ANNUAL REPORT
[GRAPHIC OMITTED]
BREMER INVESTMENT FUNDS, INC.
[GRAPHIC OMITTED]
Bremer Growth Stock Fund
Bremer Bond Fund
SEPTEMBER 30, 1999
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
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
------------------------------------------------
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.
December 6, 1999
Dear Bremer Fund Shareholder:
As usual we had an interesting year in the investment markets. The U.S. economy
experienced the Asian financial crisis, continued robust economic growth, rising
interest rates, combined with record highs in several stock market indices
despite the Asian economic crisis and preparation for the Y2K issue. The year
also came with recognition of your Funds' excellent performance. MUTUAL FUNDS
MAGAZINE gave the Bremer Growth Stock Fund their five-star rating. The Bremer
Bond Fund finished the fiscal year in the top quartile versus its peers in
MORNINGSTAR.
The Federal Reserve Board cut interest rates three times in the Fall of 1998 in
order to keep the domestic economy and certain international markets on a growth
path. That decline in interest rates created expectations of continued economic
growth into the year 1999 and resulted in a tremendous domestic equity markets
move in the quarter ended December 31, 1998! Since then it has been a struggle
between economics and earnings as to what has been driving the equity markets.
The result was nine months of moderate total returns as measured by the S & P
500 Index. However, for the full fiscal year ended September 30, 1999 the Bremer
Growth Stock Fund returned a solid 28.97% versus 27.8% for the S & P 500 Index.
That performance was fueled by the returns of the overweighed capital goods and
technologies sectors in the fund.
Four of the five largest individual stock holdings at September 30, 1999 were
from those sectors and include Cisco System, Inc., General Electric Company,
Microsoft Corporation and Intel Corporation as well as Dayton Hudson
Corporation. Recent domestic interest rate hikes should temper the growth of the
U.S. economy as international markets pick up in 2000. We believe that will
sustain moderate earnings for a number of quarters and result in normal returns
for stocks in the coming year.
The fixed income market experienced a roller coaster ride. Last fall rates fell
dramatically as the Asian financial crisis broadened. Since the beginning of
1999, interest rates have risen from 5.09% to 6.30%. Spreads on non-treasury
bonds rose most of the year before tightening this fall.
We look for rates to remain stable throughout the last quarter of 1999 and
believe they will fall slightly in 2000. The Bond Fund has done several things
to take advantage of our outlook. We have increased the U.S. Treasury position,
increased credit quality and improved liquidity by purchasing global corporate
and agency issues.
We look forward to the new millennium and, more importantly, serving your
investment needs. Thank you for your business.
Sincerely,
Steven A. Laraway
Chairman
1/27/97 3/31/97 6/30/97 9/30/97 12/31/97
Bremer Growth Stock Fund $10,000 $9,600 $11,161 $11,899 $12,038
S&P 500 $10,000 $9,935 $11,670 $12,544 $12,904
Lipper Growth Managers $10,000 $9,469 $10,964 $12,088 $12,169
3/31/98 6/30/98 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99
$13,725 $14,126 $12,329 $15,638 $16,163 $17,083 $15,901
$14,704 $15,189 $13,678 $16,591 $17,417 $18,645 $17,482
$13,676 $14,064 $12,459 $15,295 $16,070 $17,113 $16,464
Cumulative rate of return (%)
Fiscal Year Ended
September 30, 1999
---------------------------------
Bremer Growth Stock Fund 28.97%
S&P 500 27.80%
Lipper Growth Managers 37.92%
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.
1/27/97 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98
Bremer Bond Fund $10,000 $10,009 $10,270 $10,534 $10,720 $10,860
LB Int. Govt./Corp. $10,000 $10,008 $10,302 $10,580 $10,806 $10,975
6/30/98 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99
$11,063 $11,439 $11,441 $11,422 $11,348 $11,414
$11,181 $11,683 $11,718 $11,696 $11,649 $11,756
Cumulative rate of return (%)
Fiscal Year Ended
September 30, 1999
----------------------------------
Bremer Bond Fund -0.22%
LB Int. Govt./Corp. 0.63%
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.
<TABLE>
<CAPTION>
====================================================================================================================
BREMER INVESTMENT FUNDS, INC.
