Dear Shareholder:
We are pleased to enclose the semi-annual report of the operations of the
South Dakota 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 South Dakota Tax-Free Fund, Inc. Class B shares began the year at $9.72 and
ended the six month period at $9.68. The South Dakota Tax-Free Fund, Inc.
Class A shares started the period on January 7th, 2000 at $9.70 and ended June
30, 2000 at $9.68. 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 Sioux Falls Parking and
Lincoln County School District.
Income exempt from federal 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 COPOSITION
--------------------------
Portfolio Quality Ratings
(based on Total Long-Term Investments)
[pie chart]
AAA 47.1%
AA 11.2%
A 25.0%
BBB 4.4%
NR 12.3%
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]
S-School 19.9%
I-Industrial 18.4%
HC-Health Care 17.1%
H-Housing 15.3%
GO-General Obligation 10.6%
U-Utilities 6.5%
C/L -COP/Lease 6.1%
O-Other 3.8%
T-Transportation 2.3%
Market sectors are breakdowns of the Fund's portfolio holdings into specific
investment classes.
These percentages are subject to change.
AVERAGE ANNUAL TOTAL RETURNS
------------------------------
<TABLE>
<CAPTION>
For periods ending June 30, 2000
----------------------------------
<S> <C> <C> <C> <C>
Class B Shares Since Inception
1 year 5 year 10 year (April 5, 1994)
---------------------------------------------------------------------------------------
Without CDSC 0.21% 4.42% N/A 4.77%
With CDSC (4% max) (3.61%) 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 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 South Dakota
Tax-Free Fund and the Lehman Brothers Municipal Bond Index
Class B Shares Class A Shares
------------------ -------------------
SD Tax-Free Fund w/o Lehman Brothers w/o w/Max Lehman Brothers
CDSC Municipal Bond Sales Sales Municipal Bond
Index Charge Charge Index
---------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4/5/1994 $10,000 $10,000 01/07/2000 $10,000 $ 9,575 $10,000
1994 $10,280 $10,034 06/30/2000 $10,229 $ 9,794 $10,449
1995 $11,459 $11,786
1996 $12,212 $12,309
1997 $12,835 $13,442
1998 $13,334 $14,313
1999 $13,116 $14,017
06/30/200 $13,370 $14,646
</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 South
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>
SOUTH DAKOTA MUNICIPAL BONDS (99.8%)
Education Loans, Inc., SD Student Loan Rev.
Gtd. Student Loans ........................... A/NR 5.600% 06/01/20 $ 350,000 $ 326,645
#Grant Cty., SD (Northwestern Public. Svc.)
PCR MBIA...................................... Aaa/AAA 5.900 06/01/23 400,000 394,736
Hamlin, SD School Dist. #28-3 ................ NR/NR 5.700 10/01/15 120,000 116,976
#Heartland Consumers Power Dist., Elec.
Rev. FSA...................................... Aaa/AAA 6.000 01/01/09 200,000 211,302
Lincoln Cty., SD (Harrisburg School Dist.
#41-2) G.O. FSA............................... NR/AAA 5.950 07/15/20 250,000 251,402
Mitchell, SD School Dist. #17-2 C.O.P.'s ..... NR/A 6.200 01/15/13 60,000 61,109
Newell, SD School Dist. #09-2 ................ NR/NR 6.000 01/01/17 300,000 301,713
Parkston Cty., SD School Dist. #33-3 FSA...... Aaa/AAA 5.700 01/01/18 250,000 249,517
Pierre, SD C.O.P. AMBAC....................... Aaa/NR 5.625 07/01/19 100,000 96,881
Pierre, SD Sales Tax Ref. Rev. ............... NR/NR 6.000 10/01/14 200,000 197,574
Rapid City, SD Parking Rev. .................. Baa-1/NR 5.700 12/01/18 150,000 143,960
SD Conservancy Dist. (State Revolving
Fund) Rev. ................................... Aa-3/NR 5.625 08/01/17 200,000 193,654
SD Economic Dev. Fin. Auth. (D.T.S. Inc.
Project) ..................................... NR/A 5.500 04/01/19 300,000 280,257
SD Hlth. & Educ. Auth. (Children's Care Hosp.
& Home) ...................................... NR/A+ 6.125 11/01/29 200,000 188,190
SD Hlth. & Educ. Auth. (Huron Regl. Medl. Ctr.)
