Dear Shareholder:
We are pleased to enclose the semi-annual report of the operations of
ND Tax-Free Fund, Inc. for the six months ended June 30, 1998. The Fund's
portfolio and related financial statements are presented within for your
review.
As we end the first half of 1998, the 30-year Treasury bond descended to a
record low yield of 5.59% spurred by the strength of the U.S. dollar and
weakness in commodity prices. Asian turmoil has helped put the brakes on
runaway growth in the U.S. economy, in the process restraining the Federal
Reserve from tightening credit. At the same time, a worldwide flight to
quality and a muscle-bound dollar have led investors directly into the U.S.
Treasury market.
The strength of the dollar is helping bonds both directly and indirectly.
Dollar-denominated securities are more attractive and at the same time
widening the trade deficit. Cheap foreign goods have helped keep inflation
in check.
On the other hand, it is easy to imagine a sudden jolt of bad news.
Unexpected increases in companies labor costs or fighting in the Middle East
would send inflation higher. The latest Consumer Price Index figures
increased at a 2.7% annual rate over the last six months, up from a 1.9% rate
in the prior six months.
The ND Tax-Free Fund, Inc. began the year at $9.09 and then closed the six
month period at $8.98 . The ND Tax-Free Fund, Inc. utilized a partial hedge
in early 1998 to minimize the effects of strong economic growth. Stability
of share price is the primary objective of a partial hedge.
The Fund continues to invest in high-grade North Dakota tax-exempt bonds.
Issues purchased in the primary and secondary market remain an important
strategy in diversification for the Fund.
Income exempt from federal and North Dakota income taxes with preservation of
capital remain the chief objectives of the Fund.
Sincerely,
Monte L. Avery Robert E.Walstad
Chief Portfolio Strategist President
Terms & Definitions
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned by
the fund on an annual basis.
Consumer Price Index
A commonly used measure of inflation: it does not represent an investment
return.
Contingent Deferred Sales Charge (CDSC)
A charge applied at the time of the redemption of which assumes redemption
at the end of the period.
Coupon Rate or Face Rate
The rate of interest annually payable based on the face amount of the bond;
expressed as a percentage.
Lehman Brother's Municipal Bond Index
An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt
bonds representative of the municipal bond market. The index does not take
into account brokerage commissions or other costs, may include bonds
different from those in the fund, and may pose different risks than the fund.
Market Value
Actual (or estimated) price at which a bond trades in the market place.
Maturity
A measure of the term or life of a bond in years. When a bond "matures", the
issuer repays the principal.
Net Asset Value (NAV)
The value of all your fund's assets, minus any liabilities, divided by the
number of outstanding shares, not including any initial or contingent
deferred sales charge.
Quality Ratings
A designation assigned by independent rating companies to give a relative
indication of a bond's credit worthiness. "AAA", "AA" and "A" indicate
investment grade securities. Ratings can range from a high of "AAA" to a
low of "D".
Total Return
Measures both the net investment income and any realized and unrealized
appreciation or depreciation of the underlying investments in the fund's
portfolio for the period, assuming the reinvestment of all dividends. It
represents the aggregate percentage or dollar value change over the period.
PERFORMANCE AND COMPOSITION
- ---------------------------
Portfolio Ratings
(based on Total Long-Term Investments)
- --------------------------------------
[pie chart]
AAA 43.2
AA 33.2
A 9.9
NR 13.7
Quality ratings reflect the financial strength of the isuer. They are
Assigned by independent rating services such as Moody's Investors Services
And Standard & Poor's. Non-rated bonds have been determined to be of
Appropriate quality for the portfolio by ND Money Management, Inc., the
Investment advisor.
Portfolio Market Sectors
(As a % of Net Assets)
- ----------------------------.
