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THE RUSHMORE FUND, INC.
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Annual Report
August 31, 1996
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ANNUAL REPORT, August 31, 1996
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<TABLE>
<S> <C>
THE RUSHMORE FUND, INC.
4922 FAIRMONT AVENUE, BETHESDA, MARYLAND 20814
(800) 343-3355 (301) 657-1500
</TABLE>
Dear Shareholder:
On December 22, 1995, the majority of the shareholders of the Rushmore
U.S. Government Intermediate-Term Securities Portfolio approved the
Intermediate-Term Portfolio's merger into the Rushmore U.S. Government Long-Term
Securities Portfolio effective December 31, 1995. The resulting Portfolio was
renamed the Rushmore U.S. Government Bond Portfolio. The U.S. Government Bond
Portfolio invests in ten-year Treasury notes and thirty-year Treasury bonds. The
objective is to provide high current income while maintaining safety of
principal. For the year ended August 31, 1996, the Portfolio posted a total
return of 0.41%. During the same period, the Lehman Brothers U.S. Government
Long-Term Treasury Bond Index's total return was 1.46%. The average maturity of
the Portfolio as of August 31, 1996 was 26.8 years.
The Federal Reserve has left rates unchanged since January 1996 when it
cut Federal Funds by 25 basis points. Since then, the economy has grown nicely.
As we move into the third quarter it appears the economy has quite a bit of
momentum, with consumer spending up, factory orders strong, and wage pressures
building, consumers are optimistic. Indeed, fresh economic data shows healthy
consumer and factory sectors.
Given the strength in the recent data we believe that it is only a
matter of time before the Federal Reserve raises the Federal Funds' rate a
quarter of a point.
Thank you for your continued support.
Sincerely,
[SIG] [SIG]
Daniel L. O'Connor Richard J. Garvey
Chairman of the Board President
September 9, 1996
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THE RUSHMORE FUND, INC.
U.S. GOVERNMENT BOND PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
------------- -------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 96.76%
U.S. Treasury Notes, 5.875%, 11/15/05............................. $ 2,100,000 $ 1,951,030
U.S. Treasury Bonds, 8.00%, 11/15/21.............................. 100,000 108,125
U.S. Treasury Bonds, 7.50%, 11/15/24.............................. 3,900,000 4,020,654
U.S. Treasury Bonds, 7.625%, 2/15/25.............................. 4,050,000 4,241,107
U.S. Treasury Bonds, 6.875%, 8/15/25.............................. 10,850,000 10,409,219
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Total U.S. Treasury Obligations (Cost $22,553,049)................ 20,730,135
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REPURCHASE AGREEMENTS -- 2.75%
With PaineWebber at 5.18%, dated 8/30/96, due 9/3/96,
collateralized
by U.S. Treasury Notes, due 11/30/96 (Cost $589,940)............ 589,940
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TOTAL INVESTMENTS -- 99.51% (COST $23,142,989*)................... 21,320,075
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OTHER ASSETS LESS LIABILITIES -- 0.49%............................ 103,827
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NET ASSETS (NOTE 7) -- 100.00%.................................... $ 21,423,902
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NET ASSET VALUE PER SHARE (BASED ON 2,280,728 SHARES
OUTSTANDING).................................................... $9.39
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-------------
</TABLE>
*Same cost is used for Federal income tax purposes.
See Notes to Financial Statements.
2
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THE RUSHMORE FUND, INC.
U.S. GOVERNMENT BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 1)....................................... $ 1,631,057
------------
EXPENSES
Investment Advisory Fee (Note 2)............................... 127,595
Administrative Fee (Note 2).................................... 76,557
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Total Expenses............................................... 204,152
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NET INVESTMENT INCOME............................................ 1,426,905
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Net Realized Gain on Investment Transactions..................... 1,147,575
Net Change in Unrealized Appreciation (Depreciation) of
Investments.................................................... (2,989,249)
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NET LOSS ON INVESTMENTS.......................................... (1,841,674)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $ (414,769)
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------------
</TABLE>
See Notes to Financial Statements.
3
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THE RUSHMORE FUND, INC.
