Dear Shareholder:
Enclosed is the annual report of the operations of the ND Tax-Free Fund, Inc.,
the "Fund," for the year ended December 31, 1999. The Fund's portfolio and
related financial statements are presented within for your review.
As we start the new millennium, 1999 will go down as one of the worst years in
bond market history. The benchmark 30-year Treasury bond has seen a value
loss of approximately 27% as yields have risen from a January yield of 5.07% to
a year ending 6.48%. Stabilizing global economies and a U.S. economy growing
at what many economists believe is an unsustainable pace has led the Federal
Reserve to raise short-term interest rates three times in 1999 for a total
increase of three quarters of one percent. Strong consumer confidence, low
unemployment, housing and retail sales at record levels, and a doubling of
crude oil prices contributed to the Federal Reserve's actions.
Tax-free municipal bonds haven't faired much better. A long-term tax-free
bond worth $1,000.00 on December 31, 1998 would be worth roughly $860.00 today,
as yields have risen from a January yield of 4.94% to a year ending 5.94% on
AAA rated bonds. As a result, we are now seeing North Dakota municipal bonds
paying 90% to as high as 100% of the 30-year Treasury yield. Historically,
municipals have averaged 85% of the 30-year Treasury yield over the past ten
years. In terms of real rates of return, this is a very attractive
opportunity.
The Fund began the year at $8.94 and closed the year at $8.40, for a total
return of (1.11)%*. In anticipation of stronger economic growth, the Fund at
times during the year utilized a defensive position in U.S. Treasury futures.
Share price was stabilized as yields on U.S. Treasuries rose throughout the
year. Stability of share price is the primary objective of a defensive
position.
Diversification remains an important strategy of the Fund. Throughout the
year, purchases in the primary and secondary market included Bismarck St.
Alexius Medical Facilities, North Dakota Housing, University of Mary, and
North Dakota State Board of Higher Education issues.
High current income exempt from federal and state income tax with preservation
of capital remain the objective of the Fund.
Sincerely,
Monte L. Avery Robert E. Walstad
Chief Portfolio Strategist President
* without C.D.S.C.
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 COMPOSITION
- ---------------------------
Portfolio Quality Ratings
(based on Total Long-Term Investment
- ------------------------------------
[pie chart]
AAA 36.2
AA 35.9
A 12.7
NR 15.2
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
- ------------------------
[pie chart]
H-Housing 26.6
HC-Health Care 24.5
I-Industrial 14.9
E-Education 10.7
O-Other 10.0
U-Utilities 5.9
C/L-COP/Lease 5.6
W/S-Water & Sewer 1.8
Market sectors are breakdowns of the Fund's portfolio holdings into specific
investment classes.
These percentages are subject to change.
