TAX FREE FUND OF VERMONT PRIVATE ~
FINANCIAL STATEMENTS
JUNE 30, 1999
UNAUDITED
To the Shareholders of June 30, 1998
Tax Free Fund of Vermont:
During the first six months of 1999, your Fund performed relatively well in
a very difficult period of both increasing uncertainty in the equity markets and
sharply rising interest rates on tax exempt bonds which decreased the value of
the bonds held in the Fund's portfolio. The Fund's performance was also modestly
enhanced by a continuing reduction in the expense ratio. These efforts were
recognized as investors increased the Fund's net assets from $9.5 million to
$9.8 million during the first half of 1999 despite the decrease in value in the
Fund's bond portfolio. The Fund's net asset value reflected the rise in interest
rates during this period, changing from $10.23 on December 31, 1998 to $9.96 on
June 30, 1999.
The Fund has maintained the diversity of its holdings and improved the
credit quality of the bonds in the Fund's investment grade portfolio. As of June
30, 1999, the Fund's portfolio included securities of 25 different tax-exempt
issuers. The credit quality of the Fund's portfolio as of June 30, 1999 includes
90% of the portfolio rated BAA or better.
The Fund paid dividends totalling 20.0 cents per share during the first six
months of 1998.
The Tax Free Fund of Vermont offers Vermont residents a no load tax free
mutual fund that earns income free of both federal and Vermont income taxes. We
encourage you to call us toll-free or visit our office to discuss any aspect of
the Fund's management or operation. In addition, your suggestions, comments and
advice are always welcomed. Thank you again for your confidence, investment in
and support of the Fund.
Yours truly,
John T. Pearson
President
Tax Free Fund of Vermont, Inc.
PORTFOLIO OF INVESTMENTS
June 30, 1999
Unaudited
<TABLE>
Municipal Bonds (97.6%)
Maturity Principal Market
Vermont (86.3%) Rate Date Amount Value
Vermont Educational and Health
Buildings Financing Agency
1991 Revenue Bond (FHA Insured)
<S> <C> <C> <C> <C>
(Helen Porter Nursing Home Project) 7.10% 02/01/31 $ 275,000 $288,062
1996 Revenue Bond
(St. Michaels College) 5.90% 04/01/11 150,000 162,000
1993 Revenue Bond
(Med Center Hospital) 6.00% 09/01/22 425,000 452,094
1996 Revenue Bond
(Middlebury College) 5.50% 11/01/16 160,000 161,800
1992 Revenue Bond
(Middlebury College) 6.00% 11/01/22 140,000 149,450
1996 Revenue Bond
(Middlebury College) 5.375% 11/01/26 100,000 98,375
1999 Revenue Bond
(Middlebury College) 5.00% 11/01/38 550,000 497,063
1993 Revenue Bond
(Norwich University) 6.00% 09/01/13 105,000 107,231
1998 Revenue Bond
(Norwich University) 5.50% 07/01/21 250,000 237,813
1994 Revenue Bond
(St. Johnsbury Academy) 7.15% 04/15/14 1,145,000 1,212,269
1994 Revenue Bond
(St. Johnsbury Academy) 7.375% 04/15/24 325,000 346,125
1993 Revenue Bond
(Champlain College) 6.00% 10/01/13 260,000 266,500
1990 Revenue Bond
(Trinity College) 8.00% 07/01/10 220,000 227,572
1994 Revenue Bond
(Landmark College) 7.15% 11/01/14 500,000 549,375
1996 Revenue Bond
(Lyndon Institute) 6.60% 12/01/14 335,000 352,588
1996 Revenue Bond
(Northwestern Medical Center) 6.25% 09/01/18 530,000 546,562
</TABLE>
See accompanying notes to financial statements
1
Tax Free Fund of Vermont, Inc.
