ND TAX FREE FUND INC /ND/, 485BPOS, 1997-02-28

ND TAX FREE FUND INC /ND/
485BPOS, 1997-02-28

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<PAGE>

As filed with the Securities and Exchange Commission

February 28, 1997

File Nos. 33-25138 and 811-5681

-------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
------------
Post-Effective Amendment No. 11 [X]
--------------

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 13
------------

ND TAX-FREE FUND, INC.
(Exact Name of Registrant as Specified in Charter)

1 North Main, Minot, North Dakota 58703
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code:
(701) 852-5292

Robert E. Walstad
President
ND Tax-Free Fund, Inc.
1 North Main
Minot, North Dakota 58703
(Name and Address of Agent for Service)

It is proposed that this filing will become effective (check appropriate box):

X immediately upon filing pursuant to paragraph (b)
------
on (date) pursuant to paragraph (b)
------
60 days after filing pursuant to paragraph (a)
------
on (date) pursuant to paragraph (a) of Rule 485.
------

Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Section 24(f) of the Investment Company Act
of 1940. Registrant's Rule 24f-2 Notice for the fiscal year ended December 31,
1996, was filed on or before February 28, 1997.

Page 1 of 70 pages
<PAGE>

ND TAX-FREE FUND, INC.

CROSS REFERENCE SHEET

Pursuant to Rule 495(a)

Part A
Item
Number Prospectus Caption
<S> <C> <C>
1. Cover Page................................................. Cover Page
2. Synopsis................................................... FEE AND EXPENSE TABLE
and SYNOPSIS
3. Condensed Financial Information............................ FINANCIAL HIGHLIGHTS
4. General Description of Registrant.......................... GENERAL DESCRIPTION OF
THE FUND
5. Management of the Fund..................................... MANAGEMENT
5A. Management's Discussion of Fund Performance................ Included in Annual Report
6. Capital Stock and Other Securities......................... SHARES
7. Purchase of Securities Being Offered....................... PURCHASE OF SHARES
8. Redemption or Repurchase................................... REDEMPTION OF SHARES
9. Pending Legal Proceedings.................................. Inapplicable
<CAPTION>

Part B
Item Statement of Additional
Number Information Caption
<S> <C> <C>
10. Cover Page................................................. Cover Page
11. Table of Contents.......................................... TABLE OF CONTENTS
12. General Information and History............................ Inapplicable
13. Investment Objectives and Policies......................... INVESTMENT POLICIES
AND TECHNIQUES
14. Management of the Fund..................................... MANAGEMENT OF THEFUND
15. Control Persons and Principal Holders of Securities........ CONTROL PERSONS AND
PRINCIPAL HOLDERS
OF SECURITIES
16. Investment Advisory and Other Services..................... INVESTMENT ADVISORY
AND OTHER SERVICES
17. Brokerage Allocation and Other Practices................... PORTFOLIO TRANSACTIONS
18. Capital Stock and Other Securities......................... Included in Prospectus
19. Purchase, Redemption and Pricing of Securities
Being Offered......................................... PURCHASE AND
REDEMPTION OF SHARES
20. Tax Status................................................. DIVIDENDS AND TAXES
21. Underwriters............................................... UNDERWRITER
22. Calculation of Performance Data............................ CALCULATION OF
PERFORMANCE DATA
23. Financial Statements....................................... FINANCIAL STATEMENTS
</TABLE>
<PAGE>

Part C
Item
Number Page
<S> <C> <C>
24. Financial Statements and Exhibits.................................... C-1
25. Persons Controlled by or Under Common Control with Registrant........ C-2
26. Number of Holders of Securities...................................... C-2
27. Indemnification...................................................... C-2
28. Business and Other Connections of Investment Adviser................. C-3
29. Principal Underwriters............................................... C-3
30. Location of Accounts and Records..................................... C-4
31. Management Services.................................................. C-4
32. Undertakings......................................................... C-4
33. Signature Page....................................................... C-4
</TABLE>
<PAGE>

[LOGO OF INTEGRITY ND TAX FREE FUND APPEARS HERE]

ND TAX-FREE FUND, INC.

1 North Main . Minot, North Dakota 58703 . (701) 852-5292

Prospectus May 1, 1996 (As amended June 25, 1996 and February 28, 1997)

ND Tax-Free Fund, Inc. (the "Fund"), is an open-end, non-diversified,
management investment company. The Fund's objective is to provide as high a
level of current income exempt from federal and North Dakota income taxes as is
consistent with preservation of capital. The Fund will seek to achieve this
objective by investing primarily in tax-exempt securities issued by the State of
North Dakota and its political subdivisions, agencies, and instrumentalities
which are within the four highest grades of either Moody's Investors Service,
Inc., or Standard & Poor's Corporation or of comparable quality (See "Investment
Objective and Policies.").

Shares of the Fund are offered with no initial sales charge. A contingent
deferred sales charge is assessed on certain redemptions, however (See
"Contingent Deferred Sales Charge."). See "Distribution Plan" for information
about commissions paid to dealers who sell shares and Fund payments to
compensate for these and other distribution expenses and services.

This Prospectus contains information about the Fund that a prospective
investor should know before investing and should be retained for future
reference. More detailed information concerning the Fund is contained in the
Statement of Additional Information dated May 1, 1996 (as amended June 25, 1996
and February 28, 1997), which has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference. A free copy of
the Statement of Additional Information may be obtained by contacting the Fund
at the address or telephone number at the top of the page.

================================================
TABLE OF CONTENTS
================================================

Fee and Expense Table..........................2
Synopsis.......................................3
Financial Highlights...........................5
General Description of the Fund................6
Management....................................12
Shares........................................13
Purchase of Shares............................16
Redemption of Shares..........................18
Performance Data..............................20

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>

FEE AND EXPENSE TABLE

The purpose of the Fee and Expense Table is to assist the investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. For more complete descriptions of these costs and
expenses, see MANAGEMENT, PURCHASE OF SHARES, and REDEMPTION OF SHARES.

========================================

<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)....................None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).........None
Maximum Deferred Sales Load (as a percentage of redemption proceeds)...........................4.00%(1)
Redemption Fees................................................................................None

Annual Fund Operating Expenses (After Fee Waiver and Expense Assumption)
(as a percentage of average net assets)(2)
Management Fees................................................................................0.60%
12b-1 Fees(3)..................................................................................0.50%(4)
Other Expenses After Expense Assumption........................................................0.20%(5)
Total Fund Operating Expenses (After Fee Waiver and Expense Assumption)........................1.30%(6)
<CAPTION>

Example(7) 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (i) 5% annual return and (ii)
redemption at the end of each time period: $53.00 $71.00 $81.00 $157.00

You would pay the following expenses on the same
investment, assuming no redemption: $13.00 $41.00 761.00 $157.00
</TABLE>

========================================

(1) 4% is the maximum contingent deferred sales charge ("charge") which may
be assessed upon redemption of shares. As more fully explained under "Contingent
Deferred Sales Charge," a charge is assessed, with certain exceptions, against
shares which are redeemed within the first five years of their purchase. The
charge varies from a maximum of 4% for shares which are redeemed within the
first two years, down to 1% for shares redeemed within the fifth year, after
which no further charge is assessed, in accordance with the following schedule:

<TABLE>
<CAPTION>
Year of Purchase 1 2 3 4 5 6 & Following
---------------- --- --- --- --- --- -------------
<S> <C> <C> <C> <C> <C> <C>
Contingent Deferred Sales Charge 4% 4% 3% 2% 1% 0
</TABLE>

(2) Assumes that the percentages shown remain the same in each year. The
percentages have been restated to reflect operating expenses that are expected
to occur during the current fiscal year.

(3) Because the Fund pays 12b-1 fees, long-term shareholders may pay more in
distribution expenses than the economic equivalent of the maximum front-end
sales charges permitted by the NASD.

(4) Under the Distribution Agreement, ND Capital, Inc. (the "Underwriter"),
is entitled to a fee, calculated daily and paid monthly, at the annual rate of
0.85% of the average daily net assets of the Fund. The Underwriter has
voluntarily agreed to waive a portion of this fee during the early stages of the
Fund's exis-

2
<PAGE>

tence. The Fund incurred a fee of $303,489 for the fiscal year ended December
31, 1996, all of which was used to partially defray the costs of commissions
paid to dealers.

(5) "Other Expenses" are estimated. ND Holdings, Inc., voluntarily agreed to
assume any "Other Expenses" in excess of 0.20% on an annualized basis of the
Fund's average daily net assets for fiscal year 1996 and has also voluntarily
agreed to do so for fiscal year 1997. Absent the expense assumption, "Other
Expenses" would have been 0.201% of average daily net assets on an annualized
basis for fiscal year 1996.

(6) Absent the fee waiver and expense assumption, estimated "Total Fund
Operating Expenses" would have been 1.65% of average daily net assets on an
annualized basis for fiscal year 1996.

(7) The example is based upon percentages in the table above and should not
be considered a representation of past or future expenses. Actual expenses may
be greater or lesser than those shown. If the fee waiver and expense assumption
are removed, the expenses contained in the example will increase. The Securities
and Exchange Commission requires the use of an assumed 5% annual return. The
example assumes the reinvestment of all dividends and distributions. All dollar
figures have been rounded to the nearest dollar.

SYNOPSIS

Investment Objective; Permitted Investments

The Fund is an open-end, non-diversified, management investment company. The
Fund's objective is to provide as high a level of current income exempt from
federal and North Dakota income taxes as is consistent with preservation of
capital. The Fund will seek to achieve this objective by investing primarily in
tax-exempt securities issued by the State of North Dakota and its political
subdivisions, agencies, and instrumentalities which are within the four highest
grades of either Moody's Investors Service, Inc., or Standard & Poor's
Corporation or of comparable quality. There is no assurance that the Fund's
objective will be achieved. The Fund may also purchase and sell put and call
options and financial futures contracts and options thereon. See "Investment
Objective and Policies" and "Other Investment Practices."

Investment Adviser and Underwriter

ND Money Management, Inc. (the "Investment Adviser"), has been retained
under an Investment Advisory Agreement to act as the Fund's investment adviser.
The Investment Adviser furnishes the Fund with investment advice and, in
general, supervises the management and investment program of the Fund. Under the
Investment Advisory Agreement, the Fund has agreed to pay the Investment Adviser
an annual fee, payable monthly, of 0.60% of the Fund's average daily net assets.
See "Investment Adviser."

ND Capital, Inc. (the "Underwriter"), is the Fund's principal underwriter.
See "Purchase of Shares."

Purchases and Redemptions

Shares may be purchased from investment dealers who have sales agreements
with the Underwriter or from the Underwriter at the public offering price, which
is the net asset value next determined after the Fund receives an order. The
minimum initial investment is $1,000 ($100 for the Monthomatic Investment Plan),
and subsequent investments must be at least $50. See "Purchase of Shares." No
sales charge is imposed when shares are purchased. However, a contingent
deferred sales charge is imposed if certain shares are redeemed within five
years after their purchase. See "Redemption of Shares."

3
<PAGE>

Investors in the Fund

The Fund is designed for persons who are seeking a high level of income
exempt from federal and North Dakota income taxes from a portfolio consisting
primarily of investment grade Municipal Securities. Dividends derived from
earnings of North Dakota state and local government issues are exempt from North
Dakota income taxes. Through an investment in shares of the Fund, investors
receive the benefits of professional management and liquidity. In addition, the
Fund offers the economic advantages of block purchases of securities and relief
from administrative details, such as accounting for distributions and the
safekeeping of securities. The Fund's yield and net asset value will fluctuate.

Dividends

The Fund declares daily dividends of its net investment income on shares for
which it has received payment. The Fund distributes income dividends monthly and
distributes any net realized short-term and long-term capital gains annually.
Investors may elect to have income and capital gains dividends automatically
reinvested in shares of the Fund. See "Dividends and Taxes."

Organization; Share Attributes; Meetings

The Fund is organized as a corporation under the laws of the State of North
Dakota and is authorized to issue a total of 100,000,000 shares, all of one
class and one series, with a par value of $.001 per share. Shares are fully paid
and nonassessable when issued, are redeemable and freely transferable, and have
equal rights and preferences in all matters, including voting. There are no
subscription, preemptive, or conversion rights. Regular meetings of shareholders
need not be held unless required under the North Dakota Business Corporation Act
or the Investment Company Act of 1940. Special meetings of shareholders may be
called for any purpose at any time in the manner prescribed under the North
Dakota Business Corporation Act.

Special Considerations

An investment in the Fund is subject to a number of different risks, some of
which are described under "Investment Objective and Policies" and "Other
Investment Practices." As with other mutual funds, there can be no assurance
that the Fund will achieve its objective.

4
<PAGE>

FINANCIAL HIGHLIGHTS

Selected per share data and ratios in the table have been derived from the
financial statements of the Fund which have been audited by Eide Helmeke & Co.
and Brady, Martz & Associates, P.C. ("Brady, Martz"), the Fund's former and
present independent public accountant, respectively. The Fund's complete,
current audited financial statements, including Brady, Martz' report thereon,
are contained in the Statement of Additional Information. Further information
about the Fund's performance is contained in the 1996 Annual Report to
shareholders. Copies of the Statement of Additional Information and 1996 Annual
Report may be obtained from the Fund upon request and without charge.

<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1996 1995 1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.09 $ 8.83 $ 9.52 $ 9.49 $ 9.47
--------------------------------------------------------------------
Income from Investment Operations:

Net investment income............................... $ .46 $ .47 $ .48 $ .52 $ .59
Net realized and unrealized gain (loss) on investment
and futures transactions............................ .13 .28 (.67) .05 .04
--------------------------------------------------------------------
Total Income (Loss) From Investment Operations .. $ .59 $ .75 $ (.19) $ .57 $ .63
--------------------------------------------------------------------
Less Distributions:

Dividends from net investment income................ $ (.46) $ (.47) $ (.48) $ (.52) $ (.59)
Distributions in excess of net investment income.... (.03) (.02) (.02) (.02) (.02)
--------------------------------------------------------------------
Total Distributions................................. $ (.49) $ (.49) $ (.50) $ (.54) $ (.61)
--------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.19 $ 9.09 $ 8.83 $ 9.52 $ 9.49
====================================================================
Total Return............................................. 6.62%(A) 8.68%(A) (2.07)%(A) 5.94%(A) 6.62%(A)
Ratios/Supplemental Data:

Net assets, end of period (in thousands)............ $91,631 $94,532 $91,865 $85,042 $61,429
Ratio of net expenses (after expense assumption)
to average net assets............................... 1.13%(B) 1.05%(B) 1.06%(B) 1.01%(B) 0.95%(B)
Ratio of net investment income to average net assets 5.00% 5.20% 5.19% 5.39% 5.91%
Portfolio turnover rate............................. 12.92% 8.02% 5.55% 18.59% 17.35%
</TABLE>

(A) Excludes contingent deferred sales charge of 4%.

(B) During the periods indicated above, ND Holdings, Inc. assumed expenses of
$40,861, $3,799, $31,115, $30,707, and $66,030, respectively. If the
expenses had not been assumed, the annualized ratios of total expenses to
average net assets would have been 1.18%, 1.05%, 1.10%, 1.05%, and 1.08%,
respectively.

5
<PAGE>

GENERAL DESCRIPTION OF THE FUND

Organization and Classification

The Fund is an open-end, non-diversified, management investment company,
which is a type of company commonly known as a "mutual fund." The Fund was
incorporated under the laws of the State of North Dakota on October 7, 1988.

Investment Objective and Policies

The Fund's investment objective is to provide as high a level of current
income exempt from federal and North Dakota income taxes as is consistent with
the preservation of capital. There are market and investment risks with any
security, and the value of an investment in the Fund will fluctuate over time.
Normally, the value of the Fund's investments will vary inversely with changes
in interest rates. There can be no assurance that the Fund's objective will be
achieved.

The Fund will seek to achieve its objective by investing in a portfolio of
obligations issued by or on behalf of states, territories, and possessions of
the United States and the District of Columbia and their political subdivisions,
agencies, and instrumentalities, the interest from which is exempt from federal
income taxes ("Municipal Securities"). The Fund may also purchase and sell
options on securities, index options, financial futures contracts, and options
on financial futures contracts, which may produce taxable capital gains, in
connection with attempts to hedge its portfolio investments and not for
speculation.

The Fund will generally invest substantially all of its assets in securities
on which the interest is exempt from both federal and North Dakota income taxes.
As a matter of fundamental policy, the Fund will, under normal market
conditions, invest at least 80% of its net assets in Municipal Securities which
generate interest that is not subject to the alternative minimum tax. All of the
Fund's assets will consist of (1) Municipal Securities which are rated at the
time of purchase within the four highest grades of either Moody's Investors
Service, Inc. (Aaa, Aa, A, or Baa) or Standard & Poor's Corporation (AAA, AA, A,
or BBB) or which are unrated but, in the opinion of the Investment Adviser, are
of comparable quality, (2) temporary investments in high quality taxable
short-term, fixed income investments, as described in the paragraph which
follows and in the Statement of Additional Information under "Temporary
Investments," (3) options and financial futures as described under "Other
Investment Practices," and (4) cash. Municipal Securities within the four
highest grades of Moody's and Standard & Poor's are generally considered to be
"investment grade." Those rated Baa by Moody's and BBB by Standard & Poor's (and
equivalent for unrated securities) may have speculative characteristics, and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade bonds. The Fund will promptly dispose of a bond whose rating
drops below investment grade or is reduced in credit quality with respect to
unrated securities. The characteristics of the rating categories are described
in the Statement of Additional Information under "Appendix-Ratings of
Investments." As indicated under "Dividends and Taxes," the Fund may invest in
"private activity" bonds. The Fund may also purchase participation interests in
Municipal Securities from various financial institutions, including banks,
insurance companies, and broker-dealers. See "Municipal Securities" in the
Statement of Additional Information.

6
<PAGE>

rary investments subject to short-term repurchase agreements. When the Fund
invests in accordance with this policy, it may do so without any percentage
limitations.

The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. Industrial
development bonds that are Municipal Securities are in most cases revenue bonds
and do not generally involve the pledge of the credit of the issuer of such
bonds. There are, of course, variations in the degree of risk of Municipal
Securities, both within a particular classification and between classifications,
depending upon numerous factors. See "Municipal Securities" in the Statement of
Additional Information.

The average weighted maturity of the Fund's debt securities is expected to
range between 15 and 25 years.

Any policy or restriction which involves a maximum percentage of securities
or assets will not be considered to be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition of
securities or assets of, or borrowing by, the Fund. Changes due to market action
will not cause a violation of a policy or restriction.

The Fund will not normally engage in the trading of securities for the
purpose of realizing short-term profits, but it will adjust its portfolio as
considered advisable in view of prevailing or anticipated market conditions and
the Fund's investment objective. Accordingly, the Fund may sell portfolio
securities in anticipation of a rise in interest rates and purchase securities
in anticipation of a decline in interest rates. In addition, a security may be
sold and another of comparable quality purchased at approximately the same time
to take advantage of what the Investment Adviser believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment quality
of particular issues or the general movement of interest rates, such as changes
in the overall demand for or supply of various types of Municipal Securities or
changes in the investment objectives of some investors. Frequency of portfolio
turnover will not be a limiting factor should the Investment Adviser deem it
desirable to purchase or sell securities.

The Fund has adopted certain investment restrictions which are presented in
the Statement of Additional Information and which, together with the investment
objective and policies of the Fund, cannot be changed without approval by
holders of a majority of its outstanding shares. As defined in the Investment
Company Act of 1940, this means the lesser of the vote of (a) 67% of the
outstanding shares of the Fund present at a meeting where more than 50% of the
outstanding shares are present in person or by proxy; or (b) more than 50% of
the outstanding shares of the Fund.

Because North Dakota's economy is primarily dependent upon agriculture and
energy and mineral resources, various factors which influence these segments,
such as weather conditions, regulatory policies, world prices, the value of the
dollar, and international relations, could affect the ability of issuers of
North Dakota Municipal Securities to make interest and principal payments.

Other Investment Practices

Options Transactions

The Fund may write (sell) covered call options and secured put options on
up to 25% of its net assets and may purchase put and call options, provided that
no more than 5% of its net assets may be invested in

7
<PAGE>

premiums on such options. The Fund will engage in options transactions only in
Municipal Securities and temporary investments.

A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security at the exercise price during the
option period. A put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying security at the exercise price
during the option period.

During the option period, the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the
security being "called away." For the secured put writer, substantial
depreciation in the value of the underlying security would result in the
security being "put to" the writer. If a covered call option expires
unexercised, the writer realizes a gain and the buyer a loss in the amount of
the premium. If the covered call option writer has to sell the underlying
security because of the exercise of the call option, it realizes a gain or loss
from the sale of the underlying security, with the proceeds being increased by
the amount of the premium.

If a secured put option expires unexercised, the writer realizes a gain and
the buyer a loss in the amount of the premium. If the secured put writer has to
buy the underlying security because of the exercise of the put option, the
secured put writer incurs an unrealized loss to the extent that the current
market value of the underlying security is less than the exercise price of the
put option, minus the premium received.

As part of its options transactions, the Fund may also use index options
which are traded on national stock exchanges. Through the writing or purchase of
index options, the Fund can achieve many of the same objectives as through the
use of options on individual securities. Options on securities indices are
similar to options on a security except that, rather than the right to take or
make delivery of a security at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the securities index upon which the
option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option.

Price movements in securities which the Fund owns or intends to purchase
will not correlate perfectly with movements in the level of the index, and,
therefore, the Fund bears the risk that a loss on an index option would not be
completely offset by movements in the price of such securities. As discussed
below with respect to futures contracts, the use of index options on a taxable
security may involve a greater risk of an imperfect correlation between price
movements in the Municipal Securities being hedged and the movements in the
level of the index. Because index options are settled in cash, a call writer
cannot determine the amount of its settlement obligations in advance and, unlike
call writing on specific securities, cannot provide in advance for, or cover,
its potential settlement obligations by acquiring and holding the underlying
securities.

Financial Futures Transactions

The Fund may engage in various interest rate hedging transactions using
financial instruments with a high degree of correlation to the fixed-income
securities which the Fund may purchase for its portfolio, including interest
rate futures contracts in such financial instruments (e.g., futures contracts in
U.S. Treasury securities) and interest rate related indices (municipal bond
indices) and put and call options on such futures contracts and on such
financial instruments. Financial futures contracts are commodity contracts that
obligate the long or short holder to take or make delivery of a specified
quantity of a financial instrument, such as a security, or the cash value of a
securities index during a specified future period at a specified price. A "sale"
of a futures contract means the undertaking of a contractual obligation to
deliver

8
<PAGE>

the securities or the cash value of an index called for by the contract at a
specified price during a specified delivery period. A "purchase" of a futures
contract means the undertaking of a contractual obligation to acquire the
securities or cash value of an index at a specified price during a specified
delivery period. Although some financial futures contracts call for making or
taking delivery of the underlying securities, in most cases these obligations
are closed out before delivery. The closing of such a contractual obligation is
accomplished by purchasing or selling an identical offsetting futures contract.
Such a transaction cancels the obligation under the original contract to make or
take delivery. Other financial futures contracts, such as futures contracts on a
securities index, by their terms call for cash settlements.

At the time the Fund enters into a futures contract, it is required to
deposit with its Custodian a specified amount of cash or eligible securities
called "initial margin." The initial margin required for a futures contract is
set by the exchange on which the contract is traded. Subsequent payments, called
"variation margin," to and from the broker are made on a daily basis as the
market price of the futures contract fluctuates.

The Fund may engage in financial futures transactions as an attempt to hedge
against the effects of fluctuations in interest rates and other market
conditions. For example, if the Fund owned long-term Municipal Securities and
interest rates were expected to rise, it could sell futures contracts or a
Municipal Securities Index. If interest rates did increase, the value of the
Municipal Securities in the Fund would decline, but this decline would be offset
in whole or in part by an increase in the value of the Fund's futures contracts.
If, on the other hand, long-term interest rates were expected to decline, the
Fund could hold short-term Municipal Securities and benefit from the income
earned by holding such securities, while at the same time the Fund could
purchase futures contracts on a Municipal Securities Index. Thus, the Fund could
take advantage of the anticipated rise in the value of long-term Municipal
Securities without actually buying them. The futures contracts and short-term
Municipal Securities could then be liquidated and the cash proceeds used to buy
long-term Municipal Securities.

There are risks associated with the use of financial futures contracts,
because there may be an imperfect correlation between the price movements of the
futures contracts and price movements of the securities which the Fund owns or
intends to purchase. The Fund could lose money on the financial futures
contracts and also on the price of such securities. The degree of difference in
price movements between futures contracts and the securities being hedged
depends upon such things as variations in speculative market demand for futures
contracts and debt securities and differences between the securities being
hedged and the securities underlying the futures contracts, e.g., interest
rates, tax status, maturities, and creditworthiness of issuers. While interest
rates on taxable securities generally move in the same direction as interest
rates on Municipal Securities, there are frequently differences in the rate of
such movements and temporary dislocations. Accordingly, the use of a financial
futures contract on a taxable security or a taxable securities index may involve
a greater risk of an imperfect correlation between the price movements of the
futures contract and of the Municipal Security being hedged than when using a
financial futures contract on a Municipal Security or a Municipal Securities
Index. If a liquid secondary market did not exist when the Fund wished to close
out a financial futures contract, it would not be able to do so and would have
to continue making daily cash payments of variation margin in the event of
adverse price movements. If the Investment Adviser's judgment about the general
direction of interest rates or markets is wrong, the overall performance will be
poorer than if no such contracts had been used. The costs incurred in connection
with futures transactions would also reduce the Fund's yield. In addition,
futures markets have daily market price movement limits for many futures
contracts which may further inhibit the Investment Adviser's ability to manage
the Fund's portfolio. Futures contracts held by the Fund may be illiquid during
periods when daily market price movement limits have been reached. As a result,
net assets of the Fund may be impacted negatively until normal futures trading
resumes or until the Fund's futures

9
<PAGE>

contracts are closed out. Finally, certain provisions of Subchapter M of the
Internal Revenue Code restrict the use of futures contracts and options
techniques. See "Taxes" in the Statement of Additional Information.

The Fund may also purchase and write call and put options on financial
futures contracts in an attempt to hedge against the effects of fluctuations in
interest rates and other market conditions. A call option gives the purchaser
the right to buy, and the writer the obligation to sell, the underlying futures
contract at the exercise price during the option period. A put option gives the
purchaser the right to sell, and the writer the obligation to buy, the
underlying futures contract at the exercise price during the option period. Upon
exercise, the writer (seller) of the option delivers the futures contract to the
holder (buyer) at the exercise price. An option purchased by the Fund may expire
worthless in which case the Fund would lose the premium paid for it.

The Fund may engage in futures transactions only on commodities or
securities exchanges or boards of trade. The Fund will not engage in
transactions in financial futures contracts or related options for speculation,
but only as an attempt to hedge against changes in interest rates or market
conditions affecting the values of securities which the Fund owns or intends to
purchase. Although the successful use of futures contracts and options
techniques requires skills different from those needed to select portfolio
securities, the Investment Adviser has experience in the use of these
techniques.

To the extent necessary to comply with Securities and Exchange Commission
Release No. 10666, when purchasing a futures contract, writing a put option, or
entering into a delayed delivery purchase, the Fund will maintain in a
segregated account with its Custodian cash or liquid high-grade debt securities
equal to the value of such contracts. The amount held by the Custodian is less
than the amount held by any futures commission agent as initial margin and will
be marked to market daily.

Delayed Delivery Transactions

The Fund may purchase portfolio securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions involve a
commitment by the Fund to purchase securities with payment and delivery to take
place in the future in order to secure what is considered to be an advantageous
price or yield to the Fund at the time of entering into the transaction. The
value of fixed income securities to be delivered in the future will fluctuate as
interest rates vary. Because the Fund is required to set aside cash or liquid
high-grade debt securities to satisfy its commitments to purchase when-issued or
delayed delivery securities, management of the Fund's investments may be limited
if commitments to purchase when-issued or delayed delivery securities were to
exceed 25% of the value of its total assets.

To the extent the Fund engages in when-issued or delayed delivery purchases,
it will do so for the purpose of acquiring portfolio securities consistent with
the Fund's investment objective and policies and not for the purpose of
investment leverage or to speculate in interest rate changes. The Fund will only
make commitments to purchase securities on a when-issued or delayed delivery
basis with the intention of actually acquiring the securities, but the Fund
reserves the right to sell these securities before the settlement date if deemed
advisable.

Borrowing

The Fund may borrow money for temporary or emergency purposes and then only
in amounts not exceeding the lesser of 10% of its total assets valued at cost or
5% of its total assets valued at market, and, in any event, only if immediately
thereafter there is an asset coverage of at least 300%. The Fund will not
purchase portfolio securities when outstanding borrowings exceed 5% of total
assets. Interest paid on borrowed funds will decrease the net earnings of the
Fund. The Fund may mortgage, pledge, or hypothe-

10
<PAGE>

cate its assets in an amount not exceeding 10% of its total assets to secure
temporary or emergency borrowing. The policies set forth in this paragraph are
fundamental and may not be changed without the approval of a majority of the
Fund's shares.

Portfolio Turnover

The portfolio turnover rate of the Fund is not expected to exceed 100%
annually, but on occasions when there are substantial adjustments in the
portfolio brought about by market conditions, such as significant changes in
interest rates, the portfolio turnover rate may be higher. A 100% annual
portfolio turnover rate would occur, for example, if all the investments in the
Fund's portfolio (exclusive of securities with less than one year to maturity)
were replaced once in a period of one year. Higher portfolio turnover rates may
result in increased expenses and taxable capital gains.

Diversification and Concentration Policies

The Fund is a non-diversified investment company under the Investment
Company Act of 1940. This means that more than 5% of the Fund's assets may be
invested in the obligations of any issuer. Inasmuch as a relatively high
percentage of the Fund's assets may be invested in the obligations of a limited
number of issuers, the Fund's portfolio securities may be more susceptible to
any single economic, political, or regulatory occurrence than the portfolio
securities of a diversified investment company.

Because of the relatively small number of issuers of North Dakota Municipal
Securities, the Fund is more likely to invest a higher percentage of its assets
in the securities of a single issuer than an investment company which invests in
a broad range of tax-exempt securities. This practice involves an increased risk
of loss to the Fund if the issuer is unable to make interest or principal
payments or if the market value of such securities declines.

The Fund will not invest 25% or more of its total assets in any industry.
Governmental issuers of North Dakota Municipal Securities are not considered
part of any "industry." However, North Dakota Municipal Securities backed only
by the assets and revenues of non-governmental users will for this purpose be
deemed to be issued by such non-governmental users, in which case the 25%
limitation would apply to such obligations. Accordingly, no more than 25% of the
Fund's assets will be invested in obligations deemed to be issued by
non-governmental users in any one industry and in taxable obligations of issuers
in the same industry. In addition, the Fund may invest more than 25% of its net
assets in industrial development bonds whose revenue sources are from similar
types of projects, for example, education, electric utilities, health care,
housing, transportation, or water, sewer, and gas utilities. There may be
economic, business, or political developments or changes that affect all
securities of a similar type, such as proposed legislation affecting the
financing of certain projects, shortages or price increases of necessary
materials, or declining market needs for such projects. Therefore, developments
affecting a single issuer, industry, or securities financing similar types of
projects could have a significant effect on the Fund's performance.

Special Considerations

11
<PAGE>

MANAGEMENT

Board of Directors

Responsibility for overall management of the Fund rests with its Board of
Directors.

Investment Adviser

ND Money Management, Inc. (the "Investment Adviser"), has been retained
under an Investment Advisory Agreement to act as the Fund's investment adviser
subject to the authority of the Board of Directors. The Investment Adviser is a
wholly-owned subsidiary of ND Holdings, Inc., a North Dakota venture capital
corporation which is also the Fund's promoter. The Investment Adviser was
incorporated under North Dakota law on August 19, 1988, and also serves as
investment adviser for ND Insured Income Fund, Inc., Montana Tax-Free Fund,
Inc., South Dakota Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. The
address of the Investment Adviser is 1 North Main, Minot, North Dakota 58703.

