Dear Shareholder:
We are pleased to enclose the semi-annual report of the operations of the
Montana 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 Montana Tax-Free Fund, Inc. began the year at $10.05 and closed the six
month period at $9.84. In anticipation of stronger economic growth, the Montana
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 Montana Health Facilities for Sisters of Charity,
Montana Long Range Building, and Montana Health Facilitites for Providence
Services.
Income exempt from federal and Montana 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 charge.
Quality Ratings
A designation assigned by independent rating companies to give a relative
indication of a bond's credit worthiness. "AAA", "AA" and "A" indicate
investment grade securities. Ratings can range from a high of "AAA" to a low
of "D".
Total Return
Measures both the net investment income and any realized and unrealized
appreciation or depreciation of the underlying investments in the fund's
portfolio for the period, assuming the reinvestment of all dividends. It
represents the aggregate percentage or dollar value change over the period.
PERFORMANCE & COMPOSITION
- -------------------------
Portfolio Ratings
(based on Total Long-Term Investments)
- --------------------------------------
[pie chart]
AAA 45.5
AA 18.1
A 16.6
BBB 13.6
NR 6.2
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]
HC-Health Care 32.6
I-Industrial 26.4
H-Housing 16.0
S-School 10.5
GO-General Obligation 6.5
T-Transportation 3.5
WS-Water/Sewer 2.5
O-Other 2.0
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
Montana Tax-Free Fund and the Lehman Brothers Municipal Bond Index
Montana Tax-Free Fund Lehman Brothers
w/o CDSC Municipal Bond Index
-----------------------------------------------------------
8/12/1993 $10,000 $10,000
1993 $10,268 $10,363
1994 $10,093 $ 9,827
1995 $11,390 $11,543
1996 $12,019 $12,055
1997 $12,736 $13,164
1998 $13,201 $14,018
6/30/99 $13,229 $13,892
Average Annual Total Returns
- ----------------------------
For periods ending June 30, 1999
Since Inception
1 year 5 year Aug.12, 1993
- ------------------------------------------------------------------------------
Without CDSC. 2.25% 5.07% 4.87%
With CDSC. (1.65)% NA NA
- ------------------------------------------------------------------------------
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 Montana
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) $10.05
06-30-99 NAV $ 9.84
Average Maturity 22.2 years
Number of Issues 78
Total Net Assets $63,557,051
<TABLE>
<CAPTION>
Schedule of Investments June 30, 1999 (Unaudited)
Name of Issuer
Percentages represent the market value of each investment
category to total net assets
Rating
(Unaudited) Coupon Principal Market
Moody's/S&P Rate Maturity Amount Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MONTANA MUNICIPAL BONDS (99.9%)
Anaconda-Deer River Cty., MT (Arco) Solid Waste Facs. Rev. A/A 6.375% 10/01/16 $ 1,500,000 $ 1,584,210
Billings, MT (West Park Village) Multi Hsg. Devl. Ref. Rev. Aaa/AAA 5.550 12/01/32 2,500,000 2,503,650
Billings, MT Tax Increment Urban Renewal Ref. Baa/NR 7.100 03/01/08 650,000 692,647
Forsyth, MT (Montana Power) Pollution Control Rev. MBIA Aaa/AAA 5.900 12/01/23 600,000 626,754
*Forsyth, MT (Montana Power) Pollution Control Rev. MBIA Aaa/AAA 6.125 05/01/23 1,410,000 1,499,380
Forsyth, MT (Montana Power) Pollution Control Rev. Ref. Baa-1/A- 6.125 05/01/23 1,220,000 1,266,836
