SIT MUTUAL FUNDS II INC, 485APOS, 1999-05-26

SIT MUTUAL FUNDS II INC
485APOS, 1999-05-26

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 1999

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X_
(File No. 33-11549)
Post-Effective Amendment No. _19_

AND/OR

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 _X_
(File No. 811-04995)
Post-Effective Amendment No. _20_

SIT U.S. GOVERNMENT SECURITIES FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

4600 Norwest Center, Minneapolis, Minnesota 55402
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(612) 332-3223
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

Kelly K. Orning, Compliance and Administration Associate
Sit Mutual Funds
4600 Norwest Center
Minneapolis, Minnesota 55402
(NAME AND ADDRESS OF AGENT FOR SERVICE)

COPY TO:
Michael J. Radmer, Esq.
Dorsey & Whitney
2200 First Bank Place East
Minneapolis, Minnesota 55402

It is proposed that this filing will become effective (check appropriate
box):
____ immediately upon filing pursuant to paragraph (b) of rule 485
____ on (specify date) pursuant to paragraph (b) of rule 485
____ 60 days after filing pursuant to paragraph (a)(1) of rule 485
_XX_ on August 1, 1999 pursuant to paragraph (a)(1) of rule 485
____ 75 days after filing pursuant to paragraph (a)(2) of rule 485
____ on (specify date) pursuant to paragraph (a)(2) of rule 485

If appropriate, check the following box:
____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. A Rule 24f-2 Notice for the Registrant's most recent fiscal year
was filed with the Securities and Exchange Commission on or about May 30, 1999.

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 1999

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X_
(File No. 2-91312)
Post-Effective Amendment No. _23_

AND/OR

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 _X_
(File No. 811-04033)
Post-Effective Amendment No. _24_

SIT MUTUAL FUNDS II, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

4600 Norwest Center, Minneapolis, Minnesota 55402
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(612) 332-3223
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

Kelly K. Orning, Compliance and Administration Associate
Sit Mutual Funds
4600 Norwest Center
Minneapolis, Minnesota 55402
(NAME AND ADDRESS OF AGENT FOR SERVICE)

COPY TO:
Michael J. Radmer, Esq.
Dorsey & Whitney
2200 First Bank Place East
Minneapolis, Minnesota 55402

If appropriate, check the following box:
____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 1999

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X_
(File No. 2-91313)
Post-Effective Amendment No. _20_

AND/OR

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 _X_
(File No. 811-04032)
Post-Effective Amendment No. _21_

SIT MONEY MARKET FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

4600 Norwest Center, Minneapolis, Minnesota 55402
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(612) 332-3223
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

Kelly K. Orning, Compliance and Administration Associate
Sit Mutual Funds
4600 Norwest Center
Minneapolis, Minnesota 55402
(NAME AND ADDRESS OF AGENT FOR SERVICE)

COPY TO:
Michael J. Radmer, Esq.
Dorsey & Whitney
2200 First Bank Place East
Minneapolis, Minnesota 55402

If appropriate, check the following box:
____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

<PAGE>

(NOT PART OF PROSPECTUS)

BOND FUNDS PROSPECTUS
August 1, 1999

A Family of 100% No-Load Funds

Money Market Fund
U.S. Government Securities Fund
Bond Fund
Tax-Free Income Fund
Minnesota Tax-Free Income Fund

Sit Mutual Funds
The Investment is Mutual

<PAGE>

(Not Part of Prospectus)

(Insert Risk Spectrum)

Sit Mutual Funds
The Investment is Mutual

<PAGE>

BOND FUNDS PROSPECTUS
August 1, 1999

A Family of 100% No-Load Funds

Money Market Fund
U.S. Government Securities Fund
Bond Fund
Tax-Free Income Fund
Minnesota Tax-Free Income Fund

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of these funds, or determined if the
information in this prospectus is accurate or complete. Any statement to the
contrary is a criminal offense.

<PAGE>

TABLE OF CONTENTS

FUND SUMMARIES
- -------------------------------------------------------------------------------

Investment Objectives, Principal Investment Strategies,
Principal Risks, Performance, Fees and Expenses
Money Market Fund #
U.S. Government Securities Fund #
Bond Fund #
Tax-Free Income Fund #
Minnesota Tax-Free Income Fund #

FUND MANAGEMENT
- -------------------------------------------------------------------------------

Investment Adviser #
Portfolio Managers #
Distributor #
Custodian and Transfer Agent #

SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------

Share Price #
When Orders are Effective #
Purchasing Shares #
Exchanging Shares #
Selling Shares #
Checkwriting #
Dividends and Distributions #
Retirement and other Tax-Deferred Accounts #
Taxes #

ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------

Other Securities, Investment Practices, and Policies #
Additional Risks #
Financial Highlights
Money Market Fund #
U.S. Government Securities Fund #
Bond Fund #
Tax-Free Income Fund #
Minnesota Tax-Free Income Fund #
For More Information back cover

<PAGE>

- --------------------------------------------------------------------------------
FUND SUMMARIES
- --------------------------------------------------------------------------------

MONEY MARKET FUND

INVESTMENT OBJECTIVE

The Fund seeks maximum current income to the extent consistent with preserving
capital and maintaining liquidity.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests in a diversified portfolio of high-quality short-term debt
securities, which may include:
- - Corporate debt securities, such as commercial paper;
- - Obligations of the U.S. government, its agencies and instrumentalities;
- - Bank instruments, such as certificates of deposit, time deposits and
bankers' acceptances;
- - Repurchase agreements for the securities in which the Fund may invest; and
- - Asset-backed securities.

The Fund complies with Securities and Exchange Commission regulations that apply
to money market funds. These regulations require that:
- - The Fund's investments mature within 397 days of purchase;
- - the Fund maintain an average dollar-weighted portfolio maturity of 90 days
of less;
- - all of the Fund's investments be denominated in U.S. dollars; and
- - all of the Fund's investments be high-quality securities that have been
determined by the Fund's investment adviser to present minimal credit risk.

PRINCIPAL RISKS

Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund. An investment in
the Fund is not insured or guaranteed by the Federal Deposit Insurance
Corporation (FDIC) or any other government agency. The principal risks of
investing in the Fund include:

- - Income Risk: The income you earn from the Fund may decline due to declining
interest rates.
- - Credit Risk: The issuers or guarantors of securities owned by the Fund may
default on the payment of principal or interest, or on other obligations to
the Fund, causing the value of the Fund to decrease.
- - Interest Rate Risk: A major shift in interest rates could cause the value
of the Fund to decrease.

PERFORMANCE

The following information illustrates how the Fund's performance has varied over
time, which is one indication of the risks of investing in the Fund. The Fund's
past performance does not necessarily indicate how it will perform in the
future. The bar chart depicts the change in performance from year to year. The
table depicts the Fund's average annual total returns for the periods indicated.
Both the chart and the table assume that all distributions have been reinvested.

- -----------------------------------------------------
Total Return for the Calendar Years Ended 12/31 (1)
- -----------------------------------------------------

3.84% 5.58% 5.08% 5.22% 5.17%

1994 1995 1996 1997 1998

(1) The Fund's year-to-date return as of 3/31/99 (not annualized) was 1.11%.

Best Quarter: 1.40% (2nd Q 1995) Worst Quarter: 0.68% (1st Q 1994)
- ------------ -------------

<PAGE>

- ----------------------------------------------
Average Annual Total Return as of 12/31/98
- ----------------------------------------------

Since Inception
1-Year 5-Years (11/1/93)
- ------ ------- ---------
5.17% 4.98% 4.90%

[*Sidebar:] You can call Sit Mutual Funds at 1-800-332-5580
or 612-334-5888 to obtain the Fund's current seven-day
compound yield.

FEES AND EXPENSES

All Sit Mutual Funds are 100% no-load investments, so you will NOT pay any
shareholder fees such as sales loads, redemption fees or exchange fees when you
buy or sell shares of the Fund. However, when you hold shares of the Fund you
indirectly pay a portion of the Fund's operating expenses. These expenses are
deducted from Fund assets. This table shows fees and expenses that you may pay
if you buy and hold shares of the Fund.

- ------------------------------------------------------------
Annual Fund Operating Expenses AS A % OF AVERAGE NET ASSETS
- ------------------------------------------------------------
Management Fees .80%(1)
Distribution (12b-1) Fees None
Other Expenses None
------
Total Annual Fund Operating Expenses .80%(1)
======

(1) Management fee expense does not reflect the Adviser's waiver of fees.
Actual expenses are LOWER than those shown in the table because of
voluntary fee waivers by the Adviser. THE ADVISER INTENDS TO WAIVE FEES
THROUGH DECEMBER 31, 2000 SO THAT TOTAL FUND OPERATING EXPENSES DO NOT
EXCEED .50% OF AVERAGE DAILY NET ASSETS PER YEAR. AFTER DECEMBER 31, 2000
THIS VOLUNTARY FEE WAIVER MAY BE DISCONTINUED BY THE ADVISER.

EXAMPLE

This example is intended to help you compare the cost of investing in the Fund
(before the fee waiver) with the cost of investing in other mutual funds. It
assumes that you invest $10,000 in the Fund for the time periods indicated, that
your investment has a 5% return each year, that the Fund's operating expenses
remain the same, and that you redeem all of your shares at the end of those
periods. Although your actual costs and returns may differ, based on these
assumptions your costs would be:

1-Year 3-Years 5-Years 10-Years
- ------ ------- -------- --------
$82 $256 $446 $993

<PAGE>

U.S. GOVERNMENT SECURITIES FUND

INVESTMENT OBJECTIVE

The Fund seeks high current income and safety of principal.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests in U.S. Government securities, which are securities issued,
guaranteed or insured by the U.S. government, its agencies or instrumentalities.

The Fund invests a substantial portion of its assets in pass-through securities.
Pass-through securities are formed when mortgages or other debt instruments are
pooled together and undivided interests in the pool are sold to investors such
as the Fund. The cash flow from the underlying debt instruments is "passed
through" to the holders of the securities in the form of periodic (generally
monthly) payments of interest and principal, and any prepayments.

Pass-through securities in which the Fund invests include mortgage-backed
securities such as those issued by Government National Mortgage Association
(GNMA), Federal National Mortgage Association (FNMA) and Federal Home Loan
Mortgage Corporation (FHMLC). GNMA pass-through securities are backed by the
full faith and credit of the U.S. Government. FNMA and FHLMC securities are
backed by the credit of the issuing agency. In addition, a significant portion
of the Fund's pass-through security investments may be GNMA manufactured home
loan pass-through securities. Manufactured home loans are fixed-rate loans
secured by a manufactured home unit. Although similar to mortgage-backed
pass-through securities, the prepayment rates on manufactured home loans
underlying these securities generally tend to be less volatile than the
prepayment rates on mortgages underlying mortgage-backed securities. See the
discussion of prepayment risk below under "Principal Risks."

Other types of U.S. Government securities in which the Fund may invest include
U.S. Treasury securities, U.S. Government agency collateralized mortgage
obligations and other U.S. Government agency securities.

In selecting securities for the Fund, Fund managers seek securities providing
high current income. Fund managers attempt to maintain an average effective
duration for the portfolio of approximately 2 to 5 years. The Fund managers'
economic outlook and interest rate forecast, as well as their evaluation of a
security's prepayment risk, yield, maturity, and liquidity, are all factors
considered when making investment decisions.

[*Sidebar:] Duration is a measure of total price sensitivity
relative to changes in interest rates. Portfolios with
longer durations are typically more sensitive to changes in
interest rates.

PRINCIPAL RISKS

As with all mutual funds investing in bonds, the price and yield of the Fund may
change daily due to interest rate changes and other factors. You could lose
money by investing in the Fund. The principal risks of investing in the Fund
include:

- - Prepayment Risk: Declining interest rates may compel borrowers to prepay
mortgages and debt obligations underlying the mortgage-backed securities
and manufactured home loan pass-through securities owned by the Fund. The
proceeds received by the Fund from prepayments will likely be reinvested at
interest rates lower than the original investment, thus resulting in a
reduction of income to the Fund. Likewise, rising interest rates could
reduce prepayments and extend the life of securities with lower interest
rates, which may increase the sensitivity of the Fund's value to rising
interest rates.
- - Interest Rate Risk: An increase in interest rates may lower the Fund's
value and the overall return on your investment.
- - Income Risk: The income you earn from the Fund may decline due to declining
interest rates.
- - Credit Risk: To the extent that the Fund invests in securities which are
not guaranteed by the full faith and credit of the U.S. Government, it is
subject to the risk that the issuers or guarantors of the securities owned
by the Fund may default on the payment of principal or interest, causing
the value of the Fund to decrease.

<PAGE>

PERFORMANCE

The following information illustrates how the Fund's performance has varied over
time, which is one indication of the risks of investing in the Fund. The Fund's
past performance does not necessarily indicate how it will perform in the
future. The bar chart depicts the change in performance from year to year. The
table compares the Fund's average annual total returns for the periods indicated
to a broad-based securities market index. Both the chart and the table assume
that all distributions have been reinvested.

- ------------------------------------------------
Total Return for Calendar Years Ended 12/31(1)
- ------------------------------------------------

11.04% 10.97% 12.87% 5.43% 7.34% 1.77% 11.50% 4.99% 8.19% 6.52%

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

(1) The Fund's year-to-date return as of 3/31/99 (not annualized) was 0.00%.

Best Quarter: 4.83% (4th Q 1990) Worst Quarter: -0.77% (1st Q 1992)
- ------------ -------------

- --------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/98
- --------------------------------------------------------------------------------
1-Year 5-Years 10-Years
------ ------- --------
U.S. GOVERNMENT SECURITIES FUND 6.52% 6.55% 8.01%
Lehman Intermediate Gov't Bond Index* 8.49% 6.45% 8.34%

* An unmanaged index comprised of government fixed-rate securities with
maturities of 1 to 10 years.

FEES AND EXPENSES

- -------------------------------------------------------------
Annual Fund Operating Expenses AS A % OF AVERAGE NET ASSETS
- -------------------------------------------------------------
Management Fees 1.00%(1)
Distribution (12b-1) Fees None
Other Expenses None
-------
Total Fund Operating Expenses 1.00%(1)
=======

(1) Management fee expense does not reflect the Adviser's waiver of fees.
Actual expenses are LOWER than those shown in the table because of
voluntary fee waivers by the fund's Adviser. THE ADVISER INTENDS TO WAIVE
FEES THROUGH DECEMBER 31, 2000 SO THAT TOTAL FUND OPERATING EXPENSES DO NOT
EXCEED .80% OF AVERAGE DAILY NET ASSETS PER YEAR. AFTER DECEMBER 31, 2000,
THIS VOLUNTARY FEE WAIVER MAY BE DISCONTINUED BY THE ADVISER.