The Investment Adviser furnishes the Fund with investment advice and, in
general, supervises the management and investment program of the Fund. The
Investment Adviser furnishes at its own expense all necessary administrative
services, office space, equipment, and clerical personnel for managing the
investments and effecting the portfolio transactions of the Fund. In addition,
the Investment Adviser pays the salaries and fees of all officers and directors
of the Fund who are affiliated persons of the Investment Adviser.

Under the Investment Advisory Agreement, the Fund has agreed to pay the
Investment Adviser an annual fee, payable monthly, of 0.60% of the Fund's
average daily net assets. The Fund incurred advisory fees of $560,900, or 0.60%
of the Fund's average net assets, for the fiscal year ended December 31,
1996.

W. Dan Korgel, portfolio manager, is primarily responsible for the
day-to-day management of the Fund's portfolio under the supervision and
direction of Robert E. Walstad, president of the Fund. Mr. Korgel has been
portfolio manager of the Fund since April 1988 and has served in a similar
capacity for four related funds, ND Insured Income Fund, Inc., Montana Tax-Free
Fund, Inc., South Dakota Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.,
since November 1990, July 1993, March 1994, and December 1994 through December
1995, respectively. Mr. Walstad is also president of ND Insured Income Fund,
Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., and
Integrity Fund of Funds, Inc., and has supervised and directed the management of
their portfolios since they commenced operations.

Custodian, Transfer Agent, and Accounting Services Agent

First American Bank West, 20 First Street SW, Minot, North Dakota 58701,
serves as Custodian for the Fund's portfolio securities and cash. ND Resources,
Inc. ("Resources"), a wholly-owned subsidiary of ND Holdings, Inc., 1 North
Main, Minot, North Dakota 58703, is the Fund's Transfer Agent. As Transfer
Agent, Resources performs many of the Fund's clerical and administrative
functions, for which it is paid a monthly fee ranging from .16 of 1% of the net
asset value of all outstanding Fund shares up to $10 million down to .09 of 1%
from $50,000,001 and larger. Resources also provides internal accounting and
related services for the Fund, for which it is paid a monthly fee of $2,000 plus
0.05% of the Fund's average daily net assets on an annual basis for the first
$50 million down to 0.01% for net assets in excess of $500 million.

12
<PAGE>

Expenses

The expenses of the Fund are deducted from its total income before dividends
are paid. These expenses include, but are not limited to, organizational
expenses; taxes; interest; brokerage fees and commissions, if any; fees and
expenses of directors and officers of the Fund who are not officers or directors
of the Investment Adviser; Securities and Exchange Commission fees and state
securities laws fees; charges of custodians and transfer and dividend disbursing
agents; insurance premiums; outside auditing and legal expenses; costs of
maintenance of the Fund's existence; costs attributable to investor services,
including, without limitation, telephone and personnel expenses; costs of
preparing and printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the shareholders of the Fund and of the
officers and Board of Directors of the Fund; and any extraordinary expenses. In
addition, the Fund pays distribution fees pursuant to the terms of a
Distribution Plan adopted under Rule 12b-1 of the Investment Company Act of
1940.

The Fund's total expenses for the fiscal year ended December 31, 1996, as a
percentage of the Fund's average net assets was 1.18%.

Portfolio Transactions

The Investment Adviser may consider a number of factors in determining which
brokers to use for the Fund's portfolio transactions. These factors include, but
are not limited to, research services, reasonableness of commissions, quality of
services and execution, and sales of Fund shares. For further details, see
"Portfolio Transactions" in the Statement of Additional Information.

In effecting purchases and sales of the Fund's portfolio securities, the
Investment Adviser and the Fund may place orders with and pay brokerage
commissions to brokers which are affilliated with the Fund, the Investment
Adviser, the Distributor or selected dealers participating in the offering of
the Fund's shares. Subject to rules adopted by the Securities and Exchange
Commission, the Fund may also purchase municipal securities from other members
of underwriting syndicates of which the Underwriter or other affiliates of the
Fund are members.

Share Attributes

The Fund is authorized to issue a total of 100,000,000 shares, all of one
class and one series, with a par value of $.001 per share. All shares, when
issued, are fully paid and non-assessable and are redeemable and freely
transferable. All shares are common shares and have equal rights and preferences
in all matters, including voting. Cumulative voting, a form of proportional
representation, is permitted in the election of directors. Under cumulative
voting, a shareholder may cumulate votes either by casting for one candidate a
number of votes equal to the number of directors to be elected multiplied by the
number of votes represented by the shares entitled to vote or by distributing
all of those votes on the same principle among any number of candidates. There
are no subscription, preemptive, or conversion rights.

Shareholder Meetings

It is probable that the Fund will not hold regular meetings of shareholders.
The Fund's Bylaws provide that regular meetings of shareholders may be held on
an annual or other less frequent basis but need not be held unless required by
law. Under the North Dakota Business Corporation Act, if a regular meeting of
shareholders has not been held during the immediately preceding fifteen months,
a shareholder or share

13
<PAGE>

holders holding 5% or more of the voting power of all shares entitled to
vote may demand a regular meeting by written notice of demand given to the
president or secretary of the Fund. Within thirty days after receipt of the
demand, the Board of Directors must cause a regular meeting of shareholders to
be called, or if the Board fails to do so, the shareholder or shareholders
making the demand may call the meeting by giving notice as prescribed by law.
All necessary expenses of the notice and the meeting must be paid by the Fund.

In addition to regular meetings, special meetings of shareholders may be
called for any purpose at any time in the manner prescribed under the North
Dakota Business Corporation Act. Meetings of shareholders will also be held
whenever required in order to comply with the Investment Company Act of 1940;
however, the Fund does not intend to hold annual shareholder meetings.
Shareholders have the right to remove directors.

Dividends and Taxes

Dividends

All the net investment income of the Fund is declared daily as a dividend on
shares for which the Fund has received payment. Net investment income of the
Fund consists of all interest income earned on portfolio assets less all
expenses of the Fund. Income dividends will be distributed monthly, and
dividends of net realized short-term and long-term capital gains, if any, will
normally be paid out once a year after the end of the Fund's fiscal year. The
Fund may at any time vary the foregoing dividend practices and, therefore,
reserves the right from time to time to either distribute or retain for
reinvestment such of its net investment income and its net short-term and
long-term capital gains as the Board of Directors of the Fund determines
appropriate under the then current circumstances. In particular, and without
limiting the foregoing, the Fund may make additional distributions of net
investment income or capital gain net income in order to satisfy the minimum
distribution requirements contained in the Internal Revenue Code (the "Code").

Income and capital gain dividends, if any, will be credited to shareholder
accounts in full and fractional Fund shares at net asset value on the
reinvestment date, except that upon written request to the Transfer Agent, a
shareholder may select one of the following options:

(1) To receive income dividends in cash and capital gain dividends in
shares at net asset value;

(2) To receive both income and capital gain dividends in cash; or

(3) To receive both income and capital gain dividends in shares of Integrity
Fund of Funds, Inc. ("Integrity"), at net asset value. If you select this
option, you must first open a new account with Integrity with a minimum
investment of $100.

Cash dividends and reinvested dividends will be paid or reinvested, as the
case may be, on the last day of the month. Share certificates are issued only
for full shares and only upon a request by the shareholder to the Transfer
Agent.

Taxes

The Fund intends to qualify as a regulated investment company under
Subchapter M of the Code and, if so qualified, will not be liable for federal
income taxes to the extent its earnings are distributed. The Fund intends to
meet the requirements of the Code applicable to regulated investment companies
distributing tax-exempt interest dividends, and, therefore, dividends
representing net interest received on Municipal Securities will not be
includable by shareholders in their gross income for federal income tax
purposes, except to the extent such interest is subject to the alternative
minimum tax as discussed hereinafter. Dividends representing taxable net
investment income (such as net interest income from temporary invest-

14
<PAGE>

ments in obligations of the United States), net short-term capital gains,
and gains on the sale of market discount bonds purchased after April 30, 1993,
if any, are taxable to shareholders as ordinary income, and long-term capital
gain dividends are taxable to shareholders as long-term capital gains,
regardless of how long the shares have been held and whether received in cash or
shares. Long-term capital gain dividends received by individual shareholders
whose marginal rate on ordinary income is at least 31% are taxed at a maximum
federal rate of 28%. Dividends declared by the Fund in October, November, or
December to shareholders of record as of a date in one of those months and paid
before the following January are treated as paid on December 31 of the calendar
year declared for federal income tax purposes. All taxpayers are required to
disclose on their federal income tax returns the amount of tax-exempt interest
earned during the year, including exempt-interest dividends from the Fund.

A capital gains dividend received shortly after the purchase of shares
reduces the net asset value of the shares by the amount of the dividend and,
although in effect a return of capital, will be taxable to the shareholder. If
the net asset value of shares were reduced below the shareholder's cost by
dividends representing gains realized on sales of securities, such dividends
would be a return of investment though taxable as stated above. In addition,
shareholders may lose the tax-exempt status on accrued income if shares are
redeemed before a dividend is declared.

Net interest on certain "private activity bonds" issued on or after August
8, 1986, is treated as an item of tax preference and may, therefore, be subject
to both the individual and corporate alternative minimum tax. To the extent
provided by regulations to be issued by the Secretary of the Treasury,
exempt-interest dividends from the Fund are to be treated as interest on
"private activity bonds" in proportion to the interest the Fund receives from
private activity bonds, reduced by allowable deductions.

Exempt-interest dividends, except to the extent of interest from "private
activity bonds," are not treated as a tax preference item. For a corporate
shareholder, however, such dividends will be included in determining such
corporate shareholder's "adjusted current earnings." Seventy-five percent of the
excess, if any, of "adjusted current earnings" over the corporate shareholder's
alternative minimum taxable income with certain adjustments will be a tax
preference item. Corporate shareholders are advised to consult their tax
advisers with respect to alternative minimum tax consequences.

Individuals whose modified income exceeds a base amount will be subject to
federal income tax on up to 85% of their Social Security benefits. Modified
income includes adjusted gross income, one-half of Social Security benefits, and
tax-exempt interest, including exempt-interest dividends from the Fund.

Dividends to the extent of interest received on North Dakota state and local
government issues are exempt from North Dakota state income taxes. Distributions
which are categorized as long-term capital gains for federal income tax purposes
will generally receive the same treatment under North Dakota law. However,
dividends from the Fund are not exempt to banks which are shareholders of the
Fund under North Dakota law. Banks are advised to consult their own tax advisers
in that regard.

The Fund is required by law to withhold 31% of taxable dividends and
redemption proceeds paid to certain shareholders who do not furnish a correct
taxpayer identification number (in the case of individuals, a Social Security
number) and in certain other circumstances.

After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction. In addition, the statement will show
the details of prior transactions in the account during the calendar year.
Information for federal income tax purposes will be provided after the end of
the calendar year.

15
<PAGE>

Net Asset Value

The net asset value per share is determined by calculating the total value
of the Fund's assets, which will normally be composed mainly of investment
securities, deducting total liabilities, and dividing the result by the number
of shares outstanding. Fixed income securities are valued by using market
quotations or independent pricing services that use prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Exchange-traded options
are valued at the last sale price unless there is no sale price, in which event
the options will be valued at the mean between the current closing bid and asked
prices. Financial futures are valued at the settlement price established each
day by the board of trade or exchange on which they are traded. Other
securities, including restricted securities, and other assets are valued at fair
value as determined in good faith by the Board of Directors. If an event were to
occur, after the value of an instrument was so established but before the net
asset value per share was determined, which was likely to materially change the
net asset value, then that instrument would be valued using fair value
considerations by the Board of Directors or its delegates. On each day the New
York Stock Exchange is open for trading, the net asset value is determined as of
the close of the Exchange (normally, 3:00 p.m. Minot, North Dakota, time).

PURCHASE OF SHARES

General Information

The Fund's principal underwriter is ND Capital, Inc. (the "Underwriter"), 1
North Main, Minot, North Dakota 58703. Shares may be purchased from investment
dealers who have sales agreements with the Underwriter or from the Underwriter
at the public offering price, which is the net asset value next determined after
the Fund receives an order. If you do not have a dealer, the Fund can refer you
to one. The minimum initial investment is $1,000 ($100 for the Monthomatic
Investment Plan), and the minimum subsequent investment is $50, but such minimum
amounts may be changed at any time in the Fund's discretion. The Fund reserves
the right to redeem Fund accounts that are reduced to a value of less than
$1,000 (for any reason other than fluctuation in the market value of the Fund's
portfolio securities). Should the Fund elect to exercise this right, the
investor will be notified before such redemption is processed that the value of
the investor's account is less than $1,000 and that the investor will have sixty
days to increase the account to at least the $1,000 minimum amount before the
account is redeemed. The Fund allocates net interest income to those shares for
which the Fund has received payment. The Fund receives the entire public
offering price of all shares sold.

Orders for the purchase of shares will be confirmed at a price based on the
net asset value next determined after receipt of the order by the Fund. However,
orders received by dealers prior to the determination of net asset value (See
"Net Asset Value.") and received by the Fund prior to the close of its business
day will be confirmed at a price based on the net asset value effective on that
day. Dealers are obligated to transmit orders promptly.

No sales charge is imposed when shares are purchased. However, a contingent
deferred sales charge is imposed if certain shares are redeemed within five
years after their purchase. See "Redemption of Shares." The Underwriter will pay
a sales commission to investment dealers and to its salesmen who sell Fund
shares. The Underwriter may also provide additional promotional incentives to
dealers who sell Fund shares. In some instances, these incentives may be offered
only to certain dealers who have sold or may sell significant amounts of shares.

The Fund reserves the right to withdraw all or any part of the offering made
by this Prospectus and to reject purchase orders. Also, from time to time, the
Fund may temporarily suspend the offering of its shares to new investors. During
the period of such suspension, persons who are already shareholders of

16
<PAGE>

the Fund normally will be permitted to continue to purchase additional
shares and to have dividends reinvested.

In order to facilitate redemptions and to eliminate the need for
safekeeping, the Transfer Agent will not issue certificates for shares unless
requested to do so. A shareholder may obtain a certificate by writing to the
Transfer Agent at the address on the cover of the Prospectus.

Shareholders should direct their inquiries to the Fund at the address and
telephone number shown on the cover page of the Prospectus or to the investment
dealer from which they received the Prospectus.

Robert E. Walstad and Peter A. Quist, who are directors and the
president-treasurer and vice president-secretary, respectively, of the Fund, are
also the only two directors and officers of the Underwriter. The Underwriter is
a subsidiary of ND Holdings, Inc., a North Dakota venture capital corporation
which is the Fund's promoter.

Monthomatic Investment Plan

A shareholder may purchase additional Fund shares through an automatic
investment program. With the Monthomatic Investment Plan ("Monthomatic"),
monthly investments (minimum $50) are made automatically from the shareholder's
account at a bank, savings and loan association, or credit union into the
shareholder's Fund account. By enrolling in Monthomatic, the shareholder
authorizes the Fund and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. Such account must have check or draft writing privileges.
This privilege may be selected by completing the appropriate section on the
Account Application or by contacting the Underwriter for appropriate forms.

A shareholder may terminate the Plan by sending written notice to the
Transfer Agent at the address shown on the back cover of the Prospectus.
Termination by a shareholder will become effective within 7 days after the
Transfer Agent has received the request. The Fund may immediately terminate a
shareholder's Plan in the event that any item is unpaid by the shareholder's
financial institution. The Fund may terminate or modify this privilege at any
time.

Distribution Plan

Although Fund shares are sold without an initial sales charge, the
Underwriter pays a sales commission equal to 3 3/4% (1% on sales of $1 million
or more) of the amount invested to dealers who sell shares (excluding sales to
investors exempt from the contingent deferred sales charge). As a further
inducement to the sale of Fund shares and in recognition of services provided to
shareholders, the Underwriter may also make commission payments to dealers at
the annual rate of up to 0.25% of the average net assets (computed as described
under "Net Asset Value") which are attributable to shareholders of the Fund for
whom such dealers are designated as the dealers of record. Among the various
services which dealers provide shareholders are giving investment advice with
respect to the Fund on an ongoing basis, assisting in redeeming shares,
interpreting confirmations, statements, and other documents, and communicating
with the Fund and its Transfer Agent and Custodian.

To compensate the Underwriter for its services and expenses in distributing
shares, including the foregoing payments, the Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940. The Plan provides for monthly payments by the Fund to the Underwriter at
the annual rate of 0.85% of the average daily net assets of the Fund. The Plan
must be approved annually by the Fund's Board of Directors and may be terminated
at any time by a majority vote of the directors who are not "interested persons"
of the Fund and have no direct or indirect financial interest in the opera-

17
<PAGE>

tion of the Plan or in the Distribution Agreement or in any other agreement
related to the Plan (the "Qualified Directors") or by vote of a majority of the
outstanding shares of the Fund. If the Plan is terminated and not continued, the
Underwriter is not legally entitled to any payments for amounts expended but not
yet recovered. However, the Fund's Board of Directors reserves the right to make
payments to the Underwriter notwithstanding a termination or non-continuance.
The Plan may not be amended so as to increase materially the amount of the fee
unless approved by a vote of at least a majority of the outstanding shares of
the Fund. In addition, no material amendment to the Plan may be made unless
approved by the Fund's Board of Directors. In addition to reimbursing the
Underwriter for commissions previously paid to dealers and related financing
costs (together with amounts received from contingent deferred sales charges),
the Plan also provides the Underwriter with reasonable compensation for its
services and other expenses. Other expenses incurred by the Underwriter may
include allocable overhead expenses, such as salaries, rent, printing, and
communications.

During periods of substantial sales of shares, the commissions paid by the
Underwriter to dealers may, together with other distribution expenses, exceed
the amount of Plan payments it receives. This is likely to be the case in the
early years of the Fund's operations. In other periods, the payments under the
Plan may exceed the amount of commissions and other distribution expenses paid
by the Underwriter, which has the effect of reimbursing the Underwriter for
distribution expenses incurred in prior periods. Payments made to the
Underwriter under the Plan are not dependent upon expenses incurred, and in any
given year the Underwriter may have fewer expenses than the amount of the
payments, thus creating a "profit."

Exchange Privilege

By contacting the Transfer Agent, a shareholder may exchange some or all of
his shares in any of the funds underwritten by NDCapital, Inc. or Ranson Capital
Corporation at net asset value, subject to these conditions: (1) The length of
time of the investment will be carried forward to the Fund. (2) If you paid a
front-end sales charge, no contingent deferred sales charge will be imposed in
the event you redeem any or all of your shares. (3) If the original fund is
subject to a contingent deferred sales charge ("CDSC"), the CDSC will be carried
forward into the Fund and will be applied in the event you redeem any or all of
your shares.

Each exchange involves the redemption of fund shares to be exchanged and the
purchase of Fund shares. As a result, any gain or loss on the redemption of fund
shares exchanged is reportable on the shareholder's federal income tax return.
The exchange privilege may be changed or discontinued upon 60 days' written
notice to shareholders and is available only to shareholders in states where
such exchanges may be legally made. A sharehold considering an exchange should
obtain and read the prospectus of the Fund and consider the differences between
it and the fund whose shares he owns before making an exchange.

For further information on how to excercise the exchange privilege, contact
the Transfer Agent.

REDEMPTION OF SHARES

Redemptions

Any shareholder may require the Fund to redeem shares. When shares are held
for the account of a shareholder by the Fund's Transfer Agent, the shareholder
may redeem them by making a written request

18
<PAGE>

with signatures guaranteed to the Transfer Agent at the address shown on the
back cover of the Prospectus. When certificates for shares have been issued,
they must be mailed to or deposited with the Transfer Agent, along with a duly
endorsed stock power with signatures guaranteed and accompanied by a written
request for redemption. Signatures must be guaranteed by a commercial bank,
trust company, savings and loan association, or member firm of a national
securities exchange, and a signature guarantee will be required before payment
is made in connection with a redemption. A notary public may not provide a
signature guarantee. Further documentation may be requested, and a signature
guarantee is always required, from corporations, custodians (e.g., under the
Uniform Transfers to Minors Act), executors, administrators, trustees, or
guardians. The redemption request and stock power must be signed exactly as the
account is registered including any special capacity of the registered owner.
The redemption price will be the net asset value next determined following
receipt of a properly executed request with any required documents, less any
applicable contingent deferred sales charge, as described below. Payment for
shares redeemed will be made in cash as promptly as practicable but in no event
later than seven days after receipt of a properly executed letter of
instructions accompanied by any outstanding share certificates in proper form
for transfer. When the Fund is requested to redeem shares for which it may not
yet have received good payment (e.g., cash or certified check on a United States
bank), it may delay the mailing of a redemption check until such time as it has
assured itself that good payment has been collected for the purchase of such
shares (which will generally be within 15 calendar days).

Contingent Deferred Sales Charge

Except as otherwise provided below, a contingent deferred sales charge
("charge") is imposed only if a shareholder redeems shares purchased within the
preceding five years. Shares acquired by reinvestment of dividends may be
redeemed without charge even though acquired within five years. In addition, a
number of shares having a value equal to any net increase in the value of all
shares purchased by the shareholder during the preceding five years will be
redeemed without a contingent deferred sales charge. Subject to the foregoing
exclusions, the amount of the charge is determined as a percentage of the
original purchase price of the redeemed shares and will depend on the number of
years the dollar amount being redeemed was invested, according to the following
table:

Year Since Redemption Percentage Contingent
Amount Was Invested Deferred Sales Charge
First...............................4.0%
Second..............................4.0%
Third...............................3.0%
Fourth..............................2.0%
Fifth...............................1.0%
Sixth and following................No Charge

If the initial amount of purchase is $1 million or more, the charge is
reduced to 1% and only applies during the first year of purchase. In addition,
purchases totaling $1 million or more made within 13 months of the initial
purchase date qualify for this exception, provided that the purchaser notifies
the Fund in writing at the time of the initial purchase of his or her intent to
purchase $1 million or more within 13 months and subsequently satisfies this
condition. Any shares purchased and sold within the 13-month period will be
deducted in computing total purchases, and the charge applies for one year after
purchases total a minimum of $1 million.

19
<PAGE>

All purchases are considered made on the last day of the month of purchase.
In determining whether a contingent deferred sales charge is payable on any
redemption, the Fund will first redeem shares not subject to any charge.
Thereafter, in determining the applicable percentage rate, the amount of dollars
redeemed will be charged against the aggregate cost of shares purchased in each
year, beginning with the shares purchased earliest. This will result in a
shareholder paying the lowest possible contingent deferred sales charge rate.
For an example illustrating the operation of the contingent deferred sales
charge, see "Purchase and Redemption of Shares" in the Statement of Additional
Information.

The Fund may sell shares without a contingent deferred sales charge to
directors, officers, and employees (including retirees) of the Fund, of ND
Holdings, Inc., of ND Money Management, Inc., and of ND Capital, Inc., for
themselves or their spouses, children, or parents and parents of spouse, or to
any trust, pension, or profit-sharing, or other benefit plan for only such
persons at net asset value and in any amount. The Fund may also sell shares
without a contingent deferred sales charge to broker-dealers having sales
agreements with ND Capital, Inc., and registered representatives and other
employees of such broker-dealers, including their spouses and children; to
financial institutions having sales agreements with ND Capital, Inc., and
employees of such financial institutions, including their spouses and children;
and to any broker-dealer, financial institution, or other qualified firm which
receives no commissions for selling shares to its clients.

ND Capital, Inc., receives the entire amount of any contingent deferred
sales charges assessed.

Reinstatement Privilege

You may reinvest up to the amount of your redemption proceeds free of all
sales charges. An investor using this privilege a year or more after such
investor redeemed shares of the Fund must file a new account application and
provide proof that such investor was a shareholder of the Fund. The Fund
reserves the right to modify or terminate this privilege at any time. You will
receive the net asset value per share the day your check arrives at the Fund. If
you were charged a contingent deferred sales charge on your redemption, the
amount you were charged will be reinstated as additional shares upon repurchase
in proportion to the reinvestment amount of your redemption proceeds.

PERFORMANCE DATA

The Fund may publish certain performance figures in advertisements from time
to time. These performance figures may include yield, tax equivalent yield, and
total return figures.

Yield reflects the income per share deemed earned by the Fund's portfolio
investments. Yield is determined by dividing the net investment income per share
deemed earned during the preceding 30-day period by the offering price per share
on the last day of the period and annualizing the result. Tax equivalent yield
shows the yield from a taxable investment which would produce an after-tax yield
equal to that of a fund that invests in tax-exempt securities. It is computed by
dividing the tax-exempt portion of the Fund's yield (as calculated above) by one
minus a stated income tax rate and adding the product to the portion (if any) of
the Fund's yield that is not tax-exempt. Yields are calculated according to
accounting methods that are standardized for all stock and bond funds. Because
yield calculation methods differ from the methods used for other accounting
purposes, the Fund's yield may not equal its distribution rate, the income paid
to an investor's account, or the income reported in the Fund's financial
statements.

Total return is the percentage change in the value of a hypothetical
investment that has occurred in the indicated time period, taking into account
the imposition of various fees, except the contingent deferred sales charge, and
assuming the reinvestment of all dividends and distributions. Cumulative total
return reflects the Fund's performance over a stated period of time. Average
annual total return reflects the hypothetical annually compounded return that
would have produced the same cumulative total return if the Fund's performance
had been constant over the entire period.

20
<PAGE>

The Fund may also include in advertisements quarterly performance rankings
compiled by independent organizations such as Lipper Analytical Services and
publications which monitor the performance of mutual funds. Performance
information may be quoted numerically or may be represented in a table, graph,
or other illustration.

All performance figures are based on historical results and are not intended
to indicate future performance. A more detailed description of the foregoing
performance figures and their methods of computation is contained in the Fund's
Statement of Additional Information under CALCULATION OF PERFORMANCE DATA.

21
<PAGE>

ND
TAX-FREE
FUND, INC.

1 North Main
Minot, ND 58703
(701) 852-5292

Directors
Lynn W. Aas
Minot, ND
Orlin W. Backes
Minot, ND
Arthur A. Link
Bismarck, ND
Peter A. Quist
Bismarck, ND
Robert E. Walstad
Minot, ND

Investment Adviser
ND Money Management, Inc.
1 North Main
Minot, ND 58703

Principal Underwriter
ND Capital, Inc.
1 North Main
Minot, ND 58703

Custodian
First American Bank West
20 First Street SW
P.O. Box 1548
Minot, ND 58702

Transfer Agent
ND Resources, Inc.
1 North Main
Minot, ND 58703

Independent Public Accountant
Brady, Martz & Associates, P.C.
24 West Central Avenue
Minot, ND 58701

Legal Counsel
Pringle & Herigstad, P.C.
20 First Street SW
P.O. Box 1000
Minot, ND 58702

ND TAX-FREE
FUND, INC.

A mutual fund for investors
seeking high current income
exempt from federal and
North Dakota income taxes

=============================

Prospectus

May 1, 1996

(As amended June 25, 1996
and February 28, 1997)

[LOGO OF INTEGRITY ND TAX FREE FUND APPEARS HERE]
<PAGE>

INTEGRITY MUTUAL FUNDS

ACCOUNT APPLICATION ND TAX-FREE FUND, INC.
Mail To: ND Tax-Free Fund, Inc.
P.O. Box 759, Minot, ND 58702-0759

If you have any questions on this form or any shareholder services questions,
phone 1-800-601-5593.

- --------------------------------------------------------------------------------
1. Account Registration (Please print.) - First Name, Middle Initial, and Last
Name

____ Individual ____Joint* *Joint tenants with rights of survivorship,
unless you specify otherwise

____________________________________ ________________________________________
Name Joint Owner's Name

____Gift or transfer to a minor (UGMA/UTMA)

_______________________as custodian for________________________ under the_______
Custodian's name Minor's name State

Uniform Gifts/Transfers to Minors Act

____Trust*

________________________as trustee(s) of_______________________ ________________
Trustee's name Name of trust agreement Date of trust
agreement
*Please include copy of first and last page of trust agreement.

____Corporation/other entity*

____________________________________ ________________________________________
Name of corporation or other entity Type of organization (i.e., corporation,
partnership, etc.)
*Please attach a certified copy of the corporate resolution showing the
person(s) authorized to act on this account.

____TOD (Transfer on Death)* *Transfer on Death form available upon request

Address__________________________ City, State, Zip_____________________________

Telephone Number________________________

- --------------------------------------------------------------------------------
2. Initial Investment

Check enclosed for $__________________. Minimum initial investment is $1,000
($100 in Monthomatic Plan); subsequent $50.
Make check payable to: ND Tax-Free Fund, Inc.

- --------------------------------------------------------------------------------
3. Dividends Choose how you wish to receive dividends. If no box is checked,
option A will be assigned.
A. ____ All income and capital gains dividends reinvested into my account.
B. ____ All income dividends in cash and capital gains reinvested in my
account. Complete cash dividends section below.
C. ____ All income and capital gains dividends paid to me in cash.
Complete cash dividends section below.
D. ____ All income and capital gains dividends reinvested in Integrity
Fund of Funds account #____________________________________
Please send cash dividends to: _______ Account registration address OR
_______Special payee as follows:

Name____________________________________________________________________________

Address________________________ City, State, Zip________________________________

Account number (if applicable)__________________ Attach voided check if payable
to your bank account (signature guarantee not required).
* If payable to person or address other than registration, PLEASE signature
guarantee here:

- --------------------------------------------------------------------------------
4. Systematic Investment Program (Monthomatic) Complete the following if you are
establishing a Systematic Investment Program.

I authorize the Fund's Agent to draw checks or initiate Automated Clearing
House ("ACH") debits against the bank account provided below in the amount of
$________________________ (minimum $50)

Please check one: starting on the _____5th OR the _____20th________________
(indicate month)

Name of Depositor____________________ Bank Account Number_____________________
(As shown on bank records)

Name of Bank_________________________ Address of Bank_________________________
(The account must have check or draft writing privileges.)

City_________________________________ State, Zip______________________________

As a convenience to us, we hereby request and authorize you to honor and charge
to our account (i) checks drawn on our account by Integrity Fund of Funds, Inc.,
and payable to the order of the Fund, and (ii) Automated Clearing House ("ACH")
debit entries initiated by any of us through Integrity Fund of Funds, Inc., for
the account of the Fund, provided in either case that there are sufficient
collected funds in said account to pay the same upon presentation. We agree that
your rights with respect to each such check or ACH debit shall be the same as if
either were signed personally by each of us. This authority is to remain in
effect until revoked by us in writing to you, and until you actually receive
such notice, we agree that you shall be fully protected in honoring any such
checks or ACH debits. We further agree that if any check or ACH debit be
dishonored, whether with or without cause and whether intentionally or
inadvertently, you shall be under no liability whatsoever.

Signature(s) of depositor(s):* Date:___________________ *Sign exactly as
shown on bank records

X____________________________________ X_______________________________________
Signature Signature
Please attach a VOIDED check to ensure correct encoding.
<PAGE>

5. Systematic Withdrawal Plan (Note: All distributions from the Fund must be
reinvested.)

Systematic Withdrawal (available only for accounts of $5,000 or more) - Redeem
sufficient shares or dollars on the 1st of the month and send check to the
owner listed above: _____Monthly _____Quarterly _____Semiannually _____Yearly
for $______________ or ____________ shares (minimum $50). The first redemption
is to take place on the 1st of__________________________________ (Indicate
month.)

If systematic withdrawal checks are payable to person or address other than as
registered above, make check payable to:
Name____________________________________________________________________________
Address____________________________ City, State, Zip___________________________
Account Number (if applicable)______________ Attach voided check if payable to
your bank account (signature guarantee not required).
If payable to person or address other than registration, PLEASE signature
guarantee here:

- --------------------------------------------------------------------------------
6. Your Signature and Tax Certifications

See enclosed substitute instructions and important notice. The Fund reserves the
right to refuse to open an account without either a certified taxpayer
identification number ("TIN") or a certification of foreign status. Failure to
provide the tax certifications in this section may result in backup withholding
on payments relating to your account and/or in your inability to qualify for
treaty withholding rates.

