<PAGE>
DEAR SHAREHOLDER:
We are pleased to enclose the annual report on the operations of ND Tax-Free
Fund, Inc. for the year ended December 31, 1996. The municipal bond portfolio
and related financial statements are presented within for your review.
Municipal bond prices began the year with a slight upward bias and then declined
in the February-March-April time frame. Federal Reserve monetary policy became
less accommodative in response to the growth picture in the American economy.
Bond prices then moved higher during the second half of 1996, except for late
December, when a correction took place.
Shares in the Fund increased during the period from $9.09 to $9.19. During part
of the period the Fund utilized a partial hedge to maintain share price
stability. Futures contracts in U.S. Treasury Bonds and Municipal Bonds were
employed. Hedging provided share price stability as interest rates increased
and bond prices declined.
The adviser has invested primarily in high-grade North Dakota tax-exempt
bonds(see next page). Management intends to maintain the portfolio quality
while diversifying throughout the State. The adviser has been able to select
suitable investments from numerous offerings in both the primary and secondary
municipal bond markets. Reasonable income and preservation of capital remain as
the chief objectives of the Fund.
We invite your personal calls and visits.
Sincerely,
Robert E. Walstad
President
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1996
<TABLE>
<CAPTION>
NAME OF ISSUER (UNAUDITED)
Percentages represent the market value of each RATING COUPON PRINCIPAL MARKET
investment category to total net assets MOODY'S/S&P RATE MATURITY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NORTH DAKOTA MUNICIPAL BONDS (97.23%)
FINANCIAL (7.02%)
ND Municipal Bond Bank A1/NR 6.300% 10/01/15 $ 530,000 $ 566,427
ND Municipal Bond Bank A1/NR 6.250 10/01/14 4,325,000 4,589,128
ND Building Auth. Lease Rev. A/A 5.500 08/15/14 1,300,000 1,278,134
-------------
$ 6,433,689
-------------
HEALTH CARE (20.49%)
Bismarck (St. Vincent Nurs. Home) Hlth. Rev. NR/NR 8.500% 06/01/09 $ 175,000 $ 184,040
Bismarck (Marillac Manor II) Ret. Facs. Rev. NR/NR 8.625 02/01/10 675,000 723,148
Bismarck (Marillac Manor) Ret. Facs. Rev. NR/NR 7.700 02/01/16 250,000 276,313
Burleigh Cty. (St. Vincent Nurs. Home) Rev. NR/NR 7.000 06/01/19 500,000 556,335
Burleigh Cty. (Missouri Slope Ctr.) Rev. Ref. NR/NR 7.000 11/01/07 500,000 537,795
Burleigh Cty. (Missouri Slope Care Fdn.) Rev. Ref. NR/NR 7.250 06/01/12 500,000 539,825
Carrington, Catholic Health Corp. (Ctr.) Rev. A1/A+ 6.250 11/15/15 500,000 529,485
Cass Cty. (St. Lukes Hosp.) Facs. Rev. NR/A+ 7.500 06/01/06 300,000 313,215
Devils Lake (Lake Region Luth. Home) Rev. NR/NR 6.500 10/01/13 250,000 262,955
Devils Lake (Catholic Health Corp.) Rev. A1/A+ 6.250 11/15/07 1,125,000 1,202,715
Dickinson, Catholic Health Corp. (St. Josephs) Rev. A1/A+ 7.200 06/01/14 1,015,000 1,057,528
Dickinson (BHS L/T Care) Hlth. Care Facs. Rev. A1/NR 7.625 02/15/20 1,210,000 1,321,453
Dickinson (BHS L/T Care) Hlth. Care Facs. Rev. A1/NR 7.500 02/15/10 600,000 646,782
Fargo (St. Lukes Hosp.) Facs. Ref. Rev. NR/A+ 6.500 06/01/15 4,000,000 4,243,440
