Dear Shareholder:
We are pleased to enclose the semi-annual report of the operations of the ND
Tax-Free Fund, Inc. for the six months ended June 30, 1999. The Fund's
portfolio and related financial statements are presented within for your
review.
As we end the first half of 1999, stabilizing global economies and the U.S.
economy growing at what many economists believe is an unsustainable pace has
lead the Federal Reserve to raise short-term interest rates a quarter of a
percentage point. Strong consumer spending and a tight labor market were the
primary factors for Mr. Greenspan's pre-emptive strike against a rise in
inflation. Typically, a higher fed funds rate - the rate at which banks
borrow from each other overnight - means higher rates for things such as
mortgage loans, credit cards and savings accounts.
Anticipations of a Federal Reserve tightening have seen yields on the
benchmark 30-year Treasury bond rise from a January yield of 5.07% to 5.97%.
Tax-free municipal yields have also risen from 5.06% to 5.33% on AAA rated
bonds. This slower rise compared to Treasuries can be attributed to investor
demand for tax-free bonds.
The ND Tax-Free Fund, Inc. began the year at $8.94 and closed the six month
period at $8.80. In anticipation of stronger economic growth, the ND Tax-Free
Fund, Inc. at times during the period utilized a defensive position in U.S.
Treasury futures. Share price was stabilized as yields on U.S. Treasuries
rose throughout the first half of the year. Stability of share price is the
primary objective of a defensive position.
Diversification remains an important strategy of the Fund. Purchases during
the first six months include Bismarck St. Alexius Medical Facilities, North
Dakota Housing, and University of Mary issues.
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.
Contingent Deferred Sales Charge (CDSC)
A charge applied at the time of redemption, assuming redemption at the end of
the period.
Coupon Rate or Face Rate
The rate of interest payable annually, based on the face amount of the bond;
expressed as a percentage.
Lehman Brothers 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 charges.
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 COMPOSITON
- ---------------------------
Portfolio Ratings
(based on Total Long-Term Investments)
- --------------------------------------
[pie chart]
AAA 41.7
AA 34.7
A 9.9
NR 13.7
Quality ratings reflect the financial strength of the issuer. 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 adviser.
Portfolio Market Sectors
(As a % of Net Assets
- -------------------------
HC-Health Care 29.7
H-Housing 25.5
I-Industrial 17.3
O-Other 8.0
E-Education 7.3
U-Utilities 5.5
C/L-COP/Lease 5.0
WS-Water & Sewer 1.7
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 Brothers Municipal Bond Index
Lehman Brothers
w/o CDSC Municipal Bond Index
-----------------------------------------------------------
1/3/1989 $10,000 $10,000
1989 $10,291 $11,079
1900 $11,109 $11,886
1991 $12,006 $13,330
1992 $12,718 $14,505
1993 $13,529 $16,286
1994 $13,262 $15,444
1995 $14,413 $18,140
1996 $15,367 $18,946
1997 $16,007 $20,689
1998 $16,564 $22,030
6/30/99 $16,718 $21,832
Average Annual Total Returns
For periods ending June 30, 1999
---------------------------------
Since Inception
1 year 5 year 10 year (January 3, 1989)
