ANNUAL REPORT
================================================================================
LEGACY MINNESOTA MUNICIPAL
BOND FUND
================================================================================
September 30, 2000
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TABLE OF CONTENTS
Shareholder Letter . . . . . . . . . . . . . . . . . . . . . . . . .1
Cumulative Rate of Return Graph . . . . . . . . . . . . . . . . . . 2
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . 3
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Changes in Net Assets . . . . . . . . . . . . . . . . 5
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . .6
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . 7
Notes to the Financial Statements . . . . . . . . . . . . . . . . .13
Report of Independent Accountants . . . . . . . . . . . . . . . . .16
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NOTICE TO INVESTORS
Shares of the Fund 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
Fund involves investment risk, including possible loss of
principal, due to fluctuation in the Fund's net asset
value.
For more information about the Fund, please call
1-800-595-5552 to receive a Prospectus. Please read the
Prospectus carefully before investing or sending money.
November 29, 2000
Dear Shareholder:
The enclosed annual report contains detailed information on your Fund including
its performance, expenses and holdings.
During the past year your portfolio managers have completed their strategy of
reducing the number of bonds in the portfolio. That action resulted in reducing
the operating expenses of the Fund. Another strategy pursued by your managers
was to extend the average maturity of the portfolio while interest rates were
rising.
Given the strong economy, interest rates rose in the first half of the year. The
effect of those higher interest rates was to lower the price of the municipal
bonds and the Net Asset Value (NAV) of the Fund. In the early summer of 2000,
your managers decided to extend the duration of the portfolio and capture the
higher bond yields. Since that time, this strategy has added value as interest
rates have fallen and the Net Asset Value of the fund has recovered to $9.70.
Thus, for the year ended September 30, 2000, the Fund has achieved a total
return of 4.44% compared to 4.36% for the Lipper Minnesota Municipal Debt Fund
Index.
In the future, your managers will be looking for opportunities to enhance the
current yield of the portfolio without significantly reducing its high quality.
We believe that tax-exempt bonds offer an 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/Steven A. Laraway
Steven A. Laraway
President
Bremer Investment Funds, Inc.
4/12/99 6/30/99 9/30/99 12/31/99 3/31/00
Legacy Fund (No-Load) $10,000 $9,910 $9,904 $9,873 $10,048
Legacy Fund (Load-Adjusted
2.75%) $9,725 $9,637 $9,632 $9,602 $9,772
Lipper Minnesota Municipal
Debt Funds $10,000 $9,834 $9,713 $9,562 $9,803
6/30/00 9/30/00
$10,160 $10,345
$9,880 $10,060
$9,911 $10,137
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.
AVERAGE ANNUAL RATE OF RETURN (%)
--------------------------------------------
ONE YEAR ENDED SINCE INCEPTION* TO
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
--------------------------------------------
Legacy Fund (No-Load) 4.44% 2.32%
Legacy Fund (Load-Adjusted 2.75%) 1.62% 0.42%
Lipper Minnesota Municipal Debt Fund** 4.36% 0.93%
* APRIL 12, 1999.
** 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 7.6 YEARS.
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Legacy Minnesota Municipal Bond Fund
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STATEMENT OF ASSETS AND LIABILITIES
September 30, 2000
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ASSETS:
Investments, at market value
(Cost of $52,266,838) $51,686,641
Cash 233,745
Interest receivable 675,264
Other assets 589
-------------
Total assets 52,596,239
-------------
LIABILITIES:
Payable to Investment Adviser 23,821
Dividends payable 188,487
Accrued expenses and other liabilities 42,849
------------
Total liabilities 255,157
-------------
NET ASSETS $52,341,082
=============
NET ASSETS CONSIST OF:
Capital stock $53,178,753
Distributions in excess of book net investment income (292,925)
Accumulated net realized gain on investments 35,451
Net unrealized depreciation on investments (580,197)
----------
Total Net Assets $52,341,082
============
Shares outstanding
(50 million shares authorized, $ .0001
par value) 5,393,398
============
Net Asset Value and Redemption Price Per Share $9.70
============
Maximum Offering Price Per Share $9.97
============
SEE NOTES TO THE FINANCIAL STATEMENTS
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Legacy Minnesota Municipal Bond Fund
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STATEMENT OF OPERATIONS
Year Ended September 30, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income $ 2,595,398
-----------
EXPENSES:
Investment advisory fees 300,641
Administration fees 28,602
Shareholder servicing and accounting costs 66,932
Distribution fees 10,932
Custody fees 10,090
Federal and state registration 65
Professional fees 20,795
Reports to shareholders 11,267
Directors' fees and expenses 2,702
Other 1,085
---------
Total expenses 453,111
---------
NET INVESTMENT INCOME 2,142,287
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized loss on investments (549,985)
Change in unrealized appreciation (depreciation) on
investments 781,726
---------
Net realized and unrealized gain on investments 231,741
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 2,374,028
==========
SEE NOTES TO THE FINANCIAL STATEMENTS.
