As filed with the Securities and Exchange Commission on April 16,
1997 File No. S-1 333-11509
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________
Form S-1
Post Effective Amendment No. 1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ND HOLDINGS, INC.
(Exact name of registrant as specified in charter)
North Dakot 6282
(State or other jurisdiction (Primary Standard Industrial
of incorporation) Classification Code Number)
1 North Main, Minot, ND 58701
45-0404061 (701) 852-5292
(IRS Employer Identification No.) (address, including zip code,
and telephone number,
including area code of
registrant's principal
executive offices)
Robert Walstad - 1 North Main, Minot, ND 58701 (701) 852-5292
(Name, address, including zip code and telephone number, including
area code of agent for service)
Copies of all communications to:
Gordon Dihle, Esq. Financial Advantage
1720 South Bellaire Street Brokerage Services, Inc.
Suite 108 17 S Main St.
Denver, CO 80222 PO Box 1934
(303) 753-4520 Minot, ND 58702-1934
fax (303) 753-4567 (701) 852-3090
fax (701) 852-3108
Approximate date of commencement of proposed sale to public:
as soon as practicable after the effective date of this
registration.
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933 check the following box T.
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering.
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering. ___
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. ___
<TABLE>
<CAPTION>
Proposed Proposed Amount
Title of Each Maximum Maximum of
Class of Amount Offering Aggregate Regis-
Securities to to be Price Per Offering tration
be Registered Registered Share(1) Price(1) Fee
______________ ________________ _________ ___________ _______
<S> <C> <C> <C> <C>
Common Stock,
no par value 3,000,000 Shares 4.00 $12,000,000 $ 4,138
<FN>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
</TABLE>
The registrant hereby amends this Registration Statement on
such date or dates as may necessary to delay its effective date
until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
ND HOLDINGS, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K Showing Location in
Prospectus of Part I Items of Form S-1
Item Number and Heading in Location or Caption
Form S-1 Registration Statement in Prospectus
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus Forepart of Registration
Statement; Outside Front
Cover Page; Additional
Information
2. Inside Front and Outside Back
Cover Pages of Prospectus Inside Front Cover Page;
Outside Back Cover Page
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges Prospectus Summary; Risk
Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page;
Underwriting
6. Dilution Dilution
7. Selling Security Holders Principal and Selling
Shareholders
8. Plan of Distribution Outside and Inside Front
Cover Pages; Underwriting;
Outside Back Cover Page
9. Description of Securities
to be Registered Prospectus Summary; Dividend
Policy; Capitalization;
Description of Capital
Stock; Shares Eligible for
Future Sale
10. Interests of Named Experts
and Counsel Not Applicable
11. Information With Respect to
the Registrant Outside and Inside Front
Cover Pages; Prospectus
Summary; Risk Factors; Use
of Proceeds; Dividend
Policy; Capitalization;
Dilution; Selected
Consolidated Financial and
Operating Data;
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations; Business;
Management; Certain
Transactions; Principal and
Selling Shareholders;
Description of Capital
Stock; Shares Eligible for
Future Sale; Consolidated
Financial Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities Not Applicable
<PAGE>
3,000,000 Shares
ND HOLDINGS, INC.
Common Stock
$3.50 Per Share
Of the maximum of 3,000,000 shares of Common Stock offered hereby,
up to 453,581 shares are being offered and sold by certain of the
Company's shareholders (the "Selling Shareholders"). See
"Principal and Selling Shareholders." The Company will not receive
any of the proceeds from the sale of shares by the Selling
Shareholders.
Prior to this offering, there has been no public market for ND
Holdings, Inc.'s (the Company) securities and there is no assurance
that such a market will develop or, if developed, will be sustained
after this offering. For factors considered in determining the
initial offering price, see "Risk Factors-Absence of Public
Market"-"Determination of Offering Price" and "Underwriting." The
Company's securities will be offered to the public at a price of
$3.50 per share.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK AND SUBSTANTIAL
IMMEDIATE DILUTION. INVESTORS SHOULD CAREFULLY CONSIDER THE
INFORMATION DISCUSSED UNDER "RISK FACTORS" AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds(3)(4)
Public(1)(4) Commissions(2) to Company
_______________ ____________ ______________ ______________
<S> <C> <C> <C>
Per Share $3.50 $.35 $3.15
Total Maximum $10,500,000 $1,050,000 $8,021,220
<F1>
1. All 3,000,000 shares offered hereby will be offered by the
Underwriter as agent for the Company and Selling Shareholders
to the public on a "best efforts" basis. See "Risk Factors-No
Firm Underwriting Commitment for the Offering" and
"Underwriting." There is no minimum number of shares required
to be sold prior to the Company receiving proceeds from the
sale of the shares offered herein. The first 907,162 shares
sold will be allocated equally between the Company's shares and
the total selling shareholders, shares sold in excess of
907,162 will be the Company's shares.
<F2>
2. Includes a non-accountable expense allowance payable to the
Underwriter equal to 2% of the gross proceeds of the offering.
See "Underwriting."
<F3>
3. Before deducting estimated expenses of approximately $100,000
payable by the Company (including printing expenses, NASDAQ
Application Fees, attorneys' and accountants fees, filing fees,
etc.). See "Use of Proceeds" and "Capitalization."
<F4>
4. The Company will not receive any of the proceeds from the sale
of 453,581 (out of the first 907,162 shares sold) shares of
Common Stock by the Selling Shareholders. See "Principal
Shareholders."
</TABLE>
The Shares are offered by the Underwriter subject to prior sale,
allotment, withdrawal, cancellation or modification of the offering
without notice, delivery and acceptance by the Underwriter,
approval of counsel and certain further conditions. The
Underwriter reserves the right, in its discretion, to reject
orders, in whole or in part, for the purchase of any of the shares
offered hereby. The offering of best efforts shares may continue
for up to 90 days following the commencement of this offering and
an additional 90 days extension period thereafter unless terminated
by the Underwriter.
Managing Underwriter
FINANCIAL ADVANTAGE BROKERAGE SERVICES, INC.
17 S Main St.
PO Box 1934
Minot, North Dakota 58702-1934
(701) 852-3090 Fax (701) 852-3108
The date of this Prospectus is February 4, 1997
As Amended by Post-Effective Amendment Dated April , 1997
<PAGE>
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in
accordance therewith, files reports, proxy statements, and other
information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy statements, and other information
filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth
Street, NW, Washington, DC 20549 and at is Regional Offices located
at 26 Federal Plaza, New York, New York 10278; and 219 South
Dearborn Street, Chicago, Illinois 60604. Copies of such material
can also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, NW, Washington, DC 20549, at the
Commission's prescribed rates.
Financial Advantage Brokerage Services, Inc. as the Underwriter may
offer and sell a significant amount of the shares offered hereby to
persons associated or affiliated with the Company, including the
Company and its subsidiaries, officers, directors, employees,
prospective employees, and other affiliated persons. Under the
rules of the National Association of Securities Dealers, Inc.
("NASD"), securities of the Company purchased in this offering by
the foregoing persons may not be sold, transferred, assigned,
pledged or hypothecated for a period of five months after the date
of this Prospectus. The Underwriter has no obligation to sell
shares to any person. To the extent any of such securities are
sold to affiliated persons, such securities will be held for
investment and will be subject to registration (if purchased by the
Company) or the requirements of Rule 144 (if purchased by control
persons). See "Risk Factors-Effects of Underwriting."
The Company has two broker/dealer subsidiaries, ND Capital, Inc.
and Ranson Capital Corporation, neither of which is participating
in this offering. After the distribution of the shares is
completed, neither ND Capital, Inc. nor Ranson Capital Corporation
will engage in market making activities in the Company's securities
except on an (unsolicited) agency basis, for its customers, and not
as a principal. The prices and liquidity of the securities may be
significantly affected by the degree, if any, of these firms lack
of participation in the market. After the distribution of the
shares, ND Capital, Inc. and Ranson Capital Corporation will not
make any recommendations with respect to the Company's securities.
See "Risk Factors-The Company's Lack of Participation in the
Market."
This Prospectus contains certain forward-looking statements within
the meaning of the federal securities laws. Actual results could
differ materially from those projected in the forward-looking
statements due to a number of factors, including those set forth
under "Risk Factors and elsewhere in this Prospectus.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to,
and should be read in conjunction with the more detailed
information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus gives effect to the
11 for 10 stock split of each outstanding share of Common Stock on
June 30, 1989 and the 11 for 10 stock split on June 30, 1990.
Unless the context indicates or requires otherwise, reference in
this prospectus to the "Company" is to ND Holdings, Inc., a North
Dakota corporation and its subsidiaries. Common Stock means the
Company's Common Stock (no par value). Fiscal year references
refer to the respective fiscal years ended December 31.
The Company
The principal business of the Company, incorporated as a North
Dakota corporation on September 22, 1987, is acting as a holding
company for mutual fund management, brokerage and transfer agency
firms. Through its subsidiaries, investment advisory, asset
management, underwriting and transfer agent services are provided
to mutual funds sponsored by the Company. Currently through its
wholly-owned subsidiary, ND Money Management, Inc., the Company
acts as advisor to five mutual funds, all of which were organized
and initiated by the Company: ND Tax-Free Fund, Inc., ND Insured
Income Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-
Free Fund, Inc. and Integrity Fund of Funds, Inc. (the "Funds").
As a result of the acquisition of The Ranson Company, Inc.,
completed on January 5, 1996, the Company is also the manager of
three additional funds, called the "Ranson Managed Portfolios".
Ranson Capital Corporation, a NASD member broker/dealer and the
investment advisor and manager for the three "Ranson Managed
Portfolios": the Kansas Municipal Fund, Kansas Insured
Intermediate Fund and the Nebraska Municipal Fund, is a subsidiary
of The Ranson Company (and now the Company). The Company's
broker/dealer subsidiary, ND Capital, Inc., functions as
underwriter to the Funds and services customers of the Funds. The
Company's Transfer Agency subsidiary, ND Resources, Inc., acts as
transfer agent and performs clerical functions for the Funds.
Revenue is received for the management of the Funds along with
commissions for sale of fund shares as well as transfer fees and
clerical services. The five original Funds have grown to over
$144,000,000 in combined assets as of December 1996. Ranson
Capital Corporation, as a wholly-owned subsidiary of the Company,
continues to act as the investment adviser and manager for the
Ranson Managed Portfolios. The Ranson Managed Portfolios provided
an additional managed asset base of approximately $184,000,000. As
a result, total assets managed by the Company total approximately
$334,000,000 as of December 31, 1996.
The Ranson Company, Inc. Purchase
On January 5, 1996, the Company completed the acquisition of The
Ranson Company, Inc. The aggregate purchase price of The Ranson
Company, Inc. was $6,196,402. $5,083,273 (80% of the total) of
this amount was paid directly to The Ranson Company, Inc.
shareholders on January 5, 1996. $1,113,129 was placed in escrow
until final payment on July 3, 1996. See "The Ranson Company, Inc.
Acquisition", "The Company's Subsidiaries and Operations", "Certain
Transactions", and "The Ranson Acquisition." The source of funds
for the acquisition was a combination of cash and cash equivalents,
sale of marketable securities held by the Company and $1,500,000
borrowed from a local bank on a short term note.
3
<PAGE>
The Offering
Common Stock offered by
the Company hereby 2,546,419 shares
Common Stock offered by the
Selling Shareholders hereby 453,581 shares
Common Stock to be outstanding
after the offering 10,670,005 shares(1)
Use of proceeds For general corporate purposes
the priority use of which is
developing and increasing mutual
fund assets under its management
by acquisition of management
contracts through purchase of
contract rights, and acquisition
of other fund managers.
Proposed NASDAQ Market Symbol NDHI
(1) Excludes 1,050,000 shares of Common Stock issuable upon
exercise of warrants outstanding at December 31, 1996.
SUMMARY OF CONSOLIDATED FINANCIAL DATA
The following tables set forth certain consolidated financial data
with respect to the Company that has been derived from the
consolidated financial statements of the Company for the five
fiscal years in the period ended December 31, 1995. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations." This summary of consolidated financial
data should be read in conjunction with the Consolidated Financial
Statements, including the notes thereto, appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
________________________
1992 1993 1994 1995 1996
________ __________ __________ __________ ___________
<S> <C> <C> <C> <C> <C>
Income Statement Data:(1)
Total revenues and other income $550,541 $ 910,628 $1,325,373 $1,719,843 $ 3,578,209
Total expenses and losses
recognized 980,171 1,249,283 1,802,749 2,265,984 3,317,809
Income (Loss) before income tax
benefit and cumulative effect
adjustment (429,630) (338,655) (477,376) (535,461) 260,400
Deferred income tax benefit
(expense) - 135,.000 250,500 162,400 (216,029)
Income (Loss) before effect of a
change in accounting principle (429,630) (203,655) (271,877) (373,061) 44,371
Cumulative effect on prior years
of accounting change - 539,500 - - -
Net Income (Loss) (429,630) 335,845 (271,877) (373,061) 44,371
Earnings per share(2) $(.11) $.07 $(.04) $(.05) $.01
Operating Data:
Average assets under admin-
istration (in millions)(3) $32 $93 $110 $120 $334
Number of funds at period end 2 3 5 5 5
Balance Sheet Data:
Cash and short-term investments $5,480.740 $5,379,645 $ 167,912
Total assets 9,231,998 9,470,586 10,724,285
Total liabilities 333,370 360,160 1,718,095
Total stockholders' equity 8,898,628 9,110,426 9,006,190
Book value per share 1.11 1.11 1.11
<F1>
(1) Represents historical consolidated income statement data and does not give effect to this
offering.
<F2>
(2) Earnings per share have been computed based upon weighted average shares of Common Stock
outstanding and Common Stock equivalent for the periods presented, adjusted for the stock
splits referred to in the Notes to the Consolidated Financial Statements.
<F3>
(3) Average assets under administration were estimated using mid year assets (July 1st of each
period).
</TABLE>
4
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements within
the meaning of the federal securities laws. Actual results could
differ materially from those projected in the forward looking
statements due to a number of factors, including those set forth
below and elsewhere in this Prospectus. In addition to the other
information in this Prospectus, the following factors should be
considered carefully in evaluating an investment in the shares of
Common Stock offered by this Prospectus.
History of Operating Losses. The Company has a limited operating
history having been first organized on October 27, 1987. ND
Capital began operating as a broker/dealer on December 9, 1988. ND
Money Management, Inc. began operating as an Investment Advisor on
November 21, 1988. ND Resources began operating as a Transfer
Agent on April 23, 1993. Prior to 1996, the Company experienced
net losses in four out of the previous five years and experienced
"losses before effect of a change in accounting principle" in each
of the previous five years. The Company has funded its activities
principally through the issuance of Common Stock. No assurance can
be given that the Company will be able to raise additional capital
in the future to finance the continuation of its activities.
Dependence on Key Clients. The Company presently provides mutual fund
administration and distribution services to six mutual funds
originally organized and initiated by the Company and three funds
originally organized by The Ranson Company, Inc. (the "Funds").
These Funds have entered into contracts with the Company which
typically expire within one to three years. No assurance can be
made that the funds will remain clients of the Company upon
expiration or termination of the various administration and
distribution agreements. The loss of the Funds as Company clients
would have a material adverse effect on the Company. See
"Business-The Company's Affiliated Mutual Funds."
Dependence on Key Personnel. The Company is dependent in a large part
on the personal efforts of Robert E. Walstad, the President and
Chairman of the Board of the Company, and Peter A. Quist, Vice
President of the Company as well as a group of senior management
personnel. The loss or unavailability of any of these persons could
have a material adverse effect on the Company. The Company's
success will also depend on its ability to attract and retain
highly skilled personnel in all areas of its business. There can
be no assurance that the Company will be able to attract and retain
personnel on acceptable terms in the future. The Company has key
man insurance policies on Mr. Walstad in the amount of $1,000,000,
and Mr. Quist in the amount of $500,000. Loss of any of these
individual's services would likely have a materially adverse effect
on the Company's business. See "Management."
Effect on Market Price of Shares Eligible for Future Sale. In the event a
public market for the Company's Common Stock should develop, sales
of substantial amounts of Common Stock in the public market after
this offering could adversely affect the prevailing market price of
the Common Stock. After the consummation of this offering,
10,670,005 shares of Common Stock will be outstanding. All of such
shares will be available for immediate re-sale in the public
market, unless owned by an "affiliate" of the Company. If these
shareholders cause a large number of their shares to be sold, such
sales might, in the event a market should develop, have an adverse
effect on the market price for the Common Stock. See "Description
of Capital Stock" and "Shares Eligible for Future Sale."
Absence of Dividends. Presently, the Board of Directors intends to
retain future earnings to finance the development of the Company's
business and does not intend to declare or pay dividends on its
Common Stock. See "Dividend Policy."
Compliance Requirements and Regulatory Penalties for Noncompliance. Various
aspects of the Company's business are subject to federal and state
regulation as well as "self regulatory" authorities which,
depending on the nature of any noncompliance, may result in the
suspension or revocation of licenses or registration, including
broker/dealer, investment advisor and transfer agent licenses and
registrations, as well as the imposition of civil fines and
criminal penalties. Failure by the Company or any of its employees
to comply with such regulations or with any of the laws, rules or
regulations of Federal, State or industry authorities (principally
the NASD and SEC) could result in censure, imposition of fines or
other sanctions, including revocation of the Company's right to do
business or
5
<PAGE>
in suspension or expulsion from the NASD. Any of the foregoing
would have a materially adverse effect upon the Company. Such
regulations are designed primarily for the protection of the
investing customers of securities firms rather than the Company's
shareholders. Finally, there is no assurance that the Company,
along with other fund sellers, administrators and managers will not
be subjected to additional stringent regulation and publicity which
may adversely affect its business. In the securities industry, in
recent years, there has been an increased incidence of litigation,
including court litigation, arbitration and enforcement or
disciplinary proceedings by regulators. See "Regulations."
Termination of Management Contracts on Assignment. Under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), the
distribution agreements between the Funds and the Company's
subsidiaries terminate automatically upon their assignment. The
term "assignment" includes direct assignments as well as
assignments which may be deemed to occur, under certain
circumstances, upon the transfer, directly or indirectly, of a
controlling block of the Company's voting securities. The
Investment Company Act presumes that any transfer of more than 25%
of the voting securities of any person represents a transfer of a
controlling block of voting securities. The Company does not
believe that the transactions contemplated by this offering will
result in an "assignment" of the distribution or administration
agreements. If, at any time, the distribution and administration
agreements are deemed to be terminated as a result of an
"assignment," and the Company or the Company's subsidiaries are
unable to enter into new distribution and administration
agreements, the assignments could have a materially adverse effect
on the Company's business. See "Regulations-Regulation of the
Company's Business."
Regulatory Penalties for Failure to Maintain Minimum Net Capital Requirements.
The SEC's Net Capital Rule imposes minimum financial requirements
for broker/dealers. The Net Capital Rule places limits on certain
of ND Capital and Ranson Capital operations, such as underwriting
activities, market-making and other principal trading activities.
A decrease below minimum net capital required for ND Capital and
Ranson Capital could force such broker/dealers to suspend
activities pending recovery of net capital. Factors which affect
ND Capital and Ranson Capital net capital include the general
investment climate as well as the ability of the Company to obtain
any assets necessary to contribute equity capital to its wholly-
owned subsidiary. Although both ND Capital and Ranson Capital
currently have sufficient net capital, should the Company's
liquidity be impaired substantially as a result of any factor and
additional net capital become necessary, the continued operation of
ND Capital and/or Ranson Capital could be restricted or suspended.
See "Regulations-Net Capital."
Absence of Public Market. Prior to this offering there has been no
public market for the Company's securities. There can be no
assurance that a market will develop at the conclusion of the
offering or that if developed, it will be sustained. Purchasers of
the securities, therefore, may have difficulties in selling their
securities should they desire to do so.
Risks of Low Priced Stocks. There is currently no public market for
the Company's Common Stock. After completion of this offer, the
Company intends to file an application for quotation on the NASDAQ
Small Cap Market. There can be no assurance that the NASDAQ will
approve the Company's application.
A summary of the financial requirements for initial quotation on
the NASDAQ Small Cap Market, and maintenance of such quotation,
follow:
<TABLE>
<CAPTION>
Attribute Initial Quotation Maintenance
_______________________________ _________________ ___________
<S> <C> <C>
Total Assets $4,000,000 $3,000,000
Total Stockholders Equity $3,000,000 $1,000,000
Registration Under Section 12(g)
of the Securities Exchange
Act of 1934 or Equivalent Yes Yes
Public Float (Shares) 1,000,000 1,000,000
Market Value of Public Float $1,000,000 $ 200,000
Stockholders 300 300
Minimum Bid Price $ 3.00 $ 1.00
Number of Market Makers 2 2
</TABLE>
6
<PAGE>
Presently, the Company meets all of the requirements with the
exception that since the Company's Common Stock is not currently
traded, there are no market makers, no bid price, and no public
float. No assurance can be made that a market will develop for the
Company's stock, that the minimum bid price will be met, or that
the Company will continue to meet the other requirements of
quotation. Until such time as the Company's application is
approved and the Common Stock is quoted on the NASDAQ's Small Cap
Market, trading in the Common Stock, should a market develop, would
be conducted in the over-the-counter market in the so-called "pink
sheets" or the NASD's "Electronic Bulletin Board."
In the absence of a security being quoted on NASDAQ, or the Company
otherwise qualifying for exclusion from penny stock restrictions,
trading in the Common Stock is covered by Rule 15g-2 through 15g-9
promulgated under the Securities Exchange Act of 1934 for non-
NASDAQ and non-exchange listed securities. Generally, penny stock
is a security that is priced under five dollars, is not traded on
a national stock exchange and/or that has under $2 million in net
tangible assets and has not been in business for at least three
years.
Under the rules regarding penny stocks, a broker/dealer must
furnish customers substantial disclosure and formal written notice
prescribed by the Securities and Exchange Commission in connection
with the sale of a penny stock. The disclosures must be furnished
to the customer orally prior to any sale and in writing promptly
regarding bid and offer price quotes for the penny stock, the
brokerage firm
s compensation, compensation received by the brokerage firm's
salesperson, and the written form required by the Securities and
Exchange Commission entitled "Important Information on Penny
Stocks." This document contains cautionary language regarding
penny stocks and the manner in which they are purchased. In
addition, a broker/dealer must qualify a customer for purchase of
penny stock if the customer is not an established customer.
Furthermore, a broker/dealer must approve a customer's account for
transactions in penny stocks by, among other things, reasonably
determining whether the purchase of penny stock is suitable for the
customer and obtaining the customer's signed agreement to the
transaction(s).
If the Company's securities are subject to the existing rules on
penny stocks, the market liquidity for the Company's securities can
be expected to be severely affected by limiting the ability of
broker/dealers to sell the Company's securities and the ability of
purchasers in this offering to sell their securities in the
secondary market. Consequently, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the
price of the Company's Common Stock than if it were listed on
NASDAQ Small Cap Market or National Market System.
Sensitivity to Changes in Market Conditions. The Company's revenues, like
those of other firms in the fund management and mutual fund
brokerage industry, are directly related to fluctuations in
quantity of investment in mutual funds and price levels of funds
under management. A significant portion of the Company's earnings
are generated from fees based on the average daily market value of
the assets the Company administers for its clients. A rapid change
in interest rates or a sudden decline in the bond markets could
influence an investor's decision whether to invest or maintain an
investment in a bond based mutual fund. As a result, fluctuations
may occur in assets which the Company has under administration due
to changes in interest rates and other investment considerations.
A significant investor trend seeking alternatives to mutual fund
investments could have a negative impact on the Company's revenues
by reducing the assets it administers. From time to time, the
Company has waived, and in the future for competitive reasons, may
waive certain fees normally charged to mutual funds to which it
provides services.
Economic Business Risks Outside the Company's Control. The Company's
mutual fund management business is subject to various risks and
contingencies, many of which are beyond the ability of the Company
to control. These risks include economic conditions generally and
in particular those affecting bond and securities markets, interest
rates, discretionary income available for investment; customer
inability to meet payment or delivery commitments; customer fraud;
and employee misconduct and errors.
Existing and Potential Competition. The Company encounters intense
competition in all aspects of its business and competes directly
with many other securities firms and mutual fund managers, a
significant number of which offer their customers a more extensive
range of financial services, have substantially greater financial
resources and may have greater operating efficiencies. While it is
not
7
<PAGE>
possible to predict the type and extent of competitive services
which banks and other institutions ultimately may offer to
customers, the Company may be adversely affected to the extent
those services are offered on a large scale. See
"Business-Competition."
Potential Bank Competition. The Glass-Steagall Act, among other
things, prohibits banks from engaging in the underwriting, public
sale or principal distribution of and dealing in securities. Bank
holding companies (either directly or through their bank or non-
bank subsidiaries), however, are generally permitted to purchase
and sell securities, as agent, upon the order and for the account
of their customers. Federal bank regulatory agencies, including
the Office of the Comptroller of the Currency (the "OCC"), have by
regulatory interpretations, allowed banks to provide a wide variety
of services to mutual funds, including investment advisory,
administration, shareholder servicing, custodial and transfer
agency services. If current restrictions under the Glass-Steagall
Act were relaxed and banks were authorized to organize, sponsor and
distribute shares of an investment company, it is possible that
national, regional or local banks would consider the possibility of
performing some or all of the services presently provided by the
Company. Should such an event occur, it could have a material
adverse impact on the Company's business operations. See
"Business-Competition."
Arbitrary Offering Price. The public offering price of the Shares
offered hereby was negotiated between the Company and the
Underwriter Financial Advantage Brokerage Services, Inc. It does
not necessarily bear any relationship to the assets, operating
results or book value of the Company or other recognized
measurements of value. See "Underwriting."
