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Previous: TAX FREE FUND OF VERMONT INC, NSAR-A, EX-99.A9, 2000-09-05 |
Next: TAX FREE FUND OF VERMONT INC, N-30D, EX-27, 2000-09-05 |
TAX FREE FUND OF VERMONT, INC.
June 30, 2000
Dear Shareholders,
During much of the first half of 2000, the Federal Reserve continued to raise interest rates in an effort to maintain low levels of inflation. Until May 2000, the municipal bond market was out of favor with investors and yields suffered. In this environment, the Fund produced a total return of 3.02% for the first six months of the year, an improvement over the negative 3.38% realized for the year ended December 31, 1999.
The Fund's net asset value per share increased from $9.48 at January 1, 2000 to $9.58 at June 30, 2000. This was due to a combination of factors, including a more favorable interest rate climate beginning in May. This favorable movement in interest rates resulted in an improvement in bond values that lifted bond market values.
Although a shift in demand that was apparent for most of 1999 moderated in the early part of 2000, investors continued to pursue equity and other investment alternatives. As a result, the net assets of the fund declined by 8.8%, from $8, 659,527 to $7,901,048. This erosion of net assets is similar to that being experienced by other U.S. municipal bond funds.
The Fund's expense ratio for the first six months of 2000 was 1.53% compared to 1.48% for the entire year of 1999. We continue to strive to lower this ratio through a combination of expense control and a renewed emphasis on marketing, which will allow us to benefit from leverage of our fixed costs.
Most experts feel that the Federal Reserve is near the end of its current monetary policy effort. If so, interest rates should be near a peak, which would be favorable for the bond market and the value of the assets in the Tax Free Fund of Vermont.
We appreciate your continued support. Please feel free to share your thoughts with us about how we might improve our service to you.
William Hahn
President
TAX FREE FUND OF VERMONT, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS
Investments in securities at market value
(identified cost $7,936,199) (Note 1-A) $ 7,733,685
Cash 8,107
Interest receivable 126,422
Prepaid expenses and other assets 48,161
----------
Total assets 7,916,375
----------
LIABILITIES
Payable for capital stock redeemed 15,000
Accrued expenses 327
----------
Total liabilities 15,327
----------
NET ASSETS
(Applicable to 824,555 shares outstanding,
$.01 par value, 10,000,000 shares authorized) $ 7,901,048
==========
NET ASSET VALUE, OFFERING AND REPURCHASE PRICE PER SHARE
($7,901,048 divided by 824,555) $9.58
====
NET ASSETS
At June 30, 2000 net assets consisted of:
Paid-in capital $ 8,280,490
Accumulated net realized loss on investments (176,928)
Unrealized depreciation of investments (202,514)
----------
$ 7,901,048
==========
TAX FREE FUND OF VERMONT, INC.
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000 (Unaudited)
INVESTMENT INCOME
Income
Interest $ 219,534
----------
Expenses
Investment advisory fees (Note 4) 28,386
Printing, supplies, and postage 6,197
Audit and professional fees 6,486
Insurance 4,126
Administrative and shareholder services (Note 4) 5,650
Portfolio pricing costs 1,654
Custody fees 1,280
Registration fees 746
Directors fees and expenses 3,090
Depreciation 4,550
Other 125
----------
Total expenses 62,290
----------
Net investment income 157,244
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized losses on investments sold (88,608)
Net change in unrealized appreciation (depreciation) 177,118
----------
Net gain on investments 88,510
----------
Net increase in net assets resulting from operations $ 245,754
==========
TAX FREE FUND OF VERMONT, INC.
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended June 30, 2000 and
Year Ended December 31, 1999 (Unaudited)
2000 1999
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income $ 157,244 $ 364,827
Net realized gain (loss) on investments (88,608) (88,320)
Net change in unrealized
appreciation (depreciation) 177,118 (599,482)
----------- ----------
Net increase (decrease) in net assets
resulting from operations 245,754 (322,975)
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income (157,244) (364,827)
Realized gains on investments --- (28,283)
----------- ----------
Total distributions to shareholders (157,244) (393,110)
CAPITAL SHARE TRANSACTIONS (Note 3)
Increase (decrease) in net assets resulting
from capital share transactions (846,989) (163,500)
----------- ----------
Total increase (decrease) in net assets (758,479) (879,595)
NET ASSETS
Beginning of period 8,659,527 9,539,112
----------- ----------
End of period $ 7,901,048 $ 8,659,527
=========== ==========
TAX FREE FUND OF VERMONT, INC.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period, Unaudited)
January 1, 2000 For the Years Ended December 31,
to 1999 1998 1997 1996
June 30, 2000 -------------------------------
NET ASSET VALUE
Beginning of year $ 9.48 $10.23 $10.29 $ 9.97 $ 9.96
----- ----- ----- ----- -----
Income from investment operations
Net investment income .18 .39 .43 .43 .43
Net gain (loss) on securities
(both realized and unrealized) .10 (.72) (.04) .32 .01
---- ----- ----- ---- ----
Total from investment operations .28 (.33) .39 .75 .44
---- ----- ----- ---- ----
Less distributions from
Net investment income (.18) (.39) (.43) (.43) (.43)
Realized gains on investments (.00) (.03) (.02) --- ---
---- ----- ----- ---- ----
Total distributions (.18) (.42) (.45) (.43) (.43)
---- ----- ----- ---- ----
End of year $ 9.58 $ 9.48 $10.23 $10.29 $ 9.97
===== ===== ===== ===== =====
TOTAL RETURN 3.02% (3.38)% 7.74% 4.56% 12.65%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of year (000's) $7,901 $8,660 $9,539 $7,879 $7,219
Ratio of
Expenses to average net assets 1.53%(1) 1.48% 1.51% 1.72% 1.55%
Net investment income to
average net assets 3.86%(1) 3.88% 4.16% 4.26% 4.41%
Portfolio Turnover 12% 50% 41% 60% 98%
(1) Annualized
TAX FREE FUND OF VERMONT, INC.
