Dear Shareholder:
We are pleased to enclose the semi-annual report of the operations of the
Montana 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 Montana Tax-Free Fund, Inc. Class B shares began the year at $9.36 and
ended the six month period at $9.29. The Montana Tax-Free Fund, Inc. Class A
shares started the period on January 7th, 2000 at $9.33 and ended June 30,
2000 at $9.29. 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 include Columbia Falls School
District and Montana State Water Pollution Control Program.
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
PERFORMANCE AND COMPOSITION
---------------------------
Portfolio Quality Ratings
(based on Total Long-Term Investments)
--------------------------------------
[pie chart]
AAA 41.0
AA 16.9
A 22.4
BBB 9.3
NR 10.4
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 33.6
I-Industrial 27.4
H-Housing 15.5
S-School 10.7
GO-General Obligation 5.1
T-Transportation 3.7
WS-Water/Sewer 2.1
O-Other 1.9
Market sectors are breakdowns of the Fund's portfolio holdings into specific
investment classes.
These percentages are subject to change.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
For periods ending June 30, 2000
----------------------------------
Class B Shares Since Inception
1 year 5 year 10 year (August 12, 1993)
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
Without CDSC (1.00)% 4.18% N/A 3.99%
With CDSC (4% max) (4.78)% 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
</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 charge.
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 Montana Tax-Free Fund
and the Lehman Brothers Municipal Bond Index
-------------------------------------------------------
Class B Shares Class A Shares
--------------- -----------------
Montana Tax- Lehman Brothers Montana Tax Montana Tax Lehman Brothers
Free Fund Municipal Bond Free Fund w/o Free Fund w/max Municipal Bond
w/o CDSC Index Sales Charge Sales Charge Index
--------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
08/12/1993 $10,000 $10,000 01/07/2000 $10,000 $ 9,575 $10,000
1993 $10,268 $10,363 06/30/2000 $10,212 $ 9,778 $10,449
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
1999 $12,896 $13,728
06/30/2000 $13,097 $14,344
</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
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.
SCHEDULE OF INVESTMENTS June 30, 2000 (Unaudited)
-------------------------------------------------
<TABLE>
<CAPTION>
Name of Issuer
Percentages represent the market
value of each investment category Rating Coupon Principal Market
to total net assets Moody's/S&P Rate Maturity Amount Value
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MONTANA MUNICIPAL BONDS (99.0%)
Anaconda-Deer River Cty., MT (Arco)
Solid Waste Facs. Rev. ........................... A/A 6.375% 10/01/16 $ 1,500,000 $ 1,526,430
Billings, MT (West Park Village) Multifamily
Hsg. Devl. Ref. Rev. GNMA......................... Aaa/AAA 5.550 12/01/32 2,500,000 2,343,300
Billings, MT Tax Increment Urban Renewal Ref......Baa-3/NR 7.100 03/01/08 650,000 672,646
Columbia Falls, MT School Dist. #6
(Flathead Cty.) G.O. FSA.......................... Aaa/AAA 5.700 07/01/20 815,000 823,704
Forsyth, MT (Montana Power) Pollution Control
Rev. MBIA......................................... Aaa/AAA 5.900 12/01/23 600,000 593,136
*Forsyth, MT (Montana Power) Pollution
Control Rev. MBIA................................. Aaa/AAA 6.125 05/01/23 1,410,000 1,424,283
Forsyth, MT (Montana Power) Pollution
Control Rev. Ref. ................................Baa-1/A- 6.125 05/01/23 1,220,000 1,195,856