The Company's Lack of Participation in the Market. The Company's
broker/dealer subsidiaries will not participate in the offering.
After the distribution of the Shares is completed, neither ND
Capital, Inc. nor Ranson Capital Corporation will engage in market
making activities in the Company's securities except on an
(unsolicited) agency basis, for its customers, and not as a
principal. The prices and liquidity of the securities may be
significantly affected by the degree, if any, of these firm's lack
of participation in the market. After the distribution of the
Shares, neither ND Capital, Inc. nor Ranson Capital Corporation
will make any recommendations with respect to the Company's
securities.
No Minimum Sale Requirement or Purchase Commitment Offering. The
Underwriter shall use its best efforts in the sale of the Shares,
but there is no commitment by the Underwriter or any other person
to purchase the Shares offered hereby. Consequently, the Company
can give no assurance that any of the best efforts Shares offered
hereby will be sold. Although there is no minimum proceeds the
Company must receive to continue its business, its opportunities
for expansion in the mutual fund industry will be diminished to the
extent less than the 2,546,419 Shares offered by the Company are
sold. If the minimum offering is not sold the Company may be
required to seek alternative capital sources such as bank
borrowing, debt offering or other sources of funding. See
"Underwriting" and "Use of Proceeds."
Broad Discretion in Use of Proceeds. A significant portion of the
proceeds of this offering have only been generally allocated.
Specific applications of proceeds will be in the sole discretion of
management. See "Use of Proceeds" and "Management."
Dilution. The initial public offering price is substantially higher
than the net tangible book value per share of Common Stock.
Investors purchasing shares of Common Stock in this offering will
therefore incur immediate and substantial net tangible book value
dilution. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,546,419
shares of Common Stock offered hereby are estimated to be
$7,921,220, based on an assumed initial public offering price of
$3.50 per share and after deducting estimated underwriting
discounts and commissions and offering expenses. The Company
intends to use such estimated net proceeds for general corporate
purposes, in the following order of priority (i) 80% of the net
proceeds will be used in developing mutual fund assets under its
management and increasing its mutual fund base, including gaining
management of other unaffiliated compatible mutual funds through
purchase or merger with other existing mutual fund managers, (ii)
10% of the net proceeds will be used to increase assets under
management in existing affiliated mutual funds through payments of
brokerage commissions to selling brokers of the affiliated
8
<PAGE>
deferred load mutual funds, and (iii) 10% of the net proceeds will
be allocated to potential acquisitions of related businesses. The
Company currently has no material commitments or agreements with
respect to any such transactions and is not involved in any
discussions with respect to acquisition transactions. Pending such
uses, the Company intends to invest the net proceeds from this
offering in short-term, investment-grade, interest-bearing
instruments. The Company will not receive any of the proceeds from
the sale of shares of Common Stock by the Selling Shareholders.
DILUTION
The net tangible book value of the Company at December 31, 1996 was
approximately $(853,544) or $(.11) per share of Common Stock. The
vast majority of the Company's assets are intangible rights related
to contracts to manage mutual fund assets.
Pro forma net tangible book value per share is determined by
dividing the net tangible book value (tangible assets less
liabilities) of the Company by the number of shares of Common Stock
outstanding at that date, (8,123,586 shares) such total excludes
the potential exercise of stock warrants currently outstanding.
Without taking into account any other changes in net tangible book
value after December 31, 1996 other than to give effect to the sale
by the Company to the public of 2,546,419 shares of Common Stock
hereby at an assumed initial public offering price of $3.50 per
share of Common Stock, pro forma net tangible book value so
calculated equals $.82. This represents an immediate increase in
net tangible book value of $0.93 per share to existing stockholders
and an immediate dilution of $2.57 per share to investors
purchasing Common Stock in this offering. The following table
illustrates this dilution on a per share basis:
Per Actual
December 31, 1996
Company Balance Sheet
______________________
Assumed initial public offering price $ 3.50
Net tangible book value at
December 31, 1996 $(0.11)
Increase in net tangible book value
attributable to the sale by the
Company of the shares of Common Stock
offered hereby $ 0.93
Pro forma net tangible book value after
this offering $ 0.82
Dilution to new stockholders $ 2.57
There are 1,050,000 shares of Common Stock issuable upon exercise
of outstanding warrants at a weighted average exercise price of
$1.62 per share. To the extent that the shares available for
issuance upon exercise of outstanding warrants are issued, there
would be a reduction in net tangible book value dilution per share
to new investors.
The following table summarizes, on a pro forma basis, the
differences between (i) the number of shares of Common Stock which
the current officers, directors and affiliated persons have
acquired since inception of the Company, (ii) the number of shares
of Common Stock to be purchased from the Company by new investors
in this offering, (iii) the total cash consideration paid, and (iv)
the average purchase price per share (before deducting the
underwriting discounts and commissions and expenses of this
offering):
Offering - (2,546,419 shares of Company stock)
<TABLE>
<CAPTION>
Shares Total Considerations Average
___________________ _____________________ Purchase
Price
Number Percent Amount Percent Per Share
__________ _______ ___________ _______ _________
<S> <C> <C> <C> <C> <C>
Affiliated Stockholders 364,580 3.4% $ 326,429 1.7% $ .90
Unaffiliated Existing Stockholders 7,748,362 72.7% 10,274,000 52.7% 1.33
New Investors 46,419 23.9% $ 8,912,466 45.6% 3.50
Total 10,659,361 100.0% $19,512,895 100.0%
</TABLE>
9
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1995 (actual) and as adjusted for this offering.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1996
_________________ _________________
Actual As Adjusted
_________________ _________________
<S> <C> <C>
Common Stockholders equity:
20,000,000 shares No Par
Common Stock authorized,
issued and outstanding:
8,181,751 (actual) and
10,670,005 (as adjusted)
respectively(1) $10,633,367 18,554,587
Retained earnings
(accumulated deficit) (1,627,177) (1,627,177)
___________ __________
Total Common Stockholders'
equity 9,006,190 16,927,410
___________ __________
Total capitalization 9,006,190 16,927,410
<FN>
(1) Excludes 1,050,000 shares of Common Stock issuable upon
exercise of warrants currently outstanding.
</TABLE>
DIVIDEND POLICY
The Company does not anticipate paying any dividends on its Common
Stock in the foreseeable future. The Company intends to retain its
earnings to provide funds for the expansion of its business. The
Company's future policy with respect to dividends on the Common
Stock will be determined by the Board of Directors based upon
conditions then existing, including the Company's earnings and
financial condition, capital requirements and other relevant
factors. See "Description of Capital Stock" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Prior to acquisition of The Ranson Company, Inc. and Ranson Capital
Corporation, which occurred on January 5, 1996, the Company had
three wholly-owned subsidiaries through which it conducted its
operation. The three subsidiaries, all North Dakota corporations,
are ND Money Management, Inc., ND Capital, Inc., and ND Resources,
Inc. The Company (through its subsidiaries) markets, manages and
acts as transfer agent for the investment portfolios of mutual fund
entities affiliated with the Company. Percentage fees are based on
total assets of each fund managed.
The Company had eighteen full time employees as of December 31,
1996. The acquisition of The Ranson Company, Inc. on January 5,
1996 added three additional employees (retained employees of Ranson
Capital Corporation) included in the employee total.
The Company and its subsidiaries have an affiliation with the ND
Tax-Free Fund, Inc., the ND Insured Income Fund, Inc., the Montana
Tax-Free Fund, Inc., the South Dakota Tax-Free Fund, Inc., the
Integrity Fund of Funds, Inc., the Oklahoma Municipal Fund, the
Kansas Municipal Fund, the Kansas Intermediate Fund and the
Nebraska Municipal Fund. Revenues derived from services provided
to the affiliated mutual funds were $3,114,995 in 1996, $1,327,302
in 1995, and $1,077,089 in 1994. These revenues represent 100% of
the fee revenue of the Company. The Company, as well as various
subsidiaries, holds an investment in one or more of the Funds.
These investments produced $59,244 and $3,007 in dividend income
for 1995 and 1996, respectively. Because of the nature of these
relationships, the Company and its Subsidiaries are economically
dependent on the Funds for a majority of its current revenue.
10
<PAGE>
Since the Company's inception in 1987, revenues and assets under
administration have grown in each year. The Company's revenues
(exclusive of "other income") grew from $61,927 in fiscal 1990 to
$1,405,316 in fiscal 1995. Average assets under administration
grew from $15 million during fiscal 1990 to $120 million during
fiscal 1995. With the acquisition of The Ranson Company, the
Company's revenues reached $3,417,614 in 1996.
As a result of the acquisition of The Ranson Company, Inc.
completed on January 5, 1996, the Company is also the manager of
three additional funds, called the "Ranson Managed Portfolios".
Ranson Capital Corporation, a NASD member broker/dealer and the
investment advisor and manager for the three "Ranson Managed
Portfolios": the Kansas Municipal Fund, Kansas Insured
Intermediate Fund and the Nebraska Municipal Fund, is a subsidiary
of The Ranson Company (and now the Company). Ranson Capital
Corporation, as a wholly-owned subsidiary of the Company, continues
to act as the investment adviser and manager for the Ranson Managed
Portfolios. The Ranson Managed Portfolios provided an additional
managed asset base of approximately $184,000,000. As a result,
total assets managed by the Company now total in excess of
$334,000,000. The Company's largest expense category is
compensation and benefits. Included within this category are all
compensation-related costs (payroll, benefits, bonuses) for the
Company's entire staff as well as commissions paid to its sales
group. Although this expense has increased in the past due to the
establishment and expansion of the Company's marketing efforts, the
Company believes compensation expense should decrease over time as
a percentage of revenues, as the Company's asset base and revenues
derived therefrom expand to more efficiently utilize the Company's
capacity. Other operating expenses include facilities, legal and
accounting, consulting, communication expenses, registration
expenses and others. Other operating expenses are more fixed in
nature and should decrease, over time, as a percentage of revenues.
Expenses and losses recognized as a percentage of operating
revenues and other income have decreased for each full fiscal year
since the Company's inception. The Company has benefitted from its
growth in that expenses have not increased at the same rate as
revenues due to economics of scale. Because the Company has
increased its personnel to meet the growth of its funds, the
Company's largest expense category has been employee compensation
and benefits. The Company started with two employees in 1987 and
had 18 employees as of December 31, 1996. Management of the Ranson
Managed Portfolios, acquired through the purchase of The Ranson
Company, Inc., which more than doubled the assets managed by the
Company, required retaining only three of Ranson Capital Company's
employees. All other duties relating to management of the Ranson
Managed Portfolios were assumed by existing Company employees. The
Company expects its pre-tax margins to increase over time as its
revenues and assets under administration grow more rapidly than
expenses. Despite increases in compensation and marketing expenses
in each period, the fixed components of total operating expenses
remained relatively constant.
The Company's basic source of income is from investment advisory
and management services provided to affiliated mutual funds. Fees
are based upon a percentage of total funds under management.
Management's plans for generating operating profits in the future
include continued growth and expansion of the existing Funds to
bring affiliated mutual fund assets under its management and
seeking through acquisition or contract to obtain management of
additional funds.
As a method of attracting investment in the three tax-free funds
mentioned above, the Company does not charge a front-end commission
to purchasers of the mutual funds. To bring funds under its
management, commission fees must be paid to brokers who sell the
"deferred load" mutual funds. These fees are the Company's cost of
bringing assets under its management. Since there is no front-end
sales charge on investments in these funds, the commissions paid to
brokers for selling the funds are recorded as deferred costs and
carried in the "Other Assets" section of the balance sheet. As of
December 31, 1996 these costs are carried as an asset on the books
of the Company in the amount of $3,059,344. These costs of
bringing assets under management are amortized to expense based on
the established deferred sales charge rates for redemption of
investments in these funds.
11
<PAGE>
Because the Company absorbs the cost of paying the current cost of
brokerage fees, during periods of expansion of the deferred load
mutual funds (such as occurred during the past three years)
substantially more cash is expended in paying the brokerage costs
to distribute the deferred load funds than is reported as expense
from amortization of the "deferred sales costs" account to which
such costs are capitalized. In the year ended 1996, $683,155 of
such brokerage fees were incurred and capitalized as "deferred
sales costs." In the same period, $454,050 of "deferred sales
costs recognized" was reported as an expense for 1996. This
expense resulted from the amortization of deferred sales costs
capitalized in previous years. Expensing, through amortization, of
deferred sales costs in any given year will not normally equal the
amount actually spent and capitalized to deferred sales costs in
that same year. In 1995, $826,131 of deferred sales costs was
capitalized while only $808,286 in amortization of deferred sales
costs were recognized as expense. As a result of this method of
reporting brokerage fees paid by the Company related to the
deferred load funds, reported financial information may not be
necessarily indicative of future operating results or of future
financial condition.
Operating Data
Revenues By Source
The nine Funds managed by the Company constitutes a material part
of Company's consolidated revenues.
The following table sets forth the amount and percentage of
revenues and other income from each principal source in the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
________________________________________________________
1996 1995 1994
__________________ __________________ __________________
Amount Percent Amount Percent Amount Percent
__________ _______ __________ _______ __________ ________
<S> <C> <C> <C> <C> <C> <C>
Interest and dividends $ 58,286 2% $ 314,253 20% $ 195,130 15%
Fee Income 3,114,995 90% 1,327,302 84% 1,077,089 85%
Commissions 302,619 9% 78,014 5% 53,062 4%
</TABLE>
The following table sets forth, for the periods indicated, selected
financial information expressed as a percentage of total revenues
and other income:
<TABLE>
<CAPTION>
Year Ended December 31,
______________________
1994 1995 1996
____ ____ ____
<S> <C> <C> <C>
Revenues and other Income 100% 100% 100%
Expenses and Losses Recognized
Compensation and benefits 47% 46% 21%
General and Administrative 34% 33% 42%
Other 55% 55% 29%
____ ____ ____
Total expenses 136% 134% 92%
____ ____ ____
Income (loss) before income tax benefit (36%) (34%) ( 7%)
Deferred income tax benefit (expense) 16% 10% 6%
____ ____ ____
Net Income (20%) (24%) 1%
==== ==== ====
</TABLE>
The following table sets forth, for the periods indicated, certain
operating data and the percentage change in such period of such
operating data derived from "Selected Consolidated Financial Data"
compared to the same period in the prior year period. There can be
no assurances that these trends will continue in the future.
12
<PAGE>
<TABLE>
<CAPTION>
Percentage Increase
Year Ended December 31, Year Ended December 31,
_________________________________ _______________________
1994 1995 1996
over over over
1994 1995 1996 1993 1994 1995
__________ __________ __________ ____ ____ ____
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $1,130,151 $1,405,316 $3,417,614 30% 24% 143%
Average assets under
administration
(in millions) $110 $120 $330 18% 9% 175%
Number of Funds 5 5 5
</TABLE>
Results of Operations
Twelve Months ended December 31, 1996 compared to twelve months
ended December 31, 1995.
1996 marked a year of dramatically increased revenues and, for the
first time in the Company's history, operating profits and positive
earnings. Total operating revenues for the twelve months ended
December 31, 1996 were $3,417,614 representing a 143% increase from
the $1,405,316 for the comparable period of 1995. Fee revenues
were $3,114,995 in January through December of 1996; (91% of
operating revenues) as compared to $1,327,302 for the twelve months
of 1995 (94% of operating revenue), representing a 135% increase
over the previous period. Commission income totaled $302,619 and
$78,014 for the years ended December 31, 1996 and 1995
respectively, an $224,605 increase (288%) between periods.
The increase in management fee revenues in the year ended December
31, 1996 from the same period in 1995 can be directly attributed to
the substantial increase in the funds under management resulting
from the acquisition of The Ranson Company, Inc. in January of
1996. Approximately $180,000,000 of assets managed by The Ranson
Company were brought under the Company's management on January 6,
1996. The Company's fees income is based upon assets under
management.
In spite of dramatic increases in revenues, expenses for year ended
December 31, 1996 increased only 57% from the same period of 1995
from $2,117,446 to $3,317,809. Compensation and benefits at
$589,399 and $758,864 respectively, comprise 28% and 23% of total
expenses for the 1995 and 1996 twelve month periods. Compensation
and benefits expenses increased 29% as compared to the same period
of 1995. The expansion of the family of Funds and amortization of
costs related to past accumulations of funds under management also
resulted in other expenses increasing over the previous year.
General and administrative expenses increased sharply as a result
of The Ranson Company acquisition and amortization related thereto
as well as activities of the Company related to registration of its
Common Stock. General and Administrative expenses increased 128%
from $664,084 in 1995 to $1,514,300 in 1996. Another significant
expense item is "deferred sales costs recognized." During the year
ended December 31, 1996 this amortization expense was $464,050
compared to $808,286 for the same period of 1995, a substantial
decrease. This decrease is a result of a change in the
amortization period from five years to nine years used to calculate
deferred sales costs recognized which reduced the amount of the
asset expensed each year. Interest expense increased substantially
from $27,948 to $161,197 as a result of debt incurred to purchase
The Ranson Company, Inc.
The Company's recorded "other income" income from interests and
dividends was reduced to $58,286 in the twelve month period ended
December 31, 1996 compared to $314,253 in the same period of 1995
because the Company's liquid assets were substantially reduced by
the purchase of The Ranson Company, Inc.
As a result of these factors, the Registrant reported net income
before income tax expense of $260,400 for the year ended December
31, 1996 versus a net loss of $535,461 for the comparable period of
1995.
13
<PAGE>
The Company places available cash in interest bearing demand money
market accounts, US Treasury Bonds, local government bonds and
mutual fund investments. As of December 31, 1996, the Company's
cash and cash equivalents totaled $167,912 ($2,820 in checking,
$165,092 in Dean Witter Money Market Accounts.)
The mutual fund securities and management advisory business is
subject to various inherent risks and contingencies, many of which
are beyond the Company's ability to control. The Company's
revenues, like those of other firms in the securities fund
management industry, are directly related to the amount and
stability of funds under management. Variations in amounts of
investment assets under management are the result of local,
regional, national and international economic, regulatory and
political conditions; broad trends in business and finance; and
interest rate fluctuations.
Twelve Months ended December 31, 1995 compared to twelve months
ended December 31, 1994.
1995 provided substantial growth in revenues and continuing
maturity of the Company. 1995 also marked a renewed emphasis upon
the acquisition in the Company's growth strategy.
Total operating revenues for the twelve months ended December 31,
1995 were $1,405,316 representing a 24% increase from the
$1,130,151 for the comparable period of 1994. Fee revenues were
$1,327,302 in January through September of 1995; (94% of operating
revenues) as compared to $1,077,089 for the twelve months of 1994
(94% of operating revenue), representing a 24% increase over the
previous period. Commission income totaled $78,014 and $53,052 for
the twelve months ended December 31, 1995 and 1994, respectively,
a $24,952 (47%) increase between periods. The increase in
management fee revenues in the calendar year of 1995 from the same
period in 1994 can be directly attributed to the growth of the
Funds upon which the fees are based.
Operating expenses for the year ended December 31, 1995 increased
24% from the same period of 1994 from $1,704,251 to $2,117,446.
Compensation and benefits at $616,773 and $725,902, respectively,
comprise 36% and 34%, of total expenses for the 1994 and 1995
twelve month periods. Compensation and benefits expenses increased
18% as compared to the same period of 1994. The expansion of the
family of Funds and past accumulations of funds under management
also resulted in other expenses increasing over the previous year.
The most significant expense item is "deferred sales costs
recognized." During the year ended December 31, 1995 the expense
was $808,286 compared to $549,835 for the same period of 1994.
This "non-cash" expense is a result of commissions on sales of
mutual funds paid by the Company in prior years in order to offer
no front-end load funds to mutual fund customers. Sales
commissions paid to brokers by ND Capital, Inc. (a subsidiary) in
connection with the sale of shares in the Funds (ND Tax-Free Fund,
Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc.
and Integrity Fund of Funds, Inc.,) are capitalized and amortized
over five years. This approximates the period of time during which
deferred sales commissions may be recovered from contingent
deferred sales charges collected from redemptions by shareholders
of the deferred load funds.
The maximum contingent deferred sales charge ("charge") which may
be assessed upon redemptions of shares is 4%. A charge is assessed
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:
Year of Purchase 1 2 3 4 5 6 & Following
___________________ __ __ __ __ __ _____________
Contingent Deferred
Sales Charge 4% 4% 3% 2% 1% 0
These redemption fee calculations are based upon the lesser of the
original purchase price of the customer's shares or the value of
the shares on the day of redemption. In the event a redeeming
customer's investment has increased in value at the time of
redemption, the redemption fee will be
14
<PAGE>
based upon the original purchase price. If a redeeming customer's
investment has decreased in value, the redemption fee will be based
upon the current value of the customer's investment on the day of
redemption. In the event that a redeeming customer's investment
has declined in value from the original purchase price, the
Registrant's redemption fee, which, is in such instance, based upon
the current value, will be proportionally less than the Registrant
would have received if the value of the customers investment had
remained constant or increased in value.
Redemption fees earned by the Registrant were $42,436 in 1993,
$61,346 in 1994 and $122,018 in 1995.
To best match the contingent deferred sales charge schedule,
deferred sales costs are amortized to expense using the following
schedule:
After year Rate
__________ ____
1 0%
2 25%
3 25%
4 25%
5 25%
100%
Registrant recorded "other income" income from interest and
dividends of $314,253 in the year ended December 31, 1995 compared
to $195,130 in the same period of 1994. Investment related losses
reduced the 1995 period's "other income" to $176,669 compared to
$96,724 in 1994.
As a result of these factors, the Registrant reported a net loss
before income tax benefit and cumulative effect adjustment of
$535,461 for the year ended December 31, 1995 versus a net loss of
$477,346 for the comparable period of 1994.
Effect of Acquisition of The Ranson Company, Inc.
Based upon pro forma information compiled to relate back the effect
of the acquisition of The Ranson Company, Inc. on January 5, 1996,
to the twelve month period ended December 31, 1995, revenues for
the twelve month period would increase approximately $771,657 while
operating expenses would increase approximately $512,803 before
amortization expense related to the acquisition, which amortization
expense would have increased $363,300, all directly as a result of
the acquisition of The Ranson Company, Inc. Additionally, deferred
income tax benefit is reduced by approximately $100,000.
Twelve Months ended December 31, 1994 compared to twelve months
ended December 31, 1993.
1994 was a year of positive growth and development as the Company
greatly expanded its invested equity base and matured as an
operating entity. Assets under management increased $17,000,000,
reaching $110,000,000 by July 1, 1994.
Total operating revenues for the 12 months ended December 31, 1994
were $1,130,151 representing a 31% increase from the $865,755 for
the comparable period of 1993. Fee revenues were $1,077,089 in
1994; (95% of operating revenues) as compared to $813,402 for the
12 months of 1993 (94% of operating revenue), representing an 32%
increase over the previous year. Commission income totaled $53,062
and $52,353 for the 12 months ended December 31, 1994 and 1993,
respectively, an insignificant 1% increase between periods.
The increase in management fee revenues from 1993 can be directly
attributed to the growth of the Funds together with management's
policy of continuing expansion of Company's mutual fund family.
15
<PAGE>
In early 1994, the South Dakota Tax-Free Fund was introduced and by
year's end a new fund, Integrity Fund of Funds, Inc., was ready for
market. A three-fold benefit can be realized on organization of
new mutual funds; first, in certain conditions, initial fees and
commissions can be generated upon the successful organization and
distribution of an offering by the Company's broker/dealer
subsidiary; second and more important, there are substantial
management fees generated from operation and management of the fund
assets by the Company's Investment Advisor subsidiary.
Additionally, transfer fees and clerical fees are generated in the
transfer agent subsidiary.
Operating expenses for the 12 months ended December 31, 1994
increased 38% from the same period of 1993 from $1,239,151 to
$1,704,251. Compensation and benefits at $444,248 and $616,773
respectively, comprise 36%, of total expenses for both the 1993 and
1994 periods. Compensation and benefits expenses increased 39% as
compared to the same period of 1993, consistent with a similar
increase in management fees revenue.
Compensation and benefits include salaries and wages as well as
commissions paid to associated registered representatives. In
order to accommodate the increase in operational activities, two
additional employees were added in 1994, increasing the number of
employees from 13 to 15. Total salaries increased $117,466. This
increase was attributable to the two additional employees and
raises for existing employees in compensation of increased
responsibility and workload. Commissions paid to registered
representatives increased $55,059, this expense partially relates
to annual commission payments to registered representatives based
upon average net asset values of funds under management. Total
remuneration to Officers and Directors of the Company dropped
slightly from $235,764 in 1993 to $233,911 in 1994. As management
fee income increases as a result of volume increases in funds under
management, compensation and benefits expense increase in order to
provide services to the higher volume of funds.
The expansion of the family of Funds and past accumulations of
funds under management also resulted in other expenses increasing
over the previous year. The most significant expense item is
"deferred sales costs recognized." The 1994 expense was $549,835
compared to $318,425 for 1993.
As a result of the large increase in invested equity by the
Company's shareholders, the Company recorded "other income" from
interests and dividends of $195,130 in 1994 compared to $41,317 in
1993. Investment related losses reduced 1994's "other income" to
$96,724 compared to $34,741 in 1993.
As a result of these factors, the Company reported a net loss
before income tax benefit and cumulative effect adjustment of
$477,376 for the 12 months ended December 31, 1994 versus a net
loss of $338,655 for the comparable period of 1993.
Financial Condition
As of December 31, 1996, the Company's current assets represented
approximately 9% of total assets. Stockholders' equity as of
December 31, 1996 was approximately $9,006,190 million, a decrease
of $104,236 or 1% since December 31, 1995. Such decrease was due
to repurchase of the Company's Common Stock from investors electing
rescission during the fourth quarter of 1996.
A number of significant changes are noted in the financial
information accompanying this prospectus, substantially all of
which are as a result of the purchase of The Ranson Company, Inc.
