Semiannual Report, February 28, 1999
THE RUSHMORE FUND, INC.
4922 Fairmont Avenue, Bethesda, Maryland 20814
(800) 343-3355 (301) 657-1500
April 14, 1999
Dear Shareholder:
Increased volatility has characterized the performance of the U.S.
Government bond market since we wrote to you in our last annual
report. The yield of the benchmark thirty-year Treasury fell to as low
as 4.69% in October due to the absence of inflation as well as
financial turmoil in several international markets sending investors
to the safety of debt backed by the U.S. Government. After hitting
their lows, yields on longer maturity Treasuries began to move back up
before finally selling off substantially in February of this year,
ending the month with the thirty-year benchmark yielding 5.55%. The
sell-off in Treasuries was due largely to a stronger than anticipated
economy, buoyed by consumer and business capital spending.
As is usually the case, concern for inflation has been the root of the
volatility in the bond market. Yields decreased last year through
October as inflation was minimal and the financial problems being
experienced in several foreign economies such as Asia, Russia, and
South America were predicted to further keep a lid on inflation in our
country. The Federal Reserve chose to make two adjustments to the
Federal Funds rate, a 25 basis point reduction at both their October
and November Federal Open Market Committee meetings, in part to
address the credit concerns arising from the global financial crises.
As yields began to bounce off of their lows and drift back towards the
5% level, the U.S. economy remained relatively strong and during the
first two months of 1999 the yields were further pressured upward
following several inflationary economic reports (e.g., low
unemployment, higher P.P.I. figures, strong consumer demand). Once
again the fear of inflation entered into the market psychology and
yields on Treasury securities increased significantly from their lows
in October 1998.
Rushmore U.S. Government Bond Portfolio
The U.S. Government Bond Portfolio invests primarily in the ten- and
thirty-year Treasury issues, and had an average maturity of 19 years
as of February 28, 1999. Our objective is to provide high current
income as well as maintain safety of principal. For the six-month
period ending February 28, 1999, the total return of the portfolio was
(1.35)%.
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Outlook
Though the economy has remained strong, we think that the damage in
the bond market has been done and that yields will begin to trend back
down and prices back up as the year moves ahead. Just as the dramatic
drop in yields that occurred in October of last year was probably a
little overzealous, we believe the recent drop in bond prices may be a
bit overdone as well. As it stands now, we appear to be back to
waiting for each economic report to see what it tells us about the
state of our economy. The Federal Reserve has maintained a neutral
directive on interest rates, reflecting both sides of the inflation
equation. The sustained consumer demand and a continued strong equity
market among other factors have renewed the threat of inflation, while
financial problems abroad are still a threat to put a drag on our
economy in the coming months. These conflicting circumstances should
keep the Fed from making a move in either direction, and we don't
foresee any Fed intervention in the next several months.
Overall, we are still positive on the bond market, and look at the
recent backup in bond prices as an overreaction to both a market that
may have been a little ahead of itself as well as renewed inflation
fears.
We look forward to serving you as we move further into 1999, and as
always we thank you for your continued support.
Sincerely,
/s/ Daniel L. O'Connor /s/ Richard J. Garvey
Daniel L. O'Connor Richard J. Garvey
Chairman of the Board President
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<TABLE>
THE RUSHMORE FUND, INC.
U.S. Government Bond Portfolio
STATEMENT OF NET ASSETS
February 28, 1999
(unaudited)
<CAPTION>
Face Value
Amount (Note 1)
<S> <C> <C>
U.S. TREASURY OBLIGATIONS: 97.8%
U.S. Treasury Notes, 5.625%, 5/15/08 $ 3,800,000 $ 3,873,625
U.S. Treasury Notes, 4.750%, 11/15/08 3,500,000 3,360,000
U.S. Treasury Bonds, 7.625%, 2/15/25 3,550,000 4,414,205
U.S. Treasury Bonds, 6.875%, 8/15/25 4,000,000 4,577,500
U.S. Treasury Bonds, 6.125%, 11/15/27 1,000,000 1,049,688
--------------
Total U.S. Treasury Obligations (Cost $16,838,334) 17,275,018
--------------
REPURCHASE AGREEMENT: 1.6%
With Paine Webber dated 2/26/99 at 4.65% to be repurchased
at $281,964 on 3/1/99, collateralized by $277,368 in U.S.
Treasury Notes, due 12/31/99 (Cost $281,927) 281,927
--------------
Total Investments: 99.4% (Cost $17,120,261) 17,556,945
Other Assets less Liabilities: 0.6% 101,341
--------------
Net Assets: 100.0% $ 17,658,286
==============
Net Asset Value Per Share (Based on 1,623,311 Shares Outstanding) $10.88
==============
Net Assets Consist of:
Paid-in-Capital $ 17,126,773
Accumulated Net Realized Gain on Investments 94,829
Net Unrealized Appreciation of Investments 436,684
--------------
Net Assets $ 17,658,286
==============
Income Tax Information:
At February 28, 1999, the cost of the investment securities for Federal
income tax purposes was $17,120,261. Net unrealized appreciation was
$436,684 of which $700,392 related to appreciated investment securities
and $263,708 related to depreciated investment securities.
At August 31, 1998, the Fund had a capital loss carry forward of $587,312
of which $93,489, $233,727 and $260,096 expire on August 31, 2001, 2002
and 2005, respectively.
See Notes to Financial Statements.
</TABLE>
3
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<TABLE>
THE RUSHMORE FUND, INC.