Forsyth, MT (Montana Power) Pollution
Control Rev. Ref. ................................Baa-1/A- 5.900 12/01/23 300,000 285,411
#Forsyth, MT (Montana Power) Pollution
Control Rev. Ref. AMBAC........................... Aaa/AAA 6.125 05/01/23 4,250,000 4,277,285
Forsyth, MT (Montana Power) Pollution
Control Rev. Ref. AMBAC........................... Aaa/AAA 5.900 12/01/23 225,000 222,426
*Forsyth, MT (Puget Sound) Pollution
Control Rev. AMBAC................................ Aaa/AAA 7.050 08/01/21 750,000 789,450
*Forsyth, MT (Puget Sound) Pollution
Control Rev. AMBAC................................ Aaa/AAA 6.800 03/01/22 565,000 594,397
Forsyth, MT (Puget Sound) Pollution Control
Rev. MBIA......................................... Aaa/AAA 5.875 04/01/20 540,000 541,501
*Great Falls, MT Water & Sewerage Rev. FGIC ...... Aaa/AAA 6.400 08/01/12 300,000 314,205
Hamilton, MT (Valley View Estates) Nursing
Home Rev. ........................................ NR/NR 7.250 05/01/26 250,000 247,817
Kalispell, MT Flathead Municipal Airport
Auth. (Glacier Park) ............................. NR/NR 6.300 06/01/17 2,190,000 2,113,547
Lewis & Clark Cty., MT (Asarco Project)
Environmental Rev. ............................... NR/NR 5.600 01/01/27 2,300,000 1,762,996
Lewis & Clark Cty., MT (Asarco Project)
Environmental Rev. ............................... NR/NR 5.850 10/01/33 500,000 388,090
Lewis & Clark Cty., MT Solid Waste Facs. Rev...... A-3/NR 6.100 10/01/14 250,000 256,748
Lewistown, MT Water Syst. Rev. ................... NR/NR 5.700 07/01/15 435,000 438,049
Lewistown, MT Water Syst. Rev. ................... NR/NR 5.700 07/01/16 460,000 462,392
Montana ST (Long Range Bldg) G.O. ................ Aa-3/AA- 5.000 08/01/17 1,070,000 999,776
Montana ST (Long Range Bldg) G.O. ................ Aa-3/AA- 5.000 08/01/18 1,250,000 1,169,875
Montana ST (Water Pollution Control)
Revolving Fund Program G.O. ...................... Aa-3/AA 5.600 07/15/20 170,000 169,719
Montana ST (Water Pollution Control)
Revolving Fund Program G.O. ...................... Aa-3/AA- 5.600 07/15/20 240,000 239,604
MT (Broadwater Power) Coal Severance Tax Ref...... A-1/AA- 6.875 12/01/17 445,000 461,345
MT Board of Hsg., Multifamily Mrtge. FHA ......... Aa-1/NR 6.150 08/01/26 450,000 449,919
MT Board of Hsg., Single Family Mrtge. ........... Aa/AA+ 6.150 06/01/30 1,135,000 1,128,894
MT Board of Hsg., Single Family Program .......... Aa-1/AA+ 6.400 12/01/35 490,000 489,966
MT Board of Hsg., Single Family Program .......... Aa-1/AA+ 6.400 12/01/27 305,000 309,968
MT Board of Hsg., Single Family Program .......... Aa/AA+ 5.950 12/01/27 295,000 287,050
MT Board of Hsg., Single Family Program .......... Aa/AA+ 6.500 12/01/32 150,000 150,799
MT Board of Hsg., Single Family Program .......... Aa/AA+ 6.300 06/01/08 125,000 129,109
MT Board of Hsg., Single Family Program .......... Aa/AA+ 6.750 12/01/14 105,000 109,576
MT Board of Hsg., Single Family Program .......... Aa/AA+ 6.700 12/01/26 145,000 146,714
MT Board of Hsg., Single Family Program FHA....... Aa-1/AA+ 5.450 06/01/27 490,000 455,484
MT Board of Hsg., Single Family Program FHA/VA.... Aa/AA+ 6.250 12/01/17 1,830,000 1,864,075
MT Board of Hsg., Single Family Program FHA/VA.... Aa/AA+ 6.350 06/01/27 920,000 922,392
MT Hgr. Educ. Student Assistance Corp. Rev. ...... A/NR 6.500 12/01/12 250,000 260,038
MT Hgr. Educ. Student Assistance Corp. Rev. ...... A/NR 6.500 12/01/14 500,000 520,305
MT Hgr. Educ. Student Assistance Corp. Rev. ...... A/NR 5.500 12/01/31 2,000,000 1,825,160
MT Hgr. Educ. Student Assistance Corp. Rev. ...... A/NR 6.400 12/01/32 1,250,000 1,233,100
MT Hlth. Facs. Auth. (Alternatives Inc.)