From December 31, 1995 to December 31, 1996, total current assets
decreased approximately $4,416,429. Net equipment increased
$294,286. New intangible assets consisting of capitalized
investment advisor's agreements of $5,734,310 and $300,000
attributable to non complete covenants (before amortization) are
recognized. With respect to liabilities, current liabilities
increased by $342,854 and long term liabilities increased by
$1,015,081 from 1995 to 1996, also as a result of the purchase of
The Ranson Company.
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<PAGE>
Liquidity and Capital Resources
The Company's most liquid assets are cash and cash equivalents.
The levels of these assets are dependent on the Company's
operating, financing and investing activities during any given
period.
Cash and cash equivalents at September 30, 1996 totaled $434,732.
The Ranson Company, Inc. Acquisition Effect Upon Liquidity and Capital
Resources
The cost to the Company of the acquisition of The Ranson Company,
Inc. on January 5, 1996 was approximately $6,196,403. $5,083,274
was paid directly to The Ranson Company, Inc. shareholders on
January 5, 1996 and $1,113,129 was placed in escrow until July 3,
1996. $4,696,403 of the $6,196,403 purchase price came from cash
and cash equivalents held by the Company. $1,500,000 of the
purchase price was borrowed on a short term note obtained January
5, 1996.
The Rescission Offer Effect on Liquidity and Capital Resources
With a registration statement effective August 29, 1996 the
Company, registered Common Stock for re-offer and re-sale pursuant
to the US Securities Act of 1933 in connection with rescission of
the unregistered Common Stock sold between September 1, 1992 and
March 9, 1995. Purchasers who purchased between September 1, 1992
and March 9, 1995 (Common Stock totaling 4,859,207 shares) were
offered the option of electing to revoke their ownership of the
Company and receive from the Company such purchaser's cash paid for
the unregistered Common Stock, plus accrued interest at the legal
rate in the state of purchase, or rescind the original purchase and
receive registered Common Stock offered hereby on a one share for
one share basis.
The rescission offer period ended October 12, 1996.
Only five (5) persons offered the cash rescission option accepted
such offer, a total of $139,737 in cash was paid to such rescinding
shareholders for a total of 66,165 common shares. 4,793,042 shares
of registered Common Stock were exchanged for the equivalent
4,793,042 shares of unregistered Common Stock.
Cash and cash equivalents at December 31, 1996, 1995, and 1994
consist of the following:
<TABLE>
<CAPTION>
Amount
_______________________________
Current
Current Interest
Maturity Rate 1996 1995 1994
________ ________ ________ __________ __________
<S> <C> <C> <C> <C> <C>
Cash in checking Demand - $ 2,820 $ 4,199 $ 3,934
Dean Witter Money
Market Accounts Demand 4 to 5% 165,092 4,890,639 1,156,129
________ __________ __________
$167,912 $4,894,838 $1,160,063
======== ========== ==========
</TABLE>
The Company had no investments on its balance sheet on December 3,
1996.
Investments and their balance sheet classification at December 31,
1995 are as follows:
<TABLE>
Investment Securities
_____________________
<CAPTION>
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
_________ __________ __________ _________
<S> <C> <C> <C> <C>
Securities available-for-sale:
Mutual fund investments $301,000 $21,900 $ - $322,900
======== ======= ====== ========
</TABLE>
17
<PAGE>
Investments and their balance sheet classification at December 31,
1994 are as follows:
<TABLE>
Investment Securities
_____________________
<CAPTION>
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
___________ __________ __________ __________
<S> <C> <C> <C> <C>
Securities available-
for-sale:
South Dakota municipal
bonds $ 100,000 $ - $ 16,000 $ 84,000
Mutual fund investments 1,492,870 - 109,272 1,383,598
__________ ______ ________ __________
$1,592,870 $ - $125,272 $1,467,598
========== ====== ======== ==========
</TABLE>
The Company's statements of financial condition reflect a
sufficiently liquid financial position as cash and assets readily
convertible to cash represent over 57%, 57% and 5% of total assets
at December 31, 1994, 1994, and 1996, respectively.
As of December 31, 1996, the Company had no trading securities.
Since its inception until the first quarter of 1995, the Company
financed its growth in operations and costs related to expansion of
assets under its management primarily with funds generated from
sales of stock in the Company and to a much lessor extent, long-
term debt in the form of investment certificates. Sale of the
Company's stock and investment certificates ceased in the first
quarter of 1995.
As a registered broker/dealer, ND Capital, Inc. and Ranson Capital
Corporation, subsidiaries of the Company, are subject to the
Uniform Net Capital Rule of the Securities and Exchange Commission
(the "SEC"), which requires the maintenance of minimum net capital,
as defined in Rule 15c3-1 of the Exchange Act. The Company's
wholly-owned broker/dealer subsidiaries had net capital which
exceeded their net capital requirements on December 31, 1995.
Management believes that existing capital when combined with the
additional funds generated from operations will provide the Company
with sufficient resources to meet present cash and short term
capital needs.
Analysis of Consolidated Cash Flows
The Company's growth in assets over its lifetime has been the
result of cash provided by the sale of the Company's Common Stock.
The Company has generated cash from financing activities in the
fiscal years 1994 and 1995 of $4,074,392 and $426,687,
respectively. The Company ceased sales of Common Stock in the
first quarter of 1995. In each period, the Company invested a
portion of its cash flow in capitalized "Deferred Sales Cost," the
Company's cost of commissions "fronted" to bring mutual fund assets
under its management.
For fiscal 1994, the Company generated $697,167 in positive cash
flow. Operating activities required cash totaling $3,457,919,
largely the result of a net increase in trading securities of
$2,679,507. Investing activities resulted in positive of cash flow
totaling $80,694. Financing activities raised $4,074,392 in cash
for the Company.
For fiscal 1995, the Company's activities generated an increase of
$3,734,775 in cash and cash equivalents. Operating activities
generated net cash of $2,138,401, principally as a result of a
$2,674,000 decrease in trading securities. Investing activities
generated an additional $1,169,687 in cash, principally as a result
of sales of available-for-sale securities. $426,687 was raised
from financing activities. Financing activities ceased in the
first quarter of 1995.
For fiscal 1996, the Company utilized $4,726,926 of available cash.
Operating activities generated cash totaling $447,856 principally
as a result of substantially increased revenues. Investing
activities
18
<PAGE>
resulted in a use of cash totaling $6,026,116 principally from
purchase of The Ranson Company. Financing activities resulted in
cash totaling $851,334, principally due to increase in notes
payable.
The substantial build up of cash and cash equivalents at the year
ended December 31, 1995 was for the purpose of funding the
acquisition of The Ranson Company, Inc. which acquisition took
place on January 6, 1996.
Although the Company has relied upon sales of its Common Stock for
its past liquidity, management believes that its current liquid
position will be sufficient to meet the short and intermediate term
financing needs of the Company based on its present and anticipated
future operations.
Impact of Inflation and Changing Prices
The financial statement and accompanying notes appearing elsewhere
herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars
without considering the changes in the relative purchasing power of
money over time due to inflation. Significant assets of the
Company are monetary in nature. As a result, interest rates may
have a greater impact on the Company's performance than do the
effects of the general level of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the
prices of goods and services.
The Company's assets are primarily intangible in nature (investment
advisor's agreements) and therefore not significantly affected by
inflation. The Company's management believes that the cost of
replacing furniture, equipment and leasehold improvements would not
have a material effect on operations. However, the rate of
inflation may have a significant effect on employee, communications
and occupancy costs, which may not be readily recoverable in the
price of services offered by the Company.
The Company is not subject to significant seasonal fluctuations.
Impact of New Accounting Standards
Accounting for Investments
In 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115 for valuing its investment securities. At
December 31, 1996, investment securities that were held for short-
term resale are classified as trading securities and carried at
fair value. Other marketable securities are classified as
available-for-sale and are carried at fair value. Realized and
unrealized gains and losses on trading securities are included in
net income. Unrealized gains and losses on securities available-
for-sale are recognized as direct increases or decreases in
stockholders' equity. Cost of securities sold is recognized using
the specific identification method.
As a result of the adoption of SFAS No. 115, the stockholders
equity section of the Company's balance sheet was reduced by a
total of $125,272, in the added category of "Unrealized loss on
securities available-for-sale" at December 31, 1994 and increased
by $21,900 a calculation of unrealized gain on securities
available-for-sale at the year end December 31, 1995.
Pursuant to the requirements of SFAS No. 115 stockholders equity
was reduced by $16,532, to account for the cumulative effect on
prior years of the initial application of SFAS No. 115 and an
additional $108,740 reduction in stockholders equity for the year
ended December 31, 1994.
Accounting for Income Tax
The Company files a consolidated income tax return with its wholly-
owned subsidiaries. In 1994, the Company adopted the Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for
19
<PAGE>
Income Taxes, and has retroactively applied the change in its
method of accounting for income taxes to the 1993 financial
statements.
Effective January 1, 1993, the Company retroactively changed its
method of accounting for income taxes to conform with the
requirements of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. Under the provisions of SFAS No.
109, an entity recognizes deferred tax assets and liabilities for
future tax consequences of events that have already been recognized
in the Company's financial statements or tax returns. The
measurement of deferred tax assets and liabilities is based on
provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. The 1993 financial
statements have been restated to reflect this change. The effect
of the change increased the deferred tax benefit and increased net
income by $674,500 for the year ended December 31, 1993 as follows:
Cumulative effect on years prior
to January 1, 1993 $ 539,500
Effect of the 1993 net operating loss 135,000
Total increase to net income reported for
the year ended December 31, 1993 $ 674,500
The increase in the deferred tax benefit for the year ended
December 31, 1994 has been calculated on that year's net operating
loss for tax purposes of approximately $530,000 ($530,000 x 39% =
$205,500).
The increase in the deferred tax benefit for the year ended
December 31, 1995 has been calculated on that year's net operating
loss for tax purposes of approximately $416,000 ($416,000 x 39% =
$162,400).
The deferred tax benefit totaling $803,142 has been calculated on
approximately $2,063,000 of net operating losses due to expire
between the years 2005 through 2010.
Realization of the deferred tax benefit is dependent upon the
Company recognizing sufficient future taxable income (taxable at an
effective rate of approximately 35%) prior to the expiration of the
net operating losses. The Company's Net Operating Losses are
scheduled to expire between 2005 and 2010.
Recognition of this deferred tax asset requires an assumption that
the Company will, in the future, achieve taxable income sufficient
to realize the stated potential of this contingent offset against
future income. Since its inception until the current year ended
December 31, 1996, the Company has not achieved any taxable income.
The realization of this deferred tax asset is dependent upon
substantial improvements over the present level of pre-tax income.
No valuation adjustment has been made to the deferred tax asset.
Management's forecast of operating results contained in their
internal business plan indicates positive future earnings adequate
to absorb the net operating loss carryforwards within the
expiration periods. The major factor generating the net operating
losses to date has been the amortization of capitalized deferred
sales costs to expense. These costs represent commissions paid to
brokers for investments made in the Funds under management by the
Company that don't have a "front end" load. A majority of the
unamortized costs will be amortized to expense in the next few
years. This coupled with the slowdown in Fund growth (thereby
reducing amortization amounts on new commissions paid) should
create positive net results in the near future. It is management's
belief that significant cost savings will be realized by the
combination of management for all Funds as compared to costs of
separately managing the Ranson Funds and the ND Holdings Funds.
This will be especially true in the administrative and general
overhead expense areas since they are indirect costs that are being
duplicated by both entities in their
20
<PAGE>
operating results prior to the acquisition. Furthermore, since the
acquisition of The Ranson Company, Inc. by the Company is a stock
purchase, the portion of the purchase price allocated to
intangibles is not deductible or amortizable for income tax
purposes. Consequently, the Company will report significantly
greater operating results for income tax purposes than for
financial reporting purposes. Based on the preceding factors, it
is management's belief that, more likely than not, the Company's
net operating loss carryforwards will be realized before their
corresponding expiration periods and that no adjustment should be
made to the value of the net deferred tax asset.
Change in Accounting Estimate
The Company has changed its period for amortizing deferred sales
commissions from the contingent deferred sales charge period of
five years to nine years. The change in the amortizable life of
the deferred sales commissions is based on the period of time
during which deferred sales commissions are expected to be
recovered from distribution plan payments and management's estimate
of the average life of investors' accounts in the Company's
sponsored mutual funds. Contingent deferred sales charges received
by the Company directly reduce the value of the deferred sales
commissions asset. The net affect of the change on the net income
for the year ended December 31, 1996 before income tax is an
increase of $356,243, which will decrease future earnings by the
same amount.
BUSINESS
General
Description of Business.
The Company, through its subsidiaries, acts as a mutual fund
administrator and management firm. The Company's revenues are
derived (through its subsidiaries) as fees from operating, managing
and investing the assets of mutual funds and to a lessor extent
from brokerage commissions related to transactions within the
mutual funds as well as on the purchase by or sale of mutual funds
by individuals. The Company currently manages the assets of nine
mutual funds, six of which were initiated, sponsored and organized
by the Company. As a result of the acquisition of The Ranson
Company, Inc. completed on January 5, 1996 is also the manager of
three additional funds, called the "Ranson Managed Portfolios".
Ranson Capital Corporation, a NASD member broker/dealer and the
investment advisor and manager for the three "Ranson Managed
Portfolios": the Kansas Municipal Fund, Kansas Insured
Intermediate Fund and the Nebraska Municipal Fund, is a subsidiary
of The Ranson Company (and now the Company).
The Company, ND Holdings, Inc., was incorporated September 22,
1987, as a North Dakota corporation and officially organized on
October 27, 1987, in Minot, North Dakota by Robert Walstad, current
President of the Company. The primary intent of this corporation
was to provide a vehicle for investment in North Dakota by North
Dakota residents all pursuant to Chapter 10-30.1 of the North
Dakota Century Code, as amended.
The major accomplishment of the Company through 1995 had been the
establishment, management and distribution of five mutual funds: ND
Tax-Free Fund, Inc., ND Insured Income Fund, Inc., Montana Tax-Free
Fund, Inc., South Dakota Tax-Free Fund, Inc. and Integrity Fund of
Funds (the "Funds"). The Funds have grown to over $144,000,000 in
assets as of December 1996. With the acquisition of The Ranson
Company, Inc. completed on January 5, 1996, Ranson Capital
Corporation will, as a wholly-owned subsidiary of the Company,
continue to act as the investment adviser and manager for the
Ranson Managed Portfolios. The Ranson Managed Portfolios provided
additional managed asset base of approximately $184,000,000. As a
result, total assets managed by the Company now total in excess of
$334,000,000. Investment advisory, asset management, underwriting
and transfer agent services are provided to mutual funds managed
and administered by the Company's wholly-owned
21
<PAGE>
subsidiaries. Currently, through its three wholly-owned
subsidiaries, ND Money Management, Inc., ND Capital, Inc. and ND
Resources, Inc., the Company acts as advisor to five mutual funds:
ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc., Montana Tax-
Free Fund, Inc., South Dakota Tax-Free Fund, Inc. and Integrity
Fund of Funds, Inc. Following the acquisition by the Company of
The Ranson Company, Inc., its wholly-owned subsidiary, Ranson
Capital Corporation remains as the investment adviser and manager
for the Ranson Managed Portfolios including a new Fund established
in late 1996, the Oklahoma Municipal Fund. The Company will also
provide stock transfer services to the Ranson Managed Portfolios.
Revenue is received for the management of the Funds along with
commissions for investments sold to individuals in sponsored funds
as well as in other unaffiliated mutual funds. Fees are also
generated for stock transfer and clerical services provided to the
affiliated mutual funds.
The Company and its subsidiaries are still in developmental stages.
The areas in which they do business or intend to do business are
highly competitive and place them in direct competition with other
mutual fund firms, some of which have substantially greater
resources, proven management, and established markets. The Company
knows of no reason why it or its subsidiaries will have or may
obtain competitive advantages over others who engage in the same or
similar activities.
Headquarters of the Company is currently located at 1 North Main
Street, Minot, North Dakota. Each of the Company's three
subsidiaries and each of the five mutual funds created and managed
by the Company maintain their offices at that same location. All
of the Company's services including portfolio management, wholesale
marketing and customer service are being provided from the Minot
location.
The Company's Subsidiaries and Operations
The Company has five wholly-owned subsidiaries through which it
conducts its operations. Three of the subsidiaries, all North
Dakota corporations, are ND Money Management, Inc., a Registered
Investment Advisor; ND Capital, Inc., an NASD member broker/dealer;
and ND Resources, Inc., a Registered Stock Transfer Agent.
Pursuant to terms of an acquisition agreement described in "Certain
Transactions - The Ranson Acquisition" the Company has acquired
additional wholly-owned subsidiaries, The Ranson Company, Inc., a
Kansas corporation, and its subsidiary, Ranson Capital Corporation,
a Kansas corporation. The Ranson Company, Inc. has no independent
operations. Ranson Capital Corporation is an NASD Registered
broker/dealer and SEC registered investment advisor.
ND Money Management, Inc. (a North Dakota corporation) was
organized to manage investment portfolios, particularly, but not
limited to, the Funds.
ND Capital, Inc. (a North Dakota corporation), an NASD and SIPC
member broker/dealer was organized as an entity to raise funds for
investing in, and providing financing to, qualified entities while
encouraging capital investment in North Dakota.
ND Resources, Inc. (a North Dakota corporation) was originally
organized to purchase and/or manage mineral properties. ND
Resources, Inc. thereafter became a registered stock transfer agent
and now acts as transfer agent for the Funds.
ND Money Management, Inc., a registered investment advisor, was
organized as an entity to provide fund management services to
mutual funds. ND Money Management, Inc.'s primary operations are
as fund manager and advisor for the ND Tax-Free Fund, Inc., Montana
Tax-Free Fund, Inc., ND Insured Fund, Inc., South Dakota Tax-Free
Fund, Inc. and Integrity Fund of Funds, Inc. The Company receives
management fees from the Funds. As fund manager and advisor for
these funds, ND Money Management, Inc. is economically dependent on
the Funds for the majority of its revenue.
ND Money Management, Inc. has an affiliation with the ND Tax-Free
Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax Free-
Fund, Inc., the ND Insured Fund, Inc., and the Integrity Fund of
Funds, Inc.
22
<PAGE>
ND Capital's primary operations are as broker/dealer for
distribution of shares of the ND Tax-Free Fund, Inc., Montana Tax-
Free Fund, Inc., ND Insured Income Fund, Inc., South Dakota Tax-
Free Fund, Inc. and Integrity Fund of Funds, Inc. The Company
receives fees from the funds as underwriter as well as commission
income for investments sold to customers in other unaffiliated
mutual funds.
ND Capital, Inc. has an affiliation with the ND Tax-Free Fund,
Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund,
Inc., the ND Insured Income Fund, Inc. and the Integrity Fund of
Funds, Inc. As underwriter for these funds, ND Capital, Inc. is
economically dependent on them for a majority of its revenue.
ND Capital, Inc. is subject to the Securities and Exchange
Commission Uniform Net Capital Rule (SEC Rule 15c3-1), which
requires the maintenance of minimum net capital and requires that
the ratio of aggregate indebtedness to net capital, both as
defined, shall not exceed 15 to 1 (and the rule of the "applicable"
exchange also provides that equity capital may not be withdrawn or
cash dividends paid if the resulting net capital ratio would exceed
10 to 1). At December 31, 1996, the ND Capital had net capital
well in excess of its minimum required net capital of $25,000.
ND Resources, Inc. is a Registered Transfer Agent. ND Resources,
Inc.'s primary operations are as transfer agent of shares of the ND
Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., ND Insured Income
Fund, Inc., South Dakota Tax-Free Fund, Inc. and Integrity Fund of
Funds, Inc. ND Resources, Inc. receives fees from the Funds for
stock transfer, administrative and clerical services. As transfer
agent for these funds, ND Resources, Inc. is economically dependent
on them for a majority of its revenue. ND Resources, Inc. has an
affiliation with the ND Tax-Free Fund, Inc., Montana Tax-Free Fund,
Inc., South Dakota Tax-Free Fund, Inc., the ND Insured Income Fund,
Inc., the Integrity Fund of Funds, Inc., and the Ranson Managed
Portfolios, including the Oklahoma Municipal Fund.
The Company has completed an agreement which has allowed the
Company to acquire management of the Ranson Managed Portfolios (the
"Ranson Funds"), through acquisition of their advisor, Ranson
Capital Corporation and its parent, The Ranson Company, Inc. This
acquisition is complete as of January 5, 1996.
Ranson Capital Corporation, ("Ranson Capital") a Kansas
corporation, is the investment adviser and manager for each Series
of the Ranson Managed Portfolios. Ranson Capital is a broker/dealer
registered with the Securities and Exchange Commission and is a
wholly-owned subsidiary of The Ranson Company, Inc., a Kansas
corporation. Ranson Capital was formed in 1990 and acts as
investment advisor and fund manager for the Ranson Managed
Portfolios, consisting of the Kansas Insured Intermediate Fund,
Kansas Municipal Fund and the Nebraska Municipal Fund. John A.
Ranson, Alex R. Meitzner, Mark J. Kneedy, John J. Hass, Robin K.
Pinkerton, Stephen E. Shorgren and Douglas K. Rogers (the "Selling
Ranson Stockholders") previously owned all the outstanding Common
Stock of The Ranson Company, Inc. The Selling Ranson Stockholders
of The Ranson Company, Inc., the parent of Ranson Capital, entered
into a contract dated as of September 15, 1995 (the "Agreement")
whereby the Company acquired all outstanding shares of The Ranson
Company, Inc., and therefore acquired all business related to the
Ranson Managed Portfolios through the indirect acquisition of
Ranson Capital (the "Acquisition"). The Company has agreed to
continue the management and operation of the Ranson Managed
Portfolios as now conducted. Ranson Capital, which is now wholly-
owned by the Company continues to operate by that name and
continues to act as investment adviser and manager for each Series
of the Ranson Managed Portfolios, including the recently opened
Oklahoma Municipal Funds.
The contractual division of responsibilities between the Company
and its affiliated funds track the three main functions of any
mutual fund. Contracts for portfolio management performed by the
Company's subsidiary, ND Money Management, Inc., in the case of the
five original Funds and by Ranson Capital Corporation in the case
of the Ranson Managed Portfolios are awarded annually by review and
approval of the independent Boards of Directors of the various
Funds (the "Boards"). The Board of Directors of each Fund consists
of five directors, three of whom are independent and two (Robert E.
Walstad
23
<PAGE>
and Peter A. Quist) of whom are affiliated with the Company. These
Boards are also responsible for awarding the Company's subsidiary,
ND Capital (or Ranson Capital) the underwriting agreements for the
Funds, which contracts are referred to as "contracts for
distribution" by the Funds (mutual fund regulations limit
underwriting agreements to one year) as well as contracting with
the Company's subsidiary, ND Resources, Inc., for all
administrative services. (which are typically one to three year
contracts). Distribution and administrative services contracts are
generally terminable by a Fund's Board for "cause" (as defined in
the contract).
Administration.
A Fund's administrator generally is responsible for all of the
Fund's business activities other than distribution and investment
decisions. The Company believes that administration is an
extension of distribution, that high quality servicing is critical
to retaining shareholder accounts, and that quality of service
directly impacts the growth of mutual fund assets. Therefore, the
Company strives to create an error-free operating environment based
on stringent standards established for all service provider
subsidiaries of the Company.
The Company's administrative responsibilities may be divided into
three major services:
- shareholder recordkeeping- encompasses all mutual fund
shareholders' transactions, including taking purchase
and redemption orders, entering orders into the transfer
agent system and forwarding information regarding trade
activity to the portfolio manager and to fund
accountants as specified.
- fund accounting- provides the daily recordkeeping for
each fund, including calculations of net asset value per
share, dividend rates per share, and the maintenance of
all books, records and financial reports required by the
SEC and other regulatory agencies. This service also
includes preparation of quarterly financial statements,
shareholder reports and Board reports for each
portfolio, participation in the periodic updating of
prospectuses, preparation of federal, state and local
tax returns, payment of all costs and expenses of each
fund, and the maintenance of the official books and
records of each fund.
- cash management- ensures timely receipts and
disbursements on shareholder activity for effective
asset management.
The Company's Affiliated Mutual Funds
The Company has sponsored and, through its subsidiaries,
distributed to the public six mutual funds. These Funds are: ND
Tax-Free Fund, Inc. (North Dakota Tax-Free Fund), ND Insured Income
Fund, Inc. (North Dakota Insured Income Fund), Montana Tax-Free
Fund, Inc. (Montana Tax-Free Fund), South Dakota Tax-Free Fund,
Inc. (South Dakota Tax-Free Fund), Integrity Fund of Funds, Inc.
(Integrity Fund of Funds Fund) and the Oklahoma Municipal Fund.
The Company is economically dependent upon revenues from the nine
funds it manages to sustain its current operations.
ND Tax-Free Fund, Inc. is registered under the Investment Company
Act of 1940 as a non-diversified, open-end management investment
company. ND Tax-Free Fund, Inc. incorporated under the laws of the
State of North Dakota on October 7, 1988, and commenced operations
on January 3, 1989. ND Tax-Free Fund, Inc. was the first North
Dakota based double tax-exempt mutual fund, investing in high
quality state and municipal bonds. In March, 1992, the North
Dakota Double Tax-Exempt Bond Fund, administered by Funds
Management Corporation of Denver, was merged into ND Tax-Free Fund,
Inc. Over $5,000,000 in assets and 300 investors were transferred
in the merger. As of December 1996, this Fund exceeded $91,900,000
in assets.
Montana Tax-Free Fund, Inc. is registered under the Investment
Company Act of 1940 as a non-diversified, open-end management
investment company. The Montana Tax-Free Fund incorporated
24
<PAGE>
under the laws of the State of North Dakota on April 15, 1993 and
commenced operations on August 12, 1993.