[pie chart]
HC-Health Care 31.6
H-Housing 26.5
I-Industrial 16.7
O-Other 6.9
E-Education 5.4
U-Utilities 5.4
RE-Real Estate 4.7
WS-Water & Sewer 1.6
GO-General Obligation 1.2
Market sectors are breakdowns of the Fund's portfolio holdings into specific
Investment classes.
COMPARATIVE INDEX GRAPH
- -----------------------.
[line graph]
Comparison of change in value of a $10,000
investment in the ND Tax Free Fund
and the Lehman Bros. Municipal Bond Index
Lehman Bros
w/o CDSC Municipal Bond Index
- -----------------------------------------------------------
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
1997 $16,007 $20,693
06/30/98 $16,224 $21,249
Average Annual Total Returns
For periods ending June 30, 1998
--------------------------------
Since Inception
1 year 5 year January 3, 1989
------ ------ ----------------
Without CDSC 2.42% 4.15% 5.23%
With CDSC (1.47)% N/A N/A
Putting Performance into Perspective
The graph comparing your Fund's performance to a benchmark index provides you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. The Lehman Brothers index is a national index representative of the
national municipal bond market whereas the Fund concentrates its investments
in North Dakota municipal bonds. Your Fund's total return for the period
shown appears with and without sales charges and includes Fund expenses and
management fees. A securities index measures the performance of a
theoretical portfolio. Unlike a fund, the index is unmanaged; there are no
expenses that affect the results. In addition, few investors could purchase
all of the securities necessary to match the index. And, if they could, they
would incur transaction costs and other expenses. All Fund and benchmark
returns include reinvested dividends. Returns are historical and are not a
guarantee of future results. The Fund's share price, yields and total
returns will vary, so that shares, when redeemed, may be worth more or less
than their original cost.
Key Statistics
- --------------
12-31-97 NAV(share value) $9.09
06-30-98 NAV $8.98
Average Maturity 20.8 years
Number of Issues 75
Total Net Asset $83,615,138
<TABLE>
<CAPTION>
Schedule of Investments June 30, 1998 (Unaudited)
Name of Issuer
Percentages represent the Rating
Market value of each Moody's/ Coupon Maturity Principal Market
Investment category to total net assets S&P Rate Amount Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NORTH DAKOTA MUNICIPAL BONDS (98.8%)
Bismarck, ND (St. Vincent Nursing Home) Facs. Rev. NR/NR 8.500% 06/01/09 $ 175,000 $ 178,864
*Bismarck, ND (MedCenter One, Inc.) Rev. Ref. & Impvt. BIGI Aaa/AAA 7.500 05/01/13 1,500,000 1,582,065
Bismarck, ND (St. Alexius Medl. Ctr.) Rev. Ref. AMBAC Aaa/AAA 6.900 05/01/06 400,000 435,088
Bismarck, ND (Marillac Manor II) Facs. Rev. NR/NR 8.625 02/01/10 675,000 697,592
Bismarck, ND (Marillac Manor) Facs. Rev. Ref. NR/NR 7.700 02/01/16 250,000 270,547
Burleigh Cty., ND (St. Vincent Nursing Home) Facs. Rev. NR/NR 7.000 06/01/19 500,000 522,820
Burleigh Cty., ND (Missouri Slope Ctr.) Rev. Ref. NR/NR 7.000 11/01/07 500,000 516,735
Burleigh Cty., ND (Missouri Slope Ctr.) Facs. Rev. NR/NR 7.250 06/01/12 500,000 514,385
Burleigh Cty., ND (Univ. of Mary) Facs. Rev. NR/NR 5.750 12/01/11 1,000,000 1,024,590
Burleigh Cty., ND (Univ. of Mary) Facs. Rev. NR/NR 5.875 12/01/15 1,000,000 1,032,900