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Legacy Minnesota Municipal Bond Fund
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STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 12, 19991
Year ended through
September 30, 2000 September 30, 1999
--------------------- ----------------------
OPERATIONS:
<S> <C> <C>
Net investment income $ 2,142,287 $ 960,118
Net realized loss on investments (549,985) (186,076)
Change in unrealized appreciation (depreciation) on investments 781,726 (1,361,923)
-------------- ----------------------
Net increase (decrease) in net assets resulting from operations 2,374,028 (587,881)
-------------- ----------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (2,142,286) (960,118)
Distributions in excess of book net investment income (282,143) (180,525)
-------------- ----------------------
Total dividends and distributions (2,424,429) (1,140,643)
-------------- ----------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 6,043,531 5,409,540
Proceeds from trust fund conversion 58,062,480
-
Proceeds from shares issued to holders in reinvestment of
dividends 1,836 117
Cost of shares redeemed (10,874,733) (4,522,764)
-------------- ----------------------
Net increase (decrease) in net assets resulting from
capital share transactions (4,829,366) 58,949,373
-------------- ----------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (4,879,767) 57,220,849
-------------- ----------------------
NET ASSETS:
Beginning of period
57,220,849 -
-------------- ----------------------
End of period (including distributions in excess of book
net investment income of $292,925 and $163,386 respectively) $ 52,341,082 $ 57,220,849
============== ======================
(1) COMMENCEMENT OF OPERATIONS
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS.
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Legacy Minnesota Municipal Bond Fund
================================================================================
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 12, 1999 1
Year ended through
September 30, 2000 September 30, 1999
---------------------- -----------------------
PER SHARE DATA:
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.71 $10.00
---------------------- -----------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.40 0.16
Net realized and unrealized income (loss)
on investments 0.02 (0.26)
---------------------- -----------------------
Total from investment operations 0.42 (0.10)
---------------------- -----------------------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income (0.43) (0.16)
Distributions in excess of net investment income 0.00 (0.03)
---------------------- -----------------------
Total dividends and distributions (0.43) (0.19)
---------------------- -----------------------
NET ASSET VALUE, END OF PERIOD $9.70 $9.71
====================== =======================
TOTAL RETURN 4.44% (0.96)%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $52,341,082 $57,220,849
Ratio of net expenses to average net assets 0.83% 0.88% 3
Ratio of net investment income to average net assets 3.93% 3.53% 3
Portfolio turnover rate 22.30% 18.86%
(1) COMMENCEMENT OF OPERATIONS.
(2) NOT ANNUALIZED.
(3) ANNUALIZED.
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS.
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Legacy Minnesota Municipal Bond Fund
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SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2000
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PRINCIPAL
AMOUNT VALUE
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LONG TERM INVESTMENTS - 98.3%
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MUNICIPAL BONDS - 98.3%
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EDUCATION - 17.0%
Alexandria Minnesota Independent School District No. 206
$ 600,000 Series A, 6.100%, 02/01/05 $ 617,718
Alexandria Minnesota Independent School District No. 206
1,300,000 Series A, 5.375%, 02/01/13 1,318,356
Anoka Hennepin Minnesota Independent School District.
No. 11
1,000,000 Series A, 5.250%, 02/01/11 1,022,120
Minneapolis Minnesota Special School District No. 001
1,110,000 Series A, 5.900%, 02/01/12 1,156,631
Minneapolis Minnesota Special School District No. 001
1,100,000 5.000%, 02/01/12 1,088,681
Osseo Minnesota Independent School District No. 279
340,000 Series B, 4.700%, 02/01/05 340,241
Park Rapids Minnesota Independent School District No. 309
500,000 4.750%, 02/01/13 470,995
Prior Lake Minnesota Independent School District No. 719
1,000,000 5.500%, 02/01/15 1,015,960
Red Wing Minnesota Independent School District No. 256
600,000 Series A, 5.250%, 02/01/03 606,360
St. Paul Minnesota Independent School District No. 625
205,000 Series B, 6.000%, 02/01/05 211,472
White Bear Lake Minnesota Independent School District
No. 624
1,000,000 Series C, 5.700%, 02/01/06 1,033,170
---------
8,881,704
---------
EDUCATION (HIGHER) - 4.8%
Minnesota State Higher Education Facility Authority
250,000 Series 3-R2, 5.350%, 09/01/06 254,297
Minnesota State Higher Education Facility Authority
800,000 Series 3-R1, 5.350%, 10/01/06 814,000
Minnesota State Higher Education Facility Authority
500,000 Series 4-N, 5.300%, 11/01/12 501,735
Minnesota State Higher Education Facility Authority
720,000 Series 4-L, 5.350%, 10/01/17 683,784
Northfield Minnesota College Facility
225,000 6.150%, 10/01/05 234,797
---------
2,488,613
---------
SEE NOTES TO THE FINANCIAL STATEMENTS.