--------------------------------------------------------
Without CDSC 3.05% 4.44% 5.24% 5.02%
With CDSC (.87)% N/A N/A N/A
Putting Performance into Perspective
Returns are historical and are not a guarantee of future results. 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. 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
- ---------------
12-31-98 NAV(share value) $8.94
06-30-99 NAV $8.80
Average Maturity 20.5 years
Number of Issues 64
Total Net Assets $76,348,197
<TABLE>
<CAPTION>
Schedule of Investments June 30, 1999 (Unaudited)
Name of Issuer
Percentages represent the Rating
Market value of each Moody's Coupon Principal Market
Investment category to total net assets /S&P Rate Maturity Amount Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NORTH DAKOTA MUNICIPAL BONDS (98.5%)
Bismarck, ND (Marillac Manor) Facs. Rev. Ref. NR/NR 7.700% 02/01/16 $ 250,000 $ 252,423
Bismarck, ND (St. Alexius Medl. Ctr.) Rev. Ref. FSA Aaa/AAA 5.000 07/01/28 1,100,000 1,040,237
Burleigh Cty., ND (Missouri Slope Ctr.) Rev. Ref. NR/NR 7.000 11/01/07 500,000 510,435
Burleigh Cty., ND (St. Vincent Nursing Home) Facs. Rev. NR/NR 7.000 06/01/19 500,000 489,110
Burleigh Cty., ND (Univ. of Mary) Facs. Rev. NR/NR 5.750 12/01/11 1,000,000 1,070,340
Burleigh Cty., ND (Univ. of Mary) Facs. Rev. NR/NR 5.875 12/01/15 1,000,000 1,049,540
Burleigh Cty., ND (Univ. of Mary) Facs. Rev. NR/NR 5.625 12/01/15 1,000,000 978,960
Carrington, ND Cath. Hlth. Corp. Facs. Rev. Aa/AA 6.250 11/15/15 500,000 533,045
Devils Lake, ND Cath. Hlth. Corp. Facs. Rev. Aa/AA 6.250 11/15/07 1,125,000 1,207,271
Dickinson, ND (BHS L\T Care, Inc.) Facs. Rev. Aa/NR 7.625 02/15/20 1,210,000 1,268,092
Dickinson, ND (BHS L\T Care, Inc.) Facs. Rev. Aa/NR 7.500 02/15/10 600,000 628,806
Dickinson, ND (St. Luke's Home) Rev. NR/NR 7.250 05/01/22 500,000 514,120
Fargo, ND (MeritCare Obligation Group) Rev. MBIA Aaa/AAA 5.550 06/01/16 500,000 522,130
Fargo, ND (MeritCare Obligation Group) Rev. MBIA Aaa/AAA 5.375 06/01/27 1,565,000 1,554,248
#Fargo, ND (St. Luke's Hospital) Facs. Rev. Ref. NR/A+ 6.500 06/01/15 4,000,000 4,242,760
Grand Forks, ND (4000 Valley Square Project) Hsg. Rev. NR/NR 6.250 12/01/34 2,710,000 2,649,404
Grand Forks, ND (Aurora Project) Sales Tax Rev. MBIA Aaa/AAA 5.625 12/15/29 1,500,000 1,541,010
Grand Forks, ND (Cirrus Project) Sales Tax Rev. A-1/NR 5.900 05/01/17 695,000 716,663
Grand Forks, ND (United Hospital) Facs. Rev. MBIA Aaa/AAA 6.625 12/01/10 830,000 891,993
Grand Forks, ND (United Hospital) Facs. Rev. MBIA Aaa/AAA 6.500 12/01/06 750,000 800,475
Grand Forks, ND (United Hospital) Facs. Rev. MBIA Aaa/AAA 6.250 12/01/19 1,000,000 1,089,160
*Grand Forks, ND (United Hospital) Facs. Rev. MBIA Aaa/AAA 6.450 12/01/23 1,525,000 1,704,920
Grand Forks, ND (Valley Square Project) Hsg. Rev. NR/NR 6.375 12/01/34 645,000 643,600
Jamestown, ND (College) Facs. Rev. NR/NR 6.625 10/01/14 800,000 842,424
Jamestown, ND (Heritage Centre) Ref. Rev. NR/NR 5.700 11/01/20 250,000 240,240
+Lisbon, ND (Parkside Lutheran Home) Rev. NR/NR 0.000 06/01/12 500,000 100,091
Mercer Cty., ND (Basin Elec.) Rev. A/A 7.000 01/01/19 960,000 969,158
*Mercer Cty., ND (Basin Elec.) Rev. AMBAC Aaa/AAA 6.050 01/01/19 5,425,000 5,840,067
*Mercer Cty., ND (MT-Dak. Util.) Rev. FGIC Aaa/AAA 6.650 06/01/22 3,500,000 3,792,495
#Mercer Cty., ND (NW Public Svc.) Rev. Ref. MBIA Aaa/AAA 5.850 06/01/23 3,800,000 3,955,496