Carrington, ND Cath. Hlth. Corp. Facs. Rev. Aa/AA 6.250 11/15/15 500,000 552,030
Central Cass Cty., ND PSD #17 School Bldg. G.O. MBIA Aaa/AAA 6.500 05/01/13 430,000 476,014
Central Cass Cty., ND PSD #17 School Bldg. G.O. MBIA Aaa/AAA 6.500 05/01/14 460,000 511,359
Devils Lake, ND Cath. Hlth. Corp. Facs. Rev. Aa/AA 6.250 11/15/07 1,125,000 1,211,917
Dickinson, ND (BHS L\T Care, Inc.) Facs. Rev. Aa/NR 7.625 02/15/20 1,210,000 1,289,013
Dickinson, ND (BHS L\T Care, Inc.) Facs. Rev. Aa/NR 7.500 02/15/10 600,000 639,186
Dickinson, ND (St. Luke's Home) Rev. NR/NR 7.250 05/01/22 500,000 523,660
Fargo, ND (MeritCare Obligation Group) Rev. MBIA Aaa/AAA 5.550 06/01/16 500,000 517,715
Fargo, ND (MeritCare Obligation Group) Rev. MBIA Aaa/AAA 5.375 06/01/27 1,315,000 1,319,550
Fargo, ND (St. Luke's Hospital) Facs. Rev. Ref. NR/A+ 6.500 06/01/15 4,000,000 4,434,760
Grand Forks, ND (United Hospital) Facs. Rev. MBIA Aaa/AAA 6.625 12/01/10 830,000 907,215
Grand Forks, ND (United Hospital) Facs. Rev. MBIA Aaa/AAA 6.500 12/01/06 750,000 815,557
Grand Forks, ND (United Hospital) Facs. Rev. MBIA Aaa/AAA 6.250 12/01/19 1,000,000 1,129,460
*Grand Forks, ND (United Hospital) Facs. Rev. MBIA Aaa/AAA 6.450 12/01/23 1,525,000 1,728,344
Grand Forks, ND Regl. Airport Auth. Rev. A/NR 7.500 10/01/09 225,000 228,044
Grand Forks, ND Regl. Airport Auth. Rev. A/NR 7.500 10/01/10 240,000 243,293
Grand Forks, ND (Cirrus Project) Sales Tax Rev. A-1/NR 5.900 05/01/17 695,000 727,005
Grand Forks, ND (Aurora Project) Sales Tax Rev. MBIA Aaa/AAA 5.625 12/15/29 1,500,000 1,569,465
Grand Forks, ND (4000 Valley Square Project) Hsg. Rev. NR/NR 6.250 12/01/34 2,000,000 2,028,800
Grand Forks, ND (Valley Square Project) Hsg. Rev. NR/NR 6.375 12/01/34 645,000 644,497
Hazen, ND (Sakakawea Medl. Ctr.) Facs. Rev. NR/NR 6.750 05/01/16 500,000 539,325
Jamestown, ND (College) Facs. Rev. NR/NR 6.625 10/01/14 800,000 883,688
Jamestown, ND (Heritage Centre) Rev. NR/NR 8.500 09/01/06 200,000 218,450
Lisbon, ND (Parkside Lutheran Home) Rev. NR/NR 0.0 06/01/12 500,000 136,135
Mercer Cty., ND (Otter Tail Power) Rev. Aa-3/AA- 6.900 02/01/19 500,000 541,720
Mercer Cty., ND (Basin Elec.) Rev. A/A 7.000 01/01/19 975,000 1,025,710
Mercer Cty., ND (MT-Dak. Util.) Rev. FGIC Aaa/AAA 6.650 06/01/22 3,500,000 3,879,960
Mercer Cty., ND (NW Public Svc.) Rev. Ref. MBIA Aaa/AAA 5.850 06/01/23 3,800,000 4,001,552
Mercer Cty., ND (Basin Elec.) Rev. AMBAC Aaa/AAA 6.050 01/01/19 5,425,000 5,865,944
Morton Cty., ND (MT-Dak. Util.) Rev. FGIC Aaa/AAA 6.650 06/01/22 600,000 659,622
Morton Cty., ND Multifamily Hsg. Rev. Ref. NR/NR 6.750 03/01/21 500,000 507,900
ND (HFA) Single Family Mrtge. Program Aa/A+ 7.375 07/01/17 470,000 489,876
ND (HFA) Single Family Mrtge. Program Aa/A+ 7.900 07/01/10 142,000 149,652
ND (HFA) Single Family Mrtge. Program Aa/A+ 8.050 01/01/24 720,000 777,463
ND (HFA) Single Family Mrtge. Program Aa/A+ 7.750 07/01/24 660,000 710,021
ND (HFA) Single Family Mrtge. Program Aa/A+ 7.300 07/01/24 1,090,000 1,170,475
ND (HFA) Single Family Mrtge. Program Aa/A+ 7.000 07/01/23 875,000 947,144
ND (HFA) Single Family Mrtge. Program Aa/A+ 6.800 07/01/23 2,945,000 3,133,627
ND (HFA) Single Family Mrtge. Program Aa/A+ 6.700 07/01/13 365,000 388,539
ND (HFA) Single Family Mrtge. Program Aa/A+ 6.800 07/01/25 1,540,000 1,629,967
ND (HFA) Single Family Mrtge. Program Aa/A+ 6.950 07/01/25 1,970,000 2,117,691
