<PAGE>
As filed with the Securities and Exchange Commission
February 28, 1997
File Nos. 33-63306 and 811-7738
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
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Post-Effective Amendment No. 6 [X]
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AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 7
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MONTANA TAX-FREE FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
1 North Main, Minot, North Dakota 58703
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
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(701) 852-5292
Robert E. Walstad
President
Montana Tax-Free Fund, Inc.
1 North Main
Minot, North Dakota 58703
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(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)
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on (date) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)
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on (date) pursuant to paragraph (a) of Rule 485.
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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 69 pages
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MONTANA TAX-FREE FUND, INC.
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
<TABLE>
<CAPTION>
Part A
Item
Number Prospectus Caption
<S> <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
Part B
Item Statement of Additional
Number Information Caption
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 THE FUND
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>
<TABLE>
<CAPTION>
Part C
Item
Number Page
<S> <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-3
31. Management Services................................................ C-4
32. Undertakings....................................................... C-4
33. Signature Page..................................................... C-4
</TABLE>
<PAGE>
"INTEGRITY MONTANA TAX-FREE FUND, INC. LOGO APPEARS HERE"
Prospectus May 1, 1996 (As amended June 25, 1996 and February 28, 1997)
Montana 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 Montana 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
Montana 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 8, 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.
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TABLE OF CONTENTS
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Fee and Expense Table......................2
Synopsis...................................3
Financial Highlights.......................5
General Description of the Fund............5
Management................................10
Shares....................................12
Purchase of Shares........................14
Redemption of Shares......................17
Performance Data..........................18
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>
<CAPTION>
Shareholder Transaction Expenses
<S> <C>
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)
(as a percentage of average net assets)
Management Fees.......................................................................0.600%
12b-1 Fees (After Fee Waiver)(2)......................................................0.375%(3)
Other Expenses........................................................................0.175%(4)
Total Fund Operating Expenses (After Fee Waiver).......................................1.15%(4)
</TABLE>
<TABLE>
<CAPTION>
Example(5) 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: $52.00 $67.00 $73.00 $140.00
You would pay the following expenses on the same investment,
assuming no redemption: $12.00 $37.00 $63.00 $140.00
</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) 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.
(3) Under the Distribution Agreement, ND Capital, Inc. (the "Underwriter"),
is entitled to a fee, calculated daily and paid monthly, at the annual rate of
0.75% of the average daily net assets of the Fund. The Fund incurred a fee of
$88,756 for the fiscal year ended December 31, 1996, all of which was used to
partially defray the costs of commissions paid to dealers.
(4) Absent the fee waiver, estimated "Total Fund Operating Expenses" would be
1.29% of average daily net assets on an annualized basis.
(5) 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
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<PAGE>
fee waivers 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 Montana 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 Montana 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 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."
Investors in the Fund
The Fund is designed for persons who are seeking a high level of income
exempt from federal and Montana income taxes from a portfolio consisting
primarily of investment grade Municipal Securities. Dividends derived from
earnings of Montana state and local government issues are exempt from Montana
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."
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<PAGE>
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 200,000,000 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
will 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. In addition, the Fund was organized
recently and has had only a brief history of operations.
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<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 Brady, Martz &
Associates, P.C. ("Brady, Martz"), the Fund's independent public accountant. 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 Period
Since Inception
(August 12,
For The Year For The Year For the Year 1993)
Ended Ended Ended through
December 31, December 31, December 31, December 31,
1996 1995 1994 1993
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<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................ $ 10.04 $ 9.39 $ 10.07 $ 10.00
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Income from Investment Operations:
Net Investment Income........................................ $ .48 $ .51 $ .50 $ .19
Net realized and unrealized gain (loss) on
investment and futures transactions......................... .06 .67 (.66) .09
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Total From Investment Operations............................ $ .54 $ 1.18 $ (.16) $ .28
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Less Distributions:
Dividends from net investment income......................... $ (.48) $ (.51) $ (.50) $ (.19)
Distributions in excess of net investment income............. (.03) (.02) (.02) (.01)
Distributions from realized gains............................ .00 .00 .00 (.01)
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Total Distributions......................................... $ (.51) $ (.53) $ (.52) $ (.21)
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NET ASSET VALUE, END OF PERIOD.................................. $ 10.07 $ 10.04 $ 9.39 $ 10.07
------------------------------------------------------------
Total Return.................................................... 5.52%(A) 12.85%(A) (1.70)%(A) 7.00%(A)(B)
Ratios / Supplemental Data:
Net assets, end of period (in thousands)..................... $ 34,803 $ 24,055 $ 11,956 $ 5,235
Ratio of net expenses (after expense assumption)
to average net assets....................................... 0.96%(C) 0.66%(C) 0.46%(C) 0.12%(B)(C)
Ratio of net investment income to average net assets......... 4.76% 5.11% 5.06% 4.84%(B)
Portfolio turnover rate...................................... 7.12% 7.39% 12.46% 26.05%
(A) Excludes contingent deferred sales charge of 4%.
(B) Ratio was annualized.
(C) During the periods indicated above, ND Holdings, Inc. assumed expenses
of $98,321, $99,757, $87,483, and $21,944. If the expenses had not been
assumed, the annualized ratio of total expenses to average net assets
would have been 1.29%, 1.22%, 1.46% and 1.71%, respectively.
</TABLE>
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 April 15, 1993.
-5-
<PAGE>
Investment Objective and Policies
The Fund's investment objective is to provide as high a level of current
income exempt from federal and Montana 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
financial futures contracts and options thereon, 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 Montana income taxes.
Under normal circumstances, the Fund will invest at least 65% of its total
assets in obligations of the State of Montana and its political subdivisions,
agencies, and instrumentalities. 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, as
determined by 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) financial futures and options
thereon 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.
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-1,
P-2, or A-1, A-2, respectively); certificates of deposit of domestic banks with
assets of $25 million 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 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.
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<PAGE>
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 Montana's economy is primarily dependent upon agriculture, mining, and
the processing of minerals and agricultural/forest products, 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 Montana Municipal Securities to make interest and
principal payments.
Other Investment Practices
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 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
-7-
<PAGE>
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 on 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 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
-8-
<PAGE>
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 segregate 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 hypothecate 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
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maturity) were replaced once in a period of one year. Higher portfolio turnover
(100% or more) 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 Montana 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 Montana Municipal Securities are not considered part of
any "industry." However, Montana 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
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. In addition, the Fund was organized
recently and has had only a brief history of operations.
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. ("Holdings"), a North Dakota
corporation. The Investment Adviser was incorporated under North Dakota law on
August 19, 1988, and also serves as investment adviser for ND Tax-Free Fund,
Inc., ND Insured Income Fund, Inc., South Dakota Tax-Free Fund,
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<PAGE>
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. During the fiscal year ended December 31, 1996, the
Fund incurred advisory fees of $170,943.