Montana Tax-Free Fund, Inc. was first offered to the public in
August of 1993 and reached over $32,600,000 in assets as of
December 1996. The Montana Tax-Free Fund invests in high quality
Montana state and municipal bonds similarly to the ND Tax-Free
Fund. It is offered to residents of the State of Montana.
South Dakota Tax-Free Fund, Inc. is registered under the Investment
Company Act of 1940 as a non-diversified, open-end management
investment company. The Fund incorporated under the laws of the
State of North Dakota on October 1, 1993 and commenced operations
on April 5, 1994.
South Dakota Tax-Free Fund, Inc. was first offered to the public in
April of 1994 and reached over $6,000,000 in assets as of December
1996. The South Dakota Tax-Free Fund invests in South Dakota state
and municipal instruments. It is offered to residents of the State
of South Dakota.
ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc. and South
Dakota Tax-Free Fund, Inc. are open-end, non-diversified,
management investment companies. The objective of these three
Funds is to provide as high a level of current income exempt from
federal and state income taxes as is consistent with preservation
of capital. The three Funds seek to achieve this objective by
investing in debt instruments of states and their political
subdivisions, agencies and instrumentalities. Shares of the Funds
are offered with no initial sales charge. A contingent deferred
sales charge is assessed against shares which are redeemed within
the first five years of purchase.
ND Insured Income Fund, Inc. is registered under the Investment
Company Act of 1940 as a non-diversified, open-end management
investment company. The North Dakota Insured Income Fund
incorporated under the laws of the State of North Dakota on
November 27, 1990 and commenced operations on March 19, 1991. This
Fund is targeted at investors nationwide and primarily purchases
insured corporate bonds. Assets exceeded $2,700,000 as of December
1996.
ND Insured Income Fund, Inc. is an open-end, non-diversified,
management investment company. The Fund's objective is to provide
as high a level of current income as is consistent with prudent
investment management, preservation of capital, and ready
marketability of its portfolio. The fund seeks to achieve this
objective by investing primarily in a portfolio of debt securities,
including United States Government securities and insured corporate
bonds. Under normal market conditions, at least 65% of the Fund's
total assets will be invested in securities protected by insurance
guaranteeing the timely payment of principal and interest.
Integrity Fund of Funds, Inc. was recently created in December,
1994. This Fund is geared to the investor seeking capital
appreciation and growth of income. The Integrity Fund of Funds,
Inc. is an open-end, diversified, management investment company
registered under the Investment Company Act of 1940. The Integrity
Fund of Funds Fund was incorporated under the laws of the State of
North Dakota on June 1, 1994 and commenced operations January 3,
1995. As of December 1996 this fund's assets totaled approximately
$11,000,000.
Integrity Fund of Funds, Inc.'s objective is long-term capital
appreciation and growth of income. The Fund seeks to achieve this
objective by investing primarily in a diversified group of other
open-end investment companies ("underlying funds") which, in turn,
invest principally in equity securities. Current income is a
secondary objective of the Fund. Shares of the Fund are offered
for sale at net asset value without a sales charge. A contingent
deferred sales charge is assessed on certain redemptions.
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<PAGE>
The Ranson Managed Portfolios
As a result of a purchase agreement whereby the Company acquired
The Ranson Company, Inc. and its subsidiary, Ranson Capital
Corporation, and the granting of approval of the change in advisor
(to the Company) for the three mutual funds managed by Ranson
Capital Corporation, the Company is now the manager of the Ranson
Managed Portfolios.
The Kansas Insured Intermediate Fund, the Kansas Municipal Fund and
the Nebraska Municipal Fund are investment portfolios of Ranson
Managed Portfolios which is an unincorporated business trust
organized under the laws of Massachusetts on August 10, 1990.
Ranson Managed Portfolios is an open-end series non-diversified
management company, known as a mutual fund. The investment
objective of the Ranson Funds is to provide its shareholders with
as high a level of current income that is exempt from both federal
income tax and state income tax as is consistent with preservation
of capital.
Ranson Capital Corporation ("Ranson Capital") is the manager for
each of the four funds in the Ranson Managed Portfolios (the Kansas
Insured Intermediate Fund, the Kansas Municipal Fund, the Nebraska
Municipal Fund and the newly registered Oklahoma Municipal Fund).
ND Resources has recently become the transfer agent for each of
these four funds.
The business and affairs of the Ranson Funds is managed under the
direction of the Board of Trustees. The Trustees are subject to
the fiduciary responsibilities imposed by the laws of the
Commonwealth of Massachusetts. Subject to the Trustees' authority,
Ranson Capital Corporation, a Kansas corporation, 120 South Market,
Suite 450, Wichita, Kansas 67202, supervises and implements the
Ranson Fund's investment activities and is responsible for overall
management of the Ranson Fund's business affairs.
The Ranson Funds pay the cost of qualifying and maintaining
qualification of the shares for sale under the securities laws of
the various states if necessary. In addition, under the plan
adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940 and under which the Ranson Funds will pay some costs of the
distribution of its shares, the Ranson Funds pay the Distributor
.25% of the average daily net assets of the Ranson Funds and the
Distributor may in turn pay firms that sell the Ranson Funds shares
at an annual service fee of up to .25% of average daily net assets
of customer accounts in existence for more than one year for
administrative and shareholder services or use some or all of such
payment to pay other distribution expenses which otherwise would be
payable by the Distributor.
Ranson Capital acts as the Ranson Fund's administrative and
accounting services agent. For these services, Ranson Capital
receives an administrative and accounting services fee payable
monthly from the Ranson Funds equal to the sum of (i) $1,500 per
month if the Ranson Fund's average daily net assets do not exceed
$50 million, $2,000 per month if the Ranson Fund's average daily
net assets are greater than $50 million but do not exceed $100
million, and $2,500 per month if the Ranson Fund's average daily
net assets exceed $100 million, and (ii) 0.15% of the Ranson Fund's
average daily net assets on an annual basis for the Ranson Fund's
first $20 million of average daily net assets, 0.10% of the Ranson
Fund's average daily net assets on an annual basis for the Ranson
Fund's next $20 million of average daily net assets, 0.05% of the
Ranson Fund's average daily net assets on an annual basis for the
Ranson Fund's next $60 million of average daily net assets, 0.02%
of the Ranson Fund's average daily net assets on an annual basis
for the Ranson Fund's next $400 million of average daily net
assets, and 0.01% of the Ranson Fund's average daily net assets on
an annual basis for the Ranson Fund's average daily net assets in
excess of $500 million, together with reimbursement of Ranson
Capital's out-of-pocket expenses. This fee and reimbursement are
in addition to the investment advisory and management fee received
by Ranson Capital from the Ranson Funds.
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<PAGE>
The Kansas Insured Intermediate Fund
The investment objective of the Kansas Insured Intermediate Fund is
to provide its shareholders with as high a level of current income
that is exempt from both federal income tax and Kansas income tax
as is consistent with preservation of capital. In pursuit of this
objective, the Fund invests at least 95% of its total assets in
Kansas Municipal Securities which are either covered by insurance
guaranteeing the timely payment of principal and interest thereon
or backed by an escrow or trust account containing sufficient US
Government or US Government agency securities to ensure timely
payment of principal and interest. The Kansas Insured Intermediate
Fund has assets of approximately $29,000,000 as of December 1996.
The Kansas Insured Intermediate Fund shares may be purchased
through Ranson Capital Corporation and selected dealers at the
public offering price, which is equal to the net asset value next
determined, plus a sales charge of 2.75% of the public offering
price (2.83% of the net amount invested).
The Kansas Insured Intermediate Fund manager and investment adviser
is Ranson Capital Corporation which receives a monthly management
and investment advisory fee equivalent on an annual basis to .50 of
1% of the Kansas Insured Intermediate Fund average daily net
assets. Under the terms of the Management and Investment Advisory
Agreement between the Fund and Ranson Capital, Ranson Capital pays
all expenses of the Ranson Funds, including the Kansas Insured
Intermediate Fund management and investment advisory fee and the
Kansas Insured Intermediate Fund dividend disbursing,
administrative and accounting services fees (but excluding taxes
and brokerage fees and commissions, if any) that exceed .75% of the
Kansas Insured Intermediate Fund average daily net assets on an
annual basis. Ranson Capital may assume additional Ranson Funds
expenses or waive portions of its fees in its discretion.
The Kansas Municipal Fund
The investment objective of the Kansas Municipal Fund is to provide
its shareholders with as high a level of current income exempt from
both federal income tax and Kansas income tax as is consistent with
preservation of capital. In pursuit of this objective, the Fund
invests primarily in debt obligations issued by or on behalf of the
state of Kansas, its political subdivisions and their agencies and
instrumentalities. The Kansas Municipal Fund has assets of
approximately $131,000,000 as of December 1996.
The Kansas Municipal Fund shares may be purchased through Ranson
Capital Corporation and selected dealers at the public offering
price, which is equal to the net asset value next determined, plus
a sales charge of 4.25% of the public offering price (4.44% of the
net amount invested).
The Kansas Municipal Fund manager and investment adviser is Ranson
Capital Corporation which receives a monthly management and
investment advisory fee equivalent on an annual basis to .50 of 1%
of the Kansas Municipal Fund average daily net assets. Under the
terms of the Management and Investment Advisory Agreement between
the Fund and Ranson Capital, Ranson Capital pays all expenses of
the Ranson Funds, including the Kansas Municipal Fund management
and investment advisory fee and the Kansas Municipal Fund dividend
disbursing, administrating and accounting services fees (but
excluding taxes and brokerage fees and commissions, if any) that
exceed 1.25% of the Kansas Municipal Fund average daily net assets
on an annual basis up to the amount of the management and
investment advisory fee payable by the Ranson Funds to Ranson
Capital. Ranson Capital may assume additional Fund expenses or
waive portions of its fees in its discretion.
The Nebraska Municipal Fund
The investment objective of the Nebraska Municipal Fund is to
provide its shareholders with as high a level of current income
that is exempt from both federal income tax as is consistent with
preservation of capital. Under normal market conditions, the
Fund's assets will be invested in a portfolio of
27
<PAGE>
Nebraska Municipal Securities which, in the opinion of Ranson
Capital Corporation, will produce a higher level of current income
than would be produced by a portfolio of Nebraska Municipal
Securities rated in only the highest rating category, but contains
Nebraska Municipal Securities which do not present a significant
risk of loss of principal due to credit characteristics. The
Nebraska Municipal Fund has assets of approximately $19,000,000 as
of December 1996.
The Nebraska Municipal Fund shares may be purchased through Ranson
Capital Corporation and selected dealers at the public offering
price, which is equal to the net asset value next determined, plus
a sales charge of 4.25% of the public offering price (4.44% of the
net amount invested).
The Nebraska Municipal Fund manager and investment adviser is
Ranson Capital Corporation which receives a monthly management and
investment advisory fee equivalent on an annual basis to .50 of 1%
of the Nebraska Municipal Fund average daily net assets. Under the
terms of the Management and Investment Advisory Agreement between
the Fund and Ranson Capital, Ranson Capital pays all expenses of
the Ranson Funds, including the Nebraska Municipal Fund management
and investment advisory fee and the Nebraska Municipal Fund
dividend disbursing, administrative and accounting services fees
(but excluding taxes and brokerage fees and commissions, if any)
that exceed 1.25% of the Nebraska Municipal Fund average daily net
assets on an annual basis up to the amount of the management and
investment advisory fee payable by the Ranson Funds to Ranson
Capital. Ranson Capital may assume additional Ranson Funds
expenses or waive portions of its fees in its discretion.
During December 1996, the Company acquired the rights to the
investment advisor's agreement to manage the Heartland Nebraska Tax
Free Fund. This fund's operations will be integrated with the
Nebraska Municipal Fund. Thus fund brought an additional
$10,000,000 under the Company's management.
The Oklahoma Municipal Fund
The Oklahoma Municipal Fund is the newest portfolio of the Ranson
Managed Portfolios. This fund's effective date was September 25,
1996. The investment objective of the Oklahoma Municipal Fund is
to provide its shareholders with as high a level of current income
that is exempt from both federal income tax as is consistent with
preservation of capital. Under normal market conditions, the
Fund's assets will be invested in a portfolio of Oklahoma Municipal
Securities which, in the opinion of Ranson Capital Corporation,
will produce a higher level of current income than would be
produced by a portfolio of Oklahoma Municipal Securities rated in
only the highest rating category, but contains Nebraska Municipal
Securities which do not present a significant risk of loss of
principal due to credit characteristics. The Oklahoma Municipal
Fund had minimal assets of approximately $500,000 as of December
1996.
The Oklahoma Municipal Fund shares may be purchased through Ranson
Capital Corporation and selected dealers at the public offering
price, which is equal to the net asset value next determined, plus
a sales charge of 4.25% of the public offering price (4.44% of the
net amount invested).
The Oklahoma Municipal Fund manager and investment adviser is
Ranson Capital Corporation which receives a monthly management and
investment advisory fee equivalent on an annual basis to .50 of 1%
of the Oklahoma Municipal Fund average daily net assets. Under the
terms of the Management and Investment Advisory Agreement between
the Fund and Ranson Capital, Ranson Capital pays all expenses of
the Ranson Funds, including the Oklahoma Municipal Fund management
and investment advisory fee and the Oklahoma Municipal Fund
dividend disbursing, administrative and accounting services fees
(but excluding taxes and brokerage fees and commissions, if any)
that exceed 1.25% of the Oklahoma Municipal Fund average daily net
assets on an annual basis up to the amount of the management and
investment advisory fee payable by the Ranson Funds to Ranson
Capital. Ranson Capital may assume additional Ranson Funds
expenses or waive portions of its fees in its discretion.
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<PAGE>
Deferred Sales Costs
The Company's historical source of income is from investment
advisory and management services provided to the five affiliated
mutual funds previously described. Fees are based upon a
percentage of total funds under management. The Company's past
expansion and continued operational growth relies upon bringing
mutual fund assets under its management. To bring funds under its
management, commission fees must be paid to brokers who sell the
deferred load mutual funds. These commission fees are the
Company's cost of bringing assets under its management.
<TABLE>
<CAPTION>
Commissions
Unaffiliated Paid to
Dealer Selling Registered
Allowance Representatives
Paid by associated with
ND Capital, Inc. ND Capital, Inc.
(as a percentage (as a percentage
Fund of offering price)* of offering price)*
_____________________________ ___________________ ___________________
<S> <C> <C>
Integrity Fund of Funds, Inc. 4.50% 3.6%
ND Tax-Free Fund, Inc. 3.75% 3.0%
Montana Tax-Free Fund, Inc. 3.75% 3.0%
South Dakota Tax-Free Fund, Inc 3.75% 3.0%
<FN>
*not considering any volume discount in commissions allowed.
</TABLE>
The ND Insured Income Fund, Inc. is a load fund. Investors pay
selling fees as a part of their cost of purchase (4.5%). The
Company does not "front" fees for the ND Insured Income Fund, Inc.
Registered Representatives associated with ND Capital receive a
commission of 3.2% (80% of the dealer allowance of 4.0%) on their
sales of the ND Insured Income Fund, Inc.
As a method of attracting investment in the three tax-free funds
mentioned above, the Company does not charge a front-end commission
to purchasers of the mutual funds. Since there is no front-end
sales charge on investments in these funds (12b-1 mutual fund
selling fees as described in Rule 12b-1 of the Investment Company
Act of 1940), the commissions paid to brokers for selling the funds
are recorded as deferred sales costs and carried in the "Other
Asset" section of the balance sheet. As of December 1, 1996,
$3,059,344 of "Deferred Sales Costs" was listed on the Company's
Balance Sheet. A substantial portion of the amounts invested in
the Company by its shareholders has been utilized to pay
commissions to brokers for the sale of no front-end load mutual
funds. These costs of bringing assets under management are
amortized to expense based on the established deferred sales charge
rates for redemption of investments in these funds.
The unamortized balance of the deferred sales costs as of December
31, 1996 will be charged to expense according to an amortization
schedule utilizing nine years. (See "Impact of New Accounting
Standards-Change in Accounting Estimate.")
In the three tax-free funds (ND Tax-Free Fund, Inc., Montana Tax-
Free Fund, Inc., and South Dakota Tax-Free Fund, Inc.) a contingent
deferred sales charge is imposed only if a shareholder redeems
shares purchased within the preceding five years. Shares acquired
by reinvestment of dividends may be redeemed without charge even
though acquired within five years. In addition, a number of shares
having a value equal to any net increase in the value of all shares
purchased by the shareholder during the preceding five years will
be redeemed without a contingent deferred sales charge. Subject to
the foregoing exclusions, the amount of the charge is determined as
a percentage of the original purchase price of the redeemed shares
(or current value whichever is lower) and will depend on the number
of years the dollar amount being redeemed was invested, according
to the following table:
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<PAGE>
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
Integrity Fund of Funds, Inc. requires a contingent deferred sales
charge ("charge") equal to 1.5% of the redemption proceeds if a
shareholder redeems shares purchased within the preceding five
years, except that 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.
ND Insured Income Fund, Inc. has no contingent deferred sales
charge.
The Ranson Managed Portfolios have no contingent deferred sales
charge.
Overview of Managed Mutual Fund Industry
Since the 1980's, the mutual fund business has been one of the
fastest growing areas of the financial services industry. Total
assets in mutual funds grew from approximately $100 billion in 1980
to approximately $2 trillion in total assets by 1994. According to
the Investment Company Institute Special Analysis for the 1990's
Study, mutual fund assets are projected to continue to grow at an
average of 12% annually, to approximately $3.4 trillion in total
assets by the year 2000.
Company Growth Strategy
The Company's historical strategy has been to establish localized
mutual funds, in a niche area of rural states, which funds invest
in bond and/or equity instruments of local interest. The Company
targets the residents of the same localized areas to achieve its
investor base. The Company has established mutual funds in North
Dakota, Montana, Oklahoma and South Dakota, all rural, low
population states where competition from other mutual funds as well
as larger and more diversified competitors in the securities
industry is less intense.
The Company has acquired management of the Ranson Managed
Portfolios (the "Ranson Funds"), through acquisition of their
advisor, Ranson Capital Corporation and its parent, The Ranson
Company, Inc. This acquisition was completed January 5, 1996. The
Company has agreed to continue the management and operation of the
Ranson Funds as now conducted. Ranson Capital Corporation, which
is now wholly-owned by the Company, will continue by that name and
will continue to act as investment adviser and manager for each of
the Ranson Funds. The Ranson Funds added approximately
$184,000,000 to the Company's assets under management, growing
total assets currently under management to approximately
$334,000,000. Please see "Certain Transactions - The Ranson
Acquisition", "Management's Discussion and Analysis" and
"Business".
The Company will in the future seek to locate compatible existing
mutual funds and seek to acquire money management firms with mutual
funds under management, thereby immediately increasing the
Company's base of assets under management.
Finder Agreement with KPMG Peat Marwick LLP
The Company has retained KPMG Peat Marwick LLP financial service
division to perform certain services with respect to the Company's
interest in expanding its base of funds under management by
acquiring other investment fund managers. Services to be provided
to the Company include:
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<PAGE>
development of an acquisition strategy; identification of target
companies; contact with target companies; and preliminary financial
analysis on the target companies.
Competition
Since its inception, the Company has directly competed primarily
with a number of larger, more established mutual fund service
organizations and securities firms. Competition is influenced by
various factors, including breadth, quality of service and price.
All aspects of Company's business are competitive, including
competition for mutual fund assets to manage. Large national firms
have much greater marketing capabilities, offer a broader range of
financial services and compete not only with the Company and among
themselves but also with commercial banks, insurance companies and
others for retail and institutional clients. The Company's
affiliated mutual funds, although localized in nature, are subject
to competition from nationally and regionally distributed funds
offering equivalent financial products with returns equal to or
greater than those offered by the Funds.
The Company is focused on the niche area of rural states and
localized investment where competition from major investment
institutions is lower than in population centers. To the knowledge
of the Company it is the only mutual fund sponsor consisting of
affiliated investment advisor, broker/dealer and transfer agent
entities based in North Dakota, South Dakota or Montana. However,
competition for assets under management is intense from both
national and regional based firms. Access to local investment and
the population of the region by modern communication systems is so
efficient that the Company's geographical position cannot be deemed
a significant advantage.
The Company's investment management operations compete with a large
number of other investment management firms, commercial banks,
insurance companies, broker/dealers and other financial service
firms. Most of these firms are larger and have access to greater
resources than the Company. The investment advisory industry is
characterized by relatively low cost of entry and the formation of
new investment advisory entities which may compete directly with
the Company is a frequent occurrence. The Company directly
competes with as many as several hundred firms which are of similar
or larger size. The Company's ability to increase and retain
clients' assets could be materially adversely affected if client
accounts under-perform the market. The ability of the Company's
investment management subsidiary to complete with other investment
management firms also is dependent, in part, on the relative
attractiveness of their investment philosophies and methods under
prevailing market conditions.
A large number of mutual funds are sold to the public by investment
management firms, broker/dealers, insurance companies and banks in
competition with the Company's affiliated funds. Many of the
Company's competitors apply substantial resources to advertising
and marketing their mutual funds which may adversely affect the
ability of the Company's affiliated funds to attract new assets.
The Company expects that there will be increasing pressures among
mutual fund sponsors to obtain and hold market shares.
Although the Company may expand the financial services it can
render to its customers, it does not now offer as broad a range of
financial services as national stock exchange member firms,
commercial banks, insurance companies and others.
REGULATIONS
Regulation of the Company's Business
Under the Investment Company Act, the distribution agreements
between the Funds and the Company's subsidiary terminate
automatically upon their assignment. The term "assignment"
includes direct assignments as well as assignments which may be
deemed to occur, under certain circumstances, upon the transfer,
directly or indirectly, of a controlling block of the Company's
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<PAGE>
voting securities. The Investment Company Act presumes that any
transfer of more than 25% of the voting securities of any person
represents a transfer of a controlling block of voting securities.
The Company does not believe that the transactions contemplated by
this offering will result in an "assignment" of the distribution or
administration agreements.
The securities industry, including broker/dealer, investment
advisory, and transfer agency firms in the United States, are
subject to extensive regulation under federal and state laws. Much
of the regulation of broker/dealers has been delegated to self-
regulatory organizations, principally the National Association of
Securities Dealers (NASD). The regulations to which broker/dealers
are subject cover all aspects of the securities business, including
sales methods, trade practices, capital structure of securities
firms, record keeping and the conduct of directors, officers and
employees. Additional state and federal legislation, changes in
rules promulgated by the United States Securities and Exchange
Commission (SEC) and by self-regulatory organizations, or changes
in the interpretation or enforcement of existing laws and rules
often directly affect the methods of operation and profitability of
money managers, broker/dealers and transfer agents. Investment
related firms are also subject to regulation and licensing by state
securities commissions in the states in which they transact
business. The SEC, state securities administrators and the self-
regulatory organizations may conduct administrative proceedings
which can result in censure, fine, suspension or expulsion of a
broker/dealer, its officers or employees. The principal purpose of
regulation and discipline of broker/dealers, investment advisors,
and stock transfer agents is the protection of customers and the
securities markets rather than protection of creditors and
stockholders of such firms.
Industry Regulations
The Company is subject to extensive regulation as to its duties,
affiliations, conduct and limitations on fees. Section 22(b) of
the Investment Company Act of 1940 provides that a securities
association registered under Section 15A of the Securities Exchange
Act of 1934 may adopt rules prohibiting its members from receiving
a commission, discount, spread or fees except in accordance with a
method or methods, and within such limitations as to the relation
thereof to said public offering price, as such rules may prescribe
in order that the price at which such security is offered or sold
to the public shall not include an excessive sales load but shall
allow for reasonable compensation for sales personnel,
broker/dealers, and underwriters, and for reasonable sales loads to
investors. Section 22(c) of the Investment Company Act of 1940
further states that the commission may make rules and regulations
applicable to registered investment companies and to principal
underwriters of, and dealers in, the redeemable securities of any
registered investment company, whether or not members of any
securities association. Any rules and regulations so made by the
Commission, to the extent that they may be inconsistent with the
rules of any securities association, shall, so long as they remain
in force, supersede the rules of the association and be binding
upon its members as well as all other underwriters and dealers to
whom they may be applicable.
The Company's wholly-owned broker/dealer subsidiaries, ND Capital,
Inc. and Ranson Capital Corporation are NASD members. The NASD, a
securities association registered under Section 15 A of the
Securities and Exchange Act of 1934 has prescribed rules (Section
26 of the NASD Rules of Fair Practice) with respect to maximum
commissions, charges and fees related to investment in any open-end
investment company registered under the Investment Company Act of
1940.
Additionally, under Section 206 of the Investment Advisers Act of
1940 it is unlawful for any investment adviser to (1) employ any
device, scheme, or artifice to defraud any client or prospective
client; (2) engage in any transaction, practice, or course of
business which operates as a fraud or deceit upon any client or
prospective client; or (3) engage in any act, practice, or course
of business which is fraudulent, deceptive, or manipulative.
An investment adviser can transfer control of an investment company
only under the provision that for three years at least seventy-five
(75%) percent of the directors of the investment company are
independent of the new and old investment adviser, and provided no
unfair burden is imposed on the
32
<PAGE>
investment company as a result of the sale. The effect of such
transfer is to terminate the old investment adviser agreement and
to require the new agreement to be approved by both the board and
shareholders. Directors and the investment adviser are
fiduciaries, accordingly, the SEC is authorized to initiate an
action to enjoin a breach of fiduciary duties involving personal
misconduct by officers, directors, investment advisers, and
principal underwriters. Shareholders or the SEC may also bring an
action against the officers, directors, and investment adviser for
breach of fiduciary duty in establishing the compensation paid the
investment adviser.