ND (HFA) Hsg. Finance Program Aa-3/NR 6.750 07/01/25 3,195,000 3,417,308
ND (HFA) Hsg. Finance Program Aa-3/NR 6.300 01/01/15 835,000 869,452
ND (HFA) Hsg. Finance Program Aa-3/NR 6.300 07/01/16 490,000 512,658
ND (HFA) Hsg. Finance Program Aa-3/NR 6.150 07/01/27 530,000 543,690
ND (HFA) Hsg. Finance Program Aa-3/NR 6.100 07/01/28 2,000,000 2,036,080
ND (HFA) Hsg. Finance Program MBIA Aaa/NR 5.450 07/01/18 250,000 250,890
ND (HFA) Hsg. Finance Program MBIA Aaa/NR 5.500 07/01/29 1,000,000 998,420
ND (HFA) Multifamily Rev. Ref. FNMA NR/AAA 6.200 12/01/20 825,000 852,736
ND Municipal Bond Bank Revolving Fund Program Aa/NR 6.300 10/01/15 530,000 583,042
ND Municipal Bond Bank Revolving Fund Program Aa/NR 6.250 10/01/14 3,525,000 3,756,734
ND Blding. Auth. Lease Rev. Ref. AMBAC Aaa/AAA 6.000 06/01/10 1,700,000 1,844,942
ND Blding. Auth. Lease Rev. CGIC Aaa/AAA 6.000 12/01/13 500,000 551,580
ND State Board of Hgr. Educ. (MSU) Facs. Rev. Ref. NR/NR 6.750 08/01/05 755,000 803,109
ND Student Loan Rev. AMBAC Aaa/AAA 6.300 07/01/12 100,000 106,129
ND Student Loan Rev. AMBAC Aaa/AAA 6.350 07/01/13 250,000 265,975
ND Student Loan Rev. AMBAC Aaa/AAA 6.400 07/01/14 400,000 426,304
ND State Water Commission Devl. Rev. AMBAC Aaa/AAA 5.750 07/01/27 1,250,000 1,317,200
Univ. of ND Lease Financing C.O.P.'s A/A- 7.300 09/01/10 1,425,000 1,515,003
Valley City, ND Western Hlth. Care Facs. Rev. BIGI Aaa/AAA 7.625 01/01/19 200,000 209,444
Wahpeton, ND (Town Centre Square) Rev. Ref. NR/NR 8.500 02/01/14 250,000 251,408
Ward Cty., ND (St. Joseph Hospital) Facs. Rev. Ref. NR/AAA 7.250 11/01/06 1,000,000 1,077,780
Ward Cty., ND (St. Joseph Hospital) Facs. Rev. NR/AAA 7.250 11/01/06 1,000,000 1,078,320
Ward Cty., ND (St. Joseph Hospital) Facs. Rev. NR/AAA 7.500 11/01/15 1,000,000 1,097,260
Ward Cty., ND (St. Joseph Hospital) Facs. Rev. NR/AAA 8.875 11/15/24 200,000 228,952
-----------
TOTAL NORTH DAKOTA MUNICIPAL BONDS (COST: $78,485,684) $82,641,347
-----------
SHORT-TERM SECURITIES (1.0%)
Federated Tax-Free Fund #15 $81,868
-----------
TOTAL SHORT-TERM SECURITES (Cost: $81,868) $81,868
-----------
TOTAL INVESTMENTS IN SECURITIES (Cost: $78,567,552) $ 82,723,215
OTHER ASSETS LESS LIABILITIES $ 891,923
-----------
NET ASSETS $ 83,615,138
-----------
-----------
</TABLE>
*Indicates bonds are segregated by the custodian to cover when-issued or
delayed-delivery purchases.
FOOTNOTE: Non-rated (NR) securities have been determined to be of investment
grade quality by the Fund's Manager.
The accompanying notes are an integral part of these financial statements.
Financial Statements June 30, 1998
Statement of Assets and Liabilities June 30, 1998 (Unaudited)
- -------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities, at value (cost:$78,567,552) $ 82,723,215
Accrued dividends receivable 1,010
Accrued interest receivable 1,405,822
Prepaid expenses 3,056
Receivable for fund shares sold 7,000
------------
Total Assets $ 84,140,103
------------
LIABILITIES
Bank overdraft $ 18,634
Dividends payable 370,650
Accrued expenses 96,533
Payable for fund shares redeemed 39,148
------------
Total Liabilities $ 524,965
------------
NET ASSETS $ 83,615,138
------------
------------
Net assets are represented by:
Capital stock outstanding, at par $ 9,315
Additional paid-in capital 85,971,257