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 for
four related funds, ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc., South
Dakota Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., since April 1988,
November 1990, March 1994, and December 1994 (through December 1995),
respectively. Mr. Walstad is also president of ND Tax-Free Fund, Inc., ND
Insured Income 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 Western Bank and Trust, 900 South Broadway, 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.
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.
For the fiscal year ended December 31, 1996, total expenses amounted to 1.29%
of average net assets on an annualized basis. Net expenses (after expense
assumption by ND Holdings, Inc., the Fund's sponsor) for the same period
amounted to 0.96% of average net assets on an annualized basis.
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<PAGE>
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.
SHARES
Share Attributes
The Fund is authorized to issue a total of 200,000,000 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 shareholders 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-
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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 investments 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
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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 Montana state and local
government issues are exempt from Montana state income taxes. Distributions
which are categorized as long-term capital gains for federal income tax purposes
will generally receive the same treatment under Montana law. However, dividends
from the Fund are not exempt to corporations which are shareholders of the Fund
under Montana law. Corporations 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.
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. 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 and 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
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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 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 back 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 and
treasurer and vice president and 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 corporation.
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
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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 0.75% 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 operation
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 ND Capital, 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.
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<PAGE>
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 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
redemption proceeds 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
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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.
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
-18-
<PAGE>
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.
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.
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MONTANA
TAX-FREE
FUND, INC.
1 North Main
Minot, ND 58703
(701) 852-5292
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 Western Bank & Trust
900 South Broadway
Minot, ND 58701
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
MONTANA TAX-FREE
FUND, INC.
A mutual fund for investors
seeking high current income
exempt from federal and
Montana income taxes
- ------------------------------
Prospectus
May 1, 1996
(As amended June 25, 1996
and February 28, 1997)
---------------------
[LOGO OF INTEGRITY MONTANA
TAX FREE FUND APPEARS HERE]
==============================
<PAGE>
INTEGRITY MUTUAL FUNDS
ACCOUNT APPLICATION MONTANA TAX-FREE FUND, INC.
Mail To: Montana 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__________________________________
Custodian's name Minor's name
under the_______ Uniform Gifts/Transfers to Minors Act
State
____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: Montana 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 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 Minor's SSN) Employer Identification
Number
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 Montana Tax-Free
Fund, Inc., indicated within the terms of our selling agreement with ND
Holdings, Inc., and with the prospectus for Montana 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)
MONTANA 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 Montana 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>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Investments............................................................... B-2
Investment Policies and Techniques........................................ B-3
Investment Restrictions................................................... B-6
Management of the Fund.................................................... B-8
Control Persons and Principal Holders of Securities....................... B-9
Investment Advisory and Other Services.................................... B-10
Portfolio Transactions.................................................... B-12
Purchase and Redemption of Shares......................................... B-13
Underwriter............................................................... B-14
Dividends and Taxes....................................................... B-15
Calculation of Performance Data........................................... B-16
Tax-Free Versus Taxable Income............................................ B-18
Appendix--Ratings of Investments.......................................... B-19
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 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.
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 a 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 fixed rate.
B-2
<PAGE>
Not more than 5% of the net assets of the Fund will be 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 which
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."
INVESTMENT POLICIES AND TECHNIQUES
General
The Fund may engage in futures 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
B-3
<PAGE>
of fluctuating interest rates, and to stabilize the value of its assets. The
use of futures, possible benefits, and attendant risks are discussed below,
along with the 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
securities index. This investment technique is designed 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 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
B-4
<PAGE>
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.
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.
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.
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-
B-5
<PAGE>
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.
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 objective and policies.
(2) Purchase securities (other than securities of the United States
Government, its agencies or instrumentalities, or the State of Montana 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 objective 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) 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.
B-6
<PAGE>
(7) 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.
(8) Invest for the purpose of exercising control or management of another
issuer.
(9) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts.
(10) 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.
(11) 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.
(12) 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.
(13) Issue senior securities as defined in the Investment Company Act of 1940,
except money borrowed as permitted by (4) above.
(14) Invest in real estate or real estate mortgage loans, although it may invest
in Municipal Securities which are secured by real estate and securities of
issuers which invest or deal in real estate.
During the coming year, the Fund does not intend to invest more than 5%
of its net assets in securities of other investment companies.
The Fund may invest more than 25% of its net assets in industrial
development bonds.
Any policy or restriction which involves a maximum 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.
B-7
<PAGE>
MANAGEMENT OF THE FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
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 Tax-Free Fund, Inc., ND Insured Income
Minot, North Dakota 58701 Fund, Inc., South Dakota Tax-Free Fund, Inc., and
75 Integrity Fund of Funds, Inc.; Trustee, Ranson
Managed Portfolios; Director, First Western
Bank & Trust
Orlin W. Backes (3) Director Attorney; Director, ND Tax-Free Fund, Inc.,
15 2nd Ave. SW, Suite 305 ND Insured Income 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 Tax-Free Fund, Inc., ND Insured
2001 Grimsrud Drive Income 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 Tax-Free Fund, Inc., ND Insured Income
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
52 Tax-Free Fund, Inc., ND Insured Income 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>
* "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 Tax-Free Fund, Inc., ND Insured
Income Fund, Inc., South Dakota Tax-Free Fund, Inc., and the Fund on
December 2, 1994.
B-8
<PAGE>
(3) Mr. Backes was elected to the boards of directors of ND Tax-Free Fund,
Inc., ND Insured Income 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 Tax-Free Fund,
Inc., ND Insured Income 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 Tax-Free Fund, Inc.,
ND Insured Income 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 Tax-Free Fund, Inc., ND Insured Income Fund, Inc., South Dakota
Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., and the Fund since
their inceptions.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
COMPENSATION TABLE*
- -------------------------------------------------------------------------------------------------
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 $33.32 -0- -0- $10,000.00
Director
Orlin W. Backes $24.99 -0- -0- $7,500.00
Director
Arthur A. Link $33.32 -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 $91.63 -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.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 18, 1997, no person controlled Registrant, 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 none of Registrant's
shares were owned by Registrant's officers or directors.
B-9
<PAGE>
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 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 Tax-Free Fund,
Inc., ND Insured Income 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 Investment 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 Fund incurred $51,856, $106,401, and $170,943 in
advisory fees for fiscal years 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.
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."
B-10
<PAGE>
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% of 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 0.75% 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.
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
B-11
<PAGE>
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. The Fund incurred
$21,811, $44,334, and $88,756 in fees during fiscal years 1994, 1995, and 1996,
respectively, all of which was used to partially defray costs of commissions
paid to dealers, as described above.
The Investment Adviser and the Underwriter are subsidiaries of ND
Holdings, Inc. ("Holdings"). 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, will indirectly benefit from the payment of 12b-1
fees by the Fund to the Underwriter.
Custodian and Transfer Agent
First Western Bank & Trust, 900 South Broadway, 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.
Accountant 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.
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 invest-
B-12
<PAGE>
ment 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.