EXAMPLE

1-Year 3-Years 5-Years 10-Years
- ------ ------- ------- --------
$102 $320 $555 $1,229

<PAGE>

BOND FUND

INVESTMENT OBJECTIVE

The Fund seeks to maximize total return, consistent with preservation of
capital.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests in a diversified portfolio of debt securities. During normal
market conditions, the Fund will invest at least 65% of its total assets in the
following types of debt securities:
- - Mortgage-backed securities, including collateralized mortgage obligations;
- - Asset-backed securities;
- - Obligations of the U.S. government, its agencies and instrumentalities;
- - Corporate debt securities;
- - Municipal securities;
- - Obligations of foreign governments or their subdivisions, agencies and
instrumentalities, or of international agencies or supernational entities;
- - Variable and floating rate debt securities;
- - Short-term debt obligations, including commercial paper and bank
instruments, such as certificates of deposit, time deposits, and bankers'
acceptances;
- - Repurchase agreements for the securities in which the Fund may invest.

The Fund invests primarily in debt securities that, at the time of purchase, are
either rated investment-grade or if unrated, determined to be of comparable
quality by the Fund's investment adviser. Unrated securities will not exceed 20%
of the Fund's total assets.

[*Sidebar:] Investment-grade securities are rated within the
four highest grades by Moody's, Investors Service, Standard
and Poor's Corporation, Fitch IBCA, or Duff & Phelps.

In selecting securities for the Fund, Fund managers seek securities providing
maximum total return. Fund managers attempt to maintain an average effective
duration for the portfolio of 3 to 7 years. The Fund managers' economic outlook
and interest rate forecast, as well as their evaluation of a security's credit
quality, yield, maturity, and liquidity, are all factors considered when making
investment decisions. Based upon their economic outlook, the Fund managers
attempt to shift the sector concentrations of the portfolio. The Fund managers
attempt to shift the portfolio's average effective duration based upon their
interest rate forecast.

[*Sidebar:] Duration is a measure of total price sensitivity
relative to changes in interest rates. Portfolios with
longer durations are typically more sensitive to changes in
interest rates.

PRINCIPAL RISKS

- - Interest Rate Risk: An increase in interest rates may lower the Fund's
value and the overall return on your investment.
- - Prepayment Risk: Declining interest rates may compel borrowers to prepay
mortgages and debt obligations underlying the mortgage-backed securities
and manufactured home loan pass-through securities owned by the Fund. The
proceeds received by the Fund from prepayments will likely be reinvested at
interest rates lower than

<PAGE>

the original investment, thus resulting in a reduction of income to the
Fund. Likewise, rising interest rates could reduce prepayments and extend
the life of securities with lower interest rates, which may increase the
sensitivity of the Fund's value to rising interest rates.
- - Credit Risk: The issuers or guarantors of securities owned by the Fund may
default on the payment of principal or interest, or on other obligations to
the Fund, causing the value of the Fund to decrease.
- - Income Risk: The income you earn from the Fund may decline due to declining
interest rates.
- - Call Risk: Many bonds may be redeemed ("called") at the option of the
issuer before their stated maturity date. In general, an issuer will call
its bonds if they can be refinanced by issuing new bonds which bear a lower
interest rate. The Fund would then be forced to invest the unanticipated
proceeds at lower interest rates, resulting in a decline in the Fund's
income.

PERFORMANCE

The following information illustrates how the Fund's performance has varied over
time, which is one indication of the risks of investing in the Fund. The Fund's
past performance does not necessarily indicate how it will perform in the
future. The bar chart depicts the change in performance from year to year. The
table compares the Fund's average annual returns for the periods indicated to a
broad-based securities market index. Both the chart and the table assume that
all distributions have been reinvested.

- ------------------------------------------------
Total Return for Calendar Years Ended 12/31(1)
- ------------------------------------------------

- -1.31% 16.83% 4.25% 9.44% 6.52%

1994 1995 1996 1997 1998

(1) The Fund's year-to-date return as of 3/31/99 (not annualized) was 0.02%.

Best Quarter: 5.99% (2nd Q 1995) Worst Quarter: -1.55% (1st Q 1994)
- ------------ -------------

- -------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/98
- -------------------------------------------------------------------------------
Since Inception
1-year 5-Year (12/1/93)
BOND FUND 6.52% 6.98% 6.93%
Lehman Aggregate Bond Index* 8.69% 7.27% 7.26%

* An unmanaged index composed of investment-grade securities from the Lehman
Government/Corporate Bond Index,

Mortgage-Backed Securities Index, and the Asset-Backed Securities Index.

FEES AND EXPENSES

- ------------------------------------------------------------------
Annual Fund Operating Expenses AS A % OF AVERAGE NET ASSETS
- ------------------------------------------------------------------
Management Fees .80%
Distribution (12b-1) Fees None
Other Expenses None
-----
Total Fund Operating Expenses .80%
=====

EXAMPLE

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that your investment has a
5% return each year, that the Fund's operating expenses remain the same, and
that you redeem all of your shares at

<PAGE>

the end of those periods. Although your actual costs and returns may differ,
based on these assumptions your costs would be:

1-Year 3-Years 5-Years 10-Years
- ------ ------- ------- --------
$82 $256 $446 $993

<PAGE>

TAX-FREE INCOME FUND

INVESTMENT OBJECTIVE

The Fund seeks high current income that is exempt from federal income tax,
consistent with preservation of capital.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests in municipal securities that generate interest income that is
exempt from regular federal income tax and federal alternative minimum tax.

[*Sidebar:] Municipal securities are debt obligations issued
by or for U.S. states, territories, and possessions and the
District of Columbia and their political subdivisions,
agencies, and instrumentalities.

The Fund invests in both revenue bonds, which are backed by and payable only
from the revenues derived from a specific facility or specific revenue source
and in general obligation bonds, which are secured by the full faith, credit and
taxation power of the issuing municipality. The Fund generally invests a
significant portion of its assets in revenue bonds of health care related
facilities and in obligations of municipal housing authorities, which include
single family and multi-family mortgage revenue bonds.

The Fund invests in securities rated investment-grade at the time of purchase
or, if unrated, determined to be of comparable quality by the Fund's Adviser.

[*Sidebar:] Investment-grade securities are rated within the
four highest grades by Moody's, Investors Service, Standard
and Poor's Corporation, Fitch IBCA, or Duff & Phelps.

In selecting securities for the Fund, Fund managers seek securities providing
high current tax-exempt income. Fund managers attempt to maintain an average
effective duration for the portfolio of approximately 4 to 8 years. The Fund
managers' economic outlook and interest rate forecast, as well as their
evaluation of a security's structure, credit quality, yield, maturity, and
liquidity, are all factors considered when making investment decisions.

[*Sidebar:] Duration is a measure of total price sensitivity
relative to changes in interest rates. Portfolios with
longer durations are typically more sensitive to changes in
interest rates.

PRINCIPAL RISKS

- - Call Risk: Many bonds may be redeemed ("called") at the option of the
issuer before their stated maturity date. In general, an issuer will call
its bonds if they can be refinanced by issuing new bonds which bear a lower
interest rate. The Fund would then be forced to invest the proceeds at
lower interest rates, resulting in a decline in the Fund's income.
- - Prepayment Risk: Declining interest rates may compel borrowers to prepay
mortgages and debt obligations underlying the mortgage-backed securities
and manufactured home loan pass-through securities owned by the Fund. The
proceeds received by the Fund from prepayments will likely be reinvested at
interest rates lower than the original investment, thus resulting in a
reduction of income to the Fund. Likewise, rising interest rates could

<PAGE>

reduce prepayments and extend the life of securities with lower interest
rates, which may increase the sensitivity of the Fund's value to rising
interest rates.
- - Credit Risk: The issuers or guarantors of securities owned by the Fund may
default on the payment of principal or interest, or on other obligations to
the Fund, causing the value of the Fund to decrease. The revenue bonds in
which the Fund invests may entail greater credit risk than the Fund's
investments in general obligation bonds. In particular, weaknesses in
federal housing subsidy programs and their administration may result in a
decrease of subsidies available for the payment of principal and interest
on certain multifamily housing authority bonds.
- - Interest Rate Risk: An increase in interest rates may lower the Fund's
value and the overall return on your investment.
- - Income Risk: The income you earn from the Fund may decline due to declining
interest rates.
- - Political and Economic Risk: Because the Fund invests primarily in
municipal securities issued by states and their political subdivisions, the
Fund may be particularly affected by the political and economic conditions
and developments in those states. The value of the Fund may be adversely
affected by future changes in federal or state income tax laws.

PERFORMANCE

The following information illustrates how the Fund's performance has varied over
time, which is one indication of the risks of investing in the Fund. The Fund's
past performance does not necessarily indicate how the Fund will perform in the
future. The bar chart depicts the change in performance from year to year. The
table compares the Fund's average annual returns for the periods indicated to a
broad-based securities market index. Both the chart and the table assume that
all distributions have been reinvested.

- -------------------------------------------------
Total Returns for Calendar Years Ended 12/31(1)
- -------------------------------------------------

8.38% 7.29% 9.25% 7.71% 10.42% -0.63% 12.86% 5.69% 9.87% 6.29%

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

(1) The Fund's year-to-date return as of 3/31/99 (not annualized) was 0.50%.

Best Quarter: 4.35% (1st Q 1995) Worst Quarter: -3.09% (1st Q 1994)
- ------------ -------------

- --------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/98
- --------------------------------------------------------------------------------
1-year 5-Year 10-Year
------ ------ -------
TAX-FREE INCOME FUND 6.29% 6.72% 7.66%
Lehman 5-Year Muni Bond Index* 5.84% 5.28% 7.07%

* An unmanaged index composed of municipal securities with maturities of 4 to
6 years. It is a subset of the Lehman Municipal Bond Index, an unmanaged
index of investment grade tax-exempt bonds.

FEES AND EXPENSES

All Sit Mutual Funds are 100% no-load investments, so you will not pay any
shareholder fees such as sales loads, redemption fees or exchange fees when you
buy or sell shares of the Fund. However, when you hold shares of the Fund you
indirectly pay a portion of the Fund's operating expenses. These expenses are
deducted from Fund assets. This table shows fees and expenses that you may pay
if you buy and hold shares of the Fund.

- --------------------------------------------------------------------------------
Annual Fund Operating Expenses as a % of average net assets
- --------------------------------------------------------------------------------
Management Fees .80%(1)
Distribution (12b-1) Fees None
Other Expenses None
-------
Total Fund Operating Expenses .80%(1)
=======

(1) Management fee expense does not reflect the Adviser's waiver of fees.
Actual expenses are lower than those show in the table because of voluntary
fee waivers by the Adviser. THE ADVISER INTENDS TO WAIVE FEES THROUGH
DECEMBER 31, 2000 SO THAT TOTAL FUND OPERATING EXPENSES DO NOT EXCEED .70%
OF THE FUND'S AVERAGE DAILY NET ASSETS IN EXCESS OF $250 MILLION

<PAGE>

AND .60% OF THE FUND'S AVERAGE DAILY NET ASSETS IN EXCESS OF $500 MILLION.
AFTER DECEMBER 31, 2000, THIS VOLUNTARY FEE WAIVER MAY BE DISCONTINUED BY
THE ADVISER.

EXAMPLE

1-Year 3-Years 5-Years 10-Years
- ------ ------- ------- --------
$82 $256 $446 $993

<PAGE>

MINNESOTA TAX-FREE INCOME FUND

INVESTMENT OBJECTIVE

The Fund seeks high current income that is exempt from federal regular income
tax and Minnesota regular personal income tax, consistent with preservation of
capital.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests in municipal securities that generate interest income that is
exempt from regular federal income tax and Minnesota regular personal income
tax. The Fund may invest up to 20% of its assets in securities that generate
interest income subject to both Minnesota and federal alternative minimum tax.

The Fund primarily invests in municipal securities issued by the state of
Minnesota and its political subdivisions. The Fund invests in both general
obligation bonds, which are secured by the full faith, credit and taxation power
of the issuing municipality, and in revenue bonds, which are backed by and
payable only from the revenues derived from a specific facility or specific
revenue source. The Fund generally invests a significant portion of its assets
in obligations of municipal housing authorities which include single family and
multifamily mortgage revenue bonds.

The Fund primarily invests in securities rated investment-grade at the time of
purchase or, if unrated, determined to be of comparable quality by the Fund's
adviser. However, the Fund may invest up to 30% of its assets in securities
rated below investment-grade or determined to be of comparable quality by the
Fund's adviser, but the Fund may not invest in securities rated lower than B3 by
Moody's Investors Service or B- by Standard and Poor's Corporation, Fitch IBCA
or Duff & Phelps, or in unrated securities determined by the Fund's adviser to
be of comparable quality.

[*Sidebar:] Investment-grade securities are rated within the
four highest grades by Moody's, Investors Service, Standard
and Poor's Corporation, Fitch IBCA, or Duff & Phelps.

[*Sidebar:] Duration is a measure of total price sensitivity
relative to changes in interest rates. Portfolios with
longer durations are typically more sensitive to changes in
interest rates.

PRINCIPAL RISKS

- - Credit Risk: The issuers or guarantors of securities owned by the Fund may
default on the payment of principal or interest, or on other obligations to
the Fund, causing the value of the Fund to decrease. The revenue bonds in
which the Fund invests may entail greater credit risk than the Fund's
investments in general obligation bonds. In particular, weaknesses in
federal housing subsidy programs and their administration may result in a
decrease of

<PAGE>

subsidies available for the payment of principal and interest on certain
multifamily housing authority bonds. Securities rated below
investment-grade are considered predominately speculative and involve
greater risk of default or price changes due to changes in the issuer's
creditworthiness. Debt securities rated below investment-grade are commonly
known as junk bonds.
- - Call Risk: Many bonds may be redeemed ("called") at the option of the
issuer before their stated maturity date. In general, an issuer will call
its bonds if they can be refinanced by issuing new bonds which bear a lower
interest rate. The Fund would then be forced to invest the unanticipated
proceeds at lower interest rates, resulting in a decline in the Fund's
income.
- - Prepayment Risk: Declining interest rates may compel borrowers to prepay
mortgages and debt obligations underlying the mortgage-backed securities
and manufactured home loan pass-through securities owned by the Fund. The
proceeds received by the Fund from prepayments will likely be reinvested at
interest rates lower than the original investment, thus resulting in a
reduction of income to the Fund. Likewise, rising interest rates could
reduce prepayments and extend the life of securities with lower interest
rates, which may increase the sensitivity of the Fund's value to rising
interest rates.
- - Interest Rate Risk: An increase in interest rates may lower the Fund's
value and the overall return on your investment.
- - Income Risk: The income you earn from the Fund may decline due to declining
interest rates.
- - Political and Economic Risk: Because the Fund invests primarily in
municipal securities issued by the state of Minnesota and its political
subdivisions, the Fund will be particularly affected by the political and
economic conditions and developments in Minnesota. The value of the Fund
may be adversely affected by future changes in federal or state income tax
laws.
- - Risks of Nondiversification: The Fund is nondiversified, as is typical of
single-state funds. This means that it may invest in a larger portion of
its assets in a limited number of issuers than a diversified fund. Because
a relatively high percentage of the Fund's assets may be invested in the
securities of a limited number of issuers, the Fund may be more susceptible
to any single economic, political or regulatory occurrence than a
diversified fund.