An investment adviser to a fund, its principals, and its employees
may also be subject to proceedings initiated by the SEC to impose
remedial sanctions for violation of any provision of the federal
securities laws and the regulations adopted thereunder, and the SEC
may preclude such investment adviser to an investment company from
continuing to act in the capacity.
Investment companies such as the Funds are subject to considerable
substantive regulation. Such companies must comply with periodic
reporting requirements. Proxy solicitations are subject to the
general proxy rules as well as to special proxy rules applicable
only to investment companies. Shares of investment companies can
only be offered at a uniform public offering price based on the
current share net asset value plus the sales load. No more than 60
percent of the directors can be interested persons, defined to
include, among others, persons affiliated with the management
company or underwriter, and a majority of the directors must not be
affiliated with the underwriter. The management agreement must
have initially been approved by a majority of the outstanding
shares and, after two years, must be annually approved, either by
the board or by the outstanding voting shares. The management
agreement must automatically terminate in the event of assignment
and must be subject to termination upon 60 days notice by the board
or by a vote of the majority of the outstanding voting shares. The
underwriting agreement must be annually approved by the board or by
a vote of a majority of the outstanding voting shares, and must
provide for automatic termination in event of assignment.
Transactions between the investment company and an affiliate can be
entered into only if approved by the SEC, after notice and
opportunity for hearing, as fair and equitable.
Net Capital Requirements
As a broker/dealer, and as a member firm of the NASD, the Company's
subsidiary, ND Capital and its new subsidiary, Ranson Capital
Corporation are subject to the Uniform Net Capital Rule (Rule 15c3-
1) promulgated by the SEC which provides that a broker/dealer doing
business with the public must maintain certain net minimum capital
and shall not permit its aggregate indebtedness to exceed certain
specified limitations. The Rule is designed to measure a firm's
financial integrity and liquidity. A broker/dealer may be required
to reduce its business and restrict withdrawal of subordinated
capital if its net capital drops below specified levels, and also
may be prohibited from expanding its business or declaring cash
dividends. In addition, failure to maintain the required net
capital may subject a broker/dealer to disciplinary actions by the
SEC, the NASD and state securities administrators, including fines,
censure, suspension or expulsion. The Uniform Net Capital Rule may
limit the uses ND Capital and Ranson Capital may make of its
capital.
At December 31, 1996, ND Capital, Inc.'s required net capital was
$25,000. Ranson Capital Corporation's required net capital was
$100,000. At December 31, 1996 and the date of this prospectus
both subsidiaries' net capital was in excess of required net
capital.
Factors which affect ND Capital and Ranson Capital's net capital
include the general investment climate as well as the ability of
the Company to obtain any liquid assets necessary to contribute
equity capital to its wholly-owned subsidiaries. Although ND
Capital currently has sufficient net capital, should the Company's
liquidity be impaired substantially as a result of any factor,
including potential demands for cash created by the rescission
offer, and additional net capital become necessary, the continued
operation of ND Capital and/or Ranson Capital could be restricted
or suspended.
33
<PAGE>
The Uniform Net Capital Rule requires the ratio of aggregate
indebtedness, as defined, to net capital not exceed 15 to 1, and
imposes certain restrictions on operations. In computing net
capital, various adjustments to net worth are made with a view to
excluding assets which are not readily convertible into cash and
with a view to a conservative statement of other assets, such as a
firm's position in securities. ND Capital may not allow withdrawal
of subordinated capital if minimum net capital would thereafter be
less than 5% of aggregate debit items as defined under the SEC
Uniform Net Capital Rule. Further, ND Capital may not permit
equity capital to be withdrawn whether by payment of dividends,
repurchase of stock or other means, if its net capital would
thereafter be less than 5% of aggregate debit items as defined
under the SEC Uniform Net Capital Rule. Compliance with the
Uniform Net Capital Rule may limit those operations of a firm (such
as ND Capital) which may require the use of its capital.
PROPERTIES
The Company owns no material physical properties.
On June 1, 1996, the Company moved its office to 1 North Main,
Minot, North Dakota and terminated its former lease arrangement.
The office lease, which terminates on May 31, 2001, encompasses
approximately 4,000 square feet of office space and requires
monthly lease payments of $3,000 per month.
EMPLOYEES AND REGISTERED REPRESENTATIVES
At December 31, 1996, the Company had 18 full-time employees,
including eight (8) registered representatives, licensed by the
NASD, who are associated with ND Capital, Inc. With the
acquisition of The Ranson Company, Inc., three additional employees
(retained employees of Ranson Capital Company) were added.
Registered Representatives earn commissions through ND Capital,
Inc. but receive their paychecks from the Company. ND Capital,
Inc. reimburses the Company (its parent) through intercompany
transfers for such commission payments. Salaried and hourly
employees are paid directly by ND Holdings, Inc. (the Company).
State and federal wage and tax reporting is done by the Company.
The employees of the Company perform various services in all
necessary capacities for each of the subsidiaries as well as the
Holding Company (the Company). Technically, except for Registered
Representatives associated with ND Capital, Inc., the subsidiaries
of Company have no employees. The Company and its subsidiaries are
currently developing a plan to restructure its employee arrangement
so that specific persons will become employees in form and
substance in each subsidiary where operations actually occur.
LEGAL PROCEEDINGS
Except for the regulatory issues described below, the Company is
not involved in any material pending legal proceedings, nor is
management aware of any threatened litigation.
Pursuant to a previous registration, offers of cash rescission to
any unaffiliated purchaser who purchased the Company's Common Stock
between September 1, 1992 and March 9, 1995 (Common Stock totaling
4,859,207 shares) has been completed as of October 12, 1996.
Shareholders accepting rescission number only five (5) and cash
paid out in rescission was $139,737. This rescission offer was the
result of sales by ND Capital, Inc., and other broker/dealers
unrelated to Company, of Common Stock of the Company to a total of
eleven persons not residents of the State of North Dakota between
May 28, 1991 and July 5, 1994 while the Company was relying upon an
intrastate exemption (Section 3(a)(11) of the 1933 Securities Act).
34
<PAGE>
Section 5(a) of the Securities Act of 1933 requires that a
registration statement pursuant to the requirements set forth in
Section 6 of the Securities Act of 1933 be filed with the US
Securities and Exchange Commission (the "SEC") and in effect prior
to offers or sales of a security. The Company relied upon the
"intrastate" exemption provided by Section 3(a)(11) of the
Securities Act of 1933 and the North Dakota exemption from
registration provided by NDCC 10-04-05(13) for securities issued by
a venture capital corporation organized under Chapter 10-30.1 in
making sales of its Common Stock. The exemption from registration
required by Section 5(a) of the Securities Act of 1933 may not be
available, thereby creating liability to the Company under federal
securities laws. The Company does not believe that sales to
nonresidents of North Dakota effects its exemption from
registration with the North Dakota Securities Commission. Federal
law claims may be brought by investors for up to three years after
the date of the offer of the unregistered Common Stock.
Although compliance with the requirements of the applicable state
rescission may bar future state claims, acceptance or rejection of
the offer of rescission may not bar holders from asserting any
claims against the Company for alleged violations of Federal
Securities Laws. Contingent liability of the Company may not
necessarily be eliminated by making the Rescission Offer.
Effect of Previous "Red Herring" Preliminary Prospectus.
As was indicated by the red lettering on the face of a "red
herring" preliminary prospectus related to the Company's previous
rescission offering, first distributed approximately February 14,
1996 to certain shareholders of ND Holdings, such document was
subject to completion and not the definitive and final prospectus.
Completion of rescission offers prior to the effective date of the
registration may be a violation of Section 5(a) of the Securities
Act of 1933 which requires that a registration statement pursuant
to the requirements set forth in Section 6 of the Securities Act of
1933 be filed with the US Securities and Exchange Commission and in
effect prior to offers or sales of securities. In March 1996, a
total of $34,808.98 in cash was paid out to two shareholders
electing rescission for a total of 17,263 shares of the Company's
Common Stock. As a result, the previous cash payments to the two
persons electing rescission following the distribution of the
February 14, 1996 preliminary prospectus, may be a violation by the
Company of Section 5(a).
MANAGEMENT
Executive Officers and Directors of the Company
The following tables set forth various information with respect to
the Company's executive officers and members of the Board of
Directors:
Identification of Executive Officers and Directors.
The following is a list of the names and ages of all executive
officers and directors of the Company. All positions and offices
with the Company held by each such person, and each person's term
of office as director is also provided.
35
<PAGE>
Term of office Positions and
with the offices with
Name Age Company the Company
___________________ ___ __________________ __________________
Richard J. Backes 71 5-4-88 to present Director
Vance A Castleman 53 3-25-94 to present Director
Daniel L. Feist 64 5-4-88 to present Director
Lyle E. McLain 63 5-4-88 to present Director
Peter A. Quist 63 5-4-88 to present Vice President and
Director
Robert E. Walstad 52 9-22-87 to present President and
Director
Richard H. Walstad 58 5-4-88 to present Director
Jacqueline L. Picken 48 5-4-88 to present Secretary
Dan Korgel 49 5-4-88 to present Treasurer
All directors were re-elected on March 22, 1996 for one-year terms.
The Company has no standing audit, nominating, or compensation
committees of the Board of Directors or any committees which
perform similar functions.
Family Relationships.
Richard H. Walstad, a Director of the Company, is the brother of
Robert E. Walstad the President and a Director of the Company.
There are no other family relationships among executive officers,
directors or persons nominated to such positions.
Business Experience.
The current employment, background and business experience of each
director, and executive officer follows:
Richard J. Backes - Farmer (1950-Present); Former North Dakota
State Highway Commissioner (1989-1993), Former North Dakota State
Representative (Majority Floor Leader).
Vance A. Castleman - Real Estate Developer (1986-Present); Former
Director Minot Area Development Corporation; Commissioner, Ward
County Planning Commission (past five years).
Daniel L. Feist - Contractor (1955-Present); Real Estate Broker
(1963-Present); Director, First Bank, Minot (past five years);
Director, Investors Real Estate Trust (past five years).
Lyle E. McLain - Farmer (1950-Present); Director, Former Chairman,
Farm Credit Banks, 7th Dist., St. Paul, Minnesota; Director, Excel
Manufacturing Co. (1986-Present).
Peter A. Quist - Vice President and Director of ND Holdings, Inc.
(1988-Present); ND Tax-Free Fund, Inc. (1988-Present), Montana Tax-
Free Fund, Inc. (1993-Present), and Integrity Fund of Funds, Inc.
(1994-Present); Vice President, Secretary, and Director of ND Money
Management, Inc., ND Capital, Inc. (1988-Present), and ND
Resources, Inc. (1989-Present); Vice President, Secretary, and
Director of ND Insured Income Fund, Inc. (1990-Present); Vice
President and Secretary of South Dakota Tax-Free Fund, Inc. (1993-
Present); Currently a licensed North Dakota attorney; Former North
Dakota Securities Commissioner (1983-1988).
Robert E. Walstad - President and Director of ND Holdings, Inc.
(1987-Present); President, Treasurer, and Director of ND Tax-Free
Fund, Inc. (1988-Present), ND Money Management, Inc. (1988-
Present), ND Resources, Inc. (1989-Present), ND Insured Income
Fund, Inc. (1990-Present), Montana Tax-Free Fund, Inc. (1993-
Present), South Dakota Tax-Free Fund, Inc. (1993-Present), and
Integrity Fund of
36
<PAGE>
Funds, Inc. (1994-Present); Formerly Vice President and Branch
Manager of Dean Witter Reynolds; Associated with Securities
Industry as an NASD licensed registered representative from 1972-
Present.
Richard H. Walstad - President/Owner, Cook Sign Co. of Fargo (1978-
Present); Past Chairman, Fargo Cass County Economic Development
Corp., Fargo.
Jacqueline L. Picken - Secretary of ND Holdings, Inc. (1988-
Present); Executive Assistant to Robert E. Walstad, President of ND
Holdings, Inc. (1988-Present).
Dan Korgel - Treasurer of ND Holdings, Inc. (1988-Present);
Portfolio manager of the North Dakota Tax-Free, Inc. (1988-
Present), North Dakota Insured Income, Inc. (1990-Present), South
Dakota Tax-Free, Inc. (1993-Present), Montana Tax-Free, Inc. (1993-
Present), and Integrity Fund of Funds, Inc. (1994-Present).
Indemnification Agreements.
There are no specific provisions for the indemnification of
directors and officers in the Bylaws of the Company. The Company
has adopted the provisions of Section 10-19.1-91 of the North
Dakota Century Code allowing for indemnification of officers and
directors.
<TABLE>
Summary Compensation Table
(a) Cash Compensation.
<CAPTION>
Long Term Compensation
_______________________________________________
Annual Compensation Awards Payouts
_____________________ _____________________________ _______
Other All
Annual Restricted Other
Commi- Compen- Stock LTIP Compen-
Salary sions sation Award(s) Options/ Payouts sation
Year ($) ($) ($) ($) SARs ($) ($)
____ ______ ______ _________ ________ ________ _______ _______
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert E. Walstad, 1994 48,000 37,608 0 0 0 0 0
Chairman, President 1995 52,000 27,991 0 0 0 0 0
and CEO 60,000 10,836 0 0 0 0 0
</TABLE>
No individual Officer or Director other than Robert E. Walstad
received compensation in excess of $60,000.
Directors, except for directors who are also salaried officers,
receive compensation of $300 per meeting. There were six meetings
of Directors in the year ended December 31, 1996.
(b) Compensation Pursuant to Plans (401(k) Plan).
The Company established a 401(k) plan during 1993 for all it
employees including persons who are officers of the Company. This
plan is solely funded by employee contributions. The only expenses
of the plan paid for by the Company are the trustees fees, which
were insignificant in 1995, 1994 and 1993.
Each original Director received 10,000 perpetual warrants upon
acceptance of his position as director. The Directors warrants are
immediately exercisable and have no expiration date. Each warrant
entitles the holder to purchase one share of the Company's Common
Stock at a price of approximately $1.62 (price originally $2.00,
adjusted for stock splits.)
37
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth at December 31, 1995, and as
adjusted to reflect the sale of Common Stock offered hereby certain
information regarding beneficial ownership of the Common Stock held
by (i) each person or entity known to the Company to own
beneficially more than 5% of the Common Stock, (ii) each Director
of the Company who owns outstanding shares of Common Stock, (iii)
each Executive Officer named in the Summary Compensation Table,
(iv) all Directors and Executive Officers of the Company as a
group, and (v) each of the selling shareholders. The Company
believes that the stockholders listed below have sole voting and
investment power with respect to the Common Stock indicated as
beneficially owned by them, except as otherwise noted.
<TABLE>
<CAPTION>
Percentage Percentage
Shares of Shares Shares of Shares
Beneficially Beneficially Number Beneficially Beneficially
Owned Owned of Owned Owned
Prior Prior Shares After After
to the to the Being the the
Offering(1) Offering Offered Offering Offering
____________ ____________ _______ ___________ ____________
<S> <C> <C> <C> <C> <C>
Selling Shareholders:
46 unaffiliated shareholders 453,581 * 453,581 * *
(none of whom individually own
more than 1% of the Company)
Executive Officers and Directors:
Richard J. Backes 23,100(8) * 0 23,100 *
201 5th Ave.
Glenburn, ND 58740
Vance A. Castleman 150,000(2) 1.8% 0 150,000 1.6%
#7 Country Club Acres
Minot, ND 58703
Daniel L. Feist 23,100(8) * 0 23,100 *
1111 Robert Street
Minot, ND 58703
Lyle E. McLain 19,488(3) * 0 19,488 *
RR 1, Box 36
Mohall, ND 58761
Peter A. Quist 67,100(9) * 0 67,100 *
1821 S. Grandview Lane, #8
Bismarck, ND 58501
Robert E. Walstad 823,420(4) 10.0% 0 823,420 8.9%
2512 Bel Air Drive
Minot, ND 58703
Richard H. Walstad 32,697(5) * 0 32,697 *
2822 27th St. S.
Fargo, ND 58103
38
<PAGE>
Percentage Percentage
Shares of Shares Shares of Shares
Beneficially Beneficially Number Beneficially Beneficially
Owned Owned of Owned Owned
Prior Prior Shares After After
to the to the Being the the
Offering(1) Offering Offered Offering Offering
____________ ____________ _______ ___________ ____________
Jacqueline L. Picken 45,184(6)(7) * 0 45,184 *
1311 33rd Ave SW
Minot, ND 58701
Dan Korgel 19,909(10) * 0 19,909 *
1212 7th St NE, Minot
ND 58703
All directors & officers
of the company as a group
(9 persons named above) 1,203,998 14.7% 0 1,203,998 13.1%
______________________
<FN>
* Less than 1%
<F1>
(1) Calculated before the offering pursuant to Rule 13d-3(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Under Rule 13d-3(d), shares not outstanding which are
subject to options, warrants, rights or conversion privileges
exercisable within 60 days are deemed outstanding for the
purpose of calculating the number and percentage owned by such
person, but not deemed outstanding for the purpose of
calculating the percentage owned by each other person listed.
Calculated after the offering in the same manner together with
an additional 2,546,419 shares to be issued by the Company in
the offering.
<F2>
(2) Includes 5,075 shares held in Vance A. Castleman's IRA account
and 4,550 shares held in Arlene Castleman's IRA account.
<F3>
(3) Includes 3,210 shares held in the name of Lyle E. and Cynthia
L. McLain, 2,509 shares in Lyle E. McLain's IRA account and
2,509 shares in Cynthia L. McLain's IRA account, as well as
160 Shares controlled by Cynthia L. McLain under the UGMA.
Also includes 10,100 warrants exercisable at a price of
approximately $1.62 per share.
<F4>
(4) Includes 101,000 shares held by Robert E. Walstad, 10,000
shares held by his son Mark A. Walstad, and 2,420 shares held
by his wife, Shirley J. Walstad, in which he disclaims any
beneficial interest. Also includes 710,000 warrants
exercisable at a price of approximately $1.62 per share.
<F5>
(5) Includes 3,630 shares held by Richard H. Walstad and 12,100
shares held by Cook Sign Co. of Fargo of which Richard H.
Walstad is owner and president, and 6,667 shares owned by
Richard H. Walstad's wife, Jaynee Walstad. Also includes
10,300 warrants exercisable at a price of approximately $1.62
per share.
<F6>
(6) Includes 8,811 shares held in Jacqueline L. Picken's husband's
IRA account (Jeff Case).
<F7>
(7) Includes 16,598 warrants exercisable at a price of
approximately $1.62 per share held in Jacqueline L. Picken's
husband's IRA account (Jeff Case).
<F8>
(8) Includes 11,000 warrants exercisable at a price of
approximately $1.62 per share.
<F9>
(9) Includes 55,000 warrants exercisable at a price of
approximately $1.62 per share.
<F10>
(10) Includes 15,420 warrants exercisable at a price of
approximately $1.62 per share.
</TABLE>
39
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Common Stock
The following summary description of the capital stock of the
Company does not purport to be complete and is qualified in its
entirety by reference to the Articles of Incorporation and the
Bylaws of the Company, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.
The shares of Common Stock of the Company to be registered and
offered hereby are a single class of Common Stock without par
value. There are 20,000,000 shares authorized. All Common Stock
participates equally in dividends and distributions when and as
declared by the Board of Directors and in net assets upon
liquidation. The shares of Common Stock are fully paid and non-
assessable; there are no exchange, pre-emptive or redemption
rights. The shares of Common Stock are freely transferable and
alienable.
As of the date of this Prospectus, there are 8,123,586 shares of
Common Stock outstanding.
Stock Warrants
The Company has authorized and issued 1,050,000 perpetual warrants
as incentives to the organizers, directors, officers and employees
of the Company. These warrants, at the date of issue, allowed for
the purchase of shares of stock at $2.00 per share on a one share
for one warrant basis. The exercise price of the warrants will be
adjusted to reflect stock splits of 11 for 10 in 1992 and 1991. No
warrants have been exercised as of the date of this prospectus.
Transfer Agent and Registrar
The current transfer agent and registrar for the Common Stock is ND
Resources, Inc., a wholly-owned subsidiary of the Company.
CERTAIN TRANSACTIONS
Transactions with Management
No director or officer of the Company is or has been at any time
since January 1, 1996, (beginning of the Company's last fiscal
year) indebted to the Company in excess of $60,000.
Company's Transactions with the Funds
The Company's principal business is to provide services to mutual
funds affiliated with the Company. A description of the financial
arrangements with each Fund follows:
South Dakota Tax-Free Fund, Inc.
ND Money Management, Inc., the South Dakota Tax-Free Fund's
investment advisor; ND Capital, Inc., the South Dakota Tax-Free
Fund's underwriter; and ND Resources, Inc., the South Dakota Tax-
Free Fund's transfer agent, are subsidiaries of ND Holdings, Inc.,
(the Company) the South Dakota Tax-Free Fund's sponsor.
The South Dakota Tax-Free Fund has engaged ND Money Management,
Inc. to provide investment advisory and management services to the
South Dakota Tax-Free Fund. The Investment Advisory Agreement
provides for fees to be computed at an annual rate of 0.60% of the
South Dakota Tax-Free Fund's average daily net assets.
The South Dakota Tax-Free Fund has adopted a distribution plan
pursuant to Rule 12b-1 under the 1940 Act (the Plan), whereby the
South Dakota Tax-Free Fund shall pay at the annual rate of 0.75% of
the average daily net assets of the South Dakota Tax-Free Fund to
ND Capital, its principal underwriter, for expenses
40
<PAGE>
incurred in the distribution of the South Dakota Tax-Free Fund's
shares. Pursuant to the Plan, ND Capital is entitled to
reimbursement each month for its actual expenses incurred in the
distribution and promotion of the South Dakota Tax-Free 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 ND Capital. ND Capital
is reimbursed at a rate not to exceed 0.75% of the average daily
net assets of the South Dakota Tax-Free Fund for the prior month.
ND Tax-Free Fund, Inc.
ND Money Management, Inc., the ND Tax-Free Fund's investment
advisor; ND Capital, Inc., the ND Tax-Free Fund's underwriter; and
ND Resources, Inc., the ND Tax-Free Fund's transfer agent, are
subsidiaries of ND Holdings, Inc. (the Company), the ND Tax-Free
Fund's sponsor.
The ND Tax-Free Fund has engaged ND Money Management, Inc. to
provide investment advisory and management services to the ND Tax-
Free Fund. The Investment Advisory Agreement provides for fees to
be computed at an annual rate of 0.60% of the ND Tax-Free Fund's
average daily net assets.
The ND Tax-Free Fund has adopted a distribution plan pursuant to
Rule 12b-1 under the 1940 Act (the Plan), whereby the Fund shall
pay at the annual rate of 0.75% of the average daily net assets of
the ND Tax-Free Fund's shares. Pursuant to the Plan, ND Capital is
entitled to reimbursement each month for its actual expenses
incurred in the distribution and promotion of the ND Tax-Free
Fund's shares, including the printing of prospectuses and reports
used for sale 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 ND Capital.
ND Capital will be reimbursed at a rate not to exceed 0.75% of the
average daily net assets of the ND Tax-Free Fund for the prior
month.
Montana Tax-Free Fund, Inc.
ND Money Management, Inc., the Montana Tax-Free Fund's investment
adviser; ND Capital, Inc., the Montana Tax-Free Fund's underwriter;
and ND Resources, Inc., the Montana Tax-Free Fund's transfer agent,
are subsidiaries of ND Holdings, Inc. (the Company), the Montana
Tax-Free Fund's sponsor.
The Montana Tax-Free Fund has engaged ND Money Management, Inc. to
provide investment advisory and management services to the Montana
Tax-Free Fund. The Investment Advisory Agreement provides for fees
to be computed at an annual rate of 0.60% of the Montana Tax-Free
Fund's average daily net assets.
The Montana Tax-Free Fund has adopted a distribution plan pursuant
to Rule 12b-1 under the 1940 Act (the Plan), whereby the Montana
Tax-Free Fund shall pay the annual rate of 0.75% of the average
daily net assets of the Montana Tax-Free Funds to ND Capital, its
principal underwriter, for expenses incurred in the distribution of
the Montana Tax-Free Fund's shares. Pursuant to the Plan, ND
Capital, is entitled to reimbursement each month for its actual
expenses incurred in the distribution and promotion of the Montana
Tax-Free Fund's shares, including the printing of prospectuses and
reports used for sales purposes, expense 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
ND Capital. ND Capital will be reimbursed at a rate not to exceed
0.75% of the average daily net assets of the Montana Tax-Free Fund
for the prior month.
ND Insured Income Fund, Inc.
ND Money Management, Inc., the ND Insured Income Fund's investment
advisor; ND Capital, Inc., the ND Insured Income Fund's
underwriter; and ND Resources, Inc., the North Dakota Insured
Income Fund's transfer agent, are subsidiaries of ND Holdings, Inc.
(the Company), the ND Insured Income Fund's sponsor.
41
<PAGE>
The ND Insured Income Fund has engaged ND Money Management, Inc. to
provide investment advisory and management services to the ND
Insured Income Fund. The Investment Advisory Agreement provides
for fees to be computed at an annual rate of .60% of the ND Insured
Income Fund's average daily net assets.
The ND Insured Income Fund is a load fund carrying a sales charge
of 4.5% payable to the underwriter (subject to a dealer allowance
of 4%) of the offering price on sales of less than $100,000.
Integrity Fund of Funds, Inc.