====================================================================================================================
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
---------------- ----------------
GROWTH BOND
STOCK FUND FUND
---------------- ----------------
ASSETS:
Investments, at market value
(Cost of $43,005,226 and $96,023,386, respectively) $67,902,806 $93,761,928
Dividends receivable 46,832 -
Interest receivable 6,209 978,299
Organizational expenses, net of accumulated amortization 12,692 12,692
Other assets 976 554
---------------- ----------------
Total assets 67,969,515 94,753,473
---------------- ----------------
LIABILITIES:
Payable for investments purchased - 2,249,720
Payable to Custodian 570,160 -
Payable to Investment Adviser 40,566 52,909
Dividends payable - 403,990
Payable for fund shares redeemed - 3,919
Call options written (Premiums received $10,301) 625 -
Accrued expenses and other liabilities 41,887 54,791
---------------- ----------------
Total liabilities 653,238 2,765,329
---------------- ----------------
NET ASSETS $67,316,277 $91,988,144
================ ================
NET ASSETS CONSIST OF:
Capital stock $39,794,270 $94,311,652
Accumulated undistributed net investment income 60,013 43,722
Accumulated undistributed net realized gain (loss) on investments 2,554,738 (105,772)
Net unrealized appreciation (depreciation) on:
Investments 24,897,580 (2,261,458)
Written option contracts 9,676 -
================ ================
Total Net Assets $67,316,277 $91,988,144
================ ================
Shares outstanding
(100 million shares authorized for each Fund, $ .0001 par value) 4,279,186 9,331,943
================ ================
Net Asset Value, Redemption Price and Offering Price Per Share $15.73 $9.86
================ ================
SEE NOTES TO THE FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
==============================================================================================================================
BREMER INVESTMENT FUNDS, INC.
==============================================================================================================================
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
---------------- ----------------
GROWTH BOND
STOCK FUND FUND
---------------- ----------------
INVESTMENT INCOME:
Dividend income (net of withholding tax of $3,341 and $0, respectively) $ 503,663 $ -
Interest income 167,645 5,489,725
---------------- ----------------
Total investment income 671,308 5,489,725
---------------- ----------------
EXPENSES:
Investment advisory fees 476,721 606,273
Administration fees 37,574 47,893
Shareholder servicing and accounting costs 50,518 65,211
Distribution fees 5,285 6,584
Custody fees 12,389 18,854
Federal and state registration 1,901 4,885
Professional fees 13,486 14,863
Reports to shareholders 2,066 3,607
Amortization of organizational expenses 5,475 5,475
Directors' fees and expenses 2,363 2,365
Other 1,629 2,299
---------------- ----------------
Total expenses 609,407 778,309
---------------- ----------------
NET INVESTMENT INCOME 61,901 4,711,416
---------------- ----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 2,554,777 (26,953)
Change in unrealized appreciation (depreciation) on:
Investments 13,310,162 (4,874,934)
Written option contracts 9,676 -
---------------- ----------------
Net realized and unrealized gain (loss) on investments
and written option contracts 15,874,615 (4,901,887)
---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $15,936,516 $ (190,471)
================ ================
SEE NOTES TO THE FINANCIAL STATEMENTS.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
===========================================================================================================================
BREMER INVESTMENT FUNDS, INC.
===========================================================================================================================
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
------------------------------------------------
--------------------------
GROWTH STOCK FUND
------------------------------------------------
<S> <C> <C>
Year Ended Year Ended
September 30, 1999 September 30, 1998
---------------------- ----------------------
OPERATIONS:
Net investment income $ 61,901 $ 154,205
Net realized gain on investments 2,554,777 301,927
Change in unrealized appreciation on investments
and written option contracts 13,319,838 1,488,913
---------------------- ----------------------
Net increase in net assets resulting from operations 15,936,516 1,945,045
---------------------- ----------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (161,963) (134,687)
Net realized gains (301,927) (76,348)
---------------------- ----------------------
---------------------- ----------------------
Total dividends and distributions (463,890) (211,035)
---------------------- ----------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 15,715,001 9,224,864
Proceeds from shares issued to holders in reinvestment of
dividends 11,863 2,085
Cost of shares redeemed (18,057,770) (7,890,044)
---------------------- ----------------------
Net increase (decrease) in net assets resulting from
capital share transactions (2,330,906) 1,336,905
---------------------- ----------------------
TOTAL INCREASE IN NET ASSETS 13,141,720 3,070,915
---------------------- ----------------------
NET ASSETS:
Beginning of period 54,174,557 51,103,642
---------------------- ----------------------
End of period $67,316,277 $54,174,557
====================== ======================
Undistributed Net Investment Income included in
Net Assets at End of Period $60,013 $157,119
====================== ======================
SEE NOTES TO THE FINANCIAL STATEMENTS.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
===========================================================================================================================
BREMER INVESTMENT FUNDS, INC.