PERFORMANCE

The following information illustrates how the Fund's performance has varied over
time, which is one indication of the risks of investing in the Fund. The Fund's
past performance does not necessarily indicate how it will perform in the
future. The bar chart depicts the change in performance from year to year. The
table compares the Fund's average annual total returns for the periods indicated
to a broad-based securities market index. Both the chart and the table assume
that all distributions have been reinvested.

- ------------------------------------------------
Total Return for Calendar Years Ended 12/31(1)
- ------------------------------------------------

0.63% 11.90% 5.89% 8.19% 6.14%

1994 1995 1996 1997 1998

(1) The Fund's year-to-date return as of 3/31/99 (not annualized) was 0.65%.

Best Quarter: 4.47% (1st Q 1995) Worst Quarter: -2.37% (1st Q 1994)
- ------------ -------------

- --------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/98
- --------------------------------------------------------------------------------
Since Inception
1-year 5-Year (12/1/93)
------ ------ ---------------
MINNESOTA TAX-FREE INCOME FUND 6.14% 6.49% 6.71%
Lehman 5-Year Muni Bond Index* 5.84% 5.28% 5.49%

* An unmanaged index composed of bonds with maturities of 4 to 6 years. It is
a subset of the Lehman Municipal Bond Index, an unmanaged index of
investment grade tax-exempt bonds.

<PAGE>

FEES AND EXPENSES

- --------------------------------------------------------------------------------
Annual Fund Operating Expenses AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
Management Fees .80%
Distribution (12b-1) Fees None
Other Expenses None
----
Total Fund Operating Expenses .80%
====

EXAMPLE

1-Year 3-Years 5-Years 10-Years
- ------ ------- ------- --------
$82 $256 $446 $993

<PAGE>

- --------------------------------------------------------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------

INVESTMENT ADVISER

Sit Investment Associates, Inc. (the "Adviser"), 4600 Norwest Center,
Minneapolis, Minnesota 55402, is the Funds' investment adviser. The Adviser was
founded in 1981 and provides investment management services for both public and
private clients. As of March 31, 1999, the Adviser had approximately $7 billion
in assets under management, including approximately $2 billion for the 13 Sit
Mutual Funds.

Under Investment Management Agreements between the Funds and the Adviser (the
"Agreements"), the Adviser manages the Funds' business and investment
activities, subject to the authority of the board of directors. The Agreements
require the Adviser to bear all of the Funds' expenses except interest,
brokerage commissions and transaction charges and certain extraordinary
expenses. Each Fund pays the Adviser a monthly fee for its services. During
their most recent fiscal years, after taking into account voluntary fee waivers,
the Funds paid the following advisory fees to the Adviser:

Advisory fee as a % of
Fund average daily net assets
- ---- ------------------------
Money Market Fund .50%*
U.S. Government Securities Fund .80%*
Bond Fund .80%
Minnesota Tax-Free Income Fund .80%
Tax-Free Income Fund .71%*

* Net of voluntary fee waivers. After December 31, 2000, these voluntary fee
waivers may be discontinued by the Adviser in its sole discretion. The
contractual fees (without waivers) for the Money Market Fund is .80% (.60%
of assets in excess of $50 million) per year of the Fund's average daily
net assets, the U.S. Government Securities Fund is 1.00% (.80% of assets in
excess of $50 million) per year of the Fund's average daily net assets, and
the Tax-Free Income Fund is .80% per year of the Fund's average daily net
assets.

PORTFOLIO MANAGERS

Each Fund's investment decisions are made by an investment committee of the
Adviser.

DISTRIBUTOR

SIA Securities Corp. (the "Distributor"), an affiliate of the Adviser, is the
distributor for the Funds. The Distributor markets the Funds' shares only to
certain institutional and individual investors and all other sales of the Funds'
shares are made by each Fund.

The Distributor or the Adviser may enter into agreements under which various
brokerage firms provide administrative services for customers who are beneficial
owners of shares of the Funds. The Distributor or Adviser may compensate these
firms for the services provided, with compensation based on the aggregate assets
of customers that are invested in the Funds.

CUSTODIAN AND TRANSFER AGENT

The Northern Trust Company, located at 50 LaSalle Street, Chicago, IL 60675, is
the Custodian for the Funds.

[*Sidebar:] The Custodian holds the Funds' securities and cash,
receives and pays for securities purchased, delivers against
payment for securities sold, receives and collects income from
investments and performs other

<PAGE>

administrative duties, all under the supervision of officers of
the Funds or the Adviser.

First Data Investor Services Group, Inc., located at 4400 Computer Drive,
Westboro, MA 01581, is the Transfer Agent for the Funds.

[*Sidebar:] The Transfer Agent processes purchase orders,
redemption orders and handles all related shareholder accounting
services, all under the supervision of officers of the Funds or
the Adviser.

- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------

SHARE PRICE

Your price for purchasing, selling, or exchanging shares is based on the Fund's
net asset value (NAV) per share, which is calculated as of the close of regular
trading on the New York Stock Exchange (generally 3:00 p.m. Central time) every
day the exchange is open. The Money Market Fund seeks to maintain a stable net
asset value of $1.00 per share. The NAV per share of the other Funds will
fluctuate.

[*Sidebar]: A Fund's share price or NAV is determined by adding
the total value of a Fund's investments and other assets
(including accrued income), subtracting its liabilities, and then
dividing that figure by the number of outstanding shares of the
Fund.

NAV is based on the market value of the securities in a fund's portfolio. When
market value prices are not readily available, fair value is determined in good
faith by the Adviser using methods approved by the Boards of Directors.
Short-term debt securities maturing in less than 60 days are valued at amortized
cost. The amortized cost method of valuation initially values a security at its
purchase cost, then consistently adjusts the cost value by amortizing/accreting
any discount or premium paid until the security's maturity, without regard to
fluctuating interest rates.

WHEN ORDERS ARE EFFECTIVE

Purchase, exchange, and sale orders are received and may be accepted by Sit
Mutual Funds only on days the New York Stock Exchange ("NYSE") is open.
PURCHASE, EXCHANGE, AND SALE ORDERS RECEIVED PRIOR TO THE CLOSE OF THE NYSE,
GENERALLY 3:00 P.M. CENTRAL TIME, ARE INVESTED AT THE NET ASSET VALUE PER SHARE
CALCULATED FOR THAT BUSINESS DAY. IF RECEIVED AFTER THE CLOSE OF THE NYSE, THE
PURCHASE, EXCHANGE OR SALE WILL BE MADE AT THE NET ASSET VALUE CALCULATED ON THE
NEXT DAY THE NYSE IS OPEN.

PURCHASES MADE TO AN EXISTING ACCOUNT VIA ACH / ELECTRONIC TRANSFER OF FUNDS ARE
INVESTED AT THE NET ASSET VALUE PER SHARE ON THE NEXT BUSINESS DAY AFTER YOUR
TELEPHONE CALL TO THE FUNDS IF YOU CALL THE FUNDS PRIOR TO THE CLOSE OF THE
NYSE, GENERALLY 3:00 P.M. CENTRAL TIME. Your bank account will be debited within
1 to 2 business days.

The Funds may reject or restrict any purchase or exchange order at any time,
when, in the judgment of management, it is in the best interests of the Funds.
For example, it may be in the best interests of the Funds to reject purchase and
exchange orders that are short-term or restrict excessive trading into and out
of the Funds since such orders may harm performance by disrupting portfolio
management strategies and increasing expenses.

PURCHASING SHARES

Shares of the Funds may be purchased on any day the NYSE is open with a minimum
initial investment of $2,000. If you establish an on-going Automatic Investment
Plan, the minimum initial investment is $500. If you open a

<PAGE>

retirement, education, or UGMA or UTMA account, there is no minimum initial
investment amount. There are no additional charges to invest in the Funds.

Once an account is opened, additional investments must be at least $100, except
for retirement, education, and UGMA/UTMA accounts which have no minimum
additional investment amount.

INITIAL PURCHASE BY MAIL
You may complete and sign an account application and mail it to the Funds as
instructed on the application. Enclose a check made payable to Sit Mutual Funds.
Third party checks are not accepted.

INITIAL PURCHASE BY WIRE
You may have your bank wire Federal Funds to purchase shares of the Funds. Your
bank may charge you a wire fee. Before money is wired for an initial purchase
(new account), you must fax a copy of a completed account application to Sit
Mutual Funds. The Funds will provide you with an account number and wiring
instructions.

After opening an account by wire transfer, you must mail the completed account
application containing original signatures to Sit Mutual Funds. If a completed
application is not received or your social security or tax identification number
is not certified with a Form W-9, your account will be subject to back-up
withholding within 60 days.

Any delays which may occur in wiring money, including delays which may occur in
processing by the banks, are not the responsibility of the Funds or the Funds'
Transfer Agent.

[*Sidebar:] Questions?
Call 1-800-332-5580
or 612-334-5888

ADDITIONAL PURCHASES BY MAIL
You may make additional purchases by mailing the investment slip attached to
your account confirmation statement or a letter of instruction containing your
account number and the name(s) on the account, together with a check made
payable to Sit Mutual Funds. INVESTMENT SLIPS ARE ELECTRONICALLY CODED AND ARE
NOT INTERCHANGEABLE AMONG FUNDS.

ADDITIONAL PURCHASES BY WIRE
You may make additional purchases by wiring funds according to the wire
instructions on the back cover of this prospectus. After you have initiated the
wire purchase through your bank, notify Sit Mutual Funds that a wire purchase is
being made to your account.

ADDITIONAL PURCHASES BY ACH
You may make additional purchases via electronic transfer of funds if you have
selected this option on the account application. (To add this option to an
existing account, complete the Change of Account Options form. This option will
begin within ten days of the Fund's receipt of the change form.)

ADDITIONAL PURCHASES BY AUTOMATIC INVESTMENT PLAN
You may make additional purchases automatically on any day of the month if you
have completed the Automatic Investment Plan section of the account application.
(To add this option to an existing account, complete the Change of Account
Options form. This option will begin within ten days of the Fund's receipt of
the change form.) You can change the amount or terminate this option by written
notice to the Funds at any time.

EXCHANGING SHARES

You may sell shares of one Fund and use the proceeds to buy shares of another
Sit Mutual Fund, at no cost. Before making an exchange, you should read the
prospectus and consider the investment objective of the Fund to be purchased.

<PAGE>

An exchange of shares is a sale for federal income tax purposes and you may have
a taxable capital gain or loss.

You may make an exchange to an existing account or to a new account. If your
exchange creates a new account, the new account ownership must be identical and
you must satisfy the minimum initial investment amount.

EXCHANGE BY TELEPHONE
You may exchange shares between the Funds by telephone. The exchange privilege
is automatically established when you open your account, unless you indicate
that you do not want the exchange privilege.

EXCHANGE BY MAIL
You may exchange shares between the Funds by written request to the Funds. A
written request must be signed by all registered owners of the account.

EXCHANGE BY AUTOMATIC EXCHANGE PLAN
You may exchange fixed periodic amounts from one Fund to another Fund on any
business day of the month if you have completed the Automatic Exchange section
of the account application. An exchange may be done monthly, or you may choose
which months you wish to have the exchange made. (To add this option to an
existing account, complete the Change of Accounts Options form.)

SELLING SHARES

You may sell all or a portion of your shares on any day when the NYSE is open,
at no cost. You may receive more or less than your cost depending on the market
value of the Fund's securities. A request to sell cannot be canceled or revoked.

SELL BY MAIL
You may sell shares by sending a written request to Sit Mutual Funds that
includes the following information:
- - Name of the Fund;
- - Name(s) on the account; - Account number;
- - Dollar amount or number of shares to be redeemed;
- - Other supporting legal documents as required for estates, trusts,
guardianships, custodianships, corporations, pension and profit sharing
plans and other organizations;
- - Directions specifying whether you want to receive the proceeds by mail, fed
wire or ACH (see "Payment of Sale Proceeds" below for additional
information you must include in your written request);
- - Signatures of all registered account owners, exactly as their names appear
on the account. THE SIGNATURE MUST BE GUARANTEED IF:
(a) You would like the proceeds from the sale to be paid to anyone
other than the registered account owner(s), or
(b) You would like the check mailed to an address other than the
registered address, or
(c) You want the proceeds sent via bank wire or ACH to a bank
different than the bank authorized by you on your account
application. (Note that it may take up to 10 days for your bank
account to be credited if you are providing new ACH
instructions.)

[*Sidebar]: A signature guarantee assures that a signature
is genuine a and protects shareholders from unauthorized
account transfers. Most banks, brokerage firms, and other
financial institutions guarantee signatures. Call your
financial institution to determine if it has this
capability. A notary public stamp or seal cannot be
substituted for a signature guarantee.

You will receive the proceeds from the sale of shares according to the method
you indicate in your written request - either by mail, wire or by ACH.

<PAGE>

SELL BY TELEPHONE
You may sell shares, up to $50,000 per day, by calling Sit Mutual Funds if you
completed the Banking Authorization section and the Telephone Redemption section
of the account application for each account that you want the option. (To add
this option to an existing account, or to change your banking information
provided on the application, you must complete a Change of Account Options form.
A signature guarantee is required with the change form if you are changing the
address or bank account to where we will send your redemption proceeds.) The
$50,000 limitation does not apply to omnibus accounts. For purposes of this
limitation, accounts with the same registration in different Funds will be
aggregated.

You will receive the proceeds from the sale of shares according to the method
you chose in the Telephone Redemption section of the account application -
either by mail, by wire, or by ACH.

SELL BY AUTOMATIC WITHDRAWAL PLAN
You may sell shares through an Automatic Withdrawal Plan and receive sales
proceeds of at least $100 on a monthly, quarterly, semi-annual or annual basis
if you have completed the Special Services section of the account application.
(To add this option to an existing account, you must complete the Change of
Accounts Options form. This option will begin within ten days of the Fund's
receipt of the change form.) Automatic withdrawals may eventually exhaust your
account. Each withdrawal constitutes a sale for federal income tax purposes and
you may have a taxable capital gain or loss.

