Dear Shareholder:
We are pleased to enclose the semi-annual report of the operations of the ND
Tax-Free Fund, Inc., the "Fund," for the six month period ended June 30, 2000.
The Fund's portfolio and related financial statements are presented within
for your review.
As we end mid-year, the Federal Reserve remains vigilant of a strong U.S.
economy, raising the fed funds rate 1.75% to a current level of 6.50%.
Strong consumer spending, tight labor markets, and an increasing CPI (Consumer
Price Index) remain key factors in the Federal Reserve's actions.
On the other hand, certain sectors of the economy are showing signs of
slowing. Housing starts, retail sales, corporate profits, and a cautious
equity market reflect the actions taken by Mr. Greenspan and his colleagues.
Tax-free investments continue to offer investors attractive yields in the wake
of rising interest rates. High-grade municipal bonds are currently trading at
90-100% of taxable Treasuries. While no one knows what the Federal Reserve's
next move will be, history tells us that municipal bonds at current levels
have proven to be attractive investments.
The ND Tax-Free Fund, Inc. Class B shares began the year at $8.40 and ended
the six month period at $8.37. The ND Tax-Free Fund, Inc. Class A shares
started the period on January 7th, 2000 at $8.38 and ended June 30, 2000 at
$8.36. In anticipation of Federal Reserve actions, the Fund utilized a
defensive position in U.S. Treasury futures. Share price was stabilized as
yields on U.S. Treasuries rose on Federal Reserve rate hikes and tempered as
signs of a slowing economy rallied the treasury market. Stability of share
price is the primary objective of a defensive position.
Diversification remains an important strategy of the Fund. Through mid-year,
purchases in the primary and secondary market included Fargo School District.
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
PERFORMANCE AND COMPOSITION
---------------------------
[pie graph]
Portfolio Quality Ratings
(based on Total Long-Term Investments)
AAA 37.3
AA 31.2
A 15.3
NR 16.2
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 graph]
HC-Health Care 24.6
H-Housing 23.3
I-Industrial 14.6
E-Education 12.2
O-Other 9.8
U-Utilities 7.0
C/L-COP/Lease 6.4
W/S-Water/Sewer 2.1
Market sectors are breakdowns of the Fund's portfolio holdings into specific
investment classes.
These percentages are subject to change.
AVERAGE ANNUAL TOTAL RETURNS
For periods ending June 30, 2000
--------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES Since Inception
1 year 5 year 10 year (January 3, 1989)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Without CDSC 0.03% 4.06% *N/A 4.57%
With CDSC (4% max) (3.78)% N/A N/A N/A
For periods ending June 30, 2000
--------------------------------
CLASS A SHARES Since Inception
1 year 5 year 10 year (January 7, 2000)
-------------------------------------------------------------------------------------
Without Sales Charge N/A N/A N/A N/A
With Sales Charge (4.25%) N/A N/A N/A N/A
<FN>
*A 10 year total return for Class B shares is not available even though the
Fund has been open for 10 years. Shares in Class B are automatically
converted to Class A after 8 years. A 10 year total return for Class B shares
will be reported when Class A shares have been open for 10 years.
</FN>
</TABLE>
TERMS & DEFINITIONS
-------------------
AVERAGE ANNUAL TOTAL RETURN
A standardized measurement of the return (yield and appreciation) earned by the
fund on an annual basis.
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.
MULTIPLE CLASSES OF SHARES
Although an individual mutual fund invests in only one portfolio of securities,
it may offer investors several purchase options which are "classes" of shares.
Multiple classes permit shareholders to choose the fee structure that best
meets their needs and goals. Generally, each class will differ in terms of
how and when sales charges and certain fees are assessed.
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.
OFFERING PRICE
The price at which a mutual fund's share can be purchased. The offering price
per share is the current net asset value plus any sales charge.
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.
<TABLE>
<CAPTION>
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
Class B Shares Class A Shares
-------------------- -------------------
ND Tax-Free Fund Lehman Brothers w/o w/Max Lehman Brothers
w/o CDSC Municipal Bond Sales Sales Municipal Bond
Index Charge Charge Index
-------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
01/03/1989 $10,000 $10,000 01/07/2000 $10,000 $ 9,575 $10,000
1989 $10,291 $11,079 06/30/2000 $10,230 $ 9,795 $10,449
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
06/30/2000 $16,723 $22,543
</TABLE>
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.