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
ND Tax-Free Fund Lehman Brothers
w/o CDSC Municipal Bond Index
- --------------------------------------------------------------
1/3/1989 $10,000 $10,000
1989 $10,291 $11,079
1990 $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
1999 $16,380 $21,574
Average Annual Total Returns
For periods ending December 31, 1999
------------------------------------
Since Inception
1 year 5 year 10 year (January 3, 1989)
------------------------------------------------------
Without CDSC (1.11)% 4.31% 4.76% 4.59%
With CDSC (4% max) (4.86)% 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 periods 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
12-31-99 NAV $8.40
Average Maturity 20.6 years
Number of Issues 58
Total Net Assets $65,814,783
Schedule of Investments December 31, 1999
<TABLE>
<CAPTION>
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
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NORTH DAKOTA MUNICIPAL BONDS (98.1%)
Bismarck, ND (Marillac Manor) Facs. Rev. Ref. NR/NR 7.700% 02/01/16 $ 250,000 $ 242,482
Burleigh Cty., ND (St. Vincent Nursing Home) Facs. Rev. NR/NR 7.000 06/01/19 500,000 468,950
Burleigh Cty., ND (Univ. of Mary) Facs. Rev. NR/NR 5.750 12/01/11 1,000,000 1,014,500
Burleigh Cty., ND (Univ. of Mary) Facs. Rev. NR/NR 5.875 12/01/15 1,000,000 1,001,970
Burleigh Cty., ND (Univ. of Mary) Facs. Rev. NR/NR 5.625 12/01/15 1,000,000 936,030
Carrington, ND Cath. Hlth. Corp. Facs. Rev. Aa/AA- 6.250 11/15/15 500,000 510,515
Dickinson, ND (BHS L\T Care, Inc.) Facs. Rev. Aa/NR 7.625 02/15/20 1,210,000 1,244,219
Dickinson, ND (BHS L\T Care, Inc.) Facs. Rev. Aa/NR 7.500 02/15/10 600,000 616,968
Dickinson, ND (St. Luke's Home) Rev. NR/NR 7.250 05/01/22 500,000 489,600
Fargo, ND (MeritCare Obligation Group) Rev. MBIA Aaa/AAA 5.375 06/01/27 1,565,000 1,440,035
#Fargo, ND (St. Luke's Hospital) Facs. Rev. Ref. NR/A+ 6.500 06/01/15 4,000,000 4,065,640
Fargo, ND Ref. & Impt. Aa/AA 5.500 05/01/22 375,000 355,916
Grand Forks, ND (4000 Valley Square Project) Hsg. Rev. NR/NR 6.250 12/01/34 2,710,000 2,475,097
Grand Forks, ND (Aurora Project) Sales Tax Rev. MBIA Aaa/AAA 5.625 12/15/29 1,500,000 1,438,320
Grand Forks, ND (United Hospital) Facs. Rev. MBIA Aaa/AAA 6.625 12/01/10 830,000 876,165
Grand Forks, ND (United Hospital) Facs. Rev. MBIA Aaa/AAA 6.500 12/01/06 750,000 778,515
Grand Forks, ND (United Hospital) Facs. Rev. MBIA Aaa/AAA 6.250 12/01/19 1,000,000 1,038,620
*Grand Forks, ND (United Hospital) Facs. Rev. MBIA Aaa/AAA 6.450 12/01/23 1,525,000 1,562,911
Grand Forks, ND (Valley Square Project) Hsg. Rev. NR/NR 6.375 12/01/34 645,000 601,263
Jamestown, ND (College) Facs. Rev. NR/NR 6.625 10/01/14 800,000 807,192
Jamestown, ND (Heritage Centre) Ref. Rev. NR/NR 5.700 11/01/20 250,000 228,657
+Lisbon, ND (Parkside Lutheran Home) Rev. NR/NR 0.000 06/01/12 500,000 82,065
Mercer Cty., ND (Basin Elec.) Rev. A/A 7.000 01/01/19 960,000 949,066
*Mercer Cty., ND (Basin Elec.) Rev. AMBAC Aaa/AAA 6.050 01/01/19 5,425,000 5,498,509
*Mercer Cty., ND (MT-Dak. Util.) Rev. FGIC Aaa/AAA 6.650 06/01/22 3,500,000 3,554,390
#Mercer Cty., ND (NW Public Svc.) Rev. Ref. MBIA Aaa/AAA 5.850 06/01/23 1,800,000 1,754,226
Morton Cty., ND (MT-Dak. Util.) Rev. FGIC Aaa/AAA 6.650 06/01/22 350,000 355,852
Morton Cty., ND Multifamily Hsg. Rev. Ref. NR/NR 6.750 03/01/21 500,000 490,445
ND (HFA) Hsg. Finance Program Aa-3/NR 5.250 01/01/30 500,000 444,315
ND (HFA) Hsg. Finance Program Aa-3/NR 6.750 07/01/25 3,050,000 3,124,146