Morton Cty., ND (MT-Dak. Util.) Rev. FGIC Aaa/AAA 6.650 06/01/22 350,000 379,453
Morton Cty., ND Multifamily Hsg. Rev. Ref. NR/NR 6.750 03/01/21 500,000 504,720
ND (HFA) Hsg. Finance Program Aa-3/NR 5.250 01/01/30 500,000 488,110
ND (HFA) Hsg. Finance Program Aa-3/NR 6.750 07/01/25 3,065,000 3,274,401
ND (HFA) Hsg. Finance Program Aa-3/NR 6.300 01/01/15 690,000 729,302
ND (HFA) Hsg. Finance Program Aa-3/NR 5.200 07/01/19 500,000 495,010
ND (HFA) Hsg. Finance Program Aa-3/NR 6.300 07/01/16 445,000 470,823
ND (HFA) Hsg. Finance Program Aa-3/NR 6.150 07/01/27 505,000 522,665
ND (HFA) Hsg. Finance Program Aa-3/NR 6.100 07/01/28 1,925,000 1,996,841
ND (HFA) Multifamily Rev. Ref. FNMA NR/AAA 6.200 12/01/20 825,000 863,148
ND (HFA) Single Family Mrtge. Program Aa/A+ 7.900 07/01/10 98,000 101,159
ND (HFA) Single Family Mrtge. Program Aa/A+ 8.050 01/01/24 480,000 494,933
ND (HFA) Single Family Mrtge. Program Aa/A+ 7.750 07/01/24 505,000 528,649
ND (HFA) Single Family Mrtge. Program Aa/A+ 7.300 07/01/24 885,000 924,896
ND (HFA) Single Family Mrtge. Program Aa/A+ 7.000 07/01/23 765,000 805,407
ND (HFA) Single Family Mrtge. Program Aa/A+ 6.800 07/01/23 2,485,000 2,596,676
ND (HFA) Single Family Mrtge. Program Aa/A+ 6.700 07/01/13 320,000 339,139
ND (HFA) Single Family Mrtge. Program Aa/A+ 6.800 07/01/25 1,530,000 1,603,700
ND (HFA) Single Family Mrtge. Program Aa/A+ 6.950 07/01/25 1,940,000 2,064,897
ND Blding. Auth. Lease Rev. FSA Aaa/AAA 6.000 12/01/13 500,000 541,795
ND Blding. Auth. Lease Rev. Ref. AMBAC Aaa/AAA 6.000 06/01/10 1,700,000 1,823,386
ND Municipal Bond Bank Revolving Fund Program Aa/NR 4.625 10/01/19 690,000 643,177
ND Municipal Bond Bank Revolving Fund Program Aa/NR 6.300 10/01/15 530,000 582,830
ND Municipal Bond Bank Revolving Fund Program Aa/NR 6.250 10/01/14 3,525,000 3,815,742
ND State Board of Hgr. Educ. (MSU) Facs. Rev. Ref. NR/NR 6.750 08/01/05 755,000 793,120
ND State Water Commission Devl. Rev. AMBAC Aaa/AAA 5.750 07/01/27 1,250,000 1,301,075
ND Student Loan Rev. AMBAC Aaa/AAA 6.350 07/01/13 250,000 273,278
ND Student Loan Rev. AMBAC Aaa/AAA 6.300 07/01/12 100,000 108,893
ND Student Loan Rev. AMBAC Aaa/AAA 6.400 07/01/14 400,000 439,424
Univ. of ND Lease Financing C.O.P.'s A/A- 7.300 09/01/10 1,425,000 1,474,718
Wahpeton, ND (Town Centre Square) Rev. Ref. NR/NR 8.500 02/01/14 250,000 187,500
Ward Cty., ND (St. Joseph Hospital) Facs. Rev. NR/AAA 7.250 11/01/06 1,000,000 1,082,780
Ward Cty., ND (St. Joseph Hospital) Facs. Rev. NR/AAA 8.875 11/15/24 200,000 247,112
Ward Cty., ND (St. Joseph Hospital) Facs. Rev. Ref. NR/AAA 7.250 11/01/06 1,000,000 1,080,380
------------
TOTAL NORTH DAKOTA MUNICIPAL BONDS (COST: $72,532,934) $ 75,217,852
------------
SHORT-TERM SECURITIES (.52%)
Federated Tax-Free Fund 15 $ 148,978
Federated Intermediate Municipal Trust 78 246,499
------------
TOTAL SHORT-TERM SECURITES (COST: $398,778) $ 395,477
------------
TOTAL INVESTMENTS IN SECURITIES (COST: $72,931,712) $ 75,613,329
OTHER ASSETS LESS LIABILITIES 734,868
------------
NET ASSETS $ 76,348,197
============
</TABLE>
* Indicates bonds are segregated by the custodian to cover when-issued or
delayed-delivery purchases.
# Indicates bonds are segregated by the custodian to cover initial margin
requirements.
+ Indicates bond is non-income producing.