____________________________________ OR _______________________________________
Social Security Number (In UGMA/UTMA Employer Identification Number
Minor's SSN)

I am a citizen of: ____U.S. ____ My country of residence for tax purposes is:
____U.S. Other_____________________________

Check one of the following:
______ The number shown above is my correct TIN. I am not subject to backup
withholding due to underreporting of interest or dividend income either
because no notification has been received from the IRS or because the
IRS has notified me that I am no longer subject to backup withholding.
(If you are subject to backup withholding, please cross out the second
sentence.)
______ Awaiting TIN. A TIN has not been issued to me, but I am in the process
of applying for a TIN from either the appropriate Internal Revenue
Service Center or Social Security Administration Office. I understand
that if I do not provide a TIN to the Fund within 60 days, the Fund is
required to commence backup withholding until I provide a certified TIN.
I am not subject to backup withholding due to underreporting of interest
or dividend income either because no notification has been received from
the IRS or because the IRS has notified me that I am no longer subject
to backup withholding. (If you are subject to backup withholding, please
cross out the third sentence.)
______ Exempt Recipient. I am an Exempt Recipient. The instructions give a list
of the most common Exempt Recipients. (You should still provide a TIN.)
______ Exempt Foreign Person. I am an Exempt Foreign Person as explained in the
instructions.

Under the penalties of perjury, I certify that (1) the information provided on
this application is true, correct, and complete, (2) I have read the prospectus
for the Fund in which I am investing and agree to the terms thereof, and (3) I
am of legal age or an emancipated minor.

Date______________________________________________
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.

X____________________________________ X____________________________________
Signature Signature

- --------------------------------------------------------------------------------
7. Broker/Dealer Use Only (Please print.)

We hereby submit this application for the purchase of shares of ND Tax-Free
Fund, Inc., indicated within the terms of our selling agreement with ND
Holdings, Inc., and with the prospectus for ND Tax-Free Fund, Inc.

Firm Name_________________________ Branch Address______________________________

Representative's Name_____________ ____________________________________________

Representative's Number___________ Representative's Phone Number_______________

- --------------------------------------------------------------------------------

8. Additional Information

Each time there is a transaction in a Shareholder Account, the shareholder and
representative will receive a confirmation statement showing the current
transaction.

All correspondence regarding Shareholder Accounts should be addressed to ND
Resources, Inc., P.O. Box 759, Minot, ND 58702. If you have any questions, call
1-800-601-5593.

Fund exchanges are acceptable within Integrity Mutual Funds. The exchange must
be same account registration or otherwise a signature guarantee will be needed
for any exchange amount. A "Letter of Instruction" indicating the funds involved
is needed to do any exchange and must be signed by all registered owners.

Phone orders: Payment for share purchases by telephone should be received within
three business days. Payment must be received within 7 days of the order or the
trade may be canceled, and the dealer or broker placing the trade will be liable
for any losses. It is a dealer's or broker's responsibility to promptly forward
payment and registration instructions (or completed applications) to the
Transfer Agent for shares being purchased.

Registration changes require that all registered owners sign and also require a
signature guarantee. Example: single to joint, joint to single, joint to trust,
etc...
<PAGE>

PART B
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
(As amended June 25, 1996 and February 28, 1997)

ND TAX-FREE FUND, INC.
1 North Main
Minot, North Dakota 58703

(701) 852-5292

This Part B Statement of Additional Information is not a prospectus. It
should be read in conjunction with the Prospectus of ND Tax-Free Fund, Inc. (the
"Fund"), dated May 1, 1996 (as amended June 25, 1996 and February 28, 1997). The
Prospectus may be obtained without charge from the Fund.

--------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
Investments ............................................................. B-2
Investment Policies and Techniques....................................... B-4
Investment Restrictions ................................................. B-7
Management of the Fund .................................................. B-9
Control Persons and Principal Holders of Securities ..................... B-11
Investment Advisory and Other Services .................................. B-11
Portfolio Transactions................................................... B-14
Purchase and Redemption of Shares ....................................... B-14
Underwriter.............................................................. B-15
Dividends and Taxes ..................................................... B-16
Calculation of Performance Data ......................................... B-18
Tax-Free Versus Taxable Income .......................................... B-20
Appendix--Ratings of Investments ........................................ B-20
Financial Statements .................................................... F-1
</TABLE>
<PAGE>

INVESTMENTS

Municipal Securities

Municipal Securities (as defined in the Prospectus) are debt obligations
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as airports, bridges, highways,
housing, hospitals, mass transportation, schools, streets, and water and sewer
works. Other public purposes for which Municipal Securities may be issued
include refunding of outstanding obligations, obtaining funds for general
operating expenses, and obtaining funds to loan to other public institutions and
facilities. In addition, certain types of industrial development bonds are
issued by or on behalf of public authorities to obtain funds to provide
privately-operated housing facilities, sports facilities, convention or trade
show facilities, airport, mass transit, port, or parking facilities, air or
water pollution control facilities, and certain local facilities for water
supply, gas, electricity, or sewage or solid waste disposal. Such obligations,
which may include lease arrangements, are included within the term Municipal
Securities if the interest paid thereon qualifies as exempt from federal income
tax. Other types of industrial development bonds, the proceeds of which are used
for the construction, equipment, repair, or improvement of privately-operated
industrial or commercial facilities, may constitute Municipal Securities,
although the current federal tax laws place substantial limitations on the size
of such issues.

The yields on Municipal Securities are dependent upon a variety of factors,
including general money market conditions, general conditions of the Municipal
Securities market, size of particular offering, maturity of the obligation, and
rating of the issue. The ratings of Moody's Investors Service, Inc., and
Standard & Poor's Corporation represent their opinions as to the quality of the
Municipal Securities which they undertake to rate. It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, Municipal Securities with the same maturity, coupon, and rating
may have different yields, while Municipal Securities of the same maturity and
coupon with different ratings may have the same yield. The Fund will not
purchase or hold more than 5% of its net assets in securities rated below
investment grade.

The Fund may purchase participation interests in Municipal Securities (such
as industrial development bonds) from financial institutions. A participation
interest gives the Fund an undivided interest in the Municipal Securities in the
proportion that the Fund's participation interest bears to the total principal
amount of the Municipal Securities. These instruments may be variable or

B-2
<PAGE>

fixed rate.

Not more than 5% of the net assets of the Fund will invested in
participation interests in Municipal Securities during the coming year.

Provisions of the federal bankruptcy statutes relating to the adjustment of
debts of political subdivisions and authorities of states of the United States
provide that, in certain circumstances, such subdivisions or authorities may be
authorized to initiate bankruptcy proceedings without prior notice to or consent
of creditors, which proceedings could result in material and adverse
modification or alteration of the rights of holders of obligations issued by
such subdivisions or authorities.

Litigation challenging the validity under state constitutions of present
systems of financing public education has been initiated or adjudicated in a
number of states, and legislation has been introduced to effect changes in
public school finances in some states. In other instances there has been
litigation challenging the issuance of pollution control revenue bonds or the
validity of their issuance under state or federal law which litigation could
ultimately affect the validity of those Municipal Securities or the tax-free
nature of the interest thereon.

Temporary Investments

For temporary defensive purposes, the Fund may invest in any of the
following short-term, fixed-income obligations, the interest on which is subject
to federal income taxes: obligations of the United States Government, its
agencies, or instrumentalities; debt securities rated within the three highest
grades of Moody's Investors Service, Inc., or Standard & Poor's Corporation;
commercial paper rated in the highest two grades by either of those rating
services (P-l, P-2 or A-l, A-2, respectively); certificates of deposit of
domestic banks with assets of $25,000,000 or more; and Municipal Securities or
any of the foregoing temporary investments subject to short-term repurchase
agreements. When the Fund invests in accordance with this policy, it may do so
without percentage limits. A repurchase agreement is an instrument under the
purchaser acquires ownership of a security from a broker-dealer or bank that
agrees to repurchase the security at a mutually agreed upon time and price
(which price is higher than the purchase price), thereby determining the yield
during the holding period. Maturity of the securities subject to repurchase may
exceed one year. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund might incur expenses in enforcing its rights and
could experience losses, including a decline in the value of the underlying
securities and loss of income. Dividends from interest income from temporary
investments may be taxable to shareholders as ordinary income. See "Dividends
and Taxes" in the Prospectus. For a description of the ratings of commercial
paper and other debt securities permitted as temporary investments, see
"Appendix--Ratings of Investments."

B-3
<PAGE>

INVESTMENT POLICIES AND TECHNIQUES

General

The Fund may engage in futures and options transactions in accordance with
its investment objective and policies. The Fund intends to engage in such
transactions if it appears advantageous to the Investment Adviser to do so in
order to pursue its investment objective, to hedge against the effects of
fluctuating interest rates, and to stabilize the value of its assets. The use of
futures and options, possible benefits, and attendant risks are discussed below,
along with information concerning certain other investment policies and
techniques.

Financial Futures Contracts

The Fund may enter into financial futures contracts for the future delivery
of a financial instrument, such as a security, or the cash value of a security
index. This investment technique is designed primarily to hedge (i.e., protect)
against anticipated future changes in interest rates or market conditions which
otherwise might adversely affect the value of securities which the Fund holds or
intends to purchase. A "sale" of a futures contract means the undertaking of a
contractual obligation to deliver the securities or the cash value of an index
called for by the contract at a specified price during a specified delivery
period. A "purchase" of a futures contract means the undertaking of a
contractual obligation to acquire the securities or cash value of an index at a
specified price during a specified delivery period. At the time of delivery in
the case of fixed income securities pursuant to the contract, adjustments are
made to recognize differences in value arising from the delivery of securities
with a different interest rate than that specified in the contract. In some
cases, securities called for by a futures contract may not have been issued at
the time the contract was written. The Fund will not enter into any futures
contracts or options on futures contracts if the aggregate of the contract value
of the outstanding options written by the Fund would exceed 50% of the total
assets of the Fund.

Although some financial futures contracts by their terms call for the actual
delivery or acquisition of securities, in most cases the contractual commitment
is closed out before delivery without having to make or take delivery of the
security. The offsetting of a contractual obligation is accomplished by
purchasing (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same month. Such a
transaction, if effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities. All transactions in the futures
market are made, offset, or fulfilled through a clearing house associated with
the exchange on which the contracts are traded. The Fund will incur brokerage
fees when it purchases or sells contracts and will be required to maintain
margin deposits. Futures contracts entail risks. If the Investment Adviser's
judgment about the general direction of interest rates or markets is wrong, the
overall performance may be poorer than if no such contracts had been made.

There may be an imperfect correlation between movements in prices of futures
contracts and portfolio securities being hedged. In addition, the market prices
of futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the debt securities and futures markets could result. Price
distortions could also result if

B-4
<PAGE>

investors in futures contracts decide to make or take delivery of underlying
securities rather than engage in closing transactions because of the resultant
reduction in the liquidity of the futures market. In addition, from the point of
view of speculators, the margin requirements in the futures market are less
onerous than margin requirements in the cash market. Thus, increased
participation by speculators in the futures market could cause temporary price
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the prices of
securities and movements in the prices of futures contracts, a correct forecast
of market trends by the Investment Adviser may still not result in a successful
hedging transaction. If this should occur, the Fund could lose money on the
financial futures contracts and also on the value of its portfolio securities.

Options on Financial Futures Contracts

The Fund may purchase and write call and put options on financial futures
contracts. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the period of the option. Upon
exercise, the writer of the option delivers the futures contract to the holder
at the exercise price. The Fund would be required to deposit with its Custodian
initial margin and maintenance margin with respect to put and call options on
futures contracts written by it. Options on futures contracts involve risks
similar to those risks relating to transactions in financial futures contracts
described above. Also, an option purchased by the Fund may expire worthless, in
which case the Fund would lose the premium paid therefor.

Options on Securities

The Fund may write (sell) covered call options as long as it owns securities
which are acceptable for escrow purposes and may write secured put options,
which means that as long as the Fund is obligated as a writer of a put option,
it will invest an amount not less than the exercise price of the put option in
Municipal Securities or temporary investments. A call option gives the purchaser
the right to buy, and the writer the obligation to sell, the underlying security
at the exercise price during the option period. A put option gives the purchaser
the right to sell, and the writer has the obligation to buy, the underlying
security at the exercise price during the option period. The premium received
for writing an option will reflect, among other things, the current market price
of the underlying security, the relationship of the exercise price to such
market price, the price volatility of the underlying security, the option
period, supply and demand, and interest rates. The Fund may write or purchase
spread options, which are options for which the exercise price may be a fixed
dollar spread or yield spread between the security underlying the option and
another security that is used as a bench mark. The exercise price of an option
may be below, equal to, or above the current market value of the underlying
security at the time the option is written. The buyer of a put who also owns the
related securities is protected by ownership of a put option against any decline
in that security's price below the exercise price less the amount paid for the
option. The ability to purchase put options allows the Fund to protect capital
gains in an appreciated security it owns without being required to actually sell
that security. At times, the Fund would like to establish a position in a
security upon which call options are available. By purchasing a call option, the
Fund is able to fix

B-5
<PAGE>

the cost of acquiring the securities, this being the cost of the call plus the
exercise price of the option. This procedure also provides some protection from
an unexpected downturn in the market, because the Fund is only at risk for the
amount of the premium paid for the call option which it can, if it chooses,
permit to expire.

Options on Securities Indices

The Fund also may purchase and write call and put options on securities
indices in an attempt to hedge against market conditions affecting the value of
securities that the Fund owns or intends to purchase and not for speculation.
Through the writing or purchase of index options, the Fund can achieve many of
the same objectives as through the use of options on individual securities.
Options on securities indices are similar to options on a security except that,
rather than the right to take or make delivery of a security at a specified
price, an option on a securities index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
This amount of cash is equal to the difference between the closing price of the
index and the exercise price of the option. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike security options, all settlements are in cash, and gain or loss depends
upon price movements in the market generally (or in a particular industry or
segment of the market), rather than upon price movements in individual
securities.

When the Fund writes an option on a securities index, it will be required to
deposit with its Custodian eligible securities equal in value to 100% of the
exercise price, in the case of a put, or the contract value, in the case of a
call. In addition, where the Fund writes a call option on a securities index at
a time when the contract value exceeds the exercise price, the Fund will
segregate, until the option expires or is closed out, cash or cash equivalents
equal in value to such excess.

Options on futures contracts and index options involve risks similar to
those risks relating to transactions in financial futures contracts described
above. Also, an option purchased by the Fund may expire worthless, in which case
the Fund would lose the premium paid therefor.

Delayed Delivery Transactions

The Fund may purchase portfolio securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions involve a
commitment by the Fund to purchase securities with payment and delivery to take
place in the future in order to secure what is considered to be an advantageous
price or yield to the Fund at the time of entering into the transaction. When
the Fund enters into a delayed delivery purchase, it becomes obligated to
purchase securities and it has all the rights and risks attendant to ownership
of a security, although delivery and payment occur at a later date. The value of
fixed income securities to be delivered in the future will fluctuate as interest
rates vary. At the time the Fund makes the commitment to purchase a security on
a when-issued or delayed delivery basis, it will record the transaction and
reflect the amount due and the value of the security in determining its net
asset value. The Fund generally has the ability to close out a purchase
obligation on or before the settlement date, rather than to purchase the
security.

B-6
<PAGE>

Regulatory Restrictions

To the extent required to comply with Securities and Exchange Commission
Release No. 10666, when purchasing a futures contract, writing a put option, or
entering into a delayed delivery purchase, the Fund will maintain in a
segregated account with its Custodian cash or liquid high-grade debt securities
equal to the value of such contracts. The amount held by the Custodian is less
than the amount held by any futures commission agent as initial margin and will
be marked to market daily.

To the extent required to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid "commodity pool operator" status, the Fund will
not enter into a futures contract or purchase an option thereon if immediately
thereafter the initial margin deposits for futures contracts held by the Fund
plus premiums paid by it for open options on futures would exceed 5% of the
Fund's total assets. The Fund will not engage in transactions in financial
futures contracts or options thereon for speculation, but only to attempt to
hedge against changes in market conditions affecting the values of securities
which the Fund holds or intends to purchase. When futures contracts or options
thereon are purchased to protect against a price increase on securities intended
to be purchased later, it is anticipated that at least 75% of such intended
purchases will be completed. When other futures contracts or options thereon are
purchased, the underlying value of such contracts will at all times not exceed
the sum of: (l) accrued profit on such contracts held by the broker; (2) cash or
high quality money market instruments set aside in an identifiable manner; and
(3) cash proceeds from investments due in 30 days.

INVESTMENT RESTRICTIONS

The Fund has adopted certain investment restrictions which, together with
the investment objective and policies, cannot be changed without approval by
holders of a majority of its outstanding voting shares. As defined in the
Investment Company Act of 1940, this means the lesser of the vote of (a) 67% or
more of the outstanding shares of the Fund present at a meeting where more than
50% of the outstanding shares are present in person or by proxy; or (b) more
than 50% of the outstanding shares of the Fund. The Fund may not:

(l) Purchase securities or make investments other than in accordance with its
investment objectives and policies.

(2) Purchase securities (other than securities of the United States Government,
its agencies or

B-7
<PAGE>

instrumentalities, or the State of North Dakota or its political subdivisions,
agencies, or instrumentalities) if as a result of such purchase 25% or more of
the Fund's total assets would be invested in any industry.

(3) Make loans, except in accordance with its investment objectives and
policies.

(4) Borrow money except for temporary or emergency purposes and then only in
amounts not exceeding the lesser of 10% of its total assets valued at cost, or
5% of its total assets valued at market, and, in any event, only if immediately
thereafter there is an asset coverage of at least 300%; or mortgage, pledge, or
hypothecate its assets in an amount exceeding 10% of its total assets to secure
temporary or emergency borrowing.

(5) Make short sales of securities.

(6) Write, purchase, or sell puts, calls, or combinations thereof, except in
accordance with its investment objective and policies.

(7) Purchase or retain the securities of any issuer if any of its officers or
directors or of the Investment Adviser owns beneficially more than 1/2 of 1% of
the securities of such issuer and together own more than 5% of the securities of
such issuer.

(8) Invest more than 15% of its net assets in illiquid securities, including (a)
securities which at the time of such investment are not readily marketable, (b)
securities restricted as to disposition under the federal securities laws, and
(c) repurchase agreements maturing in more than seven days.

(9) Invest for the purpose of exercising control or management of another
issuer.

(10) Invest in commodities or commodity futures contracts, although it may buy
or sell financial futures contracts and options on such contracts.

(11) Invest in interests in oil, gas, or other mineral exploration or
development programs, although it may invest in the Municipal Securities of
issuers which invest in or sponsor such programs.

(12) Invest more than 10% of its total assets in securities of other investment
companies, except in connection with a merger, consolidation, reorganization, or
acquisition of assets.

(13) Underwrite securities issued by others, except to the extent that the Fund
may be deemed to be an underwriter under the federal securities laws in
connection with the disposition of portfolio securities.

(14) Issue senior securities as defined in the Investment Company Act of 1940,
except money borrowed as permitted by (4) above.

(15) Invest in real estate, although it may invest in Municipal Securities which
are secured by real estate and securities of issuers which invest or deal in
real estate.

B-8
<PAGE>

During the coming year, the Fund does not intend to invest more than 5% of
its net assets in securities of other investment companies.

MANAGEMENT OF THE FUND

- -----------------------------------------------------------------------------------------------------------------------------------

Position(s) Held Principal Occupation(s)
Name, Address, and Age with Fund During Past 5 Years (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lynn W. Aas/(2)/ Director Retired; Attorney; Director, ND Holdings, Inc.;
904 NW 27th Director, ND Insured Income Fund, Inc.,
Minot, North Dakota 58701 Montana Tax-Free Fund, Inc., South Dakota Tax-Free
75 Fund, Inc., and Integrity Fund of Funds, Inc.; Trustee,
Ranson Managed Portfolios; Director, First Western
Bank & Trust

Orlin W. Backes/(3)/ Director Attorney; Director, ND Insured Income Fund, Inc.,
15 2nd Ave. SW, Suite 305 Montana Tax-Free Fund, Inc., South Dakota
Minot, North Dakota 58701 Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.;
61 Trustee, Ranson Managed Portfolios; Director, First
Western Bank & Trust

Arthur A. Link/(4)/ Director Director, ND Insured Income Fund, Inc., Montana
2001 Grimsrud Drive Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc.,
Bismarck, North Dakota 58501 and Integrity Fund of Funds, Inc.; Trustee, Ranson
82 Managed Portfolios; Director, Bank Center First

*Peter A. Quist/(5)/ Director Director and Vice President, ND Holdings, Inc.;
1 North Main Vice President Director, Vice President, and Secretary, ND Money
Minot, North Dakota 58703 Secretary Management, Inc., ND Capital, Inc., ND Resources,
62 Inc., ND Insured Income Fund, Inc., Montana
Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc.,
and Integrity Fund of Funds, Inc.; The Ranson
Company,Inc., and Ranson Capital Corporation; Vice
President and Secretary, Ranson Managed Portfolios

*Robert E. Walstad/(6)/ Director Director and President, ND Holdings, Inc.; Director,
1 North Main President President, and Treasurer, ND Money Management,
Minot, North Dakota 58703 Treasurer Inc., ND Capital, Inc., ND Resources, Inc., ND Insured
52 Income Fund, Inc., Montana Tax-Free Fund, Inc.,
South Dakota Tax-Free Fund, Inc., and Integrity
Fund of Funds, Inc.; Trustee, Chairman, President, and
Treasurer, Ranson Managed Portfolios; Director,
President, CEO, and Treasurer, The Ranson Company,
Inc., and Ranson Capital Corporation

- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

B-9
<PAGE>

* "Interested person" as defined in the Investment Company Act of 1940

(1) Except as otherwise indicated, each individual has held the office(s)
shown for the past five years. Mssrs. Aas, Backes, Link, and Walstad
were elected to the Board of Trustees of Ranson Managed Portfolios at a
joint special meeting of the shareholders of The Kansas Municipal Fund
Series, The Kansas Insured Municipal Fund - Limited Maturity
(subsequently renamed "The Kansas Insured Intermediate Fund") Series,
and The Nebraska Municipal Fund Series of Ranson Managed Portfolios
held on December 11, 1995, but did not assume office until January 5,
1996. Mssrs. Quist and Walstad were elected as directors and officers
of The Ranson Company, Inc., and Ranson Capital Corporation on January
5, 1996.

(2) Mr. Aas resigned as a director of ND Holdings, Inc., on August 17, 1994.
He was elected to the board of directors of Integrity Fund of Funds,
Inc., on August 19, 1994, and to the boards of ND Insured Income Fund,
Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc.,
and the Fund on December 2, 1994.

(3) Mr. Backes was elected to the boards of directors of ND Insured Income
Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund,
Inc., Integrity Fund of Funds, Inc., and the Fund in 1995.

(4) Mr. Link has served on the boards of directors of ND Insured Income
Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund,
Inc., Integrity Fund of Funds, Inc., and the Fund since their
inceptions.

(5) Mr. Quist has served on the boards of directors of ND Insured Income
Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc.,
and the Fund since their inceptions. He was elected to the board of
South Dakota Tax-Free Fund, Inc., on April 7, 1995, and has served as
the vice president and secretary of each of the aforenamed funds since
their inceptions.

(6) Mr. Walstad has served as a director and as the president and treasurer
of ND Insured Income Fund, Inc., Montana Tax-Free Fund, Inc., South
Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., and the Fund
since their inceptions.

------------------------------------------------------------------------------------------------------------------------

COMPENSATION ABLE*
------------------------------------------------------------------------------------------------------------------------
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated Annual from Fund and Fund
Name of Person, Compensation as Part of Fund Benefits Upon Complex Paid to
Position(s) from Fund Expenses Retirement Directors
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lynn W. Aas 9,569.68 -0- -0- $10,000.00
Director

Orlin W. Backes $7,177.26 -0- -0- $7,500.00
Director

Arthur A. Link $9,569.68 -0- -0- $10,000.00
Director

Peter A. Quist -0- -0- -0- -0-
Director,
Vice President, and
Secretary

Robert E. Walstad -0- -0- -0- -0-
Director, President,
and Treasurer

---------- ------- --------- ------------

Totals $26,316.62 -0- -0- $27,500.00

------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Directors who are not an "interested person" as that term is defined in
the 1940 Act are paid an annual fee of $10,000 for serving on the
boards of the funds in the complex. Each of the funds, including the
four series of Ranson Managed Portfolios, pays a pro rata share of the
fee based upon its respective assets. Mssrs. Quist and Walstad, who are
the only "interested persons" of the funds, receive no compensation
from the funds.

B-10
<PAGE>

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of February 18, 1997, no person owned of record or was known by
Registrant to own of record or beneficially 5 percent or more of Registrant's
outstanding shares, and the amount of shares owned by all officers and directors
of Registrant, as a group, was less than 1 percent of Registrant's outstanding
shares.

INVESTMENT ADVISORY AND OTHER SERVICES

Investment Adviser

ND Money Management, Inc. (the "Investment Adviser"), has been retained
under an Investment Advisory Agreement to act as the Fund's investment adviser,
subject to the authority of the Board of Directors. The Investment Adviser is a
wholly-owned subsidiary of ND Holdings, Inc., a venture capital corporation
organized under the laws of the State of North Dakota on September 22, 1987,
which is also the Fund's promoter. The Investment Adviser was incorporated under
North Dakota law on August 19, 1988, and also serves as investment adviser for
ND Insured Income Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free
Fund, Inc., and Integrity Fund of Funds, Inc. The address of the Investment
Adviser is 1 North Main, Minot, North Dakota 58703.

The Investment Adviser furnishes the Fund with investment advice and, in
general, supervises the management and investment program of the Fund. The
Investment Adviser furnishes at its own expense all necessary administrative
services, office space, equipment, and clerical personnel for servicing the
investments of the Fund and investment advisory facilities and executive and
supervisory personnel for managing the investments and effecting the portfolio
transactions of the Fund. In addition, the Adviser pays the salaries and fees of
all officers and directors of the Fund who are affiliated persons of the
Investment Adviser. All other charges and expenses, as more fully described in
the Prospectus under "Expenses," are paid by the Fund.

Under the Investment Advisory Agreement, the Fund has agreed to pay the
Investment Adviser an annual fee, payable monthly, of 0.60% of the Fund's
average daily net assets. The Investment Adviser was paid $415,394, $541,290,
$572,789, and $560,900 in advisory fees for fiscal years 1993, 1994, 1995, and
1996, respectively.

The Investment Advisory Agreement provides that the Investment Adviser will
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which the Investment
Advisory Agreement relates, except a loss resulting from willful misfeasance,
bad faith, or gross negligence on the part of the Investment Adviser in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under the Investment Advisory Agreement.

B-11
<PAGE>

The Investment Advisory Agreement continues in effect from year to year as
long as its continuation is approved at least annually by a majority of the
directors who are not parties to the Investment Advisory Agreement or interested
persons of any such party except in their capacity as directors of the Fund and
by the shareholders or the Board of Directors. It may be terminated at any time
upon 60 days' written notice by the Fund or by a majority vote of the
outstanding shares and will terminate automatically upon assignment.

Robert E. Walstad and Peter A. Quist, directors and officers of the Fund,
are also directors and officers of the Investment Adviser as indicated under
"Management of the Fund."

Distribution Plan

Although shares of the Fund are sold without an initial sales charge, ND
Capital, Inc. (the "Underwriter"), the Fund's principal underwriter, currently
pays dealers who sell Fund shares a commission equal to 3 3/4% (1% on sales of
$1 million or more) of the value of each sale. Such payments are made out of the
Underwriter's own funds. As a further inducement to the sale of Fund shares and
in recognition of the services provided to shareholders, the Underwriter may
also make payments to investment dealers at the annual rate of 0.25% of the
average net assets of the Fund which are attributable to shareholders of the
Fund for whom dealers are designated as the dealer of record. For this purpose,
"average net assets" attributable to a shareholder account means the product of
(i) the average daily share balance of the account times (ii) the Fund's average
daily net asset value per share. Such payments may be suspended or modified by
the Underwriter at any time and are subject to continuation of the Fund's
Distribution Plan (the "Plan") described below.

The Fund has adopted the Plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Rule 12b-1 provides that any payments made by the Fund in
connection with the distribution of its shares may be made only pursuant to a
written plan describing all material aspects of the proposed financing of the
distribution and also requires that all agreements with any person relating to
the implementation of a plan must be in writing. The Fund has also entered into
a related Distribution Agreement with the Underwriter.

The Plan and the related Distribution Agreement provide that the Fund will
pay the Underwriter an annual fee for certain expenses incurred in connection
with the offer and sale of the Fund's shares. The fee is calculated daily and
paid monthly at the annual rate of 0.85% of the average daily net assets of the
Fund. The fee may be used by the Underwriter to cover any expenses primarily
intended to result in the sale of the Fund's shares, including, but not limited
to, sales commissions and other fees paid to dealers who sell Fund shares;
payments made to, and expenses of, persons who provide support services in
connection with the distribution of the Fund's shares; costs relating to the
formulation and implementation of marketing and promotional activities; costs of
printing and distributing prospectuses, statements of additional information,
and reports of the Fund to prospective shareholders; costs involved in
preparing, printing, and distributing advertising and sales literature; and
other sales expenses.

B-12
<PAGE>

The Plan continues in effect from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
including a majority of the directors who are not "interested persons" of the
Fund and have no direct or indirect financial interest in the operation of the
Plan or in the Distribution Agreement or in any other agreement related to the
Plan (the "Qualified Directors"), cast in person at a meeting called for the
purpose of voting on such continuance. The Plan may be terminated at any time,
without penalty, by vote of a majority of the Qualified Directors or by vote of
the lesser of (a) 67% or more of the shares present at a meeting, if the holders
of more than 50% of the outstanding shares are present or represented by proxy;
or (b) more than 50% of the outstanding shares. Any amendment of the Plan to
increase materially the amount the Fund is authorized to pay thereunder would
require approval by shareholders as described in the preceding sentence. Other
material amendments to the Plan would be required to be approved by vote of the
Board of Directors of the Fund, including a majority of the Qualified Directors,
cast in person at a meeting called for that purpose. The Plan further provides
that as long as the Plan remains in effect, the selection and nomination of the
Qualified Directors will be committed to the discretion of the Qualified
Directors then in office. It is expected that payments made under the Plan will
serve to encourage the Underwriter and investment dealers to sell Fund shares
and to provide ongoing services to Fund shareholders.

The Underwriter has voluntarily agreed (not as part of the Distribution
Agreement) to waive a portion of the fee payable under the Distribution
Agreement during the early stages of the Fund's existence. Pursuant to this
voluntary agreement, the Underwriter waived the entire fee payable for the
period of January through September 1989. Effective as of October 1, 1989, the
Fund began paying the Underwriter a fee of 0.20% of the average daily net assets
of the Fund. This fee was subsequently increased in five steps to 0.70% on
January 22, 1991. The Fund incurred $201,612, $226,026, $238,622, and $303,489
in fees for the fiscal years ended December 31, 1993, 1994, 1995, and 1996,
respectively.

The Investment Adviser and the Underwriter are subsidiaries of ND Holdings,
Inc. ("Holdings"), the promoter of the Fund. Robert E. Walstad and Peter A.
Quist, directors and president and vice president, respectively, of Holdings,
are also directors and officers of the Fund, the Investment Adviser, and the
Underwriter. See "Management of the Fund." Mssrs. Walstad and Quist are also
shareholders of Holdings and, accordingly, may indirectly benefit from the
payment of 12b-1 fees by the Fund to the Underwriter.

Custodian and Transfer Agent

Accountants and Reports to Shareholders

The Fund's independent public accountant, Brady, Martz & Associates, P.C.,
24 West Central Avenue, Minot, North Dakota 58701, audits and reports on the
Fund's annual financial statements, reviews certain regulatory reports and the
Fund's federal income tax return, and performs other professional accounting,
auditing, tax, and advisory services when engaged to do so by the Fund.
Shareholders will receive annual audited financial statements and semiannual
unaudited financial statements.

B-13
<PAGE>

PORTFOLIO TRANSACTIONS

Allocation of portfolio brokerage transactions to various brokers is
determined by the Investment Adviser in its best judgment and in a manner deemed
fair and reasonable to shareholders. The primary consideration is prompt and
efficient execution of orders in an effective manner at the most favorable
price. Subject to this consideration, brokers who provide supplemental
investment research, statistical, or other services to the Investment Adviser
may receive orders for transactions by the Fund. Information thus received will
enable the Investment Adviser to supplement its own research and analysis with
the views and information of other securities firms and may be used for the
benefit of clients of the Investment Adviser other than the Fund. Research
services may include advice as to the value of securities; the advisability of
investing in, purchasing, or selling securities; the availability of securities
or purchasers or sellers of securities; furnishing analyses and reports
concerning issues, industries, securities, economic factors and trends,
portfolio strategy, and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance and
settlement). A broker's sales of Fund shares may also be considered a factor if
the Investment Adviser is satisfied that the Fund would receive from that broker
the most favorable price and execution then available for a transaction.
Municipal bonds, notes, and short-term securities in which the Fund invests are
traded primarily in the over-the-counter market on a net basis and do not
normally involve either brokerage commissions or transfer taxes. The Fund's cost
of portfolio securities transactions will consist primarily of dealer or
underwriter spreads. The Fund will not engage in principal transactions with
affiliates.