You will receive the proceeds from the sale of shares according to the method
you chose in the Special Services section of the account application - either by
mail or ACH.

PAYMENT OF SALE PROCEEDS
Your sale proceeds generally will be paid as soon as possible, generally not
later than seven business days after receipt of a request to sell. HOWEVER, IF
YOUR SHARES WERE RECENTLY PURCHASED WITH NONGUARANTEED FUNDS, SUCH AS A PERSONAL
CHECK, AND YOU REQUEST TO SELL SHARES OR YOU WRITE A DRAFT ON YOUR ACCOUNT, YOUR
SALES PROCEEDS CHECK MAY BE DELAYED UNTIL YOUR CHECK CLEARS, WHICH MAY TAKE UP
TO 15 DAYS, OR THE FUND MAY RETURN YOUR DRAFT. YOU MAY AVOID THIS DELAY BY
PURCHASING SHARES WITH A BANK WIRE OF FEDERAL FUNDS.

You may receive proceeds from the sale of your shares in one of three ways:

1. BY MAIL. AVAILABLE FOR SALES INITIATED BY A WRITTEN OR TELEPHONE REQUEST OR
AN AUTOMATIC WITHDRAWAL PLAN. We can mail a check of the proceeds from the
sale of shares to your address of record. If you would like the check
mailed to an address other than the address of record, you must submit a
written sales request which includes your new address and a signature
guarantee. Your check will generally be mailed to you within 7 business
days after receipt of your request to sell.

2. BY WIRE. AVAILABLE FOR SALES INITIATED BY A WRITTEN OR TELEPHONE REQUEST.
We can transmit the proceeds from the sale of shares by wire to your bank
account. If you have not provided wire instructions with the banking
information on your application, or if the wire instructions are different
than previously provided, you must submit a written sales request which
includes wire instructions, the bank's address, and a signature guarantee.
Your bank account usually will be credited within 1 to 2 business days
after the Funds receive your written or telephone request to sell shares.

The Funds' bank charges a wire fee (currently $8) which will be deducted
from the balance of your account or from the amount being wired if your
account has been completely redeemed. The recipient bank may also charge a
wire fee.

3. BY ACH. AVAILABLE FOR SALES INITIATED BY A WRITTEN OR TELEPHONE REQUEST. We
can send electronically via Automated Clearing House (ACH) proceeds from
the sale of shares for non-IRA accounts to your bank account. If you have
not provided ACH instructions with the banking information on your
application, or if the ACH instructions are different than previously
provided, you must submit a written sales request which includes the ACH
instructions and a signature guarantee. Your bank account usually will be
credited within 1 to 2 business

<PAGE>

days after the Funds receive your telephone request to sell shares, and
within 10 days if you are providing new ACH instructions or banking
information.

INVOLUNTARY REDEMPTIONS
If your account balance in a Fund falls below $2,000 as a result of selling or
exchanging shares, the Fund has the right to redeem your shares and send you the
proceeds. Before redeeming your account, the Fund will mail you a notice of its
intention to redeem, which will give you an opportunity to make an additional
investment. If you do not increase the value of your account to at least $2,000
within 30 days of the date the notice was mailed, the fund may redeem your
account. The $2,000 minimum balance requirement does not apply to retirement,
education, UGMA or UTMA accounts, or if you have established an on-going
Automatic Investment Plan.

CHECKWRITING

Checkwriting is available on all Sit Bond Funds, at no cost. You may redeem
shares by writing checks in amounts of $250 or more. To use this option, you
must complete the checkwriting section of the application. You will be provided
with free checks and you may order additional checks as needed. The checkwriting
privilege is subject to the Funds' procedures and rules. The checkwriting
privilege may be terminated or suspended and/or a fee may be imposed for this
service.

A check that you write will be treated as a sale of shares equal to the amount
of the check. You will receive a confirmation of the sale and your cancelled
check will be returned. You will be entitled to distributions paid on your
shares until the check is presented to the Fund for payment.

YOU CANNOT LIQUIDATE YOUR ACCOUNT USING THE CHECKWRITING PRIVILEGE BECAUSE YOUR
ACCOUNT BALANCE WILL CHANGE EACH DAY AS A RESULT OF DAILY DIVIDENDS AND
FLUCTUATION OF THE NET ASSET VALUE PER SHARE. If you wish sell all of your
shares, see the "Selling Shares" section.

INVESTING THROUGH A THIRD PARTY

There is no charge to invest, exchange, or sell shares when you make
transactions directly through Sit Mutual Funds.

If you invest in the Funds through a third party, rather than directly with Sit
Mutual Funds, the fees and policies may be different than described in this
prospectus. Banks, brokers, 401(k) plans, financial advisors, and financial
supermarkets may charge commissions and transaction fees and may set different
minimum investments or limitations on purchasing or selling shares. Consult a
representative of your plan or financial institution if you are not sure.

DIVIDENDS AND DISTRIBUTIONS

Dividends from a Fund's net investment income are declared daily and paid
monthly (on the last business day of the month). Net investment income includes
dividends on stocks and interest earned on bonds or other debt securities less
operating expenses.

Capital gains, if any, are distributed at least once a year by each Fund. A
capital gain occurs if a Fund sells portfolio securities for more than its cost.

Dividend and capital gain distributions are automatically reinvested in
additional shares of the Fund paying the distribution at the net asset value per
share on the distribution date. However, you may request that distributions be
automatically reinvested in another Sit Mutual Fund, or paid in cash. Such
requests may be made on the application or by written notice to Sit Mutual
Funds. You will receive a quarterly statement reflecting the dividend payment
and, if applicable, the reinvestment of dividends. If cash payment is requested,
a check normally will be mailed within five business days after the payable
date. If the check cannot be delivered because of an incorrect mailing address,
the undelivered distributions and all future distributions will automatically be
reinvested in Fund shares. No interest will accrue on uncashed distribution,
dividend, or sales proceeds checks.

<PAGE>

RETIREMENT AND OTHER TAX-DEFERRED ACCOUNTS

Taxes on current income can be deferred by investing in Keogh plans, Individual
Retirement Accounts (IRAs), Simplified Employee Pensions (SEPs), 401(k),
pension, profit-sharing, employee benefit, deferred compensation and other
qualified retirement plans.

The Funds are available for your tax-deferred retirement plan with no minimum
investment requirements for initial or subsequent contributions. Such retirement
plans must have a qualified plan sponsor or trustee. The Adviser sponsors
prototype 401(k), profit sharing, and money purchase plans as well as IRA,
SEP-IRA and Keogh plans. You should contact the Adviser for specific plan
documentation.

The Funds are also available for Education IRAs, which are vehicles for saving
for post-secondary education on a tax-deferred basis. Contributions to an
Education IRA cannot be made after the minor turns age 18, and are not
deductible for tax purposes.

The federal tax laws governing these tax-deferred plans must be complied with to
avoid adverse tax consequences. You should consult your tax adviser before
investing.

Tax-Free Income Fund and Minnesota Tax-Free Income Fund are not suitable
investments for tax-deferred accounts.

TAXES

Some of the tax consequences of investing in the Funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.

TAXES ON DISTRIBUTIONS
MONEY MARKET FUND, U.S. GOVERNMENT SECURITIES FUND AND BOND FUND. Each Fund pays
its shareholders distributions from its net investment income and any net
capital gains that it has realized. For most investors, these distributions will
be taxable, whether paid in cash or reinvested.

Distributions paid from a Fund's net investment income and short-term capital
gains, if any, are taxable as ordinary income. Distributions paid from a Fund's
long-term capital gains, if any, are taxable as long-term capital gains,
regardless of how long you have held your shares.

The Funds' distributions are expected to consist primarily of ordinary income.

TAX-FREE INCOME FUND AND MINNESOTA TAX-FREE INCOME FUND. Each Fund intends to
meet certain federal tax requirements so that distributions of tax-exempt
interest income may be treated as "exempt-interest dividends." These dividends
are not subject to regular federal income tax. However, Minnesota Tax-Free
Income Fund may invest up to 20% of its net assets in municipal securities
subject to the alternative minimum tax. Any portion of exempt-interest dividends
attributable to interest on these securities may increase some shareholders'
alternative minimum tax. The Funds expect that their distributions will consist
primarily of exempt-interest dividends. Tax-Free Income Fund's exempt-interest
dividends may be subject to state or local taxes.

Distributions paid from any interest income that is not tax-exempt and from any
short-term or long-term capital gains will be taxable whether you reinvest those
distributions or receive them in cash. Distributions paid from a Fund's net
long-term capital gains, if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares.

MINNESOTA INCOME TAXATION. Minnesota Tax-Free Income Fund intends to comply with
certain state tax requirements so that dividends it pays that are attributable
to interest on Minnesota municipal securities will be excluded from the
Minnesota taxable net income of individuals, estates and trusts. To meet these
requirements, at

<PAGE>

least 95% of the exempt-interest dividends paid by the Fund must be derived from
interest income on Minnesota municipal securities. A portion of the Fund's
dividends may be subject to the Minnesota alternative minimum tax.
Exempt-interest dividends are not excluded from the Minnesota taxable income of
corporations and financial institutions.

TAXES ON TRANSACTIONS
The sale or exchange of your shares in a Fund is a taxable transaction, and you
may incur a capital gain or loss on the transaction. If you held the shares for
more than one year, such gain or loss would be a long-term gain or loss. A gain
or loss held for one year or less is considered short-term and is taxed at the
same rates as ordinary income.

<PAGE>

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------

OTHER SECURITIES, INVESTMENT PRACTICES, AND POLICIES

The principal investment strategies and risk factors of each Fund are outlined
in the section entitled "Fund Summaries". Below are brief discussions of certain
other investment practices of the Funds, and certain additional risks of
investing in the Funds. Each Fund may invest in securities and use investment
strategies that are not described in this Prospectus but are described in the
Statement of Additional Information.

DURATION
Duration measures how much the value of a security is expected to change with a
given change in interest rates. Effective duration is only one means used to
measure interest rate risk. The longer a security's effective duration, the more
sensitive its price to changes in interest rates. For example, if interest rates
rise by one percent, the market value of a security with an effective duration
of two years would decrease by 2%, with all other factors being constant. The
Adviser uses several methods to compute duration estimates appropriate for
particular securities held in the Funds' portfolios. Duration estimates are
based on assumptions by the Adviser and subject to a number of limitations.
Duration is most useful when interest rates changes are small, rapid, and occur
equally in short-term and long-term securities. In addition, it is difficult to
calculate precisely for bonds with prepayment options, such as mortgage-related
securities, because the calculation requires assumptions about prepayment rates.

PORTFOLIO TURNOVER
The Funds may trade securities frequently, resulting, from time to time, in an
annual portfolio turnover rate of over 100%. Trading of securities may produce
capital gains, which are taxable to shareholders when distributed. Active
trading may also increase the amount of commissions or mark-ups to broker
dealers that the Fund pays when it buys and sells securities. The "Financial
Highlights" section of this Prospectus shows each Fund's historical portfolio
turnover rate.

SECURITIES RATINGS
When debt securities are rated by one or more independent rating agencies, the
Adviser uses these ratings to determine bond quality. Investment grade debt
securities are those that are rated within the four highest rating categories,
which are AAA, AA, A, and BBB by Standard & Poor's Corporation, Fitch IBCA, and
Duff & Phelps Credit Rating Company, and Aaa, Aa, A and Baa by Moody's Investor
Services. If a debt security's credit quality rating is downgraded after a
Fund's purchase, the Adviser will consider whether any action, such as selling
the security, is warranted.

INVESTMENT IN THE SIT MONEY MARKET FUND
Each Fund may invest up to 25% of its total net assets in shares of the money
market funds advised by the Adviser, which includes the Sit Money Market Fund,
subject to the conditions contained in an exemptive order issued to the Funds by
the Securities and Exchange Commission. These investments may be made in lieu of
direct investments in short term money market instruments if the Adviser
believes that they are in the best interest of the Funds. It is expected that
only the Sit Bond Fund will invest in the Sit Money Market Fund pursuant to this
exemptive order.

TEMPORARY DEFENSIVE INVESTING
For temporary defensive purposes in periods of unusual market conditions, each
Fund may invest all of its total assets in cash or short-term debt securities
including certificates of deposit, bankers' acceptances and other bank
obligations, corporate and direct U.S. obligation bonds, notes, bills,
commercial paper and repurchase agreements. In addition, Tax-Free Income Fund
and Minnesota Tax-Free Income Fund may invest all of their assets in taxable
obligations under these conditions. Investing in these temporary investments may
reduce a Fund's yield and prevent it from achieving its investment objective.

<PAGE>

ADDITIONAL RISKS

YEAR 2000 ISSUE
The Year 2000 issue arises when computer programs represent dates as two digits
instead of four. Such programs may incorrectly assume that the year after 1999
is 1900. The Funds could be adversely affected if the computer systems used by
the Funds, the Adviser or other service providers and entities with computer
systems that are linked to the Funds' records do not properly process and
calculate date-related information and data from and after January 1, 2000.

A comprehensive review of the third party service providers' and the Adviser's
computer systems and business processes has been conducted to identify the major
systems that could be affected by the Year 2000 issue. Steps are being taken to
resolve any potential problems including modification of existing software and
the purchase of new software. In addition, the Adviser evaluates the anticipated
impact of year 2000 issues on each company and government security in which the
Funds invest. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Funds.

RISK OF ACTIVE MANAGEMENT
Each Fund is actively managed and its performance therefore will reflect in part
the Adviser's ability to make investment decisions which are suited to achieving
the Fund's investment objectives. Due to their active management, the Funds
could underperform other mutual funds with similar investment objectives.

<PAGE>

FINANCIAL HIGHLIGHTS

The tables that follow present performance information about the shares of each
Fund. This information is intended to help you understand each Fund's financial
performance for the past five years. Some of this information reflects financial
results for a single Fund share. The total returns in the tables represent the
rate that you would have earned or lost on an investment in a Fund, assuming you
reinvested all of your dividends and distributions. This information has been
audited by KPMG Peat Marwick LLP, independent auditors, whose report, along with
the Funds' financial statements, is included in the Funds' annual report, which
is available upon request.