===========================================================================================================================
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
------------------------------------------------
BOND FUND
--------------------------
<S> <C> <C>
Year Ended Year Ended
September 30, 1999 September 30, 1998
---------------------- ----------------------
OPERATIONS:
Net investment income $ 4,711,416 $ 4,307,210
Net realized gain (loss) on investments (26,953) 240,538
Change in unrealized appreciation (depreciation) on investments (4,874,934) 2,036,415
---------------------- ----------------------
Net increase (decrease) in net assets resulting from operations (190,471) 6,584,163
---------------------- ----------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (4,711,416) (4,302,898)
Net realized gains (296,994) (22,945)
---------------------- ----------------------
Total dividends and distributions (5,008,410) (4,325,843)
---------------------- ----------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 31,135,209 20,352,435
Proceeds from shares issued to holders in reinvestment of
dividends 112,431 36,235
Cost of shares redeemed (16,816,629) (13,574,619)
---------------------- ----------------------
Net increase in net assets resulting from
capital share transactions 14,431,011 6,814,051
---------------------- ----------------------
TOTAL INCREASE IN NET ASSETS 9,232,130 9,072,371
---------------------- ----------------------
NET ASSETS:
Beginning of period 82,756,014 73,683,643
---------------------- ----------------------
End of period $91,988,144 $82,756,014
====================== ======================
Undistributed Net Investment Income included in
Net Assets at End of Period $43,722 $0
====================== ======================
SEE NOTES TO THE FINANCIAL STATEMENTS.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
BREMER INVESTMENT FUNDS, INC.
====================================================================================================================================
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------
GROWTH STOCK FUND
----------------------------------------------------------------------
<S> <C> <C> <C>
January 27, 19971
Year Ended Year Ended through
September 30, 1999 September 30, 1998 September 30, 1997
----------------------- ----------------------- ----------------------
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $12.28 $11.90 $10.00
----------------------- ----------------------- ----------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.02 0.04 0.03
Net realized and unrealized gain on investments 3.54 0.39 1.87
----------------------- ----------------------- ----------------------
Total from investment operations 3.56 0.43 1.90
----------------------- ----------------------- ----------------------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income (0.04) (0.03) -
Distributions from net realized gains (0.07) (0.02) -
----------------------- ----------------------- ----------------------
Total dividends and distributions (0.11) (0.05) -
----------------------- ----------------------- ----------------------
NET ASSET VALUE, END OF PERIOD $15.73 $12.28 $11.90
======================= ======================= ======================
TOTAL RETURN 28.97% 3.61% 19.00%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $67,316,277 $54,174,557 $51,103,642
Ratio of net expenses to average net assets 0.89% 0.91% 1.05%
Ratio of net investment income to average net assets 0.09% 0.27% 0.62%
Portfolio turnover rate 16.74% 13.15% 11.30%
1 COMMENCEMENT OF OPERATIONS.
2 NOT ANNUALIZED.
3 ANNUALIZED.
SEE NOTES TO THE FINANCIAL STATEMENTS.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
BREMER INVESTMENT FUNDS, INC.