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Legacy Minnesota Municipal Bond Fund
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SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2000 (CONTINUED)
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PRINCIPAL
AMOUNT VALUE
ELECTRIC - 8.7%
Northern Municipal Power Agency Minnesota Electric
$ 500,000 Series A, 5.400%, 01/01/02 $ 505,580
Northern Municipal Power Agency Minnesota Electric
750,000 5.500%, 01/01/07 781,665
Northern Municipal Power Agency Minnesota Electric
1,000,000 5.400%, 01/01/26 991,710
Southern Minnesota Municipal Power Agency Power Supply
395,000 Series B, 5.800%, 01/01/07 409,809
Western Minnesota Municipal Power Agency
1,835,000 Series A, 5.500%, 01/01/11 1,888,894
---------
4,577,658
---------
HOSPITAL - 11.4%
Bloomington Minnesota Health Care Facility
500,000 5.450%, 07/01/03 510,790
Duluth Minnesota Economic Development Authority Health
Care Facilities
500,000 6.000%, 02/15/12 521,135
Minneapolis-St. Paul Minnesota Housing & Redevelopment
Health Care System
1,000,000 Series A, 5.000%, 11/15/06 1,008,920
Robbinsdale Minnesota Hospital
1,000,000 Series B, 5.300%, 05/15/07 1,020,000
Rochester Minnesota Health Care Facilities
1,145,000 Series I, 5.800%, 11/15/07 1,213,952
Saint Cloud Minnesota Hospital Facilities
900,000 Series A, 5.000%, 07/01/12 884,259
St. Paul Minnesota Housing & Redevelopment Authority
Hospital
800,000 5.300%, 05/15/06 817,992
---------
5,977,048
---------
HOUSING - 11.6%
Burnsville Minnesota Multi-Family Housing
40,000 5.375%, 07/01/04 40,941
Coon Rapids Minnesota Single Family Housing
60,000 5.700%, 09/01/04 62,356
Minneapolis Minnesota Multifamily Housing
90,000 6.750%, 10/01/01 91,850
Minnesota State Housing Agency
100,000 6.100%, 07/01/01 101,288
Minnesota State Housing Agency
100,000 6.200%, 07/01/02 102,375
Minnesota State Housing Agency
325,000 Series E, 5.250%, 08/01/02 329,261
Minnesota State Housing Agency
250,000 4.950%, 01/01/03 251,985
SEE NOTES TO THE FINANCIAL STATMENTS.
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Legacy Minnesota Municipal Bond Fund
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SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2000 (CONTINUED)
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PRINCIPAL
AMOUNT VALUE
HOUSING (CONTINUED) - 11.6%
Minnesota State Housing Agency
$ 175,000 5.200%, 07/01/03 $ 177,798
Minnesota State Housing Agency
200,000 Series C, 5.300%, 01/01/04 204,520
Minnesota State Housing Agency
240,000 Series D, 5.150%, 02/01/04 243,420
Minnesota State Housing Agency
300,000 Series C, 5.300%, 07/01/04 307,743
Minnesota State Housing Agency
245,000 Series F, 5.450%, 07/01/04 252,575
Minnesota State Housing Agency
245,000 Series F, 5.550%, 07/01/05 254,374
Minnesota State Housing Agency
135,000 Series A, 5.500%, 01/01/08 140,377
Minnesota State Housing Agency
325,000 Series A, 5.600%, 07/01/09 340,246
Minnesota State Housing Agency
600,000 Series B, 5.000%, 07/01/13 591,066
Minnesota State Housing Agency
595,000 6.000%, 01/01/16 611,440
Olmsted County Minnesota Housing & Redevelopment
200,000 7.000%, 02/01/13 201,664
St. Paul Minnesota Housing & Redevelopment Authority
500,000 5.100%, 09/01/03 507,525
St. Paul Minnesota Housing & Redevelopment Authority
650,000 Series J, 5.125%, 03/01/12 633,809
Washington County Minnesota Housing & Redevelopment
Authority
630,000 5.000%, 02/01/06 634,763
---------
6,081,376
---------
PUBLIC FACILITIES & IMPROVEMENTS - 29.2%
Bloomington Minnesota
500,000 5.500%, 02/01/08 514,865
Burnsville Minnesota
300,000 Series B, 5.800%, 02/01/01 301,440
Chaska Minnesota
1,000,000 4.100%, 12/01/08 942,060
Golden Valley Minnesota
670,000 Series C, 5.200%, 02/01/11 680,552
Hennepin County Minnesota
800,000 5.200%, 12/01/10 818,624
Hennepin County Minnesota
480,000 Series A, 5.000%, 12/01/11 481,882
SEE NOTES TO THE FINANCIAL STATEMENTS.