Prerelease Ctr. Rev. ............................. NR/BBB+ 5.600 10/01/17 750,000 718,140
MT Hlth. Facs. Auth. (Big Horn Hosp. -
Hardin) Rev. ..................................... A/NR 5.100 02/01/18 300,000 273,054
MT Hlth. Facs. Auth. (Billings Clinic
Deaconess) Rev. AMBAC............................. Aaa/AAA 5.250 02/15/20 1,200,000 1,129,188
MT Hlth. Facs. Auth. (Bozeman Deaconess)
Rev. Ref. ........................................ NR/A+ 5.750 06/01/08 100,000 100,456
MT Hlth. Facs. Auth. (Bozeman Deaconess)
Rev. Ref. ........................................ NR/A+ 5.000 06/01/18 1,500,000 1,363,590
MT Hlth. Facs. Auth. (Kalispell Regl. Hosp.)
AMBAC............................................. Aaa/AAA 5.000 07/01/18 250,000 229,930
MT Hlth. Facs. Auth. (Lewis & Clark Nursing
Home) Rev. ....................................... A/NR 5.100 02/01/18 350,000 317,853
MT Hlth. Facs. Auth. (Lewis & Clark Office
Proj.) Rev. ...................................... A/NR 5.100 02/01/18 150,000 136,223
MT Hlth. Facs. Auth. (Marcus Daly Memorial) Rev... A/NR 6.000 08/01/20 1,400,000 1,403,752
MT Hlth. Facs. Auth. (Master Loan Program) Rev.... A/NR 6.400 10/01/14 450,000 461,916
MT Hlth. Facs. Auth. (Missoula Community
Medl. Ctr.) Rev. ................................. NR/BBB- 6.375 06/01/18 2,830,000 2,844,065
MT Hlth. Facs. Auth. (Northern MT Care Ctr.
-Havre) Rev. .....................................Baa-3/NR 6.350 09/01/15 1,000,000 1,003,900
MT Hlth. Facs. Auth. (Providence Services) MBIA... Aaa/AAA 5.375 12/01/25 2,800,000 2,618,364
MT Hlth. Facs. Auth. (Providence Services) MBIA... Aaa/AAA 5.450 12/01/26 100,000 93,853
MT Hlth. Facs. Auth. (Sisters of Charity)
Rev. MBIA......................................... Aaa/AAA 5.000 12/01/24 2,620,000 2,312,019
MT Hlth. Facs. Auth. (State Hospital) Hlth.
Care Rev. AMBAC................................... Aaa/NR 5.000 06/01/18 590,000 544,063
MT Hlth. Facs. Auth. (State Hospital) Hlth.
Care Rev. AMBAC................................... Aaa/NR 5.000 06/01/22 1,525,000 1,361,459
MT Hlth. Facs. Auth. (Toole Cty, Marias
Heritage Project) ................................ NR/NR 6.375 11/01/22 200,000 189,766
MT Hlth. Facs. Auth. (Toole Cty, Marias
Heritage Project) ................................ NR/NR 6.500 11/01/27 285,000 266,908
MT State Hlth. Facs. Auth. (MT Devl. Ctr.) Rev.... A/NR 6.300 06/01/14 500,000 513,265
MT State Hlth. Facs. Auth. (MT Devl. Ctr.) Rev.... A/NR 6.400 06/01/19 930,000 944,462
*MT State Univ. Rev. MBIA......................... Aaa/AAA 5.625 11/15/25 1,000,000 961,640
MT State Univ. Rev. MBIA.......................... Aaa/AAA 5.375 11/15/21 500,000 479,505
Phillips Cty., MT Eastern School Dist.