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
B-13
<PAGE>
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 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 0.75% of the average daily net
assets of the shares for the prior month. 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
$27,427 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
B-14
<PAGE>
exempt from the contingent deferred sales charge). Commission payments totaled
$189,363 in 1993, $284,569 in 1994, $397,967 in 1995, and $404,118 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.
Taxes
To the extent that dividends are derived from earnings on Montana state
and local government issues, such dividends will be exempt from Montana income
taxes. However, dividends from the Fund are not exempt to corporations which are
shareholders of the Fund under Montana law.
For federal income tax purposes, the Fund is generally required to
recognize its unrealized gains and losses at year end on financial futures
contracts and options thereon. 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
B-15
<PAGE>
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
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 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.
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 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 maximum
offering price per share on the last day of the period and annualizing the
result according to the following formula:
YIELD = 2[(a-b + 1)6 - 1]
----
cd
B-16
B-16
<PAGE>
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.
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
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 and is
computed as follows:
ERV - P = Total Return
-------
P
B-17
<PAGE>
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.
TAX-FREE VERSUS TAXABLE INCOME
The following table shows the rate of return an individual Montana
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 Montana state income tax at a rate equal to 11% of the Montana taxable
income. This assumes that the maximum Montana individual income tax rate will
remain at 11%.
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 families with adjusted gross incomes of
$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.
B-18
<PAGE>
The following table uses the combined marginal tax rate of 49.00% for
adjusted gross income of $180,000 to $300,000 to present the equivalent taxable
yield for taxpayers in the situations presented above assuming that the federal
tax rates remain the same and a Montana tax rate for 1996 of 11%.
<TABLE>
<CAPTION>
Montana Tax-Free Equivalent Taxable Yield
Yield for Taxpayer in 1996
----- --------------------
<S> <C>
5.0% 9.80%
5.5% 10.78%
6.0% 11.76%
6.5% 12.75%
7.0% 13.73%
7.5% 14.71%
8.0% 15.69%
</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 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 more 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.
B-19
<PAGE>
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-20
<PAGE>
[LOGO OF BRADY MARTZ APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors of
Montana Tax Free Fund, Inc.
We have audited the accompanying statement of assets and liabilities of Montana
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 statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the three periods then
ended and for the period from inception (August 12, 1993) through December 31,
1993. 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 audits.
We conducted our audits 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
Montana 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, and financial
highlights for each of the respective periods stated in the first paragraph, in
conformity with generally accepted accounting principles.
/s/ Brady, Martz
BRADY, MARTZ & ASSOCIATES, P.C.
February 10, 1997
F-1
<PAGE>
MONTANA TAX-FREE FUND, INC.
Schedule of Investments December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MONTANA MUNICIPAL BONDS (96.8%)
ENERGY (5.9%)
Anaconda-Deer River Cty. (Arco) Solid Waste Rev................ A/A+ 6.375% 10/01/16 $ 1,500,000 $ 1,555,995
MT (Broadwater Power) Coal Severance Tax Ref................... A1/AA- 6.875 12/01/17 445,000 482,656
------------
$ 2,038,651
------------
HEALTH CARE (14.2%)
MT St. Hlth. Fac. Auth. (Mission Ridge) Rev.................... NR/NR 6.300% 08/15/26 $ 500,000 $ 500,205
MT St. Hlth. Fac. Auth. (MT Devl. Ctr.) Rev.................... A/NR 6.300 06/01/14 500,000 527,655
MT St. Hlth. Fac. Auth. (MT Devl. Ctr.) Rev.................... A/NR 6.400 06/01/19 930,000 981,541
MT Hlth. Fac. Auth. (Missoula Comm. Med. Ctr.) Rev............. NR/BBB- 6.375 06/01/18 1,330,000 1,335,919
MT Hlth. Fac. Auth. (Master Loan Pgm.) Rev..................... A/NR 6.400 10/01/14 450,000 485,478
MT Hlth. Fac. Auth. (Northern Montana Care Ctr.) Rev........... Baa/NR 6.350 09/01/15 1,000,000 1,012,640
MT Hlth. Fac. Auth. (Bozeman Deaconess) Rev.................... NR/A 5.750 06/01/08 100,000 104,045
------------
$ 4,947,483
------------
HOUSING (22.4%)
MT Board of Housing, Single Family Program..................... Aa/A+ 6.250% 12/01/17 $ 2,880,000 $ 2,949,264
MT Board of Housing, Single Family Program..................... Aa/AA+ 6.350 06/01/27 1,445,000 1,474,391
MT Board of Housing, Single Family Program..................... Aa/AA+ 6.550 12/01/25 90,000 92,110
MT Board of Housing, Single Family Program..................... Aa/AA+ 6.400 12/01/35 500,000 510,870
MT Board of Housing, Single Family Program..................... Aa/AA+ 6.400 12/01/27 310,000 315,453
MT Board of Housing, Multifamily Mtg. Program.................. Aa/NR 6.150 11/01/26 450,000 451,876
MT Board of Housing, Single Family Program..................... Aa/AA 6.500 12/01/32 150,000 155,331
MT Board of Housing, Single Family Program..................... Aa/AA+ 6.100 12/01/24 680,000 677,001
MT Board of Housing, Single Family Program..................... Aa/AA+ 6.300 06/01/08 225,000 233,050
MT Board of Housing, Single Family Program..................... Aa/AA+ 6.750 12/01/14 215,000 226,808
MT Board of Housing, Single Family Program..................... Aa/AA+ 6.900 06/01/25 90,000 93,712
MT Board of Housing, Single Family Program..................... Aa/AA+ 6.700 12/01/26 580,000 606,251
------------
$ 7,786,117
------------
POLLUTION CONTROL (5.2%)
Forsyth, MT (Montana Power) PCR................................ Baa1/BBB+ 6.125% 05/01/23 $ 1,220,000 $ 1,255,783
Forsyth, MT (Montana Power) PCR................................ Baa1/BBB+ 5.900 12/01/23 300,000 301,629
Lewis & Clark Co. (Asarco Inc.) PCR............................ Baa/BBB 6.750 12/01/06 235,000 237,989
------------
$ 1,795,401
------------
REAL ESTATE (2.0%)
Billings Tax Increment Urban Renewal Ref....................... Baa/NR 7.100% 03/01/08 $ 650,000 $ 703,592
------------
STATE EDUCATION (2.3%)
MT Hgr. Educ. Student Assistance Corp. Rev..................... A/NR 6.500% 12/01/12 $ 250,000 $ 261,382
MT Hgr. Educ. Student Assistance Corp. Rev..................... A/NR 6.500 12/01/14 500,000 524,595
------------
$ 785,977
------------
UTILITIES (3.4%)
Lewis & Clark Co. Solid Waste Fac. Rev......................... A/NR 6.100% 10/01/14 $ 250,000 $ 262,545
Lewistown, MT Water System Rev................................ NR/NR 5.700 07/01/15 435,000 446,797
Lewistown, MT Water System Rev................................ NR/NR 5.700 07/01/16 460,000 472,305
------------
$ 1,181,647
------------
INSURED/GUARANTEED (41.5%)
Forsyth, MT (Puget Sound Pwr. & Lt.) PCR (AMBAC)........... Aaa/AAA 7.050% 08/01/21 $ 750,000 $ 844,702
Forsyth, MT (Puget Sound Pwr. & Lt.) PCR (AMBAC)........... Aaa/AAA 6.800 03/01/22 565,000 624,692
Forsyth, MT (Puget Sound Pwr. & Lt.) PCR (MBIA)............ Aaa/AAA 5.875 04/01/20 540,000 547,447
Forsyth, MT (Montana Power) PCR (AMBAC)....................... Aaa/AAA 5.900 12/01/23 225,000 229,916
Forsyth, MT (Montana Power) PCR (MBIA)........................ Aaa/AAA 6.125 05/01/23 1,420,000 1,485,050
Forsyth, MT (Montana Power) PCR Ref. (AMBAC).................. Aaa/AAA 6.125 05/01/23 3,500,000 3,660,335
*Great Falls, Water & Sewerage Rev. (FGIC)..................... Aaa/AAA 6.400 08/01/12 300,000 326,412
MT State University Rev........................................ Aaa/AAA 5.250 11/15/13 1,165,000 1,159,513
MT State University Rev........................................ Aaa/AAA 5.375 11/15/21 1,000,000 996,700
MT Hlth. Fac. Auth. (St. Pat's) Rev. (AMBAC)................... Aaa/AAA 6.625 09/01/12 195,000 212,800
</TABLE>
F-2
<PAGE>
MONTANA TAX-FREE FUND, INC.