Rev. ......................................... NR/BBB 7.250 04/01/20 125,000 129,351
SD Hlth. & Educ. Auth. (Prairie Crossings)
Rev. AMBAC.................................... Aaa/AAA 6.000 11/01/24 100,000 98,425
*SD Hlth. & Educ. Auth. (St. Luke's/Midland)
Rev. MBIA..................................... Aaa/AAA 6.625 07/01/11 250,000 259,305
SD Hlth. & Educ. Auth. (Univ. of Sioux
Falls) Rev. .................................. NR/NR 7.100 04/01/15 150,000 152,829
SD Hlth. & Educ. Auth. (Vocational Educ.)
Rev. AMBAC.................................... Aaa/NR 5.500 08/01/22 250,000 239,333
SD Hsg. Devl. Auth. Homeownership Mrtge. ..... Aa-1/AAA 6.550 05/01/14 90,000 93,467
SD Hsg. Devl. Auth. Homeownership Mrtge. ..... Aa-1/AAA 6.600 05/01/17 175,000 179,886
SD Hsg. Devl. Auth. Homeownership Mrtge. ..... Aa/NR 6.700 04/01/20 260,000 260,952
SD Hsg. Devl. Auth. Homeownership Mrtge. ..... Aa-1/AAA 6.000 05/01/21 200,000 199,202
SD Hsg. Devl. Auth. Homeownership Mrtge. ..... Aa-1/AAA 5.400 05/01/24 145,000 130,384
SD Hsg. Devl. Auth. Homeownership Mrtge. ..... Aa-1/AAA 5.125 05/01/27 100,000 89,759
SD State Bldg. Auth. Rev. .................... A-1/A+ 5.125 09/01/19 300,000 274,563
SD State Lease Rev. C.O.P.'s FSA.............. Aaa/AAA 6.500 09/01/08 200,000 215,222
*SD Student Loan Finance Corp.
(Student Loan Notes) ......................... A/NR 6.550 08/01/20 300,000 317,787
SD, Northwestern School Dist. #56-3 C.O.P.'s . NR/A 6.800 01/15/13 100,000 106,755
Sioux Falls, SD Parking Rev. AMBAC............ Aaa/NR 5.400 11/15/11 225,000 227,092
Sioux Falls, SD School Dist. #49-5 G.O. ...... Aa/NR 5.500 07/01/20 150,000 143,512
Sioux Falls, SD School Dist. #49-5 G.O. ...... Aa-3/NR 5.550 09/01/19 100,000 98,178
------------
SOUTH DAKOTA MUNICIPAL BONDS
(COST: $6,267,859) ......................................................................................... $ 6,229,918
------------
SHORT-TERM SECURITIES (3.2%)
Federated Tax-Free Fund 15 (COST: $200,071) .............................................................. $ 200,071
TOTAL INVESTMENTS IN SECURITIES (COST: $6,467,930) ......................................................... $ 6,429,989
OTHER ASSETS LESS LIABILITIES............................................................................... (185,606)
------------
NET ASSETS.................................................................................................. $ 6,244,383
============
<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.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS June 30, 2000
STATEMENT OF ASSETS AND LIABILITIES June 30, 2000 (Unaudited)
-------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value
(cost: $6,467,930) ............................. $ 6,429,989
Accrued dividends receivable.................... 456
Accrued interest receivable..................... 110,141
Receivable from manager......................... 195
Prepaid expenses................................ 7,362
Variation margin on futures..................... 8,155
---------------
Total Assets................................. $ 6,556,298
---------------
LIABILITIES
Dividends payable............................... $ 24,387
Payable for fund shares redeemed................ 19,566
Security purchases payable...................... 250,083
Accrued expenses................................ 8,786
Bank overdraft.................................. 9,093
---------------
Total Liabilities............................ $ 311,915
---------------
NET ASSETS........................................... $ 6,244,383
===============
Net assets are represented by:
Capital stock outstanding, at par............... $ 645
Additional paid-in capital...................... 6,513,503
Accumulated undistributed net realized
gain (loss) on investments..................... (223,669)
Accumulated undistributed net unrealized
gain (loss) on investments..................... (8,155)
Unrealized depreciation on investments ......... (37,941)
---------------
Total amount representing net assets
applicable to 645,037 outstanding shares of
$.001 par value common stock
(200,000,000 shares authorized) ............ $ 6,244,383
===============
Net asset value per share............................ $ 9.68
===============
NET ASSETS CONSIST OF:
Class A......................................... $ 20,998
Class B......................................... $ 6,223,385
---------------
Total Net Assets........................... $ 6,244,383
--------------------------------------------------------------------
SHARES OUTSTANDING:
Class A......................................... 2,169
Class B......................................... 642,868
--------------------------------------------------------------------
NET ASSET VALUE PER SHARE:
Class A ........................................ $ 9.68
Class A - offering price
(based on sales charge of 4.25%)................ $ 10.11
Class B......................................... $ 9.68
--------------------------------------------------------------------
STATEMENT OF OPERATIONS For the six months ended June 30, 2000 (Unaudited)
--------------------------------------------------------------------------
INVESTMENT INCOME
Interest......................................... $ 194,474
Dividends........................................ 2,704
---------------
Total Investment Income..................... $ 197,178
---------------
EXPENSES
Investment advisory fees......................... $ 19,801
Distribution (12b-1 fees) - Class A.............. 15
Distribution (12b-1 fees) - Class B.............. 24,708
Transfer agent fees.............................. 5,227
Accounting service fees.......................... 13,668
Custodian fees................................... 1,401