Hazen (Sakakawea Med. Ctr.) Hlth. Care Facs. Rev. NR/NR 6.750 05/01/16 500,000 516,190
Jamestown (Heritage Center) Cong. Hsg. Rev. NR/NR 8.500 09/01/06 200,000 221,054
Lisbon (Parkside Luth. Home) Nurs. Home Rev. NR/NR 7.500 06/01/12 500,000 529,755
Ward Cty. (St. Joseph's Hosp.) Rev. NR/BBB- 7.500 11/01/15 1,000,000 1,103,660
Ward Cty. (St. Joseph's Hosp.) Rev. NR/BBB- 7.250 11/01/06 1,000,000 1,090,430
Ward Cty. (St. Joseph's Hosp.) Rev. NR/BBB- 7.250 11/01/06 1,000,000 1,090,430
Ward Cty. (St. Joseph's Hosp.) Rev. NR/BBB- 7.500 11/01/15 1,450,000 1,600,307
Ward Cty. (St. Joseph's Hosp.) Rev. NR/BBB- 8.875 11/15/24 200,000 224,900
-------------
$ 18,771,755
-------------
HOUSING (25.63%)
Grand Forks Hsg. Auth. (Ryan Hse.) Multifam. Ref. Aa/NR 6.300% 03/01/22 $ 500,000 $ 515,230
Morton Cty. Hsg. Auth. Multifam. Hsg. Rev. NR/NR 6.750 03/01/21 500,000 493,405
North Dakota (HFA) Single Family Mortgage Program Aa/A+ 7.375 07/01/17 535,000 551,125
North Dakota (HFA) Single Family Mortgage Program Aa/A+ 7.850 07/01/01 240,000 255,451
North Dakota (HFA) Single Family Mortgage Program Aa/A+ 8.000 07/01/13 285,000 306,087
North Dakota (HFA) Single Family Mortgage Program Aa/A+ 7.900 07/01/10 160,000 172,224
North Dakota (HFA) Single Family Mortgage Program Aa/A+ 8.050 01/01/24 850,000 907,401
North Dakota (HFA) Single Family Mortgage Program Aa/A+ 7.750 07/01/24 765,000 813,241
North Dakota (HFA) Single Family Mortgage Program Aa/A+ 7.250 07/01/10 325,000 346,229
North Dakota (HFA) Single Family Mortgage Program Aa/A+ 7.300 07/01/24 1,255,000 1,331,103
North Dakota (HFA) Single Family Mortgage Program Aa/A+ 7.000 07/01/23 1,275,000 1,363,357
North Dakota (HFA) Single Family Mortgage Program Aa/A+ 6.800 07/01/23 2,965,000 3,115,059
North Dakota (HFA) Single Family Mortgage Program Aa/A+ 6.700 07/01/13 395,000 413,336
North Dakota (HFA) Single Family Mortgage Program Aa/A+ 6.800 07/01/25 1,540,000 1,608,314
North Dakota (HFA) Single Family Mortgage Program Aa/A+ 5.950 07/01/25 3,190,000 3,105,752
North Dakota (HFA) Single Family Mortgage Program Aa/A+ 6.950 07/01/25 1,995,000 2,116,855
North Dakota (HFA) Finance Program Aa/NR 6.750 07/01/25 3,385,000 3,572,698
North Dakota (HFA) Finance Program Aa/NR 6.300 01/01/15 950,000 971,613
North Dakota (HFA) Finance Program Aa/NR 6.250 07/01/15 165,000 167,079
North Dakota (HFA) Home Mortgage Program Aa/NR 6.300 07/01/16 500,000 515,065
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
North Dakota (HFA) Housing Finance Program Aa/NR 6.400 01/01/28 300,000 308,205
North Dakota (HFA) Home Mortgage Program Aa/NR 6.150 07/01/27 535,000 532,031
-------------
$ 23,480,860
-------------
POLLUTION CONTROL (1.77%)
Mercer Cty. (Basin Electric) PCR A/A 7.000% 01/01/19 $ 990,000 $ 1,070,022
Mercer Cty. (Ottertail Power) PCR Ref. Aa3/AA- 6.900 02/01/19 500,000 550,865
-------------
$ 1,620,887
-------------
REAL ESTATE (8.16%)
Burleigh Cty. (Univ. of Mary) Facs. Rev. NR/NR 5.750% 12/01/11 $1,000,000 $ 986,480
Burleigh Cty. (Univ. of Mary) Facs. Rev. NR/NR 5.875 12/01/15 1,000,000 984,140
Fargo, Park District (Golf Course) Rev. NR/NR 7.300 11/01/06 130,000 141,112