In effecting purchases and sales of the Fund's portfolio securities,
the Investment Adviser and the Fund may place orders with and pay brokerage
commissions to brokers which are affilliated with the Fund, the Investment
Adviser, the Distributor or selected dealers participating in the offering of
the Fund's shares. Subject to rules adopted by the Securities and Exchange
Commission, the Fund may also purchase municipal securities from other members
of underwriting syndicates of which the Underwriter or other affiliates of the
Fund are members.

The Board of Directors will monitor the Investment Adviser's
performance with respect to portfolio transactions in order to evaluate the
overall reasonableness of brokerage commissions paid or spreads allowed.

PURCHASE AND REDEMPTION OF SHARES

Fund shares are sold at their public offering price, which is the net
asset value next determined after an order and payment are received in proper
form. The minimum initial investment is $1,000 ($100 for the Monthomatic
Investment Plan), and the minimum subsequent investment is $50, but such minimum
amounts may be changed at any time.

Upon receipt of a request for redemption, shares will be redeemed by
the Fund at the net asset value next determined following receipt of a properly
executed request with any required documents, less any applicable contingent
deferred sales charge as described in the Prospectus.

B-14
<PAGE>

The following example illustrates the operation of the contingent
deferred sales charge. Assume that you own 1,000 shares that you purchased six
years ago, 1,000 shares acquired by reinvesting distributions, 1,000 shares that
you purchased two years ago at $10 each, and 1,000 shares that you purchased one
year ago at $10 each. Also assume that the shares now have a net asset value
equal to $20 each. You may redeem the 2,000 shares that you have owned for six
years or acquired by reinvesting distributions without paying a contingent
deferred sales charge. Appreciation on the shares you bought in the last two
years equals $20,000 (the $10 increase in net asset value times 2,000 shares),
$10,000 of which is attributed to each of the two years. Because the $20,000 of
appreciation is equivalent to 1,000 shares at the assumed current net asset
value of $20 per share, you may redeem 1,000 more shares without paying a
contingent deferred sales charge. If you redeem 3,500 shares, you would have a
contingent deferred sales charge on 500 of those shares. The Fund would treat
these 500 redeemed shares as representing a redemption of the $10,000 investment
which you made two years ago. Based on the assumed net asset value of $20 per
share, you would pay a contingent deferred sales charge equal to $400 (500
shares times $20 per share times the applicable rate of 4.0%). If in the same
year you redeemed your remaining 500 shares, the Fund would treat this as a
redemption of your $10,000 investment made one year ago, applying a charge at
the rate of 4.0%.

The elimination of the contingent deferred sales charge for
redemptions by certain classes of persons as described in the Prospectus is
provided because of anticipated economies in sales and sales related efforts.

The Fund may suspend the right of redemption or delay payment more
than seven days (a) during any period when the New York Stock Exchange is closed
for trading (other than customary weekend and holiday closings), (b) when
trading in the markets the Fund normally utilizes is restricted or an emergency
exists as determined by the Securities and Exchange Commission so that disposal
of the Fund's investments or determination of its net asset value is not
reasonably practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit for protection of the Fund's
shareholders. The New York Stock Exchange is currently closed on the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, the Fourth
of July, Labor Day, Thanksgiving, and Christmas. The amount received by a
shareholder upon redemption may be more or less than the amount paid for such
shares depending on the market value of the Fund's portfolio securities at the
time. When the Fund is requested to redeem shares for which it may not have yet
received good payment (e.g., cash or certified check on a United States bank),
it may delay the mailing of a redemption check until such time as it has assured
itself that good payment has been collected for the purchase of such shares
(which will generally be within 15 calendar days).

UNDERWRITER

ND Capital, Inc. (the "Underwriter"), a subsidiary of ND Holdings,
Inc., the Fund's promoter, is the principal underwriter of the Fund's shares in
a continuous public offering.

Under the terms of the Distribution Agreement between the Fund and
the Underwriter, the Underwriter has agreed to use its best efforts to solicit
orders for the sale of the Fund's shares and

B-15
<PAGE>

to undertake such advertising and promotion as it believes is reasonable in
connection with such solicitation. In consideration of those services, the Fund
pays the Underwriter a fee, calculated daily and paid monthly, at the annual
rate of 0.85% of the average daily net assets of the shares for the prior month.
For information concerning payments made by the Fund to the Underwriter pursuant
to the Distribution Agreement, see "Distribution Plan" above. As further
consideration, the Fund has agreed to pay the Underwriter the proceeds from any
contingent deferred sales charges imposed on the redemption of shares. The Fund
paid the Underwriter $102,625 in contingent deferred sales charges for the
fiscal year ended December 31, 1996.

The Underwriter, in turn, pays a sales commission currently equal to
3 3/4% (1% on sales of $1 million or more) of the amount invested to dealers who
sell shares (excluding sales to investors exempt from the contingent deferred
sales charge). Commission payments totaled $815,909 in 1993, $538,142 in 1994,
$154,888 in 1995, and $102,562 in 1996. As a further inducement to the sale of
Fund shares and in recognition of services provided to shareholders, the
Underwriter may also make commission payments to dealers at the annual rate of
up to 0.25% of the average net assets which are attributable to shareholders of
the Fund for whom such dealers are designated as the dealers of record.

The Distribution Agreement must be approved at least annually by the
Fund's Board of Directors and a vote of a majority of the Fund's directors who
are not "interested persons"' (as defined in the 1940 Act) of the Fund and who
have no direct or indirect financial interest in the operation of the
Distribution Plan or any agreement related thereto or in the Distribution
Agreement (the "Qualified Directors"), by vote cast in person at a meeting
called for the purpose of voting on such approval. The Distribution Agreement
will terminate automatically in the event of its assignment and is terminable
with respect to the Fund without penalty on 60 days' written notice by vote of a
majority of the Qualified Directors or by vote of a majority (as defined in the
1940 Act) of the outstanding voting securities of the Fund.

DIVIDENDS AND TAXES

Dividends

All of the net investment income of the Fund is declared daily as a
dividend on shares for which the Fund has received payment. Net investment
income of the Fund consists of all interest income earned on portfolio assets
less all expenses of the Fund. Income dividends will be distributed monthly, and
dividends of net realized capital gains, if any, will normally be paid out once
a year after the end of the Fund's fiscal year. The Fund may at any time vary
the foregoing dividend practices and, therefore, reserves the right from time to
time to either distribute or retain for reinvestment such of its net investment
income and its net short-term and long-term capital gains as the Board of
Directors of the Fund determines appropriate under the then current
circumstances. In particular, and without limiting the foregoing, the Fund may
make additional distributions of net investment income or capital gain net
income in order to satisfy the minimum distribution requirements contained in
the Internal Revenue Code (the "Code"). Dividends will be reinvested in shares
of the Fund unless shareholders indicate in writing that they wish to receive
them in cash.

B-16
<PAGE>

Taxes

To the extent that dividends are derived from earnings on North
Dakota state and local government issues, such dividends will be exempt from
North Dakota income taxes.

For federal income tax purposes, the Fund is generally required to
recognize its unrealized gains and losses at year end on financial futures
contracts, options thereon, index options, and listed options on debt
securities. Any gain or loss recognized on such financial instruments is
generally considered to be 60% long-term and 40% short-term without regard to
the holding period of the contract or option. One of the requirements of
Subchapter M of the Code is that a fund must derive less than 30% of its gross
income from gains (not reduced by losses) on stocks and securities and certain
other investments held for less than three months. The Fund may be limited in
its options and futures transactions in order to prevent recognition of such
gains. Dividends from the Fund will not be eligible for the dividends received
deduction available to corporate shareholders.

The Fund's options and futures transactions are subject to special
tax provisions that may accelerate or defer recognition of certain gains or
losses, change the character of certain gains or losses, or alter the holding
periods of certain of the Fund's securities.

Redemption of shares of the Fund will be a taxable transaction for
federal income tax purposes, and the shareholder will recognize gain or loss in
an amount equal to the difference between the basis of the shares and the amount
received. The gain or loss will be a capital gain or loss and will be long-term
if the shares are held for a period of more than one year. The loss on shares
held six months or less will be a long-term capital loss to the extent any
long-term capital gain distribution is made with respect to such shares during
the period the investor owns the shares. In the case of shareholders holding
shares of the Fund for less than six months and subsequently selling those
shares at a loss after receiving an exempt-interest dividend, the loss will be
disallowed to the extent of the exempt-interest dividends received.

Interest on indebtedness which is incurred to purchase or carry
shares of a mutual fund which distributes exempt-interest dividends during the
year is not deductible for federal income tax purposes. Further, the Fund may
not be an appropriate investment for persons who are "substantial users" of
facilities financed by industrial development bonds held by the Fund or are
"related persons" to such users. Such persons should consult their tax adviser
before investing in the Fund.

The "Superfund Act of 1986" (the "Superfund Act") imposes a separate
tax on corporations at a rate of 0.12% of the excess of such corporation's
"modified alternative minimum taxable income" over $2,000,000. A portion of
tax-exempt interest, including exempt-interest dividends from the Fund, may be
includable in modified alternative minimum taxable income. Corporate
shareholders are advised to consult with their tax advisers with respect to the
consequences of the Superfund Act.

B-17
<PAGE>

CALCULATION OF PERFORMANCE DATA

The Fund may publish certain performance figures in advertisements
from time to time. These performance figures may include yield, tax equivalent
yield, and total return figures.

Yield

YIELD = 2[(a-b + 1)/6/ - 1]
---
cd

Where:

a = dividends and interest earned during the period.

b = expenses accrued for the period (net of reimbursements).

c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.

d = the maximum offering price per share on the last day of the
period.

To calculate interest earned (for the purpose of "a" above), the Fund
will:

(a) Compute the yield to maturity of each obligation held by the Fund
based on the market value of the obligation at the close of business
on the last business day of each month, or, with respect to
obligations purchased during the month, the purchase price.

(b) Divide the yield to maturity by 360 and multiply the quotient by
the market value of the obligation (including actual accrued
interest) to determine the interest income on the obligation for each
day of the subsequent month that the obligation is in the portfolio.

The maturity of an obligation with a call provision is the next call
date on which the obligation reasonably may be expected to be called or, if
none, the maturity date.

In the case of an obligation issued without original issue discount
and having a current market discount, the coupon rate of interest is used in
lieu of the yield to maturity. In the case of an obligation with original issue
discount, if the discount based on the current market value exceeds the
then-remaining portion of original issue discount (market discount), the yield
to maturity is the imputed rate based on the original issue discount
calculation. In the case of an obligation with original issue discount, if the
discount based on the current market value is less than the then-remaining
portion of original issue discount (market premium), the yield to maturity is
based upon market value.

B-18
<PAGE>

Tax Equivalent Yield

Tax equivalent yield shows the yield from a taxable investment which
would produce an after-tax yield equal to that of a fund that invests in
tax-exempt securities. It is computed by dividing the tax-exempt portion of the
Fund's yield (as calculated above) by one minus a stated income tax rate and
adding the product to the portion (if any) of the Fund's yield that is not
tax-exempt.

Total Return

ERV - P = Total Return
-------
P

Where:

ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the base period, assuming reinvestment of
all dividends and distributions

P = a hypothetical initial payment of $1,000

Average annual total return reflects the hypothetical annually
compounded return that would have produced the same cumulative total return if
the Fund's performance had been constant over the entire period and is computed
according to the following formula:

P( 1 + T)/n/ = ERV

Where:

P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the base period, assuming reinvestment of
all dividends and distributions

All performance figures are based on historical results and are not
intended to indicate future performance.

B-19
<PAGE>

TAX-FREE VERSUS TAXABLE INCOME

The following table shows the rate of return an individual North
Dakota investor would need to receive from a taxable investment to equal the
rate of return from the Fund. The table assumes that the investor's income from
a taxable investment would be subject to federal income tax at the maximum
federal rate and North Dakota state income tax at a rate equal to 14% of the
federal tax liability.

Our calculations are based on the maximum federal statutory tax rates
applicable in 1996. The highest marginal federal tax rate for 1996 can be in
excess of the statutory maximum federal tax rate due to the disallowance of a
portion of itemized deductions and personal exemptions. We have calculated the
combined marginal tax rate based on a family with adjusted gross income from
$180,000 to $300,000 for 1996 filing on a married filing jointly basis with two
dependent children. At this level of income, the highest federal marginal tax
rate is 43.95%. In addition, this assumes the investor is not subject to
alternative minimum tax and has a reasonable amount of itemized deductions. The
combined marginal tax rate for this taxpayer is approximately 48.68%.

The following table uses the combined marginal tax rate of 48.68% to
present the equivalent taxable yield for taxpayers in the situation presented
above.

<TABLE>
<CAPTION>
ND Tax-Free Equivalent Taxable Yield
Yield for Taxpayer in 1996
----- --------------------
<S> <C>
5.0% 9.74%
5.5% 10.71%
6.0% 11.69%
6.5% 12.66%
7.0% 13.63%
7.5% 14.61%
8.0% 15.58%
</TABLE>

APPENDIX--RATINGS OF INVESTMENTS

The four highest ratings of Moody's Investors Service, Inc.
("Moody's"), for municipal bonds are Aaa, Aa, A, and Baa. Municipal bonds rated
Aaa are judged to be of the "best quality." The rating of Aa is assigned to
municipal bonds which are of "high quality by all standards," but as to which
margins of protection or other elements make long-term risks appear somewhat
larger than Aaa rated municipal bonds. The Aaa, Aa, and A rated municipal bonds
comprise what are generally known as "high grade bonds." Municipal bonds which
are rated A by Moody's possess many favorable investment attributes and are
considered "upper medium grade obligations." Factors giving security to
principal and interest of A rated municipal bonds are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future. Municipal bonds which are rated Baa are considered as medium grade
obligations; i.e., they

B-20
<PAGE>

are neither highly protected nor poorly secured. Interest coverage and principal
security appear adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well.

The four highest ratings of Standard & Poor's Corporation ("S&P") for
municipal bonds are AAA, AA, A, and BBB. Municipal bonds rated AAA have the
highest rating assigned by S&P to a debt obligation. Capacity to pay interest
and repay principal is extremely strong. Bonds rated AA have a very strong
capacity to pay interest and repay principal and differ from the highest rated
issues only in small degree. Bonds rated A have a strong capacity to pay
interest and repay principal although they are somewhat susceptible to the
adverse effects of changes in circumstances and economic conditions than bonds
in higher rated categories. Bonds rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity than for bonds in
higher rated categories.

The "debt securities" included in the discussion of temporary
investments are corporate (as opposed to municipal) debt obligations rated AAA,
AA, or A by S&P or Aaa, Aa, or A by Moody's. Corporate debt obligations rated
AAA by S&P are "highest grade obligations." Obligations bearing the rating of AA
also qualify as "high grade obligations" and "in the majority of instances
differ from AAA issues only in small degree." Corporate debt obligations rated A
by S&P are regarded as "upper medium grade" and have "considerable investment
strength, but are not entirely free from adverse effects of changes in economic
and trade conditions." The Moody's corporate debt ratings of Aaa, Aa, and A do
not differ materially from those set forth above for municipal bonds.

Taxable or tax-exempt commercial paper ratings of A-l or A-2 by S&P
and P-l or P-2 by Moody's are the highest paper ratings of the respective
agencies. The issuer's earnings, quality of long-term debt, management, and
industry position are among the factors considered in assigning such ratings.

Subsequent to its purchase by the Fund, an issue of Municipal
Securities or a temporary investment may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event
requires the elimination of such obligation from the Fund's portfolio, but the
Investment Adviser will consider such an event in its determination of whether
the Fund should continue to hold such obligation in its portfolio. To the extent
that the ratings accorded by S&P or Moody's for municipal bonds or temporary
investments may change as a result of changes in such organizations or changes
in their rating system, the Fund will attempt to use comparable ratings as
standards for its investments in municipal bonds or temporary investments in
accordance with the investment policies contained herein.

B-21
<PAGE>

[LOGO OF BRADY MARTZ CERTIFIED PUBLIC ACCOUNTANTS APPEARS HERE]

INDEPENDENT AUDITOR'S REPORT

To the Shareholders and Board of Directors of
ND Tax Free Fund, Inc.

We have audited the accompanying statement of assets and liabilities of ND Tax
Free Fund, Inc. (the Fund), including the schedule of investments, as of
December 31, 1996, the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for the three years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The financial highlights for each of the two years in the period ended
December 31, 1993, were audited by other auditors whose report dated January 20,
1994, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of December 31,
1996, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of ND Tax
Free Fund, Inc. as of December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for the three years in the
period then ended, in conformity with generally accepted accounting principles.

/s/ Brady, Martz

BRADY, MARTZ & ASSOCIATES, P.C.
February 10, 1997

F-1
<PAGE>

ND TAX-FREE FUND, INC.
Schedule of Investments December 31, 1996
- --------------------------------------------------------------------------------

Name of Issuer
Percentages represent the market value Rating Coupon Principal Market
of each investment category to total net assets Moody's/S&P Rate Maturity Amount Value
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
NORTH DAKOTA MUNICIPAL BONDS (97.23%)
FINANCIAL (7.02%)
ND Municipal Bond Bank................................ A1/NR 6.300% 10/01/15 $ 530,000 $ 566,427
ND Municipal Bond Bank................................ A1/NR 6.250 10/01/14 4,325,000 4,589,128
ND Building Auth. Lease Rev........................... A/A 5.500 08/15/14 1,300,000 1,278,134
------------
$ 6,433,689
------------
HEALTH CARE (20.49%)
Bismarck (St. Vincent Nurs. Home) Hlth. Rev........... NR/NR 8.500% 06/01/09 $ 175,000 $ 184,040
Bismarck (Marillac Manor II) Ret. Facs. Rev........... NR/NR 8.625 02/01/10 675,000 723,148
Bismarck (Marillac Manor) Ret. Facs. Rev.............. NR/NR 7.700 02/01/16 250,000 276,313
Burleigh Cty. (St. Vincent Nurs. Home) Rev............ NR/NR 7.000 06/01/19 500,000 556,335
Burleigh Cty. (Missouri Slope Ctr.) Rev. Ref.......... NR/NR 7.000 11/01/07 500,000 537,795
Burleigh Cty. (Missouri Slope Care Fdn.) Rev. Ref..... NR/NR 7.250 06/01/12 500,000 539,825
Carrington, Catholic Health Corp. (Ctr.) Rev.......... A1/A+ 6.250 11/15/15 500,000 529,485
Cass Cty. (St. Lukes Hosp.) Facs. Rev................. NR/A+ 7.500 06/01/06 300,000 313,215
Devils Lake (Lake Region Luth. Home) Rev.............. NR/NR 6.500 10/01/13 250,000 262,955
Devils Lake (Catholic Health Corp.) Rev............... A1/A+ 6.250 11/15/07 1,125,000 1,202,715
Dickinson, Catholic Health Corp. (St. Joseph's) Rev... A1/A+ 7.200 06/01/14 1,015,000 1,057,528
Dickinson (BHS L/T Care) Hlth. Care Facs. Rev......... A1/NR 7.625 02/15/20 1,210,000 1,321,453
Dickinson (BHS L/T Care) Hlth. Care Facs. Rev......... A1/NR 7.500 02/15/10 600,000 646,782
Fargo (St. Luke's Hosp.) Facs. Ref. Rev............... NR/A+ 6.500 06/01/15 4,000,000 4,243,440
Hazen (Sakakawea Med. Ctr.) Hlth. Care Facs. Rev...... NR/NR 6.750 05/01/16 500,000 516,190
Jamestown (Heritage Center) Cong. Hsg. Rev............ NR/NR 8.500 09/01/06 200,000 221,054
Lisbon (Parkside Luth. Home) Nurs. Home Rev........... NR/NR 7.500 06/01/12 500,000 529,755
Ward Cty. (St. Joseph's Hosp.) Rev.................... NR/BBB- 7.500 11/01/15 1,000,000 1,103,660
Ward Cty. (St. Joseph's Hosp.) Rev.................... NR/BBB- 7.250 11/01/06 1,000,000 1,090,430
Ward Cty. (St. Joseph's Hosp.) Rev.................... NR/BBB- 7.250 11/01/06 1,000,000 1,090,430
Ward Cty. (St. Joseph's Hosp.) Rev.................... NR/BBB- 7.500 11/01/15 1,450,000 1,600,307
Ward Cty. (St. Joseph's Hosp.) Rev.................... NR/BBB- 8.875 11/15/24 200,000 224,900
------------
$18,771,755
------------
HOUSING (25.63%)
Grand Forks Hsg. Auth. (Ryan Hse.) Multifam. Ref...... Aa/NR 6.300% 03/01/22 $ 500,000 $ 515,230
Morton Cty. Hsg. Auth. Multifam. Hsg. Rev............. NR/NR 6.750 03/01/21 500,000 493,405
North Dakota (HFA) Single Family Mortgage Program..... Aa/A+ 7.375 07/01/17 535,000 551,125
North Dakota (HFA) Single Family Mortgage Program..... Aa/A+ 7.850 07/01/01 240,000 255,451
North Dakota (HFA) Single Family Mortgage Program..... Aa/A+ 8.000 07/01/13 285,000 306,087
North Dakota (HFA) Single Family Mortgage Program..... Aa/A+ 7.900 07/01/10 160,000 172,224
North Dakota (HFA) Single Family Mortgage Program..... Aa/A+ 8.050 01/01/24 850,000 907,401
North Dakota (HFA) Single Family Mortgage Program..... Aa/A+ 7.750 07/01/24 765,000 813,241
North Dakota (HFA) Single Family Mortgage Program..... Aa/A+ 7.250 07/01/10 325,000 346,229
North Dakota (HFA) Single Family Mortgage Program..... Aa/A+ 7.300 07/01/24 1,255,000 1,331,103
North Dakota (HFA) Single Family Mortgage Program..... Aa/A+ 7.000 07/01/23 1,275,000 1,363,357
North Dakota (HFA) Single Family Mortgage Program..... Aa/A+ 6.800 07/01/23 2,965,000 3,115,059
North Dakota (HFA) Single Family Mortgage Program..... Aa/A+ 6.700 07/01/13 395,000 413,336
North Dakota (HFA) Single Family Mortgage Program..... Aa/A+ 6.800 07/01/25 1,540,000 1,608,314
North Dakota (HFA) Single Family Mortgage Program..... Aa/A+ 5.950 07/01/25 3,190,000 3,105,752
North Dakota (HFA) Single Family Mortgage Program..... Aa/A+ 6.950 07/01/25 1,995,000 2,116,855
North Dakota (HFA) Finance Program.................... Aa/NR 6.750 07/01/25 3,385,000 3,572,698
North Dakota (HFA) Finance Program.................... Aa/NR 6.300 01/01/15 950,000 971,613
North Dakota (HFA) Finance Program.................... Aa/NR 6.250 07/01/15 165,000 167,079
North Dakota (HFA) Home Mortgage Program.............. Aa/NR 6.300 07/01/16 500,000 515,065
North Dakota (HFA) Housing Finance Program............ Aa/NR 6.400 01/01/28 300,000 308,205
North Dakota (HFA) Home Mortgage Program.............. Aa/NR 6.150 07/01/27 535,000 532,031
------------
$23,480,860
------------
</TABLE>

F-2
<PAGE>

ND TAX-FREE FUND, INC.
Schedule of Investments December 31, 1996
- --------------------------------------------------------------------------------

Name of Issuer (Unaudited)
Percentages represent the market value Rating Coupon Principal Market
of each investment category to total net assets Moody's/S&P Rate Maturity Amount Value
- ------------------------------------------------------------------------------------------------------------------------------------

POLLUTION CONTROL (1.77%)
Mercer Cty. (Basin Electric) PCR...................... A/A 7.000% 01/01/19 $ 990,000 $ 1,070,022
Mercer Cty. (Ottertail Power) PCR Ref................. Aa3/AA- 6.900 02/01/19 500,000 550,865
------------
$ 1,620,887
------------
REAL ESTATE (8.16%)
Burleigh Cty. (Univ. of Mary) Facs. Rev............... NR/NR 5.750% 12/01/11 $1,000,000 $ 986,480
Burleigh Cty. (Univ. of Mary) Facs. Rev............... NR/NR 5.875 12/01/15 1,000,000 984,140
Fargo, Park District (Golf Course) Rev................ NR/NR 7.300 11/01/06 130,000 141,112
Fargo, Park District (Golf Course) Rev................ NR/NR 7.350 11/01/07 110,000 119,488
Fargo, Park District (Golf Course) Rev................ NR/NR 7.250 11/01/10 190,000 207,735
Grand Forks Regional Airport Authority Rev............ A/NR 7.500 10/01/09 225,000 237,008
Grand Forks Regional Airport Authority Rev............ A/NR 7.500 10/01/10 240,000 252,809
Grand Forks (Cirrus Proj.) Sales Tax Rev.............. A1/NR 5.900 05/01/17 695,000 692,408
Jamestown (College) Facility Rev...................... NR/NR 6.625 10/01/14 800,000 845,264
ND St. Brd. of Hgr. Ed. (MSU) Student Svcs. Ref....... NR/NR 6.750 08/01/05 755,000 805,464
ND St. Brd. of Hgr. Ed. (MSU) Student Svcs. Ref....... NR/NR 5.500 08/01/13 400,000 398,124
University of ND (G.F.) Lease Financing COP........... A/A- 7.300 09/01/10 1,425,000 1,549,801
Wahpeton (Town Centre. Sqr.) Multifam. Hsg. Ref....... NR/NR 8.500 02/01/14 250,000 256,497
------------
$ 7,476,330
------------
INSURED/GUARANTEED (34.17%)
*Bismarck (MedCenter One) Ref. & Imp. (BIGI).......... Aaa/AAA 7.500% 05/01/13 $1,500,000 $ 1,637,550
Bismarck (St. Alexius Med. Ctr.) Ref. (AMBAC)......... Aaa/AAA 6.900 05/01/06 400,000 439,868
Central Cass Cty., PSD#17 GO Sch. Bldg. (MBIA)........ Aaa/AAA 6.500 05/01/13 430,000 472,342
Central Cass Cty., PSD#17 GO Sch. Bldg. (MBIA)........ Aaa/AAA 6.500 05/01/14 460,000 506,883
Grand Forks (United Hosp.) Facs. Rev. (MBIA).......... Aaa/AAA 6.625 12/01/10 830,000 908,219
Grand Forks (United Hosp.) Facs. Rev. (MBIA).......... Aaa/AAA 6.500 12/01/06 750,000 819,038
Grand Forks (United Hosp.) Facs. Rev. (MBIA).......... Aaa/AAA 6.250 12/01/19 1,000,000 1,065,170
*Grand Forks (United Hosp.) Facs. Rev. (MBIA)......... Aaa/AAA 6.450 12/01/23 1,525,000 1,648,357
Mercer Cty. (Mont.-Dak. Utilities) PCR (FGIC)......... Aaa/AAA 6.650 06/01/22 7,000,000 7,682,220
Mercer Cty. (NW Public Service) PCR Ref. (MBIA)....... Aaa/AAA 5.850 06/01/23 4,600,000 4,665,458
Mercer Cty. (Basin Electric) PCR (AMBAC).............. Aaa/AAA 6.050 01/01/19 4,350,000 4,519,998
Morton Cty. (Mont.-Dak. Utilities) PCR (FGIC)......... Aaa/AAA 6.650 06/01/22 600,000 658,476
ND (HFA) Multifam. Ref. (FNMA guaranteed)............. Aaa/AAA 6.200 12/01/20 825,000 843,876
ND Building Auth. Ref. Lease Rev. (AMBAC)............. Aaa/AAA 6.000 06/01/10 1,700,000 1,819,731
ND Building Auth. Lease Rev. (CGIC)................... Aaa/AAA 6.000 12/01/13 500,000 527,565
*North Dakota Student Loan Rev. (AMBAC)............... Aaa/AAA 7.750 07/01/02 1,060,000 1,121,840
North Dakota Student Loan Rev. (AMBAC)................ Aaa/AAA 6.300 07/01/12 100,000 102,870
North Dakota Student Loan Rev. (AMBAC)................ Aaa/AAA 6.350 07/01/13 250,000 257,555
North Dakota Student Loan Rev. (AMBAC)................ Aaa/AAA 6.400 07/01/14 400,000 412,136
University of ND (G.F.) Hsg. & Aux. Rev. (AMBAC)...... Aaa/AAA 7.850 04/01/14 340,000 364,324
Valley City, Western Hlth. Care Fac. Rev. (BIGI)...... Aaa/AAA 7.625 01/01/19 200,000 210,720
Williston Cath. Hlth. Corp. (Mercy Hosp.) (MBIA)...... Aaa/AAA 7.200 06/01/14 600,000 627,126
-------------
$ 31,311,322
-------------
TOTAL NORTH DAKOTA MUNICIPAL BONDS (COST:$85,491,002)............................................ $ 89,094,843
SHORT-TERM SECURITIES (0.91%)
Goldman Sachs Institutional Liquid Assets Tax-Exempt Diversified Portfolio (Cost: $833,431)...... 833,431
-------------

TOTAL INVESTMENTS IN SECURITIES (COST: $86,324,433).............................................. $ 89,928,274
=============
</TABLE>

*Indicates bonds are segregated by the custodian to cover when-issued or
delayed-delivery purchases.
The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>

ND TAX-FREE FUND, INC.
Financial Statements December 31, 1996

Statement of Assets and Liabilities
December 31, 1996
- --------------------------------------------------------------------------------

ASSETS
Investments in securities, at value
(cost:$86,324,433)................... $89,928,274
Accrued dividends receivable......... 2,074
Accrued interest receivable.......... 1,585,433
Security sales receivable............ 1,186,244
Variation margin on futures.......... 564,802
------------
Total Assets...................... $93,266,827
------------

LIABILITIES
Bank overdraft....................... $ 79,588
Dividends payable.................... 412,992
Accrued expenses..................... 97,854
Security purchases payable........... 1,045,250
------------
Total Liabilities................. $ 1,635,684
------------

NET ASSETS................................ $91,631,143
============

Net asset value per share, 9,970,201
shares outstanding....................... $ 9.19
============

<CAPTION>
Statement of Operations
For the year ended December 31, 1996

INVESTMENT INCOME
<S> <C>
Interest............................. $ 5,640,796
Dividends............................ 59,137
------------
Total Investment Income........... $ 5,699,933
------------

EXPENSES
Investment advisory fees............. $ 560,900
Distribution fees (12b-1)............ 303,489
Custodian fees....................... 13,643
Transfer agent fees.................. 100,497
Accounting service fees.............. 66,183
Audit and legal fees................. 7,250
Directors fees....................... 15,837
Insurance............................ 3,082
Printing and postage................. 13,424
License, fees, and registrations..... 7,911
------------
Total expenses.................... $ 1,092,216
Less expenses waived or absorbed
by the Fund's manager................. 40,861
Total Net Expenses................ $ 1,051,355
------------
NET INVESTMENT INCOME..................... $ 4,648,578
------------

REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FUTURES
Net realized gain (loss) from:
Investment transactions............... $ 516,310
Futures transactions.................. 2,626,302
Net change in unrealized appreciation
(depreciation) of:
Investments........................... (1,699,565)
Futures............................... (100,169)

Net Realized and Unrealized Gain
(Loss) On Investments And Futures $ 1,342,878
------------

NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........................... $ 5,991,456
============

The accompanying notes are an integral part of these financial statements.
</TABLE>

F-4
<PAGE>

ND TAX-FREE FUND, INC.
Financial Statements December 31, 1996
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the years ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------

For the Year Ended For the Year Ended
December 31, 1996 December 31, 1995
-----------------------------------------

<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS........................................
Net investment income................................................................ $ 4,648,578 $ 4,961,588
Net realized gain (loss) on investments and futures.................................. 3,142,612 (4,107,844)
Net unrealized appreciation (depreciation) on investments and futures................ (1,799,734) 7,035,220
-------------------------------------
Net Increase (Decrease) in Net Assets Resulting From Operations................. $ 5,991,456 $ 7,888,964
-------------------------------------

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS..............................................
Dividends from net investment income................................................. $ (4,648,578) $ (4,961,588)
Distributions in excess of net investment income..................................... (303,489) (229,423)
Distributions from net realized gain on investment transactions...................... 0 0
-------------------------------------
Total Dividends and Distributions............................................... $ (4,952,067) $ (5,191,011)
-------------------------------------

CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares......................................................... $ 3,336,320 $ 5,471,316
Proceeds from reinvested dividends................................................... 3,190,615 3,322,041
Cost of shares redeemed.............................................................. (10,466,886) (8,824,914)
-------------------------------------

Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions. $ (3,939,951) $ (31,557)
-------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................................................. $ (2,900,562) $ 2,666,396
NET ASSETS, BEGINNING OF PERIOD.......................................................... 94,531,705 91,865,309
-------------------------------------
NET ASSETS, END OF PERIOD................................................................ $ 91,631,143 $ 94,531,705
=====================================
The accompanying notes are an integral part of these financial statements.
</TABLE>

F-5
<PAGE>

Notes to Financial Statements December 31, 1996

Note 1. ORGANIZATION
ND Tax-Free Fund, Inc. (the Fund) is registered under the Investment
Company Act of 1940 as a non-diversified, open-end management
investment company. The Fund incorporated under the laws of the State
of North Dakota on October 7, 1988, and commenced operations on
January 3, 1989. The Fund's objective is to provide as high a level of
current income exempt from federal and North Dakota income taxes as is
consistent with preservation of capital. The Fund will seek to achieve
this by investing primarily in a portfolio of North Dakota tax-exempt
securities.