Forsyth, MT (Montana Power) Pollution Control Rev. Ref. Baa-1/A- 5.900 12/01/23 300,000 305,313
#Forsyth, MT (Montana Power) Pollution Control Rev. Ref. Aaa/AAA 6.125 05/01/23 4,250,000 4,502,068
Forsyth, MT (Montana Power) Pollution Control Rev. Ref. Aaa/AAA 5.900 12/01/23 225,000 235,033
*Forsyth, MT (Puget Sound) Pollution Control Rev. AMBAC Aaa/AAA 7.050 08/01/21 750,000 804,352
*Forsyth, MT (Puget Sound) Pollution Control Rev. AMBAC Aaa/AAA 6.800 03/01/22 565,000 608,465
Forsyth, MT (Puget Sound) Pollution Control Rev. MBIA Aaa/AAA 5.875 04/01/20 540,000 561,325
*Great Falls, MT Water & Sewerage Rev. FGIC Aaa/AAA 6.400 08/01/12 300,000 324,243
Hamilton, MT (Valley View Estates) Nursing Home Rev. NR/NR 7.250 05/01/26 250,000 263,325
Kalispell, MT Flathead Municipal Airport Auth.(Glacier Park) NR/NR 6.300 06/01/17 2,190,000 2,205,045
Lewis & Clark Cty., MT Solid Waste Facs. Rev. A/NR 6.100 10/01/14 250,000 274,172
Lewis & Clark MT Environmental Rev (Asarco Project) Baa-3/BBB- 5.600 01/01/27 2,800,000 2,686,684
Lewis & Clark MT Environmental Rev (Asarco Project) Baa-3/BBB- 5.850 10/01/33 500,000 486,265
Lewistown, MT Water Syst. Rev. NR/NR 5.700 07/01/15 435,000 462,814
Lewistown, MT Water Syst. Rev. NR/NR 5.700 07/01/16 460,000 488,419
Montana ST (Long Range Bldg) G.O. Aa-3/AA- 5.000 08/01/16 1,080,000 1,064,610
Montana ST (Long Range Bldg) G.O. Aa-3/AA- 5.000 08/01/17 1,070,000 1,054,218
Montana ST (Long Range Bldg) G.O. Aa-3/AA- 5.000 08/01/18 1,250,000 1,231,100
MT (Broadwater Power) Coal Severance Tax Ref. A-1/AA- 6.875 12/01/17 445,000 468,937
MT Board of Hsg., Multifamily Mrtge. FHA Aa-1/NR 6.150 08/01/26 450,000 467,222
MT Board of Hsg., Single Family Mrtge. Aa/AA 6.150 06/01/30 1,165,000 1,214,617
MT Board of Hsg., Single Family Program Aa/AA+ 6.400 12/01/35 490,000 501,902
MT Board of Hsg., Single Family Program Aa/AA+ 6.400 12/01/27 305,000 318,664
MT Board of Hsg., Single Family Program Aa/AA+ 6.500 12/01/32 150,000 155,654
MT Board of Hsg., Single Family Program Aa/AA+ 6.100 12/01/24 620,000 632,741
MT Board of Hsg., Single Family Program Aa/AA+ 6.300 06/01/08 150,000 159,602
MT Board of Hsg., Single Family Program Aa/AA+ 6.750 12/01/14 135,000 144,189
MT Board of Hsg., Single Family Program Aa/AA+ 6.900 06/01/25 55,000 57,480
MT Board of Hsg., Single Family Program Aa/AA+ 6.700 12/01/26 205,000 215,115
MT Board of Hsg., Single Family Program FHA/VA Aa/AA+ 6.350 06/01/27 1,040,000 1,077,055
MT Board of Hsg., Single Family Program FHA/VA Aa/AA+ 6.250 12/01/17 2,070,000 2,168,014
MT Board of Hsg., Single Family Program FHA/VA Aa/AA+ 6.550 12/01/25 65,000 67,500
MT Board of Hsg., Single Family Program FHA Aa-1/AA+ 5.450 06/01/27 500,000 497,650
MT Board of Invmts. (Workers Compensation) Ref MBIA Aaa/AAA 6.875 06/01/11 200,000 213,764
MT Board of Invmts. (Workers Compensation) Ref. MBIA Aaa/AAA 6.875 06/01/20 145,000 154,951
MT Board of Invmts. (Workers Compensation) Ref. Escrowed Aaa/AAA 6.875 06/01/20 85,000 90,834
MT Board of Invmts. (Workers Compensation) Ref. Escrowed Aaa/AAA 6.875 06/01/20 270,000 288,530
MT Board of Regents (Univ. of MT) Fac. Impvt. Rev. MBIA Aaa/AAA 5.000 05/15/21 650,000 630,766
MT Hgr. Educ. Student Assistance Corp. Rev. A/NR 6.500 12/01/12 250,000 268,612
MT Hgr. Educ. Student Assistance Corp. Rev. A/NR 6.500 12/01/14 500,000 532,940
MT Hgr. Educ. Student Assistance Corp. Rev. A/NR 5.500 12/01/31 2,000,000 1,958,420