SCHEDULE OF INVESTMENTS June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
NAME OF ISSUER
Percentages represent the market value of each Rating Coupon Principal Market
investment category to total net assets Moody's/S&P Rate Maturity Amount Value
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NORTH DAKOTA MUNICIPAL BONDS (98.6%)
Bismarck, ND (Marillac Manor) Facs. Rev. Ref......... NR/NR 7.700% 02/01/16 $ 250,000 $ 242,940
Burleigh Cty., ND (St. Vincent Nursing Home)
Facs. Rev. .......................................... NR/NR 7.000 06/01/19 500,000 481,830
Burleigh Cty., ND (Univ. of Mary) Facs. Rev. ........ NR/NR 5.750 12/01/11 1,000,000 1,011,360
Burleigh Cty., ND (Univ. of Mary) Facs. Rev. ........ NR/NR 5.875 12/01/15 1,000,000 998,330
Burleigh Cty., ND (Univ. of Mary) Facs. Rev. ........ NR/NR 5.625 12/01/15 500,000 458,630
Carrington, ND Cath. Hlth. Corp. Facs. Rev. ......... Aa-3/AA- 6.250 11/15/15 500,000 514,295
Dickinson, ND (St. Luke's Home) Rev. ................ NR/NR 7.250 05/01/22 500,000 490,350
Fargo, ND (MeritCare Obligation Group) Rev. MBIA..... Aaa/AAA 5.375 06/01/27 1,565,000 1,421,756
#Fargo, ND (St. Luke's Hospital) Facs. Rev. Ref. .... NR/A+ 6.500 06/01/15 4,000,000 4,089,280
Fargo, ND School District Bldg. Auth. Lease Rev. .... A-3/NR 5.750 05/01/18 500,000 494,185
Grand Forks, ND (4000 Valley Square Project)
Hsg. Rev............................................. NR/NR 6.250 12/01/34 2,710,000 2,353,039
Grand Forks, ND (Aurora Project) Sales Tax Rev. MBIA. Aaa/AAA 5.625 12/15/29 1,500,000 1,424,055
Grand Forks, ND (United Hospital) Facs. Rev. MBIA.... Aaa/AAA 6.625 12/01/10 830,000 868,238
Grand Forks, ND (United Hospital) Facs. Rev. MBIA.... Aaa/AAA 6.500 12/01/06 750,000 778,305
Grand Forks, ND (United Hospital) Facs. Rev. MBIA.... Aaa/AAA 6.250 12/01/19 1,000,000 1,046,380
*Grand Forks, ND (United Hospital) Facs. Rev. MBIA... Aaa/AAA 6.450 12/01/23 1,525,000 1,567,670
Grand Forks, ND (Valley Square Project) Hsg. Rev. ... NR/NR 6.375 12/01/34 645,000 557,970
Jamestown, ND (College) Facs. Rev. .................. NR/NR 6.625 10/01/14 800,000 818,240
Jamestown, ND (Heritage Centre) Ref. Rev. ........... NR/NR 5.700 11/01/20 250,000 230,130
+Lisbon, ND (Parkside Lutheran Home) Rev. ........... NR/NR 0.000 06/01/12 500,000 131,978
Mercer Cty., ND (Basin Elec.) Rev. .................. A/A 7.000 01/01/19 960,000 977,750
*Mercer Cty., ND (Basin Elec.) Rev. AMBAC............ Aaa/AAA 6.050 01/01/19 5,425,000 5,558,943
*Mercer Cty., ND (MT-Dak. Util.) Rev. FGIC........... Aaa/AAA 6.650 06/01/22 3,500,000 3,654,490
#Mercer Cty., ND (NW Public Svc.) Rev. Ref. MBIA..... Aaa/AAA 5.850 06/01/23 300,000 291,654
Morton Cty., ND (MT-Dak. Util.) Rev. FGIC............ Aaa/AAA 6.650 06/01/22 350,000 362,058
Morton Cty., ND Multifamily Hsg. Rev. Ref. .......... NR/NR 6.750 03/01/21 500,000 490,210
ND (HFA) Hsg. Finance Program ....................... Aa-3/NR 6.750 07/01/25 2,015,000 2,059,209
ND (HFA) Hsg. Finance Program ....................... Aa-3/NR 6.300 01/01/15 625,000 637,506
ND (HFA) Hsg. Finance Program ....................... Aa-3/NR 6.300 07/01/16 420,000 429,790
ND (HFA) Hsg. Finance Program ....................... Aa-3/NR 6.100 07/01/28 850,000 847,722
ND (HFA) Single Family Mrtge. Program ............... Aa/A+ 7.900 07/01/10 78,000 79,289
ND (HFA) Single Family Mrtge. Program ............... Aa/A+ 8.050 01/01/24 385,000 394,190
ND (HFA) Single Family Mrtge. Program ............... Aa/A+ 7.750 07/01/24 425,000 437,703
ND (HFA) Single Family Mrtge. Program ............... Aa/A+ 7.300 07/01/24 825,000 834,347
ND (HFA) Single Family Mrtge. Program ............... Aa/A+ 7.000 07/01/23 655,000 681,613
ND (HFA) Single Family Mrtge. Program ............... Aa/A+ 6.800 07/01/23 2,180,000 2,233,148
ND (HFA) Single Family Mrtge. Program ............... Aa/A+ 6.700 07/01/13 290,000 297,337
ND (HFA) Single Family Mrtge. Program ............... Aa/A+ 6.800 07/01/25 1,465,000 1,496,996
ND (HFA) Single Family Mrtge. Program ............... Aa/A+ 6.950 07/01/25 1,920,000 1,973,107
ND Blding. Auth. Lease Rev. FSA...................... Aaa/AAA 6.000 12/01/13 500,000 507,775
ND Blding. Auth. Lease Rev. Ref. AMBAC............... Aaa/AAA 6.000 06/01/10 1,700,000 1,758,072
ND Municipal Bond Bank Revolving Fund Program ....... Aa/NR 4.625 10/01/19 690,000 582,470
ND Municipal Bond Bank Revolving Fund Program ....... Aa/NR 6.300 10/01/15 530,000 558,032
ND Municipal Bond Bank Revolving Fund Program ....... Aa/NR 6.250 10/01/14 3,525,000 3,674,354
