste Disposal
500,000 Series A, 5.400%, 12/01/06 515,863
-----------------
-----------------
2,917,847
-----------------
WATER & SEWER - 6.9%
Metropolitan Counsil Minneapolis-St. Paul Metropolitan Area Sewer
675,000 Series B, 4.850%, 12/01/11 656,811
Minnesota Public Facilities Authority Water Pollution Control
500,000 Series A, 6.450%, 03/01/02 524,751
Minnesota Public Facilities Authority Water Pollution Control
600,000 Series B, 5.350%, 03/01/12 609,738
Minnesota Public Facilities Authority Water Pollution Control
1,000,000 Series B, 5.375%, 03/01/13 1,006,422
Minnesota Public Facilities Authority Water Pollution Control
770,000 5.000%, 03/01/10 768,112
St. Paul Minnesota Water Authority
385,000 Series E, 4.900%, 12/01/01 392,593
-----------------
-----------------
3,958,427
-----------------
TOTAL MUNICIPAL BONDS (Cost of $58,210,483) 56,848,560
-----------------
TOTAL LONG TERM INVESMENTS (COST OF $58,210,483) 56,848,560
-----------------
SHARES
------------------------------------------------------------------
SHORT TERM INVESTMENTS - 1.2%
------------------------------------------------------------------
------------------------------------------------------------------
INVESTMENT COMPANIES - 1.2%
------------------------------------------------------------------
665,633 Federated Minnesota Municipal Money Market 665,633
-----------------
TOTAL INVESTMENT COMPANIES (Cost of $665,633) 665,633
-----------------
TOTAL SHORT TERM INVESTMENTS (COST OF $665,633) 665,633
-----------------
TOTAL INVESTMENTS - 100.5% (COST OF $58,876,116) 57,514,193
OTHER LIABILITIES IN EXCESS OF OTHER ASSETS - (0.5)% (293,344)
-----------------
TOTAL NET ASSETS - 100% $ 57,220,849
=================
SEE NOTES TO THE FINANCIAL STATEMENTS.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
LEGACY MINNESOTA MUNICIPAL BOND FUND
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- 1 -
1. ORGANIZATION
Legacy Minnesota Municipal Bond Fund (the "Fund") is a series of Bremer
Investment Funds, Inc. (the "Company"), an open-end management investment
company which was incorporated on August 26, 1996, as a Maryland Corporation.
The Fund commenced operations on April 12, 1999. The principal investment
objective of the Fund is to provide current income exempt from federal
regular income tax and Minnesota regular personal income tax, consistent with
the preservation of capital and prudent investment management. In addition to
the Fund, the Company offers the Bremer Growth Stock Fund and the Bremer Bond
Fund. Information with respect to these portfolios is contained in a separate
report. The assets and liabilities of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which the shareholder
owns shares.
All assets of the common trust funds from Richfield Bank & Trust Company and
Bremer Trust, N.A., were transferred to Bremer Investment Funds, Inc. as of
April 12, 1999. The securities were transferred at market value, and the
original cost basis was replaced with market.
The costs incurred in connection with the organization, initial registration
and public offering of shares for the Fund have been paid by Bremer Trust,
N.A., the Investment Adviser.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of the financial statements. These
policies are in conformity with generally accepted accounting principles.
a) INVESTMENT VALUATION - Debt securities (other than short-term
investments) are valued at the most recently quoted bid prices furnished
by an independent pricing service. For securities where market quotations
are not readily available, or where the last quoted sale price is
not considered representative of the value of that security if it were to
be sold on that day, the security will be valued at fair value as
determined in good faith 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 amortized cost, which approximates market
value.
b) FEDERAL INCOME TAXES - No provision for federal income taxes has been
made since the Fund has complied to date with the provisions of the
Internal Revenue Code applicable to regulated investment companies and
intends to continue to so comply in future years and to distribute
investment company net taxable income and net realized gains to
shareholders.
c) WRITTEN OPTION ACCOUNTING - The 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 the 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 Fund is charged for those expenses that are
directly attributable to the 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 Fund are declared daily and paid monthly. Distributions of the
Fund's net realized capital gains, if any, will be declared at
least annually. The character of distributions made during the period
from net investment income or net realized gains may differ from the
characterization for federal income tax purposes due to differences in
the recognition of income, expense and gain items for financial statement
and tax purposes. Where appropriate, reclassifications between net asset
accounts are made for such differences that are permanent in nature.