Fargo, Park District (Golf Course) Rev. NR/NR 7.350 11/01/07 110,000 119,488
Fargo, Park District (Golf Course) Rev. NR/NR 7.250 11/01/10 190,000 207,735
Grand Forks Regional Airport Authority Rev. A/NR 7.500 10/01/09 225,000 237,008
Grand Forks Regional Airport Authority Rev. A/NR 7.500 10/01/10 240,000 252,809
Grand Forks (Cirrus Proj.) Sales Tax Rev. A1/NR 5.900 05/01/17 695,000 692,408
Jamestown (College) Facility Rev. NR/NR 6.625 10/01/14 800,000 845,264
ND St. Brd. of Hgr. Ed. (MSU) Student Svcs. Ref. NR/NR 6.750 08/01/05 755,000 805,464
ND St. Brd. of Hgr. Ed. (MSU) Student Svcs. Ref. NR/NR 5.500 08/01/13 400,000 398,124
University of ND (G.F.) Lease Financing COP A/A- 7.300 09/01/10 1,425,000 1,549,801
Wahpeton (Town Centre. Sqr.) Multifam. Hsg. Ref. NR/NR 8.500 02/01/14 250,000 256,497
-------------
$ 7,476,330
-------------
INSURED/GUARANTEED (34.17%)
*Bismarck (MedCenter One) Ref. & Imp. (BIGI) Aaa/AAA 7.500% 05/01/13 $1,500,000 $ 1,637,550
Bismarck (St. Alexius Med. Ctr.) Ref. (AMBAC) Aaa/AAA 6.900 05/01/06 400,000 439,868
Central Cass Cty., PSD#17 GO Sch. Bldg. (MBIA) Aaa/AAA 6.500 05/01/13 430,000 472,342
Central Cass Cty., PSD#17 GO Sch. Bldg. (MBIA) Aaa/AAA 6.500 05/01/14 460,000 506,883
Grand Forks (United Hosp.) Facs. Rev. (MBIA) Aaa/AAA 6.625 12/01/10 830,000 908,219
Grand Forks (United Hosp.) Facs. Rev. (MBIA) Aaa/AAA 6.500 12/01/06 750,000 819,038
Grand Forks (United Hosp.) Facs. Rev. (MBIA) Aaa/AAA 6.250 12/01/19 1,000,000 1,065,170
*Grand Forks (United Hosp.) Facs. Rev. (MBIA) Aaa/AAA 6.450 12/01/23 1,525,000 1,648,357
Mercer Cty. (Mont.-Dak. Utilities) PCR (FGIC) Aaa/AAA 6.650 06/01/22 7,000,000 7,682,220
Mercer Cty. (NW Public Service) PCR Ref. (MBIA) Aaa/AAA 5.850 06/01/23 4,600,000 4,665,458
Mercer Cty. (Basin Electric) PCR (AMBAC) Aaa/AAA 6.050 01/01/19 4,350,000 4,519,998
Morton Cty. (Mont.-Dak. Utilities) PCR (FGIC) Aaa/AAA 6.650 06/01/22 600,000 658,476
ND (HFA) Multifam. Ref. (FNMA guaranteed) Aaa/AAA 6.200 12/01/20 825,000 843,876
ND Building Auth. Ref. Lease Rev. (AMBAC) Aaa/AAA 6.000 06/01/10 1,700,000 1,819,731
ND Building Auth. Lease Rev. (CGIC) Aaa/AAA 6.000 12/01/13 500,000 527,565
*North Dakota Student Loan Rev. (AMBAC) Aaa/AAA 7.750 07/01/02 1,060,000 1,121,840
North Dakota Student Loan Rev. (AMBAC) Aaa/AAA 6.300 07/01/12 100,000 102,870
North Dakota Student Loan Rev. (AMBAC) Aaa/AAA 6.350 07/01/13 250,000 257,555
North Dakota Student Loan Rev. (AMBAC) Aaa/AAA 6.400 07/01/14 400,000 412,136
University of ND (G.F.) Hsg. & Aux. Rev. (AMBAC) Aaa/AAA 7.850 04/01/14 340,000 364,324
Valley City, Western Hlth. Care Fac. Rev. (BIGI) Aaa/AAA 7.625 01/01/19 200,000 210,720
Williston Cath. Hlth. Corp. (Mercy Hosp.) (MBIA) Aaa/AAA 7.200 06/01/14 600,000 627,126
-------------
$ 31,311,322
-------------
TOTAL NORTH DAKOTA MUNICIPAL BONDS (COST:$85,491,002) $ 89,094,843
SHORT-TERM SECURITIES (0.91%)
Goldman Sachs Institutional Liquid Assets Tax-Exempt Diversified Portfolio (COST: $833,431) 833,431
-------------
TOTAL INVESTMENTS IN SECURITIES (COST: $86,324,433) $ 89,928,274
=============
</TABLE>
*Indicates bonds are segregated by the custodian to cover when-issued or
delayed-delivery purchases.