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Legacy Minnesota Municipal Bond Fund
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SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2000 (CONTINUED)
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PRINCIPAL
AMOUNT VALUE
PUBLIC FACILITIES & IMPROVEMENTS (CONTINUED) - 29.2%
Mankato Minnesota
$ 800,000 Series D, 6.050%, 02/01/05 $ 822,752
Metropolitan Council Minnesota Sports Facilities
500,000 6.000%, 10/01/09 521,240
Metropolitan Council Minnesota
600,000 Series A, 5.750%, 12/01/00 601,326
Metropolitan Council Minnesota
725,000 Series C, 5.400%, 02/01/13 732,670
Minneapolis Minnesota
805,000 5.000%, 12/01/06 821,615
Minneapolis Minnesota
500,000 6.250%, 10/01/07 521,325
Minneapolis Minnesota
600,000 4.700%, 12/01/08 597,954
Minneapolis Minnesota
250,000 5.750%, 09/01/10 254,543
Minneapolis Minnesota
200,000 6.250%, 04/01/12 207,618
Minneapolis Minnesota
500,000 Series D, 5.000%, 12/01/16 468,780
Minneapolis Minnesota Capital Appreciation
1,250,000 Series B, 0.000%, 12/01/08 836,800
Minnesota State
1,000,000 5.000%, 11/01/10 1,010,550
Minnesota State
1,300,000 4.850%, 08/01/12 1,274,702
Minnesota State
750,000 5.250%, 08/01/12 762,120
Plymouth Minnesota
420,000 7.000%, 04/01/12 420,756
Ramsey County Minnesota
500,000 Series C, 5.500%, 12/01/03 515,130
Sartell Minnesota
560,000 Series B, 5.000%, 02/01/09 566,479
St. Paul Minnesota
600,000 Series A, 5.000%, 02/01/01 601,344
---------
15,277,127
---------
TRANSPORTATION - 5.8%
Bloomington Minnesota Port Authority
500,000 Series A, 5.250%, 02/01/03 507,715
Bloomington Minnesota Port Authority
750,000 Series A, 4.750%, 02/01/11 732,015
SEE NOTES TO THE FINANCIAL STATEMENTS.
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Legacy Minnesota Municipal Bond Fund
================================================================================
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2000 (CONTINUED)
-------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
TRANSPORTATION (CONTINUED) - 5.8%
Bloomington Minnesota Port Authority
$ 400,000 Series A, 5.350%, 02/01/13 $ 404,860
Seaway Port Authority Duluth Minnesota
500,000 Series B, 6.800%, 05/01/12 522,930
St. Cloud Minnesota Infrastructure Management
880,000 Series 1999A, 4.800%, 03/01/08 877,254
---------
3,044,774
---------
WASTE DISPOSAL - 3.0%
Anoka County Minnesota Solid Waste Disposal
250,000 6.950%, 02/01/08 255,840
Hennepin County Minnesota Solid Waste Disposal
250,000 5.500%, 10/01/03 257,205
Hennepin County Minnesota Solid Waste Disposal
500,000 5.750%, 10/01/10 518,170
Wright County Minnesota Solid Waste Disposal
500,000 Series A, 5.400%, 12/01/06 514,950
---------
1,546,165
---------
WATER & SEWER - 6.8%
Metropolitan Counsil Minneapolis-St. Paul
Metropolitan Area Sewer
675,000 Series B, 4.850%, 12/01/11 664,112
Minnesota Public Facilities Authority Water
Pollution Control
500,000 Series A, 6.450%, 03/01/02 513,410
Minnesota Public Facilities Authority Water
Pollution Control
770,000 5.000%, 03/01/10 773,319
Minnesota Public Facilities Authority Water
Pollution Control
600,000 Series B, 5.350%, 03/01/12 607,266
Minnesota Public Facilities Authority Water
Pollution Control
1,000,000 Series B, 5.375%, 03/01/13 1,008,110
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3,566,217
----------
TOTAL MUNICIPAL BONDS
(Cost of $52,020,879) 51,440,682
-----------
TOTAL LONG TERM INVESMENTS
(COST OF $52,020,879) 51,440,682
-----------
SEE NOTES TO THE FINANCIAL STATEMENTS.