ND Money Management, Inc., the Integrity Fund of Funds Fund's
investment advisor; ND Capital, the Integrity Fund of Funds Fund's
underwriter; and ND Resources, Inc., the Integrity Fund of Funds
Fund's transfer agent, are subsidiaries of ND Holdings, Inc. (the
Company), the Integrity Fund of Funds Fund's sponsor. ND Capital,
has invested $100,000 in Integrity Fund of Funds as of December 31,
1994. ND Capital, Inc., Integrity Fund of Funds, Inc.'s principal
underwriter, purchased 10,000 shares of Integrity Fund of Funds,
Inc. for $10 a share on August 19, 1994, in order to infuse
$100,000 of net worth into Integrity fund of Funds, Inc. and
thereby enable it to make a public offering of its shares. The
percentage of Integrity Fund of Funds, Inc.'s shares owned by ND
Capital, Inc. is now to less than 5%.
The Integrity Fund of Funds Fund has engaged ND Money Management,
Inc. to provide investment advisory and management services to the
Integrity Fund of Funds. The Investment Advisory Agreement
provides for advisory fees to be computed at an annual rate of .90%
for the Integrity Fund of Fund's average daily net assets.
The Ranson Acquisition
The Company completed a transaction on January 5, 1996 which
allowed the Company to acquire management of the Ranson Managed
Portfolios (the "Ranson Managed Portfolios"), through acquisition
of their advisor, Ranson Capital Corporation and its parent, The
Ranson Company, Inc., as wholly-owned subsidiaries of the Company.
Terms of the acquisition, discussed in greater detail in the
following paragraphs, are as follows: a purchase price of
approximately $6,196,402 (subject to 180 day adjustment based upon
net redemptions of the Ranson Managed Portfolios between January 5,
1996 and July 3, 1996). $5,083,273 (80%) of purchase price was
paid to The Ranson Company, Inc. shareholders on January 5, 1996.
$1,113,129 was held in escrow pending final adjustment of the
purchase price and was paid out on July 3, 1996. Prior to this
acquisition, the Company had no affiliation with The Ranson
Company, Inc., it subsidiary or its shareholders.
Ranson Capital Corporation ("Ranson Capital") a Kansas corporation,
is the investment adviser and manager for each Series of the Ranson
Managed Portfolios. Ranson Capital is a broker/dealer registered
with the Securities and Exchange Commission and is a wholly-owned
subsidiary of The Ranson Company, Inc., a Kansas corporation.
Ranson Capital was formed in 1990 and acts as investment advisor
and fund manager for the Ranson Managed Portfolios, consisting of
the Kansas Insured Intermediate Fund, Kansas Municipal Fund and the
Nebraska Municipal Fund. John A. Ranson, Alex R. Meitzner, Mark J.
Kneedy, John J. Hass, Robin K. Pinkerton, Stephen E. Shorgren and
Douglas K. Rogers (the "Selling Ranson Stockholders") previously
owned all the outstanding Common Stock of The Ranson Company, Inc.
None of these persons have any affiliation with the Company. None
of the Selling Ranson Stockholders will become a director or
executive officer of the Company.
The Selling Ranson Stockholders of The Ranson Company, Inc., the
parent of Ranson Capital, entered into a contract dated as of
September 15, 1995 (the "Agreement") whereby the Company acquired
all outstanding shares of The Ranson Company, Inc. and therefore
acquired all business related to the Ranson Managed Portfolios
through the indirect acquisition of Ranson Capital (the
"Acquisition"). The Company has agreed to continue the management
and operation of the Ranson Managed Portfolios in the manner
conducted by prior management staff. Ranson Capital, which is now
wholly-owned by the Company continues by that name and continues to
act as investment adviser and manager for each Series of the Ranson
Managed Portfolios. Management of the Company now controls Ranson
Capital.
42
<PAGE>
Purchase Price. The total purchase price paid by the Company to
the Ranson Stockholders for the Purchased Stock (hereinafter
referred to as the "Purchase Price") was determined as follows:
(a) an amount equal to the total consolidated stockholders'
equity of The Ranson Company, Inc. and Ranson Capital
determined in accordance with generally accepted accounting
principles consistently applied, but without audit and
adjusted to exclude any amount for goodwill carried on the
books of The Ranson Company, Inc. and Ranson Capital (the
"Total Ranson Stockholders' Equity") determined as the close
of business on the date immediately preceding the Closing Date
(January 5, 1996);
(b) an amount equal to three percent (3%) of the net asset
value of the Ranson Managed Portfolios' assets determined in
the manner consistent with that described in the current
prospectus for the applicable Ranson Managed Portfolios (the
"Asset Portion"), as the close of business on the date
immediately preceding the Closing Date (January 5, 1996).
Payment of Purchase Price. The Purchase Price was paid by the
Company to the Ranson Stockholders on January 5, 1996 as follows:
(a) a wire transfer totaling $5,083,273 to accounts
specified by each of the Ranson Stockholders allocated among
the Ranson Stockholders in accordance with their respective
proportion of the Purchased Stock.
(b) a wire transfer of immediately available federal funds
to First Western Bank & Trust, Minot, North Dakota (the
"Escrow Agent") in the amount of $1,113,129 (the "Deferred
Purchase Price") which was held by the Escrow Agent until July
3, 1996 pursuant to terms and conditions of the Escrow
Agreement entered into by and among the Ranson Stockholders,
the Company and the Escrow Agent (the "Escrow Agreement").
Operation of Ranson Managed Portfolios After Closing. The
Company's management is now in control of Ranson Capital
Corporation. The Company agreed to continue the management and
operation of the Ranson Managed Portfolios following the Closing
through the Reduction Date in the ordinary course as was formerly
conducted in order to minimize the Net Fund Redemptions after
Closing. The Company agreed that none of the Ranson Managed
Portfolios will be merged, consolidated, combined or transferred
with or to any other Ranson Managed Portfolios until after the
Reduction Date.
Allocation of Purchase Price. The Ranson Stockholders and the
Company agreed that the entire Purchase Price is allocated to the
Purchased Stock and that no portion of the Purchase Price is
allocated to the non-competition covenants.
Termination of Employees. The Ranson Company, Inc. and Ranson
Capital terminated the employment of all employees of The Ranson
Company, Inc. and Ranson Capital, except for three employees
retained by the Company. All liabilities of The Ranson Company,
Inc. and Ranson Capital to terminated employees for accrued
compensation, vacation pay or severance pay were paid prior to the
Closing or accrued as liabilities in connection with the
determination of the Total Ranson Stockholders' Equity. The Ranson
Capital's 401(k) Profit Sharing Plan was terminated prior to
Closing. Three management employees of Ranson Capital Company
remain after completion of The Ranson Company, Inc. acquisition.
None of the "Selling Ranson Stockholders" is or will become a
director or executive officer of the Company.
Disposition of Unit Trust Business. On or prior to the Closing
Date, Ranson Capital disposed of its Unit Trust Business (separate
from the Ranson Managed Portfolios) by transfer of the Unit Trust
Business, which transfer was made without any consideration or
payment to Ranson Capital or The Ranson Company, Inc.
Non-Competition Covenants. For a period of three (3) years from
the Closing Date, John A. Ranson and Alex R. Meitzner each agreed
that he would not conduct a business in competition with the
management of open-end investment companies (mutual funds)
registered under the Investment Company Act of 1940 (the "1940
Act"). For a period of three (3) years from the Closing Date,
Douglas K. Rogers agreed that he would not conduct a business which
consists of the management of open-end investment companies (mutual
funds) registered under the 1940 Act, the investments of which
consist of interest bearing obligation issued
43
<PAGE>
by or on behalf of municipalities or other governmental authorities
in the states of Kansas or Nebraska, the interest income from which
is exempt from federal and Kansas or Nebraska state income taxes.
Investment Management Agreements With The Ranson Managed Portfolios
Consummation of the Agreement by the Company to acquire The Ranson
Company, Inc. and Ranson Capital constituted an "assignment," as
that term is defined in the Investment Company Act of 1940 (the
"1940 Act"), of the Ranson Fund's current investment management
agreements with Ranson Capital. As required by the 1940 Act, the
current investment management agreements provide for their
automatic termination in the event of their assignment. In
anticipation of the Acquisition, new investment management
agreements (the "Contracts") between each Series and Ranson Capital
were proposed for approval and accepted by Ranson Managed Portfolio
fund shareholders of each Series. The new management agreements
for the Ranson Managed Portfolios are on the same terms as the
current management agreements. Management of the Ranson Managed
Portfolios will be performed by the Company's current management
team.
The Contracts provide that Ranson Capital will supply investment
research and portfolio management, including the selection of
securities for the Ranson Managed Portfolios to purchase, hold or
sell and the selection of brokers through whom the Ranson Fund's
portfolio transactions are executed. Ranson Capital also agrees to
administer the business affairs of the Ranson Managed Portfolios,
furnish offices, necessary facilities and equipment, provide
administrative services, and permit its officers and employees to
serve without compensation as Trustees and officers of the Ranson
Managed Portfolios if duly elected to such positions. The
Contracts provide that Ranson Capital may, at its option, appoint
a subadviser which shall assume all of such responsibilities and
obligations of the adviser pursuant to such Contracts as shall be
delegated to the subadviser. Any subadviser appointed by Ranson
Capital must be approved by a majority of the outstanding shares of
the Ranson Managed Portfolios.
The Contracts may continue in effect from year to year thereafter
if specifically approved at least annually by the Trustees of the
Ranson Managed Portfolios or by a vote of the majority of the
outstanding shares of the Ranson Managed Portfolios. The
continuation of the Contracts must also be approved by a vote of a
majority of the disinterested Trustees of the Ranson Managed
Portfolios, cast in person at a meeting called for such purpose.
The Contracts may be terminated by either party without penalty
with sixty days written notice and will automatically terminate in
the event of assignment. The contracts were continued to December
1, 1997 pursuant to Trustee approval.
For Ranson Capital's services under each of the Contracts, the
Ranson Managed Portfolios agree to pay Ranson Capital a monthly
management and investment advisory fee equivalent on an annual
basis to .50 of 1% of the Ranson Fund's average daily net assets.
Under the terms of each of the Contracts, Ranson Capital has agreed
to pay all expenses of the Ranson Managed Portfolios, including the
Ranson Fund's management and investment advisory fee and the Ranson
Fund's dividend disbursing, administrative and accounting services
fees (but excluding taxes and brokerage fees and commissions, if
any) that exceed 1.25% (.75 in the case of Kansas Insured
Intermediate Fund) of the Ranson Fund's average daily net assets on
an annual basis up to the amount of the investment advisory and
management fee payable by the Ranson Managed Portfolios to Ranson
Capital. Reimbursements by Ranson Capital for the Ranson Fund's
expenses will be paid monthly based on annualized year-to-date
expenses. All other expenses shall be paid by the Ranson Managed
Portfolios. From time to time and subject to discontinuance at any
time, Ranson Capital may voluntarily assume certain expenses of the
Ranson Managed Portfolios. This would have the effect of lowering
the overall expense ratio of the Ranson Managed Portfolios and of
increasing the yield to investors. The Ranson Fund's expenses
include, among others, taxes, brokerage fees and commissions, if
any, fees of disinterested Trustees, expenses of Trustees' and
Ranson Stockholders' meetings, insurance premiums, expenses of
redemption of shares, expenses of issue and sale of shares (to the
extent not borne by the distributors), expenses of printing and
mailing certificates, association membership dues, charges of the
Ranson Fund's custodian, and bookkeeping, auditing and legal
expenses, and the fees and expenses of registering the Ranson
Managed Portfolios and its shares with the Securities and Exchange
Commission, registering or qualifying its shares under state
securities laws and the expenses of preparing and mailing
prospectuses and reports to Ranson Stockholders.
44
<PAGE>
Ranson Capital acts as the Ranson Fund's administrative and
accounting services agent. For these services, Ranson Capital
receives and administrative and accounting services fee payable
monthly by the Ranson Managed Portfolios equal to sum of (i) $1,500
per month if the Ranson Fund's average daily net assets are greater
than $50 million but do not exceed $100 million, and $2,500 per
month if the Ranson Fund's average daily net assets exceed $100
million, and (ii) 0.15% of the Ranson Fund's average daily net
assets on an annual basis for the Ranson Fund's average daily net
assets in excess $20 million but not exceeding $40 million, 0.10%
of the Ranson Fund's average daily net assets on an annual basis
for the Ranson Fund's next $20 million of average daily net assets,
0.05% of the Ranson Fund's average daily net assets on an annual
basis for the Ranson Fund's next $60 million of average daily net
assets, 0.02% of the Ranson Fund's average daily net assets on an
annual basis for the Ranson Fund's next $400 million average daily
net assets, and 0.01% of the Ranson Fund's average daily net assets
on an annual basis for the Ranson Fund's average daily net assets
in excess of $500 million, together with reimbursement of Ranson
Capital's out-of-pocket expenses. This fee and reimbursement are
in addition to the investment advisory and management fee received
by Ranson Capital from each of the Ranson Managed Portfolios.
Previous Rescission Exchange Offer
With a registration statement effective August 29, 1996 and
completed October 12, 1996, the Company registered Common Stock for
re-offer and re-sale pursuant to the US Securities Act of 1933 in
connection with rescission of the unregistered Common Stock sold
between September 1, 1992 and March 9, 1995. Purchasers who
purchased between September 1, 1992 and March 9, 1995 (Common Stock
totaling 4,859,207) were offered the option of electing to revoke
their ownership of the Company and receive from the Company, such
purchaser's cash paid for the unregistered Common Stock, plus
accrued interest at the legal rate in the state of purchase, or
rescind the original purchase and receive registered Common Stock
offered hereby on a one share for one share basis.
Only five (5) persons offered the cash rescission option accepted
such offer, a total of $139,737 (including interest) in cash was
paid to such rescinding shareholders for a total of 66,165 shares.
4,793,042 shares of registered Common Stock were exchanged for the
equivalent 4,793,042 shares of unregistered Common Stock.
Other Significant Business Transactions
During 1990, the Company purchased $110,000 in debentures issued by
CFH Corporation. CFH Corporation was a start up manufacturing firm
located in Minot, North Dakota. In 1992, CFH Corporation failed
and went out of operation. The Company took possession of CFH
Corporation's equipment as collateral. The debentures were written
down to $30,000 on the books of the Company. In 1994, the Company
sold all the assets of CFH Corporation which the Company had in its
possession for $4,000 and wrote off the remaining balance of
$26,000. The Company was not involved in the management or
operation of CFH Corporation, neither the Company, nor any of it
directors or executive officers were or have been affiliated in any
way with CFH Corporation.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 10,670,005
shares of Common Stock outstanding (assuming no exercise of
warrants outstanding). Of these shares, the 3,000,000 shares sold
in this offering will be freely tradable without restriction or
further registration under the Securities Act, except that any
shares purchased by "affiliates" of the Company, as that term is
defined under the Securities Act may generally only be sold in
compliance with the limitations of Rule 144 described below.
Through a previous registration and offering, the Company has
completed the registration of 4,793,042 shares offered in exchange
for unregistered shares held by certain current shareholders of the
Company, allowing such shareholders shares to be exchanged for
registered shares. 4,793,042 unregistered shares were exchanged
for 4,793,042 registered shares.
45
<PAGE>
Immediately following this offering, there will be 10,670,005
shares of Common Stock outstanding. The 4,793,042 shares of Common
Stock exchanged in the previous offering will be registered and
immediately eligible for sale in the public market. An additional
2,965,964 shares distributed between October, 1987 and August 31,
1992 (excluding shares held by affiliates of the Company) are
available for immediate sale pursuant to exemptions from
registration provided by Rule 144 and Rule 144(k) under the
Securities Act. As a result of the previously completed
registration of exchange shares to the benefit of certain of the
Company's current Shareholders, only shares held by affiliates of
the Company will be subject to the resale limitations placed upon
"restricted securities" as described under Rule 144.
In general, under Rule 144 as currently in effect, if two years
have elapsed since the later of the date of acquisition of
restricted shares from the Company or from any "affiliate" of the
Company (as that term is defined under the Securities Act), the
acquirer or subsequent holder thereof is entitled to sell in the
public market within any three-month period a number of shares that
does not exceed the greater of 1% of then outstanding shares of
Common Stock or the average weekly trading volume for the Common
Stock on all exchanges and/or transactions reported through the
automated quotation system of a registered securities association
during the four calendar weeks preceding the date on which notice
of the sale is filed with the SEC. Such sales under Rule 144 are
also subject to certain manner of sale provisions, notice
requirements and the availability of current public information
about the Company. If three years have elapsed since the later of
the date of acquisition of restricted shares from the Company or
from any affiliate of the Company, and the acquirer or subsequent
holder thereof is deemed not to have been an affiliate of the
Company at any time during the 90 days preceding a sale, such
person would be entitled to sell such shares in the public market
under Rule 144(k) without regard to the volume limitations, manner
of sale provisions, public information requirements or notice
requirements. All 2,965,964 shares purchased prior to September 1,
1992 and now held by nonaffiliates of the Company are eligible for
public sale pursuant to Rule 144(k).
All executive officers and directors of the Company, who prior to
this offering beneficially owned 14.7% of the outstanding shares of
Common Stock have agreed that they will not offer, contract to sell
or effect any sale or distribution, including any sale pursuant to
Rule 144 under the Securities Act, of any equity securities of the
Company or of any securities convertible into or exchangeable or
exercisable for any equity securities of the Company prior to the
expiration of six months after the date of this Prospectus without
the prior written consent of the Company and the Underwriter. Upon
expiration of this period 1,414,580 shares of Common Stock, and
shares issuable upon exercise of stock warrants, that are deemed to
be "restricted securities" pursuant to Rule 144 under the
Securities Act, will be eligible for sale in reliance upon Rule
144, subject to volume and other restrictions contained therein.
Prior to this offering, there has been no public market for the
Common Stock of the Company and no predictions can be made of the
effect, if any, that the sale or availability for sale of shares of
additional Common Stock will have on the market price of the Common
Stock. Nevertheless, sales of substantial amounts of such shares
in the public market, or the perception that such sales could
occur, could adversely affect the market price of the Common Stock
and could impair the Company's future ability to raise capital
through an offering of its equity securities.
UNDERWRITING
The Company and the Selling Shareholders have entered into an
underwriting agreement (the "Underwriting Agreement") with
Financial Advantage Brokerage Services, Inc. (the "Underwriter") an
entity unrelated to the Company. Under the terms of the
Underwriting Agreement, the Underwriter will use its best efforts
to offer and sell 3,000,000 Shares to the public at the price set
forth on the cover of this Prospectus. There is no minimum number
of shares required to be sold prior to the Company receiving
proceeds from the sale of the shares offered herein. The first
907,162 shares sold will be allocated equally between the Company's
shares, and the total Selling Shareholder shares (pro rata between
the Selling Shareholder shares) shares sold in excess of 907,162
will be the Company's shares.
Any sale of the Shares offered is subject to the terms and
conditions of the Underwriting Agreement, a copy of which is filed
as an exhibit to the Registration Statement and to which reference
is hereby made.
46
<PAGE>
The Company and the Selling Shareholders have agreed to pay the
Underwriter a commission of 8% ($.28 per Share) of the aggregate
proceeds from the sale of the best efforts Shares. The
Underwriter, in its discretion, may reallow to members of the
National Association of Securities Dealers, Inc., a portion of the
discount or commission, but in no event more than the discount or
commission of 8% per Share. No broker/dealer affiliated with the
Company will participate in the offering.
The Company and the Selling Shareholders have also agreed to pay
the Underwriter a non-accountable expense allowance of $.07 per
Share, 2% of the gross proceeds of the offering, to be paid at
closing, none of which has been advanced to the Underwriter.
All of the Shares are being offered to the public at a price of
3.50 per Share as set forth on the cover page of this Prospectus.
The Shares are offered by the Underwriter subject to receipt and
acceptance by the Underwriter, to the right to reject any order, in
whole or in part, to approval of certain legal matters by counsel
and to certain other conditions. The Underwriter has agreed not to
confirm any sale of the Company's shares to any discretionary
account.
After the completion of the offering made hereby, ND Capital and
Ranson Capital will not engage in market making activities in the
Company's securities or make any recommendations with respect to
such securities. Rather, ND Capital and Ranson Capital intend to
trade in the Company securities on an (unsolicited) agency basis,
for their customers, and not as a principal. The Company will not
receive any of the proceeds from the sale of 453,581 shares of
Common Stock by the Selling Shareholders. See "Principal
Shareholders."
There is a no minimum number of shares required to be sold. An
escrow account for the purpose of distributing the proceeds of the
sale of the shares has been established at First Western Bank and
Trust, Minot, North Dakota. Checks for purchase of shares must be
made out to "ND Holdings, Inc. Escrow Account-First Western Bank
and Trust". Net proceeds from the sale of each share of Common
Stock sold will be paid to the Selling Shareholders and/or the
Company and shares issued to the purchasers at regular intervals as
proceeds are received.
Determination of Offering Price
Prior to this offering, there has been no public market for the
Common Stock of the Company. Consequently, the initial public
offering price for the Common Stock has been determined by
negotiation among the Company, the Selling Shareholders and the
Representatives of the Underwriter. Among the factors considered
in such negotiations were prevailing market conditions, the results
of operations of the Company in recent periods, the market
capitalizations and stages of development of other companies that
the Company and the Representatives of the Underwriter believe to
be comparable to the Company, estimates of the business potential
of the Company, the present state of the Company's development and
other factors deemed relevant.
Audit Committee/Public Director
As required by the NASD Bylaws, by August 29, 1997, the Company
will establish an Audit Committee, one member of which must be a
public director; a public director is defined as a director elected
from the general public who does not own or control the power to
vote five percent or more of the outstanding voting securities of
the Company, who is not engaged in the investment banking or
securities business, and who is not an officer or employee of the
Company or a member of the immediate family of an employee
occupying a managerial position with the Company.
It is anticipated that the Audit Committee will consist of one
public director and Robert E. Walstad. The functions of the Audit
Committee will include: review of the scope of the audit; review
with the independent auditors of the corporate accounting practices
and policies and recommend to whom reports should be submitted
within the Company; review with the independent auditors their
final reports; review with internal and independent auditors
overall accounting and financial control; and to be available to
the independent auditors during the year for consultation purposes.
47
<PAGE>
LEGAL MATTERS
Dihle & Co., P.C., 1720 South Bellaire Street, Suite 108, Denver,
Colorado 80222, has acted as counsel for the Company in connection
with this offering and will render an opinion concerning the
validity of the Common Shares offered hereby.
EXPERTS
The consolidated financial statements of ND Holdings, Inc. and
subsidiaries for each of the three years included in this
Prospectus have been so included in reliance on the report of Brady
Martz & Associates, P.C. independent auditors, given on the
authority of said firm as experts in auditing and accounting. The
statements of assets and liabilities and direct expenses and
allocated indirect expenses for business components of The Ranson
Company, Inc. and subsidiary acquired for each of the three years
included in this Prospectus have been so included in reliance on
the report of Allen, Gibbs and Houlik, L.C. independent auditors,
given on the authority of said firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
This Prospectus constitutes an integral part of a Registration
Statement on Form S-1 (which together with all amendments, exhibits
and schedules thereto, is referred to as the "Registration
Statement") filed by the Company with the SEC under the Securities
Act with respect to the Common Stock offered hereby. This
Prospectus omits information contained in the Registration
Statement in accordance with the rules and regulations of the SEC.
Reference is hereby made to the Registration Statement and related
exhibits for further information with respect to the Company and
the securities offered hereby. Statements contained herein
concerning the provisions of any document are not necessarily
complete and, in each instance, reference is made to the copy of
such document filed as an Exhibit to the Registration Statement or
otherwise filed with the SEC. Each such statement is qualified in
its entirety by such reference. The Registration Statement,
including the exhibits and schedules thereto, may be inspected
without charge at the SEC's principal office, located at 450 Fifth
Street NW, Room 1024, Washington, DC 20549. Copies of the
Registration Statement or any part thereof can be obtained at
prescribed rates from the Commission's public reference section at
its principal office.
No dealer, salesperson or other person is authorized to give any
information or to make any representation not contained in the
Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by
the Company or the Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy
any of the securities to which it relates in any jurisdiction to
any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this
Prospectus nor any sale hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs
of the Company since the date hereof or that the information
contained herein is correct as of any time subsequent to the date
of this Prospectus.
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and
in accordance therewith will file reports, proxy statements and
other information with the Securities and Exchange Commission
("Commission"). Such reports, proxy statements, and other
information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at its
principal office at 450 Fifth Street NW, Room 1024, Washington DC
20549. Copies of such material may be obtained from the Public
Reference Section of the Commission at prescribed rates.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
ND HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (HISTORICAL)
INDEPENDENT AUDITOR'S REPORT - BRADY, MARTZ & ASSOC., P.C.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996, 1995 AND 1994
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements for Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
ADDITIONAL INFORMATION
Independent Auditor's Report on Additional Information
Schedule X - Supplemental Income Statement Information
Selected Financial Data
Quarterly Results of Consolidated Operations (Unaudited)
BUSINESS COMPONENTS OF
THE RANSON COMPANY, INC. AND SUBSIDIARY ACQUIRED
STATEMENTS OF ASSETS AND LIABILITIES AND DIRECT REVENUES, DIRECT
EXPENSES AND ALLOCATED INDIRECT EXPENSES
INDEPENDENT AUDITOR'S REPORT - ALLEN, GIBBS & HOULIK, L.C.
Statements of Assets and Liabilities of Business Acquired
Statements of Direct Revenues, Direct Expenses and
Allocated Indirect Expenses of Business Acquired
Notes to Statements of Assets and Liabilities
and Direct Revenues, Direct Expenses
and Allocated Indirect Expenses
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
AS OF DECEMBER 31, 1995 AND 1994
Statement of Assets and Liabilities of Business Acquired
Statements of Direct Revenues and Expenses of Business
Acquired
Notes to Unaudited Financial Statements of Business Acquired
<PAGE>
ND HOLDINGS, INC. AND SUBSIDIARIES
MINOT, NORTH DAKOTA
CONSOLIDATED FINANCIAL STATEMENTS
AS OF
DECEMBER 31, 1996, 1995 AND 1994
AND
INDEPENDENT AUDITOR'S REPORT
<PAGE>
ND HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Pages
INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 2-3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-14
ADDITIONAL INFORMATION
Independent Auditor's Report on Additional Information 15
Schedule X - Supplemental Income Statement Information 16
Schedules other than the one listed above are omitted
since they are not required or are not applicable, or
the required information is shown in the financial
statements or notes thereon.