====================================================================================================================================
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------
BOND FUND
--------------------------------------------------------------------
<S> <C> <C> <C>
January 27, 19971
Year Ended Year Ended through
September 30, 1999 September 30, 1998 September 30, 1997
--------------------- ---------------------- ---------------------
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $10.47 $10.18 $10.00
--------------------- ---------------------- ---------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.55 0.56 0.35
Net realized and unrealized gain (loss)
on investments (0.57) 0.29 0.17
--------------------- ---------------------- ---------------------
Total from investment operations (0.02) 0.85 0.52
--------------------- ---------------------- ---------------------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income (0.55) (0.56) (0.34)
Distributions from net realized gains (0.04) - -
--------------------- ---------------------- ---------------------
Total dividends and distributions (0.59) (0.56) (0.34)
--------------------- ---------------------- ---------------------
NET ASSET VALUE, END OF PERIOD $9.86 $10.47 $10.18
===================== ====================== =====================
TOTAL RETURN (0.22%) 8.59% 5.33%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $91,988,144 $82,756,014 $73,683,643
Ratio of net expenses to average net assets 0.90% 0.89% 1.01%
Ratio of net investment income to average net assets 5.44% 5.46% 5.60%
Portfolio turnover rate 58.62% 66.66% 38.35%
1 COMMENCEMENT OF OPERATIONS.
2 NOT ANNUALIZED.
3 ANNUALIZED.
SEE NOTES TO THE FINANCIAL STATEMENTS.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
BREMER INVESTMENT FUNDS, INC.
====================================================================================================================================
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 1999
GROWTH STOCK FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHARES VALUE
--------------------------------------------------------------------------
COMMON STOCKS - 96.4% +
--------------------------------------------------------------------------
APPAREL - 2.2% +
20,000 The Gap, Inc. $ 640,000
21,000 Intimate Brands, Inc. 817,687
----------------
1,457,687
----------------
BANKING & FINANCIAL SERVICES - 8.2% +
13,125 # Banc One Corporation 456,914
13,000 The Charles Schwab Corporation 437,938
17,000 Citigroup Inc. 748,000
10,000 Fannie Mae 626,875
18,000 Freddie Mac 936,000
20,400 KeyCorp 526,575
10,000 Providian Financial Corporation 791,875
25,000 Wells Fargo Company 990,625
----------------
5,514,802
----------------
BUSINESS SERVICE - 5.2% +
15,000 Computer Associates International, Inc. 918,750
17,500 Equifax Inc. 492,188
19,000 First Data Corporation 833,625
36,000 IMS Health Incorporated 821,250
16,500 National Data Corporation 429,000
----------------
3,494,813
----------------
CAPITAL GOODS - 8.2% +
15,000 Boeing Company, The 639,375
19,000 Dover Corporation 776,625
10,600 Emerson Electric Company 669,787
25,000 General Electric Company 2,964,062
25,000 Mattel, Inc. 475,000
----------------
5,524,849
----------------
COMMUNICATIONS & MEDIA - 3.5% +
21,000 CBS Corporation * 971,250
34,500 Interpublic Group of Companies, Inc. 1,418,812
----------------
2,390,062
----------------
COSMETICS & SOAP - 3.6% +
16,800 Colgate-Palmolive Company 768,600
13,944 Gillette Company, The 473,225
22,000 Kimberly-Clark Corporation 1,155,000
----------------
2,396,825
----------------
DRUGS - 3.0% +
14,000 Merck & Company, Inc. 907,375
30,000 Pfizer, Inc. 1,078,125
----------------
1,985,500
----------------
ENERGY - 5.5% +
6,616 BP Amoco Plc 733,136
24,400 El Paso Energy Corporation 971,425
26,800 Enron Corporation 1,105,500
SEE NOTES TO THE FINANCIAL STATEMENTS.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
ENERGY (CONTINUED) - 5.5% +
9,000 Mobil Corporation $ 906,750
----------------
3,716,811
----------------
FOOD, BEVERAGE & TOBACCO - 2.3% +
12,000 Bestfoods 582,000
31,700 PepsiCo, Inc. 958,925
----------------
1,540,925
----------------
HEALTH CARE - 4.2% +
40,332 Boston Scientific Corporation * 995,696