Financial Statements December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MT Hlth. Fac. Auth. (Holy Rosary) Rev. (MBIA).................. Aaa/AAA 5.250 07/01/20 250,000 239,150
MT Hlth. Fac. Auth. (Deaconess Clinic) Rev. (AMBAC)............ Aaa/AAA 5.250 02/15/20 1,700,000 1,627,172
MT Board of Investments (Workers Comp.) (MBIA)................. Aaa/AAA 6.875 06/01/11 200,000 220,806
MT Board of Investments (Workers Comp.)(ESCRWD)................ Aaa/AAA 6.875 06/01/20 145,000 160,231
MT Board of Investments (Workers Comp.)(ESCRWD)................ Aaa/AAA 6.875 06/01/20 355,000 392,289
Phillips Cty., MT (Malta) ESD #14 G.O. School Bldg. (MBIA).... Aaa/AAA 5.600 07/01/15 145,000 145,235
Phillips Cty., MT (Malta) ESD #14 G.O. School Bldg. (MBIA).... Aaa/AAA 5.600 07/01/16 155,000 155,076
Phillips Cty., MT (Malta) HSD #A G.O. School Bldg. (MBIA)...... Aaa/AAA 5.600 07/01/15 290,000 290,470
Phillips Cty., MT (Malta) ESD #14 G.O. School Bldg. (MBIA).... Aaa/AAA 5.600 07/01/17 165,000 165,259
*Richland Cty. (Mon.-Dak. Utilities) PCR (FGIC)................ Aaa/AAA 6.650 06/01/22 300,000 328,398
Richland Cty. (Mon.-Dak. Utilities) PCR (FGIC)................. Aaa/AAA 6.650 06/01/22 300,000 328,398
Silver Bow, (Butte-Silver Bow)Water System Rev. (FGIC)......... Aaa/AAA 6.500 11/01/14 275,000 300,316
------------
$ 14,440,367
------------
TOTAL MONTANA MUNICIPAL BONDS (COST: $32,951,366).................................................................... $ 33,679,235
------------
SHORT-TERM SECURITIES (7.8%)
Federated Tax-Free Trust (COST: $2,710,642).......................................................................... $ 2,710,642
------------
TOTAL INVESTMENTS IN SECURITIES (COST: $35,662,008).................................................................. $ 36,389,877
============
*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.
</TABLE>
F-3
<PAGE>
MONTANA TAX-FREE FUND, INC.
Financial Statements December 31, 1996
Statement of Assets and Liabilities
December 31, 1996
- -----------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities, at value
(cost:$35,662,008) .......................................... $36,389,877
Cash ........................................................ 895
Accrued dividends receivable ................................ 5,462
Accrued interest receivable ................................. 369,603
Receivable for fund shares sold ............................. 162,097
Variation margin on futures ................................. 235,921
------------
Total Assets ............................................. $37,163,855
------------
LIABILITIES
Dividends payable ........................................... $ 145,059
Accrued expenses ............................................ 31,750
Security purchases payable .................................. 2,181,572
Payable for fund shares redeemed ............................ 2,500
------------
Total Liabilities ........................................ $ 2,360,881
------------
NET ASSETS ....................................................... $34,802,974
============
Net asset value per share, 3,456,719
shares outstanding .......................................... $ 10.07
============
</TABLE>
<TABLE>
Statement of Operations
For the year ended December 31, 1996
- ------------------------------------
<S> <C>
INVESTMENT INCOME
Interest .................................................... $ 1,627,655
Dividends ................................................... 59,306
------------
Total Investment Income ................................ $ 1,686,961
------------
EXPENSES
Investment advisory fees .................................... $ 177,513
Distribution (12b-1 fees) ................................... 88,756
Custodian fees .............................................. 4,630
Transfer agent fees ......................................... 40,932
Accounting service fees ..................................... 38,781
Audit and legal fees ........................................ 4,600
Insurance ................................................... 2,987
Directors fees .............................................. 1,907
Printing and postage ........................................ 9,006
License, fees, and registrations ............................ 10,720
Amortization of organization costs .......................... 905
------------
Total expenses .......................................... $ 380,737
Less expenses waived or absorbed
by the Fund's manager ....................................... 98,321
------------
Total Net Expenses ...................................... $ 282,416
------------
NET INVESTMENT INCOME ........................................... $ 1,404,545
------------
</TABLE>
F-4
<PAGE>
MONTANA TAX-FREE FUND, INC.
Financial Statements December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FUTURES
Net realized gain (loss) from:
Investment transactions .................................... $ 54,462
Futures transactions ....................................... 605,104
Net change in unrealized appreciation
(depreciation) of:
Investments ................................................ (400,116)
Futures .................................................... (40,068)
------------
Net Realized and Unrealized Gain
(Loss) On Investments and Futures ....................... $ 219,382
------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS ................................................. $ 1,623,927
============
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
MONTANA 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 ................................................... $ 1,404,545 $ 910,650
Net realized gain (loss) on investment and futures transactions ......... 659,566 (714,078)
Net unrealized appreciation (depreciation) on investments and futures ... (440,184) 1,845,230
------------------------------------------
Net Increase (Decrease) in Net Assets Resulting From Operations .... $ 1,623,927 $ 2,041,802
------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS .................................