SIT MONEY MARKET FUND
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
OPERATIONS:
Net investment income 0.05 0.05 0.05 0.05 0.04
- ----------------------------------------------------------------------------------------------------------------------
Total from operations 0.05 0.05 0.05 0.05 0.04
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.05) (0.05) (0.05) (0.05) (0.04)
NET ASSET VALUE:
End of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------------------
Total investment return(1) 4.99% 5.29% 5.04% 5.44% 4.57%
- ----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $ 61,442 $ 43,111 $ 32,668 $ 21,260 $ 29,822
RATIOS (%):
Expenses to average daily net assets 0.50(2) 0.50(2) 0.50(2) 0.50(2) 0.50(2)
Net investment income to average daily net assets 4.84(2) 5.12(2) 4.93(2) 5.35(2) 4.63(2)
</TABLE>
- ---------------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) Total Fund expenses are contractually limited to .80% of average daily net
assets for the first $50 million in Fund net assets and .60% of average
daily net assets for Fund net assets exceeding $50 million. However, during
the periods ended March 31, 1999, 1998, 1997, 1996, 1995, the investment
adviser voluntarily absorbed $126,552, $98,857, $78,042, $66,862, and
$63,828, respectively, in expenses that were otherwise payable by the Fund.
Had the Fund incurred these expenses, the ratio of expenses to average
daily net assets would have been .80% for each of these periods and the
ratio of net investment income to average daily net assets would have been
4.54%, 4.82% 4.63%, 5.05%, and 4.33%, respectively.

<PAGE>

SIT U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 10.63 $ 10.28 $ 10.47 $ 10.28 $ 10.50
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .54 .63 .65 .70 .67
Net realized and unrealized gains (losses) on investments (.01) .35 (.19) .19 (.22)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from operations .53 .98 .46 .89 .45
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.54) (.63) (.65) (.70) (.67)
From realized gains (.11) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (.65) (.63) (.65) (.70) (.67)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 10.51 $ 10.63 $ 10.28 $ 10.47 $ 10.28
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 5.05% 9.70% 4.55% 8.87% 4.47%
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $ 159,330 $ 103,868 $ 73,394 $ 52,450 $ 37,454
RATIOS (%):
Expenses to average daily net assets 0.80(2) 0.80(2) 0.80(2) 0.80(2) 0.80(2)
Net investment income to average daily net assets 5.06(2) 5.93(2) 6.30(2) 6.72(2) 6.48(2)
Portfolio turnover rate (excluding short-term securities) 86.16 50.67 85.21 51.37 38.51
</TABLE>
- ---------------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) Total Fund expenses are contractually limited to 1.00% of average daily net
assets for the first $50 million in Fund net assets and .80% of average
daily net assets exceeding $50 million. However, during the periods ended
March 31, 1999, 1998, 1997, 1996, and 1995, the investment adviser
voluntarily absorbed $100,000, $100,000, $99,999, $88,625, and $73,460 of
expenses that were otherwise payable by the Fund. Had the Fund incurred
these expenses, the ratio of expenses to average daily net assets would
have been .87%, .91%, .97%, 1.00% and 1.00% for these periods and the ratio
of net investment income to average daily net assets would have been 4.99%,
5.82%, 6.13%, 6.52%, and 6.28%, respectively.

SIT BOND FUND
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 10.03 $ 9.62 $ 9.83 $ 9.48 $ 9.69
- ------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .54 .63 .64 .64 .62
Net realized and unrealized gains (losses) on investments (.02) .43 (.14) .35 (.21)
- ------------------------------------------------------------------------------------------------------------------------------
Total from operations .52 1.06 .50 .99 .41
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.54) (.63) (.64) (.64) (.62)
From realized gains (.06) (.02) (.07) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (.60) (.65) (.71) (.64) (.62)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 9.95 $ 10.03 $ 9.62 $ 9.83 $ 9.48
- ------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 5.30% 11.22% 5.21% 10.57% 4.51%
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $ 11,920 $ 10,706 $ 6,403 $ 5,222 $ 3,533
RATIOS (%):
Expenses to average daily net assets 0.80 0.80 0.80 0.80 0.80
Net investment income to average daily net assets 5.34 6.31 6.52 6.49 6.63
Portfolio turnover rate (excluding short-term securities) 89.29 76.15 128.06 159.45 41.25
</TABLE>
- ---------------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.

<PAGE>

SIT TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 10.41 $ 9.98 $ 9.88 $ 9.70 $ 9.63
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .51 .54 .56 .56 .56
Net realized and unrealized gains (losses) on investments .03 .50 .10 .18 .09
- ---------------------------------------------------------------------------------------------------------------------------------
Total from operations .54 1.04 .66 .74 .65
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.51) (.54) (.56) (.56) (.56)
From realized gains (.05) (.07) -- -- (.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.56) (.61) (.56) (.56) (.58)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 10.39 $ 10.41 $ 9.98 $ 9.88 $ 9.70
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment return(1) 5.30% 10.69% 6.82% 7.73% 7.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $ 895,353 $ 519,579 $ 342,540 $ 279,769 $ 255,157
RATIOS (%):
Expenses to average daily net assets 0.71(2) 0.76(2) 0.79(2) 0.80(2) 0.79(2)
Net investment income to average daily net assets 4.90(2) 5.29(2) 5.63(2) 5.65(2) 5.84(2)
Portfolio turnover rate (excluding short-term securities) 14.27 21.40 25.34 25.50 13.13
</TABLE>
- ---------------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) Total Fund expenses are contractually limited to .80% of average daily net
assets. However, during the periods ended March 31, 1999, 1998, 1997, 1996,
and 1995, the investment adviser voluntarily absorbed $621,348, $171,504,
$46,819, $15,540, and $24,991 in expenses that were otherwise payable by
the Fund. Had the Fund incurred these expenses, the ratio of expenses to
average daily net assets would have been .80% for the periods ended March
31, 1999, 1998, 1997, 1996, and 1995, and the ratio of net investment
income to average daily net assets would have been 4.81%, 5.25%, 5.62%,
5.65%, and 5.83%, respectively.

SIT MINNESOTA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 10.49 $ 10.14 $ 10.09 $ 9.96 $ 9.79
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .51 .55 57 .57 .56
Net realized and unrealized gains (losses) on investments .06 .35 .05 .13 .17
- -----------------------------------------------------------------------------------------------------------------------------
Total from operations .57 .90 .62 .70 .73
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.51) (.55) (.57) (.57) (.56)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 10.55 $ 10.49 $ 10.14 $ 10.09 $ 9.96
- -----------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 5.58% 9.07% 6.26% 7.12% 7.68%
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $ 271,275 $ 143,634 $ 93,976 $ 62,980 $ 43,881
RATIOS (%):
Expenses to average daily net assets 0.80 0.80 0.80 0.80 0.80
Net investment income to average daily net assets 4.83 5.32 5.56 5.62 5.72
Portfolio turnover rate (excluding short-term securities) 13.67 17.58 17.16 15.85 34.20
</TABLE>
- ---------------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.

<PAGE>

<TABLE>
<S> <C> <C>
DIRECTORS:
Eugene C. Sit, CFA
Peter L. Mitchelson, CFA
Michael C. Brilley
William E. Frenzel
John E. Hulse
Sidney L. Jones
Donald W. Phillips

DIRECTOR EMERITUS:
Melvin C. Bahle

OFFICERS:
Eugene C. Sit, CFA Chairman
Peter L. Mitchelson, CFA Vice Chairman
Mary K. Stern, CFA President
Michael C. Brilley Senior Vice President
Paul E. Rasmussen Vice President & Treasurer
Debra A. Sit, CFA Vice President - Investments & Assistant Treasurer
Bryce A. Doty, CFA Vice President - Investments (1)
Paul J. Jungquist, CFA Vice President - Investments (2)
Michael P. Eckert Vice President
Michael J. Radmer Secretary
Carla J. Rose Assistant Secretary
</TABLE>

(1) U.S. Government Securities Fund and Bond Fund only
(2) Money Market Fund only

FUND SERVICE PROVIDERS:

<TABLE>
<S> <C> <C>
INVESTMENT ADVISER TRANSFER AGENT CUSTODIAN
Sit Investment Associates, Inc. First Data Investor Services The Northern Trust Company
4600 Norwest Center P.O. Box 5166 50 South LaSalle Street
Minneapolis, MN 55402 Westboro, MA 01581-5166 Chicago, IL 60675

DISTRIBUTOR AUDITORS LEGAL COUNSEL
SIA Securities Corp. KPMG Peat Marwick LLP Dorsey & Whitney LLP
4600 Norwest Center 4200 Norwest Center 220 South Sixth Street
Minneapolis, MN 55402 Minneapolis, MN 55402 Minneapolis, MN 55402
</TABLE>

<PAGE>

FOR MORE INFORMATION

FOR MORE INFORMATION ABOUT THE FUNDS, THE FOLLOWING DOCUMENTS ARE AVAILABLE FREE
UPON REQUEST:

STATEMENT OF ADDITIONAL INFORMATION ANNUAL/SEMI-ANNUAL REPORT
The SAI contains more details about The Funds' Annual and Semi-Annual
the Funds and their investment Reports include a discussion of the
policies. The SAI is incorporated in market conditions and investment
this Prospectus by reference. strategies that significantly
affected the Funds' performance.

TO REQUEST A COPY OF THE DOCUMENTS LISTED ABOVE, OR TO OBTAIN MORE INFORMATION
ABOUT THE FUNDS:

BY TELEPHONE: BY E-MAIL: ON THE INTERNET:
(800) 332-5580 [email protected] Visit our website at
or www.sitfunds.com
(612) 334-5888 Visit the SEC website at
www.sec.gov

BY REGULAR MAIL: BY EXPRESS MAIL:
Sit Mutual Funds Sit Mutual Funds
P. O. Box 5166 4400 Computer Drive
Westboro, MA 01581-5166 Westboro, MA 01581

TO WIRE MONEY FOR A PURCHASE:

Boston Safe Deposit & Trust, Boston, MA
ABA #011001234
DDA #056146
Sit Mutual Funds
For Further Credit: (Shareholder name)
Account Number: (Shareholder account #)

The SAI and the Funds' reports may also be reviewed at the Public Reference Room
of the Securities and Exchange Commission in Washington, D.C. You can get copies
free from the SEC's Website listed above, or by mail, for a fee, by calling the
SEC at 1-800-SEC-0330 or by writing the SEC's Public Reference Section, 450 5th
Street NW, Washington, D.C. 20549-6009.

[SIT LOGO & TAG LINE]

1940 Act File Nos. 811-04995; 811-04033; 811-04032

<PAGE>

PART B
STATEMENT OF ADDITIONAL INFORMATION

SIT MONEY MARKET FUND, INC.
SIT U.S. GOVERNMENT SECURITIES FUND, INC.
SIT BOND FUND
SIT TAX-FREE INCOME FUND
SIT MINNESOTA TAX-FREE INCOME FUND
4600 Norwest Center, 90 S. 7th Street
Minneapolis, Minnesota 55402-4130
612-334-5888
800-332-5580
www.sitfunds.com

This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Funds' prospectus. The financial statements included as
part of the Funds' annual report to shareholders for the fiscal year ended March
31, 1999 are incorporated by reference into this Statement of Additional
Information. Copies of the Funds' prospectus and/or annual report may be
obtained from the Funds without charge by contacting the Funds by telephone at
(612) 334-5888 or (800) 332-5580 or by mail at 4600 Norwest Center, 90 S. 7th
Street, Minneapolis, Minnesota 55402-4130, or by visiting the SEC website at
www.sec.com. The date of this Statement of Additional Information is August 1,
1999, and is to be used with the Funds' prospectus dated August 1, 1999.

TABLE OF CONTENTS

Page
----
ADDITIONAL INVESTMENT RESTRICTIONS
Money Market Fund.................................................... 3
U.S. Government Securities Fund...................................... 4
Bond Fund............................................................ 4
Tax-Free Income Fund................................................. 5
Minnesota Tax-Free Income Fund....................................... 6
ADDITIONAL INVESTMENT OBJECTIVES, POLICIES & RISKS
Bank Obligations..................................................... 6
Commercial Paper and other Corporate Debt Securities................. 8
Obligations of the U.S. Government................................... 8
U.S. Treasury Inflation-Protection Securities................... 8
Collateralized Mortgage Obligations.................................. 9
Mortgage-Backed Securities........................................... 10
Asset-Backed Securities.............................................. 11
Manufactured Home Loans.............................................. 11
Municipal Securities................................................. 12
Municipal Bonds................................................. 12
Municipal Notes................................................. 12
Municipal Commercial Paper...................................... 12
Municipal Leases................................................ 12
Housing Authority Bonds......................................... 13
Industrial Development Revenue Bonds............................ 13
Minnesota Tax-Exempt Obligations................................ 13
Futures Contracts, Options, and Swap Agreements...................... 15
Zero Coupon Securities............................................... 17

<PAGE>

When Issued and Forward Commitment Securities........................ 18
Repurchase Agreements................................................ 18
Illiquid Securities.................................................. 18
Variable and Floating Rate Notes..................................... 19
Foreign Debt Securities.............................................. 19
Foreign Currency Transactions........................................ 19
Trust Preferred Securities........................................... 20
Sit Money Market Fund................................................ 21
---------------------------------------------------------------------
Ratings of Debt Securities........................................... 21
Risks of Investing in High Yield Securities.......................... 21
Diversification...................................................... 22
Concentration Policy................................................. 23
Portfolio Turnover................................................... 23
Securities Lending................................................... 23
Duration............................................................. 23
ADDITIONAL INFORMATION ABOUT SELLING SHARES
Suspension of Selling Ability........................................ 24
Telephone Transactions............................................... 24
Redemption-In-Kind................................................... 24
COMPUTATION OF NET ASSET VALUE.............................................. 24
CALCULATION OF PERFORMANCE DATA............................................. 25
MANAGEMENT.................................................................. 27
INVESTMENT ADVISER.......................................................... 29
DISTRIBUTOR................................................................. 30
BROKERAGE .................................................................. 31
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES......................... 32
TAXES....................................................................... 33
CAPITALIZATION AND VOTING RIGHTS............................................ 36
FINANCIAL STATEMENTS........................................................ 36
OTHER INFORMATION........................................................... 36
LIMITATION OF DIRECTOR LIABILITY............................................ 36
APPENDIX A - BOND AND COMMERCIAL PAPER RATINGS.............................. 38
APPENDIX B - MUNICIPAL BOND RATINGS......................................... 40

Sit Mutual Funds are managed by Sit Investment Associates, Inc. (the "Adviser").
Sit Mutual Funds are comprised of thirteen 100% no-load funds. This Statement of
Additional Information contains the five bond funds, which are: Money Market
Fund, U.S. Government Securities Fund, Bond Fund, Tax-Free Income Fund, and
Minnesota Tax-Free Income Fund (collectively, the "Funds").