39,400 Medtronic, Inc. 1,398,700
50,000 Safeskin Corporation * 410,938
----------------
2,805,334
----------------
INSURANCE - 3.7% +
8,749 Aegon N.V. ADR 756,788
16,000 AFLAC, Inc. 670,000
12,500 American International Group, Inc. 1,086,719
----------------
2,513,507
----------------
RESTAURANT - 2.2% +
34,000 McDonald's Corporation 1,462,000
----------------
RETAIL - GENERAL - 8.4% +
16,100 Albertson's, Inc. 636,956
30,000 Dayton Hudson Corporation 1,801,875
27,000 Saks Incorporated * 410,063
36,000 Wal-Mart Stores, Inc. 1,712,250
44,000 Walgreen Company 1,116,500
----------------
5,677,644
----------------
SOFTWARE - 7.7% +
35,000 Cognos, Inc. * 912,188
22,000 Microsoft Corporation * 1,992,375
27,000 Oracle Corporation * 1,228,500
53,500 Sterling Software, Inc. * 1,070,000
----------------
----------------
5,203,063
----------------
TECHNOLOGY - 19.6% +
60,000 American Power Conversion Corporation * 1,140,000
45,000 Atmel Corporation * 1,521,562
59,000 Cisco Systems, Inc. * 4,045,187
12,500 Hewlett-Packard Company 1,150,000
26,000 Intel Corporation 1,932,125
25,000 Lucent Technologies, Inc. 1,621,875
59,000 Novell, Inc. * 1,220,563
20,000 3Com Corporation * 575,000
----------------
13,206,312
----------------
SEE NOTES TO THE FINANCIAL STATEMENTS.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
TELECOMMUNICATIONS - 4.8% +
31,000 American Telephone and Telegraph Corporation $ 1,348,500
18,658 MCI WorldCom, Inc. * 1,341,044
10,500 SBC Communications, Inc. 536,156
----------------
3,225,700
----------------
TRAVEL & RECREATION - 4.1% +
41,000 Carnival Corporation 1,783,500
39,000 Walt Disney Company, The 1,009,125
----------------
2,792,625
----------------
TOTAL COMMON STOCKS (COST OF $40,010,879) 64,908,459
----------------
Principal
AMOUNT
--------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 4.5% +
--------------------------------------------------------------------------
COMMERCIAL PAPER - 4.5% +
Norfolk Southern Corporation
$ 1,000,000 5.500%, 10/04/99 999,542
2,000,000 5.500%, 10/18/99 1,994,805
----------------
2,994,347
----------------
TOTAL SHORT-TERM INVESTMENTS (COST OF $2,994,347) 2,994,347
----------------
TOTAL INVESTMENTS - 100.9% + (COST OF $43,005,226) $ 67,902,806
================
* NON-INCOME PRODUCING SECURITY.
+ CALCULATED AS A PERCENTAGE OF NET ASSETS.
# AT SEPTEMBER 30, 1999 THE FUND'S OPEN COVERED CALL
OPTION CONTRACTS WHICH ARE ACCOUNTED FOR AS A
LIABILITY ON THE STATEMENT OF ASSETS AND LIABILITIES
WERE AS FOLLOWS:
- ----------------------------------------------------------------------------------------------------------------------------
NUMBER OF
UNDERLYING SECURITY/EXPIRATION DATE/EXERCISE PRICE: CONTRACTS WRITTENVALUE
- ----------------------------------------------------------------------------------------------------------------------------
Banc One/October 1999/$40 100 $625
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO THE FINANCIAL STATEMENTS.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================================================
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 1999
BOND FUND
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRINCIPAL AMOUNT
OR SHARES VALUE
---------------------------------------------------------------------
LONG-TERM INVESTMENTS - 93.8% +
---------------------------------------------------------------------
---------------------------------------------------------------------
CORPORATE BONDS & NOTES - 25.0% +
---------------------------------------------------------------------
BANK & BANK HOLDING CO. - 4.4% +
First Union National Bank - North Carolina#
$ 3,190,000 6.180%, 02/15/36 $ 3,010,862
Wells Fargo
1,000,000 6.625%, 07/15/04 994,063
--------------
4,004,925
--------------
FINANCIAL SERVICES - 12.7% +
BHP Finance USA Ltd.#
1,395,000 6.420%, 03/01/26 1,361,015
Ford Capital B.V.
1,000,000 9.375%, 05/15/01 1,046,264
Ford Motor Credit Company
1,000,000 8.200%, 02/15/02 1,035,373
Lehman Brothers Holdings, Inc.
1,000,000 6.375%, 10/23/00 1,000,376
1,375,000 6.625%, 11/15/00 1,377,336
Merrill Lynch & Company
2,000,000 6.000%, 02/17/09 1,832,860
Reliastar Financial Corporation
1,608,000 7.125%, 03/01/03 1,626,757
St. Paul Companies, Inc.
1,000,000 7.370%, 08/20/07 1,019,040
Salomon, Inc.