MT Hlth. Facs. Auth. (Big Horn Hosp. - Hardin) Rev. A/NR 5.100 02/01/18 300,000 291,243
MT Hlth. Facs. Auth. (Billings Clinic Deaconess) Rev. AMBAC Aaa/AAA 5.250 02/15/20 1,700,000 1,664,385
MT Hlth. Facs. Auth. (Bozeman Deaconess) Rev. Ref. NR/A+ 5.750 06/01/08 100,000 103,261
MT Hlth. Facs. Auth. (Bozeman Deaconess) Rev. Ref. NR/A+ 5.000 06/01/18 1,500,000 1,433,475
MT Hlth. Facs. Auth. (Kalispell Regl. Hosp.) AMBAC Aaa/AAA 5.000 07/01/18 250,000 241,952
MT Hlth. Facs. Auth. (Lewis & Clark Nursing Home) Rev. A/NR 5.100 02/01/18 350,000 339,385
MT Hlth. Facs. Auth. (Lewis & Clark Office Proj.) Rev. A/NR 5.100 02/01/18 150,000 145,450
MT Hlth. Facs. Auth. (Master Loan Program) Rev. A/NR 6.400 10/01/14 450,000 493,101
MT Hlth. Facs. Auth. (Missoula Community Medl. Ctr.) Rev. NR/BBB- 6.375 06/01/18 2,830,000 2,993,546
MT Hlth. Facs. Auth. (Northern MT Care Ctr.-Havre) Rev. Baa-3/NR 6.350 09/01/15 1,000,000 1,048,490
MT Hlth. Facs. Auth. (Prerelease Ctr.) Rev. NR/BBB+ 5.600 10/01/17 750,000 758,370
MT Hlth. Facs. Auth. (Providence Services) MBIA NR/AAA 5.375 12/01/25 1,500,000 1,498,860
MT Hlth. Facs. Auth. (Providence Services) MBIA NR/AAA 5.450 12/01/26 100,000 100,302
MT Hlth. Facs. Auth. (Sisters of Charity) Rev. MBIA Aaa/AAA 5.125 12/01/18 1,800,000 1,773,414
MT Hlth. Facs. Auth. (Sisters of Charity) Rev. MBIA Aaa/AAA 5.000 12/01/24 2,620,000 2,545,775
MT Hlth. Facs. Auth. (State Hospital) Hlth. Care Rev. AMBAC Aaa/NR 5.000 06/01/18 1,340,000 1,307,036
MT Hlth. Facs. Auth. (State Hospital) Hlth. Care Rev. AMBAC Aaa/NR 5.000 06/01/22 1,525,000 1,471,732
MT Hlth. Facs. Rev. (Toole Cty, Marias Heritage Project) NR/NR 6.375 11/01/22 200,000 199,934
MT Hlth. Facs. Rev. (Toole Cty, Marias Heritage Project) NR/NR 6.500 11/01/27 285,000 285,844
MT State Hlth. Facs. Auth. (MT Devl. Ctr.) Rev. A/NR 6.300 06/01/14 500,000 548,405
MT State Hlth. Facs. Auth. (MT Devl. Ctr.) Rev. A/NR 6.400 06/01/19 930,000 984,358
MT State Hlth. Facs. Auth. (St. Patrick's Hosp.) Rev. AMBAC Aaa/AAA 6.625 09/01/12 195,000 208,221
MT State Univ. Rev. MBIA Aaa/AAA 5.250 11/15/13 1,165,000 1,197,399
*MT State Univ. Rev. MBIA Aaa/AAA 5.625 11/15/25 1,000,000 1,022,870
MT State Univ. Rev. MBIA Aaa/AAA 5.375 11/15/21 500,000 501,220
Phillips Cty., MT Eastern School Dist. #14 School Bldg. G.O. Aaa/AAA 5.600 07/01/16 155,000 162,296
Phillips Cty., MT Eastern School Dist. #14 School Bldg. G.O. Aaa/AAA 5.600 07/01/15 145,000 152,537
Phillips Cty., MT Eastern School Dist. #14 School Bldg. G.O. Aaa/AAA 5.600 07/01/17 165,000 171,767
Phillips Cty., MT H School Dist. #A School Bldg. G.O. MBIA Aaa/AAA 5.600 07/01/15 290,000 305,074
*Richland Cty., MT (MDU) Pollution Control Rev. FGIC Aaa/AAA 6.650 06/01/22 600,000 655,356
Silver Bow (Butte-Silver Bow) Water Syst. Rev. FGIC Aaa/AAA 6.500 11/01/14 275,000 301,430
University of MT Fac. Impvt. Rev. MBIA Aaa/AAA 5.000 05/15/17 600,000 592,416
----------
TOTAL MONTANA MUNICIPAL BONDS (COST: $62,673,517) $63,514,991
----------
SHORT-TERM SECURITIES (2.0%)
Federated Tax-Free Trust 73 $ 299,657
Federated Intermediate Municipal Trust 78 986,515
----------
TOTAL SHORT-TERM SECURITIES (COST: $1,304,657) $ 1,286,172
----------
TOTAL INVESTMENTS IN SECURITIES (COST: $63,978,174 ) $64,801,163
OTHER ASSETS LESS LIABILITIES (1,244,112)
----------
NET ASSETS $63,557,051
==========
</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.