ADDITIONAL INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------

The investment objectives and investment strategies of the Funds are set forth
in the Prospectus under "Fund Summaries". Certain additional investment
practices and risks of investing in the Funds are set forth below. All
capitalized terms not defined herein have the same meanings as set forth in the
Prospectus. In addition to the restrictions in the prospectus, each Fund is
subject to other restrictions which are fundamental and may not be changed
without shareholder approval. Shareholder approval, as defined in the Investment
Company Act of 1940, means the lesser of the vote of (a) 67% of the shares of a
Fund at a meeting where more than 50% of the outstanding shares of the Fund are
present in person or by proxy or (b) more than 50% of the outstanding shares of
a Fund. A percentage limitation must be met at the time of investment and a
later deviation resulting from a change in values or net assets will not be a
violation.

2
<PAGE>

MONEY MARKET FUND
- --------------------------------------------------------------------------------
The Money Market Fund is subject to the following restrictions which are
fundamental. The Fund will not:
1. Concentrate more than 25% of the value of its net assets in any one
industry. Water, communications, electric and gas utilities shall each be
considered a separate industry. Banks shall be categorized as commercial
banks and savings and loan institutions, and each category shall be
considered a separate industry. As to finance companies, the following
categories will be considered separate industries: 1) captive automobile
finance companies; 2) captive equipment finance companies; 3) captive
retail finance companies; 4) consumer loan companies; 5) diversified
finance companies; and 6) captive oil finance companies. This limitation
does not apply to obligations issued by the U.S. government or its agencies
or instrumentalities;
2. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government or its agencies or instrumentalities), if, as a
result, more than 5% of the Fund's net assets would be invested in
securities of such issuer. This restriction is limited to 75% of the Fund's
net assets.
3. Purchase more than 10% of any voting class of securities of any issuer;
4. Invest more than 10% of the Fund's net assets in securities of companies
which have (with their predecessors) a record of less than five years of
continuous operations;
5. Purchase or retain the securities of any issuer if, in total, the holdings
of all officers and directors of the Fund and of its investment adviser,
who individually own beneficially more than 0.5% of such securities,
represent more than 5% of the issuer's securities;
6. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purpose of purchase of investments, and not in excess
of 33-1/3% of the Fund's total net assets;
7. Lend money to others except through the purchase of debt obligations
(including repurchase agreements) of the type which the Fund is permitted
to purchase;
8. Except as part of a merger, consolidation, acquisition or reorganization,
invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company;
9. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions;
10. Invest for the purpose of controlling management of any company;
11. Underwrite the securities of other issuers;
12. Invest in commodities or commodity futures contracts or in real estate,
although it may invest in securities which are secured by real estate and
securities of issuers which invest or deal in real estate;
13. Invest in exploration or development for oil, gas or other minerals,
although it may invest in the securities of issuers which invest in or
sponsor such programs;
14. Purchase common stocks, preferred stocks, warrants, other equity
securities, state bonds, municipal bonds, or industrial revenue bonds;
15. Issue senior securities as defined in the Investment Company Act of 1940;
or
16. Invest more than 15% of its net assets collectively in all types of
illiquid securities.

The following investment restrictions of the Fund are not fundamental and may be
changed by the Board of Directors of the Fund. The Fund will:
1. Not invest more than 10% of its net assets collectively in all types of
illiquid securities;
2. Comply with all requirements of Rule 2a-7 under the Investment Company Act
of 1940, as such rule may be amended from time to time;
3. Not invest more than 5% of its net assets in any one issuer other than as
permitted pursuant to Rule 2a-7 under the Investment Company Act of 1940,
as such rule may be amended from time to time;
4. Not pledge, mortgage, hypothecate or otherwise encumber the Fund's assets
except to the extent necessary to secure permitted borrowings; or
5. Not invest more than 20% of its assets in U.S. dollar denominated debt
securities of foreign corporations and foreign governments rated in one of
the two highest categories by a nationally recognized statistical rating
organization ("NRSRO").

3
<PAGE>

U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
The U.S. Government Securities Fund is subject to the following restrictions
which are fundamental. The Fund will not:
1. Purchase securities of any issuer except securities issued, guaranteed or
insured by the U.S. government, its agencies or instrumentalities;
2. Have any limitation with regard to concentration for the purchase of
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
3. Invest in commodities, commodity contracts or interest rate future
contracts; or purchase or sell real estate, although it may purchase and
sell securities of companies which deal in real estate and may purchase and
sell securities which are secured by interests in real estate;
4. Make loans except by purchasing publicly distributed debt securities such
as bonds, debentures and similar obligations;
5. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions;
6. Invest in repurchase agreements;
7. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments and not in excess of 33 1/3%
of the Fund's total net assets;
8. Underwrite the securities of other issuers;
9. Invest in securities subject to legal or contractual restrictions on resale
or securities which are otherwise illiquid;
10. Invest in exploration or development for oil, gas or other minerals; or
11. Issue senior securities as defined in the Investment Company Act of 1940.

The following investment restrictions of the Fund are not fundamental and may be
changed by the Board of Directors of the Fund. The Fund will not:
1. Pledge, mortgage, hypothecate or otherwise encumber the Fund's assets
except to the extent necessary to secure permitted borrowings;
2. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission; or
3. Invest more than 5% of its net assets in put and call options on debt
securities for the purpose of hedging.

BOND FUND
- --------------------------------------------------------------------------------
The Fund is subject to the following restrictions which are fundamental. The
Fund will not:
1. Invest in real estate (including real estate limited partnerships),
although it may invest in securities which are secured by or represent
interests in real estate;
2. Purchase or sell commodities or commodity contracts, provided that this
restriction does not apply to financial futures contracts or options
thereon;
3. Make loans except by purchase of debt obligations (including repurchase
agreements) in which it may invest consistent with its investment policies;
4. Underwrite securities of other issuers except to the extent that, in
connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws;
5. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments and not in excess of 33 1/3%
of the Fund's total net assets;
6. Issue senior securities as defined in the Investment Company Act of 1940;
or
7. Invest more than 25% of its assets in a single industry except with regard
to the purchase of obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities.

4
<PAGE>

2. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission;
3. Write put options;
4. Invest more than 10% of its assets in futures, options, or options on
futures;
5. Invest more than 15% of its net assets collectively in all types of
illiquid securities;
6. Invest in more than 10% of the outstanding voting securities of any one
issuer;
7. Invest in oil, gas or other mineral leases, rights or royalty contracts,
although it may invest in securities of companies investing in the
foregoing;
8. Pledge, mortgage, hypothecate or otherwise encumber the Fund's assets
except to the extent necessary to secure permitted borrowings;
9. Invest more than 25% of its total assets in securities rated below
investment-grade, or of comparable quality as determined by the Fund's
investment adviser;
10. Invest more than 20% of its assets in unrated securities; or
11. Invest more than 20% of its assets in debt securities of foreign
corporations and foreign governments. All such investments must be rated at
least A by Moody's, S & P, Fitch IBCA or Duff & Phelps, or, if unrated,
determined to be of comparable quality by the Adviser.

TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
The Tax-Free Income Fund is subject to the following restrictions which are
fundamental. The Fund will not:
1. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions and it may make margin
deposits in connection with futures contracts;
2. Invest in real estate, although it may invest in securities which are
secured by or represent interests in real estate;
3. Purchase or sell commodities or commodity contracts, provided that this
restriction does not apply to index futures contracts, interest rate
futures contracts or options on interest rate futures contracts for
hedging;
4. Make loans except by purchase of debt obligations (including repurchase
agreements) in which it may invest consistent with its investment policies;
5. Underwrite securities of other issuers except to the extent that, in
connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws;
6. Write put or call options;
7. Issue senior securities as defined in the Investment Company Act of 1940;
8. Invest in more than 10% of the outstanding voting securities of any one
issuer;
9. Invest more than 15% of its net assets collectively in all types of
illiquid securities;
10. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments and not in excess of 33 1/3%
of the Fund's total net assets,
11. During normal market conditions, invest more than 20% of its net assets in
taxable obligations or municipal securities that are subject to the federal
alternative minimum tax (however, see additional non-fundamental
restrictions regarding taxable securities below); or
12. Invest more than 25% of its assets in the securities of issuers in any
single industry, except that the Fund may invest without limitation in
housing.

The following investment restrictions of the Fund are not fundamental and may be
changed by the Board of Directors of the Fund. The Fund will not:
1. Invest in oil, gas or other mineral leases, rights or royalty contracts,
although it may invest in securities of companies investing in the
foregoing;
2. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission;

5
<PAGE>

3. Invest for the purpose of exercising control or management;
4. Invest more than 5% of its net assets in foreign securities, provided that
the Fund may invest without limitation in tax-exempt securities issued by
U.S. territorial possessions; or
5. Pledge, mortgage, hypothecate or otherwise encumber the Fund's assets
except to the extent necessary to secure permitted borrowings.

MINNESOTA TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
The Fund is subject to the following restrictions which are fundamental. The
Fund will not:
1. Invest in real estate, although it may invest in securities which are
secured by or represent interests in real estate;
2. Purchase or sell commodities or commodity contracts, provided that this
restriction does not apply to index futures contracts, interest rate
futures contracts or options on interest rate futures contracts for
hedging;
3. Make loans except by purchase of debt obligations (including repurchase
agreements) in which it may invest consistent with its investment policies;
4. Underwrite securities of other issuers except to the extent that, in
connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws;
5. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments and not in excess of 33 1/3%
of the Fund's total net assets;
6. Issue senior securities as defined in the Investment Company Act of 1940;
or
7. Invest more than 25% of its assets in the securities of issuers in any
single industry, except that the Fund may invest without limitation in
housing.

The following investment restrictions of the Fund are not fundamental and may be
changed by the Board of Directors of the Fund. The Fund will not:
1. Purchase on margin or sell short, except to obtain short-term credit as may
be necessary for the clearance of transactions and it may make margin
deposits in connection with futures contracts;
2. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission;
3. Write put options;
4. Invest more than 5% of its net assets in foreign securities, provided that
the Fund may invest without limitation in tax-exempt securities issued by
U.S. territorial possessions;
5. Invest more than 15% of its net assets collectively in all types of
illiquid securities;
6. Invest in oil, gas or other mineral leases, rights or royalty contracts,
although it may invest in securities of companies investing in the
foregoing;
7. Pledge, mortgage, hypothecate or otherwise encumber the Fund's assets
except to the extent necessary to secure permitted borrowings; or
8. Invest more than 20% of its total assets in securities that generate
interest income subject to Minnesota and federal regular income tax or to
the alternative minimum tax, however, the Fund may invest 100% of its
assets in taxable obligations on a temporary basis for defensive purposes
during periods of abnormal market conditions.

ADDITIONAL INVESTMENT OBJECTIVES, POLICIES & RISKS
- --------------------------------------------------------------------------------

BANK OBLIGATIONS
- --------------------------------------------------------------------------------
Each Fund may invest in bank obligations, either as a principal investment
strategy or for temporary defensive purposes. These include certificates of
deposit, including variable rate certificates of deposit, bankers' acceptances
and time deposits. "Bank" includes commercial banks, savings banks and savings
and loan associations.

Certificates of deposit are generally short-term, interest-bearing negotiable
certificates issued by commercial banks or savings and loan associations against
funds deposited in the issuing institution. The Fund may invest in Eurodollar
certificates of deposit subject to the 25% limitation for concentration in any
one industry. Eurodollar certificates of

6
<PAGE>

deposit are negotiable deposits denominated in U.S. dollars on deposit with
foreign branches of U.S. banks which have a specified maturity.

Variable rate certificates of deposit are certificates of deposit on which the
interest rate is periodically adjusted prior to their stated maturity, usually
at 30, 90 or 180 day intervals ("coupon dates"), based upon a specified market
rate, which is tied to the then prevailing certificate of deposit rate, with
some premium paid because of the longer final maturity date of the variable rate
certificate of deposit. As a result of these adjustments, the interest rate on
these obligations may be increased or decreased periodically. Variable rate
certificates of deposit normally carry a higher interest rate than fixed rate
certificates of deposit with shorter maturities, because the bank issuing the
variable rate certificate of deposit pays the investor a premium as the bank has
the use of the investors' money for a longer period of time. Variable rate
certificates of deposit can be sold in the secondary market.

In addition, frequently banks or dealers sell variable rate certificates of
deposit and simultaneously agree, either formally or informally, to repurchase
such certificates, at the option of the purchaser of the certificate, at par on
the coupon dates. In connection with a Fund's purchase of variable rate
certifies of deposit, it may enter into formal or informal agreements with banks
or dealers allowing the Fund to resell the certificates to the bank or dealer,
at the Fund's option. If the agreement to repurchase is informal, there can be
no assurance that the Fund would always be able to resell such certificates.
Before entering into any such transactions governed by formal agreements,
however, the Fund will comply with the provisions of SEC Release 10666 which
generally provides that the repurchase agreement must be fully collateralized.

A banker's acceptance is a time draft drawn on a commercial bank by a borrower
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). The borrower is liable for
payment as well as the bank, which unconditionally guarantees to pay the draft
at its face amount on the maturity date. Most acceptances have maturities of six
months or less and are traded in secondary markets prior to maturity.

The Funds may invest in time deposits. Time deposits are deposits held in
foreign branches of U.S. banks which have a specified term or maturity. Time
deposits are similar to certificates of deposit, except they are not
transferable, and are, therefore, illiquid prior to their maturity.

Both domestic banks and foreign branches of domestic banks are subject to
extensive, but different, governmental regulations which may limit both the
amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds for the purpose of financing
lending operations under prevailing short-term debt conditions. General economic
conditions, as well as exposure to credit losses arising from possible financial
difficulties of borrowers, also play an important part in the operations of the
banking industry.

The bank money market instruments in which the Funds invest may be issued by
U.S. commercial banks, foreign branches of U.S. commercial banks, foreign banks
and U.S. and foreign branches of foreign banks. As a result of federal and state
laws and regulations, domestic banks are, among other things, generally required
to maintain specified levels of reserves, limited in the amount which they can
loan to a single borrower, and are subject to other regulations designed to
promote financial soundness. Since the Funds' portfolios may contain securities
of foreign banks and foreign branches of domestic banks, the Funds may be
subject to additional investment risks that are different in some respects from
those incurred by a fund that invests only in debt obligations of domestic
banks.

The Funds only purchase certificates of deposit from savings and loan
institutions which are members of the Federal Home Loan Bank and are insured by
the Federal Savings and Loan Insurance Corporation. Such savings and loan
associations are subject to regulation and examination. Unlike most savings
accounts, certificates of deposit held by the Funds do not benefit materially
from insurance either from the Federal Deposit Insurance Corporation or the
Federal Savings and Loan Insurance Corporation. Certificates of deposit of
foreign branches of domestic banks are not covered by such insurance and
certificates of deposit of domestic banks purchased by the Funds are generally
in denominations far in excess of the dollar limitations on insurance coverage.