Accumulated undistributed net realized gain(loss)
on investments (6,521,097)
Unrealized appreciation on investments 4,155,663
------------
Total amount representing net assets applicable to
9,314,661 outstanding shares of $.001 par value
common stock (100,000,000 shares authorized) $ 83,615,138
-----------
-----------
Net asset value per share $ 8.98
------
------
Statement of Operations for the six months ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 2,537,687
Dividends 17,278
------------
Total Investment Income $2,554,965
------------
EXPENSES
Investment advisory fees $ 240,845
Distribution fees (12b-1) 215,729
Custodian fees 8,217
Transfer agent fees 47,204
Accounting service fees 32,006
Professional fees 4,850
Directors fees 2,673
Transfer agent out of pocket expense 6,678
Reports to shareholders 1,861
License, fees, and registrations 833
---------------
Total Expenses $ 560,896
---------------
NET INVESTMENT INCOME $ 1,994,069
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES
Net realized gain (loss) from:
Investment transactions $ 275,834
Futures transactions (1,019,120)
Net change in unrealized appreciation (depreciation) of:
Investments (698,324)
Futures 603,294
---------------
Net Realized and Unrealized Gain (Loss) On
Investments And Futures $ (838,316)
---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,155,753
---------------
---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Financial Statements June 30, 1998
Statement of Changes in Net Assets
For the six months ended June 30, 1998 and the year ended December 31, 1997
<TABLE> For The Six Months For The
<CAPTION> Ended June 30, 1998 Year Ended
(Unaudited) December 31,1998
--------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
<S> <C> <C>
Net investment income $ 1,994,069 $ 4,261,981
Net realized gain (loss) on investments and futures (743,286) (1,941,479)
Net unrealized appreciation (depreciation) on investments and futures (95,030) 1,350,315
------------------ -------------
Net Increase (Decrease) in Net Assets Resulting From Operations $ 1,155,753 $ 3,670,817
------------------ -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income $ (1,994,069) $ (4,261,981)
Distributions in excess of net investment income 0 0
Tax return of capital distributions (215,730) (452,996)
Distributions from net realized gain on investment transactions 0 0
------------------ -------------
Total Dividends and Distributions $ (2,209,799) $ (4,714,977)
------------------ -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares $ 1,778,276 $ 4,728,769
Proceeds from reinvested dividends 1,498,245 3,117,985
Cost of shares redeemed (7,041,889) (9,999,185)
------------------ -------------
Net Increase (Decrease) in Net Assets Resulting From
Capital Share Transactions $ (3,765,368) $ (2,152,431)
------------------ -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS $ (4,819,414) $ (3,196,591)
NET ASSETS, BEGINNING OF PERIOD 88,434,552 91,631,143
------------------ -------------
NET ASSETS, END OF PERIOD $ 83,615,138 $ 88,434,552
------------------ -------------
------------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements June 30, 1998 (Unaudited)
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 I
s 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 - Securities for which quotations are not