ND State Board of Hgr. Educ. (MSU) Facs. Rev. Ref. .. NR/NR 6.750 08/01/05 755,000 770,757
ND State Board of Hgr. Educ. (ND St. Univ. Hsg.) .... A-1/NR 5.500 04/01/24 785,000 737,194
ND State Board of Hgr. Educ. (ND St. Univ. Hsg.) .... A-1/NR 5.600 04/01/29 1,035,000 979,389
ND State Board of Hgr. Educ. (UND) .................. A/A- 7.300 09/01/10 1,425,000 1,440,034
ND State Water Commission Devl. Rev. AMBAC........... Aaa/AAA 5.750 07/01/27 1,250,000 1,208,450
ND Student Loan Rev. AMBAC........................... Aaa/AAA 6.300 07/01/12 100,000 103,577
ND Student Loan Rev. AMBAC........................... Aaa/AAA 6.350 07/01/13 250,000 260,223
ND Student Loan Rev. AMBAC........................... Aaa/AAA 6.400 07/01/14 400,000 418,096
Wahpeton, ND (Town Centre Square) Rev. Ref. ......... NR/NR 8.500 02/01/14 250,000 187,500
------------
TOTAL NORTH DAKOTA MUNICIPAL BONDS (COST: $57,391,844) ......................................................... $ 56,901,946
------------
SHORT-TERM SECURITIES (0.4%)
Federated Tax-Free Fund 15 (COST: $204,104) ................................................................... $ 204,104
------------
TOTAL INVESTMENTS IN SECURITIES (COST: $57,595,948) ........................................................... $ 57,106,050
OTHER ASSETS LESS LIABILITIES.................................................................................. 610,008
------------
NET ASSETS..................................................................................................... $ 57,716,058
============
<FN>
* 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.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS June 30, 2000
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES June 30, 2000 (Unaudited)
-------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value
(cost: $57,595,948) .............................. $ 57,106,050
Accrued dividends receivable...................... 1,686
Accrued interest receivable....................... 1,004,765
Prepaid expenses.................................. 11,165
Variation margin on futures....................... 40,776
Receivable from manager........................... 51
------------------
Total Assets................................... $ 58,164,493
------------------
LIABILITIES
Dividends payable................................. $ 239,392
Bank overdraft.................................... 139,787
Accrued expenses.................................. 61,204
Payable for fund shares redeemed.................. 8,052
------------------
Total Liabilities.............................. $ 448,435
------------------
NET ASSETS............................................. $ 57,716,058
==================
Net assets are represented by:
Capital stock outstanding, at par................. $ 6,898
Additional paid-in capital........................ 64,675,444
Accumulated undistributed net realized
gain (loss) on investments........................ (6,435,610)
Accumulated undistributed net unrealized
gain (loss) on futures........................... (40,776)
Unrealized depreciation on investments ........... (489,898)
------------------
Total amount representing net assets
applicable to 6,897,987 outstanding shares
of $.001 par value common stock
(100,000,000 shares authorized) ............. $ 57,716,058
==================
Net asset value per share.............................. $ 8.37
==================
NET ASSETS CONSIST OF:
Class A........................................... $ 19,013,644
Class B........................................... $ 38,702,414
------------------
Total Net Assets............................. $ 57,716,058
-------------------------------------------------------------------------
SHARES OUTSTANDING:
Class A........................................... 2,273,164
Class B........................................... 4,624,823
-------------------------------------------------------------------------
NET ASSET VALUE PER SHARE:
Class A .......................................... $ 8.36
Class A - offering price
(based on sales charge of 4.25%).................. $ 8.73
Class B........................................... $ 8.37
-------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the six months ended June 30, 2000 (Unaudited)
--------------------------------------------------------------------------
INVESTMENT INCOME
Interest........................................... $ 1,861,819
Dividends.......................................... 13,891
------------------
Total Investment Income....................... $ 1,875,710
------------------
EXPENSES