The accompanying notes are an integral part of these financial statements.
<PAGE>
FINANCIAL STATEMENTS December 31, 1996
STATEMENT OF ASSETS AND LIABILITIES December 31, 1996
- -----------------------------------------------------
<TABLE>
ASSETS
<S> <C>
Investments in securities, at
value (cost:$86,324,433) $ 89,928,274
Accrued dividends receivable 2,074
Accrued interest receivable 1,585,433
Security sales receivable 1,186,244
Variation margin on futures 564,802
---------------
Total Assets $ 93,266,827
---------------
LIABILITIES
Bank overdraft $ 79,588
Dividends payable 412,992
Accrued expenses 97,854
Security purchases payable 1,045,250
---------------
Total Liabilities $ 1,635,684
---------------
NET ASSETS $ 91,631,143
===============
Net asset value per share,
9,970,201 shares outstanding $ 9.19
===============
</TABLE>
STATEMENT OF OPERATIONS for the year ended December 31, 1996
- ------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $ 5,640,796
Dividends 59,137
---------------
Total Investment Income $ 5,699,933
---------------
EXPENSES
Investment advisory fees $ 560,900
Distribution fees (12b-1) 303,489
Custodian fees 13,643
Transfer agent fees 100,497
Accounting service fees 66,183
Audit and legal fees 7,250
Directors fees 15,837
Insurance 3,082
Printing and postage 13,424
License, fees, and registrations 7,911
---------------
Total expenses $ 1,092,216
Less expenses waived or absorbed
by the Fund's manager 40,861
---------------
Total Net Expenses $ 1,051,355
---------------
NET INVESTMENT INCOME $ 4,648,578
---------------
</TABLE>
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES
Net realized gain (loss) from:
<PAGE>
<TABLE>
<S> <C>
Investment transactions $ 516,310
Futures transactions 2,626,302
Net change in unrealized
appreciation (depreciation) of:
Investments (1,699,565)
Futures (100,169)
---------------
Net Realized and Unrealized
Gain (Loss) On Investments And
Futures $ 1,342,878
---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 5,991,456
===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FINANCIAL STATEMENTS December 31, 1996
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
- -----------------------------------------------
<TABLE>
<CAPTION>
For The Year For the Year
Ended Ended
December 31, 1996 December 31,1995
------------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 4,648,578 $ 4,961,588
Net realized gain (loss) on investments and futures 3,142,612 (4,107,844)
Net unrealized appreciation (depreciation) on investments and futures (1,799,734) 7,035,220
---------------------------------------------
Net Increase (Decrease) in Net Assets Resulting From Operations $ 5,991,456 $ 7,888,964
---------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (4,648,578) $ (4,961,588)
Distributions in excess of net investment income (303,489) (229,423)
Distributions from net realized gain on investment transactions 0 0
---------------------------------------------
Total Dividends and Distributions $ (4,952,067) $ (5,191,011)
---------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares $ 3,336,320 $ 5,471,316
Proceeds from reinvested dividends 3,190,615 3,322,041
Cost of shares redeemed (10,466,886) (8,824,914)
---------------------------------------------
Net Increase (Decrease) in Net Assets Resulting From
Capital Share Transactions $ (3,939,951) $ (31,557)
---------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS $ (2,900,562) $ 2,666,396
NET ASSETS, BEGINNING OF PERIOD 94,531,705 91,865,309
---------------------------------------------
NET ASSETS, END OF PERIOD $ 91,631,143 $ 94,531,705
=============================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS December 31, 1996)
Note 1. ORGANIZATION
ND Tax-Free Fund, Inc. (the Fund) is registered under the Investment
Company Act of 1940 as a non-diversified, open-end management investment
company. The Fund incorporated under the laws of the State of North
Dakota on October 7, 1988, and commenced operations on January 3, 1989.