ND (HFA) Hsg. Finance Program Aa-3/NR 6.300 01/01/15 645,000 665,885
ND (HFA) Hsg. Finance Program Aa-3/NR 5.200 07/01/19 500,000 457,330
ND (HFA) Hsg. Finance Program Aa-3/NR 6.300 07/01/16 430,000 443,837
ND (HFA) Hsg. Finance Program Aa-3/NR 6.100 07/01/28 1,870,000 1,870,617
ND (HFA) Multifamily Rev. Ref. FNMA NR/AAA 6.200 12/01/20 825,000 837,037
ND (HFA) Single Family Mrtge. Program Aa/A+ 7.900 07/01/10 83,000 84,253
ND (HFA) Single Family Mrtge. Program Aa/A+ 8.050 01/01/24 410,000 410,865
ND (HFA) Single Family Mrtge. Program Aa/A+ 7.750 07/01/24 450,000 457,240
ND (HFA) Single Family Mrtge. Program Aa/A+ 7.300 07/01/24 830,000 841,006
ND (HFA) Single Family Mrtge. Program Aa/A+ 7.000 07/01/23 690,000 704,738
ND (HFA) Single Family Mrtge. Program Aa/A+ 6.800 07/01/23 2,265,000 2,295,283
ND (HFA) Single Family Mrtge. Program Aa/A+ 6.700 07/01/13 295,000 305,481
ND (HFA) Single Family Mrtge. Program Aa/A+ 6.800 07/01/25 1,465,000 1,485,935
ND (HFA) Single Family Mrtge. Program Aa/A+ 6.950 07/01/25 1,925,000 1,982,827
ND Blding. Auth. Lease Rev. FSA Aaa/AAA 6.000 12/01/13 500,000 505,450
ND Blding. Auth. Lease Rev. Ref. AMBAC Aaa/AAA 6.000 06/01/10 1,700,000 1,749,487
ND Municipal Bond Bank Revolving Fund Program Aa/NR 4.625 10/01/19 690,000 581,001
ND Municipal Bond Bank Revolving Fund Program Aa/NR 6.300 10/01/15 530,000 557,894
ND Municipal Bond Bank Revolving Fund Program Aa/NR 6.250 10/01/14 3,525,000 3,753,455
ND State Board of Hgr. Educ. (MSU) Facs. Rev. Ref. NR/NR 6.750 08/01/05 755,000 778,873
ND State Board of Hgr. Educ. (ND St. Univ. Hsg.) A-1/NR 5.500 04/01/24 785,000 735,765
ND State Board of Hgr. Educ. (ND St. Univ. Hsg.) A-1/NR 5.600 04/01/29 1,035,000 969,857
ND State Board of Hgr. Educ. (UND) A/A- 7.300 09/01/10 1,425,000 1,463,048
ND State Water Commission Devl. Rev. AMBAC Aaa/AAA 5.750 07/01/27 1,250,000 1,208,013
ND Student Loan Rev. AMBAC Aaa/AAA 6.350 07/01/13 250,000 266,613
ND Student Loan Rev. AMBAC Aaa/AAA 6.300 07/01/12 100,000 106,230
ND Student Loan Rev. AMBAC Aaa/AAA 6.400 07/01/14 400,000 428,392
Wahpeton, ND (Town Centre Square) Rev. Ref. NR/NR 8.500 02/01/14 250,000 187,500
------------
TOTAL NORTH DAKOTA MUNICIPAL BONDS (COST: $65,233,263) $ 64,580,491
------------
SHORT-TERM SECURITIES (0.8%)
Federated Tax-Free Fund 15 (COST: $554,700) $ 554,700
------------
TOTAL INVESTMENTS IN SECURITIES (COST: $65,787,963) $ 65,135,191
OTHER ASSETS LESS LIABILITIES 679,592
------------
NET ASSETS $ 65,814,783
============
</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 December 31, 1999
Statement of Assets and Liabilities December 31, 1999
- -----------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities, at value (cost: $65,787,963) $ 65,135,191
Accrued dividends receivable 3,187
Accrued interest receivable 1,179,045
Prepaid expenses 3,018
---------------
Total Assets $ 66,320,441
---------------
LIABILITIES
Bank overdraft $ 18,063
Dividends payable 295,020
Accrued expenses 66,634
Payable for fund shares redeemed 125,941
---------------
Total Liabilities $ 505,658
---------------
NET ASSETS $ 65,814,783
===============
Net assets are represented by:
Capital stock outstanding, at par $ 7,837
Additional paid-in capital 72,524,725
Accumulated undistributed net realized gain (loss) on investments (6,065,007)
Unrealized depreciation on investments (652,772)
---------------
Total amount representing net assets applicable to
7,836,833 outstanding shares of $.001 par value