Investment advisory fees........................... $ 182,804
Distribution fees (12b-1)-Class A.................. 19,022
Distribution fees (12b-1)-Class B.................. 172,716
Transfer agent fees................................ 35,481
Accounting service fees............................ 26,636
Custodian fees..................................... 5,769
Professional fees.................................. 6,236
Directors fees..................................... 2,435
Transfer agent out-of-pockets...................... 8,290
Reports to shareholders............................ 2,528
Insurance expense.................................. 2,947
License, fees, and registrations................... 3,130
------------------
Total Expenses................................. $ 467,994
Less expenses waived or absorbed
by the Fund's manager............................. (98,719)
------------------
Total Net Expenses............................ $ 369,275
------------------
NET INVESTMENT INCOME.................................. $ 1,506,435
------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES
Net realized gain (loss) from:
Investment transactions........................... $ (256,897)
Futures transactions.............................. (113,706)
Net change in unrealized
appreciation (depreciation) of:
Investments....................................... 162,874
Futures........................................... (40,776)
------------------
Net Realized and Unrealized Gain (Loss)
On Investments and Futures.................... $ (248,505)
-------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.............................. $ 1,257,930
==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS June 30, 2000
Statement of Changes in Net Assets
For the six months ended June 30, 2000, and the year ended December 31, 1999
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
June 30, 2000 December 31, 1999
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income...................................... $ 1,506,435 $ 3,478,439
Net realized gain (loss) on investments
and futures transactions................................... (370,603) 1,175,407
Net change in unrealized appreciation
(depreciation) on investments and futures................... 122,098 (5,433,532)
------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting From Operations...................... $ 1,257,930 $ (779,686)
------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A ($.21 and $.00, respectively) ................. $ (399,455) $ 0
Class B ($.20 and $.41, respectively) ................. (1,106,980) (3,478,439)
Return of capital distributions:
Class A ($.00 and $.00, respectively) ................. 0 0
Class B ($.00 and $.04, respectively) ................. 0 (377,470)
Distributions from net realized gain on
investment and futures transactions:
Class A................................................ 0 0
Class B................................................ 0 0
------------------------------------------------------------
Total Dividends and Distributions..................... $ (1,506,435) $ (3,855,909)
------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares:
Class A................................................. $ 51,032 $ 0
Class B................................................. 727,466 2,695,374
Proceeds from reinvested dividends:
Class A................................................. 210,566 0
Class B................................................. 773,639 2,556,364
Cost of shares redeemed:
Class A................................................. (2,493,410) 0
Class B................................................. (7,119,513) (15,788,422)
Exchanges to/from related fund classes:
Class A................................................. 21,200,258 0
Class B................................................. (21,200,258) 0
------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting From
Capital Share Transactions............................ $ (7,850,220) $ (10,536,684)
------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........................ $ (8,098,725) $ (15,172,279)
NET ASSETS, BEGINNING OF PERIOD................................ 65,814,783 80,987,062
------------------------------------------------------------
NET ASSETS, END OF PERIOD...................................... $ 57,716,058 $ 65,814,783
==============================================================
</TABLE.
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS June 30, 2000 (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.