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>
ASSETS
<S> <C>
Investments in securities, at value (cost: $63,978,174) $ 64,801,163
Receivable for fund shares sold 180,022
Accrued dividends receivable 5,366
Accrued interest receivable 623,550
Prepaid expenses 5,950
-----------
Total Assets $ 65,616,051
-----------
LIABILITIES
Payable for fund shares redeemed $ 25,045
Security purchase payable 1,603,013
Bank overdraft 87,598
Dividends payable 264,220
Accrued expenses 79,124
-----------
Total Liabilities $ 2,059,000
-----------
NET ASSETS $ 63,557,051
===========
Net assets are represented by:
Capital stock outstanding, at par $ 6,456
Additional paid-in capital 63,869,257
Accumulated undistributed net realized gain (loss) on investments (1,141,651)
Unrealized appreciation on investments 822,989
-----------
Total amount representing net assets applicable to
6,455,981 outstanding shares of $.001 par value
common stock (200,000,000 shares authorized) $ 63,557,051
===========
Net asset value per share $ 9.84
===========
Statement of Operations for the six months ended June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 1,639,521
Dividends 34,856
-----------
Total Investment Income $ 1,674,377
-----------
EXPENSES
Investment advisory fees $ 184,937
Distribution fees (12b-1) 231,171
Custodian fees 4,657
Transfer agent fees 36,828
Accounting service fees 27,142
Professional fees 3,050
Reports to shareholders 1,249
Directors fees 2,100
Transfer agent out of pockets 3,487
License, fees, and registrations 1,900
Insurance expense 2,010
-----------
Total Expenses $ 498,531
Less expenses waived or absorbed by the Fund's manager (97,834)
-----------
Total Net Expenses $ 400,697
-----------
NET INVESTMENT INCOME $ 1,273,680
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES
Net realized gain (loss) from:
Investment transactions $ (47,641)
Futures transactions 732,355
Net change in unrealized appreciation (depreciation) of:
Investments (1,661,809)
Futures (178,023)
-----------
Net Realized And Unrealized Gain (Loss) on Investments
and Futures $ (1,155,118)
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 118,562
===========
</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 Ended For the
June 30, 1999 Year Ended
(Unaudited) December 31, 1998
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
<S> <C> <C>
Net investment income $ 1,273,680 $ 2,273,282
Net realized gain (loss) on investment and futures transactions 684,714 (880,618)
Net change in unrealized appreciation (depreciation) on investments
and futures (1,839,832) 563,938
-----------------------------------
Net Increase (Decrease) in Net Assets Resulting From Operations $ 118,562 $ 1,956,602
-----------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ($.21 and $.42, per share respectively) $ (1,273,680) $ (2,273,282)
Return of capital distributions ($.02 and $.05 per share, respectively) (154,114) (272,297)
Distributions from net realized gain on investment
and futures transactions 0 0
-----------------------------------
Total Dividends and Distributions $ (1,427,794) $ (2,545,579)
-----------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares $ 7,851,398 $ 13,684,445
Proceeds from reinvested dividends 886,068 1,658,612
Cost of shares redeemed (2,750,035) (3,624,331)
-----------------------------------
Net Increase (Decrease) in Net Assets Resulting From Capital
Share Transactions $ 5,987,431 $ 11,718,726
-----------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS $ 4,678,199 $ 11,129,749
NET ASSETS, BEGINNING OF PERIOD 58,878,852 47,749,103
-----------------------------------
NET ASSETS, END OF PERIOD $ 63,557,051 $ 58,878,852
===================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements June 30, 1999 (Unaudited)
Note 1. ORGANIZATION
Montana 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
April 15, 1993, and commenced operations on August 12, 1993. The Fund's
objective is to provide as high a level of current income exempt from federal
and Montana income taxes as is consistent with preservation of capital. The
Fund will seek to achieve this by investing primarily in a portfolio of Montana
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 and includes 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 carryforward totaling $1,648,342, 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 June 30, 1999, there were 200,000,000 shares of $.001 par authorized;
6,455,981 and 5,857,896 were outstanding at June 30, 1999 and December 31, 1998,
respectively.