#14 School Bldg. G.O. MBIA........................ Aaa/AAA 5.600 07/01/15 145,000 145,876
Phillips Cty., MT Eastern School Dist.
#14 School Bldg. G.O. MBIA........................ Aaa/AAA 5.600 07/01/16 155,000 154,510
Phillips Cty., MT Eastern School Dist.
#14 School Bldg. G.O. MBIA........................ Aaa/AAA 5.600 07/01/17 165,000 163,216
Phillips Cty., MT H School Dist. #A
School Bldg. G.O. MBIA............................ Aaa/AAA 5.600 07/01/15 290,000 288,828
*Richland Cty., MT (MDU) Pollution Control
Rev. FGIC......................................... Aaa/AAA 6.650 06/01/22 600,000 625,752
--------------
TOTAL MONTANA MUNICIPAL BONDS (COST: $58,594,402)......................................................... $ 56,242,090
--------------
SHORT-TERM SECURITIES (0.5%)
Federated Tax-Free Trust 73 (COST: $280,223) ......... ................................................... $ 280,223
--------------
TOTAL INVESTMENTS IN SECURITIES (COST: $58,874,625 ) ..................................................... $ 56,522,313
OTHER ASSETS LESS LIABILITIES............................................................................. 315,325
--------------
NET ASSETS................................................................................................ $ 56,837,638
==============
<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.
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 (Unaudited)
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2000 (Unaudited)
--------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in securities, at value
(cost: $58,874,625) ..................... $ 56,522,313
Accrued dividends receivable............. 2,672
Accrued interest receivable.............. 639,010
Receivable for fund shares sold.......... 53,606
Prepaid expenses......................... 11,899
Variation margin on futures.............. 171,854
--------------
Total Assets.......................... $ 57,401,354
--------------
LIABILITIES
Payable for fund shares redeemed......... $ 221,419
Dividends payable........................ 220,249
Accrued expenses......................... 73,100
Bank overdraft........................... 48,948
--------------
Total Liabilities..................... $ 563,716
--------------
NET ASSETS.................................... $ 56,837,638
==============
Net assets are represented by:
Capital stock outstanding, at par........ $ 6,120
Additional paid-in capital............... 60,633,859
Accumulated undistributed net realized
gain(loss) on investments................ (1,368,477)
Accumulated undistributed net unrealized
gain (loss) on futures................... (81,552)
Unrealized depreciation on investments .. (2,352,312)
---------------
Total amount representing net
assets applicable to 6,119,802
outstanding shares of $.001 par
value common stock (200,000,000
shares authorized) ................. $ 56,837,638
===============
Net asset value per share..................... $ 9.29
===============
Net Assets Consist of:
Class A.................................. $ 45,501
Class B.................................. $ 56,792,137
---------------
Total Net Assets.................... $ 56,837,638
---------------------------------------------------------------
Shares Outstanding:
Class A.................................. $ 4,897
Class B.................................. $ 6,114,905
---------------------------------------------------------------
Net Asset Value per share:
Class A ................................. $ 9.29
Class A - offering price
(based on sales charge of 4.25%)......... $ 9.70
Class B.................................. $ 9.29
---------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
INVESTMENT INCOME
Interest................................. $ 1,711,719
Dividends................................ 14,936
---------------
Total Investment Income............. $ 1,726,655
---------------
EXPENSES
Investment advisory fees................. $ 175,728
Distribution (12b-1 fees) - Class A...... 41
Distribution (12b-1 fees) - Class B...... 219,537
Custodian fees........................... 4,359
Transfer agent fees...................... 34,653
Accounting service fees.................. 26,184
Professional fees........................ 4,816
Reports to shareholders.................. 2,288
Directors fees........................... 2,355
Transfer agent out of pockets............ 4,329
License, fees, and registrations......... 1,858
Insurance expense........................ 2,401
---------------
Total expenses....................... $ 478,549
---------------
Less expenses waived or absorbed
by the Fund's manager.................... (97,865)
---------------
Total Net Expenses................... $ 380,684
---------------
NET INVESTMENT INCOME........................ $ 1,345,971
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES
Net realized gain (loss) from:
Investment transactions................ $ (295,538)
Futures transactions................... (126,206)
Net change in unrealized appreciation
(depreciation) of:
Investments ........................... 50,241
Futures................................ (81,552)
---------------
Net Realized And Unrealized
Gain (Loss) on Investments
and Futures ....................... $ (453,055)
---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................... $ 892,916
===============