Shares of the Fund are offered with no initial sales charge. Shares
may be subject to a contingent deferred sales charge, if those shares
are redeemed within five years of purchase.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation - Investments in securities traded on
national securities exchanges are valued at the last reported sales
price at the close of each business day. Securities for which market
quotations are not readily available are valued at fair value as
determined in good faith by the portfolio management team. 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.

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 payable 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.

F-6
<PAGE>

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.

Note 3. SHARE TRANSACTIONS
As of December 31, 1996, there were 100,000,000 shares of $.001 par
authorized; 9,970,201 and 10,402,491 were outstanding at December 31,
1996 and December 31, 1995, respectively. Transactions in capital
shares were as follows:

Shares Amount
----------------------------------------------------------------------------------
For the Year Ended For the Year Ended For the Year Ended For the Year Ended
December 31, 1996 December 31, 1995 December 31, 1996 December 31, 1995
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................. 366,454 605,360 $ 3,336,320 $ 5,471,316
Shares issued on reinvestment of dividends.. 349,952 368,749 3,190,615 3,322,041
Shares redeemed............................. (1,148,695) (980,165) (10,466,886) (8,824,914)
----------------------------------------------------------------------------------
Net increase (decrease)..................... (432,289) (6,056) $ (3,939,951) $ (31,557)
==================================================================================

</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
$560,900 of investment advisory fees for the year ended December 31,
1996. The Fund has a payable to ND Money Management, Inc. of $47,501
at December 31, 1996 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 at the annual
rate of 0.85% of the average daily net assets of the Fund to ND
Capital, Inc. (Capital), its principal underwriter, for expenses
incurred in the distribution of the Fund's shares. Pursuant to the
Plan, Capital is entitled to reimbursement each month for its actual
expenses incurred in the distribution and promotion of the Fund's
shares, including the printing of prospectuses and reports used for
sales purposes, expenses of preparation and printing of sales
literature and other such distribution related expenses, including any
distribution or service fees paid to securities dealers who have
executed a dealer sales agreement with Capital. Capital will be
reimbursed at a rate not to exceed 0.85% of the average daily net
assets of the Fund for the prior month. The Fund has recognized
$303,489 of 12b-1 fee expenses for the year ended December 31, 1996.
The Fund has a payable to ND Capital, Inc. of $27,709 at December 31,
1996 for 12b-1 fees. In addition, the Fund has engaged ND Capital as
agent for the purchase of certain investment securities. For the year
ended December 31, 1996 commissions earned by ND Capital, Inc. totaled
$1,968 and are included in the cost basis of the securities acquired.

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 $100,497 of transfer agency fees for the year ended
December 31, 1996. ND Resources, Inc. also acts as the Fund's
accounting services agent for a monthly fee equal to the sum of

F-7
<PAGE>

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 $66,183 of accounting service
fees for the year ended December 31, 1996.

Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment
securities (excluding short-term securities) aggregated $11,698,675
and $11,692,220, respectively, for the year ended December 31, 1996.

Note 6. INVESTMENT IN SECURITIES
At December 31, 1996, the aggregate cost of securities for federal
income tax purposes was $86,324,433, and the net unrealized
appreciation of investments based on the cost was $3,603,841, which is
comprised of $3,767,621 aggregate gross unrealized appreciation and
$163,780 aggregate gross unrealized depreciation.

F-8
<PAGE>

Financial Highlights Selected per share data and ratios for the period indicated
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.09 $ 8.83 $ 9.52 $ 9.49 $ 9.47
---------------------------------------------------------------------

Income from Investment Operations:
Net investment income.................................. $ .46 $ .47 $ .48 $ .52 $ .59
Net realized and unrealized gain (loss) on investment
and futures transactions............................... .13 .28 (.67) .05 .04
---------------------------------------------------------------------

Total Income (Loss) From Investment Operations....... $ .59 $ .75 $ (.19) $ .57 $ .63
---------------------------------------------------------------------

Less Distributions:
Dividends from net investment income................... $ (.46) $ (.47) $ (.48) $ (.52) $ (.59)
Distributions in excess of net investment income....... (.03) (.02) (.02) (.02) (.02)
---------------------------------------------------------------------

Total Distributions.................................... $ (.49) $ (.49) $ (.50) $ (.54) $ (.61)
---------------------------------------------------------------------

NET ASSET VALUE, END OF PERIOD $ 9.19 $ 9.09 $ 8.83 $ 9.52 $ 9.49
=====================================================================

Total Return................................................ 6.62%(A) 8.68%(A) (2.07)%(A) 5.94%(A) 6.62%(A)
Ratios/Supplemental Data:
Net assets, end of period (in thousands)............... $91,631 $94,532 $91,865 $85,042 $61,429
Ratio of net expenses (after expense assumption)
to average net assets.................................. 1.13%(B) 1.05%(B) 1.06%(B) 1.01%(B) 0.95%(B)
Ratio of net investment income to average net assets... 5.00% 5.20% 5.19% 5.39% 5.91%
Portfolio turnover rate................................ 12.92% 8.02% 5.55% 18.59% 17.35%
</TABLE>

(A) Excludes contingent deferred sales charge of 4%.
(B) During the periods indicated above, ND Holdings, Inc. assumed expenses of
$40,861, $3,799, $31,115, $30,707, and $66,030, respectively. If the
expenses had not been assumed, the annualized ratios of total expenses to
average net assets would have been 1.18%, 1.05%, 1.10%, 1.05%, and 1.08%,
respectively.

F-9
<PAGE>

ND TAX-FREEFUND, INC.

PART C
OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements

Included in Part B of the Registration Statement:

Independent Public Accountant's Report, dated February 10, 1997

Statement of Assets and Liabilities as of December 31, 1996

Statement of Operations for the Year Ended December 31, 1996

Statement of Changes in Net Assets for the Years Ended December
31, 1996 and 1995

Notes to Financial Statements

Financial Highlights

Schedule of Investments

Schedules II through VII are ommitted because inapplicable.

(b) Exhibits

(1) Articles of Incorporation *

(2) Bylaws **

(4) Specimen Copy of Share Certificate *

(5) Form of Investment Advisory Agreement *

(6)(a) Form of Distribution Agreement *

(6)(b) Form of Dealer Sales Agreement ****

(8) Form of Custodian Agreement ***

(9)(a) Form of Transfer Agency Agreement ***

(9)(b) Form of Accounting Services Agreement *****

(10) Opinion of Pringle & Herigstad, P. C. **

(11) Consent of Independent Accountant

(13) Form of Purchase Agreement *

(14) Form of Distribution Plan ***

--------------------------

* Previously filed as an exhibit to Registrant's Registration
Statement on Form N-1A filed with the Securities and Exchange
Commission on October 25, 1988, and incorporated by reference
herein.

**Previously filed as an exhibit to Pre-effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A filed with the
Securities and Exchange Commission on December 13, 1989, and
incorporated by reference herein.

C-1
<PAGE>

*** Previously filed as an exhibit to Post-effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A filed with the
Securities and Exchange Commission on October 25, 1988, and
incorporated by reference herein.

**** Previously filed as an exhibit to Post-effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A filed with the
Securities and Exchange Commission on May 1, 1995, and incorporated
by reference herein.

***** Previously filed as an exhibit to Post-effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A filed with the
Securities and Exchange Commission on May 1, 1996, and incorporated
by reference herein.

Item 25. Persons Controlled by or Under Common Control with Registrant

Inapplicable

Item 26. Number of Holders of Securities

<TABLE>
<CAPTION>
Title of Class Number of Record Holders
<S> <C>
Shares, par value 3,423
$.001 per share (As of February 18, 1997)
</TABLE>

Item 27. Indemnification

Section 4 of the Distribution Agreement [ Exhibit (6) (a) ]
provides for the indemnification of ND Capital, Inc., Registrant's principal
underwriter, against certain losses. Section 12 of the Transfer Agency Agreement
[ Exhibit 9 ] provides for the indemnification of ND Resources, Inc.,
Registrant's transfer agent, against certain losses.

Indemnification of directors, officers, employees, and agents of
Registrant is required under Section 10-19.1-91 of the North Dakota Century
Code. In addition, Registrant has obtained an insurance policy on behalf of
directors and officers against any liability asserted against and incurred by
the person in or arising from that person's official capacity to the extent
permitted by law.

In no event will Registrant indemnify its directors, officers,
employees, or agents against any liability to which such person would otherwise
be subject by reason of his willful misfeasance, bad faith, gross negligence in
the performance of his duties, or by reason of his reckless disregard of the
duties involved in the conduct of his office arising under his agreement with
Registrant.

Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a director, officer, or controlling person of Registrant in
the successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection

C-2
<PAGE>

with the securities being registered, Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

Anything in the North Dakota Business Corporation Act (Chapters
10-19 through 10-23 of the North Dakota Century Code), the Fund's Articles of
Incorporation or Bylaws, or the Investment Advisory, Distribution, or Transfer
Agency Agreements to the contrary notwithstanding, Registrant will comply in all
respects with the provisions of Investment Company Act Release No. 11330
(September 4, 1980) concerning indemnification.

Item 28. Business and Other Connections of Investment Adviser

ND Money Management, Inc. (the "Investment Adviser"), is a wholly-
owned subsidiary of ND Holdings, Inc. ("Holdings"), Registrant's promoter. The
Investment Adviser was organized under the laws of the State of North Dakota on
August 19, 1988, and also serves as investment adviser for ND Insured Income
Fund, Inc. ("NDIIF"), Montana Tax-Free Fund, Inc. ("MTFF"), South Dakota Tax-
Free Fund, Inc. ("SDTFF"), and Integrity Fund of Funds, Inc. ("IFF").

The officers and directors of the Investment Adviser are Robert E.
Walstad and Peter A. Quist. Mssrs. Walstad and Quist are also officers and
directors of Holdings, ND Capital, Inc. ("Capital"), Registrant's principal
underwriter and initial shareholder, ND Resources, Inc. ("Resources"),
Registrant's transfer agent, NDIIF, MTFF, SDTFF, and IFF.

Mr. Walstad served as a stockbroker and branch manager of the
Minot, North Dakota, office of Dean Witter Reynolds from September 1977 to
October 1987 when he resigned to organize Holdings. Mr. Quist was Securities
Commissioner of the State of North Dakota from May 6, 1983, to January 31, 1988,
when he resigned to join Holdings as vice president and director.

The Investment Adviser, Registrant, Holdings, Capital, Resources,
NDIIF, MTFF, SDTFF, and IFF have their principal address at 1 North Main, Minot,
North Dakota 58703.

Item 29. Principal Underwriters

(a) Other investment companies for which Registrant's principal
underwriter also acts as principal underwriter, depositor, or investment
adviser: ND Insured Income Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota
Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.

(b) Information concerning each director, officer, or partner of
the principal underwriter:

<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
-------------------- --------------------- --------------------
<S> <C> <C>
Robert E. Walstad President, Treasurer, President, Treasurer,
1 North Main and Director and Director
Minot, North Dakota 58703
</TABLE>

C-3
<PAGE>

<TABLE>
<S> <C> <C>
Peter A. Quist Vice President, Secretary, Vice President, Secretary
1 North Main and Director and Director
Minot, North Dakota 58703
</TABLE>

Item 30. Location of Accounts and Records

First American Bank West, 20 First Street SW, Minot, North Dakota
58701, serves as custodian of Registrant and maintains all records related to
that function. ND Resources, Inc. ("Resources"), serves as transfer agent,
dividend disbursing, administrative, and accounting services agent of Registrant
and maintains all records related to those functions. ND Capital, Inc.
("Capital"), serves as the principal underwriter of Registrant and maintains all
records related to that function. ND Money Management, Inc. ("Money
Management"), serves as Registrant's investment adviser and maintains all
records related to that function. Registrant maintains all of its corporate
records. The address of Resources, Capital, Money Management, and Registrant is
1 North Main, Minot, North Dakota 58703.

Item. 31. Management Services

Inapplicable

Item 32. Undertakings

Inapplicable

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant certifies that it meets all of the
requirements for effectiveness of this Post-effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A filed with the Securities and
Exchange Commission on October 25, 1988, pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-effective Amendment No. 11
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Minot, State of North Dakota, on the 19th day of February, 1997.

ND TAX-FREE FUND, INC.

By
--------------------------------
Robert E. Walstad
President

C-4
<PAGE>

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Post-effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A has been signed below by the
following persons in the capacities and on the date indicated.

- -------------------------------------------- February 19, 1997
Lynn W. Aas
Director

- -------------------------------------------- February 19, 1997
Orlin W. Backes
Director

- -------------------------------------------- February 19, 1997
Arthur A. Link
Director

- -------------------------------------------- February 19, 1997
Peter A. Quist
Director, Vice President, and Secretary

- -------------------------------------------- February 19, 1997
Robert E. Walstad
Director, President, and Treasurer
</TABLE>

C-5
<PAGE>

ND TAX-FREE FUND, INC.

Registration Statement on Form N-1A under

the Securities Act of 1933 and the

Investment Company Act of 1940

EXHIBITS
<PAGE>

INDEX TO EXHIBITS

(1) Articles of Incorporation

(2) Bylaws

(4) Specimen Copy of Stock Certificate

(5) Form of Investment Advisory Agreement

(6)(a) Form of Distribution Agreement

(6)(b) Form of Dealer Sales Agreement

(8) Form of Custody Agreement

(9) Form of Transfer Agency Agreement

(10) Opinion of Pringle & Herigstad, P. C.

(11) Consent of Independent Accountants

(13) Form of Purchase Agreement

(15) Form of Distribution Plan

<PAGE>

<ARTICLE> 6

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 86,324,433
<INVESTMENTS-AT-VALUE> 89,928,274
<RECEIVABLES> 2,773,751
<ASSETS-OTHER> 564,802
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 93,266,827
<PAYABLE-FOR-SECURITIES> 1,045,250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 590,434
<TOTAL-LIABILITIES> 1,635,684
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 9,970,201
<SHARES-COMMON-PRIOR> 10,402,491
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,439,627)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,603,841
<NET-ASSETS> 91,631,143
<DIVIDEND-INCOME> 59,137
<INTEREST-INCOME> 5,640,796
<OTHER-INCOME> 0
<EXPENSES-NET> 1,051,355
<NET-INVESTMENT-INCOME> 4,648,578
<REALIZED-GAINS-CURRENT> 3,142,612
<APPREC-INCREASE-CURRENT> (1,799,734)
<NET-CHANGE-FROM-OPS> 5,991,456
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,648,578
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 303,489
<NUMBER-OF-SHARES-SOLD> 366,454
<NUMBER-OF-SHARES-REDEEMED> 1,148,695
<SHARES-REINVESTED> 349,952
<NET-CHANGE-IN-ASSETS> (2,900,562)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 560,900
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,092,216
<AVERAGE-NET-ASSETS> 92,913,303
<PER-SHARE-NAV-BEGIN> 9.09
<PER-SHARE-NII> .46
<PER-SHARE-GAIN-APPREC> .13
<PER-SHARE-DIVIDEND> .46
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .03
<PER-SHARE-NAV-END> 9.19
<EXPENSE-RATIO> 1.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

EXHIBIT 99.1

ARTICLES OF INCORPORATION
<PAGE>

Certificate 22716

LOGO

I.....................BEN MEIER...........................................
Secretary of State of the State of North Dakota and Keeper of the Great Seal
thereof, do hereby certify that the annexed

copy of Articles of Incorporation
Certificate of Incorporation #42360

ND TAX-FREE FUND, INC.

has been compared by me with the. above. referenced. on...file. .and
.of................................record.....................................
............................................... in this Department, and that the
same is a true copy thereof, and of the whole of such ..........................
instruments.....................................................................
...............................................

In Testimony Whereof, I have hereunto set my
hand and affixed the Great Seal of the State at the

Capitol in the City of Bismarck, this.........7th.....................

day of..October.A.D.1988......

/Ben Meier/
BEN MEIER Secretary of State
By Deputy

<PAGE>

North Dakota Business or Farming Corporation Filing No. 26,193
SUBMIT DUPLICATE ORIGINALS

ARTICLES OF INCORPORATION

We, the undersigned natural persons of the age of eighteen years or more, acting
as incorporators of a corporation under the North Dakota Business Corporation
Act, adopt the following Articles of Incorporation for such corporation:

ARTICLE 1. The name of said corporation shall be: ND Tax-Free Fund, Inc.
(Shall contain the word "corporation", "company". "Incorporated",
or 'limited", or an abbreviation of one of such words, but that word or
abbreviation may not be Immediately

preceded by the word "and" or the character "&II.)

ARTICLE 2. The period of its duration is perpetual, /OR.

ARTICLE 3. The purpose for which the corporation is organized are general
business purposes, OR

To engage in business as a management investment company
registered under the Investment Company Act of 1940 .

To do everything necessary, proper, advisable, or convenient for
the accomplishment of the above purpose and to do every other act
and thing incidental thereto.
<PAGE>

ARTICLE 4. The aggregate number of shares which the corporation shall have
authority to issue is:

One hundred million (100,000,000) shares, all of one class, of the par

(if shares consist of one class only, Insert statement of par value of shares,
or that all are without par value. If shares are divided into classes,

value of one mill ($.001) each and of the aggregate par value of one
Insert number of shares of "each class.)

hundred thousand dollars ($100,000)

ARTICLE 5. The address of the initial registered office of the corporation is:
201 South Broadway.
Minot, North Dakota 58701
(Complete street address and city required)

and the name of its initial registered agent as such address is: Robert E.
Walstad

ARTICLE 6. Other provisions by which this corporation shall be governed:
(if none, insert "none".)

No shareholder shall be entitled as a matter of right to subscribe
for or purchase or receive any new or additional issue of shares or
securities convertible into shares, whether now or hereafter
authorized or whether issued for money, for a consideration other
than money, or by way of dividend.

Any action, other than an action requiring shareholder approval,
may be taken by written action signed by the number of directors
that would be required to take the same action at a meeting of the
board of directors at which all directors were present.

The number of directors of the corporation shall be five, which
number may be changed in accordance with the bylaws of the
corporation. The names of the directors who shall serve until the
first regular meeting of shareholders or until their successors are
elected and qualify are:

Charles E. Bailly
Arthur A. Link
Ben Meier
Peter A. Quist
Robert E. Walstad
<PAGE>

ARTICLE 7. The name and address of each incorporator is:

Name Street Address City State

Peter A. Quist 1728 Country West Road, Bismarck, ND

I (We), the above named incorporator(s), have read the foregoing Articles of
Incorporation, know the contents thereof, and verily believe the statements made
therein to be true.

Dated October 7, 1988

Office Use Only Fees:

Certificate No. 42360 Filing articles and issuing certificate $30.00
Filed 10-7 , 1988 License fees:
$50,000.00 or less $50.00
$10,000.00 of its authorized
By shares or fraction thereof in
excess of $50,000.00
Receipt No. 72538

(license fen are computed by multiplying the
number of authorized shares by the par value, or if
Filed by: shares are without par value, by $.10 per share.)

06-85
<PAGE>

Certificate 42360-

LOGO

CERTIFICATE OF INCORPORATION
OF

ND TAX-FREE FUND, INC.

............................................................
............................................................

The undersigned, as Secretary of State of the State of North
Dakota, hereby certifies that duplicate originals of Articles of
Incorporation for the incorporation of

ND TAX-FREE FUND, INC.

duly signed and verified pursuant to the provisions of the North Dakota..
Business (10-19.1 N.D.C.C.)..
Corporation Act, have been received in this office and are found to conform to
law.

ACCORDINGLY the undersigned, as such Secretary of State, and by
virtue of the authority vested in him by law, hereby issues this
Certificate of Incorporation to

ND TAX-FREE FUND

and attaches hereto a duplicate original of the Articles of Incorporation.

In Testimony Whereof, I have hereunto set my hand
and affixed the Great Seal of the State at the
Capitol in the City of Bismarck,
this.....7th...day of October .. A. D.,1988

/Ben Meier/
BEN MEIER Secretary of State.

By.. Deputy.

<PAGE>

EXHIBIT 99.2

BYLAWS
<PAGE>

BYLAWS

ND TAX-FREE FUND, INC.

Except as otherwise expressly provided in these bylaws or in the articles of
incorporation or as required under any federal laws and rules and regulations to
which the corporation is subject, the management, business, and affairs of the
corporation shall be governed by and conducted in accordance with the provisions
of the North Dakota Business Corporation Act.

ARTICLE I

OFFICES

The corporation shall have offices at such places either within or without
the State of North Dakota as the board of directors may determine.

ARTICLE II

SHAREHOLDERS

Section 1. Regular Meetings. Regular meetings of shareholders may be held
on an annual or other less frequent basis, but need not be held unless required
by law. Regular meetings shall be held on a date and at a time and place,
either within or without the State of North Dakota, as the board of directors
shall determine.

Section 2. Quorum. The holders of one-third of the shares entitled to vote
at a meeting constitute a quorum for the transaction of business.

ARTICLE III

BOARD OF DIRECTORS

Section 1. Number. The business and affairs of the corporation
<PAGE>

shall be managed by a board of directors consisting of three or more directors.
The number of directors may be determined either by the vote of a majority of
the entire board or by vote of the shareholders and initially shall be five.

Section 2. Election and Qualifications. The directors of the corporation,
other than the first board of directors named in the articles of incorporation,
shall be elected by the shareholders for indefinite terms that expire at the
next regular meeting of the shareholders. Directors hold office until
successors are elected and have qualified or until their earlier death,
resignation, removal, or disqualification. Directors need not be residents of
the State of North Dakota or shareholders of the corporation.

Section 3. Regular Meetings, Regular meetings of the board of directors may
be held at such time and place, either within or without the State of North
Dakota, as the board may determine, and no notice shall be required for regular
meetings.

Section 4. Special Meetings. Special meetings of the board of directors may
be called by or at the request of the president or any two directors. Notice of
the date, time, and place of special meetings shall be given to each director at
least forty-eight hours prior to the meeting, unless the notice is given orally
or delivered in person, in which case it shall be given at least twenty-four
hours prior to the meeting.

ARTICLE IV

OFFICERS

Section 1. Enumeration of Offices. The officers of the corporation shall
be a president, one or more vice-presidents

2
<PAGE>

(the number thereof to be determined by the board of directors), a secretary,
and a treasurer, each of whom shall be elected by the board of directors. The
board of directors may also appoint or elect any other officers, assistant
officers, and agents that it may deem necessary. Any two or more offices may be
held by the same person.

Section 2. Election and Term of Office. The officers shall be elected by
the board of directors. Unless otherwise provided by the board of directors,
each officer shall hold office until the first meeting of the board of directors
following the next election of directors and until a successor is elected and
has qualified or until the earlier death, resignation, removal, or
disqualification of the officer.

Section 3. Powers and Duties. The powers and duties of the several officers
shall be as provided from time to time by resolution or other directive of the
board of directors. In the absence of such provisions, the respective officers
shall have the powers and shall discharge the duties customarily and usually
held and performed by like officers of corporations similar in organization and
business purposes to this corporation.

Section 4. Salaries. The salaries of the officers shall be fixed from time
to time by the board of directors, and no officer shall be prevented from
receiving a salary by reason of the fact that he is also a director of the
corporation.

ARTICLE V

FISCAL YEAR

The fiscal year of the corporation shall be any period of twelve
consecutive months which the board of directors may designate

3
<PAGE>

by resolution or other directive.

Adopted this 18th day of October, 1988.

/signatures/

<PAGE>

EXHIBIT 99.4

SPECIMEN COPY OF STOCK CERTIFICATE

<PAGE>

LOGO

ND TAX-FREE FUND, INC.
Incorporated Under the Laws of North Dakota

THIS IS TO CERTIFY THAT: ACCOUNT NO:
SOC. SEC.

is the owner of fully paid and

non-assessable shares of the par value of one mill ($.001) each of ND Tax-Free
Fund, Inc., transferable on the books of the corporation by the holder hereof,
in person or by attorney, upon surrender of this certificate properly endorsed.
This certificate and the shares represented hereby are subject to the Articles
of Incorporation and Bylaws of the corporation as from time to time amended.
This certificate is not valid until countersigned by the Transfer Agent.

In Witness Whereof, the corporation has caused the facsimile signatures of
its proper officers to be affixed this

BY Countersigned

President LOGO First American Bank & Trust of Minot
BY Transfer Agent
BY
Secretary Authorized Signature

<PAGE>

The following abbreviations, when used In the Inscription on the face of this
certificate, shall be construed though they were written out in full according
to applicable laws or regulations:

TEN IN C'OM - as tenants in common
TEN BY ENT - as tenants by the entireties
JTWROS - as joint tenants with right of
survivorship and not as tenants in common

UNIF GIFTS TO M/A - Uniform Gifts to Minors Act
Additional abbreviations not shown in the above list may be used.

FOR VALUE RECEIVED I/We hereby sell, assign, and transfer unto

Please Insert Social Security or Other
Identifying Number or Assignee

shares represented by the within certificate and hereby irrevocably constitute
and appoint:

(for broker use only)-

attorney to transfer said shares upon the books of said Fund with full power of
substitution in the premises

Dated

NOTE: THE SIGNATURE(S) on this assignment must correspond exactly with the
name(s) as indicated on the face of the certificate.

(Signature of Seller)

SIGNATURE(S) GUARANTEED:
(Signature of Co-owner)

NOTE: Signature(s) must be guaranteed by a Commercial

Bank, Trust Company, Savings and Loan Association, or member

firm of a National Securities Exchange.

<PAGE>

EXHIBIT 99.5

FORM OF INVESTMENT ADVISORY AGREEMENT
<PAGE>

INVESTMENT ADVISORY AGREEMENT

October 21, 1988

ND Money Management, Inc.
201 South Broadway
Minot, North Dakota 58701

Dear Sirs:

ND Tax-Free Fund, Inc. (the "Fund"), a corporation organized under the laws
of the State of North Dakota, herewith confirms its agreement with ND Money
Management, Inc. (the "Adviser"), as follows:

1. Investment Description; Appointment

The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Prospectus and Statement of
Additional Information, as from time to time in effect, and in
such manner and to such extent as may from time to time be
approved by the Board of Directors of the Fund. Copies of the
Fund's Prospectus and Statement of Additional Information have
been or will be submitted to the Adviser. The Fund desires to
employ and hereby appoints the Adviser to act as its investment
adviser. The Adviser accepts the compensation set forth below.

2. Services as Investment Adviser

Subject to the supervision and direction of the Board of
Directors of the Fund, the Adviser will (a) act in conformity
with the Investment Company Act of 1940 and the Investment
Advisers Act of 1940, as the same may from time to time be
amended, (b) manage the Fund in accordance with the Fund's
investment objective(s) and policies as stated in the Fund's
Prospectus and Statement of Additional Information as from time
to time in effect, (c) make investment decisions for the Fund,
and (d) place purchase and sale orders on behalf of the Fund. In
providing those services, the Adviser will provide investment
research and supervision of the Fund's investments and conduct a
continual program of
<PAGE>

investment, evaluation, and, if appropriate, sale and reinvestment of the Fund's
assets. In addition, the Adviser will furnish the Fund with whatever statistical
information the Fund may reasonably request with respect to the securities that
the Fund may hold or contemplate purchasing.

3. Brokerage

In executing transactions for the Fund and selecting brokers or dealers, the
Adviser will use its best efforts to seek the best overall terms available. In
assessing the best overall terms available for any Fund transaction, the Adviser
will consider all factors it deems relevant including, but not limited to,
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of any commission for the specific transaction and on a
continuing basis. In selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, the Adviser may
consider the brokerage and research services (as those terms are defined in
Section 28 (e) of the Securities Exchange Act of 1934) provided to the Fund
and/or other accounts over which the Adviser exercises investment discretion.

4. Information Provided to the Fund

The Adviser will keep the Fund informed of developments materially
affecting the Fund and will, on its own initiative, furnish the Fund
from time to time with whatever information the Adviser believes is
appropriate for this purpose.

5. Standard of Care

The Adviser shall exercise its best judgment in rendering the services
listed in paragraphs 2 and 3 above. The Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which this Agreement
relates, provided that nothing herein shall be deemed to protect or
purport to protect the Adviser against any liability to the Fund or to
shareholders of the Fund to which the Adviser would otherwise be
subject by reason of willful misfeasance, bad faith, or gross
negligence on its part in the performance of its duties or by reason
of the Adviser's reckless disregard of its obligations and duties
under this Agreement.

2
<PAGE>

6. Independent Contractor

The Adviser shall be deemed to be an independent contractor under this
Agreement and, unless otherwise expressly provided or authorized, shall have no
authority to act for or represent the Fund in any way or otherwise be deemed as
agent of the Fund.

7. Compensation

In consideration of the services rendered pursuant to this Agreement, the
Fund will pay the Adviser on the first business day of each month a fee for the
previous month at the annual rate of .60 of 1.00% of the Fund's average daily
net assets. The fee for the period from the date the Fund's initial registration
statement is declared effective by the Securities and Exchange Commission to the
end of the month during which the initial registration statement is declared
effective shall be prorated according to the proportion that such period bears
to the full monthly period. Upon any termination of this Agreement before the
end of a month, the fee for such part of that month shall be prorated according
to the proportion that such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to the Adviser, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the Fund's
Prospectus or Statement of Additional Information as from time to time in
effect.

8. Expenses

The Adviser will bear all expenses in connection with the performance of its
services under this Agreement. The Fund will bear certain other expenses to be
incurred in its operation, including: organization expenses; taxes; interest;
brokerage fees and commissions, if any; fees and expenses of directors and
officers of the Fund who are not officers or directors of the Adviser;
Securities and Exchange Commission fees and state securities laws fees; charges
of custodians and transfer and dividend disbursing agents; insurance premiums;
outside auditing and legal expenses; costs of maintenance of the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of the shareholders of the Fund and of the officers and Board of
Directors of the Fund; and any extraordinary expenses. In addition, the Fund is
expected to pay distribution fees pursuant to the terms

3
<PAGE>

of a Distribution Plan adopted under Rule 12b-1 of the Investment Company Act of
1940.

9. Services to Other Companies or Accounts

The Fund understands that the Adviser may act in the future as investment
adviser to fiduciary and other managed accounts and as investment adviser
to one or more other investment companies, and the Fund has no objection to
the Adviser so acting, provided that whenever the Fund and one or more
other accounts or investment companies advised by the Adviser have
available funds for investment, investments suitable and appropriate for
each will be allocated in accordance with a formula believed to be
equitable to each entity. Similarly, opportunities to sell securities will
be allocated in an equitable manner. The Fund recognizes that in some
cases this procedure may adversely affect the size of the position that may
be acquired or disposed of for the Fund. In addition, the Fund understands
that the persons employed by the Adviser to assist in the performance of
the Adviser's duties hereunder will not devote their full time to such
service, and nothing contained herein shall be deemed to limit or restrict
the right of the Adviser or any affiliate of the Adviser to engage in and
devote time and attention to other businesses or to render services of
whatever kind or nature.