Transactions in capital shares were as follows:
Shares
---------------------------------
For the Six
Months Ended For the Year
June 30, 1999 Ended
(Unaudited) December 31, 1998
---------------------------------
Shares sold 784,541 1,353,606
Shares issued on reinvestment of dividends 88,364 164,173
Shares redeemed (274,820) (359,336)
---------------------------------
Net increase (decrease) 598,085 1,158,443
=================================
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 $164,160 of investment advisory fees after
partial waiver for the six months ended June 30, 1999. The Fund has a payable
to ND Money Management, Inc. of $29,779 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 0.75% of the average daily net assets of the Fund. The Fund has
recognized $154,114 of 12b-1 fee expenses after partial waiver for the six
months ended June 30, 1999. The Fund has a payable to Capital of $28,087 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 $36,828 of transfer agency fees for the six months ended
June 30, 1999. The Fund has a payable to ND Resources, Inc. of $6,563 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 $27,142 of accounting service fees for the six months ended
June 30, 1999. The Fund has a payable to ND Resources, Inc. of 4,814 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 $8,576,081, and $1,066,356,
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 $63,978,174, and the net unrealized appreciation of investments
based on the cost was $822,989, which is comprised of $1,388,074 aggregate
gross unrealized appreciation and $565,085 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 For the
Six Months Year Year Year Year Year
Ended June Ended Ended Ended Ended Ended
30, 1999 December December December December December
(Unaudited) 31, 1998 31, 1997 31, 1996 31, 1995 31, 1994
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.05 $ 10.16 $ 10.07 $ 10.04 $ 9.39 $ 10.07
---------------------------------------------------------------------
Income from Investment Operations:
Net investment income $ .21 $ .42 $ .46 $ .48 $ .51 $ .50
Net realized and unrealized gain (loss)
on investment and futures transactions (.19) (.06) .13 .06 .67 (.66)
---------------------------------------------------------------------
Total Income (Loss) From Investment Operations $ .02 $ .36 $ .59 $ .54 $ 1.18 $ (.16)
---------------------------------------------------------------------
Less Distributions:
Dividends from net investment income $ (.21) $ (.42) $ (.46) $ (.48) $ (.51) $ (.50)
Return of capital distributions (.02) (.05) (.04) (.03) (.02) (.02)
Distributions from net realized gains .00 .00 .00 .00 .00 .00
---------------------------------------------------------------------
Total Distributions $ (.23) $ (.47) $ (.50) $ (.51) $ (.53) $ (.52)
---------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.84 $ 10.05 $ 10.16 $ 10.07 $ 10.04 $ 9.39
=====================================================================
Total Return .42%(A)(C) 3.66%(A) 5.96%(A) 5.52%(A) 12.85%(A) (1.70)%(A)
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $63,557 $58,879 $47,749 $34,803 $24,055 $11,956
Ratio of net expenses (after expense
assumption) to average net assets 1.30%(B)(C) 1.30%(B) 1.17%(B) 0.96%(B) 0.66%(B) 0.46%(B)
Ratio of net investment income to
average net assets 4.12%(C) 4.18% 4.51% 4.76% 5.11% 5.06%
Portfolio turnover rate 1.78% 3.65% 7.91% 7.12% 7.39% 12.46
</TABLE>
(A) Excludes contingent deferred sales charge of 4%.
(B) During the periods indicated above, ND Holdings, Inc. assumed/waived
expenses of $97,834, $177,054, $60,969, $98,321, $99,757 and $87,483. If
the expenses had not been assumed/waived, the annualized ratio of total
expenses to average net assets would have been 1.62%, 1.63%, 1.32%, 1.29%,
1.22% and 1.46%, respectively.
(C) Ratio is annualized
The accompanying notes are an integral part of these financial statements.