</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
Months Ended For the Year
June 30, 2000 Ended
(Unaudited) December 31,1999
------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income.................................................. $ 1,345,971 $ 2,641,868
Net realized gain (loss) on investment and futures transactions........ (421,744) 879,633
Net change in unrealized appreciation (depreciation) on investments
and futures ........................................................... (31,311) (5,065,374)
------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
From Operations................................................ $ 892,916 $ (1,543,873)
------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A ($.24 and $.00, respectively) ............................. $ (808) $ 0
Class B ($.21 and $.42, respectively) ............................. (1,345,163) (2,641,868)
Return of capital distributions:
Class A ($.00 and $.00, respectively) ............................. 0 0
Class B ($.00 and $.05, respectively) ............................. 0 (310,145)
Distributions from net realized gain on investment
and futures transactions:
Class A............................................................ 0 0
Class B............................................................ 0 0
-------------------------------------------------
Total Dividends and Distributions.............................. $ (1,345,971) $ (2,952,013)
-------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares:
Class A............................................................ $ 93,600 $ 0
Class B............................................................ 1,551,622 11,085,486
Proceeds from reinvested dividends:
Class A............................................................ 433 0
Class B............................................................ 906,437 1,867,130
Cost of shares redeemed:
Class A............................................................ (46,850) 0
Class B............................................................ (5,706,579) (6,843,552)
-------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting From Capital
Share Transactions............................................. $ (3,201,337) $ 6,109,064
-------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................................... $ (3,654,392) $ 1,613,178
NET ASSETS, BEGINNING OF PERIOD............................................ 60,492,030 58,878,852
-------------------------------------------------
NET ASSETS, END OF PERIOD.................................................. $ 56,837,638 $ 60,492,030
=================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements June 30, 2000 (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.
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 0.75% 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 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,
2000, a net capital loss carryforward totaling $946,732, 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 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, 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>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Expiration Number of Futures Valuation as of Unrealized Appreciation
Contracts to Sell Date Contracts June 30, 2000 (Depreciation)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Notes 9/00 100 (81,552) (81,552)
------------------------------------------------------------------------------------------------------------------
</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 200,000,000 shares of $.001 par authorized;
6,119,802 and 6,464,834 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) Ended
Thru June 30, 2000 June 30, 2000 For the Year Ended
(Unaudited) (Unaudited) December 31, 1999
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares sold 9,993 166,613 1,121,083
Shares issued on reinvestment of dividends 47 97,557 190,311
Shares redeemed (5,143) (614,099) (704,456)
----------------------------------------------------------------------------------
Net increase (decrease) 4,897 (349,929) 606,938
==================================================================================
</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 $174,765 of investment
advisory fees after partial waiver for the six months ended June 30, 2000.
The Fund has a payable to ND Money Management, Inc. of $28,568 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 0.75% 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 41 (30)
Class B Shares 219,537 (96,872)
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 $34,653 of transfer agency fees for the six
months ended June 30, 2000. The Fund has a payable to ND Resources, Inc. of
$5,667 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 $26,184 of accounting service fees for the six months
ended June 30, 2000. The Fund has a payable to ND Resources, Inc. of $4,310
at June 30, 2000, 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 $2,608,676, and $4,771,386,
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 $58,874,625 and the net unrealized depreciation of investments
based on the cost was $2,352,312, which is comprised of $273,156 aggregate
gross unrealized appreciation and $2,625,468 aggregate gross unrealized
depreciation.