All shares existing prior to January 7, 2000, the commencement date of Class
A shares, were classified as Class B shares. Class B shares are sold without
an initial sales charge but are subject to a distribution fee of up to 0.85%
on an annual basis, and a Contingent Deferred Sales Charge that decreases
depending on how long the shares have been held. Class A shares are sold with
an initial sales charge of 4.25% and a distribution fee of up to 0.25% on an
annual basis. The two classes of shares represent interests in the same
portfolio of investments, have the same rights and are generally identical in
all respects except that each class bears its separate distribution and certain
other class expenses, and have exclusive voting rights with respect to any
matter on which a separate vote of any class is required.
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, Inc. The matrix system has been developed based on procedures
approved by the Board of Trustees 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, 2000, 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.
MULTIPLE CLASS ALLOCATIONS - All income, expenses (other than class-specific
expenses), and realized and unrealized gains or losses are allocated daily to
each class of shares based upon the relative value of the shares of each class.
Class-specific expenses, distribution fees and any other items that are
specifically attributable to a particular class are charged directly to such
class. For the six months ended June 30, 2000, distribution fees and
registration fees were the only class-specific expenses.
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. Net
investment income, other than distribution fees and a portion of registration
fees, are allocated daily to each class of shares based upon the relative
value of the shares of each class.
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.
At June 30, 2000, the Fund had outstanding futures contracts to sell debt
securities as follows:
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Expiration Number of Futures Valuation as of June 30, Unrealized Appreciation
Contracts to Sell Date Contracts 2000 (Depreciation)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Notes 09/00 50 ($40,776) ($40,776)
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 June 30, 2000, there were 100,000,000 shares of $.001 par authorized;
6,897,987 and 7,836,833 shares were outstanding at June 30, 2000, and
December 31, 1999, respectively.
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares
-------------- --------------
For the Period Since Inception For the Six Months
(January 7, 2000) thru June Ended June 30,
30, 2000 2000 For the Year Ended
(Unaudited) (Unaudited) December 31, 1999
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares sold 6,089 87,399 304,280
Shares issued on reinvestment of dividends 25,252 92,588 291,365
Shares redeemed (299,281) (853,190) (1,813,856)
Shares exchanged to Class A 0 (2,538,807) 0
Shares exchanged from Class B 2,541,104 0 0
-----------------------------------------------------------------------------------
Net increase (decrease) 2,273,164 (3,212,010) (1,218,211)
===================================================================================
</TABLE>
Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
ND Money Management, Inc., the Fund's investment adviser; ND Capital, Inc., the
Fund's underwriter; and ND Resources, Inc., the Fund's transfer and accounting
services agent; are subsidiaries of ND Holdings, Inc., the Fund's sponsor.
The Fund has engaged ND Money Management, Inc. to provide investment advisory
and management services to the Fund. The Investment Advisory Agreement
provides for fees to be computed at an annual rate of 0.60% of the Fund's
average daily net assets. The Fund has recognized $181,033 of investment
advisory fees after a partial waiver for the six months ended June 30, 2000.
The Fund has a payable to ND Money Management, Inc. of $28,956 at June 30,
2000 for investment advisory fees. Certain officers and directors of the
Fund are also officers and directors of the investment adviser.
ND Capital, Inc. ("Capital") serves as the principal underwriter for the Fund.
The Fund has adopted a distribution plan for each class of shares as allowed by
Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse
its principal underwriter for costs related to selling shares of the Fund and
for various other services. These costs, which consist primarily of
commissions and service fees to broker-dealers who sell shares of the Fund,
are paid by shareholders through expenses called "Distribution Plan expenses."
Class B presently pays an annual distribution fee of up to 0.85% of the
average daily net assets of the class. Class A presently pays an annual
distribution fee of up to 0.25% of the average daily net assets of the class.
Distribution Plan expenses are calculated daily and paid monthly.
During the six months ended June 30, 2000, amounts paid or accrued to Capital
and fees waived, if any, pursuant to Class A and Class B Distribution Plans
were as follows:
12b-1 Fees Charged 12b-1 Fees Waived
------------------ -----------------
Class A Shares 19,022 (15,936)
Class B Shares 172,716 (80,877)
The Fund has engaged ND Capital, Inc. as agent for the purchase of certain
investment securities. For the six months ended June 30, 2000, 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 $35,433 of transfer agency fees after
a partial waiver for the six months ended June 30, 2000. The Fund has a
payable to ND Resources, Inc. of $5,740 at June 30, 2000, 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 $26,600 of accounting
service fees after a partial waiver for the six months ended June 30, 2000.