PORTFOLIO OF INVESTMENTS
June 30, 2000 (Unaudited)
Municipal Bonds (97.88%)
Maturity Principal Market
Vermont (91.86%) Rate Date Amount Value
Vermont General Obligation
1995 Municipal Bond Bank 5.5% 12/01/22 $ 100,000 $ 96,875
Vermont Educational and
Health Buildings Financing Agency
1991 Revenue Bond (FHA Insured)
(Helen Porter Nursing Home Project) 7.10% 02/01/31 275,000 284,515
1993 Revenue Bond
(Medical Center Hospital) 6.00% 09/01/22 375,000 377,812
1999 Revenue Bond
(Middlebury College Project) 5.00% 11/01/38 580,000 495,900
1993 Revenue Bond
(Norwich University Project) 6.00% 09/01/13 105,000 106,050
1998 Revenue Bond
(Norwich University Project) 5.50% 07/01/21 550,000 501,188
1994 Revenue Bond
(St. Johnsbury Academy Project) 7.15% 04/15/14 1,145,000 1,183,644
1994 Revenue Bond
(St. Johnsbury Academy Project) 7.375% 04/15/24 325,000 337,594
1993 Revenue Bond
(Champlain College Project) 6.00% 10/01/13 270,000 273,375
1994 Revenue Bond
(Landmark College Project) 7.15% 11/01/14 500,000 535,000
1996 Revenue Bond
(Lyndon Institute) 6.60% 12/01/14 335,000 349,238
1996 Revenue Bond
(Northwestern Medical Center) 6.25% 09/01/18 430,000 382,700
1991 Revenue Bond
(Vermont Law School) 8.15% 01/01/11 50,000 51,364
Vermont State Agricultural College
1998 Revenue Bond 4.75% 10/01/29 110,000 91,162
Vermont Housing Finance Agency
Single Family Mortgage-Backed Bond
1989 Series A 7.85% 12/01/29 230,000 232,875
1994 Series 5 6.875% 11/01/16 95,000 98,800
1999 Series 1 5.25% 05/01/29 450,000 394,875
2000 Series 12 6.30% 11/01/31 250,000 252,812
Vermont Housing Finance Agency
Multi-Family Mortgage-Backed Bond
1995 Series A 6.15% 02/15/14 100,000 102,750
1999 Series A 5.125% 02/15/20 400,000 367,000
Vermont Economic Development Authority
Wake Robin 6.00% 03/01/22 150,000 144,562
Wake Robin 6.30% 03/01/33 600,000 597,750
---------
Total Vermont Bonds 7,257,841
---------
Puerto Rico (6.02%)
Puerto Rico Industrial, Building
Medical & Environmental Authority
1993 Revenue Bond
(Public Building Authority) 5.75% 07/01/16 200,000 203,250
1994 Revenue Bond
(Ryder Memorial Hospital Project) 6.60% 05/01/14 275,000 272,594
---------
Total Puerto Rico Bonds 475,844
---------
Total investments in securities
(Cost $7,936,199) (97.88) (1) 7,733,685
Other assets and liabilities,
net (2.12%) 167,363
---------
Net assets (100%) $7,901,048
=========
(1) The cost of investments for federal income tax purposes amounted to $8,030,080. Gross unrealized appreciation and depreciation of investments based on identified tax cost at June 30, 2000 are as follows:
Gross unrealized appreciation $ 57,207
Gross unrealized depreciation (259,721)
---------
Net unrealized depreciation $ (202,514)
=========
TAX FREE FUND OF VERMONT, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (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. Realized gains and losses are recorded on the specific identification method. 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 shareholders 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.
(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. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatment of post-October capital losses. 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 affect 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
Costs of purchases and proceeds from sales of securities for the Fund for the six months ended June 30, 2000 aggregated $931,808 and $1,726,225, respectively.
(3) CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the six months ended June 30, 2000 and the year ended December 31, 1999 were as follows:
2000 1999
-------------------- --------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 17,403 $ 163,873 140,629 $1,418,617
Shares issued in
reinvestment of dividends 11,808 111,776 27,637 273,576
Shares redeemed (118,266) (1,122,638) (186,921) (1,855,693)
------- --------- ------- ---------
Net increase (decrease) (89,055) $ (846,989) (18,655) $ (163,500)
======= ========= ======= =========
(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. This fee is reduced to .6% of average daily 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, 2000.
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, 2000, administrative services fees paid by the Fund totaled $3,198.
A director and shareholder of the Advisor also serves as president and as a director of the Fund. Officers of the Fund and interested directors receive no compensation directly from the Fund.
On July 1, 2000, Independent Fund Advisors of Vermont, Inc. became the investment advisor, replacing Vermont Fund Advisors, Inc. The change was approved by shareholders at the annual meeting held June 20, 2000.
(5) CONCENTRATION OF CREDIT RISK
(6) ANNUAL SHAREHOLDERS MEETINGThe Fund invests a substantial proportion 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.
At the annual shareholders' meeting held June 20, 2000, shareholders approved the following by the votes indicated:
Election of Directors: For Against Abstain
Stephen Anthony Carbine 517,752 none 45,783
Winfred Thomas 517,752 none 45,783
William Hahn 517,752 none 45,783
Election of Independent Fund Advisors of Vermont, Inc. as advisor for the Fund:
For Against Abstain
Votes Cast 517,752 none 45,783
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