10. Term of Agreement

This Agreement shall continue until October 21, 1990, and thereafter shall
continue automatically for successive annual periods ending on October 21
of each year, provided such continuance is specifically approved at least
annually by (i) the Board of Directors of the Fund or (ii) a vote of a
"majority" (as defined in the Investment Company Act of 1940) of the Fund's
outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board of Directors who
are not "interested persons" (as defined in said Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of
voting on such approval. This Agreement is terminable, without penalty, on
60 days' written notice, by the Board of Directors of the Fund or by vote
of holders of a majority of the Fund's shares, or upon 90 days' written
notice, by the Adviser. This Agreement will also terminate automatically
in the event of its assignment (as defined in said Act).

4
<PAGE>

11. Limitation of Liability

This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of
the Fund. The obligations of this Agreement shall be binding upon
the assets and property of the Fund only and shall not be binding
upon any director, officer, or shareholder of the Fund
individually.

If the foregoing is in accordance with your understanding, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.

Very truly yours,

ND TAX-FREE FUND, INC.

By:

President

Accepted:

ND MONEY MANAGEMENT, INC.

By:
Authorized Officer

<PAGE>

EXHIBIT 99.6A

FORM OF DISTRIBUTION AGREEMENT
<PAGE>

DISTRIBUTION AGREEMENT

October 21, 1988

ND Capital, Inc.
201 South Broadway
Minot, ND 58701

Dear Sirs:

This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, ND Tax-Free Fund, Inc. (the "Fund"), an open-end,
non-diversified, management investment company organized as a corporation under
the laws of the State of North Dakota, has agreed that ND Capital, Inc.
("Capital"), shall be, for the period of this Agreement, the principal
underwriter of shares issued by the Fund (the "Shares").

1. Services as underwriter

1.1 Capital will act as principal underwriter for the distribution of
the Shares covered by the registration statement, prospectus, and statement of
additional information then in effect (the "Registration Statement") under the
Securities Act of 1933, as amended (the "1933 Act"), and the Investment Company
Act of 1940, as amended (the "1940 Act").

1.2 Capital-agrees to use its best efforts to solicit orders for the sale
of the Shares at the public offering price, as determined in accordance with the
Registration Statement, and will undertake such advertising and promotion as it
believes is reasonable in connection with such solicitation.

1.3 All activities by Capital as underwriter of the Shares shall comply
with all applicable laws, rules, and regulations, including, without limitation,
all rules and regulations made or adopted by the Securities and Exchange
Commission (the "SEC") or by any securities association registered under the
Securities Exchange Act of 1934.

1.4 Capital will provide one or more persons during normal business hours
to respond to telephone questions concerning the Fund.

1.5 Capital acknowledges that, whenever in the judgment of the Fund's
officers such action is warranted for any reason, including, without limitation,
market, economic, or political conditions, those officers may decline to accept
any orders for, or make any sales of, the Shares until such time as those
officers deem it advisable to accept such orders and to make such sales.
<PAGE>

1.6 Capital shall be deemed to be an independent contractor and, except as
specifically provided or authorized herein, shall have no authority to act for
or represent the Fund. Capital will act only on its own behalf as principal
should it choose to enter into selling agreements with selected dealers or
others.

1.7 In consideration of the services rendered pursuant to this Agreement,
as promptly as is possible after the last day of each month this Agreement is in
effect, the Fund shall pay Capital a fee, calculated daily and paid monthly, at
the annual rate of .85% of the average daily net assets of the Shares for the
prior month. The payment by the Fund of fees under this Agreement is authorized
pursuant to the Fund's Distribution Plan adopted in accordance with Rule 12 b-1
under the Investment Company Act of 1940 (the "Plan").

1.8 Capital will bear all expenses in connection with the performance of
its services and the incurring of distribution expenses under this Agreement.
For purposes of this Agreement, "distribution expenses" of Capital shall mean
all expenses borne by Capital or by any other person with which Capital has an
agreement approved by the Fund, which expenses represent payment for activities
primarily intended to result in the sale of Shares, including, but not limited
to, the following:

(a) payments made to, and expenses of, persons who provide support
services in connection with the distribution of Shares, including, but not
limited to, office space and equipment, telephone facilities, answering
routine inquiries regarding the Fund, processing shareholder transactions,
and providing any other shareholder services;

(b) costs relating to the formulation and implementation of marketing
and promotional activities, including, but not limited to, direct mail
promotions and television, radio, newspaper, magazine, and other mass media
advertising;

(d) costs involved in preparing, printing, and distributing sales
literature pertaining to the Fund; and

(e) costs involved in obtaining whatever information, analyses, and
reports with respect to marketing and promotional activities that the Fund
may, from time to time, deem advisable; except that distribution expenses
shall not include any expenditures in connection with services which
Capital, any of its affiliates, or any other person has agreed to bear
without reimbursement.

2
<PAGE>

1.9 Capital shall prepare and deliver reports to the Treasurer of the Fund
and to the Investment Adviser on a regular, at least quarterly, basis, showing
the distribution expenses incurred pursuant to this Agreement and the Plan and
the purposes therefor, as well as any supplemental reports as the Directors,
from time to time, may reasonably request.

2. Duties of the Fund

2.1 The Fund agrees at its own expense to execute any and all documents,
to furnish any and all information, and to take any other actions that may be
reasonably necessary in connection with the qualification of the Shares for sale
in those states that Capital may designate.

2.2 The Fund shall furnish from time to time, for use in connection with
the sale of the Shares, such information reports with respect to the Fund and
its Shares as Capital may reasonably request, all of which shall be signed by
one or more of the Fund's duly authorized officers; and the Fund warrants that
the statements contained in any such reports, when so signed by one or more of
the Fund's officers, shall be true and correct. The Fund shall also furnish
Capital upon request with: (a) annual audits of the Fund's books and accounts
made by independent public accountants regularly retained by the Fund, (b) semi-
annual unaudited financial statements pertaining to the Fund, (c) quarterly
earnings statements prepared by the Fund, (d) a monthly itemized list of the
securities in the portfolio of the Shares, (e) monthly balance sheets as soon as
practicable after the end of each month, and (f) from time to time such
additional information regarding the Fund's financial condition as Capital may
reasonably request.

2.3 The Fund shall pay to Capital the proceeds from any contingent
deferred sales charge imposed on the redemption of the Shares as specified in
the Registration Statement.

3. Representations and Warranties

The Fund represents to Capital that all registration statements,
prospectuses, and statements of additional information filed by the
Fund with the SEC under the 1933 Act and the 1940 Act with respect to
the Shares of the Fund have been carefully prepared in conformity with
the requirements of the 1933 Act, the 1940 Act, and the rules and
regulations of the SEC thereunder. As used in this Agreement, the
terms "registration statement," "prospectus," and "statement of
additional information" shall mean any registration statement,
prospectus, and statement of additional information filed by the Fund
with the SEC and any amendments and supplements thereto which at any
time shall have been filed with the SEC. The Fund represents and
warrants to Capital that any registration statement, prospectus, and
statement of additional information, when such registration statement

3
<PAGE>

becomes effective, will include all statements required to be contained therein
in conformity with the 1933 Act, the 1940 Act, and the rules and regulations of
the SEC; that all statements of fact contained in any registration statement,
prospectus, or statement of additional information will be true and correct when
such registration statement becomes effective; and that neither any registration
statement nor any prospectus or statement of additional information when such
registration statement becomes effective will include an untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of
Shares. Capital may, but shall not be obligated to, propose from time to time
such amendment or amendments to any registration statement and such supplement
or supplements to any prospectus or statement of additional information as, in
the light of future developments, may, in the opinion of capital's counsel, be
necessary or advisable. If the Fund shall not propose such amendment or
amendments and/or supplement or supplements within fifteen days after receipt by
the Fund of a written request from Capital to do so, Capital may, at its option,
terminate this Agreement. The Fund shall not file any amendment to any
registration statement or supplement to any prospectus or statement of
additional information without giving Capital reasonable notice thereof in
advance; provided, however, that nothing contained in this Agreement shall in
any way limit the Fund's right to file at any time such amendments to any
registration statement and/or supplements to any prospectus or statement of
additional information, of whatever character, as the Fund may deem advisable,
such right being in all respects absolute and unconditional.

4. Indemnification

4.1 The Fund authorizes Capital and any dealers with whom Capital has
entered into dealer agreements to use any prospectus or statement of additional
information furnished by the Fund from time to time in connection with the sale
of Shares. The Fund agrees to indemnify, defend, and hold Capital, its several
officers and directors, and any person who controls Capital within the meaning
of Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities, and expenses (including the cost of investigating
or defending such claims, demands, or liabilities and any counsel fees incurred
in connection therewith) which Capital, its officers and directors, or any such
controlling person may incur under the 1933 Act, the 1940 Act, or common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any registration statement, any
prospectus, or any statement of additional information, or arising out of or
based upon any omission or alleged omission to state a material fact required to
be stated in any registration statement, any prospectus, or any statement of
additional information, or necessary to make the statements in any of them not
misleading; provided, however, that the Fund's agreement to indemnify Capital,

4
<PAGE>

its officers or directors, and any such controlling person shall not be deemed
to cover any claims, demands, liabilities, or expenses arising out of or based
upon any statements or representations made by Capital or its representatives or
agents other than such statements and representations as are contained in any
registration statement, prospectus, or statement of additional information and
in such financial and other statements as are furnished to Capital pursuant to
paragraph 2.2 hereof; and further provided that the Fund's agreement to
indemnify Capital and the Fund's representations and warranties hereinbefore set
forth in paragraph 3 shall not be deemed to cover any liability to the Fund or
its shareholders to which Capital would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of its
duties, or by reason of Capital's reckless disregard of its obligations and
duties under this Agreement. The Fund's agreement to indemnify Capital, its
officers and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon the Fund's being notified of any action brought
against Capital, its officers or directors, or any such controlling person, such
notification to be given by letter or by telegram addressed to the Fund at its
principal office in Minot, North Dakota, and sent to the Fund by the person
against whom such action is brought, within ten days after the summons or other
first legal process shall have been served. The failure so to notify the Fund of
any such action shall not relieve the Fund from any liability that the Fund may
have to the person against whom such action is brought by reason of any such
untrue or alleged untrue statement or omission or alleged omission otherwise
than on account of the Fund's indemnity agreement contained in this paragraph
4.1. The Fund's indemnification agreement contained in this paragraph 4.1 and
the Fund's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of Capital, its officers and directors, or any controlling person,
and shall survive the delivery of any Shares. This Agreement of indemnity will
inure exclusively to Capital's benefit, to the benefit of its several officers
and directors, and their respective estates, and to the benefit of the
controlling persons and their successors. The Fund agrees to notify Capital
promptly of the commencement of any litigation or proceedings against the Fund
or any of its officers or directors in connection with the issuance and sale of
any Shares.

4.2 Capital agrees to indemnify, defend, and hold the Fund, its several
officers and directors, and any person who controls the Fund within the meaning
of Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities, and expenses (including the costs of investigating
or defending such claims, demands, or liabilities and any counsel fees incurred
in connection therewith) that the Fund, its officers or directors, or any such
controlling person may incur under the 1933 Act, the 1940 Act, or common law or
otherwise, but only to the extent that such liability or expense incurred by the
Fund, its officers or directors, or such controlling person resulting from such
claims or demands shall

5
<PAGE>

arise out of or be based upon (a) any unauthorized sales literature,
advertisements, information, statements, or representations or (b) any untrue or
alleged untrue statement of a material fact contained in information furnished
in writing by Capital to the Fund and used in the answers to any of the items of
the registration statement or in the corresponding statements made in the
prospectus or statement of additional information, or shall arise out of or be
based upon any omission or alleged omission to state a material fact in
connection with such information furnished in writing by Capital to the Fund and
required to be stated in such answers or necessary to make such information not
misleading. capital's agreement to indemnify the Fund, its officers and
directors, and any such controlling person, as aforesaid, is expressly
conditioned upon Capital's being notified of any action brought against the
Fund, its officers or directors, or any such controlling person, such
notification to be given by letter or telegram addressed to Capital at its
principal office in Minot, North Dakota, and sent to Capital by the person
against whom such action is brought, within ten days after the summons or other
first legal process shall have been served. The failure so to notify Capital of
any such action shall not relieve Capital from any liability that Capital may
have to the Fund, its officers or directors, or to such controlling person by
reason of any such untrue or alleged untrue statement or omission or alleged
omission otherwise than on account of Capital's indemnity agreement contained in
this paragraph 4.2. Capital agrees to notify the Fund promptly of the
commencement of any litigation or proceedings against Capital or any of its
officers or directors in connection with the issuance and sale of any Shares.

4.3 In case any action shall be brought against any indemnified party
under paragraph 4.1 or 4.2, and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall wish to do so, to assume the defense
thereof with counsel satisfactory to such indemnified party. If the indemnifying
party opts to assume the defense of such action, the indemnifying party will not
be liable to the indemnified party for any legal or other expenses subsequently
incurred by the indemnified party in connection with the defense thereof other
than (a) reasonable costs of investigation or the furnishing of documents or
witnesses and (b) all reasonable fees and expenses of separate counsel to such
indemnified party if (i) the indemnifying party and the indemnified party shall
have agreed to the retention of such counsel or (ii) the indemnified party shall
have concluded reasonably that representation of the indemnifying party and the
indemnified party by the same counsel would be inappropriate due to actual or
potential differing interests between them in the conduct of the defense of such
action.

6
<PAGE>

5. Effectiveness of Registration

None of the Shares shall be offered by either Capital or
the Fund under any of the provisions of this Agreement and no orders for the
purchase or sale of the Shares hereunder shall be accepted by the Fund if and so
long as the effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the provisions of
the 1933 Act or if and so long as a current prospectus as required by Section 5
(b) (2) of the 1933 Act is not on file with the SEC; provided, however, that
nothing contained in this paragraph 5 shall in any way restrict or have an
application to or bearing upon the Fund's obligation to repurchase Shares from
any shareholder in accordance with the provisions of the Fund's prospectus,
statement of additional information, or articles of incorporation.

6. Notice to Capital

The Fund agrees to advise capital immediately in writing:

(a) of any request by the SEC for amendments to the registration
statement, prospectus, or statement of additional information then in
effect or for additional information;

(b) in the event of the issuance by the SEC of any stop order suspending
the effectiveness of the registration statement, prospectus, or statement
of additional information then in effect or the initiation of any
proceeding for that purpose;

(c) of the happening of any event that makes untrue any statement of a
material fact made in the registration statement, prospectus, or statement
of additional information then in effect or that requires the making of a
change in such registration statement, prospectus, or statement of
additional information in order to make the statements therein not
misleading; and

(d) of all actions of the SEC with respect to any amendment to any
registration statement, prospectus, or statement of additional information
which may from time to time be filed with the SEC.

7. Term of Agreement

7
<PAGE>

persons (as defined in the 1940 Act) of the Fund and who have no direct or
indirect financial interest in the operation of the Plan, in this Agreement, or
any agreement related to the Plan (the "Qualified Directors"), by vote cast in
person at a meeting called for the purpose of voting on such approval. This
Agreement is terminable with respect to the Fund, without penalty, (a) on 60
days' written notice, by vote of a majority of the Qualified Directors or by
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund or (b) on 90 days' written notice by Capital. This
agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act).

8. Miscellaneous

8.1 The Fund recognizes that directors, officers, and employees of
Capital may from time to time serve as directors, officers, and employees of
corporations and business trusts (including other investment companies) and that
Capital or its affiliates may enter into distribution or other agreements with
such other corporations and trusts.

8.2 It is expressly agreed that the obligations of the Fund hereunder
shall not be binding upon any of the directors, shareholders, nominees,
officers, agents, or employees of the Fund, personally, but bind only the
property of the Fund. The execution and delivery of this Agreement have been
authorized by the Directors and the sole shareholder of the Shares and signed by
an authorized officer of the Fund, acting as such, and neither such
authorization by such Director and shareholder nor such execution and delivery
by such officer shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, but shall bind only the
property of the Fund.

8.3 This Agreement shall be construed in accordance with the laws of the
State of North Dakota.

8.4 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.

8.5 This Agreement may not be amended or modified in any manner except by
both parties with the same formality as this Agreement and as may be permitted
or required by the 1940 Act.

8.6 The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.

8
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth herein.

ND TAX-FREE FUND, INC.

By:

Title:

Date:

Accepted:

ND CAPITAL, INC.

By:

Title:

Date:

<PAGE>

EXHIBIT 99.6B

FORM OF DEALER SALES AGREEMENT
<PAGE>

DEALER SALES AGREEMENT

To the undersigned Dealer:

Gentlemen:

ND Capital, Inc., the principal underwriter of shares, par value $.001,
issued by ND Tax-Free Fund, Inc. (the "Fund"), an open-end, non-diversified
management investment company registered under the Investment Company Act of
1940, understands that you are a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"), and that you and any
individuals who represent you are properly qualified and registered, if
required, with the Securities and Exchange commission and with the Securities
Commissioner of the State of North Dakota. In consideration of the mutual
promises stated below, you and we hereby agree as follows:

Compliance with Prospectus. Offers and sales of shares by you will comply in all
respects with the terms and conditions contained in the then-current prospectus
of the Fund.

2. Purchase Restrictions. You agree to purchase shares solely through us and
only for the purpose of covering purchase orders already received from customers
or for your own bona fide investment. You agree not to purchase for any other
securities dealer unless you have an agreement with such other dealer or broker
to handle clearing arrangements and then only in the ordinary course of business
for such purpose and only if such other dealer has executed a Dealer Sales
Agreement with us. You also agree not to withhold any customer order so as to
profit therefrom.

3. Processing Orders. The procedures relating to the handling of orders shall
be subject to instructions which we will forward from time to time to all
dealers with whom we have entered into a Dealer Sales Agreement. The minimum
initial and subsequent purchase order shall be specified in the Fund's then-
current prospectus. All purchase orders are subject to receipt of shares by us
from the Fund and to acceptance of such orders by us. We reserve the right in
our sole discretion to reject any order.

4. Purchase Orders. We shall accept orders only on the basis of the then-
current offering price. You agree to place orders in respect of shares
immediately upon the receipt of orders from your customers for the same number
of shares. Orders which you receive from your customers shall be deemed to be
placed with us when received by us. Orders which you receive prior to the close
of business, as defined in the prospectus, and placed with us within the time
frame set forth in the prospectus shall be priced at the
<PAGE>

offering price next computed after they are received by you. We will not accept
a conditional order from you on any basis. All orders shall be subject to
confirmation by us.

5. Settlement. Unless otherwise agreed, settlement shall be made at the
office of the Fund's transfer agent within five (5) business days after our
acceptance of the order. If payment is not so received or made within ten (10)
business days of our acceptance of the order, we reserve the right to cancel the
sale or, at our option, to sell the shares to the Fund at the then-prevailing
net asset value. In this event, or in the event that you cancel the trade for
any reason, you agree to be responsible for any loss resulting to the Fund or to
us from your failure to make payments as aforesaid. You shall not be entitled
to any gains generated thereby.

6. Dealer Commissions. You shall receive for each sale of shares of the Fund,
except shares sold which are not subject to a contingent deferred sales charge,
a commission in an amount equal to three and three-quarters (3 3/4) percent of
the offering price of shares of the Fund sold multiplied by the number of shares
of the Fund sold. The amount of the commission is subject to change by us
without notice.

7. Redemptions. Redemptions of shares by the Fund will be effected in the
manner and upon the terms described in the then -current prospectus. We will,
upon your request, assist you in processing orders for redemptions. If any
shares sold to you are redeemed by the Fund or are tendered to the Fund for
redemption within seven (7) business days after the date of our confirmation to
you of your original purchase order therefor, you agree to pay forthwith to us
the full amount of the commission allowed you on the sale.

8. Suspension of Sales and Amendments to Agreement. We reserve the right in
our discretion without notice to you to suspend sales or withdraw an offering of
shares entirely, to change the offering price as provided in the prospectus, or,
upon notice to you, to amend or cancel this Agreement. You agree that any order
to purchase shares placed by you after notice of any amendment to this Agreement
has been sent to you shall constitute your agreement to any such amendment.

9. Dealer Status. In every transaction, you shall act as an independent
contractor and not as an agent for the Fund, the Fund's transfer agent, any
other dealer, or us. You agree that neither the Fund, the Fund's transfer
agent, any other dealer, nor we shall be deemed an agent of you. Nothing herein
shall constitute you as a partner of the Fund, the Fund's transfer agent, any
other dealer, or us or render any of us liable for your obligations.

<PAGE>

10. Representations Concerning the Fund. No person is authorized to make any
representations concerning shares of the Fund except those contained in the
then-current prospectus. You shall not sell shares of the Fund pursuant to this
Agreement unless the then-current prospectus is furnished to the purchaser prior
to or at the time of purchase. You shall not use any supplemental sales
literature of any kind without our prior written approval unless it is furnished
by us for such purpose. In offering and selling shares of the Fund, you will
rely solely on the representations contained in the then-current prospectus.

11. Dealer's Representations and Agreements. By accepting this Agreement, you
represent that you: (i) are registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended; (ii) are qualified to act as a dealer in the
State of North Dakota; (iii) are a member in good standing of the NASD; and (iv)
will maintain such registrations, qualifications, and memberships throughout the
term of this Agreement. You agree to abide by the Rules of Fair Practice of the
NASD and all federal and state laws and rules and regulations that are now or
may become applicable to the transactions hereunder. Your expulsion from the
NASD will automatically terminate this Agreement without notice. Your
suspension from the NASD or violation of applicable state and federal laws and
rules and regulations will terminate this Agreement effective upon our notice to
you. You shall not be entitled to any compensation during any period in which
you have been suspended or expelled from membership in the NASD.

12. Indemnification. You hereby agree to indemnify and to hold harmless the
Fund and us and each person, if any, who controls the Fund or us within the
meaning of Section 15 of the Securities Act of 1933, as amended (the "Act"),
from and against any and all losses, claims, demands, or liabilities to which
the Fund or we may become subject under the Act, or otherwise, insofar as such
losses, claims, demands, or liabilities (or actions in respect thereof) arise
out of or are based upon any unauthorized use of sales materials by you or your
salesmen or upon alleged misrepresentations or omission to state material facts
in connection with statements made by you or your salesmen orally or by other
means or upon sales of shares in any state or jurisdiction in which the shares
are not registered or qualified for sale; and you will reimburse the Fund and us
for any legal or other expenses reasonably incurred in connection with the
investigation or defense of any such action or claim. We shall, after receiving
the first summons or other legal process disclosing the nature of the action
being served upon the Fund or us, in any proceeding in respect of which
indemnity may be sought by the Fund or us hereunder, notify you in writing of
the commencement thereof within a reasonable time. In case any such litigation
be brought against the Fund or us, we shall notify you of the commencement
thereof, and you shall be entitled to participate in (and to the extent you
shall wish, to direct) the defense thereof at your expense, but such defense
shall be conducted by counsel of good standing satisfactory to the Fund and US.
If you shall fail to provide such defense, the Fund or we may

<PAGE>

defend such action at your cost and expense. Your obligation under this Section
12 shall survive the termination of this Agreement.

13. Dealer's Expenses. All expenses incurred in connection with your activities
under this Agreement shall be borne by you.

14. Supervisory Responsibility. By accepting this Agreement, you assume full
responsibility for the registration, qualification, and training of your
representatives in connection with the offer and sale of shares of the Fund.

15. Prospectuses and Statements of Additional Information. We will supply you
with copies of the prospectus and statement of additional information of the
Fund (including any amendments thereto) in reasonable quantities upon request.
You will provide all customers with a prospectus prior to or at the time such
customer purchases shares. You will provide any customer who so requests a copy
of the statement of additional information on file with the Securities and
Exchange Commission.

16. Assignment. This agreement may not be assigned by you without our
consent.

17. Waiver. No failure, neglect, or forebearance on our part to require strict
performance of this Agreement shall be construed as a waiver of our rights or
remedies hereunder.

18. Termination. Either party may terminate this Agreement at anytime upon
giving written notice to the other party.

19. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of North Dakota.

20. Entire Agreement. This Agreement constitutes the entire agreement
between the undersigned and supersedes all prior oral or written agreements
between the parties hereto.

ND Capital, Inc.

Date By

The undersigned accepts your invitation to become a dealer and agrees to
abide by the foregoing terms and conditions.

Date By
Signature

Title

Dealer Name

Address

<PAGE>

EXHIBIT 99.8

FORM OF CUSTODIAN AGREEMENT
<PAGE>

CUSTODIAN AGREEMENT

AGREEMENT dated as of October 21, 1988, between ND Tax-Free Fund, Inc. (the
"Fund"), a corporation organized under the laws of the State of North Dakota,
having its principal office and place of business at 201 South Broadway, Minot,
North Dakota 58701, and First American Bank & Trust of Minot (the "Custodian"),
a bank organized under the laws of the State of North Dakota with its principal
place of business at 20 First Street SW, Minot, North Dakota 58701.

W I T N E S S E T H:

That for and in consideration of the mutual promises hereinafter set forth,
the Fund and the Custodian agree as follows:

1. Definitions.

Whenever used in this Agreement or in any Schedules to this
Agreement, the following words and phrases, unless the context
otherwise requires, shall have the following meanings:

(a) "Authorized Person" shall be deemed to include the President, the
Vice President, the Secretary, and the Treasurer of the Fund or any
other person, whether or not any such person is an officer of the
Fund, duly authorized by the Board of Directors of the Fund to give
Oral Instructions and Written Instructions on behalf of the Fund or
such other certification as may be received by the Custodian from time
to time.

(b) "Book-Entry System" shall mean the Federal Reserve/ Treasury
book-entry system for United States and federal agency securities, its
successor or successors, and its nominee or nominees.

(c) "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission
under Section 17(a) of the Securities Exchange Act of 1934, as
amended, its successor or successors and its nominee or nominees, in
which the Custodian is hereby specifically authorized to make
<PAGE>

deposits. The term "Depository" shall further mean and include any other person
to be named in Written Instructions authorized to act as a depository under the
1940 Act, its successor or successors and its nominee or nominees.

(d) "Money Market Security" shall be deemed to include, without limitation,
debt obligations issued or guaranteed as to interest and principal by the
Government of the United States or agencies or instrumentalities thereof,
commercial paper, bank certificates of deposit, bankers' acceptances, and short-
term corporate obligations, where the purchase or sale of such securities
normally requires settlement in federal funds on the same day as such purchase
or sale, repurchase and reverse repurchase agreements with respect to any of the
foregoing types of securities, and any other instrument commonly included in the
term "Money Market Security" by commercial usage or custom.

(e) "Oral Instructions" shall mean verbal instructions actually received by the
Custodian from a person reasonably believed by the Custodian to be an Authorized
Person.

(f) "Prospectus" shall mean any current prospectus and statement of additional
information relating to the registration of the Fund's Shares under the
Securities Act of 1933, as amended, and the 1940 Act.

(g) "Security" or "Securities" shall be deemed to include bonds, debentures,
notes, stocks, shares, evidences of indebtedness, and other securities and
investments from tune to time owned by the Fund.

(h) "Shares" refers to the units into which the shareholders' proprietary
interests in the Fund are divided.

(i) "Transfer Agent" shall mean the person who performs the transfer agent,
dividend disbursing agent, and shareholder servicing agent functions for the
Fund.

(j) "Written Instructions" shall mean a written or electronic communication
actually received by the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized Person by *telex or any
other such system whereby the receiver of such communication is able to verify
through codes or otherwise with a reasonable degree of certainty the
authenticity of the sender of such communication.

(k) The "1940 Act" refers to the Investment Company Act of 1940, and the Rules
and Regulations thereunder, all as amended from time to time.

2
<PAGE>

2. Appointment of Custodian.

(a) The Fund hereby constitutes and appoints the Custodian as custodian of
all the Securities and moneys at the time owned by or in the possession of
the Fund during the period of this Agreement.

(b) The Custodian hereby accepts appointment as such custodian for the
Fund and agrees to perform the duties thereof as hereinafter set forth.

3. Compensation.

(a) The Fund will compensate the Custodian for its services rendered under
this Agreement in accordance with the fees set forth in the Fee Schedule
annexed hereto as Schedule A and incorporated herein. Such Fee Schedule
does not include postage, for which the Custodian shall be entitled to bill
separately.

(b) Any compensation agreed to hereunder may be adjusted from time to time
by attaching to Schedule A of this Agreement a revised Fee Schedule, dated
and signed by an Authorized Officer of each party hereto.

(c) The Custodian will bill the Fund as soon as practicable after the end
of each calendar month, and said billings will be detailed in accordance
with the Fee Schedule. The Fund will promptly pay to the Custodian the
amount of such billing.

4. Custody of Cash and Securities.

(a) Receipt and Holding of Assets. The Fund will deliver or cause to be
delivered to the Custodian all Securities and moneys owned by it at any
time during the period of this Agreement. The Custodian shall segregate,
keep, and maintain the assets of the Fund separate and apart, including
separate identification of Securities held in the Book-Entry System. The
Custodian will not be responsible for such Securities and moneys until
actually received by it. The Fund shall instruct the Custodian from time to
time in its sole discretion, by means of Written Instructions, or in
connection with the purchase or sale of Money Market Securities, by means
of Oral Instructions or Written Instructions, as to the manner in which and
in what amounts Securities and moneys of the Fund are to be deposited on
behalf of the Fund in the Book-Entry System or the Depository; provided,
however, that prior to the initial deposit of Securities of the Fund in the
Book-Entry System or the Depository, the Custodian shall have received
Written Instructions specifically approving such deposits by the Custodian
in the Book-Entry System or the Depository.

3
<PAGE>

(b) Accounts and Disbursements. The Custodian shall establish and maintain a
separate account for the Fund and shall credit to the separate account of the
Fund moneys received by it for the account of the Fund and shall disburse the
same only:

(1) in payment for securities purchased for the Fund as provided in
Section 5 hereof;

(2) in payment of dividends or distributions with respect to the Shares of
the Fund as provided in Section 7 hereof;

(3) in payment of original issue or other taxes with respect to the Shares
of the Fund, as provided in Section 8 hereof;

(4) in payment for Shares which have been redeemed by the Fund, as
provided in Section 8 hereof;

(5) pursuant to Written Instructions, or with respect to Money Market
Securities, oral Instructions or Written Instructions, setting forth
the name and address of the person to whom the payment is to be made,
the amount to be paid, and the purpose for which payment is to be
made; or

(6) in payment of fees and in reimbursement of the expenses and liabilities
of the Custodian attributable to the Fund as provided in Section 11(h)
hereof.

(c) Confirmation and Statements. Promptly after the close of business on each
day, the Custodian shall furnish the Fund with confirmations and a summary of
all transfers to or from the account of the Fund during said day. Where
securities purchased are in a fungible bulk of securities registered in the name
of the Custodian (or its nominee) or shown on the Custodian's account on the
books of the Depository or the Book-Entry System, the Custodian shall by book
entry or otherwise identify the quantity of those securities belonging to the
Fund. At least monthly, the Custodian shall furnish the Fund with a detailed
statement of the Securities and moneys held for the Fund under this Agreement.

(d) Registration of Securities and Physical Separation. All Securities held for
the Fund which are issued or issuable only in bearer form, except such
Securities as are held in the Book-Entry System, shall be held by the Custodian
in that form; all other Securities held for the Fund may be registered in the
name of the Fund, in the name of any duly appointed registered nominee of the
Custodian as the Custodian may from time to time determine, or in the name of
the Book-Entry System or the Depository or their successor or successors, or
their nominee or nominees. The

4
<PAGE>

Fund reserves the right to instruct the Custodian as to the method of
registration and safekeeping of the Securities. The Fund agrees to furnish to
the Custodian appropriate instruments to enable the Custodian to hold or deliver
in proper form for transfer, or to register in the name of its registered
nominee or in the name of the Book-Entry System or the Depository, any
securities which it may hold for the account of the Fund and which may from time
to time be registered in the name of the Fund. The Custodian shall hold all
such Securities specifically allocated to the Fund which are not held in the
Book-Entry System or the Depository in a separate account for the Fund in the
name of the Fund physically segregated at all times from those of any other
person or persons..