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, 1999
Statement of Assets and Liabilities June 30, 1999 (Unaudited)
- --------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in securities, at value (cost:$72,931,712) $ 75,613,329
Accrued dividends receivable 3,784
Accrued interest receivable 1,273,506
Receivable for fund shares sold 40,000
Prepaid expenses 17,176
------------
Total Assets $ 76,947,795
------------
LIABILITIES
Bank overdraft $ 92,680
Dividends payable 345,908
Accrued expenses 93,492
Payable for fund shares redeemed 67,518
------------
Total Liabilities $ 599,598
------------
NET ASSETS $ 76,348,197
============
Net assets are represented by:
Capital stock outstanding, at par $ 8,679
Additional paid-in capital 79,889,726
Accumulated undistributed net realized gain (loss)
on investments (6,231,825)
Unrealized appreciation on investments 2,681,617
------------
Total amount representing net assets applicable to
8,678,811 outstanding shares of $.001 par value
common stock (100,000,000 shares authorized) $ 76,348,197
============
Net asset value per share $ 8.80
============
Statement of Operations For the six months ended June 30, 1999 (Unaudited)
INVESTMENT INCOME
Interest $ 2,289,149
Dividends 16,542
------------
Total Investment Income $ 2,305,691
------------
EXPENSES
Investment advisory fees $ 237,827
Distribution fees (12b-1) 336,920
Custodian fees 7,032
Transfer agent fees 44,482
Accounting service fees 30,700
Professional fees 3,900
Directors fees 2,583
Transfer agent out of pockets 6,672
Reports to shareholders 2,000
License, fees, and registrations 850
Insurance expense 2,808
------------
Total Expenses $ 675,774
Less expenses waived or asorbed
By the Fund's manager (160,483)
-------------
Total Net Expenses $ 515,291
-------------
NET INVESTMENT INCOME $ 1,790,400
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES
Net realized gain (loss) from:
Investment transactions $ (20,723)
Futures transactions- 1,029,311
Net change in unrealized appreciation (depreciation) of:
Investments (1,829,765)
Futures (269,378)
-------------
Net Realized and Unrealized Gain (Loss) On Investments
and Futures $ (1,090,555)
-------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 699,845
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Financial Statements June 30, 1999
Statement of Changes in Net Assets
For the six months ended June 30, 1999, and the year ended December 31, 1998
<TABLE>
<CAPTION>
For The Six Months For The Year Ended
Ended June 30, 1999 December 31, 1998
----------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 1,790,400 $ 3,866,418
Net realized gain (loss) on investments and futures transactions 1,008,588 (1,462,603)
Net change in unrealized appreciation (depreciation) on investments
and futures (2,099,143) 530,067
---------------- --------------------
Net Increase (Decrease) in Net Assets Resulting From Operations $ 699,845 $ 2,933,882
---------------- --------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ($.20 and $.41 per share, respectively) $ (1,790,400) $ (3,866,418)
Return of capital distributions ($.02 and $.05 per share, respectively) (198,189) (421,529)
Distributions from net realized gain on investment and futures transactions 0 0
--------------- -------------------
Total Dividends and Distributions $ (1,988,589) $ (4,287,947)
---------------- -------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares $ 2,155,586 $ 3,794,231
Proceeds from reinvested dividends 1,309,546 2,911,012
Cost of shares redeemed (6,815,253) (12,798,668)
---------------- -------------------
Net Increase (Decrease) in Net Assets Resulting From
Capital Share Transactions $ (3,350,121) $ (6,093,425)
---------------- -------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS $ (4,638,865) $ (7,447,490)
NET ASSETS, BEGINNING OF PERIOD $ 80,987,062 $ 88,434,552
---------------- -------------------
NET ASSETS, END OF PERIOD $ 76,348,197 $ 80,987,062
================ ===================
The accompanying notes are an integral part of these financial statements.
</TABLE>
Notes to Financial Statements June 30, 1999 (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 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 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 using a matrix system at fair value as determined by
ND Money Management. The matrix system has been developed based on
procedures approved by the Board of Directors which include consideration of
the following: yields or prices of municipal bonds of comparable quality,
type of issue, coupon, maturity and rating, and indications as to value
from dealers and general market conditions. Because the market value of
securities can only be established by agreement between parties in a sales
transaction, and because of the uncertainty inherent in the valuation
process, the fair values as determined may differ from the values that would
have been used had a ready market for the securities existed. 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,
1999, a net capital loss carry forward totaling $6,971,037, which may be
used to offset capital gains realized during subsequent years through
December 31, 2006.