PORTFOLIO OF INVESTMENTS
June 30, 1999
Unaudited
<TABLE>
<CAPTION>
Municipal Bonds - (Continued)
Maturity Principal Market
Rate Date Amount Value
Vermont Housing Finance Agency
Single Family Mortgage-Backed Bond
<S> <C> <C> <C> <C> <C> <C>
1990 Series 2 7.30% 05/01/25 150,000 155,437
1989 Series A 7.85% 12/01/29 230,000 234,313
1992 Series 4 6.40% 11/01/25 670,000 697,638
1994 Series 5 6.875% 11/01/16 100,000 105,125
1998 Series 1 5.25% 05/01/29 500,000 471,250
Vermont Housing Finance Agency
Multi-Family Mortgage-Backed Bond
1995 Series A 6.15% 02/15/14 100,000 105,375
1977 Series 1 6.50% 12/01/29 70,000 70,262
1999 Series A 5.125% 02/15/20 400,000 386,000
Vermont State Agricultural College
1998 Revenue Bond 5.25% 05/01/29 150,000 132,937
Vermont Student Assistance Corporation
1992 Series B 6.70% 12/15/12 395,000 423,144
Total Vermont Bonds 8,436,360
Puerto Rico (9.3%)
Commonwealth of Puerto Rico
1998 General Obligation Bond 5.00% 07/01/28 150,000 139,688
Puerto Rico Electric Power Authority
1998 Revenue Bond, Series EE 4.75% 07/01/24 250,000 222,812
1995 Revenue Bond, Series X 5.50% 07/01/25 100,000 101,125
Puerto Rico Industrial,
Medical and Environmental Authority
(Ryder Memorial Hospital Project) 6.60% 05/01/14 425,000 451,562
Total Puerto Rico Bonds 915,187
U. S. Virgin Islands (2.0%)
U. S. Virgin Islands Public Finance Authority
1998 Series A 5.50% 10/01/22 200,000 194,500
Total investments in securities
(Cost 9,618,854) (97.6%) (1) 9,546,047
Other assets and liabilities, net (2.4%) 233,451
Net Assets (100.0%) $9,779,498
(1) The cost of investments for federal income tax purposes amounted to
$9,618,854. Gross unrealized appreciation and depreciation of investments
based on identified tax cost at june 30, 1999 are as follows:
Gross unrealized appreciation $103,415
Gross unrealized depreciation (176,221)
Net unrealized depreciation $(72,806)
</TABLE>
See accompanying notes to financial statements
2
Tax Free Fund of Vermont, Inc.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
Unaudited
ASSETS
Investments in securities at market value
(identified cost $9,618,854) (Note 1-A) $9,546,047
Cash 24,398
Interest Receivable 140,448
Prepaid Expenses and Other Assets 67,078
Total assets 9,777,971
LIABILITIES
Accrued expenses (1,527)
Total liabilities (1,527)
NET ASSETS
(Applicable to 982,044 shares outstanding,
$.01 par value, 10,000,000 shares authorized) $9,779,498
NET ASSET VALUE, OFFERING AND REPURCHASE PRICE PER SHARE
($9,779,498 divided by 982,044) $9.96
NET ASSETS
At June 30, 1999, net assets consisted of:
Paid-in capital $9,776,395
Accumulated net realized loss on investments (35,798)
Unrealized depreciation of investments 38,901
$9,779,498
See accompanying notes to financial statements
3
Tax Free Fund of Vermont, Inc.
STATEMENT OF OPERATIONS
Six months ended June 30, 1999
Unaudited
INVESTMENT INCOME
Income
Interest $252,814
Expenses
Investment advisory fees (Note 4) 33,462
Audit and legal fees 6,168
Insurance 4,679
Printing and postage 6,377
Administrative and shareholder services (Note 4) 7,147
Custody fees 1,082
Portfolio pricing costs 1,337
Registration fees 1,150
Directors fees and expenses 2,726
Other 125
Total expenses 64,253
Net investment income 188,561
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments sold (35,798)
Net change in unrealized appreciation (228,324)
Net loss on investments (264,122)
Net decrease in net assets resulting from operations $ (75,561)
See accompanying notes to financial statements
4
Tax Free Fund of Vermont, Inc.
STATEMENTS OF CHANGES IN NET ASSETS
Six months ended June 30, 1999
Unaudited
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income $ 188,561
Net realized gain (loss) on investments (35,798)
Net change in unrealized appreciation (228,324)
Net increase in net assets resulting
from operations (75,561)
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income (188,561)
CAPITAL SHARE TRANSACTIONS (Note 3)
Increase in net assets resulting from
capital share transactions 504,508
Total increase in net assets 240,386
NET ASSETS
Beginning of period 9,539,112
End of period $9,779,498
See accompanying notes to financial statements
5
Tax Free Fund of Vermont, Inc.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
January 1, 1999 Year Ended
to December 31,
June 30, 1999 1998
NET ASSET VALUE
<S> <C> <C>
Beginning of period ........................................... $ 10.23 $ 10.29
Income from investment
operations
Net investment income ........................................... .20 .43
Net gain (loss)on securities
(both realized and unrealized) ................................ (.00) (.04)
Total from investment operations ................................ .20 .39
Less distributions
Dividends from net investment income ............................ (.20) (.43)
Realized gain on investments .................................... (.27) (.02)
End of period ..................................................... $ 9.96 $ 10.23
TOTAL RETURN ........................................................ (2.63)% 3.82%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(000's) ......................................................... $ 9,779 $ 9,539
Ratio of expenses to average
net assets ...................................................... 1.26%(1) 1.51%
Ratio of net investment income
to average net assets ........................................... 3.94%(1) 4.16%
PORTFOLIO TURNOVER .................................................. 28% 41%
</TABLE>
(1)Annualized
See accompanying notes to financial statements
6
Tax Free Fund of Vermont, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
Unaudited
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Tax Free Fund of Vermont, Inc. (the "Fund") was incorporated under the
laws of the State of Vermont on May 20, 1991. The Fund is registered under
the Investment Company Act of 1940, as amended, as a non-diversified
open-end investment company. The Fund's investment goal is to seek the
highest level of current income exempt from Federal and Vermont income
taxes for shareholders as is consistent with the prudent investment
management of the principal invested by shareholders.