(e) Collection of Income and Other Matters Affecting Securities. Unless
otherwise instructed to the contrary by Written Instructions, the Custodian by
itself, or through the use of the Book-Entry System or the Depository with
respect to Securities therein deposited, shall with respect to all Securities
held for the Fund in accordance with this Agreement:

(1) collect all income due or payable;

(2) present for payment and collect the amount payable upon all securities
which may mature or be called, redeemed, or retired, or otherwise
become payable. Notwithstanding the foregoing, the Custodian shall
have no responsibility to the Fund for monitoring or ascertaining of
any call, redemption, or retirement date with respect to put bonds
which are owned by the Fund and held by the Custodian or its nominee.
Nor shall the Custodian have any responsibility or liability to the
Fund for any loss by the Fund for any missed payment or other default
resulting therefrom unless the Custodian received timely notification
from the Fund specifying the time, place, and manner for the
presentment of such put bond owned by the Fund and held by the
Custodian or its nominee. The Custodian shall not be responsible and
assumes no liability to the Fund for the accuracy or completeness of
any notification the Custodian shall provide to the Fund with respect
to put bonds;

(3) surrender Securities in temporary form for definitive Securities;

(4) execute any necessary declarations or certificates of ownership under
the federal income tax laws or the laws or regulations of any other taxing
authority now or hereafter in effect; and

5
<PAGE>

(5) hold directly, or through the Book-Entry System or the Depository with
respect to Securities therein deposited, for the account of the Fund all
rights and other Securities issued with respect to any Securities held by
the Custodian hereunder for the Fund.

(f) Delivery of Securities and Evidence of Authority. Upon receipt of Written
Instructions and not otherwise, except for Subparagraphs 5, 6, 7, and 8 which
nay be effected by Oral or Written Instructions, the Custodian, directly or
through the use of the Book-Entry System or the Depository, shall:

(1) execute and deliver or cause to be executed and delivered to such
persons as may be designated in such Written Instructions, proxies,
consents, authorizations, and any other instruments whereby the authority
of the Fund as owner of any Securities may be exercised.

(2) deliver or cause to be delivered any Securities held for the Fund in
exchange for other securities or cash issued or paid in connection with the
liquidation, reorganization, refinancing, merger, consolidation, or
recapitalization of any corporation, or the exercise of any conversion
privilege;

(3) deliver or-cause to be delivered any Securities held for the Fund to
any protective committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger, consolidation,
recapitalization, or sale of assets of any corporation, and receive and
hold under the terms of this Agreement in the separate account for the Fund
such certificates of deposit, interim receipts, or other instruments or
documents as may be issued to it to evidence such delivery;

(4) make or cause to be made such transfers or exchanges of the assets
specifically allocated to the separate account of the Fund and take such
other steps as shall be stated in said Written Instructions to be for the
purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation, or recapitalization of the Fund;

(5) deliver Securities owned by the Fund upon sale of such Securities for
the account of the Fund pursuant to Section 5;

(6) deliver Securities owned by the Fund upon the receipt of payment in
connection with any repurchase agreement related to such securities entered
into by the Fund;

6
<PAGE>

(7) deliver Securities owned by the Fund to the issuer thereof its agent when
such Securities are called, redeemed, retired, or otherwise become payable;
provided, however, that in any such case the cash or other consideration is to
be delivered to the Custodian. Notwithstanding the foregoing, the Custodian
shall have no responsibility to the Fund for monitoring or ascertaining of any
call, redemption, or retirement date with respect to put bonds which are owned
by the Fund and held by the Custodian or its nominee. Nor shall the Custodian
have any responsibility or liability to the Fund for any loss by the Fund for
any missed payment or other default resulting therefrom unless the Custodian
received timely notification from the Fund specifying the time, place, and
manner for the presentment of such put bond owned by the Fund and held by the
Custodian or its nominee. The Custodian shall not be responsible and assumes no
liability to the Fund for the accuracy or completeness of any notification the
Custodian may furnish to the Fund with respect to put bonds;

(8) deliver Securities owned by the Fund for delivery in connection with any
loans of securities made by the Fund but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian and the Fund which
may be in any form permitted under the 1940 Act or any interpretations thereof
issued by the Securities and Exchange Commission or its staff;

(9) deliver Securities owned by the Fund for delivery as security in connection
with any borrowings by the Fund requiring a pledge of Fund assets, but only
against receipt of amounts borrowed;

(10) deliver Securities owned by the Fund upon receipt of instructions from the
Fund for delivery to the Transfer Agent or to the holders of Shares of the Fund
in connection with distributions in kind, as may be described from time to time
in the Fund's Prospectus, in satisfaction of requests by holders of Shares for
repurchase or redemption; and

(11) deliver Securities owned by the Fund for any other proper business purpose,
but only upon receipt of, in addition to Written Instructions, a certified copy
of a resolution of the Board of Directors signed by an Authorized Person and
certified by the Secretary of the Fund, specifying the Securities to be
delivered, setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper business purpose, and naming the person or
persons to whom delivery of such Securities shall be made.

7
<PAGE>

(g) Endorsement and Collection of Checks, Etc. The Custodian is hereby
authorized to endorse and collect all checks, drafts, or other orders for
the payment of money received by the Custodian for the account of the Fund.

5. Purchase and Sale of Investments of the Fund.

(a) Promptly after each purchase of Securities for the Fund, the Fund
shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, Written Instructions, and
(ii) with respect to each purchase of Money Market Securities, either
Written Instructions or oral Instructions, in either case specifying with
respect to each purchase:

(1) the name of the issuer and the title of the securities;

(2) the number of shares or the principal amount purchased and
accrued interest, if any;

(3) the date of purchase and settlement;

(4) the purchase price per unit;

(5) the total amount payable upon such purchase;

(6) the name of the person from whom or the broker through whom the
purchase was made, if any;

(7) whether or not such purchase is to be settled through the Book-
Entry System or the Depository; and

(8) whether the Securities purchased are to be deposited in the
Book-Entry System or the Depository.

The Custodian shall receive all Securities purchased by or for the Fund and
upon receipt of such Securities shall pay out of the moneys held for the
account of the Fund the total amount payable upon such purchase, provided
that the same conforms to the total amount payable as set forth in such
Written or Oral Instructions.

(b) Promptly after each sale of Securities of the Fund, the Fund shall
deliver to the Custodian (i) with respect to each sale of Securities which
are not Money Market Securities, Written Instructions, and (ii) with
respect to each sale of Money Market Securities, either written or Oral
Instructions, in either case specifying with respect to such sale:

(1) the name of the issuer and the title of the securities;

8
<PAGE>

(2) the number of shares or principal amount sold, and accrued
interest, if any;

(3) the date of sale;

(4) the sale price per unit;

(5) the total amount payable to the Fund upon such sale;

(6) the name of the broker through whom or the person to whom the sale was
made; and

(7) whether or not such sale is to be settled through the Book-Entry
System or the Depository.

The Custodian shall deliver or cause to be delivered the Securities to the
broker or other person designated by the Fund upon receipt of the total amount
payable to the Fund upon such sale, provided that the same conforms to the total
amount payable to the Fund as set forth in such Written or such Oral
Instructions. Subject to the foregoing, the Custodian nay accept payment in
such form as shall be satisfactory to it and may deliver Securities and arrange
for payment in accordance with the customs prevailing among dealers in
Securities.

Lending of Securities.

(a) If the Fund is permitted as disclosed in its current Prospectus to lend
Securities, within 24 hours after each loan of Securities, the Fund shall
deliver to the Custodian Written Instructions specifying with respect to each
such loan:

(1) the name of the issuer and the title of the Securities;

(2) the number of shares or the principal amount loaned;

(3) the date of loan and delivery;

(4) the total amount to be delivered to the Custodian, including the
amount of cash collateral and the premium, if any, separately
identified;
(5) the name of the broker, dealer, or financial institution to which the
loan was made; and

(6) whether the Securities loaned are to be delivered through the Book-
Entry System or the Depository.

9
<PAGE>

(b) Promptly after each termination of a loan of Securities, the Fund
shall deliver to the Custodian Written Instructions specifying with respect
to each such loan termination and return of Securities:

(1) the name of the issuer and the title of the Securities to be
returned;

(2) the number of shares or the principal amount to be returned;

(3) the date of termination;

(4) the total amount to be delivered by the Custodian (including the
cash collateral for such Securities minus any offsetting credits
as described in said Written Instructions);

(5) the name of the broker, dealer, or financial institution from
which the Securities will be returned; and

(6) whether such return is to be effected through the Book-Entry
System or the Depository.

The Custodian shall receive all Securities returned from the broker,
dealer, or financial institution to which such Securities were loaned and
upon receipt thereof shall pay the total amount payable upon such return of
Securities as set forth in the Written Instructions. Securities returned
to the Custodian shall be held as they were prior to such loan.

7. Payment of Dividends or Distributions.

(a) The Fund shall furnish to the Custodian the resolution of the Board of
Directors of the Fund certified by the Secretary (i) authorizing the
declaration of dividends or distributions on a specified periodic basis and
authorizing the Custodian to rely on oral or Written Instructions
specifying the date of the declaration of such dividends or distributions,
the date of payment thereof, the record date as of which shareholders
entitled to payment shall be determined, the amount payable per share to
the shareholders of record as of the record date, and the total amount
payable to the Transfer Agent on the payment date, or (ii) setting forth
the date of declaration of any dividends or distributions by the Fund, the
date of payment thereof, the record date as of which shareholders entitled
to payment shall be determined, the amount payable per share to the
shareholders of record as of the record date, and the total amount payable
to the Transfer Agent on the payment date.

10
<PAGE>

(b) Upon the payment date specified in such resolution, Oral Instructions,
or Written Instructions, as the case may be, the Custodian shall pay out
the total amount payable to the Transfer Agent of the Fund.

8. Sale and Redemption of Shares.

(a) Whenever the Fund shall sell any Shares, the Fund shall deliver or
cause to be delivered to the Custodian Written Instructions duly
specifying:

(1) the number of Shares sold, trade date, and price; and

(2) the amount of money to be received by the Custodian for the sale
of such Shares.

(b) Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the Fund.

(c) Upon issuance of any Shares in accordance with the foregoing
provisions of this Section 8, the Custodian shall pay all original issue or
other taxes required to be paid in connection with such issuance upon the
receipt of Written Instructions specifying the amount to be paid.

(d) Except as provided hereafter, whenever any Shares of the Fund are
redeemed, the Fund shall cause the Transfer Agent to promptly furnish to
the Custodian Written Instructions, specifying:

(1) the number of Shares redeemed; and

(2) the amount to be paid for the Shares redeemed.

The Custodian understands that the information contained in such Written
Instructions will be derived from the redemption of Shares as reported to
the Fund by the Transfer Agent.

(e) Upon receipt from the Transfer Agent of advice setting forth the
number of Shares received by the Transfer Agent for redemption and that
such Shares are valid and in good form for redemption, the Custodian shall
make payment to the Transfer Agent of the total amount specified in Written
Instructions issued pursuant to Paragraph (d) of this Section 8.

9. Indebtedness.

(a) The Fund will cause to be delivered to the Custodian by any bank
(excluding the Custodian) from which the Fund borrows money for temporary
administrative or emergency

-11-
<PAGE>

purposes using Securities as collateral for such borrowings, a notice or
undertaking in the form currently employed by any such bank setting forth the
amount which such bank will loan to the Fund against delivery of a stated amount
of collateral. The Fund shall promptly-deliver to the Custodian Written or oral
Instructions stating with respect to each such borrowing:

(1) the name of the bank;

(2) the amount and terms of the borrowing, which may be set forth by
incorporating by reference an attached promissory note, duly endorsed
by the Fund, or other loan agreement;

(3) the time and date, if known, on which the loan is to be entered into
(the "borrowing date");

(4) the date on which the loan becomes due and payable;

(5) the total amount payable to the Fund on the borrowing date;

(6) the market value of Securities to be delivered as collateral for such
loan, including the name of the issuer, the title and the number of shares,
or the principal amount of any particular securities;

(7) whether the Custodian is to deliver such collateral through the Book-
Entry System or the Depository; and

(8) a statement that such loan is in conformance with the 1940 Act and the
Fund's Prospectus.

(b) Upon receipt of the Written or Oral Instructions referred to in
Subparagraph (a) above, the Custodian shall deliver on the borrowing date the
specified collateral and the executed promissory note, if any, against delivery
by the lending bank of the total amount of the loan payable, provided that the
same conforms to the total amount payable as set forth in the Written or oral
Instructions. The Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement. The Custodian shall deliver as additional collateral in the manner
directed by the Fund from time to time such Securities as may be specified in
Written or Oral Instructions to collateralize further any transaction described
in this Section 9. The Fund shall cause all Securities released from collateral
status to be returned directly to the Custodian, and the Custodian shall receive
from time to time such return of collateral as may be tendered to it. In the
event that the Fund fails to specify in Written or Oral Instructions all of the
information

12
<PAGE>

required by this Section 9, the Custodian shall not be under any obligation
to deliver any Securities. Collateral returned to the Custodian shall be
held hereunder as it was prior to being used as collateral.

10. Persons Having Access to Assets of the Fund.

(a) No Director, Officer, Employee, or Agent of the Fund, and no officer,
director, employee, or agent of the Investment Adviser shall have physical
access to the assets of the Fund held by the Custodian or be authorized or
permitted to withdraw any investments of the Fund, nor shall the Custodian
deliver any assets of the Fund to any such person. No officer, director,
employee, or agent of the Custodian who holds any similar position with the
Fund, or the Investment Adviser, shall have access to the assets of the
Fund.

(b) The individual employees of the Custodian duly authorized by the Board
of Directors of the Custodian to have access to the assets of the Fund are
listed in the certification annexed hereto as Appendix C. The Custodian
shall advise the Fund of any change in the individuals authorized to have
access to the assets of the Fund by written notice to the Fund accompanied
by a certified copy of the authorizing resolution of the Custodian's Board
of Directors approving such change.

(c) Nothing in this Section 10 shall prohibit any Officer, Employee, or
Agent of the Fund or any officer, director, employee, or agent of the
Investment Adviser from giving Oral Instructions or Written Instructions to
the Custodian so long as it does not result in delivery of or access to
assets of the Fund prohibited by Paragraph (a) of this Section 10.

11. Concerning the Custodian.

(a) Standard of Conduct. Except as otherwise provided herein, neither the
Custodian nor its nominee shall be liable for any loss or damage, including
reasonable counsel fees, resulting from its action or omission to act or
otherwise, except for any such loss or damage arising out of its own
negligence or willful misconduct. The Custodian may, with respect to
questions of law, apply for and obtain the advice and opinion of counsel to
the Fund at the expense of the Fund, or of its own counsel, at the expense
of the Fund, and shall be fully protected with respect to anything done or
omitted by it in good faith in conformity with such advice or opinion;
provided, however, that if such reliance involves a potential material loss
to the Fund, the Custodian will advise the Fund of any such actions to be
taken in accordance with advice of counsel to the Custodian.

13
<PAGE>

The Custodian shall be liable to the Fund for any loss or damage resulting from
the use of the Book-Entry System or the Depository arising by reason of any
negligence, misfeasance, or misconduct on the part of the Custodian or any of
its employees or agents.

(b) Limit of Duties. Without limiting the generality of the foregoing, the
Custodian shall be under no duty or obligation to inquire into, and shall not be
liable for:

(1) the validity of the issue of any Securities purchased by the Fund, the
legality of the purchase thereof, or the propriety of the amount paid
therefor;

(2) the legality of the sale of any Securities by the Fund, or the
propriety of the amount for which the same are sold;

(3) the legality of the issue or sale of any Shares, or the sufficiency
of the amount to be received therefor;

(4) the legality of the redemption of any Shares, or the propriety of the
amount to be paid therefor;

(5) the legality of the declaration or payment of any dividend or other
distribution of the Fund; or

(6) the legality of any borrowing for temporary or emergency
administrative purposes.

(c) No Liability Until Receipt. The Custodian shall not be liable for, or
considered to be the Custodian of, any money, whether or not represented by any
check, draft, or other instrument for the payment of money, received by it on
behalf of the Fund until the Custodian actually receives and collects such money
directly or by the final crediting of the account representing the Fund's
interest in the Book-Entry System or the Depository.

(d) Collection Where Payment Refused. The Custodian shall not be under any duty
or obligation to take action to effect collection of any amount, if the
Securities upon which such amount is payable are in default, or if payment is
refused after due demand or presentation, unless and until (i) it shall be
directed to take such action by Written Instructions and (ii) it shall be
assured to its satisfaction of reimbursement of its costs and expenses in
connection with any such action.

(e) Appointment of Agents and Sub-Custodians. The custodian nay appoint one or
more banking institutions, including but not limited to banking institutions
located in foreign countries, to act as Depository or Depositories or as Sub-
Custodian or as Sub-Custodians of Securities and moneys at any time owned by the
Fund, upon terms and

14
<PAGE>

conditions specified in Written Instructions. The Custodian shall use
reasonable care in selecting a Depository and/or Sub-Custodian located in a
country other than the United States ("Foreign Sub-Custodian") and shall oversee
the maintenance of any securities or moneys of the Fund by any Foreign Sub-
Custodian.

Any agreement between the Custodian and any Depository or Sub-Custodian
shall impose on such Depository or Sub-Custodian responsibilities and
liabilities similar in nature and scope to those imposed by this Agreement
relating to the function to be performed by such Depository or Sub-Custodian.

(f) No Duty to Ascertain Authority. The Custodian shall not be under any duty
or obligation to ascertain whether any Securities at any time delivered to or
held by it for the Fund are such as nay properly be held by the Fund under the
provisions of the Fund's Prospectus.

(g) Compensation of the Custodians. The Custodian shall be entitled to receive,
and the Fund agrees to pay to the Custodian, such compensation as may be agreed
upon from time to time between the Custodian and the Fund. The Custodian may
charge against any money specifically allocated to the Fund such compensation
and any expenses incurred by the Custodian in the performance of its duties
pursuant to such agreement with respect to the Fund. The Custodian shall also be
entitled to charge against any money held by it and specifically allocated to
the Fund the amount of any loss, damage, liability, or expense incurred with
respect to the Fund including counsel fees, for which it shall be entitled to
reimbursement under the provisions of this Agreement.

The expenses which the Custodian may charge against such account include,
but are not limited to, the expenses of Sub-Custodians and foreign branches of
the Custodian incurred in settling transactions involving the purchase and sale
of Securities of the Fund.

(h) Reliance on Certificates and Instructions. The Custodian shall be entitled
to rely upon any Written Instructions or Oral Instructions actually received by
the Custodian pursuant to the applicable Sections of this Agreement and
reasonably believed by the Custodian to be genuine and to be given by an
Authorized Person. The Fund agrees to forward to the Custodian Written
Instructions from an Authorized Person confirming such Oral Instructions in such
manner so that such Written Instructions are received by the Custodian, whether
by hand delivery, *telex, or otherwise, by the close of business on the same day
that such Oral Instructions are given to the Custodian. The Fund agrees that the
fact that such confirming instructions are not received by the Custodian shall
in no way affect the validity of the transactions or enforceability of the

15
<PAGE>

transactions hereby authorized by the Fund. The Fund agrees that the
Custodian shall incur no liability to the Fund in acting upon Oral
Instructions given to the Custodian hereunder concerning such transactions,
provided that such instructions reasonably appear to have been received
from a duly Authorized Person.

(i) Inspection of Books and Records. The Custodian shall create and
maintain all records relating to its activities and obligations under this
Agreement in such manner as will meet the obligations of the Fund under the
1940 Act, with particular attention to Section 31 thereof and Rule 3la-1
and 3la-2 thereunder, applicable federal and state tax laws, and any other
law or administrative rules or procedures which may be applicable to the
Fund. All such records shall be the property of the Fund, and it shall at
all times during the regular business hours of the Custodian be open for
inspection by duly authorized Officers, Employees, or Agents of the Fund
and employees and agents of the Securities and Exchange commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation
of Securities owned by the Fund and held by the Custodian.

The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-lA and Form N-SAR or
other reports to or requirements of the Securities and Exchange Commission.

12. Term and Termination.

(a) This agreement shall become effective on the date first set forth
above (the "Effective Date") and shall continue in effect thereafter as the
parties may mutually agree.

(b) Either of the parties hereto nay terminate this Agreement by giving to
the other party a notice in writing specifying the date of such
termination, which shall be not less than 60 days after the date of receipt
of such notice. In the event such notice is given by the Fund, it shall be
accompanied by a certified resolution of the Board of Directors of the
Fund, electing to terminate this Agreement and designating a successor
custodian or custodians, which shall be a person qualified to so act under
the 1940 Act. In the event such notice is given by the Custodian, the Fund
shall, on or before the termination date, deliver to the Custodian a
certified resolution of the Board of Directors of the Fund, designating a
successor custodian or custodians. In the absence of such designation by
the Fund, the Custodian may designate a successor custodian, which shall be
a person qualified to so act under the 1940 Act. If the Fund fails to
designate a successor custodian, the

16
<PAGE>

Fund shall upon the date specified in the notice of termination of this
Agreement and upon the delivery by the Custodian of all Securities (other
than Securities held in the Book-Entry System which cannot be delivered to
the Fund) and moneys then owned by the Fund, be deemed to be its own
custodian; and the Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty with
respect to Securities held in the Book-Entry System which cannot be
delivered to the Fund.

(c) Upon the date set forth in such notice under Paragraph
(b) of this Section 12, this Agreement shall terminate to the extent
specified in such notice, and the Custodian shall upon receipt of a
notice of acceptance by the successor custodian on that date deliver
directly to the successor custodian all Securities and moneys then
held by the Custodian, after deducting all fees, expenses, and other
amounts for the payment or reimbursement of which it shall then be
entitled with respect to the Fund.

13. Miscellaneous.

(a) Annexed hereto as Appendix A is a certification signed by two of the
present Directors of the Fund setting forth the names and the signatures of
the present Authorized Persons. The Fund agrees to furnish to the
Custodian a new certification in similar form in the event that any such
present Authorized Person ceases to be such an Authorized Person or in the
event that other or additional Authorized Persons are elected or appointed.
Until such new certification shall be received, the Custodian shall be
fully protected in acting under the provisions of this Agreement upon Oral
Instructions or signatures of the present Authorized Persons as set forth
in the last delivered certification.

(b) Annexed hereto as Appendix B is a certification signed by two of the
present Directors of the Fund setting forth the names of the present
Directors of the Fund who are authorized to give oral and Written
Instructions to the Custodian. The Fund agrees to furnish to the Custodian
a new certification in similar form in the event any such present Director
ceases to be a Director of the Fund, ceases to have authority to provide
Oral or Written Instructions to the Custodian, or in the event that other
or additional Directors are elected or appointed who may be authorized to
provide oral or Written Instructions to the Custodian. Until such new
certification shall be received, the Custodian shall be fully protected in
acting under the provisions of this Agreement upon the signature of the
Directors as set forth in the last delivered certification.

17
<PAGE>

(c) Any notice or other instrument in writing, authorized or required by this
Agreement to be given to the Custodian, shall be sufficiently given if addressed
to the Custodian and mailed or delivered to it at its offices at 20 First Street
SW, Minot, North Dakota 58701, or at such other place as the Custodian may from
time to time designate in writing.

(d) Any notice or other instrument in writing, authorized or required by this
Agreement to be given to the Fund, shall be sufficiently given if addressed to
the Fund and mailed or delivered to it at its offices at 201 South Broadway,
Minot, North Dakota 58701, or at such other place as the Fund may from time to
time designate in writing.

(e) This Agreement nay not be amended or modified in any manner, except by a
written agreement executed by both parties with the same formality as this
Agreement, and as may be permitted or required by the 1940 Act.

(f) This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund
authorized or approved by a resolution of the Board of Directors of the Fund,
and any attempted assignment without such written consent shall be null and
void.

(g) This Agreement shall be construed in accordance with the laws of the State
of North Dakota.

(h) It is expressly agreed to that the obligations of the Fund hereunder shall
not be binding upon any of the Directors, Shareholders, Nominees, officers,
Agents, or Employees of the Fund, personally, but bind only the corporate
property of the Fund. The execution and delivery of this Agreement have
been authorized by the Directors of the Fund and signed by an authorized
officer of the Fund, acting as such, and neither such authorization by such
Directors nor such execution and delivery by such Officer shall be deemed
to have been made by any of them individually or to impose any liability on
any of them personally, but shall bind only the corporate property of the
Fund.

(i) The captions of the Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.

(j) This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.

18
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunder duly authorized as of the day
and year first above written.

ND TAX-FREE FUND, INC.

By /signature/

Date 10-21-88

Attest:
/signature/

Agreed and Accepted by:

FIRST AMERICAN BANK & TRUST
OF MINOT

By /signature/

Date 10-4-88

Attest:

/signature/

19
<PAGE>

APPENDIX A

We, Robert E. Walstad and Peter A. Quist, Directors of ND Tax-Free Fund,
Inc. (the "Fund"), a corporation organized under the laws of the State of North
Dakota, do hereby certify that the following individuals have been duly
authorized as Authorized Persons to give Oral Instructions and Written
Instructions on behalf of the Fund, and the signatures set forth opposite their
respective names are their true and correct signatures:

Name Signature

Robert E. Walstad /signature/

Walter Daniel Korgel /signature/

/signature/
Robert E. Walstad
Director

/signature/
Peter A. Quist
Director

20
<PAGE>

APPENDIX B

We, Robert E. Walstad and Peter A. Quist, Directors of ND Tax-Free Fund,
Inc. (the "Fund"), a corporation organized under the laws of the State of North
Dakota, do hereby certify that the following individuals serve in the following
positions with the Fund, and each individual has been duly elected or appointed
to each such position and qualified therefor in conformity with the Fund's
Bylaws; and the signatures set forth opposite their respective names are their
true and correct signatures:

Name Position Signature

Robert E. Walstad President and /signature
Director

/signature/
Robert E. Walstad
Director

/signature/
Peter A. Quist
Director

21
<PAGE>

APPENDIX C

I, Duaine E. Espegard, President of First American Bank & Trust of Minot
(the "Custodian"), hereby certify pursuant to Section 10(b) of the Custodian
Agreement, that the following employees have been duly authorized by the
Custodian's Board of Directors to have access to the assets of ND Tax-Free Fund,
Inc.:

James F. Searcy, Senior Vice President and Trust Officer
Armend Lynner, Vice President and Trust officer
Daniel Langemo, Assistant Vice President and Trust Officer
Mary Jane Gullingsrud, Trust Operations Officer

Signed and dated this 21/st/ day of October, 1988.

/signature/
Duaine E. Espegard
President
First American Bank & Trust of Minot

22
<PAGE>

SCHEDULE A*
FEE SCHEDULE
CUSTODIAN AND TRANSFER AGENT CHARGES
FIRST AMERICAN BANK & TRUST OF MINOT

PERCENTAGE
FUND SIZE (NET ASSET VALUE) OF 1%

$ 0 TO $10,000,000 (See note below.) .20

10,000,001 TO 25,000,000 .15

25,000,001 TO 40,000,000 .12

40,000,001 TO 50,000,000 .11

50,000,001 AND LARGER .10

Note: Subject to monthly minimum fee of $1,700.00

*Schedule A is annexed to and incorporated into both the Custodian Agreement and
the Transfer Agency Agreement, because First American .Bank & Trust of Minot
("First American") serves ND Tax-Free Fund, Inc. (the "Fund"), both in the
capacity of custodian and in the capacity of Transfer Agent. Although annexed
to and incorporated into both the aforementioned Agreements, First American is
entitled to only one fee for all services provided to the Fund in both
capacities. In other words, the fact that Schedule A forms a part of both
Agreements does not entitle First American to charge a fee based upon Schedule A
for its services as Custodian and to charge another fee based upon Schedule A
for its services as Transfer Agent.

<PAGE>

EXHIBIT 99.9

FORM OF TRANSFER AGENCY AGREEMENT
<PAGE>

TRANSFER AGENCY AGREEMENT

AGREEMENT dated as of October 21, 1988, between ND Tax-Free Fund, Inc., a
corporation organized under the laws of the State of North Dakota, having its
principal office and place of business at 201 South Broadway, Minot, North
Dakota 58701, and First American Bank and Trust of Minot (the "Transfer Agent"),
a bank organized under the laws of the State of North Dakota with its principal
place of business at 20 First Street SW, Minot, North Dakota 58701.

W I T N E S S E T H:

That for and in consideration of the mutual promises hereinafter set forth,
the Fund and the Transfer Agent agree as follows:

1. Definitions.

Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the
following meanings:

(a) "Authorized Person" shall be deemed to include the
President, the Vice President, the Secretary, and the Treasurer
of the Fund, the persons listed in Appendix A hereto, and any
other person, whether or not such person is an officer of the
Fund, duly authorized to give Oral Instructions or Written
Instructions on behalf of the Fund as indicated in a certificate
furnished to the Transfer Agent pursuant to Section 5(d) or 5(e)
hereof as may be received by the Transfer Agent from time to
time.

(b) "Commission" shall have the *meaning given it in the 1940
Act.

(c) "Custodian" refers to the custodian and any sub-custodian of
all securities and other property which the Fund may from
time to time deposit or cause to be deposited or held under
the name or account of such custodian.

(d) "Articles of Incorporation" shall mean the Fund's Articles
of Incorporation as now in effect and as the same may be amended
from time to time.

(e) "Officer" shall mean the President, Vice President,
Secretary, and Treasurer of the parties hereto.
<PAGE>

(f) "Oral Instructions" shall mean instructions, other than written
instructions, actually received by the Transfer Agent from a person
reasonably believed by the Transfer Agent to be an Authorized Person.

(g) "Prospectus" shall mean any current prospectus and statement of
additional information relating to the registration of the Fund's shares
under the Securities Act of 1933, as amended, and the 1940 Act.

(h) "Shares" refers to the units into which the shareholders' proprietary
interests in the Fund are divided.

(i) "Shareholder" means a record owner of Shares;

(j) "Directors" or "Board of Directors" refers to the duly elected
Directors of the Fund.

(k) "Written Instructions" shall mean a written or electronic
communication actually received by the Transfer Agent from an Authorized
Person or from a person reasonably believed by the Custodian to be an
Authorized Person by telex or any other such system whereby the receiver of
such communication is able to verify through codes or otherwise with a
reasonable degree of certainty the authenticity of the sender of such
communications.

(1) The "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations promulgated thereunder, all as amended from time to
time.

2. Appointment of the Transfer Agent.

The Fund hereby appoints and constitutes the Transfer Agent as transfer
agent for its Shares and as Shareholder servicing agent, and the Transfer
Agent accepts such appointment and agrees to perform the duties hereinafter
set forth.

3. Compensation.

(a) The Fund will compensate the Transfer Agent for the performance of its
obligations hereunder in accordance with the fees set forth in the written
schedule of fees annexed hereto as Schedule A and incorporated herein.
Such Fee Schedule does not include postage, for which the Transfer Agent
shall be entitled to bill separately.

The Transfer Agent will bill the Fund as soon as practicable after the
end of each calendar month, and said billings will be in accordance with
the Schedule A. The Fund will promptly pay to the Transfer Agent the amount
of such billing.

2
<PAGE>

(b) Any compensation agreed to hereunder may be adjusted from time to time
upon mutual agreement by both parties hereto by attaching to Schedule A of
this Agreement a revised Fee Schedule, dated and signed by an Officer of
each party hereto.

4. Documents.

In connection with the appointment of the Transfer Agent, the Fund
shall, on or before the date this Agreement goes into effect, but in any
case, within a reasonable period of time for the Transfer Agent to prepare
to perform its duties hereunder, furnish the Transfer Agent with the
following documents:

(a) A certified copy of the Fund's Articles of Incorporation, as amended.

(b) A certified copy of the Fund's Bylaws, as amended.

(d) If applicable, a specimen of the certificate for Shares of the Fund in
the form approved by the Directors, with a certificate of the Secretary of
the Fund as to such approval.

(e) All account application forms and other documents relating to
Shareholder accounts or to any plan, program, or service offered by the
Fund.