Professional fees................................ 3,827
Reports to shareholders.......................... 1,029
Directors fees................................... 931
Transfer agent out-of-pockets.................... 652
License, fees, and registrations................. 662
Insurance expense................................ 295
---------------
Total expenses............................... $ 72,216
Less expenses waived or absorbed
by the Fund's manager............................ (29,335)
----------------
Total Net Expenses........................... $ 42,881
----------------
NET INVESTMENT INCOME................................ $ 154,297
----------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FUTURES
Net realized gain (loss) from:
Investment transactions......................... $ (71,650)
Futures transactions............................ (10,746)
Net change in unrealized appreciation
(depreciation) of:
Investments .................................... 59,554
Futures......................................... (8,155)
----------------
Net Realized And Unrealized Gain
(Loss) on Investments and Futures .............. $ (30,997)
----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............................ $ 123,300
================
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS June 30, 2000
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2000, and the year ended December 31, 1999
For the Six
Months Ended For the
June 30, 2000 Year Ended
(Unaudited) December 31, 1999
------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income.................................... $ 154,297 $ 325,914
Net realized gain (loss) on investment and futures
transactions............................................. (82,396) 78,141
Net change in unrealized appreciation (depreciation)
on investments and futures............................... 51,399 (520,589)
------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting From Operations........................... $ 123,300 $ (116,534)
------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A ($.24 and $.00, respectively) ............... $ (295) $ 0
Class B ($.23 and $.45, respectively) ............... (154,002) (325,914)
Return of capital distributions:
Class A ($.00 and $.00, respectively) ............... 0 0
Class B ($.00 and $.05, respectively) ............... 0 (35,729)
Distributions from net realized
gain on investment transactions:
Class A.............................................. 0 0
Class B.............................................. 0 0
-----------------------------------------------------------
Total Dividends and Distributions................... $ (154,297) $ (361,643)
-----------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares:
Class A.............................................. $ 21,000 $ 0
Class B.............................................. 95,500 629,703
Proceeds from reinvested dividends:
Class A.............................................. 205 0
Class B.............................................. 108,967 258,376
Cost of shares redeemed:
Class A.............................................. 0 0
Class B.............................................. (879,858) (1,228,594)
-----------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
From Capital Share Transactions.................... $ (654,186) $ (340,515)
-----------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS...................... $ (685,183) $ (818,692)
NET ASSETS, BEGINNING OF PERIOD.............................. 6,929,566 7,748,258
-----------------------------------------------------------
NET ASSETS, END OF PERIOD.................................... $ 6,244,383 $ 6,929,566
===========================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS June 30, 2000 (Unaudited)
Note 1. ORGANIZATION
South Dakota 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 1, 1993, and commenced operations on April 5, 1994. The Fund's
objective is to provide as high a level of current income exempt from federal
and any future South Dakota income taxes as is consistent with preservation of
capital. The Fund will seek to achieve this by investing primarily in a
portfolio of South 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 0.75% 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 Directors which include consideration of the
following: yields or prices of municipal bonds of comparable quality, type of
issue, coupon, maturity and rating, and indications as to value from dealers
and general market conditions. Because the market value of securities can only
be established by agreement between parties in a sales transaction, and
because of the uncertainty inherent in the valuation process, the fair values
as determined may differ from the values that would have been used had a ready
market for the securities existed. The Fund follows industry practice and
records security transactions on the trade date.
The Fund concentrates its investments in a single state. This concentration
may result in the Fund investing a relatively high percentage of its assets
in a limited number of issuers.
FEDERAL 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 $141,273, 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
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 June 30, Unrealized Appreciation
Contracts to Sell Date Contracts 2000 (Depreciation)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Notes 09/00 10 (8,155) (8,155)
-----------------------------------------------------------------------------------------------------------------------------
</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 value
authorized; 645,037 and 712,840 shares were outstanding at June 30, 2000,
and December 31, 1999, respectively.