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Legacy Minnesota Municipal Bond Fund
================================================================================
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2000 (CONTINUED)
--------------------------------------------------------------------------------
SHARES VALUE
SHORT TERM INVESTMENTS - 0.5%
INVESTMENT COMPANIES - 0.5%
245,959 Federated Minnesota Municipal Money Market $ 245,959
----------
TOTAL INVESTMENT COMPANIES
(Cost of $245,959) 245,959
----------
TOTAL SHORT TERM INVESTMENTS
(COST OF $245,959) 245,959
----------
TOTAL INVESTMENTS - 98.8%
(COST OF $52,266,838) 51,686,641
-----------
Other assets in excess of liabilities - 1.2% 654,441
-----------
TOTAL NET ASSETS - 100.0% $ 52,341,082
============
SEE NOTES TO THE FINANCIAL STATEMENTS.
================================================================================
LEGACY MINNESOTA MUNICIPAL BOND FUND.
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2000
--------------------------------------------------------------------------------
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 were 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 accounting principles generally accepted in
the United States.
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 the 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, 2000,
reclassifications were recorded to increase accumulated net investment
losses by $152,604, increase accumulated net realized losses on
investments by $625,695 and decrease paid in capital by $778,299.
f) USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States
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. Accounting principles generally
accepted in the United States 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 year ended September 30, 2000,
were as follows:
Shares sold 629,815
Shares issued
to holders in
reinvestment of
dividends
191
Shares redeemed (1,132,301)
----------------
Net decrease (502,295)
================
Transactions in shares of the Fund for the period ended September 30, 1999,
were as follows:
Shares sold 550,747
Shares issues 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, 2000, were as
follows:
Purchases
U.S. Government $ -
Other 11,916,826
Sales
U.S. Government -
Other 16,287,875
At September 30, 2000, gross unrealized appreciation and depreciation of
investments for tax purposes were as follows:
Appreciation $ 1,186,659
Depreciation (840,637)
----------------
Net appreciation
on investments $ 346,022
================
At September 30, 2000, the cost of investments for federal income tax
purposes was $51,340,619.
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, 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,
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. On
November 24, 1998, the Fund entered into an agreement with Rafferty Capital
Markets, Inc. to distribute the Fund's shares. 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 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 year ended
September 30, 2000, $10,932 was incurred pursuant to the distribution
agreement.
6. RELATED PARTIES
Richfield Bank & Trust Co. and Bremer Trust, N.A. each had clients and
affiliated clients that held 3,819,340 and 1,562,896 outstanding shares,
respectively, of the Fund as of September 30, 2000.
--------------------------------------------------------------------------------
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 Legacy Minnesota Municipal Bond Fund (one
of the portfolios constituting the Bremer Investments Funds, Inc., a Maryland
corporation) as of September 30, 2000, and the related statement of operations,
statements of changes in net assets, and financial highlights for 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 auditing standards generally accepted
in the United States. 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, 2000, by correspondence
with the custodian and brokers. 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 the
Legacy Minnesota Municipal Bond Fund of the Bremer Investment Funds, Inc.
as of September 30, 2000, and the results of its operations, changes in its net
assets and financial highlights for the periods indicated, in conformity with
accounting principles generally accepted in the United States.
/s/Arthur Andersen LLP
----------------------
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
October 23, 2000
INVESTMENT ADVISER
Bremer Trust, N.A.
Cold Spring Center
4150 Second Street South
St. Cloud, Minnesota 56302-0986
SUB-ADVISER
Richfield Bank & Trust
6625 Lyndale Avenue South
Richfield, Minnesota 55423
ADMINISTRATOR, DIVIDEND PAYING AGENT,
SHAREHOLDERS' SERVICING AGENT
AND TRANSFER AGENT
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202
CUSTODIAN
Firstar Bank, N.A.
615 East Michigan Street
Milwaukee, Wisconsin 53202
COUNSEL
Briggs and Morgan
2400 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
DISTRIBUTOR
Rafferty Capital Markets, Inc.
1311 Mamaroneck Avenue
White Plains, New York 10605
DIRECTORS
Steven A. Laraway
Stan K. Dardis
John M. Bishop
John J. Feda
Barbara A. Grachek