5. Further Documentation.

The Fund will also furnish from time to time the following documents:

(a) The Fund's Registration Statement and each subsequent amendment to the
Fund's Registration Statement that is filed with the Commission.

(b) Certificates as to any change in any Officer, Director, or Investment
Adviser of the Fund.

(c) Such other certificates, documents, or opinions as the Transfer Agent
deems to be appropriate or necessary for the proper performance of its
duties hereunder.

3
<PAGE>

6. Representations of the Fund.

The Fund represents to the Transfer Agent that Shares will be issued in
accordance with the terms of the Articles of Incorporation and the
Prospectus and that such Shares shall be validly issued, fully paid, and
non-assessable by the Fund.

In the event that the Directors shall declare a distribution payable in
Shares, the Fund shall deliver to the Transfer Agent written notice of such
declaration signed on behalf of the Fund by an Officer of the Fund, upon
which the Transfer Agent shall be entitled to rely for all purposes,
certifying (i) the number of Shares involved, (ii) that all appropriate
action has been taken, and (iii) that any amendment to the Articles of
Incorporation which may be required has been filed and is effective. Such
notice shall be accompanied by an opinion of counsel for the Fund relating
to the legal adequacy and effect of the transaction. This provision shall
not apply to Shares to be issued in the normal course of reinvestment of
any distributions or dividends in accordance with the Fund's Prospectus.

7. Duties of the Transfer Agent.

The Transfer Agent shall be responsible for administering and/or
performing transfer agent functions; for acting as service agent in
connection with dividend and distribution functions; and for performing
Shareholder account and administrative agent functions in connection with
the issuance, transfer, and redemption or repurchase (including
coordination with the Custodian) of Shares. The operating standards and
procedures to be followed shall be determined from time to time by
agreement between the Transfer Agent and the Fund and shall be expressed in
a written schedule of duties of the Transfer Agent annexed hereto as
Schedule B and incorporated herein.

8. Recordkeeping and Other Information.

The Transfer Agent shall create and maintain all necessary records in
accordance with all applicable laws, rules and regulations, including, but
not limited to, records required by Section 31(a) of the 1940 Act and those
records pertaining to the various functions performed by it hereunder which
are set forth in Schedule B hereto. All records shall be available during
regular business hours for inspection and use by the Fund. Where
applicable, such records shall be maintained by the Transfer Agent for the
periods and in the places required by Rule 3la-2 under the 1940 Act.

4
<PAGE>

Upon reasonable notice by the Fund, the Transfer Agent shall make
available during regular business hours its facilities and premises
employed in connection with the performance of its duties under this
Agreement for reasonable visitation by the Fund or any person retained by
the Fund.

To the extent required by said Section 31 and the rules and regulations
thereunder, the Transfer Agent agrees that all such records prepared and
maintained by the Transfer Agent relating to the services to be performed
by the Transfer Agent hereunder are the property of the Fund.

The Transfer Agent and the Fund agree that all books, records,
information, and data pertaining to the business of the other party which
are exchanged or received in connection with this Agreement shall remain
confidential and shall not be voluntarily disclosed to any person, except
as may be required by law. In the case of any requests or demands for any
inspection of the Shareholder records of the Fund, the Transfer Agent will
endeavor to notify the Fund and to secure instructions from an authorized
Officer of the Fund as to such inspection.

9. Other Duties.

In addition to the duties expressly set forth in Schedule B to this
Agreement, the Transfer Agent shall perform such other duties and
functions, and shall be paid such amounts therefor, as may from time to
time be agreed upon in writing between the Fund and the Transfer Agent.
Such other duties and functions shall be reflected in a written amendment
to Schedule B, dated and signed by an officer of each party hereto.

10. Reliance by Transfer Agent; Instructions.

(a) The Transfer Agent will be protected in acting upon Written or Oral
Instructions, as appropriate, believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any
notice of any change of authority of any person until receipt of a Written
Instruction thereof from the Fund. The Transfer Agent will also be
protected in processing Share certificates which it reasonably believes to
bear the proper manual or facsimile signatures of the officers of the Fund
and the proper countersignature of the Transfer Agent.

(b) At any time the Transfer Agent may apply to any Authorized Person of
the Fund for Written Instructions and may seek advice from legal counsel
for the Fund, or its own legal counsel, with respect to any matter arising
in connection with this Agreement, and it shall not be liable

5
<PAGE>

for any action taken or not taken or suffered by it in good faith in accordance
with such Written Instructions or in accordance with the opinion of counsel for
the Fund or for the Transfer Agent, provided, however, that if such reliance
involves a potential material loss to the Fund, the Transfer Agent will advise
the Fund of any such action(s) to be taken in accordance with the opinion of
counsel to the Transfer Agent. Written Instructions requested by the Transfer
Agent will be provided by the Fund within a reasonable period of time. In
addition, the Transfer Agent, its officers, agents, or employees shall accept
Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Fund only if said representative is
known by the Transfer Agent or its officers, agents, or employees to be an
Authorized Person. The Transfer Agent shall have no duty or obligation to
inquire into, nor shall the Transfer Agent be responsible for, the legality of
any act done by it upon the request or direction of an Authorized Person.

(c) Notwithstanding any of the foregoing provisions of this Agreement, the
Transfer Agent shall be under no duty or obligation to inquire into, and shall
not be liable for:

(1) the legality of the issuance or sale of any Shares or the sufficiency
of the amount to be received therefor;

(2) the legality of the redemption of any Shares, or the propriety of the
amount to be paid therefor;

(3) the legality of the declaration of any dividend by the Directors, or
the legality of the issuance of any Shares in payment of any
dividend; or

(4) the legality of any recapitalization or readjustment of the Shares.

Acts of God, Etc.

Neither the Transfer Agent nor the Fund will be liable or responsible for
delays or errors by reason of circumstances beyond its reasonable control,
including acts of civil or military authority, national emergencies, fire,
mechanical breakdown beyond its control, flood or catastrophe, acts of God,
insurrection, war, riots or failure beyond its control of transportation,
communication, .or power supply.

6
<PAGE>

12. Duty of Care and Indemnification.

The Fund and the Transfer Agent will indemnify each other against and
hold the other party harmless from any and all losses, claims, damages,
liabilities, or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action, or suit not resulting from the
bad faith or negligence of the other party, and arising out of, or in
connection with, the duties and responsibilities described hereunder. In
addition, the Fund will indemnify the Transfer Agent against and hold it
harmless from any and all losses, claims, damages, liabilities, or expenses
(including reasonable counsel fees and expenses) resulting from any claim
demand, action, or suit as a result of:

(1) any action taken in accordance with Written or Oral Instructions,
or any other instructions, or Share certificates reasonably believed
by the Transfer Agent to be genuine and to be signed, countersigned or
executed, or orally communicated by an Authorized Person;

(2) any action taken in accordance with written or oral advice
reasonably believed by the Transfer Agent to have been given by
counsel for the Fund or its own counsel; or

(3) any action taken as a result of any error or omission in any
record (including but not limited to magnetic tapes, computer
printouts, hard copies, and microfilm copies) delivered or caused to
be delivered by the Fund to the Transfer Agent in connection with this
Agreement.

In any case in which the Fund or the Transfer Agent may be asked to
indemnify or hold the other party harmless, the requesting party will
provide the other party with all pertinent facts concerning the situation
in question and will use reasonable care to identify and provide notice of
any situation which presents or appears likely to present a claim for
indemnification. Each party shall have the option to defend the other
party against any claim which may be the subject of this indemnification,
and, in the event that a party so elects, such defense shall be conducted
by counsel chosen by the party making such election; and such counsel shall
be satisfactory to the other party, and thereupon such electing party shall
take over complete defense of the claim, and the requesting party shall
sustain no further legal or other expenses in such situation for which it
seeks indemnification under this Section 12. Neither party will confess
any claim or make any compromise in any case in which the other party will
be asked to provide indemnification, except with the other party's prior
written consent. The obligations of the parties hereto under this Section
shall survive the termination of this Agreement.

7
<PAGE>

13. Term and Termination.

This Agreement shall become effective on the date first set forth above
(the "Effective Date") and shall continue in effect from year to year
thereafter as the parties may mutually agree; provided, that either party
hereto may terminate this Agreement by giving to the other party a notice
in writing specifying the date of such termination, which shall be not less
than 60 days after the date of receipt of such notice. In the event such
notice is given by the Fund, it shall be accompanied by a resolution of the
Board of Directors of the Fund, certified by the Secretary, electing to
terminate this Agreement and designating a successor transfer agent or
transfer agents. Upon such termination and at the expense of the Fund, the
Transfer Agent will deliver to such successor a certified list of
Shareholders of the Fund (with names, addresses, and taxpayer
identification or Social Security numbers), an historical record of the
account of each Shareholder and the status thereof, and all other relevant
books, records, correspondence, and other data established or maintained by
the Transfer Agent under this Agreement in the form reasonably acceptable
to the Fund, and will cooperate in the transfer of such duties and
responsibilities, including provisions for assistance from the Transfer
Agent's personnel in the establishment of books, records, and other data by
such successor or successors.

14. Amendment.

This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties.

15. Subcontracting.

Except as otherwise provided below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without the
express written consent of the other party. The Transfer Agent may, in its
sole discretion and without further approval from the Fund, subcontract, in
whole or in part, for the performance of its obligations and duties
hereunder with any person or entity, including but not limited to, any
affiliate or subsidiary; provided, however, that (a) the Transfer Agent
shall remain fully responsible to the Fund for the acts and omissions of
any agent or subcontractor as it is for its own acts and omissions, and (b)
to the extent that the Transfer Agent subcontracts any functions or
activities required or performed by a registered transfer agent, the
subcontracting party shall be a duly registered transfer agent with the
appropriate regulatory agency as required under Section 17A

8
<PAGE>

of the Securities Exchange Act of 1934 and the rules and regulations
thereunder, as amended.

16. Use of Transfer Agent's Name.

The Fund shall not use the name of the Transfer Agent in any
Prospectus, Statement of Additional Information, Shareholders' report,
sales literature, or other material relating to the Fund for other
than internal use, in a manner not approved prior thereto; provided,
that the Transfer Agent shall approve all reasonable uses of its name
which merely refer in accurate terms to its appointment hereunder or
which are required by the Commission or a state securities
administrator.

17. Use of the Fund's Name.

The Transfer Agent shall not use the name of the Fund or material
relating to the Fund on any documents or forms for other than internal
use in a manner not approved prior thereto in writing; provided, that
the Fund shall approve all reasonable uses of its name which merely
refer in accurate terms to the appointment of the Transfer Agent or
which are required by the Commission or a state securities
administrator.

18. Security.

The Transfer Agent represents and warrants that, to the best of
its knowledge, the various procedures and systems which the Transfer
Agent has implemented or will implement with regard to safeguarding
from loss or damage attributable to fire, theft, or any other cause
(including provision for 24 hours-a-day restricted access) of the
Fund's records and other data and the Transfer Agent's records, data,
equipment, facilities, and other property used in the performance of
its obligations hereunder are adequate and that it will make such
changes therein from time to time as in its judgment are required for
the secure performance of its obligations hereunder. The parties
shall review such systems and procedures on a periodic basis.

19. Miscellaneous.

(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or the Transfer Agent
shall be sufficiently given if addressed to that party and received by
it at its office set forth below or at such other place as it may from
time to time designate in writing.

9
<PAGE>

To the Fund:

ND Tax-Free Fund, Inc.
201 South Broadway
Minot, ND 58701

To the Transfer Agent:

First American Bank & Trust of Minot
20 First Street SW
Minot, ND 58701

(b) This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Fund without the written
consent of the other party.

(d) This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall,
together, constitute only one instrument.

(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.

20. Liability of Trustees, officers, and Shareholders.

The execution and delivery of this Agreement have been authorized by
the Directors of the Fund and signed by an authorized officer of the Fund,
acting as such, and neither such authorization by such Directors nor such
execution and delivery by such Officer shall be deemed to have been made by
any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any
of the Directors or Shareholders of the Fund, but bind only the property of
the Fund.

10
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officers thereunder duly authorized as of
the day and year first above written.

ND TAX-FREE FUND, INC.

By /signature/

Date 10-21-88

Agreed and Accepted by:

FIRST AMERICAN BANK AND TRUST
OF MINOT

By /signature/

Date 10-21-88

11
<PAGE>

SCHEDULE B

DUTIES OF THE TRANSFER AGENT
(See Exhibit 1 for Summary of Services.)

1. Shareholder Information.

The Transfer Agent shall maintain a record of the number of Shares held
by each holder of record which shall include his address and taxpayer
identification number and which shall indicate whether such Shares are held
in certificated or uncertificated form.

2. Shareholder Services.

The Transfer Agent will investigate all Shareholder inquiries relating
to Shareholder accounts and will answer all correspondence from
Shareholders and others relating to its duties hereunder and such other
correspondence as may from time to time be mutually agreed upon between the
Transfer Agent and the Fund. The Transfer Agent shall keep records of
Shareholder correspondence and replies thereto and of the lapse of time
between the receipt of such correspondence and the mailing of such replies.

3. State Registration Reports.

The Transfer Agent shall furnish on a state-by-state basis sales
reports and such periodic and special reports as the Fund may reasonably
request and such other information, including Shareholder lists and
statistical information concerning accounts, as may be agreed upon from
time to time between the Fund and the Transfer Agent.

4. Mailing Communications to Shareholders; Proxy Materials.

The Transfer Agent will address and mail to Shareholders of the Fund
all reports to Shareholders, dividend and distribution notices, and proxy
material for the Fund's meetings of Shareholders. In connection with
meetings of Shareholders, the Transfer Agent will report on proxies voted
prior to meetings, act as inspector of election at meetings, if so
requested by the Fund, and certify Shares voted at meetings.

12
<PAGE>

5. Sales of Shares.

(a) Processing of Investment Checks or other Investments. Upon receipt of
any check or other instrument drawn or endorsed to it as agent for, or
identified as being for the account of the Fund for the purchase of Shares,
the Transfer Agent shall stamp the check with the date of receipt, shall
forthwith process the sane for collection, and shall record the number of
Shares sold, the trade date, price per Share, and the amount of money to be
delivered to the Custodian of the Fund for the sale of such Shares.

(b) Issuance of Shares. upon receipt of notification that the custodian
has received the amount of money specified in the immediately preceding
paragraph, the Transfer Agent shall issue to and hold in the account of the
purchaser/Shareholder, or if no account is specified therein, in a new
account established in the name of the purchaser, the number of Shares such
purchaser is entitled to receive, as determined in accordance with
applicable federal law or regulation.

(c) Statements. On a quarterly basis, the Transfer Agent shall send to the
purchaser/Shareholder a statement of purchases which will show the new
Share balance, the Shares held under a particular plan, if any, for
withdrawing investments, the amount invested and the price paid for the
newly purchased Shares, or such other form of statement as the Fund and the
Transfer Agent may agree from time to time.

(d) Suspension of Sale of Shares. The Transfer Agent shall not be required
to issue any Shares where it has received a Written Instruction from the
Fund or written notice from any appropriate federal or state-authority that
the sale of the Shares of the Fund has been suspended or discontinued, and
the Transfer Agent shall be entitled to rely upon such Written Instructions
or written notification.

(e) Taxes in Connection with Issuance of Shares. Upon the issuance of any
Shares in accordance with the foregoing provisions of this Section, the
Transfer Agent shall not be responsible for the payment of any original
issue or other taxes required to be paid in connection with such issuance.

(f) Returned Checks. In the event that any check or other order for the
payment of money is returned unpaid for any reason, the Transfer Agent
will:

(1) give prompt notice of such return to the Fund for its designee;

(2) place a stop transfer order against all Shares issued as a result
of such check or order; and

(3) take such actions as the Transfer Agent may from time to time
deem appropriate.

13
<PAGE>

6. Redemptions.

(a) Requirements for Transfer or Redemption of Shares. The Transfer Agent
shall process all requests from Shareholders to transfer or redeem Shares
in accordance with the procedures set forth in the Prospectus and all
determinations of the number of Shares required to be redeemed to fund
designated monthly payments, automatic payments, or any other such
distribution or withdrawal plan.

The Transfer Agent will transfer or redeem Shares upon receipt of
Written Instructions and Share certificates, if any, properly endorsed for
transfer or redemption, accompanied by such documents as the Transfer Agent
reasonably may deem necessary to evidence the authority of the person
making such transfer or redemption, and bearing satisfactory evidence of
the payment of stock transfer taxes, if any.

Except to the extent inconsistent with the procedures set forth in the
Prospectus, the Transfer Agent reserves the right to refuse to transfer or
redeem Shares until it is satisfied that the endorsement on the
instructions is valid and genuine, and for that purpose it will require a
guarantee of signature by a member firm of a national securities exchange,
by any national bank or trust company, or by any member bank of the Federal
Reserve system. The Transfer Agent also reserves the right to refuse to
transfer or redeem Shares until it is satisfied that the requested transfer
or redemption is legally authorized, and it shall incur no liability for
the refusal, in good faith, to make transfers or redemptions which the
Transfer Agent, in its good judgment, deems improper or unauthorized, or
until it is reasonably satisfied that there is no basis to any claims
adverse to such transfer or redemption.

The Transfer Agent may, in effecting transactions, rely upon the
provisions of the Uniform Act for the Simplification of Fiduciary Security
Transfers or the provisions of Article 8 of the Uniform Commercial Code, as
the same may be amended from time to time in the State of North Dakota,
which in the opinion of legal counsel for the Fund or of its own legal
counsel protect it in not requiring certain documents in connection with
the transfer or redemption of Shares. The Fund may authorize the Transfer
Agent to waive the signature guarantee in certain cases by Written
Instructions.

For the purpose of the redemption of Shares which have been purchased
within 15 days of a redemption request, the Transfer Agent may refuse to
redeem such Shares until the Transfer Agent has received fed funds for the
purchase of such Shares.

(b) Notice to Custodian and Fund. When Shares are redeemed, the Transfer
Agent shall, upon receipt of the instructions and documents in proper form,
deliver to the Custodian and the Fund a notification setting forth the
number of Shares to be redeemed. Such redemptions shall be reflected on
appropriate

14
<PAGE>

accounts maintained by the Transfer Agent reflecting outstanding Shares and
Shares attributed to individual accounts and, if applicable, any individual
withdrawal or distribution plan.

(c) Payment of Redemption Proceeds. The Transfer Agent shall, upon receipt
of the moneys paid to it by the Custodian for the redemption of Shares, pay
to the Shareholder, or his authorized agent or legal representative, such
moneys as are received from the Custodian, all in accordance with the
redemption procedures described in the Prospectus; provided, however, that
the Transfer Agent shall pay the proceeds of any redemption of Shares
purchased within 15 days of a redemption request to the Transfer Agent upon
a determination that good funds have been collected for the purchase of
such Shares. The Fund shall indemnify the Transfer Agent for any payment of
redemption proceeds or refusal to make such payment if the payment or
refusal to pay is in accordance with this Section.

The Transfer Agent shall not process or effect any redemptions pursuant
to a plan of distribution or redemption or in accordance with any other
Shareholder request upon the receipt by the Transfer Agent of notification
of the suspension of the determination of the Fund net asset value.

7. Dividends.

(a) Notice to Transfer Agent and Custodian. Upon the declaration of each
dividend and each capital gains distribution by the Board of Directors of
the Fund with respect to Shares, the Fund shall furnish to the Transfer
Agent a copy of a resolution of its Board of Directors certified by the
Secretary setting forth with respect to the Shares the date of the
declaration of such dividend or distribution, the ex-dividend date, the
date of payment thereof, the record date as of which Shareholders entitled
to payment shall be determined, the amount payable per Share to the
Shareholders of record as of that date, the total amount payable to the
Transfer Agent on the payment date, and whether such dividend or
distribution is to be paid in Shares at net asset value.

On or before the payment date specified in such resolution of the Board
of Directors, the Fund will cause the Custodian of the Fund to pay to the
Transfer Agent sufficient cash to make payment to the Shareholders of
record as of such payment date.

(b) Payment of Dividends by the Transfer Agent. The Transfer Agent will,
on the designated monthly payment date, automatically reinvest all
dividends in additional Shares at net asset value (determined on such date)
and nail to each Shareholder on a quarterly basis at his address of record,
or such other address as the Shareholder may have designated, a statement
showing the number of full and fractional Shares (rounded to three decimal
places) then currently owned by the Shareholder and the net asset value of
the Shares so credited to

15
<PAGE>

the Shareholder's account; provided, however, that if the Transfer Agent has on
file a direction by the Shareholder to pay income dividends or capital gains
dividends, or both, in cash, such dividends shall be paid in accordance with
such instructions; and provided, further, that in the event of the return of two
consecutive dividend checks as undeliverable, the Transfer Agent shall change
such Shareholder account to a reinvestment account if so provided in the
Prospectus.

(c) Insufficient Funds for Payments. If the Transfer Agent does not receive
sufficient cash from the Custodian to make total dividend and/or
distribution payments to all Shareholders of the Fund as of the record
date, the Transfer Agent will, upon notifying the Fund, withhold payment to
all Shareholders of record as of the record date until such sufficient cash
is provided to the Transfer Agent.

(d) Information Returns. It is understood that the Transfer Agent shall file
such appropriate information returns concerning the payment of dividends,
return of capital, and capital gain distributions with the proper federal,
state, and local authorities as are required by law to be filed and shall
be responsible for the withholding of taxes, if any, due on such dividends
or distributions to Shareholders when required to withhold taxes under
applicable law.

16
<PAGE>

Exhibit 1
to
Schedule B

SUMMARY OF SERVICES

The services to be performed by the Transfer Agent shall be as follows:

A. DAILY RECORDS

Maintain daily on disc the following information with respect to each
Shareholder account as received:

Name and Address (Zip Code)

Balance of Shares held by Transfer Agent

State of residence code

Beneficial owner code: i.e., male, female, joint tenant, etc.

Dividend code (reinvestment)

Number of Shares held in certificate form

B. OTHER DAILY ACTIVITY

Answer written inquiries relating to Shareholder accounts
(Matters relating to portfolio management, distribution of
Shares, and other management policy questions will be referred to
the Fund.).

Furnish a Statement of Additional Information to any Shareholder
who requests (in writing or by telephone) such statement from the
Transfer Agent.

Examine and process Share purchase applications in accordance
with the Prospectus.

Furnish Forms W-9 to all Shareholders whose initial subscriptions
for Shares did not include taxpayer identification numbers.

Process additional payments into established Shareholder accounts
in accordance with the Prospectus.

Upon receipt of proper instructions and all required
documentation, process requests for redemption of Shares.

17
<PAGE>

Identify redemption requests made with respect to accounts in which
Shares have been purchased within an agreed-upon period of time for
determining whether good funds have been collected with respect to
such purchase and process as agreed by the Transfer Agent and the Fund
in accordance with written procedures set forth in the Fund's
Prospectus.

Examine and process all transfers of Shares, insuring that all
transfer requirements and legal documents have been supplied.

Issue and mail replacement checks.

C. REPORTS PROVIDED TO THE FUND

Furnish the following reports to the Fund:

Daily financial totals

Blue sky reports

Monthly Form N-SAR information (sales/redemptions)

Monthly report of outstanding Shares

Monthly analysis of accounts by beneficial owner code

Monthly analysis of accounts by Share range

Analysis of sales by state; provide a "warning system" that informs
the Fund when sales of Shares in certain states are within a specified
percentage of the Shares registered in the state.

D. DIVIDEND ACTIVITY

Calculate and process Share dividends and distributions as instructed
by the Fund.

Compute, prepare, and mail all necessary reports to Shareholders,
federal, and/or state authorities as requested by the Fund.

E. MEETINGS OF SHAREHOLDERS

Cause to be mailed proxy and related material for all meetings of
Shareholders. Tabulate returned proxies (Proxies must be adaptable to
mechanical equipment of the Transfer Agent or its agents.) and supply
daily reports when sufficient proxies have been received.

18
<PAGE>

Prepare and submit to the Fund an Affidavit of Mailing.

At the time of the meeting, furnish a certified list of Shareholders,
hard copy, microfilm, or microfiche and, if requested by the Fund,
Inspectors of Election.

F. PERIODIC ACTIVITIES

Cause to be mailed reports, Prospectuses, and any other enclosures
requested by the Fund. (Material must be adaptable to mechanical
equipment of Transfer Agent or its agents.)
<PAGE>

19
SCHEDULE A*
FEE SCHEDULE
CUSTODIAN AND TRANSFER AGENT CHARGES
FIRST AMERICAN BANK & TRUST OF MINOT

PERCENTAGE
FUND SIZE (NET ASSET VALUE) OF *.1%

$ 0 TO $10,000,000 (See note below.) .20

10,000,001 TO 25,000,000 .15

25,000,001 TO 40,000,000 .12

40,000,001 TO 50,000,000 .11

50,000,001 AND LARGER .10

Note: Subject to monthly minimum fee of $1,700.00

*Schedule A is annexed to and incorporated into both the Custodian Agreement and
the Transfer Agency Agreement, because First American Bank & Trust of Minot
("First American") serves ND Tax-Free Fund, Inc. (the "Fund"), both in the
capacity of Custodian and in the capacity of Transfer Agent. Although annexed
to and incorporated into both the aforementioned Agreements, First American is
entitled to only one fee for all services provided to the Fund in both
capacities. In other words, the fact that Schedule A forms a part of both
Agreements does not entitle First American to charge a fee based upon Schedule A
for its services as Custodian and to charge another fee based upon Schedule A
for its services as Transfer Agent.

<PAGE>

EXHIBIT 99.11

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
<PAGE>

[LETTERHEAD OF BRADY MARTZ APPEARS HERE]

We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-effective Amendment No. 11 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 10, 1997, relating to the financial statements and selected per share
data and ratios of ND Tax-Free Fund, Inc., which appears in such Statement of
Additional Information and to the incorporation by reference of our report into
the Prospectus which constitutes part of the Registration Statement. We also
consent to the reference to us under the heading "Accountant and Reports to
Shareholders" in such Statement of Additional Information and to the reference
to us under the heading "Financial Highlights" in the Prospectus and on the back
cover of the Prospectus.

/s/ Brady, Martz
BRADY, MARTZ & ASSOCIATES, P.C.

February 21, 1997

<PAGE>

EXHIBIT 99.13

FORM OF PURCHASE AGREEMENT
<PAGE>

PURCHASE AGREEMENT

ND Tax-Free Fund, Inc. (the "Fund"), a corporation organized under the laws
of the State of North Dakota which proposes to register under the Investment
Company Act of 1940, and ND Holdings, Inc. ("Holdings"), a corporation organized
under the laws of the State of North Dakota which is the Fund's sponsor, hereby
agree as follows:

1. The Fund offers Holdings and Holdings hereby purchases 10,000 shares of
the Fund, par value $.001 (the "Shares"), for $10 per Share for the aggregate
purchase price of $100,000.

2. Holdings represents and warrants to the Fund that the Shares are being
acquired for investment purposes without any present intention of redeeming or
reselling them.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement this
_th day of October, 1988.

ND HOLDINGS, INC.

By:
Robert E. Walstad
President

ATTEST:

ND TAX-FREE FUND, INC.

By:

Robert E. Walstad
President

ATTEST:

<PAGE>

EXHIBIT 99.15

FORM OF DISTRIBUTION PLAN
<PAGE>

DISTRIBUTION PLAN

This Distribution Plan (the "Plan") is adopted in accordance with Rule 12b-1
(the "Rule") under the Investment Company Act of 1940, as amended (the "Act"),
by ND Tax-Free Fund, Inc. (the "Fund"), a corporation organized under the laws
of the State of North Dakota, subject to the following terms and conditions:

Section 1. Annual Fee.

The Fund will pay to ND Capital, Inc. ("Capital"), a corporation organized
under the laws of the State of North Dakota, an annual fee for certain expenses
incurred by Capital in connection with the offer and sale of the Fund's shares.
The annual fee paid to Capital under the Plan will be calculated daily and paid
monthly by the Fund at the annual rate of 0.85% of the average daily net assets
of the Fund.

Section 2. Expenses Covered 12Y Plan.

The annual fee paid to Capital under Section 1 of the Plan may be used by
Capital to cover any expenses primarily intended to result in the sale of the
Fund's shares, including, but not limited to: (a) sales commissions and other
fees paid to dealers who sell Fund shares; (b) payments made to, and expenses
of, persons who provide support services in connection with the distribution of
the Fund's shares, including, but not limited to, office space and equipment,
<PAGE>

telephone facilities, answering routine inquiries regarding the Fund, processing
shareholder transactions, and providing any other shareholder services not
otherwise provided by the Fund's transfer agent; (c) costs relating to the
formulation and implementation of marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine, and other mass media advertising; (d) costs of printing and
distributing prospectuses, statements of additional information, and reports of
the Fund to prospective shareholders of the Fund; (e) costs involved in
preparing, printing, and distributing advertising and sales literature
pertaining to the Fund; and (f) costs involved in obtaining whatever
information, analyses, and reports with respect to marketing and promotional
activities that the Fund may, from time to time, deem advisable.

Section 3. Approval By Shareholders.

The Plan will not take effect, and no fee will be payable in accordance with
Section 1 of the Plan, until the Plan has been approved by a vote of at least a
majority of the outstanding voting securities of the Fund.

Section 4. Approval By Directors.

Neither the Plan nor any related agreements will take effect until approved by a
majority vote of both (a) the full Board of Directors of the Fund and (b) those
Directors who are not interested persons of the Fund and who have no direct or

2
<PAGE>

indirect financial interest in the operation of the Plan or in any agreements
related to it (the "Qualified Directors"), cast in person at a meeting called
for the purpose of voting on the Plan and the related agreements.

Section 5. Continuance of the Plan.

The Plan will continue in effect for so long as its continuance is
specifically approved at least annually by the Fund's Board of Directors in the
manner described in Section 4 above.

Section 6. Termination.

The Plan may be terminated at any time with respect to the Fund by a
majority vote of the Qualified Directors or by vote of a majority of the
outstanding voting securities of the Fund. Any agreement related to the Plan
may be terminated at any time, without the payment of any penalty, by a majority
vote of the Qualified Directors or by vote of a majority of the outstanding
voting securities of the Fund on not more than sixty days' written notice to any
other party to the agreement and will automatically terminate in the event of
its assignment.

Section 7. Amendments.

The Plan may not be amended so as to increase materially the amount of the
fee described in Section 1 above with respect to the Fund, unless the amendment
is approved by a vote of at least a majority of the outstanding voting
securities of the Fund. In addition, no material amendment to

3
<PAGE>

the Plan may be made unless approved by the Fund's Board of Directors in the
manner described in Section 4 above.

Section 8. Selection of Certain Directors.

While the Plan is in effect, the selection and nomination of the Fund's
Directors who are not interested persons of the Fund will be committed to the
discretion of the Directors then in office who are not interested persons of the
Fund.

Section 9. Written Reports.

In each year during which the Plan remains in effect, any person authorized
to direct the disposition of moneys paid or payable by the Fund pursuant to the
Plan or any related agreement will prepare and furnish to the Fund's Board of
Directors, and the Board will review, at least quarterly, written reports,
complying with the requirements of the Rule, which set out the amounts expended
under the Plan and the purposes for which those expenditures were made.

Section 10. Preservation of Materials.

The Fund will preserve copies of the Plan, any agreement relating to the
Plan, and any report made pursuant to Section 9 above for a period of not less
than six years (the first two years in an easily accessible place) from the date
of the Plan, agreement, or report.

Section 11. Meanings of Certain Terms.

As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed

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<PAGE>

to have the same meaning that those terms have under the Act and the rules and
regulations under the Act, subject to any exemption that may be granted to the
Fund under the Act by the Securities and Exchange Commission.

Section 12. Limitation of Liability.

The execution of the Plan by an officer of the Fund has been authorized by
both the Fund's Board of Directors and the sole shareholder of the shares of the
Fund. In undertaking those actions, the officer, the Board of Directors, and
the sole shareholder have each acted on behalf of the Fund. In addition, the
obligations imposed under the Plan are binding only upon the assets and property
of the Fund and are not binding upon the officer executing the Plan, the Fund's
Board of Directors, or the sole shareholder of the shares of the Fund.

IN WITNESS WHEREOF, the Fund has executed the Plan as of

, 1988.

ND TAX-FREE FUND, INC.

By:

President

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