common stock (100,000,000 shares authorized) $ 65,814,783
===============
Net asset value per share $ 8.40
===============
Statement of Operations For the year ended December 31, 1999
- ------------------------------------------------------------
INVESTMENT INCOME
Interest $ 4,428,071
Dividends 31,791
---------------
Total Investment Income $ 4,459,862
---------------
EXPENSES
Investment advisory fees $ 452,965
Distribution fees (12b-1) 641,699
Transfer agent fees 84,414
Accounting service fees 59,238
Custodian fees 14,432
Professional fees 23,246
Directors fees 5,190
Transfer agent out of pockets 16,579
Reports to shareholders 5,031
License, fees, and registrations 1,889
Insurance expense 5,986
---------------
Total Expenses $ 1,310,669
Less expenses waived or absorbed
by the Fund's manager (329,246)
---------------
Total Net Expenses $ 981,423
---------------
NET INVESTMENT INCOME $ 3,478,439
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES
Net realized gain (loss) from:
Investment transactions $ (119,634)
Futures transactions 1,295,041
Net change in unrealized appreciation (depreciation) of:
Investments (5,164,154)
Futures (269,378)
---------------
Net Realized and Unrealized Gain (Loss) On Investments and
Futures $ (4,258,125)
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (779,686)
===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 1999
Statement of Changes in Net Assets
For the year ended December 31, 1999, and the year ended December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, 1999 December 31, 1998
--------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
<S> <C> <C>
Net investment income $ 3,478,439 $ 3,866,418
Net realized gain (loss) on investments and futures transactions 1,175,407 (1,462,603)
Net change in unrealized appreciation (depreciation) on investments
and futures (5,433,532) 530,067
---------------------------------------------
Net Increase (Decrease) in Net Assets Resulting From Operations $ (779,686) $ 2,933,882
---------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ($.41 and $.41 per share, respectively) $ (3,478,439) $ (3,866,418)
Return of capital distributions ($.04 and $.05 per share, respectively) (377,470) (421,529)
Distributions from net realized gain on investment and futures transactions 0 0
---------------------------------------------
Total Dividends and Distributions $ (3,855,909) $ (4,287,947)
---------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares $ 2,695,374 $ 3,794,231
Proceeds from reinvested dividends 2,556,364 2,911,012
Cost of shares redeemed (15,788,422) (12,798,668)
---------------------------------------------
Net Increase (Decrease) in Net Assets Resulting From
Capital Share Transactions $ (10,536,684) $ (6,093,425)
---------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS $ (15,172,279) $ (7,447,490)
NET ASSETS, BEGINNING OF PERIOD 80,987,062 88,434,552
---------------------------------------------
NET ASSETS, END OF PERIOD $ 65,814,783 $ 80,987,062
=============================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements December 31, 1999
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 December 31, 1999, a
net capital loss carryforward totaling $6,065,007, 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. CAPITAL SHARE TRANSACTIONS
As of December 31, 1999, there were 100,000,000 shares of $.001 par authorized;
7,836,833 and 9,055,044 were outstanding at December 31, 1999, and December 31,
1998, respectively.