The following is a summary of the significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles.
(A) SECURITY VALUATION
Portfolio securities are valued by an independent pricing service using
market quotations, prices provided by market makers, or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics, in accordance with procedures established in good
faith by the Board of Directors.
(B) SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on the trade date. Interest income
is accrued on a daily basis. Bond premiums and discounts are
amortized/accreted as required by the Internal Revenue Code.
(C) INCOME TAXES
It is the Fund's policy to qualify as a regulated investment company by
complying with the requirements of the Internal Revenue Code applicable to
regulated investment companies, including the distribution of all taxable
income to the Fund's shareholders. Therefore, no Federal income tax
provision is required. By qualifying as a "regulated investment company"
for Federal income tax purposes, the Fund is not subject to Vermont income
taxes on net income and net capital gains, if any, that are distributed to
the Fund's shareholders. Dividends paid by the Fund to share-holders which
qualify as "exempt interest dividends" for Federal income tax purposes are
also excludable from shareholders' gross income for Vermont state income
tax purposes so long as the total assets of the Fund are invested in
Vermont Municipal Bonds and Other Municipal Bonds as defined in the
prospectus. The Fund intends to avoid excise tax liability by making the
required distributions under the Internal Revenue Code.
Tax Free Fund of Vermont, Inc.
NOTES TO FINANCIAL STATEMENTS
(Continued)
June 30, 1999
Unaudited
(D) DISTRIBUTIONS TO SHAREHOLDERS
The Fund intends to declare daily and distribute monthly to its
shareholders dividends from net investment income and to declare and
distribute annually net realized long-term capital gains, if any. Each
distribution will be made in shares or, at the option of the shareholder,
in cash.
(E) USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affest the reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
(2) PURCHASES AND SALES OF SECURITIES
Realized gains and losses are recorded on the specific identification
method. Costs of purchases and proceeds from sales of securities for the
Fund for the six months ended June 30, 1999 aggregated $3,148,029 and
$2,617,974, respectively.
(3) CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the six months ended June 30, 1999
were as follows:
Shares Amount
Shares sold 113,161 $ 1,150,983
Shares issued in
reinvestment of
dividends 12,742 129,369
Shares redeemed (76,125) (775,844)
Net increase 49,778 $ 504,508
Tax Free Fund of Vermont, Inc.
NOTES TO FINANCIAL STATEMENTS
(Continued)
June 30, 1999
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
As compensation for its management services, the Fund has agreed to pay
Vermont Fund Advisors, Inc. (the "Advisor") a fee computed at the annual
rate of .7% (seven-tenths of 1 percent) of average daily net asset value
for total net assets up to $10 million and .6% (six-tenths of I percent)
for total net assets over $10 million. However, the Advisor may voluntarily
waive or refund investment advisory fees payable to it under the Advisory
Agreement and assume and pay or otherwise reimburse the Fund for other
operating expenses to whatever extent deemed necessary and appropriate.
There was no reimbursement made by the Advisor for the six months ended
June 30, 1999.
In addition, the Fund has entered into an Administrative Services Agreement
with the Advisor. The Agreement provides for a fee computed at a rate of
.08% (eight-one hundredths of 1 percent) on the average daily net asset
value of the Fund to be paid for administrative services received by the
Fund. For the six months ended June 30, 1999, administrative services fees
paid by the Fund totaled $3,824.
The president, director and sole shareholder of the Advisor also serves as
president and as a director of the Fund. Officers of the Fund receive no
compensation directly from the Fund. The directors of the Fund were paid
$3,000 in fees for the six months ended June 30, 1999.
(5) CONCENTRATION OF CREDIT RISK
The Fund invests a substantial portion of its investments in debt
obligations issued by the State of Vermont and its political sub-divisions,
agencies and public authorities to obtain funds for various public
purposes. The Fund is more susceptible to factors adversely affecting
issuers of Vermont municipal securities than is a fund that is not
concentrated in these issuers to the same extent.