7
<PAGE>

COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE DEBT SECURITIES
- --------------------------------------------------------------------------------
Short-term corporate debt instruments purchased by the Money Market Fund and
Bond Fund (and possibly by the other Funds for temporary defensive purposes)
consist of commercial paper (including variable amount master demand notes),
which refers to short-term, unsecured promissory notes issued by corporations to
finance short-term credit needs. Commercial paper is usually sold on a discount
basis and has a maturity at the time of issuance not exceeding nine months.
Variable amount master demand notes are demand obligations that permit the
investment of fluctuating amounts at varying market rates of interest pursuant
to arrangements between the issuer and a commercial bank acting as agent for the
payees of such notes, whereby both parties have the right to vary the amount of
the outstanding indebtedness of the notes.

Other short-term corporate debt obligations may include fixed interest rate
non-convertible corporate debt securities (i.e., bonds and debentures) with no
more than 397 days remaining to maturity at date of settlement.

OBLIGATIONS OF, OR GUARANTEED BY, THE UNITED STATES GOVERNMENT, ITS AGENCIES OR
INSTRUMENTALITIES
- --------------------------------------------------------------------------------
Each Fund may invest in obligations of the U.S. Government, its agencies or
instrumentalities. Securities issued or guaranteed by the United States include
a variety of Treasury securities, which differ only in their interest rates,
maturities and dates of issuance. Treasury bills have a maturity of one year or
less. Treasury notes have maturities of one to ten years and Treasury bonds
generally have maturities of greater than ten years at the date of issuance.

The prospectus also refers to securities which are issued or guaranteed by
agencies of the U.S. government and various instrumentalities which have been
established or sponsored by the U.S. government. These U.S. government
obligations, even those which are guaranteed by federal agencies or
instrumentalities, may or may not be backed by the "full faith and credit" of
the United States. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment and may not be
able to assert a claim against the United States itself in the event the agency
or instrumentality does not meet its commitment.

Some of the government agencies which issue or guarantee securities are the
Department of Housing and Urban Development, the Department of Health and Human
Services, the Government National Mortgage Association, the Farmers Home
Administration, the Department of Transportation, the Department of Defense and
the Department of Commerce. Instrumentalities which issue or guarantee
securities include the Export-Import Bank, the Federal Farm Credit System,
Federal Land Banks, the Federal Intermediate Credit Bank, the Bank for
Cooperatives, Federal Home Loan Banks, the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation. Instrumentalities of the U.S.
government which issue or guarantee securities which the Fund may purchase
include the Federal Farm Credit System, Federal Land Banks, the Federal
Intermediate Credit Bank, the Bank for Cooperatives, Federal Home Loan Banks,
FHLMC and the Student Loan Marketing Association. The U.S. Treasury is not
obligated by law to provide support to all U.S. government instrumentalities and
agencies, and the Funds will invest in securities which are not backed by the
full faith and credit of the U.S. Treasury issued by such instrumentalities and
agencies only when the Funds' Adviser determines that the credit risk with
respect to the instrumentality or agency issuing such securities does not make
its securities unsuitable investments for the Funds.

U.S. TREASURY INFLATION-PROTECTION SECURITIES. The U.S. Government Securities
Fund and the Bond Fund may invest in U.S. Treasury inflation-protection
securities. Inflation-protection securities are a type of marketable book-entry
security issued by the United States Department of Treasury ("Treasury") with a
nominal return linked to the inflation rate in consumer prices.
Inflation-protection securities are auctioned and issued on a quarterly basis on
the 15th of January, April, July, and October, beginning on January 15, 1997.
Initially, they were issued as 10-year notes, with other maturities added
thereafter. The index used to measure inflation will be the non-seasonably
adjusted U.S. City Average All Items Consumer Price Index for All Urban
Consumers ("CPI-U").

8
<PAGE>

The value of the principal is adjusted for inflation, and every six months the
security will pay interest, which will be an amount equal to a fixed percentage
of the inflation-adjusted value of the principal. The final payment of principal
of the security will not be less than the original par amount of the security at
issuance.

The principal of the inflation-protection security is indexed to the
non-seasonally adjusted CPI-U. To calculate the inflation-adjusted principal
value for a particular valuation date, the value of the principal at issuance is
multiplied by the index ratio applicable to that valuation date. The index ratio
for any date is the ratio of the reference CPI applicable to such date to the
reference CPI applicable to the original issue date. Semiannual coupon interest
is determined by multiplying the inflation-adjusted principal amount by one-half
of the stated rate of interest on each interest payment date.

Inflation-adjusted principal or the original par amount, whichever is larger, is
paid on the maturity date as specified in the applicable offering announcement.
If at maturity the inflation-adjusted principal is less than the original
principal value of the security, an additional amount will be paid at maturity
so that the additional amount plus the inflation-adjusted principal equals the
original principal amount. Some inflation-protection securities may be stripped
into principal and interest components. In the case of a stripped security, the
holder of the stripped principal would receive this additional amount. The final
interest payment, however, will be based on the final inflation-adjusted
principal value, not the original par amount.

The reference CPI for the first day of any calendar month is the CPI-U for the
third preceding calendar month. (For example, the reference CPI for December 1
is the CPI-U reported for September of the same year, which is released in
October). The reference CPI for any other day of the month is calculated by a
linear interpolation between the reference CPI applicable to the first day of
the month and the reference CPI applicable to the first day of the following
month.

Any revisions the Bureau of Labor Statistics (or successor agency) makes to any
CPI-U number that had been previously released will not be used in calculations
of the value of outstanding inflation-protection securities. In the case that
the CPI-U for a particular month is not reported by the last day of the
following month, the Treasury will announce an index number based on the last
year-over-year CPI-U inflation rate available. Any calculations of the
Treasury's payment obligations on the inflation-protection security that need
that month's CPI-U number will be based on the index number that the Treasury
had announced. If the CPI-U is rebased to a different year, the Treasury will
continue to use the CPI-U series based on the base reference period in effect
when the security was first issued as long as that series continues to be
published. If the CPI-U is discontinued during the period the
inflation-protection security is outstanding, the Treasury will, in consultation
with the Bureau of Labor Statistics (or successor agency), determine an
appropriate substitute index and methodology for linking the discontinued series
with the new price index series. Determinations of the Secretary of the Treasury
in the regard are final.

Inflation-protection securities are held and transferred in either of two
book-entry systems: the commercial book-entry system (TRADES) and TREASURY
DIRECT. The securities are maintained and transferred at their original par
amount, i.e., not at their inflation-adjusted value. STRIPS components will be
maintained and transferred in TRADES at their value based on the original par
amount of the fully constituted security.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs)
- --------------------------------------------------------------------------------
Each Fund, except the Money Market Fund, may invest in CMOs. CMOs are hybrid
instruments with characteristics of both mortgage-backed bonds and mortgage
pass-through securities. CMOs are commonly referred to as derivative securities.
Similar to a bond, interest and prepaid principal on a CMO is paid, in most
cases, semiannually. CMOs may be collateralized by whole mortgage loans, but are
more typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured into multiple classes,
each bearing a different stated maturity. Monthly payments of principal,
including prepayments, are first returned to investors holding the shortest
maturity class; investors holding the longer maturity classes receive principal
only after the first class has been retired. CMOs that are issued or guaranteed
by the U.S. Government or by any of its agencies or instrumentalities will be
considered U.S. Government securities by the Funds, while other CMOs, even if
collateralized by U.S. Government securities, will have the same status as other
privately issued securities for purposes of applying each Fund's diversification
tests.

9
<PAGE>

In a typical CMO transaction, a corporation ("issuer") issues multiple series
("A, B, C, Z") of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to
purchase mortgage instruments or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently paid off. When the Series A, B, and C Bonds are paid in full, interest
and principal on the Series Z Bond begin to be paid currently. With some CMOs,
the issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.

MORTGAGE-BACKED SECURITIES
- --------------------------------------------------------------------------------
The mortgage-backed securities in which the Bond Fund and U.S. Government
Securities Fund invest provide funds for mortgage loans made to residential home
buyers. These include securities which represent interests in pools of mortgage
loans made by lenders such as savings and loan institutions, mortgage banks,
commercial banks and insurance companies. Pools of mortgage loans are assembled
for sale to investors such as the Funds by various private, governmental and
government-related organizations.

Interests in pools of mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates.
Mortgage-backed securities provide monthly payments which consist of both
interest and principal payments to the investor. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs which may be incurred. Some mortgage-backed
securities, i.e., GNMA's, are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.

The principal government guarantor of mortgage-backed securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
government, the timely payment of principal and interest on securities issued by
approved institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages.

Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation ("FHLMC"). FHLMC is a corporate instrumentality of the U.S.
government and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its stock is owned by
the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates
("PC's") which represent interest in mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal; however, PC's are not backed by the full faith and credit of the U.S.
government.

The Federal National Mortgage Association ("FNMA") is a government sponsored
corporation owned entirely by private stockholders. It is subject to general
regulation by the Secretary of Housing and Urban Development. FNMA purchases
residential mortgages from a list of approved seller/servicers which include
state and federally-chartered savings and loan associations, mutual savings
banks, commercial banks and credit unions and mortgage banks. Pass-through
securities issued by FNMA are guaranteed as to timely payment of principal and
interest by FNMA, but are not backed by the full faith and credit of the U.S.
government.

The Federal Housing Administration ("FHA") was established by Congress in 1934
under the National Housing Act. A major purpose of the Act was to encourage the
flow of private capital into residential financing on a protected basis. FHA is
authorized to insure mortgage loans, primarily those related to residential
housing. FHA does not make loans and does not plan or build housing. FHA Project
Pools are pass-through securities representing undivided interests in pools of
FHA-insured multi-family project mortgage loans.

10
<PAGE>

The Funds may purchase securities which are insured but not issued or guaranteed
by the U.S. government, its agencies or instrumentalities. An example of such a
security is a housing revenue bond (the interest on which is subject to federal
taxation) issued by a state and insured by an FHA mortgage loan. This type of
mortgage is insured by FHA pursuant to the provisions of Section 221(d)(4) of
the National Housing Act of 1934, as amended. After a mortgagee files a claim
for insurance benefits, FHA will pay insurance benefits up to 100% of the unpaid
principal amount of the mortgage (generally 70% of the amount is paid within six
months of the claim and the remainder within the next six months). The risks
associated with this type of security are the same as other mortgage securities
- -- prepayment and/or redemption prior to maturity, loss of premium (if paid) if
the security is redeemed prior to maturity and fluctuation in principal value
due to an increase or decrease in interest rates.

The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments. In addition, the pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayment is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions.

As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. Mortgage pass-through
securities which receive regular principal payments have an average life less
than their maturity. The average life of mortgage pass-through investments will
typically vary from 1 to 18 years.

Yields on pass-through mortgage-backed securities are typically quoted based on
the maturity of the underlying instruments and the associated average life
assumption. Actual prepayment experience may cause the yield to differ from the
assumed average life yield. The compounding effect from reinvestments of monthly
payments received by the Fund will increase the yield to shareholders.

ASSET-BACKED SECURITIES
- --------------------------------------------------------------------------------
The Bond Fund and the Money Market Fund may invest in asset-backed securities
that are backed by consumer credit such as automobile receivables, consumer
credit card receivables, utilities, and home equity loans. Asset-backed
securities are generally privately issued and, similar to mortgage-backed
securities, pass through cash flows to investors. Generally, asset-backed
securities include many of the risks associated with mortgage-related
securities. In general, however, the collateral supporting asset-backed
securities is of shorter maturity than mortgage loans. In addition, prepayments
are less sensitive to changes in interest rates than mortgage pass-throughs.
Asset-backed securities involve certain risks that are not posed by
mortgage-backed securities, resulting mainly from the fact that asset-backed
securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, including the bankruptcy laws, some of which
may reduce the ability to obtain full payment. In the case of automobile
receivables, due to various legal and economic factors, proceeds for repossessed
collateral may not always be sufficient to support payments on these securities.

MANUFACTURED HOME LOANS
- --------------------------------------------------------------------------------
The U.S. Government Securities Fund and the Bond Fund invest in GNMA
manufactured home loan pass-through securities. Manufactured home loans are
fixed-rate loans secured by a manufactured home unit. In certain instances the
loan may be collateralized by a combination of a manufactured home unit and a
developed lot of land upon which the unit can be placed. Manufactured home loans
are generally not mortgages; however, because of the structural and operational
similarities with mortgage backed pass-through securities and the role of GNMA,
industry practice often groups the securities within the spectrum of GNMA
mortgage backed pass-through securities for listing purposes. Manufactured home
loans have key characteristics different from mortgage backed securities
including different prepayment rates. Prepayment rates tend to fluctuate with
interest rates and other economic variables. Manufactured home loan prepayment
rates generally tend to be less volatile than the prepayment rates experienced
by mortgage backed securities. See the above discussion regarding mortgage
backed securities.

11
<PAGE>

MUNICIPAL SECURITIES
- --------------------------------------------------------------------------------
The Minnesota Tax-Free Income Fund and the Tax-Free Income Fund invest in
municipal securities, and to a limited extent, the U.S. Government Securities
Fund and the Bond Fund invest in municipal securities. The yields on municipal
securities are dependent on a variety of factors, including the general level of
interest rates, the financial condition of the issuer, general conditions of the
tax-exempt securities market, the size of the issue, the maturity of the
obligation and the rating of the issue. Ratings are general, and not absolute,
standards of quality. Consequently, securities of the same maturity, interest
rate and rating may have different yields, while securities of the same maturity
and interest rate with different ratings may have the same yield.

Certain types of municipal bonds are issued to obtain funding for privately
operated facilities ("private activity" bonds). Under current tax law, interest
income earned by the Funds from certain private activity bonds is an item of
"tax preference" which is subject to the alternative minimum tax when received
by a shareholder in a tax year during which the shareholder is subject to the
alternative minimum tax.

Municipal securities in which the Funds invest include securities that are
issued by a state or its agencies, instrumentalities, municipalities and
political subdivisions, or by territories or possessions of the United States.
Tax-exempt municipal securities include municipal bonds, municipal notes,
municipal commercial paper, and municipal leases.