Transactions in capital shares were as follows:
Shares
------------------------------------------------
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
------------------------------------------------
Shares sold 304,280 421,712
Shares issued on
reinvestment of dividends 291,365 323,387
Shares redeemed (1,813,856) (1,423,509)
------------------------------------------------
Net increase (decrease) (1,218,211) (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 $387,947 of investment
advisory fees after a partial waiver for the year ended December 31, 1999.
The Fund has a payable to ND Money Management, Inc. of $22,100 at December
31, 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 $377,470 of 12b-1 fee expenses after partial waiver for
the year ended December 31, 1999. The Fund has a payable to Capital of $27,837
at December 31, 1999 for 12b-1 fees.
The Fund has engaged ND Capital, Inc. as agent for the purchase of certain
investment securities. For the year ended December 31, 1999, no commissions
were earned by ND Capital, Inc.
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 $84,414 of transfer agency fees for the year
ended December 31, 1999. The Fund has a payable to ND Resources, Inc. of
$6,518 at December 31, 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 $59,237 of accounting service fees for the year ended
December 31, 1999. The Fund has a payable to ND Resources, Inc. of $4,727 at
December 31, 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 $5,481,603 and $14,011,056,
respectively, for the year ended December 31, 1999.
Note 6. INVESTMENT IN SECURITIES
At December 31, 1999, the aggregate cost of securities for federal income tax
purposes was $65,787,963 and the net unrealized depreciation of investments
based on the cost was $652,772, which is comprised of $844,760 aggregate gross
unrealized appreciation and $1,497,532 aggregate gross unrealized depreciation.
Financial Highlights Selected per share data and ratios for the period indicated
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.94 $ 9.09 $ 9.19 $ 9.09 $ 8.83
---------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income $ .41 $ .41 $ .43 $ .46 $ .47
Net realized and unrealized
gain (loss) on investments
and futures transactions (.50) (.10) (.05) .13 .28
---------------------------------------------------------------------------------------
Total Income (Loss) From
Investment Operations $ (.09) $ .31 $ .38 $ .59 $ .75
---------------------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income $ (.41) $ (.41) $ (.43) $ (.46) $ (.47)
Return of capital distributions (.04) (.05) (.05) (.03) (.02)
Distributions from net realized gains .00 .00 .00 .00 .00
---------------------------------------------------------------------------------------
Total Distributions $ (.45) $ (.46) $ (.48) $ (.49) $ (.49)
---------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 8.40 $ 8.94 $ 9.09 $ 9.19 $ 9.09
---------------------------------------------------------------------------------------
Total Return (1.11)%(A) 3.48%(A) 4.17%(A) 6.62% (A) 8.68%(A)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $ 65,815 $ 80,987 $ 88,435 $ 91,631 $ 94,532
Ratio of net expenses (after expense
assumption) to average net assets 1.30%(B) 1.30%(B) 1.30%(B) 1.13%(B) 1.05%(B)
Ratio of net investment income
to average net assets 4.61% 4.59% 4.70% 5.00% 5.20%
Portfolio turnover rate 7.45% 7.32% 13.18% 12.92% 8.02%
</TABLE>
[FN]
(A)Excludes contingent deferred sales charge of 4%.
(B)During the periods indicated above, ND Holdings, Inc. assumed/waived
expenses of $329,246, $331,888, $50,649, $40,861, and $3,799, respectively.
If the expenses had not been assumed/waived, the annualized ratios of total
expenses to average net assets would have been 1.74%, 1.70%, 1.36%, 1.18%,
and 1.05%, respectively.
</FN>
The accompanying notes are an integral part of these financial statements.
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, 1999, 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 each of the five periods
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.
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, 1999, 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, 1999, 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 each of the respective
periods stated in the first paragraph, in conformity with generally accepted
accounting principles.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota
February 03, 2000