<TABLE>
<CAPTION>
Financial Highlights Selected per share data and ratios for the period indicated
--------------------------------------------------------------------------------
Class A Shares
---------------
For the Period
Since Inception
(January 7, 2000)
thru June 30, 2000
(Unaudited)
-----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 9.33
-----------------------
Income from Investment Operations:
Net investment income...................... $ .24
Net realized and unrealized gain (loss)
on investment and futures transactions..... (.04)
-----------------------
Total Income (Loss) From
Investment Operations................. $ .20
-----------------------
Less Distributions:
Dividends from net investment
income..................................... $ (.24)
Return of capital distributions............ .00
Distributions from net realized gains...... .00
-----------------------
Total Distributions.................... $ (.24)
-----------------------
NET ASSET VALUE, END OF PERIOD.................. $ 9.29
=======================
Total Return.................................... 4.24%(A)(C)
Ratios/Supplemental Data:
Net assets, end of period (in
thousands) ................................. $ 46
Ratio of net expenses (after expense
assumption) to average net assets........... 0.92%(B)(C)
Ratio of net investment income to
average net assets ......................... 4.88%(C)
Portfolio turnover rate .................... 4.54%
<FN>
(A) Excludes maximum sales charge of 4.25%.
(B) During the periods indicated above, ND Holdings, Inc. assumed/waived
expenses of $32. If the expenses had not been assumed/waived, the
annualized ratio of total expenses to average net assets would have
been 1.12%.
(C) Ratio is annualized
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS Selected per share data and ratios for the period indicated
---------------------------------------------------------------------------------
CLASS B SHARES
--------------
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.. $ 9.36 $ 10.05 $ 10.16 $ 10.07 $ 10.04 $ 9.39
---------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income ........... $ .21 $ .42 $ .42 $ .46 $ .48 $ .51
Net realized and unrealized
gain (loss) on investment and
futures transactions............. (.07) (.64) (.06) .13 .06 .67
---------------------------------------------------------------------------------------
Total Income (Loss) From
Investment Operations....... $ .14 $ (.22) $ .36 $ .59 $ .54 $ 1.18
---------------------------------------------------------------------------------------
Less Distributions:
Dividends from net investment
income........................... $ (.21) $ (.42) $ (.42) $ (.46) $ (.48) $ (.51)
Return of capital distributions.. .00 (.05) (.05) (.04) (.03) (.02)
Distributions from net
realized gains................... .00 .00 .00 .00 .00 .00
---------------------------------------------------------------------------------------
Total Distributions.......... $ (.21) $ (.47) $ (.47) $ (.50) $ (.51) $ (.53)
---------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD........ $ 9.29 $ 9.36 $ 10.05 $ 10.16 $ 10.07 $ 10.04
=======================================================================================
Total Return.......................... 3.12%(A)(C) (2.32%)(A) 3.66%(A) 5.96%(A) 5.52%(A) 12.85%(A)
Net assets, end of period (in
thousands) ...................... $ 56,792 $ 60,492 $ 58,879 $ 47,749 $ 34,803 $ 24,055
Ratio of net expenses (after
expense assumption) to average
net assets....................... 1.30%(B)(C) 1.30%(B) 1.30%(B) 1.17%(B) 0.96%(B) 0.66%(B)
Ratio of net investment income to
average net assets............... 4.60%(C) 4.26% 4.18% 4.51% 4.76% 5.11%
Portfolio turnover rate.......... 4.54% 8.94% 3.65% 7.91% 7.12% 7.39%
<FN>
(A) Excludes contingent deferred sales charge of 4%.
(B) During the periods indicated above, ND Holdings, Inc. assumed/waived
expenses of $97,833, $204,163, $177,054, $60,969, $98,321, and $99,757,
respectively. If the expenses had not been assumed/waived, the annualized
ratio of total expenses to average net assets would have been 1.63%,
1.63%, 1.63%, 1.32%, 1.29%, and 1.22%, respectively.
(C) Ratio is annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