readily available (which will constitute a majority of the securities held by
the Fund) are valued at fair value as determined by ND Money Management, Inc.
using methods which include consideration of the following: yields or prices
of municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications as to value from dealers and general market conditions.
ND Money Management Inc. may employ a matrix system to determine valuations.
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. The Fund has available at June 30,
1998, a net capital loss carryforward totaling $6,381,105, which may be used
to offset capital gains realized during subsequent years through December 31,
2005.
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 paid 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 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.
Reclassifications - Certain prior year amounts have been reclassified to
conform to the current year presentation.
Note 3. SHARE TRANSACTIONS
As of June 30, 1998, there were 100,000,000 shares of $.001 par authorized;
9,314,661 and 9,733,454 were outstanding at June 30, 1998 and December 31,
1997, respectively.
Transactions in capital shares were as follows:
Shares
For the Six For The
Months Ended Year Ended
(Unaudited) December 31, 1997
------------- ----------------
Shares sold 197,100 $ 515,034
Shares issued on reinvestment of dividends 166,178 339,531
Shares redeemed (782,071) (1,091,312)
------------- ------------
Net increase (decrease) $ (418,793) $ (236,747)
------------- ------------
------------- ------------
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 $240,845 of
investment advisory fees after a partial waver for the six months ended June
30, 1998. The Fund has a payable to ND Money Management, Inc. of $40,055 at
June 30, 1998 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 to ND Capital, Inc. (Capital),
its principal underwriter, an annual fee for certain expenses incurred by
Capital in connection with the distribution of the Fund's shares. The annual
fee paid to Capital under the Plan is calculated daily and paid monthly by
the Fund at the annual rate of 0.85% of the average daily net assets of the
Fund. The Fund has recognized $215,729 of 12b-1 fee expenses after partial
waiver for the six months ended June 30, 1998. The Fund has a payable to
Capital of $36,168 at June 30, 1998 for 12b-1 fees. In addition, the Fund has
engaged Capital as agent for the purchase of certain investment securities.
For the six months ended June 30, 1998 commissions earned by Capital totaled
$7,500 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 $47,204 of transfer
agency fees for the six months ended June 30, 1998. 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 $32,006 of accounting service fees for the
six months ended June 30, 1998.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment securities
(excluding short-term securities) aggregated $3,314,780 and $15,777,272,
respectively, for the six months ended June 30, 1998.
Note 6. INVESTMENT IN SECURITIES
At June 30, 1998, the aggregate cost of securities for federal income tax
purposes was $78,567,552, and the net unrealized appreciation of investments
based on the cost was $4,155,663, which is comprised of $4,498,845 aggregate
gross unrealized appreciation and $343,182 aggregate gross unrealized
depreciation.