Dividends from net investment income .................................... $(1,404,545) $ (910,650)
Distributions in excess of net investment income ........................ (88,756) (42,685)
Distributions from net realized gain on investment and ..................
futures transactions .................................................... 0 0
------------------------------------------
Total Dividends and Distributions .................................. $(1,493,301) $ (953,335)
------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................................ $10,721,943 $10,719,956
Proceeds from reinvested dividends ...................................... 948,882 603,502
Cost of shares redeemed ................................................. (1,053,866) (312,363)
------------------------------------------
Net Increase (Decrease) in Net Assets Resulting From Capital
Share Transactions .............................................. $10,616,959 $11,011,095
------------------------------------------
TOTAL INCREASE IN NET ASSETS ................................................ $10,747,585 $12,099,562
NET ASSETS, BEGINNING OF PERIOD ............................................. 24,055,389 11,955,827
------------------------------------------
NET ASSETS, END OF PERIOD ................................................... $34,802,974 $24,055,389
==========================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-6
<PAGE>
MONTANA TAX-FREE FUND, INC.
Notes to Financial Statements December 31, 1996
Note 1. ORGANIZATION
Montana Tax-Free Fund, Inc. (the Fund) is registered under the
Investment Company Act of 1940 as a non-diversified, open-end
management investment company. The Fund incorporated under the laws of
the State of North Dakota on April 15, 1993 and commenced operations on
August 12, 1993. The Fund's objective is to provide as high a level of
current income exempt from federal and Montana income taxes as is
consistent with preservation of capital. The Fund will seek to achieve
this by investing primarily in a portfolio of Montana tax-exempt
securities.
Shares of the Fund are offered with no initial sales charge. Shares may
be subject to a contingent deferred sales charge, if 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, and 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.
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.
F-7
<PAGE>
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. CAPITAL SHARE TRANSACTIONS
As of December 31, 1996, there were 200,000,000 shares of $.001 par
authorized; 3,456,719 and 2,395,706 were outstanding at December 31,
1996 and December 31, 1995, respectively. Transactions in capital
shares were as follows:
<TABLE>
<CAPTION>
Shares Amount
----------------------------------------- -----------------------------------------
For The For The For The For The
Year Ended Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1996 December 31, 1995
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .............................. 1,071,978 1,093,033 $10,721,943 $10,719,956
Shares issued on reinvestment of dividends 94,940 61,616 948,882 603,502
Shares redeemed .......................... (105,905) (31,894) (1,053,866) (312,363)
-----------------------------------------------------------------------------------------
Net increase (decrease) .................. 1,061,013 1,122,755 $10,616,959 $11,011,095
=========================================================================================
</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
$170,943 of investment advisory fees for the year ended December 31,
1996. The Fund has a payable to ND Money Management, Inc. of $17,629 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 0.75% 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 0.75% of the average daily net assets of the Fund for the prior
month. The Fund has recognized $88,756 of 12b-1 fee expenses for the
year ended December 31, 1996. The Fund has a payable to ND Capital,
Inc. of $8,814 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 $15,825 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
$40,932 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 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 $38,781 of accounting service fees for the year ended
December 31, 1996.
F-8
<PAGE>
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment
securities (excluding short-term securities) aggregated $13,491,631,
and $1,976,406, 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 $35,662,008, and the net unrealized
appreciation of investments based on the cost was $727,869, which is
comprised of $849,215 aggregate gross unrealized appreciation and
$121,346 aggregate gross unrealized depreciation.
F-9
<PAGE>
MONTANA TAX-FREE FUND, INC.
Notes to Financial Statements December 31, 1996
Financial Highlights Selected per share data and ratios for the period indicated
<TABLE>
<CAPTION>
For The Period
For The Year For The Year For the Year Since Inception
Ended Ended Ended (August 12, 1993)
December 31, December 31, December 31, through
1996 1995 1994 December 31, 1993
------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................. $ 10.04 $ 9.39 $ 10.07 $10.00
------------------------------------------------------------------
Income from Investment Operations:
Net Investment Income ........................... $ .48 $ .51 $ .50 .19
Net realized and unrealized gain (loss) on ......
investment and futures transactions .......... .06 .67 (.66) .09
------------------------------------------------------------------
Total From Investment Operations ............ $ .54 $ 1.18 $ (.16) $ .28
------------------------------------------------------------------
Less Distributions:
Dividends from net investment income ............ $ (.48) $ (.51) $ (.50) $ (.19)
Distributions in excess of net investment income (.03) (.02) (.02) (.01)
Distributions from realized gains ............... .00 .00 .00 (.01)
------------------------------------------------------------------
Total Distributions ......................... $ (.51) $ (.53) $ (.52) $ (.21)
NET ASSET VALUE, END OF PERIOD ....................... $ 10.07 $ 10.04 $ 9.39 $10.07
==================================================================
Total Return ......................................... 5.52%(A) 12.85%(A) (1.70)%(A) 7.00%(A)(B)
Ratios / Supplemental Data: ..........................
Net assets, end of period (in thousands) ........ $34,803 $24,055 $11,956 $5,235
Ratio of net expenses (after expense assumption)
to average net assets ........................ 0.96%(C) 0.66%(C) 0.46%(C) 0.12%(B)(C)
Ratio of net investment income to average net assets 4.76% 5.11% 5.06% 4.84%(B)
Portfolio turnover rate ......................... 7.12% 7.39% 12.46% 26.05%
</TABLE>
(A) Excludes contingent deferred sales charge of 4%.
(B) Ratio was annualized.
(C) During the periods indicated above, ND Holdings, Inc. assumed expenses
of $98,321, $99,757, $87,483, and $21,944. If the expenses had not been
assumed, the annualized ratio of total expenses to average net assets
would have been 1.29%, 1.22%, 1.46% and 1.71%, respectively.
F-10
<PAGE>
MONTANA TAX-FREE FUND, 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
Schedule of Investments in Securities as of December 31, 1996
Statements 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 Year Ended
December 31, 1996, and the Year Ended December 31, 1995
Notes to Financial Statements
Financial Highlights
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 Public Accountant
(13) Form of Purchase Agreement *
(15) 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 May 20, 1993, and incorporated by reference herein.
** Previously filed as an exhibit to Post-effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A filed with the
Securities and Exchange Commission on April 26, 1994, and
incorporated by reference herein.
*** Previously filed as an exhibit to Post-effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A filed with the
Securities and Exchange Commission on May 1, 1996, and incorporated
by referenced herein.
C-1
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
Inapplicable
Item 26. Number of Holders of Securities
Title of Class Number of Record Holders
Shares, par value 1199
$.001 per share (As of February 18, 1997)
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 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.