Accordingly, at September 30, 1999, reclassifications were recorded to
decrease accumulated net investment losses by $17,139, decrease
accumulated net realized losses on investments by $145,818 and decrease
paid in capital by $162,957.
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 Fund determines 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 Fund, 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 Fund for the period ended September 30, 1999,
were as follows:
LEGACY MINNESOTA MUNICIPAL BOND FUND
Shares sold 550,747
Shares issued as a result of trust
fund conversion 5,806,248
Shares issued to holders in
reinvestment of dividends 12
Shares redeemed (461,314)
Net increase 5,895,693
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments, excluding short-term
investments, by the Fund for the year ended September 30, 1999, were as
follows:
LEGACY MINNESOTA MUNICIPAL BOND FUND
Purchases
U.S. Government $ -
Other 66,493,459
Sales
U.S. Government $ -
Other 8,924,789
At September 30, 1999, gross unrealized appreciation and depreciation of
investments for tax purposes were as follows:
LEGACY MINNESOTA MUNICIPAL BOND FUND
Appreciation $1,161,884
(Depreciation) (700,571)
Net appreciation
on investments $ 461,313
===================
At September 30, 1999, the cost of investments for federal income tax
purposes was $57,052,880.
At September 30, 1999, the Fund had accumulated net realized capital loss
carryovers of $40,258 expiring in 2007.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has entered into an Investment Advisory Agreement with Bremer Trust
N.A., a wholly owned subsidiary of Bremer Financial Corporation. Pursuant to
its advisory agreement with the Fund, the Investment Adviser is entitled to
receive a fee, calculated daily and payable monthly, at the annual rate of
0.55% as applied to the Fund's daily net assets. The Investment Adviser has
engaged Richfield Bank & Trust Co. to act as a sub-adviser to the Fund. The
fees paid to the sub-adviser are included in the compensation the Fund pays
to the Investment Adviser, as described above. Consequently, the services of
the sub-adviser will be at no additional cost to shareholders of the Fund.
Shareholders of the Fund are also subject to a maximum front-end sales charge
of 2.75% of the offering price or 2.83% of the net asset value.
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 Fund.
The Fund has 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. On November 24, 1998, the Fund entered into an agreement
with Rafferty Capital Markets, Inc. to distribute the Fund's shares. The
currently approved rate is an annual rate of 0.02% of the Fund's average
daily net assets. Payments made pursuant to the Plan may only be used to pay
distribution and marketing expenses in the year incurred. For the period
ended September 30, 1999, $5,445 was incurred pursuant to the distribution
agreement.
6. RELATED PARTIES
Richfield Bank & Trust Company and Bremer Trust, N.A. each had clients and
affiliated clients that held 4,265,702 and 1,625,846 outstanding shares,
respectively, of the Fund as of September 30, 1999.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of the Bremer Investment Funds, Inc.
and the Shareholders of the Legacy Minnesota Municipal Bond Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Bremer Investment Funds, Inc. (a Maryland
corporation) Legacy Minnesota Municipal Bond Fund as of September 30, 1999, and
the related statements of operations, changes in net assets, and financial
highlights for the period from inception, April 12, 1999, to September 30, 1999.
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 and financial highlights. Our procedures included confirmation of
securities owned as of September 30, 1999, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principals 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 the
Legacy Minnesota Municipal Bond Fund as of September 30, 1999, and the results
of its operations, changes in its net assets and financial highlights for the
period from inception, April 12, 1999, to September 30, 1999, in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
October 22, 1999
Investment Adviser
Bremer Trust, N.A.
Cold Spring Center
4150 Second Street South
St. Cloud, MN 56302-0986
Sub-Adviser:
Richfield Bank & Trust
6625 Lyndale Avenue South
Richfield, MN 55423
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
Stan K. Dardis
John M. Bishop
John J. Feda
Barbara A. Grachek