Transactions in capital shares were as follows:
</TABLE>
<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
(Unaudited) (Unaudited) Ended December 31, 1999
----------------------------------------------------------------------------
<S> <C> <C> <C>
Shares sold 2,148 9,849 62,183
Shares issued on reinvestment of dividends 21 11,262 25,470
Shares redeemed 0 (91,083) (121,195)
----------------------------------------------------------------------------
Net increase (decrease) 2,169 (69,972) (33,542)
============================================================================
</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 $14,745 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 $1,722 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 15 (15)
Class B Shares 24,708 (24,036)
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 $5,218 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 $833 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 $13,644 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 $2,257 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 $569,692 and $1,314,069,
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 $6,467,930 and the net unrealized depreciation of investments
based on the cost was $37,941, which is comprised of $90,729 aggregate gross
unrealized appreciation and $128,670 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.................. $ 9.70
--------------------
Income from Investment Operations:
Net investment income............................ $ .24
Net realized and unrealized gain (loss)
on investment and futures transactions........... (.02)
--------------------
Total Income (Loss) From
Investment Operations ...................... $ .22
--------------------
Less Distributions:
Dividends from net investment
income........................................... $ (.24)
Return of capital distributions.................. 0
Distributions from net realized gains............ 0
--------------------
Total Distributions.......................... $ (.24)
--------------------
NET ASSET VALUE, END OF PERIOD........................ $ 9.68
====================
Total Return.......................................... 4.58% (A)(C)
Ratios/Supplemental Data:
Net assets, end of period (in
thousands) ...................................... $ 21
Ratio of net expenses (after expense
assumption) to average net assets................ 0.92%(B)(C)
Ratio of net investment income to
average net assets............................... 5.04%(C)
Portfolio turnover rate.......................... 8.80%
<FN>
(A) Excludes maximum sales charge of 4.25%.
(B) During the periods indicated above, ND Holdings, Inc. assumed/waived
expenses of $278. If the expenses had not been assumed/waived, the annualized
ratio of total expenses to average net assets would have been 5.65%.
(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 20, 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... $ 9.72 $ 10.38 $ 10.49 $ 10.50 $ 10.39 $ 9.86
--------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income............. $ .23 $ .45 $ .46 $ .53 $ .52 $ .55
Net realized and unrealized
gain (loss) on Investment and
futures transactions.............. (.04) (.61) (.06) .03 .14 .55
-------------------------------------------------------------------------------------
Total Income (Loss) From
Investment Operations.......... $ .19 $ (.16) $ .40 $ .56 $ .66 $ 1.10
-------------------------------------------------------------------------------------
Less Distributions:
Dividends from net
investment income................... $ (.23) $ (.45) $ (.46) $ (.53) $ (.52) $ (.55)
Return of capital distributions.... 0 (.05) (.05) (.04) (.03) (.02)
Distributions from net
realized gain...................... 0 .00 .00 .00 .00 .00
-------------------------------------------------------------------------------------
Total Distributions............ $ (.23) $ (.50) $ (.51) $ (.57) $ (.55) $ (.57)
-------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $ 9.68 $ 9.72 $ 10.38 $ 10.49 $ 10.50 $ 10.39
=====================================================================================
Total Return............................ 3.88%(A)(C) (1.63%)(A) 3.88%(A) 5.10%(A) 6.58%(A) 11.47%(A)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ..................... $ 6,271 $ 6,930 $ 7,748 $ 7,330 $ 6,397 $ 5,163
Ratio of net expenses (after
expense assumption) to average
net assets ........................ 1.30%(B)(C) 1.30%(B) 1.30%(B) 1.17%(B) 0.93%(B) 0.61%(B)
Ratio of net investment income
to average net assets.............. 4.68%(C) 4.43% 4.36% 4.70% 5.01% 5.35%
Portfolio turnover rate............ 8.80% 28.48% 15.75% 3.35% 2.47% 0.66%
<FN>
(A) Excludes contingent deferred sales charge of 4%.
(B) During the periods indicated above, ND Holdings, Inc. assumed/waived
expenses of $29,057, $58,597, $55,713, $68,538, $54,598, and $37,053,
respectively. If the expenses had not been assumed/waived, the annualized
ratio of total expenses to average net assets would have been 2.18%, 2.10%,
2.05%, 2.16%, 1.88%, and 1.51%, respectively.
(C) Ratio is annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