The Fund's objective is to provide as high a level of current income
exempt from federal and North Dakota income taxes as is consistent with
preservation of capital. The Fund will seek to achieve this by investing
primarily in a portfolio of North Dakota tax-exempt securities.
Shares of the Fund are offered with no initial sales charge. Shares may
be subject to a contingent deferred sales charge, if those shares are
redeemed within five years of purchase.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT SECURITY VALUATION - Investments in securities traded on
national securities exchanges are valued at the last reported sales
price at the close of each business day. Securities for which market
quotations are not readily available are valued at fair value as
determined in good faith by the portfolio management team. The Fund
follows industry practice and records security transactions on the trade
date.
The Fund concentrates its investments in a single state. This
concentration may result in the Fund investing a relatively high
percentage of its assets in a limited number of issuers.
FEDERAL AND STATE INCOME TAXES - The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies, and to distribute all of its net
investment income and any net realized gain on investments, to its
shareholders. Therefore, no provision for income taxes is required.
DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income,
declared daily and payable monthly, are reinvested in additional shares
of the Fund at net asset value or payable in cash. Capital gains, when
available, are distributed along with the last income dividend of the
calendar year.
INVESTMENT INCOME - Dividend income is recognized on the ex-dividend
date and interest income is recognized daily on an accrual basis.
Premiums and discounts on securities purchased are amortized using the
effective interest method over the life of the respective securities,
unless callable, in which case they are amortized to the earliest call
date.
FUTURES CONTRACTS - The Fund may purchase and sell financial futures
contracts to hedge against changes in the values of tax-exempt municipal
securities the Fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell
units of a particular index or a certain amount of U.S. Government or
municipal securities at a set price on a future date. Upon entering into
a futures contract, the Fund is required to deposit with a
<PAGE>
broker an amount of cash or securities equal to the minimum "initial
margin" requirement of the futures exchange on which the contract is
traded. Subsequent payments ("variation margin") are made or received by
the Fund, dependent on the fluctuations in the value of the underlying
index. Daily fluctuations in value are recorded for financial reporting
purposes as unrealized gains or losses by the Fund. When entering into a
closing transaction, the Fund will realize, for book purposes, a gain or
loss equal to the difference between the value of the futures contracts
sold and the futures contracts to buy. Unrealized appreciation
(depreciation) related to open futures contracts is required to be
treated as realized gain (loss) for Federal income tax purposes.
Certain risks may arise upon entering into futures contracts. These
risks may include changes in the value of the futures contracts that may
not directly correlate with changes in the value of the underlying
securities.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles 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.
Note 3. SHARE TRANSACTIONS
As of December 31, 1996, there were 100,000,000 shares of $.001 par
authorized; 9,970,201 and 10,402,491 were outstanding at December 31,
1996 and December 31, 1995, respectively.
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Shares Amount
------ ------
For The Year Ended For the Year Ended For The Year Ended For the Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1996 Dec. 31, 1995
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 366,454 605,360 $ 3,336,320 $ 5,471,316
Shares issued on
reinvestment of dividends 349,952 368,749 3,190,615 3,322,041
Shares redeemed (1,148,695) (980,165) (10,466,886) (8,824,914)
-------------------------------------------------------------------------------------------------------
Net increase (decrease) (432,289) (6,056) $ (3,939,951) $ (31,557)
=======================================================================================================
</TABLE>
Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
ND Money Management, Inc., the Fund's investment adviser, ND Capital,
Inc., the Fund's underwriter, and ND Resources, Inc., the Fund's
transfer and accounting services agent, are subsidiaries of ND Holdings,
Inc., the Fund's sponsor.