The Fund has a payable to ND Resources, Inc. of $4,358 at June 30, 2000, for
accounting service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sale of investment securities
(excluding short-term securities) aggregated $497,220 and $8,029,880,
respectively, for the six months ended June 30, 2000.
Note 6. INVESTMENT IN SECURITIES
At June 30, 2000, the aggregate cost of securities for federal income tax
purposes was $57,595,948 and the net unrealized depreciation of investments
based on the cost was $489,898, which is comprised of $805,054 aggregate gross
unrealized appreciation and $1,294,952 aggregate gross unrealized depreciation.
FINANCIAL HIGHLIGHTS
---------------------
Selected per share data and ratios for the period indicated
-----------------------------------------------------------
Class A Shares
--------------
<TABLE>
<CAPTION>
For the Period
Since Inception
(January 7, 2000)
thru June 30, 2000
(Unaudited)
------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 8.38
------------------
Income from Investment Operations:
Net investment income...................... $ .21
Net realized and unrealized gain (loss)
on investment and futures transactions..... (.02)
------------------
Total Income (Loss) From
Investment Operations................ $ .19
------------------
Less Distributions:
Dividends from net investment
Income..................................... $ (.21)
Return of capital distributions ........... .00
Distributions from net realized gains...... .00
------------------
Total Distributions.................... $ (.21)
------------------
NET ASSET VALUE, END OF PERIOD.................. $ 8.36
==================
Total Return.................................... 4.60%(A)(C)
Ratios/Supplemental Data:
Net assets, end of period (in
thousands) ................................ $ 19,014
Ratio of net expenses (after expense
assumption) to average net assets.......... 0.94%(B)(C)
Ratio of net investment income to
average net assets......................... 5.20%(C)
Portfolio turnover rate.................... 0.83%
<FN>
(A) Excludes maximum sales charge of 4.25%.
(B) During the periods indicated above, ND Holdings, Inc. assumed/waived
expenses of $16,381. If the expenses had not been assumed/waived, the
annualized ratio of total expenses to average net assets would have been 1.15%.
(C) Ratio is annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
--------------------
Selected per share data and ratios for the period indicated
-----------------------------------------------------------
Class B Shares
--------------
<TABLE>
<CAPTION>
For the Six For The For The For The For The For The
Months Ended Year Ended Year Ended Year Ended Year Ended Year Ended
June 30, 2000 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $ 8.40 $ 8.94 $ 9.09 $ 9.19 $ 9.09 $ 8.83
--------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income............. $ .20 $ .41 $ .41 $ .43 $ .46 $ .47
Net realized and unrealized gain (loss) on
investments and futures
transactions...................... (.03) (.50) (.10) (.05) .13 .28
--------------------------------------------------------------------------------------
Total Income (Loss) From Investment
Operations.................... $ .17 $ (.09) $ .31 $ .38 $ .59 $ .75
--------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income............................ $ (.20) $ (.41) $ (.41) $ (.43) $ (.46) $ (.47)
Return of capital distributions... .00 (.04) (.05) (.05) (.03) (.02)
Distributions from net
realized gains.................... .00 .00 .00 .00 .00 .00
--------------------------------------------------------------------------------------
Total Distributions........... $ (.20) $ (.45) $ (.46) $ (.48) $ (.49) $ (.49)
--------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD......... $ 8.37 $ 8.40 $ 8.94 $ 9.09 $ 9.19 $ 9.09
======================================================================================
Total Return........................... 4.18%(A)(C) (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) ................... $ 38,702 $ 65,815 $ 80,987 $ 88,435 $ 91,631 $ 94,532
Ratio of net expenses (after expense
assumption) to average
net assets........................ 1.30%(B)(C) 1.30%(B) 1.30%(B) 1.30%(B) 1.13%(B) 1.05%(B)
Ratio of net investment income to
average net assets................ 4.87%(C) 4.61% 4.59% 4.70% 5.00% 5.20%
Portfolio turnover rate........... 0.83% 7.45% 7.32% 13.18% 12.92% 8.02%
<FN>
(A) Excludes contingent deferred sales charge of 4%.
(B) During the periods indicated above, ND Holdings, Inc. assumed/waived
expenses of $82,338, $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 1.67%,
1.74%, 1.70%, 1.36%, 1.18%, and 1.05%, respectively.
(C) Ratio is annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