C-2
<PAGE>
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 Tax-Free Fund,
Inc. ("NDTFF"), ND Insured Income Fund, Inc. ("NDIIF"), 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, NDTFF, NDIIF, 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,
NDTFF, NDIIF, 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 Tax-Free Fund, Inc., ND Insured Income 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
Peter A. Quist Vice President, Secretary, Vice President, Secretary,
1 North Main and Director and Director
Minot, North Dakota 58703
</TABLE>
(c) Inapplicable
Item 30. Location of Accounts and Records
First Western Bank & Trust, 900 South Broadway, 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
C-3
<PAGE>
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
If requested to do so by the holders of at least 10% of Registrant's
outstanding shares, Registrant undertakes to call a meeting of shareholders for
the purpose of voting upon the question of removal of a director or directors
and to assist in communications with other shareholders in the manner described
in Section 16(c) of the Investment Company Act of 1940.
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. 6 to
Registrant's Registration Statement on Form N-1A filed with the Securities and
Exchange Commission on May 20, 1993, pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-effective Amendment No. 6
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.
MONTANA 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. 6 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
C-5
<PAGE>
MONTANA TAX-FREE FUND, INC.
Registration Statement on Form N-lA 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 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) Form of Transfer Agency Agreement
(10) Opinion of Pringle & Herigstad, P. C.
(11) Consent of Independent Accountant
(13) Form of Purchase Agreement
(15) Form of Distribution Plan
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 35,662,008
<INVESTMENTS-AT-VALUE> 36,389,877
<RECEIVABLES> 537,162
<ASSETS-OTHER> 236,816
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 37,163,855
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,360,881
<TOTAL-LIABILITIES> 2,360,881
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 3,456,719
<SHARES-COMMON-PRIOR> 2,395,706
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (113,123)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 727,869
<NET-ASSETS> 34,802,974
<DIVIDEND-INCOME> 59,306
<INTEREST-INCOME> 1,627,655
<OTHER-INCOME> 0
<EXPENSES-NET> 282,416
<NET-INVESTMENT-INCOME> 1,404,545
<REALIZED-GAINS-CURRENT> 659,566
<APPREC-INCREASE-CURRENT> (440,184)
<NET-CHANGE-FROM-OPS> 1,623,927
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,404,545
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 88,756
<NUMBER-OF-SHARES-SOLD> 1,071,978
<NUMBER-OF-SHARES-REDEEMED> 105,905
<SHARES-REINVESTED> 94,940
<NET-CHANGE-IN-ASSETS> 10,747,585
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 177,513
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 380,737
<AVERAGE-NET-ASSETS> 29,485,700
<PER-SHARE-NAV-BEGIN> 10.04
<PER-SHARE-NII> .48
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> .48
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .03
<PER-SHARE-NAV-END> 10.07
<EXPENSE-RATIO> .96<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Ratio of net expenses (after expense assumption) to average net assets.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.1
ARTICLES OF INCORPORATION
<PAGE>
North Dakota Business or Farming Corporation Filing No. 9488800
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: Montana 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 "&".)
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:
Two hundred million (200,000.000) shares. all of one class of the par (if shares
consist of one class only, Insert statement of par value of shares of that all
are without par value. If shares are divided into classes,
value of one mill ($.001) each and of the aggregate 1) par value of two Insert
number of shares of each class.) hundred thousand dollars ($200,000)
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:
<TABLE>
<CAPTION>
Name Street Address City State
<S> <C> <C> <C>
Peter A. Quist 1821 S. Grandview Lane, #8, Bismarck, North Dakota 58501
</TABLE>
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.
Date April 15 1993
/Peter A. Quist/
Office Use Only Fees:
Certificate No. Filing articles and issuing certificate $30.00
License fees:
Filed 4-15 1993 $50,000.00 or less $50.00
$10,000.00 of its authorized
/Alvin A. Jaeger/ BY /SR/ shares or fraction thereof in
excess of $50,000.00
Receipt No.
(License fees are computed by multiplying the number of
authorized shares by the par value, or If shares
are without par value. By $.10 per share.)
Filed by:
06-85
<PAGE>
State of North Dakota
C E R T I F I C A T E 0F I N C 0 R P 0 R A T IN
0 F
MONTANA TAX-FREE FUND, INC.
The undersigned, as Secretary of State of the State of North
Dakota, hereby certifies that Articles of Incorporation for the incorporation of
MONTANA TAX-FREE FUND, INC.
duly signed and verified pursuant to the provisions of the North Dakota
BUSINESS 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
MONTANA TAX-FREE FUND, INC.
Dated: April 15, 1993
/ Alvin A. Jaeger/
Alvin A. Jaeger
Secretary of State
<PAGE>
EXHIBIT 99.2
BYLAWS
<PAGE>
BYLAWS
OF
MONTANA 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.
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
Section 1. Number. The business and affairs of the corporation 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.
2
<PAGE>
ARTICLE IV
OFFICERS
Section 1. Enumeration of Offices. The officers of the corporation shall be a
president, one or more vice presidents (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
3
<PAGE>
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 by resolution or other
directive.
Adopted this 17th day of May, 1993.
/Robert E. Walstad/
Robert E. Walstad
/Peter A. Quist/
Peter A. Quist
/Charles E. Bailly/
Charles E. Bailly
/Ben Meier/
Ben Meier
/Arthur A. Link/
Arthur A. Link
4
<PAGE>
EXHIBIT (99.4)
SPECIMEN COPY OF SHARE CERTIFICATE
<PAGE>
NUMBER SHARES
MONTANA
INCORPORATED UNDER THE LAWS
OF NORTH DAKOTA
Cusip No.
THIS IS TO CERTIFY THAT: ACCOUNT NO:
is the owner of........................ MONTANA.........................
fully paid and non-assessable shares of the par value of one mill ($.001) each
of 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
lime 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
day of
Countersigned
By ND RESOURCES, INC.
President Transfer Agent
By By
Secretary Authorized Signature
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN IN COM - 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 OF ASSIGNEE
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF 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
May 17, 1993
ND Money Management, Inc.
201 South Broadway
Minot, North Dakota 58701
Dear Sirs:
Montana 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 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
<PAGE>
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.
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 fall 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
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<PAGE>
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 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 May 17, 1995, and thereafter shall
continue automatically for successive annual periods ending on May 17 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
3
<PAGE>
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).
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,
MONTANA TAX-FREE FUND, INC.
By: /Robert E. Walstad/
President
Accepted:
ND MONEY MANAGEMENT, INC.
By: /Robert E. Walstad/
Authorized Officer
4
<PAGE>
EXHIBIT 99.6A
FORM OF DISTRIBUTION AGREEMENT
<PAGE>
DISTRIBTION AGREEMENT
May 17, 1993
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, Montana 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 0.75% 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 12b-I
under the 1940 Act (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;
(c) costs of printing and distributing prospectuses and reports of
the Fund to prospective shareholders of the Fund;
(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.
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
2
<PAGE>
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 Fund, (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 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
3
<PAGE>
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 indemnity, 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 indemnity Capital,
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
indemnity 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 indemnity 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
4
<PAGE>
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
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 indemnity, 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 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 indemnity 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,
5
<PAGE>
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.