The Fund has engaged ND Money Management, Inc., to provide investment
advisory and management services to the Fund. The Investment Advisory
Agreement provides for fees to be computed at an annual rate of 0.60% of
the Fund's average daily net assets. The Fund has recognized $560,900 of
investment advisory fees for the year ended December 31, 1996. The Fund
has a payable to ND Money Management, Inc. of $47,501 at December 31,
1996 for investment advisory fees. Certain officers and directors of the
Fund are also officers and directors of the investment adviser.
The Fund has adopted a distribution plan (the Plan) pursuant to Rule
12b-1 under the 1940 Act, whereby the Fund shall pay at the annual rate
of 0.85% of the average daily net assets of the
<PAGE>
Fund to ND Capital, Inc. (Capital), its principal underwriter, for
expenses incurred in the distribution of the Fund's shares. Pursuant to
the Plan, Capital is entitled to reimbursement each month for its actual
expenses incurred in the distribution and promotion of the Fund's
shares, including the printing of prospectuses and reports used for
sales purposes, expenses of preparation and printing of sales literature
and other such distribution related expenses, including any distribution
or service fees paid to securities dealers who have executed a dealer
sales agreement with Capital. Capital will be reimbursed at a rate not
to exceed 0.85% of the average daily net assets of the Fund for the
prior month. The Fund has recognized $303,489 of 12b-1 fee expenses for
the year ended December 31, 1996. The Fund has a payable to ND Capital,
Inc. of $27,709 at December 31, 1996 for 12b-1 fees. In addition, the
Fund has engaged ND Capital as agent for the purchase of certain
investment securities. For the year ended December 31, 1996 commissions
earned by ND Capital, Inc. totaled $1,968 and are included in the cost
basis of the securities acquired.
ND Resources, Inc., (the transfer agent), provides shareholder services
for a monthly fee equal to an annual rate of 0.16% of the Fund's first
$10 million of net assets, 0.13% of the Fund's net assets on the next
$15 million, 0.11% of the Fund's net assets on the next $15 million,
0.10% of the Fund's net assets on the next $10 million, and 0.09% of the
Fund's net assets in excess of $50 million. The Fund has recognized
$100,497 of transfer agency fees for the year ended December 31, 1996.
ND Resources, Inc. also acts as the Fund's accounting services agent for
a monthly fee equal to the sum of a fixed fee of $2,000, and a variable
fee equal to 0.05% of the Fund's average daily net assets on an annual
basis for the Fund's first $50 million and at a lower rate on the
average daily net assets in excess of $50 million. The Fund has
recognized $66,183 of accounting service fees for the year ended
December 31, 1996.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment
securities (excluding short-term securities) aggregated $11,698,675 and
$11,692,220, respectively, for the year ended December 31, 1996.
Note 6. INVESTMENT IN SECURITIES
At December 31, 1996, the aggregate cost of securities for federal
income tax purposes was $86,324,433, and the net unrealized appreciation
of investments based on the cost was $3,603,841, which is comprised of
$3,767,621 aggregate gross unrealized appreciation and $163,780
aggregate gross unrealized depreciation.