U.S. GOVERNMENT BOND PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED AUGUST 31,
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net Investment Income........................... $ 1,426,905 $ 1,814,519
Net Realized Gain (Loss) on Investment
Transactions.................................. 1,147,575 (162,740)
Net Change in Unrealized Appreciation
(Depreciation) of Investments................. (2,989,249) 1,939,775
------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations................... (414,769) 3,591,554
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income...................... (1,421,749) (1,814,519)
From Net Realized Gain on Investments........... -- --
------------ ------------
Total Distributions to Shareholders........... (1,421,749) (1,814,519)
------------ ------------
FROM SHARE TRANSACTIONS
Proceeds from Sales of Shares................... 27,184,950 24,815,509
Net Assets Acquired in Connection with
Acquisition of the Rushmore U.S. Government
Intermediate-Term Securities Portfolio (Note
4)............................................ 12,773,496 --
Reinvestment of Distributions................... 1,242,904 1,657,955
Cost of Shares Redeemed......................... (34,331,636) (41,136,186)
------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Share Transactions........... 6,869,714 (14,662,722)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........ 5,033,196 (12,885,687)
NET ASSETS -- Beginning of Year................... 16,390,706 29,276,393
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NET ASSETS -- End of Year......................... $21,423,902 $16,390,706
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SHARES
Sold............................................ 2,724,777 2,729,920
Issued in Connection with Acquisition of the
Rushmore U.S. Government Intermediate-Term
Securities Portfolio (Note 4)................. 1,182,595 --
Issued in Reinvestment of Distributions......... 124,401 183,562
Redeemed........................................ (3,408,891) (4,480,768)
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Net Increase (Decrease) in Shares............. 622,882 (1,567,286)
------------ ------------
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</TABLE>
See Notes to Financial Statements.
4
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THE RUSHMORE FUND, INC.
U.S. GOVERNMENT BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED AUGUST 31,
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value -- Beginning of Year........... $ 9.89 $ 9.08 $ 11.55 $ 10.62 $ 9.97
---------- ---------- ---------- ---------- ----------
Income from Investment Operations:
Net Investment Income........................ 0.563 0.606 0.599 0.650 0.697
Net Realized and Unrealized Gains (Losses) on
Securities................................. (0.502) 0.810 (1.880) 1.304 0.649
---------- ---------- ---------- ---------- ----------
Total from Investment Operations........... 0.061 1.416 (1.281) 1.954 1.346
---------- ---------- ---------- ---------- ----------
Distributions to Shareholders:
From Net Investment Income................... (0.561) (0.606) (0.602) (0.650) (0.696)
From Net Realized Capital Gains.............. -- -- (0.583) (0.374) --
---------- ---------- ---------- ---------- ----------
Total Distributions to Shareholders........ (0.561) (0.606) (1.185) (1.024) (0.696)
---------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in Net Asset Value..... (0.50) 0.81 (2.47) 0.93 0.65
---------- ---------- ---------- ---------- ----------
Net Asset Value -- End of Year................. $ 9.39 $ 9.89 $ 9.08 $ 11.55 $ 10.62
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL INVESTMENT RETURN.......................... 0.41% 16.35% (10.29)% 20.92% 13.97%
RATIOS TO AVERAGE NET ASSETS:
Expenses....................................... 0.80% 0.80% 0.80% 0.80% 0.80%
Net Investment Income.......................... 5.59% 6.75% 5.97% 6.08% 6.80%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate........................ 95.0% 63.3% 188.3% 173.6% 298.0%
Net Assets at End of Year (000's omitted)...... $21,424 $16,391 $29,276 $24,094 $22,803
Number of Shares Outstanding at End of Year
(000's omitted).............................. 2,281 1,658 3,225 2,085 2,148
</TABLE>
See Notes to Financial Statements.
5
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THE RUSHMORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
The Rushmore Fund, Inc. (the "Fund") is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 as an open-end,
diversified investment company. The Fund currently consists of two separate
portfolios each with its own investment objectives and policies. These financial
statements report on one of the two portfolios: U.S. Government Bond Portfolio.
On August 31, 1996, there were 1,000,000,000 shares of $0.001 par value capital
stock authorized. The financial statements have been prepared in conformity with
generally accepted accounting principles which permit management to make certain
estimates and assumptions at the date of the financial statements. The following
is a summary of significant accounting policies which the Fund consistently
follows:
(a) Securities of the U.S. Government Bond Portfolio are valued on the
basis of the average of quoted bid and ask prices when market
quotations are available. If market quotations are not readily
available, the Board of Directors will value the portfolio's
securities in good faith.
(b) Security transactions are recorded on the trade date (the date the
order to buy or sell is executed). Interest income is accrued on a
daily basis. Realized gains and losses from security transactions
are computed on an identified cost basis.
(c) Net investment income is computed and dividends are declared daily in
the U.S. Government Bond Portfolio. Income dividends in this
portfolio are paid monthly. Dividends are reinvested in additional
shares unless shareholders request payment in cash. Capital gains,
if any, are distributed annually.
(d) The Fund complies with the provisions of the Internal Revenue Code
applicable to regulated investment companies and distributes all net
investment income to its shareholders. Therefore, no Federal income
tax provision is required.
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Investment advisory and management services are provided by Money Management
Associates, ("the Adviser"). Under an agreement with the Adviser, the Fund pays
a fee for such services at an annual rate of 0.50% of the average daily net
assets of the U.S. Government Bond Portfolio. Certain Officers and Directors of
the Fund are affiliated with the Adviser.