1,450,000 6.250%, 05/15/03 1,423,487
--------------
11,722,508
--------------
FOOD, BEVERAGE & TOBACCO - 2.8% + Philip Morris
Companies, Inc.
1,400,000 7.125%, 10/01/04 1,399,105
Supervalu, Inc.
1,250,000 6.560%, 06/09/05 1,182,934
--------------
--------------
2,582,039
--------------
TRAVEL AND ENTERTAINMENT - 1.9% +
Hilton Hotels Corporation
1,750,000 7.700%, 07/15/02 1,745,898
--------------
UTILITIES - 3.2% +
American Telephone and Telegraph
1,500,000 5.625%, 03/15/04 ## 1,439,532
Western Resources, Inc.
1,500,000 6.875%, 08/01/04 1,487,805
--------------
2,927,337
--------------
TOTAL CORPORATE BONDS &
NOTES (Cost of $23,551,147) 22,982,707
--------------
SEE NOTES TO THE FINANCIAL STATEMENTS.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
---------------------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED
SECURITIES - 5.0% +
---------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 5.0% + Chemical
Mortgage Securities, Inc.
$1,127,000 Series 1994-1, Class A7, 6.250%, 01/25/09 ## $ 1,106,857
Countrywide Mortgage Backed Securities, Inc.
1,385,064 Series 1994-D, Class A9, 6.500%, 03/25/24 ## 1,338,481
DLJ Mortgage Acceptance Corporation
2,200,000 Series 1998-2, Class 2A10, 7.000%, 06/25/28 2,155,162
--------------
4,600,500
--------------
TOTAL NON- AGENCY MORTGAGE-BACKED
SECURITIES (Cost of $4,714,821) 4,600,500
--------------
---------------------------------------------------------------------
U.S. GOVERNMENT AGENCY AND
AGENCY-BACKED ISSUES - 53.3% +
---------------------------------------------------------------------
Federal Farm Credit Bank
2,000,000 6.370%, 10/30/07 1,968,938
1,000,000 7.000%, 07/19/06 990,605
--------------
--------------
2,959,543
--------------
Federal Home Loan Bank
1,500,000 6.000%, 05/08/03 1,477,976
1,000,000 6.000%, 07/21/03 982,242
2,500,000 5.946%, 05/24/04 2,461,825
2,000,000 6.645%, 08/02/04 1,999,004
1,250,000 6.150%, 10/14/04 1,235,757
1,750,000 6.120%, 08/26/08 1,657,273
1,390,000 5.755%, 11/20/08 1,285,799
--------------
11,099,876
--------------
Federal Home Loan Mortgage Corporation (FHLMC),
Participation Certificates
267,069 Pool #N97167, 7.500%, 12/01/03 270,120
1,000,000 Pool #G40376, 6.000%, 06/01/01 996,190
1,247,715 Pool #C90290, 7.000%, 08/01/19 1,237,018
--------------
--------------
2,503,328
--------------
Federal Home Loan Mortgage Corporation (FHLMC),
414,842 Adjustable Rate Mortgage, Pool #845864, 7.279%*, 07/01/24 427,153
--------------
Federal Home Loan Mortgage Corporation (FHLMC),
Real Estate Mortgage Investment Conduits (REMIC)
600,000 Series 1480, Class LE, 6.500%, 7/15/08 ## 579,465
2,000,000 Series 2078, Class Z, 6.000%, 1/15/09 ## 1,981,528
500,000 Series 24, Class VB, 6.500%, 7/25/10 ## 482,061
SEE NOTES TO THE FINANCIAL STATEMENTS.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Federal Home Loan Mortgage Corporation (FHLMC),
Real Estate Mortgage Investment Conduits (REMIC) (continued)
$1,500,000 Series 2102, Class TR, 6.000%, 10/15/11 ## $ 1,456,553
5,089 Series 1206, Class GC, 7.000%, 02/15/20 ## 5,079
1,000,000 Series 1466, Class PI, 7.000%, 08/15/20 ## 1,004,926
2,000,000 Series 16, Class M, 7.000%, 08/25/23 ## 1,975,860
--------------
7,485,472
--------------
Federal National Mortgage Association (FNMA),
Pass-Thru Certificates
1,099,115 Pool #432293, 6.000%, 06/01/13 1,057,961
2,303,444 Pool #424286, 6.500%, 06/01/13 2,265,279
2,173,050 Pool #303922, 6.000%, 05/01/16 2,071,808