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.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Schedule of
Investments. The Statement of Assets and Liabilities reflects a receivable
or payable for the daily mark to market for variation margin.
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, 1999, there were 100,000,000 shares of $.001 par authorized;
8,678,811 and 9,055,044 were outstanding at June 30, 1999, and December 31,
1998, respectively.
Transactions in capital shares were as follows:
Shares
For the Six Months For the Year
Ended June 30, 1999 Ended
(Unaudited) December 31, 1998
-----------------------------------------
Shares sold 241,798 421,712
Shares issued on reinvestment
of dividends 146,757 323,387
Shares redeemed (764,788) (1,423,509)
-----------------------------------------
Net increase (decrease) (376,233) (678,410)
=========================================
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 $216,075
of investment advisory fees after a partial waiver for the six months ended
June 30, 1999. The Fund has a payable to ND Money Management, Inc. of
$37,190 at June 30, 1999 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 $198,189 of
12b-1 fee expenses after partial waiver for the six months ended June 30,
The Fund has a payable to Capital of $34,203 at June 30, 1999 for
12b-1 fees.
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 $44,482 of transfer agency fees for
the six months ended June 30, 1999. The Fund has a payable to ND Resources,
Inc. of $7,725 at June 30, 1999 for transfer agency fees. 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 $30,700 of accounting
service fees for the six months ended June 30, 1999. The Fund has a payable
to ND Resources, Inc. of $5,355 at June 30, 1999 for accounting service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment securities
(excluding short-term securities) aggregated $3,194,804 and $4,566,744,
respectively, for the six months ended June 30, 1999.
Note 6. INVESTMENT IN SECURITIES
At June 30, 1999, the aggregate cost of securities for federal income tax
purposes was $72,931,712, and the net unrealized appreciation of investments
based on the cost was $2,681,617, which is comprised of $3,318,339
aggregate gross unrealized appreciation and $636,722 aggregate gross
unrealized depreciation.
<TABLE>
<CAPTION>
Financial Highlights Selected per share data and ratios for the period indicated
- ---------------------------------------------------------------------------------
For the Six Months
Ended June 30, 1999 For The Year Ended December 31,
(Unaudited) 1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.94 $ 9.09 $ 9.19 $ 9.09 $ 8.83 $ 9.52
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Income from Investment Operations:
Net investment income $ .20 $ .41 $ .43 $ .46 $ .47 $ .48
Net realized and unrealized gain
(loss) on investments and futures
transactions (.12) (.10) (.05) .13 .28 (.67)
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Total Income (Loss) From
Investment Operations $ .08 $ .31 $ .38 $ .59 $ .75 $ (.19)
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Less Distributions:
Dividends from net investment income $ (.20) $ (.41) $ (.43) $ (.46) $ (.47) $ (.48)
Return of capital distributions (.02) (.05) (.05) (.03) (.02) (.02)
Distributions from net realized gains .00 .00 .00 .00 .00 .00
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Total Distributions $ (.22) $ (.46) $ (.48) $ (.49) $ (.49) $ (.50)
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NET ASSET VALUE, END OF PERIOD $ 8.80 $ 8.94 $ 9.09 $ 9.19 $ 9.09 $ 8.83
=============================================================================
Total Return 1.86%(A)(C) 3.48%(A) 4.17%(A) 6.62% (A) 8.68%(A) (2.07)%(A)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $76,348 $80,987 $88,435 $91,631 $94,532 $91,865
Ratio of net expenses
(after expense assumption) to
average net assets 1.30%(B)(C) 1.30%(B) 1.30%(B) 1.13%(B) 1.05%(B) 1.06%(B)
Ratio of net investment income
to average net assets 4.52%(C) 4.59% 4.70% 5.00% 5.20% 5.19%
Portfolio turnover rate 4.13% 7.32% 13.18% 12.92% 8.02% 5.55%
(A)Excludes contingent deferred sales charge of 4%.
(B)During the periods indicated above, ND Holdings, Inc. assumed/waived
expenses of $160,483, $331,888, $50,649, $40,861, $3,799 and $31,115,
respectively. If the expenses had not been assumed/waived, the annualized
ratios of total expenses to average net assets would have been 1.70%,
1.70%, 1.36%, 1.18%,1.05% and 1.10%, respectively.
(C)Ratio is annualized.
The accompanying notes are an integral part of these financial statements.
</TABLE>