Rushmore Trust and Savings, FSB ("Rushmore Trust"), a majority-owned subsidiary
of the Adviser, provides transfer agency, dividend-disbursing and shareholder
services to the Fund. In addition, Rushmore Trust serves as custodian of the
Fund's assets and pays the operating expenses of the Fund.
6
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For these services, Rushmore Trust receives an annual fee of 0.30% of the
average daily net assets of the U.S. Government Bond Portfolio.
3. SECURITIES TRANSACTIONS
For the year ended August 31, 1996, purchases of securities were $29,103,622 and
sales (including maturities) of securities were $21,965,766. These totals
exclude short-term securities.
4. MERGER
On December 31, 1995, the Rushmore U.S. Government Long-Term Securities
Portfolio acquired all the net assets of the Rushmore U.S. Government
Intermediate-Term Securities Portfolio; pursuant to a plan of reorganization
approved by the Rushmore U.S. Government Intermediate-Term Securities Portfolio
shareholders on December 22, 1995. The acquisition was accomplished by a
tax-free exchange of 1,182,595 shares of Rushmore U.S. Government Long-Term
Securities Portfolio (valued at $12,773,496) for 1,291,408 shares of Rushmore
U.S. Government Intermediate-Term Securities Portfolio, outstanding on December
31, 1995. The transferred Portfolio's net assets at that date were $12,773,496,
including $962,905 of unrealized appreciation and $979,097 of accumulated loss
carryforwards, which combined with those of the Rushmore U.S. Government
Long-Term Securities Portfolio.
The aggregate net assets of the Portfolios immediately before and after the
acquisition were as follows:
<TABLE>
<CAPTION>
Before After
Acquisition Acquisition
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<S> <C> <C>
Rushmore U.S. Government Long-Term Securities
Portfolio.............................................. $ 20,483,071 $ 33,256,567
Rushmore U.S. Government Intermediate-Term Securities
Portfolio.............................................. $ 12,773,496 --
</TABLE>
Immediately following the Reorganization, the Rushmore U.S. Government Long-Term
Securities Portfolio was renamed "The Rushmore U.S. Government Bond Portfolio."
5. REORGANIZATION
On May 31, 1996, Fund for Government Investors acquired all the net assets of
the Rushmore Money Market Portfolio ("Portfolio") of the Fund pursuant to a plan
of reorganization approved by the Portfolio's shareholders on May 24, 1996. The
acquistion was accomplished by a tax-free exchange of 21,852,849 shares (valued
at $1 per share) of Fund for Government Investors for 21,852,849 shares of the
Portfolio, outstanding on May 31, 1996. The transferred Porfolio's net assets at
that date were $21,852,849, consisting solely of capital stock.
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6. NET UNREALIZED APPRECIATION/DEPRECIATION OF INVESTMENTS
As of August 31, 1996, net depreciation of investments for Federal income tax
purposes was $1,822,914, of which $253,597 related to appreciated investments
and $2,076,511 related to depreciated investments. At August 31, 1996, the cost
of the Fund's securities for Federal income tax purposes was $23,142,989.
7. NET ASSETS
At August 31, 1996, net assets consisted of the following:
<TABLE>
<S> <C>
Paid-in-Capital......................................................... $ 23,698,217
Undistributed Net Investment Income..................................... 5,156
Accumulated Net Realized Loss on Investments............................ (456,557)
Net Unrealized Depreciation on Investments.............................. (1,822,914)
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NET ASSETS.............................................................. $ 21,423,902
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</TABLE>
8. CAPITAL LOSS CARRYOVERS
Permanent differences between tax and financial reporting of net investment
income and realized gains/(losses) are reclassified to paid-in-capital. As of
August 31, 1996, realized losses of $692 were reclassified to paid-in-capital.
At August 31, 1996, for Federal income tax purposes, the U.S. Government Bond
Portfolio had capital loss carryovers which may be applied against future net
taxable realized gains of each succeeding year until the earlier of its
utilization or its expiration as follows:
<TABLE>
<CAPTION>
Expires August 31,
- ------------------------------------------------------------------
<S> <C>
2001.............................................................. $ 253,963
2002.............................................................. 233,727
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$ 487,690
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</TABLE>
8
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INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
of The Rushmore Fund, Inc.:
We have audited the statement of net assets of the U.S. Government Bond
Portfolio (one of the Portfolios) of The Rushmore Fund, Inc. as of August 31,
1996, and the related statements of operations and changes in net assets and the
financial highlights for the periods presented. These financial statements and
financial highlights are the responsibility of the Fund'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 from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at August
31, 1996 by correspondence with the custodian and broker. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the U.S. Government
Bond Portfolio (one of the Portfolios) of The Rushmore Fund, Inc. at August 31,
1996, the results of its operations, the changes in its net assets and the
financial highlights for the presented periods in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
October 11, 1996
9