1,299,356 Pool #323380, 6.500%, 10/01/28 1,247,612
172,879 Pool #211830, 7.000%, 04/01/23 174,099
--------------
6,816,759
--------------
Federal National Mortgage Association (FNMA),
Real Estate Mortgage Investment Conduits (REMIC)
500,000 Series 1993-134, Class L, 6.500%, 08/25/08 487,467
607,213 Series 1995-13B, Class B, 6.500%, 03/25/09 598,037
491,296 Series 1989-69, Class C, 7.600%, 10/25/19 498,431
787,681 Series G92-66, Class HB, 4.000%, 06/25/20 753,751
501,716 Series 1992-150, Class FV, 5.504%*, 05/25/21 500,239
585,354 Series 1992-125, Class J, 6.500%, 05/25/21 585,349
575,000 Series 1993-167, Class J, 6.750%, 12/25/22 558,443
2,100,000 Series 1993-38, Class V, 5.757%, 08/25/21 1,980,852
1,600,000 Series 1998-50, Class DN, 6.250%, 09/25/28 1,554,319
900,279 Series 1998-50, Class EN, 6.500%, 09/25/28 860,849
--------------
8,377,737
--------------
Government National Mortgage Association (GNMA),
58,255 Adjustable Rate Mortgages, Pool #859287, 6.625%*, 07/20/26 58,868
--------------
Structured Asset Mortgage Investments, Inc. (SAMII),
2,000,000 Series 1998-12, Class A2, 6.050%, 02/25/29 1,977,193
--------------
Student Loan Marketing Association (SLMA),
1,482,075 Series 1996-2, Class A1, 5.341%*, 10/25/04 ## 1,478,985
--------------
Tennessee Valley Authority
3,000,000 6.50%, 8/20/01 3,022,953
3,000,000 6.00%, 3/15/13 2,822,187
--------------
5,845,140
--------------
TOTAL U.S. GOVERNMENT AGENCY AND
AGENCY-BACKED ISSUES (Cost of $50,150,989) 49,030,054
--------------
SEE NOTES TO THE FINANCIAL STATEMENTS.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
---------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 10.5% +
---------------------------------------------------------------------
U.S. Treasury Notes
$5,000,000 6.50%, 08/15/05 $ 5,117,190
--------------
U.S. Treasury Bonds
2,000,000 10.750%, 05/15/03 2,311,876
1,800,000 11.625%, 11/15/04 2,238,750
--------------
4,550,626
--------------
TOTAL U.S. TREASURY OBLIGATIONS (Cost of $10,125,578) 9,667,816
--------------
TOTAL LONG-TERM INVESTMENTS
(COST OF $88,542,535) 86,281,077
--------------
---------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 8.1% +
---------------------------------------------------------------------
---------------------------------------------------------------------
COMMERCIAL PAPER - 7.0% +
---------------------------------------------------------------------
Norfolk Southern Corporation
1,000,000 5.520%, 10/13/99 998,160
--------------
Pegasus
2,000,000 5.460%, 11/01/99 1,990,597
1,000,000 5.520%, 10/27/99 996,013
1,500,000 5.440%, 10/18/99 1,496,147
--------------
--------------
4,482,757
--------------
Westways Funding II Ltd.
1,000,000 5.450%, 10/04/99 999,546
--------------
TOTAL COMMERCIAL PAPER (Cost of $6,480,463) 6,480,463
--------------
---------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES - 1.1% +
---------------------------------------------------------------------
613,589 General Mills, Inc., 4.985% * 613,589
121,188 Warner-Lambert Co., 5.023% * 121,187
9,737 Wisconsin Corporate Central Credit Union, 5.05% * 9,737
255,875 Wisconsin Electric Power Company, 5.0234% * 255,875
--------------
1,000,388
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST OF $7,480,851) 7,480,851
--------------
TOTAL INVESTMENTS - 101.9% + (COST OF $96,023,386) $ 93,761,928
==============
+ CALCULATED AS A PERCENTAGE OF NET ASSETS.