U.S. Government Bond Portfolio
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended February 28, 1999
(unaudited)
<S> <C>
Interest Income (Note 1) .............................. $ 530,622
-------------
Expenses
Investment Advisory Fee (Note 2) .................. 51,332
Administrative Fee (Note 2) ....................... 30,807
-------------
Total Expenses ................................ 82,139
-------------
Net Investment Income ................................. 448,483
-------------
Net Realized Gain on Investment Transactions .......... 682,141
Change in Net Unrealized Appreciation of Investments .. (1,206,161)
-------------
Net Loss on Investments ............................... (524,020)
-------------
Net Decrease in Net Assets Resulting from Operations .. $ (75,537)
=============
See Notes to Financial Statements.
</TABLE>
4
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<TABLE>
THE RUSHMORE FUND, INC.
U.S. Government Bond Portfolio
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six
Months Ended For the Year
February 28, 1999 Ended
(unaudited) August 31, 1998
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net Investment Income........................................................ $ 448,483 $ 882,665
Net Realized Gain on Investment Transactions................................. 682,141 160,475
Change in Net Unrealized Appreciation/Depreciation of Investments ........... (1,206,161) 2,107,472
------------- -------------
Net Increase (Decrease) in Net Assets Resulting from Operations............ (75,537) 3,150,612
------------- -------------
Distributions to Shareholders
From Net Investment Income................................................... (448,483) (882,665)
------------- -------------
Share Transactions
Net Proceeds from Sales of Shares............................................ 33,362,987 33,728,661
Reinvestment of Distributions................................................ 404,197 748,179
Cost of Shares Redeemed...................................................... (42,845,066) (24,696,560)
------------- -------------
Net Increase (Decrease) in Net Assets Resulting from Share Transactions.... (9,077,882) 9,780,280
------------- -------------
Total Increase (Decrease) in Net Assets.................................... (9,601,902) 12,048,227
Net Assets -- Beginning of Period.............................................. 27,260,188 15,211,961
------------- -------------
Net Assets -- End of Period.................................................... $ 17,658,286 $ 27,260,188
============= =============
Shares
Sold......................................................................... 2,900,460 3,128,125
Issued in Reinvestment of Distributions...................................... 35,270 69,888
Redeemed..................................................................... (3,731,012) (2,313,568)
------------- -------------
Net Increase (Decrease) in Shares.......................................... (795,282) 884,445
============= =============
See Notes to Financial Statements.
</TABLE>
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<TABLE>
THE RUSHMORE FUND, INC.
U.S. Government Bond Portfolio
FINANCIAL HIGHLIGHTS
<CAPTION>
For the Six
Months Ended
February 28,
1999 For the Years Ended August 31,
(unaudited) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value -- Beginning of Period .............. $ 11.27 $ 9.92 $ 9.39 $ 9.89 $ 9.08 $ 11.55
-------- --------- --------- -------- -------- --------
Income from Investment Operations
Net Investment Income ............................ 0.25 0.53 0.55 0.56 0.61 0.60
Net Realized and Unrealized Gain (Loss)
on Investments ................................. (0.39) 1.35 0.55 (0.50) 0.81 (1.88)
-------- --------- --------- -------- -------- --------
Total from Investment Operations ............... (0.14) 1.88 1.10 0.06 1.42 (1.28)
-------- --------- --------- -------- -------- --------
Distributions to Shareholders
From Net Investment Income ....................... (0.25) (0.53) (0.55) (0.56) (0.61) (0.60)
From Net Realized Gain ........................... 0.00 0.00 (0.02) 0.00 0.00 (0.59)
-------- --------- --------- -------- -------- --------
Total Distributions............................. (0.25) (0.53) (0.57) (0.56) (0.61) (1.19)
-------- --------- --------- -------- -------- --------
Net Increase (Decrease) in Net Asset Value .......... (0.39) 1.35 0.53 (0.50) 0.81 (2.47)
-------- --------- --------- -------- -------- --------
Net Asset Value -- End of Period .................... $ 10.88 $ 11.27 $ 9.92 $ 9.39 $ 9.89 $ 9.08
======== ========= ========= ======== ======== ========
Total Investment Return ............................... (1.35%)(A) 19.35% 11.94% 0.41% 16.35% (10.29%)
Ratios to Average Net Assets
Expenses ............................................ 0.80% (B) 0.80% 0.80% 0.80% 0.80% 0.80%
Net Investment Income ............................... 4.33% (B) 4.98% 5.60% 5.59% 6.75% 5.97%
Supplementary Data
Portfolio Turnover Rate ............................. 39% 49% 19% 95% 63% 188%
Net Assets at End of Period (in thousands) .......... $17,658 $27,260 $15,212 $21,424 $16,391 $29,276
Number of Shares Outstanding at End of
Period (in thousands) ............................. 1,623 2,419 1,534 2,281 1,658 3,225
A Total Investment Return for periods of less than one year are not annualized.
B Annualized
See Notes to Financial Statements.
</TABLE>
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<PAGE>
THE RUSHMORE FUND, INC.
U.S. Government Bond Portfolio
NOTES TO FINANCIAL STATEMENTS
February 28, 1999
(unaudited)
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 one portfolio, the U.S. Government Bond Portfolio. On February 28,
1999, 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 gain and loss 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. 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 Funds assets and pays the
operating expenses of the Fund. For these services, Rushmore Trust
receives an annual fee of 0.30% of the average daily net assets of the
Fund.
3. SECURITIES TRANSACTIONS
For the six months ended February 28, 1999, purchases of securities,
excluding short-term securities, were $7,792,500 and sales (including
maturities) of securities were $15,027,000.
7