<PAGE>
FINANCIAL HIGHLIGHTS Selected per share data and ratios for the period indicated
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995 1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.09 $ 8.83 $ 9.52 $ 9.49 $ 9.47
-----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income $ .46 $ .47 $ .48 $ .52 $ .59
Net realized and unrealized gain
(loss) on investments and futures transactions .13 .28 (.67) .05 .04
-----------------------------------------------------------------
Total Income(Loss) From Investment Operations $ .59 $ .75 $ (.19) $ .57 $ .63
-----------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income $ (.46) $ (.47) $ (.48) $ (.52) $ (.59)
Distributions in excess of net investment income (.03) (.02) (.02) (.02) (.02)
-----------------------------------------------------------------
Total Distributions $ (.49) $ (.49) $ (.50) $ (.54) $ (.61)
-----------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.19 $ 9.09 $ 8.83 $ 9.52 $ 9.49
=================================================================
TOTAL RETURN 6.62% (A) 8.68%(A) (2.07)%(A) 5.94%(A) 6.62%(A)
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $91,631 $94,532 $91,865 $85,042 $61,429
Ratio of net expenses (after
expense assumption) to average net assets 1.13%(B) 1.05%(B) 1.06%(B) 1.01%(B) 0.95%(B)
Ratio of net investment income to average
net assets 5.00% 5.20% 5.19% 5.39% 5.91%
Portfolio turnover rate 12.92% 8.02% 5.55% 18.59% 17.35%
</TABLE>
(A) Excludes contingent deferred sales charge of 4%.
(B) During the periods indicated above, ND Holdings, Inc. assumed expenses of
$40,861, $3,799, $31,115, $30,707, and $66,030, respectively. If the
expenses had not been assumed, the annualized ratios of total expenses to
average net assets would have been 1.18%, 1.05%, 1.10%, 1.05%, and 1.08%,
respectively.
<PAGE>
GRAPH APPEARS HERE
Comparison of change in value of $10,000 investment in ND Tax-Free Fund
and Lehman Bros. Municipal Bond Index (Unaudited)
<TABLE>
<CAPTION>
ND Tax-Free Fund Lehman Bros
w/o CDSC Municipal Bond Index
-------------------------------------------
<S> <C> <C>
1/3/1989 $10,000 $10,000
1989 $10,291 $11,080
1980 $11,109 $11,887
1991 $12,006 $13,331
1992 $12,718 $14,508
1993 $13,529 $16,289
1994 $13,262 $15,448
1995 $14,413 $18,146
1996 $15,367 $18,949
</TABLE>
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors of
ND Tax Free Fund, Inc.
We have audited the accompanying statement of assets and liabilities of ND Tax
Free Fund, Inc. (the Fund), including the schedule of investments, as of
December 31, 1996, the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for the two years in the period then
ended. 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
audit. The financial highlights for each of the two years in the period ended
December 31, 1993, were audited by other auditors whose report dated January 20,
1994, expressed an unqualified opinion on those statements.
We conducted our audit 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 of 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 as of December 31,
1996, by correspondence with the custodian. 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 audit provides 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 ND Tax
Free Fund, Inc. as of December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for the three years in the
period then ended, in conformity with generally accepted accounting principles.
BRADY, MARTZ & ASSOCIATES, P.C.
February 10, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 86,324,433
<INVESTMENTS-AT-VALUE> 89,928,274
<RECEIVABLES> 2,773,751
<ASSETS-OTHER> 564,802
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 93,266,827
<PAYABLE-FOR-SECURITIES> 1,045,250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 590,434
<TOTAL-LIABILITIES> 1,635,684
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 9,970,201
<SHARES-COMMON-PRIOR> 10,402,491
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,439,627)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,603,841
<NET-ASSETS> 91,631,143
<DIVIDEND-INCOME> 59,137
<INTEREST-INCOME> 5,640,796
<OTHER-INCOME> 0
<EXPENSES-NET> 1,051,355
<NET-INVESTMENT-INCOME> 4,648,578
<REALIZED-GAINS-CURRENT> 3,142,612
<APPREC-INCREASE-CURRENT> (1,799,734)
<NET-CHANGE-FROM-OPS> 5,991,456
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,648,578
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 303,489
<NUMBER-OF-SHARES-SOLD> 366,454
<NUMBER-OF-SHARES-REDEEMED> 1,148,695
<SHARES-REINVESTED> 349,952
<NET-CHANGE-IN-ASSETS> (2,900,562)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 560,900
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,092,216
<AVERAGE-NET-ASSETS> 92,913,303
<PER-SHARE-NAV-BEGIN> 9.09
<PER-SHARE-NII> .46
<PER-SHARE-GAIN-APPREC> .13
<PER-SHARE-DIVIDEND> .46
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .03
<PER-SHARE-NAV-END> 9.19
<EXPENSE-RATIO> 1.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