# PUTABLE.
## CALLABLE.
* VARIABLE RATE SECURITY. THE RATES LISTED ARE AS OF SEPTEMBER 30, 1999.
SEE NOTES TO THE FINANCIAL STATEMENTS.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
BREMER INVESTMENT FUNDS, INC.
================================================================================
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-1-
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. In
addition to the Funds, the Company offers the Legacy Minnesota Municipal Bond
Fund. This report contains the information of all portfolios, except for the
Legacy Minnesota Municipal Bond Fund. Information with respect to this
portfolio 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. 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.
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 Funds' 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 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 net taxable income and net realized 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.
Distributions of the Funds' 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 between income, expense and gain items
for financial statement 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 in the Growth Stock Fund to increase
accumulated net investment income by $2,956 and decrease
paid in capital by $2,956. Additionally, reclassifications were made
in the Bond Fund to increase accumulated net investment income by
$43,722, increase accumulated net realized losses on investments
by $40,766 and decrease paid in capital by $2,956.
f) USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
g) OTHER - Investment and shareholder transactions are recorded on trade
date. The Funds determine the gain or loss realized from the investment
transactions by comparing the original cost of the security lot sold with
the net sales proceeds. Dividend income is recognized on the ex-dividend
date or as soon as information is available to the Funds, and interest
income is recognized on an accrual basis. Generally accepted accounting
principles require that permanent financial reporting and tax differences
be reclassified to capital stock.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds for the year ended September 30, 1999,
were as follows:
GROWTH FUND BOND FUND
Shares sold 1,010,029 3,087,449
Shares issued to holders in
reinvestmentof dividends 771 11,219
Shares redeemed (1,143,764) (1,670,078)
------------ ----------
Net increase (decrease) (132,964) 1,428,590
============ =========
Transactions in shares of the Funds for the year ended September 30, 1998,
were as follows:
GROWTH FUND BOND FUND
Shares sold 720,961 1,982,703
Shares issued to holders in
reinvestment of dividends 174 3,541
Shares redeemed (603,553) (1,321,162)
Net increase 117,582 665,082
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments, excluding short-term
investments, by the Funds for the year ended September 30, 1999, were as
follows:
GROWTH FUND BOND FUND
Purchases
U.S. Government$ 0 $40,170,473
Other 10,778,695 17,950,680
Sales
U.S. Government 0 41,050,406
Other 14,252,449 6,969,179
During the year ended September 30, 1999, the Growth Stock Fund wrote the
following options:
Number of
CONTRACTS PREMIUM
Outstanding at
beginning of year 0 $ 0
Options written 100 10,301
--- ------
Outstanding at
end of year 100 $ 10,301
==== ================
At September 30, 1999, gross unrealized appreciation and depreciation of
investments for tax purposes were as follows:
GROWTH FUND BOND FUND
Appreciation $ 27,586,214 $ 205,856
(Depreciation) (2,678,958) (2,467,314)
Net appreciation
(depreciation)
on investments $ 24,907,256 $(2,261,458)
============== ==============
At September 30, 1999, the cost of investments for federal income tax
purposes was $43,005,226 and $96,023,386 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 Bremer
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 Funds' 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. On November 24, 1998, the Funds entered into an agreement
with Rafferty Capital Markets, Inc. to distribute the Funds' shares. The
currently approved rate is an annual rate of 0.01% of a 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 year ended
ended September 30, 1999, $5,285 and $6,584 was incurred pursuant to the
distribution agreement by the Growth Stock Fund and Bond Fund, respectively.
6. DISTRIBUTIONS
One-hundred percent of the dividends paid by the Growth Stock Fund during the
fiscal year-ended September 30, 1999, qualifies for the dividend received
deduction available to corporate shareholders.
7. RELATED PARTIES
Bremer Trust, N.A. clients and Bremer Trust, N.A. affiliated clients
held 4,241,874 and 9,323,783 outstanding shares of the Growth Stock Fund
and Bond Fund, respectively, 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 Bremer Growth Stock Fund and the Bremer Bond Fund:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Bremer Investment Funds, Inc. (a Maryland
corporation) Bremer Growth Stock Fund and the Bremer Bond Fund as of September
30, 1999, and the related statements of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and 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 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
Bremer Growth Stock Fund and Bremer Bond Fund as of September 30, 1999, and the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated, 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
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