Selected Financial Data 17
Quarterly Results of Consolidated Operations (Unaudited) 18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Directors of
ND Holdings, Inc. and Subsidiaries
Minot, North Dakota 58701
We have audited the accompanying consolidated balance sheets of ND
Holdings, Inc. and Subsidiaries (a North Dakota Corporation) as of
December 31, 1996 and 1995 and the related consolidated statements
of operations, stockholders' equity and cash flows for the years
ended December 31, 1996, 1995 and 1994. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements 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
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of ND Holdings, Inc. and Subsidiaries as of December 31,
1996 and 1995, and the results of its operations and its cash flows
for the years ended December 31, 1996, 1995 and 1994 in conformity
with generally accepted accounting principles.
As discussed in Note 10 to the consolidated financial statements,
in 1996, the Company changed its period for amortizing deferred
sales commissions. The change in the amortizable life of the
deferred sales commission is based on the period of time during
which deferred sales commissions are expected to be recovered from
distribution plan payments and management's estimate of the average
life of investors' accounts in sponsored mutual funds.
BRADY, MARTZ & ASSOCIATES, P.C.
February 14,1997
-1-
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<CAPTION>
1996 1995
___________ ___________
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 167,912 $ 4,894,838
Securities available-for-sale - 322,900
Accounts receivable
- Fees from sponsored mutual funds 316,740 161,907
- Other 15,909 -
Prepaids 22,655 -
Deferred tax benefit 440,000 -
___________ ___________
Total current assets $ 963,216 $ 5,379,645
___________ ___________
PROPERTY AND EQUIPMENT $ 517,316 $ 100,680
Less accumulated depreciation 175,981 53,631
___________ ___________
Net property and equipment $ 341,335 $ 47,049
___________ ___________
OTHER ASSETS
Deferred sales commissions $ 3,059,344 $ 2,840,238
Deferred tax benefit 363,142 1,042,400
Covenant not to compete (net of
amortization of $ 100,000 for 1996) 200,000 -
Investment adviser's agreements (net of
amortization of $267,751 for 1996) 5,466,559 29,090
Public registration costs 241,664 81,743
Other assets 89,025 50,421
___________ ___________
Total other assets $ 9,419,734 $ 4,043,892
___________ ___________
TOTAL ASSETS $10,724,285 $ 9,470,586
=========== ===========
</TABLE>
-2-
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
1996 1995
___________ ___________
<S> <C> <C>
CURRENT LIABILITIES
Service fees payable $ 108,556 $ -
Accounts payable 184,642 64,069
Other current liabilities 16,835 25,991
Current portion of long-term debt 132,881 10,000
___________ ___________
Total current liabilities $ 442,914 $ 100,060
___________ ___________
LONG-TERM LIABILITIES
Note payable $ 1,172,962 $ -
Investment certificates 235,100 270,100
Less current portion shown above (132,881) (10,000)
___________ ___________
Total long-term liabilities $ 1,275,181 $ 260,100
___________ ___________
TOTAL LIABILITIES $ 1,718,095 $ 360,160
___________ ___________
STOCKHOLDERS' EQUITY
Common stock - 20,000,000 shares
authorized, no par value; 8,123,586
and 8,191,751 shares issued and
outstanding, respectively $10,633,367 $10,760,074
Accumulated deficit (1,627,177) (1,671,548)
Unrealized gain on securities
available-for-sale - 21,900
___________ ___________
Total stockholders' equity $ 9,006,190 $ 9,110,426
___________ ___________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $10,724,285 $ 9,470,586
=========== ===========
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
-3-
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
___________ ___________ ___________
<S> <C> <C> <C>
REVENUES
Fee income $ 3,114,995 $ 1,327,302 $ 1,077,089
Commissions 302,619 78,014 53,062
___________ ___________ ___________
Total revenue $ 3,417,614 $ 1,405,316 $ 1,130,151
___________ ___________ ___________
OPERATING EXPENSES
Compensation and benefits $ 758,864 $ 589,399 $ 504,154
General and administrative
expenses 1,514,300 664,084 564,134
Sales commissions
amortized 464,050 808,286 549,835
Depreciation and
amortization 419,398 27,729 58,316
Interest 161,197 27,948 27,812
___________ ___________ ___________
Total operating expenses $ 3,317,809 $ 2,117,446 $ 1,704,251
___________ ___________ ___________
OPERATING INCOME (LOSS) $ 99,805 $ (712,130) $ (574,100)
OTHER INCOME (EXPENSES)
Interest and dividends $ 58,286 $ 314,253 $ 195,130
Miscellaneous income 77,911 - 92
Loss on bond sales, net - - (25,576)
Net realized gain (loss)
on securities available-
for-sale 23,801 (90,084) -
Trading securities losses,
net - (47,774) (42,898)
Loss on debentures - - (26,000)
Partnership income (losses) 597 274 (4,024)
___________ ___________ ___________
Total other income $ 160,595 $ 176,669 $ 96,724
___________ ___________ ___________
INCOME (LOSS) BEFORE INCOME
TAX BENEFIT (EXPENSE) $ 260,400 $ (535,461) $ (477,376)
DEFERRED INCOME TAX BENEFIT
(EXPENSE) (216,029) 162,400 205,500
___________ ___________ ___________
NET INCOME (LOSS) $ 44,371 $ (373,061) $ (271,876)
=========== =========== ===========
NET INCOME (LOSS) PER SHARE $ .01 $ (.05) $ (.04)
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
-4-
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Common Stock Accumulated Available
Shares Amount Deficit For-Sale Total
_________ ___________ ___________ __________ __________
<S> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1994 5,816,192 $ 6,277,995 $(1,043,143) $ - $5,234,852
Common stock
issued 2,345,328 4,370,742 - - 4,370,742
Purchase of
common stock (164,207) (326,350) - - (326,350)
Cumulative effect
on prior years
for initial
application of
SFAS No. 115 - - 16,532 (16,532) -
Net loss - - (271,876) - (271,876)
Change in
unrealized loss
on securities
available-
for-sale - - - (108,740) (108,740)
__________ ___________ ___________ __________ __________
BALANCE
DECEMBER 31,1994 7,997,313 $10,322,387 $(1,298,487) $ (125,272) $8,898,628
Common stock
issued 302,085 663,746 - - 663,746
Purchase of
common stock (107,647) (226,059) - - (226,059)
Net loss - - (373,061) - (373,061)
Change in
unrealized gain
(loss) on
securities
available-
for-sale - - - 147,172 147,172
__________ ___________ ___________ __________ __________
BALANCE,
DECEMBER 31,1995 8,191,751 $10,760,074 $(1,671,548) $ 21,900 $9,110,426
Purchase of
common stock (68,165) (126,707) - - (126,707)
Net income - - 44,371 - 44,371
Change in
unrealized gain
(loss) on
securities
available-
for-sale - - - (21,900) (21,900)
__________ ___________ ___________ __________ __________
BALANCE,
DECEMBER 31, 1996 8,123,586 $10,633,367 $(1,627,177) $ - $9,006,190
========== =========== =========== ========== ==========
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
-5-
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
___________ __________ ___________
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 44,371 $ (373,061) $ (271,876)
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization 419,398 27,729 58,316
Sales commissions amortized 464,050 808,286 549,835
Loss on sale of bonds - - 25,576
Net realized (gain) loss on
securities available-for-sale (23,801) 90,084 -
Loss on sale of equipment 230 - -
Net unrealized loss on trading
securities - - 5,505
Net decrease (increase) in
trading securities - 2,674,000 (2,679,507)
Loss on debenture - - 26,000
(Increase) decrease in:
Accounts receivable (170,742) (58,880) (23,663)
Accrued interest receivable - 76,052 (70,654)
Prepaids (22,655) - -
Deferred sales commissions
capitalized (683,155) (826,131) (874,673)
Deferred tax benefit 239,258 (162,400) (205,500)
Other assets (39,071) (44,235) -
Increase (decrease) in:
Service fees payable 108,556 - -
Accounts payable 120,573 29,438 21,435
Other liabilities (9,156) 8,352 (18,713)
___________ __________ ___________
Net cash provided (used)
by operating activities $ 447,856 $2,249,234 $(3,457,919)
___________ __________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment $ (347,727) $ (33,035) $ (17,205)
Proceeds from sale of equipment 800 - -
Purchase of available-for-sale
securities - (1,421,000) (261,842)
Proceeds from sale of available-
for-sale securities 325,564 2,622,786 337,863
Purchase of covenant not to compete (300,000) - -
Purchase of investment adviser's
agreements (5,705,220) (29,090) -
Return of capital from limited
partnership unit 467 936 17,878
Proceeds from CFH Corporation
debenture - - 4,000
___________ __________ ___________
Net cash provided (used)
by investing activities $(6,026,116) $1,140,597 $ 80,694
___________ __________ ___________
-6-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
1996 1995 1994
___________ __________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuing common stock
(net of stock issue costs of $-0-,
$46,183 and $303,326, respectively) $ - $ 663,746 $4,370,742
Redemption of common stock (126,707) (226,059) (326,350)
Public registration costs (159,921) (81,743) -
Increase in notes payable 1,748,975 - -
Reduction of notes payable (576,013) - -
Investment certificates issued - - 30,000
Redemption of investment certificates (35,000) (11,000) -
___________ __________ __________
Net cash provided by financing
activities $ 851,334 $ 344,944 $4,074,392
___________ __________ __________
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $(4,726,926) $3,734,775 $ 697,167
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 4,894,838 1,160,063 462,896
___________ __________ __________
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 167,912 $4,894,838 $1,160,063
=========== ========== ==========
SUPPLEMENTARY DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 161,578 $ 25,235 $ 24,067
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
-7-
<PAGE>
ND HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The nature of operations and significant accounting policies of ND
Holdings, Inc. and Subsidiaries is presented to assist in
understanding the Company's consolidated financial statements.
Nature of operations - ND Holdings, Inc. and Subsidiaries (the
Company) was established in September 1987 as a North Dakota
corporation. The Company derives its revenue primarily from
investment advisory, asset management, underwriting, and transfer
agent services to sponsored mutual funds. Located in Minot, North
Dakota, the Company is marketing its services throughout the
Midwestern United States.
Principles of consolidation - The consolidated financial statements
include the accounts of ND Holdings, Inc. and its wholly-owned
subsidiaries, ND Money Management, Inc., ND Capital, Inc., ND
Resources, Inc., and Ranson Capital Corporation. The acquired Ranson
Capital Corporation's operations are included from the acquisition
date, January 6, 1996. All significant intercompany transactions and
balances have been eliminated in the accompanying consolidated
financial statements.
Concentrations - The Company derives its revenue primarily from
investment advisory and administrative services provided to sponsored
mutual funds, a majority of which are state-specific municipal bond
funds. Company revenues are largely dependent on the total value and
composition of assets under management, which include state-specific
municipal bonds. Accordingly, fluctuations in financial markets and
the composition of assets under management impact revenues and
results of operations.
Use of estimates - The preparation of consolidated 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
consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue recognition - Investment advisory fees, transfer agent fees,
service fees, and commissions are recorded as revenues as the related
services are provided by the Company to sponsored mutual funds.
Commission income is also received for the sale of investments in
other mutual funds.
Cash and cash equivalents - The Company's policy is to record all
liquid investments with original maturities of three months or less as
cash equivalents. Liquid investments with maturities greater than
three months are recorded as investments.
-8-
<PAGE>
NOTE 1 - (CONTINUED)
Investments - Investment securities that are held for short-term
resale are classified as trading securities and carried at fair
value. All other marketable securities are classified as
available-for-sale and are carried at fair value. Realized and
unrealized gains and losses on trading securities are included in
net income. Unrealized gains and losses on securities
available-for-sale are recognized as direct increases or decreases
in stockholders' equity. Cost of securities sold is recognized
using the specific identification method.
Property and equipment is stated at cost less accumulated depreciation
computed on the straight-line and accelerated methods over estimated
useful lives as follows:
Equipment 5-7 years
Leasehold improvements 40 years
Deferred sales commissions - Sales commissions paid to brokers and
dealers in connection with the sale of shares of the sponsored mutual
funds sold without a front-end sales charge, are capitalized and
amortized on a straight line basis over a period not exceeding nine
years, which approximates the period of time during which deferred
sales commissions are expected to be recovered from distribution plan
payments received from various sponsored mutual funds and potential
contingent deferred sales charges received from shareholders of the
various sponsored mutual funds. Contingent deferred sales charges
received by the Company are recorded as a reduction of unamortized
deferred sales commissions.
Advertising - Costs of advertising and promotion of sponsored mutual
funds are expensed the first time that the advertising takes place.
Earnings per share is computed on the weighted average number of
common shares outstanding, including share equivalents arising from
unexercised stock warrants. The aggregate weighted average shares
outstanding used in computing earnings per share was 8,486,583 in
1996, 8,094,532 in 1995, and 6,906,752 in 1994. Fully diluted per
share amounts are substantially the same as primary per share
amounts for the periods presented.
Covenant not to compete is carried on the books at cost less
accumulated amortization computed using the straight-line method over
the life of the covenant, which is three years.
Investment adviser's agreements are amortized using the straight-line
method over a period of twenty years. The Company has evaluated
potential impairments on the basis of the expected future operating
cash flows to be derived from these intangible assets in relation to
the Company's carrying value and has determined that there is no
impairment.
Public registration costs - The Company's cost of its S-1 registration
is being capitalized until the initial public offering commences. At
that time, the costs will reduce the net proceeds received from the
sale of the Company's shares.
-9-
<PAGE>
NOTE 1 - (CONTINUED)
Income taxes - The Company files a consolidated income tax return with
its wholly-owned subsidiaries. The amount of deferred tax benefit or
expense is recognized as of the date of the consolidated financial
statements, utilizing currently enacted tax laws and rates. Deferred
tax benefits are recognized in the financial statements for the
changes in deferred tax assets between years.
Reclassification - Certain amounts from 1995 and 1994 have been
reclassified to conform with the 1996 presentation.
NOTE 2 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents at December 31, 1996 and 1995 consist of the
following:
Amount
_________________________
Current
Current Interest
Maturity Rate 1996 1995
________ ________ __________ ___________
Cash in checking Demand - $ 2,820 $ 4,199
Dean Witter Money
Market Accounts Demand 4.78% 165,092 4,890,639
__________ ___________
$ 167,912 $ 4,894,838
========== ===========
NOTE 3 - INVESTMENTS IN AND TRANSACTIONS WITH SPONSORED MUTUAL FUNDS
The Company's investments in sponsored mutual funds held as
available-for-sale at December 31, 1995 include:
Gross
Aggregate Unrealized Aggregate Fair
1995 Cost Holding Gains Value
____ _________ _____________ ______________
Bond funds $ 301,000 $ 21,900 $ 322,900
========= ======== =========
Dividends earned on the Company's investments in sponsored mutual
funds aggregated $3,007 in 1996, $59,244 in 1995, and $71,708 in
1994. The Company recognized a net gain of $23,801 in 1996, and a
net loss of $90,084 in 1995 from dispositions and write-downs of
fund investments.
The Company provides investment advisory and administrative services
to the Integrity Mutual Funds family of funds which had aggregate net
assets under management at December 31, 1996 of approximately $334
million. All services rendered by the Company are provided under
contracts that set forth the services to be provided and the fees to
be charged. These contracts are subject to periodic review and
approval by each of the funds' board of directors and, with respect to
investment advisory contracts, also by the funds' shareholders.
Revenues derived from services rendered to the sponsored mutual funds
were $3,114,995 in 1996, $ 1,327,302 in 1995, and $ 1,077,089 in 1994.
Accounts receivable from the sponsored mutual funds aggregate
$316,740 and $ 161,907 at December 31, 1996 and 1995, respectively.
-10-
<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31 consists of:
1996 1995
_________ _________
Office furniture and equipment $ 340,355 $ 100,680
Leased equipment 9,735 -
Leasehold improvements 167,225 -
_________ _________
$ 517,316 $ 100,680
Accumulated depreciation and
amortization 175,981 53,631
_________ _________
$ 341,335 $ 47,049
========= =========
NOTE 5 - ACQUISITIONS
On January 5,1996, the Company completed its acquisition of Ranson
Company, Inc. and its subsidiary (Ranson Capital Corporation), an
investment adviser and distributor for Ranson Managed Portfolios. The
offices of Ranson Company, Inc. and its subsidiary has been closed and
the operations have been integrated into the Company's subsidiaries.
Because Ranson Company, Inc. was strictly a holding company for its
subsidiary with no material assets, liabilities, or operations, other
than those involving its investment in its subsidiary, it was
dissolved in November, 1996 leaving its subsidiary, Ranson Capital
Corporation, wholly-owned by the Company. The acquisition was
accounted for as a purchase in which the Company paid $4,696,403 in
cash and $1,500,000 from bank borrowings. The operations and
financial position of Ranson Company, Inc. and subsidiary were
accounted for in the consolidated financial statements of the
Company beginning January 6, 1996. The excess purchase price over
the estimated fair value of the assets was $5,329,887 of which
$300,000 is for a covenant not to complete, being amortized using
the straight-line method over 3 years. The remaining balance
represents the value of the investment adviser's agreement, and
is being amortized using the straight-line method over 20 years.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the business
combination had occurred on January 1, 1995. Pro forma results for
the year ended December 31, 1996, as if the acquisition had been
made in January 1, 1996, are not presented as they would not be
materially different from the reported results which include the
operations of Ranson Company, Inc. and subsidiary for the period
from January 6, 1996 to December 31, 1996.
(Unaudited)
Year ended
December 31, 1995
_________________
Revenues $ 2,176,973
Net loss (575,707)
___________
Loss per share $ (.07)
===========
-11-
<PAGE>
NOTE 5 - (CONTINUED)
The above amounts are based upon certain assumptions and estimates
which the Company believes are reasonable. The pro forma results do
not necessarily represent results which would have occurred if the
business combination had taken place at the date indicated or what
the results of operations may be in any future period.
During December, 1996, the Company acquired the rights to the
investment adviser's agreement to manage the "Heartland Nebraska Tax
Free Fund".
The costs associated with this acquisition, totaling $289,914, will be
amortized using the straight-line method over a period of twenty
years, commencing in 1997.
NOTE 6 - LONG-TERM DEBT
Debt at December 31, 1996 and 1995 was as follows:
Current
Rate Portion 1996 1995
______ ________ __________ _________
Long-term debt:
Revolving loan 9.25% $ - $1,164,240 $ -
Investment certificates 10.00% 130,000 235,100 270,100
Capital lease obligations 7.11% 2,881 8,722 -
________ __________ _________
Totals $132,881 $1,408,062 $ 270,100
======== ========== =========
A summary of the terms of the current long-term debt agreements
follow:
Revolving loan - Effective January 5, 1996, the Company obtained a
$1.5 million line of credit from First Western Bank and Trust.
Interest is charged on outstanding amounts at the prime rate
(8.25% at December 31, 1996) plus 1 % per year, payable monthly.
The principal is due in full on January 27, 1998.
Investment certificates - The Company had a private offering of
investment certificates. The certificates are debt obligations and do
not represent ownership in the Company. The total offering was
$500,000 of which only $281,100 in certificates were issued. As of
December 31,1996, $235,100 in certificates are still outstanding. The
certificates bear interest at a rate of 10% per annum, payable
semi-annually, and mature 5 years from the date of issuance. The
Company has the option of redeeming the certificates early, but has no
obligation to do so except in the case of death of the registered
holder.
Capital lease obligations - In October 1996, the Company entered into
a capital lease obligation for office equipment. The term of the lease
is for 3 years with monthly payments of $284 at an interest rate of
7.11%.
The aggregate amount of required future payments on the above
long-term debt at December 31, 1996, is as follows:
Year ending December 31,
1997 $ 280,344
1998 1,258,969
1999 34,340
__________
Total $1,573,653
Less amount representing
interest 165,591
__________
Total due $1,408,062
==========
-12-
<PAGE>
NOTE 7 - INCOME TAXES
The provision for income taxes consists of:
1996 1995 1994
________ _________ _________
Current income taxes
Federal $ - $ - $ -
State - - -
Deferred income
taxes (tax benefit) 216,029 (162,400) (205,500)
________ _________ _________
$216,029 $(162,400) $(205,500)
======== ========= =========
Deferred income taxes arise from temporary differences between taxable
income for financial statement and income tax return purposes. The
only significant differences the Company has are net operating loss
carryforwards totaling $2,063,000 that expire between 2005 and 2010.
Each year's deferred income taxes (tax benefit) above is based on that
year's decrease or increase in the net operating loss carryforwards
multiplied by the applicable statutory tax rates.
The current and noncurrent deferred tax asset totaling $803,142 is
made up entirely of the unused net operating loss carryforwards
described above multiplied by the applicable statutory tax rates.
The measurement of the deferred tax asset is based on provisions of
the enacted tax law.
The effects of future changes in tax laws or rates are not
anticipated.
The deferred tax expense (benefit) reconciled to the amount computed
by applying the statutory federal rate of 35% to income before taxes
as follows:
1996 1995 1994
_________ _________ __________
Federal taxes (benefits) at
statutory rates $ 91,140 $(187,411) $(167,081)
State taxes (benefits), net of
federal tax effect 16,100 (34,880) (30,915)
Taxes on nondeductible amort-
ization at federal statutory
rates 128,712 - -
Other (19,923) 59,891 (7,054)
_________ _________ _________
Actual tax expense (benefit) $ 216,029 $(162,400) $(205,500)
========= ========= =========
-13-
<PAGE>
NOTE 8 - STOCK WARRANTS AND SPLITS
The Company has authorized 1,050,000 perpetual warrants as incentives
to the organizers, directors, officers and employees of the Company.
All warrants have been issued and outstanding since 1990. These
warrants, at the date of issue, allowed for the purchase of shares of
stock at $2.00 per share. The exercise price of the warrants will be
adjusted to reflect stock splits of 11 for 10 in 1990 and 1989. No
warrants have been exercised at December 31, 1996.
NOTE 9 - EMPLOYEE RETIREMENT PLAN
The Company sponsors a 401 (K) plan for all its employees. This plan
is solely funded by employee contributions. The only expenses of the
plan paid for by the Company are the trustees fees, which were
insignificant in 1996, 1995 and 1994.
NOTE 10 - CHANGE IN ACCOUNTING ESTIMATE
The Company has changed its period for amortizing deferred sales
commissions from the contingent deferred sales charge period of five
years to nine years. The change in the amortizable life of the
deferred sales commissions is based on the period of time during
which deferred sales commissions are expected to be recovered from
distribution plan payments and management's estimate of the average
life of investors' accounts in the Company's sponsored mutual
funds. Contingent deferred sales charges received by the Company
directly reduce the value of the deferred sales commissions asset.
The net affect of the change on the net income for the year ended
December 31, 1996 before income tax is an increase of $356,243,
which will decrease future earnings by the same amount.
NOTE 11 - COMMITMENTS
The Company leases office space under a five year lease agreement
which commenced on June 1, 1996. Lease payments are $3,000 per
month for the term of the lease. The lease carries an option to
renew for an additional five years after expiration of the initial
term. In addition, a provision of the lease allows the Company to
purchase the building, in which its offices are located, at any
time during the term of the lease. Rent expense for 1996 was $21,000.
At December 31, 1996, remaining operating lease commitments are as
follows:
Year ending December 31,
1997 $ 36,000
1998 36,000
1999 36,000
2000 36,000
2001 15,000
________
$159,000
========
-14-
<PAGE>
ADDITIONAL INFORMATION
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION
To the Stockholders and Directors of
ND Holdings, Inc. and Subsidiaries
Minot. North Dakota
Our report on our audit of the basic consolidated financial
statements of ND Holdings, Inc. and Subsidiaries for the years
ended December 31, 1996, 1995 and 1994, appears on page 1. Those
audits were made for the purpose of forming an opinion on such
consolidated financial statements taken as a whole. The information
on pages 16 through 18 related to the 1996, 1995 and 1994
consolidated financial statements is presented for purposes of
additional analysis and is not a required part of the basic
consolidated financial statements. Such information, except for
that portion marked "unaudited," on which we express no opinion,
has been subjected to the auditing procedures applied in the audits
of the basic consolidated financial statements, and, in our
opinion, the information is fairly stated in all material respects
in relation to the basic consolidated financial statements for the
years ended December 31, 1996,1995 and 1994, taken as a whole.
We also have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheets of ND
Holdings, Inc. and Subsidiaries as of December 31, 1993, and 1992,
and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the two years in
the period ended December 31, 1993, none of which is presented
herein, and we expressed unqualified opinions on those consolidated
financial statements. In our opinion, the information on page 17
relating to the 1993 and 1992 consolidated financial statements is
fairly stated in all material respects in relation to the basic
consolidated financial statements from which it has been derived.
BRADY. MARTZ & ASSOCIATES, P. C.