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.
6
<PAGE>
7. Term of Agreement
This Agreement shall continue until May 17, 1995, and thereafter shall
continue automatically for successive annual periods ending on May 17th of each
year, provided such continuance is specifically approved at least annually by
(a) the Fund's Board of Directors and (b) a vote of a majority (as defined in
the 1940 Act) 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 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 Directors 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.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth herein.
MONTANA TAX-FREE FUND, INC.
By: /Robert E. Walstad/
Title: President
Date: May 17, 1993
Accepted:
ND CAPITAL, INC.
By: /Robert E. Walstad/
Title: President
Date: May 17, 1993
8
<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 Montana 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 state
securities administrators of the various states in which Fund shares are to be
offered for sale or sold by you. In consideration of the mutual promises stated
below, you and we hereby agree as follows:
1. 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 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.
<PAGE>
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.
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
2
<PAGE>
amended; (ii) are qualified to act as a dealer in the states in which the Fund's
shares are offered for sale or sold by you; (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 indemnity 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 cornmencement
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 in good standing satisfactory to the Fund and us.
If you shall fail to provide such defense, the Fund or we may 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.
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16. Assignment. This Agreement may not be assigned by you
without our consent.
17. Waiver. No failure, neglect, or forbearance 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
any time 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 and Title
Dealer Name
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EXHIBIT 99.8
FORM OF CUSTODIAN AGREEMENT
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT dated as of May 18, 1993, between Montana 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 Western Bank & Trust (the "Custodian"), a bank
organized under the laws of the State of North Dakota with its principal place
of business at 900 South Broadway, Minot, North Dakota 58701.
WITNESSETH:
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 17A 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 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.
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(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 time 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. 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
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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 m 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.
(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
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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 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 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:
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<PAGE>
(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) 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
may 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
5
<PAGE>
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;
(7) deliver Securities owned by the Fund to the issuer thereof or 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
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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.
(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
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<PAGE>
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;
(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 may 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.
6. 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;
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<PAGE>
(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.
(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 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
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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.
(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
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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 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
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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 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
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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 he taken in accordance with advice of counsel to the Custodian. 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.
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<PAGE>
(e) Appointment of Agents and Sub-Custodians. The Custodian may 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 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 may properly be held by the Fund under the
provisions of the Fund's Prospectus.
(g) Compensation of the Custodian. 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. Any charges associated with
DTC transactions shall be billed to the Fund at cost. 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
14
<PAGE>
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
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
accountant 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 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 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 Fund shall upon
the date specified in the notice of termination of this
15
<PAGE>
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 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 t he 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.
(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 900
South Broadway, Minot, North Dakota 58701, or at such other place as the
Custodian may from time to time designate in writing.
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<PAGE>
(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 may 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.
6) 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.
17
<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.
MONTANA TAX-FREE FUND, INC.
By /Robert E. Walstad/
Date May 18, 1993
Attest: /Peter Quist/
Agreed and Accepted by:
FIRST WESTERN BANK & TRUST
By /Richard A. Anderson/
Date May 18, 1993
Attest: /signature/
18
<PAGE>
APPENDIX A
We, Robert E. Walstad and Peter A. Quist, Directors of Montana 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 /Robert E. Walstad/
Dan Korgel /W. Dan Korgel/
Robert E. Walstad
Director
Peter A. Quist
Director
19
<PAGE>
APPENDIX B
We, Robert E. Walstad and Peter A. Quist, Directors of Montana 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 Director /Robert E. Walstad/
Peter A. Quist Vice President and Director /Peter A. Quist/
Robert E. Walstad Director /Robert E. Walstad/
Peter A. Quist Director /Peter A. Quist/
20
<PAGE>
APPENDIX C
I, Richard K. Anderson, Vice President and Cashier of First Western Bank &
Trust (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 Montana Tax-
Free Fund, Inc.:
Richard H. Rolfstad, Vice President and Trust Department Manager;
Marjorie A. Parizek, Trust Operations Officer; Eloise R. Kleven,
Retirement Benefits Officer; Chris Lamoureux, Assistant Trust Officer
Signed and dated this 18th day of May, 1993.
/Richard K. Anderson/
Richard K. Anderson
Vice President and Cashier
First Western Bank & Trust
21
<PAGE>
SCHEDULE A
FEE SCHEDULE
CUSTODIAN CHARGES
FIRST WESTERN BANK & TRUST
The Fund shall compensate the Custodian for services rendered pursuant to this
Agreement as provided hereinafter. Beginning on the date on which the Fund's
initial registration statement is declared effective by the Securities and
Exchange Commission, the Fund shall pay the Custodian a fee at the annual rate
of 0.50 of 1.00% of the Fund's average daily net assets; provided, however, that
the aggregate amount of the Custodian's fee payable hereunder shall not exceed
$10,000 in any calendar year. The fee for the period from the date the Fund's
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 the
termination of this Agreement. For the purpose of determining fees payable to
the Custodian, the value of the Fund's net assets shall be computed at the times
and in the manner specified in the Fund's Prospectus and Statement of Additional
Information as from time to time in effect.
The Custodian shall bill the Fund as soon as practicable after the end of each
calendar month, and said billings shall be detailed in accordance with the Fee
Schedule. The Fund shall promptly pay to the Custodian the amount of such
billing.
22
<PAGE>
EXHIBIT 99.9
FORM OF TRANSFER AGENCY AGREEMENT
<PAGE>
TRANSFER AGENCY AGREEMENT
AGREEMENT dated as of May 17, 1993, between Montana 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 ND Resources, Inc. (the "Transfer Agent"), a corporation
organized under the laws of the State of North Dakota with its principal place
of business at 201 South Broadway, Minot, North Dakota 58701.
WITNESSETH:
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.
(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
<PAGE>
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 Transfer Agent 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 111940 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.
The Transfer Agent 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 Schedule A. The Fund will promptly pay to the Transfer Agent the
amount of such billing.
(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
2
<PAGE>
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.
(c) A copy of the resolution of the Directors authorizing execution
and delivery of this Agreement.
(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.
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
3
<PAGE>
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.
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
4
<PAGE>
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 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:
5
<PAGE>
(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.
11. 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.
12. Duty of Care and Indemnification.
The Fund and the Transfer Agent will indemnity 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 indemnity 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 on 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.
6
<PAGE>
In any case in which the Fund or the Transfer Agent may be asked to
indemnity 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.
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
written agreement executed by both parties.
7
<PAGE>
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 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
8
<PAGE>
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.
To the Fund:
Montana Tax-Free Fund, Inc.
201 South Broadway
Minot, ND 58701
To the Transfer Agent:
ND Resources, Inc.
201 South Broadway
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.
(c) This Agreement shall be construed in accordance with the
laws of the State of North Dakota.
(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 Directors, 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
9
<PAGE>
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.
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.