Financial Highlights Selected per share data and ratios for the period
indicated
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
For The
Six Months
Ended June
30, 1998 1997 1996 1995 1994 1993
(Unaudited)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.09 $ 9.19 $ 9.09 $ 8.83 $ 9.52 $ 9.49
-----------------------------------------------------------------------
Income from Investment Operations:
Net Investment Income $ .21 $ .43 $ .46 $ .47 $ .48 $ .52
Net realized and unrealized gain
(loss) on investmentsand futures
transactions (.09) (.05) .13 .28 (.67) .05
-----------------------------------------------------------------------
Total Income(Loss) From
Investment Operations $ .12 $ .38 $ .59 $ .75 $ (.19) $ .57
-----------------------------------------------------------------------
Less Distributions:
Dividends from net investment income $ (.21) $ (.43) $ (.46) $ (.47) $ (.48) $ (.52)
Tax return of capital distributions (.02) (.05) (.03) (.02) (.02) (.02)
Distributions in excess of net
investment income .00 .00 .00 .00 .00 .00
-----------------------------------------------------------------------
Total Distributions $ (.23) $ (.48) $ (.49) $ (.49) $ (.50) $ (.54)
-----------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 8.98 $ 9.09 $ 9.19 $ 9.09 $ 8.83 $ 9.52
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Total Return 2.70%(A)(C) 4.17%(A) 6.62%(A) 8.68%(A) (2.07)%(A) 5.94%(A)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $83,615 $88,435 $91,631 $94,532 $91,865 $85,042
Ratio of net expenses (after
expense assumption) to
average net assets 1.30%(C) 1.30%(B) 1.13%(B) 1.05%(B) 1.06%(B) 1.01%(B)
Ratio of net investment income
to average net assets 4.64%(C) 4.70% 5.00% 5.20% 5.19% 5.39%
Portfolio turnover rate 3.92% 13.18% 12.92% 8.02% 5.55% 18.59%
</TABLE>
(A) Excludes contingent deferred sales charge of 4%.
(B) During the periods indicated above, ND Holdings, Inc. assumed expenses
of $50,649, $40,861, $3,799, $31,115, and $30,707, respectively. If
the expenses had not been assumed, the annualized ratios of total
expenses to average net assets would have been 1.36%, 1.18%, 1.05%,
1.10%, and 1.05%, respectively.
(C) Ratio is annualized.
The accompanying notes are an integral part of these financial statements.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 78,567,552
<INVESTMENTS-AT-VALUE> 82,723,215
<RECEIVABLES> 1,413,832
<ASSETS-OTHER> 3,056
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84,140,103
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 524,965
<TOTAL-LIABILITIES> 524,965
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 85,980,572
<SHARES-COMMON-STOCK> 9,314,661
<SHARES-COMMON-PRIOR> 9,733,454
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,521,097)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,155,663
<NET-ASSETS> 83,615,138
<DIVIDEND-INCOME> 17,278
<INTEREST-INCOME> 2,537,687
<OTHER-INCOME> 0
<EXPENSES-NET> 560,896
<NET-INVESTMENT-INCOME> 1,994,069
<REALIZED-GAINS-CURRENT> (743,286)
<APPREC-INCREASE-CURRENT> (95,030)
<NET-CHANGE-FROM-OPS> 1,155,753
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,994,069)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (215,730)
<NUMBER-OF-SHARES-SOLD> 197,100
<NUMBER-OF-SHARES-REDEEMED> (782,071)
<SHARES-REINVESTED> 166,178
<NET-CHANGE-IN-ASSETS> (4,819,414)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 240,845
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 560,896
<AVERAGE-NET-ASSETS> 86,124,126
<PER-SHARE-NAV-BEGIN> 9.09
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> (.09)
<PER-SHARE-DIVIDEND> (.21)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.02)
<PER-SHARE-NAV-END> 8.98
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