February 14, 1997
- 15 -
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
__________ __________ __________
<S> <C> <C> <C>
COMPENSATION AND BENEFITS
Salaries and wages $ 584,310* $ 450,552* $ 378,844*
Employee benefits 97,071* 73,549* 62,556*
Commissions 25,060 19,911* 23,123*
Payroll taxes 52,423* 45,387* 39,631*
__________ __________ __________
$ 758,864 $ 589,399 $ 504,154
========== ========== ==========
GENERAL AND ADMINISTRATIVE
EXPENSES
Directors fees $ 38,830* $ 35,800* $ 37,000*
Promotion of funds 138,670* 81,088* 87,645*
Account service fees 539,470* 136,503* 112,619*
Office rent 28,380 11,800 7,950
Office expense and
supplies 40,677* 23,972* 12,174*
Telephone 28,788 20,221* 13,640*
Travel 54,013* 56,188* 37,644*
Meals and entertainment 19,535 15,948* 11,356*
Education and seminars 7,666 3,509* 2,824
Insurance and bonds 28,961 30,950* 28,514*
License, fees and
registrations 72,260* 37,981* 27,841*
Equipment rent and lease 7,498 4,348 2,414
Legal and accounting 85,903* 52,955* 34,561*
Dues, subscriptions and
memberships 25,785 22,225* 12,663*
Printing 104,116* 55,148* 63,156*
Postage 51,385* 28,916* 17,841*
Transfer agency fees 133,919* 14,329 17,004*
Custodial fees 85,049* 23,887* 27,663*
Bank charges 6,152 2,189 1,244
Utilities 6,811 - -
Miscellaneous 10,432 6,127 8,381
__________ __________ __________
$1,514,300 $ 664,084 $ 564,134
========== ========== ==========
<FN>
* Indicates items which exceed 1 % of total revenue.
</TABLE>
-16-
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31, AS INDICATED
<CAPTION>
1996 1995 1994 1993 1992
___________ ___________ ___________ ___________ ___________
<S> <C> <C> <C> <C> <C>
Operating revenue $ 3,417,614 $ 1,405,316 $ 1,130,151 $ 865,755 $ 520,520
Income (loss) from
operations $ 99,805 $ (712,130) $ (574,100) $ (373,396) $ (379,651)
Deferred income
tax benefit (expense)$ (216,029) $ 162,400 $ 205,500 $ 135,000 $ -
Cumulative effect on
prior year of
accounting change $ - $ - $ - $ 539,500 $ -
Income (loss)
per share $ .01 $ (.05) $ (.04) $ .07 $ (.11)
Total assets $10,724,285 $ 9,470,586 $ 9,231,998 $ 5,535,500 $ 2,394,581
Long-term obligations $ 1,408,062 $ 270,100 $ 281,100 $ 251,100 $ 181,000
Shareholders' equity $ 9,006,190 $ 9,110,426 $ 8,898,628 $ 5,234,852 $ 2,161,724
Dividends paid $ - $ - $ - $ - $ -
</TABLE>
-17-
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
<CAPTION>
QUARTER ENDED
___________________________________________
3-31-96 6-30-96 9-30-96 12-31-96
_________ _________ _________ __________
<S> <C> <C> <C> <C>
Revenues $ 870,413 $ 715,404 $ 819,153 $1,012,644
Operating income
(loss) 67,203 (130,817) (17,623) 180,412
Other income 25,348 52,221 9,166 73,860
Deferred income tax
benefit (expense) 92,551 (16,800) (21,571) (270,209)
Net income (loss) 32,851 (94,766) (30,028) 136,314
Per Share
Operating income
(loss) .01 (.02) - .02
Other income - .01 - .01
Deferred income tax
benefit (expense) .01 - - (.03)
QUARTER ENDED
___________________________________________
3-31-95 6-30-95 9-30-95 12-31-95
_________ _________ _________ __________
Revenues $ 323,101 $ 423,243 $ 393,157 $ 265,815
Operating loss (226,344) (78,891) (217,123) (189,772)
Other income (loss) 97,591 2,136 86,955 (10,013)
Deferred income tax
benefit 39,050 23,280 39,480 60,590
Net loss (89,703) (53,475) (90,688) (139,195)
Per Share
Operating loss (.03) (.01) (.03) (.02)
Other income .01 - .01 -
Deferred income tax
benefit - - .01 .01
QUARTER ENDED
___________________________________________
3-31-94 6-30-94 9-30-94 12-31-94
_________ _________ _________ __________
Revenues $ 245,667 $ 252,968 $ 261,034 $ 370,482
Operating loss (90,917) (123,519) (67,327) (292,337)
Other income 21,991 8,525 5,415 60,793
Deferred income tax
benefit 27,500 46,000 27,000 105,000
Net loss (41,426) (68,994) (34,912) (126,544)
Per Share
Operating loss (.01) (.02) (.01) (.04)
Other income - - - .01
Deferred income tax
benefit - .01 - .02
</TABLE>
The above financial information is unaudited. In the opinion of
management, all adjustments (which are of a normal recurring nature)
have been included for a fair presentation.
-18-
<PAGE>
BUSINESS COMPONENTS OF
THE RANSON COMPANY, INC. AND SUBSIDIARY ACQUIRED
STATEMENTS OF ASSETS AND LIABILITIES AND
DIRECT REVENUES, DIRECT EXPENSES
AND ALLOCATED INDIRECT EXPENSES
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
with
INDEPENDENT AUDITORS' REPORT
<PAGE>
BUSINESS COMPONENTS OF
THE RANSON COMPANY, INC. AND SUBSIDIARY ACQUIRED
STATEMENTS OF ASSETS AND LIABILITIES AND
DIRECT REVENUES, DIRECT EXPENSES
AND ALLOCATED INDIRECT EXPENSES
Years Ended March 31, 1995, 1994 and 1993
TABLE OF CONTENTS
Page
Independent Auditors' Report 1
Statements of Assets and Liabilities of Business Acquired 2
Statements of Direct Revenues, Direct Expenses and
Allocated Indirect Expenses of Business Acquired 3
Notes to Statements of Assets and Liabilities
and Direct Revenues, Direct Expenses
and Allocated Indirect Expenses 4 - 12
<PAGE>
Independent Auditors' Report
The Board of Directors
The Ranson Company, Inc. and Subsidiary
We have audited the accompanying statements of assets and
liabilities of the Business Acquired of The Ranson Company, Inc.
and Subsidiary as of March 31, 1995 and 1994 and the statements of
direct revenues, direct expenses and allocated indirect expenses of
the Business Acquired for each of the three years in the period
ended March 31, 1995. These statements are the responsibility of
The Ranson Company, Inc. and Subsidiary management. Our
responsibility is to express an opinion on the statements 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
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
statements. We believe that our audits provide a reasonable basis
for our opinion.
As more fully described in Note 1, the Business Acquired is a
component of a larger consolidated business enterprise, The Ranson
Company, Inc. and Subsidiary (the "Company") and shares certain
revenue and expense transactions with the Company. The
accompanying statements of Business Acquired were prepared for the
purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in the
registration statement on Form S-1 of ND Holdings, Inc.) as
described in Note 2 and are not intended to be a complete
presentation of the consolidated financial position or results of
operations of the Company.
In our opinion, the statements referred to above present fairly, in
all material respects, the assets and liabilities of the Business
Acquired of The Ranson Company, Inc. and Subsidiary as of March 31,
1995 and 1994 and the direct revenues, direct expenses and
allocated indirect expenses of the Business Acquired for each of
the three years in the period ended March 31, 1995, in conformity
with generally accepted accounting principles.
ALLEN, GIBBS & HOULIK, L.C.
WICHITA, KANSAS
January 18, 1996
(Except for Notes 1 and 2,
as to which the date is July 3, 1996)
<PAGE>
BUSINESS COMPONENTS OF
THE RANSON COMPANY, INC. AND SUBSIDIARY ACQUIRED
STATEMENTS OF ASSETS AND LIABILITIES OF BUSINESS ACQUIRED
March 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS ACQUIRED:
Cash $ 188,434 $ 489,617
Broker-dealer receivables 3,611 36,553
Securities owned, trading accounts 1,516,068 3,065,768
Investments 246,780 265,683
Trading securities 22,238 --
Securities available-for-sale 31,519 --
Property assets, net of accumulated
depreciation of $75,048 and
$49,275 61,059 57,721
Other assets:
Employees' advances and
related party notes
receivable 19,101 114,106
Miscellaneous 37,992 81,072
Prepaid expenses 45,899 9,897
Cash surrender value of life
insurance 17,047 10,937
Refundable income tax 19,307 --
----------- -----------
2,209,055 4,131,354
----------- -----------
LIABILITIES ACQUIRED:
Broker-dealer payables -- (102,708)
Notes payable, bank (1,257,841) (2,968,675)
Notes payable, other (75,000) (16,670)
Accounts payable (13,559) (146,249)
Accrued liabilities (62,388) (144,067)
Income tax payable (7,034) --
----------- -----------
(1,415,822) (3,378,369)
----------- -----------
NET ASSETS ACQUIRED $ 793,233 $ 752,985
=========== ===========
<FN>
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
BUSINESS COMPONENTS OF
THE RANSON COMPANY, INC. AND SUBSIDIARY ACQUIRED
STATEMENTS OF DIRECT REVENUES, DIRECT EXPENSES
AND ALLOCATED INDIRECT EXPENSES OF BUSINESS ACQUIRED
Years Ended March 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Direct revenues:
Gross margin, fiscal agent
fees and security
transactions $ 2,094,362 $ 3,564,287 $ 2,723,275
Interest 20,185 38,623 6,818
Compliance agent fees 11,793 16,405 16,116
Net change in unrealized
gains and losses of:
Securities owned,
trading accounts 161,423 -- 1,941
Investments 9,451 6,318 14,055
----------- ----------- -----------
$ 2,297,214 $ 3,625,633 $ 2,762,205
=========== =========== ===========
Direct expenses:
General, selling and
administrative expenses:
Holding company $ 5,347 $ 9,188 $ 8,564
Public finance 1,087,652 1,980,374 1,664,544
Purchases and sales 232,427 213,726 191,708
Mutual funds 384,868 544,425 343,361
Interest expense 31,091 57,384 22,905
Net change in unrealized
gains and losses of
securities owned,
trading accounts -- 155,805 --
Allocated indirect
overhead expense 422,371 500,060 466,370
----------- ----------- -----------
$ 2,163,756 $ 3,460,962 $ 2,697,452
=========== =========== ===========
<FN>
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
BUSINESS COMPONENTS OF
THE RANSON COMPANY, INC. AND SUBSIDIARY ACQUIRED
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES AND DIRECT REVENUES,
DIRECT EXPENSES AND ALLOCATED INDIRECT EXPENSES
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations - On January 5, 1996, the stockholders of
The Ranson Company, Inc. (the Company) effected the sale of
all of the common stock of the Company to an unrelated third
party, ND Holdings, Inc. Prior to the sale, certain business
operations and assets were disposed of, liquidated, or
otherwise transferred and not acquired by ND holdings, Inc.
Accordingly, the Business Acquired of The Ranson Company, Inc.
(the Business Acquired) was a component of a larger
consolidated business enterprise, the Company. The Business
Acquired included the stock of The Ranson Company, Inc. (the
Parent) and its wholly-owned subsidiary, Ranson Capital
Corporation (the Subsidiary).
The Business Acquired operates as an investment advisor and
distributor for Ranson Managed Portfolios, which includes the
Kansas Municipal Fund, the Kansas Insured Municipal
Fund-Limited Maturity and the Nebraska Municipal Fund (the
"Mutual Funds"). These three mutual funds have a combined net
asset value of approximately $171,000,000 as of March 31,
1995. The Business Acquired also offers investment banking
services, which include services related to originating,
underwriting and distributing initial issues of securities to
customers in the state of Kansas ("Public Finance").
Additionally, the Business Acquired also purchases and sells
securities in the secondary market ("Purchases and Sales").
The Subsidiary is registered with and is a member of the
National Association of Securities Dealers, Inc. (NASD). This
is a self-regulating body formed by the industry to protect
its members and the investing public. In accordance with
regulations under The Securities Exchange Act of 1934, the
Subsidiary is also registered with the Securities and Exchange
Commission.
Basis of Presentation - The accompanying statements of the Business
Acquired have been prepared from the books and records maintained by
the
Company and include the accounts of The Ranson Company, Inc. and the
certain operations of its wholly-owned subsidiary, Ranson
Capital Corporation relating to the Mutual Funds, Public
Finance and Purchases and Sales. All material intercompany
accounts and transactions have been eliminated. The
statements of direct revenues, direct expenses and allocated
indirect expenses of the Business Acquired may not necessarily
be indicative of the results of operations that would have
been obtained if the Business Acquired had been operated as an
independent entity.
The Business Acquired is a component of a larger consolidated
business enterprise, the Company. The larger consolidated
business enterprise also operated another component which was
not a part of the Business Acquired. Certain financial
information related to the component not acquired, including
direct revenues and expenses, has been excluded from these
statements.
<PAGE>
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
It is impracticable to prepare statements for the Business
Acquired in accordance with generally accepted accounting
principles due to the existence of indirect revenues and
indirect overhead expenses not specifically identifiable with
the separate components of the Company.
Direct Expenses and Indirect Overhead Expenses - The Business
Acquired accounts for direct general selling and
administrative expenses based on actual expenditures incurred
by its various components when specifically identifiable. The
entire Company also incurs expenses not directly attributable
to any specific component. Such expenses are accounted for as
indirect overhead expenses, are allocated to the various
components and consist of the following:
<TABLE>
<CAPTION>
Year Ending March 31,
_________________________________
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Salaries, commissions and bonuses $ 215,375 $ 264,991 $ 228,445
Employee benefits and taxes 38,569 44,600 46,446
Communications 40,761 46,258 46,131
Rents 101,859 119,040 143,403
Maintenance 13,609 18,452 17,902
Professional fees 33,473 19,283 22,231
Office supplies 12,801 28,644 23,869
Depreciation 16,997 13,317 7,855
Insurance 33,795 37,919 22,532
Other 7,756 11,938 5,735
--------- --------- ---------
514,995 604,442 564,549
Less estimated amount allocated to
component of the Company not
acquired (approximately 17% -
18% of total) (92,624) (104,382) (98,179)
--------- --------- ---------
Indirect overhead expenses allocated
to the Business Acquired $ 422,371 $ 500,060 $ 466,370
========= ========= =========
</TABLE>
The Company's management allocated indirect overhead expenses
to the various components based on the approximate percentage
of direct expenses of the various business components in
relationship to the direct expenses of the Company as a whole.
Management believes the allocations are reasonable when using
such relationships.
<PAGE>
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Income tax expenses are not reflected in the accompanying
statements of direct revenues, direct expenses and allocated
indirect expenses. It is impracticable to calculate income
taxes separately for the Business Acquired from that of the
Company due to the indirect overhead expenses allocations
discussed previously. The Company as a whole recorded current
income tax expense in the amounts of $68,592, $107,814 and
$156,735 for 1995, 1994 and 1993, respectively. These amounts
were calculated on a consolidated return basis.
Investments - The Parent elected to adopt the provisions of
FASB Statement No. 115, Accounting for Certain Investments in
Debt and Equity Securities, as of March 31, 1995. Statement
No. 115 requires that management determine the appropriate
classification of securities at the date of adoption, and
thereafter at the date individual investment securities are
acquired, and that the appropriateness of such classification
be reassessed at each balance sheet date.
Trading securities are held for resale in anticipation of
short-term (generally 90 days or less) fluctuations in market
prices. Trading securities, consisting primarily of actively
traded Kansas and Nebraska municipal bonds, are stated at fair
value. Realized and unrealized gains and losses are included
in income.
Available-for-sale securities consist of investments in mutual
funds and unit investment trusts managed by the Subsidiary and
are stated at fair value. Any unrealized holding gains and
losses, net of the related deferred tax effect, would be
reported as a separate component of stockholders' equity. As
cost approximates fair value there is no such separate
component of stockholders' equity.
Prior to the adoption of Statement No. 115, the Parent stated
its debt securities at the lower of amortized cost or fair
value. The Subsidiary, a broker and dealer in securities,
previously stated its debt securities at fair value; the
provisions of Statement No. 115 are not applicable to the
Subsidiary. The adoption of Statement No. 115 by the Parent
had no material impact on the accompanying statements.
Revenue Recognition - Securities transactions are recorded on
the settlement date. The effect on income of transactions
executed but not yet settled is not material to the
statements.
<PAGE>
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Property Assets - Property assets are carried at cost.
Depreciation is computed using the straight-line and
declining-balance methods. When assets are retired or
otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting
gain or loss is recognized in income for the period. The cost
of maintenance and repairs is charged to income as incurred,
whereas significant renewals and betterments are capitalized.
Deduction is made for retirements resulting from the renewals
or betterments.
Income Taxes - The Parent files consolidated income tax
returns with its Subsidiary. Effective April 1, 1993, the
Company adopted FASB Statement No. 109, Accounting for Income
Taxes. Statement No. 109 requires that deferred taxes be
recorded on a liability method and adjusted when new tax rates
are enacted. The adoption of Statement No. 109 had no impact
on the accompanying statements.
The Business Acquired has no material deferred income tax
items.
2. SECURITIES AND EXCHANGE COMMISSION REQUIREMENTS AND
SUBSEQUENT PURCHASE
The accompanying statements were prepared for the purpose of
complying with Rule 3-05 of Regulation S-X of the Securities
and Exchange Commission which requires separate statements of
a business acquired by a Registrant.
On January 5, 1996, the stockholders of the Company completed
the sale of all of their common stock to an unrelated third
party, ND Holdings, Inc. for an estimated aggregate purchase
price of $6,196,403. Approximately 80% of the total aggregate
purchase price (or $5,083,274) was paid directly to the
stockholders of the Company on January 5, 1996 and the
remaining $1,113,129 was placed in escrow pending final
determination of the purchase price on July 3, 1996.
Prior to the sale, the Company liquidated many of its assets,
including certain securities owned, trading accounts, certain
investments and certain other assets. The Company did not
realize any material losses upon the liquidation of such
assets. Upon purchase of the Company, ND Holdings, Inc.
liquidated most of the Company's assets remaining at the date
of purchase, including certain trading securities and certain
securities available for sale.
On February 5, 1996, ND Holdings, Inc. filed a registration
statement on Form S-1 with the Securities and Exchange
Commission of which these accompanying statements will be a
part.
<PAGE>
3. SPECIAL RESERVE BANK ACCOUNT FOR THE EXCLUSIVE BENEFIT OF
CUSTOMERS
The Subsidiary operates under the provisions of Paragraph
(k)(2)(i) of Rule 15c3-3 of the Securities and Exchange
Commission and, accordingly, is exempt from the remaining
provisions of that Rule. Pursuant to Rule 15c3-3, no amount
was required to be on deposit in the "Special Reserve Bank
Account for the Benefit of Customers" at March 31, 1995 and
1994.
4. INVESTMENTS
The following is a summary of trading securities as of March 31,
1995:
<TABLE>
<CAPTION>
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
-------- --------- ---------- --------
<S> <C> <C> <C> <C>
Kansas and Nebraska
municipal bonds $ 22,238 $ -- $ -- $ 22,238
======== ========= ========== ========
</TABLE>
The following is a summary of securities available-for-sale as
of March 31, 1995:
<TABLE>
<CAPTION>
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
-------- --------- ---------- --------
<S> <C> <C> <C> <C>
Kansas and Nebraska
municipal bond
mutual funds $ 19,115 $ -- $ -- $ 19,115
Kansas and Nebraska
unit investment
municipal trusts 12,404 -- -- 12,404
-------- --------- ---------- --------
$ 31,519 $ -- $ -- $ 31,519
======== ========= ========== ========
</TABLE>
The mutual fund and unit investment trust investments have no
contractual maturity and are due on demand.
<PAGE>
4. INVESTMENTS (Continued)
The carrying value and estimated market values of securities
owned, trading accounts at March 31, 1995 and 1994 consist of
the following:
<TABLE>
<CAPTION>
Unrealized Unrealized Fair
Cost Gain Loss Value
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
1995
Kansas and Nebraska
municipal bonds $ 1,406,443 $ -- $ -- $ 1,406,443
Kansas and Nebraska
unit investment
municipal trusts 109,250 375 -- 109,625
----------- --------- --------- -----------
$ 1,515,693 $ 375 $ -- $ 1,516,068
=========== ========= ========= ===========
1994
Kansas and Nebraska
municipal bonds $ 665,208 $ -- $ 34,900 $ 630,308
Kansas and Nebraska
unit investment
municipal trusts 2,558,482 -- 123,022 2,435,460
----------- --------- --------- -----------
$ 3,223,690 $ -- $ 157,922 $ 3,065,768
=========== ========= ========= ===========
</TABLE>
Investments at March 31, 1995 and 1994 are stated at market
which approximates cost and consist of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Kansas and Nebraska municipal
bond mutual funds $ 246,780 $ 252,603
Kansas and Nebraska unit
investment municipal trusts -- 13,080
--------- ---------
$ 246,780 $ 265,683
========= =========
</TABLE>
5. PROPERTY ASSETS
Property assets consist of the following:
<TABLE>
<CAPTION>
March 31
---------------------
Estimated
1995 1994 Useful Lives
--------- --------- ------------
<S> <C> <C> <C>
Furniture and office
equipment $ 136,107 $ 106,996 5 to 7 years
Accumulated depreciation 75,048 49,275
--------- ---------
$ 61,059 $ 57,721
========= =========
</TABLE>
<PAGE>
6. LEASES
The Subsidiary leases office facilities and equipment under
long-term lease agreements which expire in various years
through 1998 and are classified as operating leases. The
following is a schedule of future minimum lease payments for
operating leases (with initial or remaining terms in excess of
one year) as of March 31, 1995:
Year Ending March 31
--------------------
1996 $ 6,660
1997 1,665
1998 228
--------
$ 8,553
========
7. NOTES PAYABLE, BANK
Notes payable, bank with interest rates of 10.75% and 8.0% in
1995 and 1994, respectively, were as follows:
<TABLE>
<CAPTION>
March 31
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Demand notes secured by municipal
bonds with a loan value of
$1,257,841 and $2,968,675 $ 1,257,841 $ 2,968,675
=========== ===========
</TABLE>
8. NOTES PAYABLE, OTHER
Notes payable, other consist of the following:
<TABLE>
<CAPTION>
March 31
-------------------
1995 1994
-------- --------
<S> <C> <C>
10% unsecured note payable to individual,
interest due monthly with principal due
August 1995. $ 75,000 $ --
10% unsecured note payable to individual,
interest due monthly with principal due
April 1993. -- 12,500
12.75% note payable to vendor, due in monthly
installments of $721 through September 1994,
secured by equipment. -- 4,170
-------- --------
$ 75,000 $ 16,670
======== ========
</TABLE>
<PAGE>
9. RELATED PARTY TRANSACTIONS
The Business Acquired had the following employees' advances
and notes receivable at March 31, 1995 and 1994:
<TABLE>
<CAPTION>
March 31
-------------------
1995 1994
-------- --------
<S> <C> <C>
Employee advances $ 12,176 $ 2,129
8.5% promissory notes receivable from
stockholders and officers due May 1995 6,514 6,091
8.25% promissory notes receivable from
stockholders and officers due May 1994 -- 55,000
6% note receivable from stockholder
and officer due in 1995 -- 50,500
Accrued interest receivable 411 386
-------- --------
$ 19,101 $114,106
======== ========
</TABLE>
The Subsidiary leases its office space from a partnership in
which one of the Subsidiary's officers is an owner. In 1993,
the Subsidiary also leased certain office equipment from two
partnerships in which two of the Subsidiary's officers owned
various interests.
10. EMPLOYEE BENEFIT PLAN
The Subsidiary established a 401(k) Profit Sharing Plan for
the benefit of its employees. Any full-time employee as of
December 1 is eligible for this Plan. The Plan contribution
is determined annually by the Subsidiary's Board of Directors.
<PAGE>
11. NET CAPITAL REQUIREMENTS
Pursuant to the net capital provisions of Rule 15c3-1 of the
Securities Exchange Act of 1934, the Subsidiary is required to
maintain a minimum net capital, as defined under such
provisions. Net capital and the related net capital ratio may
fluctuate on a daily basis. The Subsidiary had net capital,
net capital requirements and a ratio of aggregate indebtedness
to net capital as follows:
<TABLE>
<CAPTION>
March 31
---------------------
1995 1994
--------- ---------
<S> <C> <C>
Net capital $ 514,682 $ 256,489
Net capital requirements $ 100,000 $ 75,000
Ratio of aggregate indebtedness
to net capital .16 to 1 1.32 to 1
</TABLE>
12. OFF-BALANCE SHEET RISK
The Subsidiary's commission revenue results from customer
transactions introduced solely through its clearing broker.
The clearing broker assumes the responsibility for execution,
clearance, collection and delivery, including all
recordkeeping requirements, in relation to the Subsidiary's
customers' transactions. Off-balance sheet risk exists with
respect to these transactions due to the possibility that such
customers may be unable to fulfill their contractual
commitments wherein the clearing broker may charge any losses
incurred to the Subsidiary. The Subsidiary has in place
controls to minimize this risk through monitoring credit
worthiness of its customers and monitoring the proper
execution of transactions by the clearing broker.
<PAGE>
BRADY
MARTZ
CERTIFIED PUBLIC ACCOUNTANTS
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
ND Holdings, Inc.
As independent public accountants, we hereby consent to the use of our
reports and references to our Firm included in Post-Effective Amendment
#1 of the Form S-1 Registration Statement.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota
April 15, 1997
<PAGE>
CONSENT OF ALLEN, GIBBS & HOULIK, L.C., INDEPENDENT AUDITORS
We hereby consent to the reference to our firm under the caption
"Experts"
and to the use of our report dated January 18, 1996 (except for Notes 1
and 2, as to which the date is July 3, 1996), relating to the Statements
of Assets and Liabilities and Direct Revenues, Direct Expenses and
Allocated
Indirect Expenses of the Business Components of The Ranson Company, Inc.
and
Subsidiary Acquired in Post-Effective Amemdment No. 1 to the Form S-1
Registration Statement (Form S-1) of ND Holdings, Inc.
ALLEN, GIBBS & HOULIK, L.C.
Wichita, Kansas
April 15, 1997