MONTANA TAX-FREE FUND, INC.
By /Robert E. Walstad/
Date May 17, 1993
Agreed and Accepted by:
ND RESOURCES, INC.
By /Robert E. Walstad/
Date May 17, 1993
10
<PAGE>
APPENDIX A
We, Robert E. Walstad and Peter A. Quist, Directors of Montana 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 /Robert E. Walstad/
W. Dan Korgel /W. Dan Korgel/
/Robert E. Walstad/
Robert E. Walstad
/Peter A. Quist/
Peter A. Quist
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.
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 same for collection, and
shall record the number of Shares sold, the trade date, the price per
Share, and the amount of money to be delivered to the Custodian of the
Fund for the sale of such Shares.
12
<PAGE>
(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 will be in 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 or 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.
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,
13
<PAGE>
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 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 indemnity 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.
14
<PAGE>
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 mail 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 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, 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
15
<PAGE>
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 I
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.
17
<PAGE>
Upon receipt of proper instructions and all required documentation,
process requests for redemption of Shares.
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, ensuring 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
18
<PAGE>
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. Costs incurred in providing this service will be
an out-of-pocket expense of the Transfer Agent.
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.)
19
<PAGE>
SCHEDULE A*
FEE SCHEDULE
TRANSFER AGENT CHARGES
ND RESOURCES, INC.
<TABLE>
<CAPTION>
PERCENTAGE
FUND SIZE (NET ASSET OF 1%
<S> <C>
$ 0 TO $10,000,000 .16
10,000,001 TO 25,000,000 .13
25,000,001 TO 40,000,000 .11
40,000,001 TO 50,000,000 .10
50,000,001 AND LARGER .09
</TABLE>
*Amounts due under the above Fee Schedule are payable monthly and shall be
calculated as follows: The net asset value of all outstanding Fund shares within
each category (e. g., $0 to $10,000,000 is one category, $10,000,001 to
$25,000,000 is another, etc.) shall be multiplied by the percentage of 1%
applicable to such category and the product thereof divided by 12. The same
procedure shall be followed for each category in which the Fund has net asset
values. The amounts derived by multiplying the net asset value of each category
by the applicable percentages shall then be added together to determine the
amount payable for that month. By way of example only, if the Fund had net
assets of $10,500,000 for the month in question, the computation would be as
follows:
$10,000,000 x .0016 / 12= $1,333.33
500,000 x .0013 / 12= 54.17
$1,387.50
20
<PAGE>
EXHIBIT 99.10
OPINION OF PRINGLE & HERIGSTAD, P. C.
<PAGE>
LOGO
LAW OFFICES OF
PRINGLE HERIGSTAD, P.C.
ROGER 0. HERIGSTAD FIRST AMERICAN BANK WEST BUILDING LEE J SALERUD
MITCHELL H. MAHONEY 20 SW 1ST STREET CAROL K LARSON
MARK F. PURDY POST OFFICE BOX 1000 DAVID J. HOGUE
THOMAS A. WENTZ MINOT, NORTH DAKOTA 58702 REED A SODERSTROM
JAN M. SEBBY (701) 852-0381 MARK R. HAYS
DONALD A. NEGAARD FAX (701) 857-1361 THOMAS A WENTZ JR
JAMES E. NOSTDAHL _________
JOHN J. PETRIK KENNETH G PRINGLE
(1914-1983)
May 19, 1993
MONTANA TAX-FREE FUND, INC.
201 SOUTH BROADWAY
MINOT, ND 58701
We have acted as special counsel to Montana Tax-Free Fund, Inc. (the
"Company"), a corporation organized under the laws of the State of North Dakota,
in connection with the preparation and filing of a registration statement on
Form N-IA (the "Registration Statement") and a Notification of Registration on
Form N-SA covering the offer and sale of an indefinite number of shares of said
Company (all of said shares being of one class and having a par value of one
mill ($.001)).
We have examined copies of the Articles of Incorporation, the
Certificate of Incorporation, the Bylaws, the Registration Statement, all votes
of the Company's Board of Directors (the "Board") at its initial meeting held on
May 17, 1993, consents of the Board, and other records and documents that we
have deemed necessary for the purpose of rendering this opinion. We have also
examined such other documents, papers, statutes, and authorities as we have
deemed necessary to form a basis for the opinion hereinafter expressed.
In our examination of said material, we have assumed the genuineness
of all signatures and the conformity to original documents of all copies
submitted to us. As to various questions of fact material to our opinion, we
have relied upon statements and certificates of officers and representatives of
the Company and others.
Based upon the foregoing, we are of the opinion that the shares, when
duly sold, issued, and paid for in accordance with the terms of the Prospectus
and the Statement of Additional Information included as a part of the
Registration Statement, will be validly and legally issued and will be fully
paid and non-assessable shares of Montana Tax-Free Fund, Inc.
<PAGE>
Montana Tax-Free Fund, Inc.
May 19, 1993
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to us in the Prospectus included as a
part of the Registration Statement, and to the filing of this opinion as an
exhibit to any application made by or on behalf of the Company or any
distributor or dealer in connection with the registration or qualification of
the Company or the shares under the securities laws of any state or other
jurisdiction.
/Thomas A. Wentz/
Thomas A. Wentz
kak
<PAGE>
EXHIBIT 99.11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
<PAGE>
[LETTERHEAD OF BRADY MARTZ]
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-effective Amendment No.6 to the registration
statement on Form N-lA (the "Registration Statement") of our report dated
February 10, 1997, relating to the financial statements and selected per share
data and ratios of Montana 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.
Brady, Martz
BRADY, MARTZ & ASSOCIATES, P.C.
February 21, 1997
<PAGE>
EXHIBIT 99.13
FORM OF PURCHASE AGREEMENT
<PAGE>
PURCHASE AGREEMENT
Montana 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 Capital, Inc. ("Capital"), a corporation
organized under the laws of the State of North Dakota which proposes to act as
the Fund's principal underwriter, hereby agree as follows:
1. The Fund offers Capital and Capital 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. Capital 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 17th
day of May, 1993.
ND CAPITAL, INC.
By /Robert E. Walstad/
Robert E. Walstad
President
ATTEST:
/Peter A. Quist/
Peter A. Quist
Secretary
MONTANA TAX-FREE FUND, INC.
By /Robert E. Walstad/
Robert E. Walstad
President
ATTEST:
/Peter A. Quist/
Peter A. Quist
Secretary
<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
Montana 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 0.750% of the average daily net assets
of the Fund.
Section 2. Expenses Covered by Plan.
The annual fee paid to Capital under Section I 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,
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.
<PAGE>
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 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 I above with respect to the Fund, unless the amendment is
approved by a
-2-
<PAGE>
vote of at least a majority of the outstanding voting securities of the Fund.
In addition, no material amendment to 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 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
3
<PAGE>
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
May 17 , 1993
MONTANA TAX-FREE FUND, INC.
By: /Robert E. Walstad/
President
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