MUNICIPAL BONDS. The Minnesota Tax-Free Income Fund and the Tax-Free Income Fund
may invest in municipal bonds. Municipal bonds generally have maturities at the
time of issuance ranging from one to thirty years, or more. Municipal bonds are
issued to raise money for various public purposes. The two principal types of
municipal bonds are general obligation bonds and revenue bonds. The Funds may
invest in both in any proportion. General obligation bonds are secured by the
full faith, credit and taxing power of the issuing municipality and not from any
particular fund or revenue source. Revenue bonds are backed only from the
revenues derived from a facility or class of facilities or, in some cases, from
the proceeds of a special excise or other specific revenue source and not from
the general taxing power.

MUNICIPAL NOTES. The Minnesota Tax-Free Fund and the Tax-Free Income Fund may
invest in municipal notes. Municipal notes generally mature in three months to
three years.

MUNICIPAL COMMERCIAL PAPER. The Minnesota Tax-Free Fund and the Tax-Free Income
Fund may invest in municipal commercial paper. Municipal commercial paper
generally matures in one year or less.

MUNICIPAL LEASES. The Minnesota Tax-Free Income Fund and the Tax-Free Income
Fund may invest up to 25% of their net assets in municipal lease obligations
issued by state and local governments or authorities to finance the acquisition
of equipment and facilities. Municipal leases may take the form of a lease, an
installment purchase contract, a conditional sales contract or a participation
certificate in any of the above. In determining leases in which the Funds will
invest, the Adviser will carefully evaluate the outstanding credit rating of the
issuer (and the probable secondary market acceptance of such credit rating).
Additionally, the Adviser may require that certain municipal lease obligations
be issued or backed by a letter of credit or put arrangement with an independent
financial institution.

Municipal leases frequently have special risks not normally associated with
general obligation or revenue bonds. The constitutions and statutes of all
states contain requirements that the state or a municipality must meet to incur
debt. These often include voter referendum, interest rate limits and public sale
requirements. Leases and installment purchase or conditional sale contracts
(which normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to acquire
property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. The debt-issuance limitations are deemed
to be inapplicable because of the inclusion in many leases or contracts of
"nonappropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis.

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<PAGE>

In addition to the "nonappropriation" risk, municipal leases have additional
risk aspects because they represent a relatively new type of financing that has
not yet developed the depth of marketability associated with conventional bonds;
moreover, although the obligations will be secured by the leased equipment, the
disposition of the equipment in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. In addition, in certain instances the
tax-exempt status of the obligations will not be subject to the legal opinion of
a nationally recognized "bond counsel," as is customarily required in larger
issues of municipal securities.

Municipal lease obligations, except in certain circumstances, are considered
illiquid by the staff of the Securities and Exchange Commission. Municipal lease
obligations held by a Fund will be treated as illiquid unless they are
determined to be liquid pursuant to guidelines established by the Fund's Board
of Directors. Under these guidelines, the Adviser will consider factors
including, but not limited to 1) whether the lease can be canceled, 2) what
assurance there is that the assets represented by the lease can be sold, 3) the
issuer's general credit strength (e.g. its debt, administrative, economic and
financial characteristics), 4) the likelihood that the municipality will
discontinue appropriating funding for the leased property because the property
is no longer deemed essential to the operations of the municipality (e.g. the
potential for an "event of non-appropriation"), and 5) the legal recourse in the
event of failure to appropriate.

HOUSING AUTHORITY BONDS. The Minnesota Tax-Free Income Fund and the Tax-Free
Income Fund may invest without limitation in obligations of municipal housing
authorities which include both single-family and multifamily mortgage revenue
bonds. Weaknesses in federal housing subsidy programs and their administration
may result in a decrease of subsidies available for payment of principal and
interest on multifamily housing authority bonds. Economic developments,
including fluctuations in interest rates and increasing construction and
operating costs, may also adversely impact revenues of housing authorities. In
the case of some housing authorities, inability to obtain additional financing
could also reduce revenues available to pay existing obligations. Mortgage
revenue bonds are subject to extraordinary mandatory redemption at par in whole
or in part from the proceeds derived from prepayments of underlying mortgage
loans and also from the unused proceeds of the issue within a stated period of
time.

The exclusion from gross income for federal income tax purposes of certain
housing authority bonds depends on qualification under relevant provisions of
the Code and on other provisions of federal law. These provisions of federal law
contain certain ongoing requirements relating to the cost and location of the
residences financed with the proceeds of the single family mortgage bonds and
the income levels of occupants of the housing units financed with the proceeds
of the single and multifamily housing bonds. While the issuers of the bonds, and
other parties, including the originators and servicers of the single family
mortgages and the owners of the rental projects financed with the multifamily
housing bonds, covenant to meet these ongoing requirements and generally agree
to institute procedures designed to insure that these requirements are met,
there can be no assurance that these ongoing requirements will be consistently
met. The failure to meet these requirements could cause the interest on the
bonds to become taxable, possibly retroactively from the date of issuance,
thereby reducing the value of the bonds, subjecting shareholders to
unanticipated tax liabilities and possibly requiring the Fund to sell the bonds
at the reduced value. Furthermore, any failure to meet these ongoing
requirements might not constitute an event of default under the applicable
mortgage which might otherwise permit the holder to accelerate payment of the
bond or require the issuer to redeem the bond. In any event, where the mortgage
is insured by the Federal Housing Administration ("FHA"), the consent of the FHA
may be required before insurance proceeds would become payable to redeem the
mortgage subsidy bonds.

INDUSTRIAL DEVELOPMENT REVENUE BONDS. The Minnesota Tax-Free Income Fund and the
Tax-Free Income Fund may invest in industrial development revenue bonds.
Industrial development revenue bonds are backed by the user of the facilities
and the specific revenues of the project to be financed. The credit quality of
industrial development bonds is usually directly related to the credit standing
of the user of the facilities or the credit standing of a third-party guarantor
or other credit enhancement participant, if any.

MINNESOTA TAX-EXEMPT OBLIGATIONS. The Minnesota Tax-Free Income Fund, except
during temporary defensive periods, will invest primarily in Minnesota
tax-exempt obligations, which include obligations of the State of Minnesota or a
political subdivision, municipality, agency or instrumentality of the State of
Minnesota and its territories. This Fund therefore is susceptible to political,
economic and regulatory factors affecting issuers of Minnesota tax-exempt
obligations. The

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<PAGE>

following information provides only a brief summary of the complex factors
affecting the financial situation in Minnesota. This information is derived from
sources that are generally available to investors and is based in part on
information obtained from various state and local agencies in Minnesota. It
should be noted that the creditworthiness of obligations issued by local
Minnesota issuers may be unrelated to the creditworthiness of obligations issued
by the State of Minnesota, and that there is no obligation on the part of
Minnesota to make payment on such local obligations in the event of default.

Minnesota's constitutionality prescribed fiscal period is a biennium, and
Minnesota operates on a biennial budget basis. Legislative appropriations for
each biennium are prepared and adopted during the final legislative session of
the immediately preceding biennium. Prior to each fiscal year of a biennium,
Minnesota's Department of Finance allots a portion of the applicable biennial
appropriation to each agency or other entity for which an appropriation has been
made. An agency or other entity may not expend moneys in excess of its
allotment. If revenues are insufficient to balance total available resources and
expenditures, Minnesota's Commissioner of Finance, with the approval of the
Governor, is required to reduce allotments to the extent necessary to balance
expenditures and forecasted available resources for the then current biennium.
The Governor may prefer legislative action when a large reduction in
expenditures appears necessary, and if Minnesota's legislature is not in session
the Governor is empowered to convene a special session.

Diversity and a significant natural resource base are two important
characteristics of the Minnesota economy. Generally, the structure of the
State's economy parallels the structure of the United States economy as a whole.
There are, however, employment concentrations in durable goods and non-durable
goods manufacturing, particularly industrial machinery, instruments and
miscellaneous, food, paper and related industries, and printing and publishing.
During the period from 1980 to 1990, overall employment growth in Minnesota
lagged behind national employment growth, in large part due to declining
agricultural employment. The rate of non-farm employment growth in Minnesota
exceeded the rate of national growth, however, in the period of 1990 to 1997.
Minnesota continues to have one of the lowest unemployment rates in the nation.
Since 1980, Minnesota per capita income generally has remained above the
national average.

The State relies heavily on a progressive individual income tax and a retail
sales tax for revenue, which results in a fiscal system that is sensitive to
economic conditions. Frequently in prior years, legislation had been required to
eliminate projected budget deficits by raising additional revenue, reducing
expenditures, including aids to political subdivisions and higher education,
reducing the State's budget reserve, imposing a sales tax on purchases by local
governmental units, and making other budgetary adjustments. The Minnesota
Department of Finance February 1999 Forecast projected that, under then current
laws, the State would complete its current biennium June 30, 1999 with a $ 1.2
billion unrestricted balance, plus a $350 million cash flow account balance,
plus a $622 million budget reserve. The 1999 Legislature, however, adopted
various tax cuts, tax rebates, spending increases, and other budgetary changes.
Total General Fund expenditures and transfers for the biennium are projected to
be $21.6 billion. The State is party to a variety of civil actions that could
adversely affect the State's General Fund. In addition, substantial portions of
State and local revenues are derived from federal expenditures, and reductions
in federal aid to the State and its political subdivisions and other federal
spending cuts may have substantial adverse effects on the economic and fiscal
condition of the State and its local governmental units. Risks are inherent in
making revenue and expenditure forecasts. Economic or fiscal conditions less
favorable than those reflected in State budget forecasts may create additional
budgetary pressures.

State grants and aids represent a large percentage of the total revenue of
cities, towns, counties and school districts in Minnesota, but generally the
State has no obligation to make payments on local obligations in the event of a
default. Even with respect to revenue obligations, no assurance can be given
that economic or other fiscal difficulties and the resultant impact on State and
local government finances will not adversely affect the ability of the
respective obligors to make timely payment of the principal and interest on
Minnesota tax-exempt obligations that are held by the Fund or the value or
marketability of such obligations.

Recent Minnesota tax legislation and possible future changes in federal and
State income tax laws, including rate reductions, could adversely affect the
value and marketability of Minnesota tax-exempt obligations that are held by the
Minnesota Tax-Free Income Fund.

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<PAGE>

FUTURES CONTRACTS, OPTIONS, OPTIONS ON FUTURES CONTRACTS, AND SWAP AGREEMENTS
- --------------------------------------------------------------------------------
The Bond Fund, Minnesota Tax-Free Income Fund, and the Tax-Free Income Fund may
invest in interest rate futures contracts, index futures contracts and may buy
options on such contracts for the purpose of hedging its portfolio of fixed
income securities (and not for speculative purposes) against the adverse effects
of anticipated movements in interest rates. The U.S. Government Securities Fund
may buy and sell options on interest rate futures contracts and index futures
contracts for the purpose of hedging. As a result of entering into futures
contracts, no more than 10% of the Fund's (5% for Tax-Free Income Fund's) total
assets may be committed to margin.

Each Fund (except the Money Market Fund) may purchase and sell exchange traded
put and call options on debt securities of an amount up to 5% of its net assets
(10% for Bond Fund) for the purpose of hedging. The Funds may, from time to
time, write exchange-traded call options on debt securities, but the Funds will
not write put options. A put option (sometimes called a standby commitment)
gives the purchaser of the option, in return for a premium paid, the right to
sell the underlying security at a specified price during the term of the option.
The writer of the put option receives the premium and has the obligation to buy
the underlying securities upon exercise at the exercise price during the option
period. A call option (sometimes called a reverse standby commitment) gives the
purchaser of the option, in return for a premium, the right to buy the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option receives the premium and has the
obligation at the exercise of the option, to deliver the underlying security
against payment of the exercise price during the option period. A principal risk
of standby commitments is that the writer of a commitment may default on its
obligation to repurchase or deliver the securities.

An interest rate futures contract is an agreement to purchase or deliver an
agreed amount of debt securities in the future for a stated price on a certain
date. The Fund may use interest rate futures solely as a defense or hedge
against anticipated interest rate changes and not for speculation. The Fund
presently could accomplish a similar result to that which it hopes to achieve
through the use of futures contracts by selling debt securities with long
maturities and investing in debt securities with short maturities when interest
rates are expected to increase, or conversely, selling short-term debt
securities and investing in long-term debt securities when interest rates are
expected to decline. However, because of the liquidity that is often available
in the futures market, such protection is more likely to be achieved, perhaps at
a lower cost and without changing the rate of interest being earned by the Fund,
through using futures contracts.

DESCRIPTION OF FUTURES CONTRACTS. A futures contract sale creates an obligation
by the Fund, as seller, to deliver the type of financial instrument called for
in the contract at a specified future time for a stated price. A futures
contract purchase creates an obligation by the Fund, as purchaser, to take
delivery of the underlying financial instrument at a specified future time for a
stated price. The specific securities delivered or taken, respectively, at
settlement date, are not determined until at or near that date. The
determination is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made.

Although futures contracts by their terms call for actual delivery or acceptance
of securities, in most cases the contracts are closed out before the settlement
date without the making or taking of delivery. Closing out a futures contract
sale is effected by purchasing a futures contract for the same aggregate amount
of the specific type of financial instrument and the same delivery date. If the
price of the initial sale of the futures contract exceeds the price of the
offsetting purchase, the Fund is paid the difference and realizes a gain. If the
price of the offsetting purchase exceeds the price of the initial sale, the Fund
pays the difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by the Fund entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, the Fund realizes a
gain, and if the purchase price exceeds the offsetting sale price, the Fund
realizes a loss.

The Funds are required to maintain margin deposits with brokerage firms through
which they enter into futures contracts. Margin balances will be adjusted at
least weekly to reflect unrealized gains and losses on open contracts. In
addition, the Funds will pay a commission on each contract, including offsetting
transactions.

Futures contracts are traded only on commodity exchanges--known as "contract
markets"--approved for such trading by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant contract market. The CFTC
regulates trading activity on the exchanges

15
<PAGE>

pursuant to the Commodity Exchange Act. The principal exchanges are the Chicago
Board of Trade, the Chicago Mercantile Exchange and the New York Futures
Exchange. Each exchange guarantees performance under contract provisions through
a clearing corporation, a nonprofit organization managed by the exchange
membership. The CFTC rules provide that a mutual fund does not have to register
a "commodity pool" if the Fund uses commodity futures and options positions
solely (1) for "bona fide hedging" purposes (as that term is used in the rules
and regulations of the CFTC) or (2) for other purposes so long as aggregate
initial margins and premiums required in connection with non-hedging positions
do not exceed five percent of the liquidation value of the Fund's portfolio.

RISKS IN FUTURES CONTRACTS. One risk in employing futures contracts to protect
against cash market price volatility is the prospect that futures prices will
correlate imperfectly with the behavior of cash prices. The ordinary spreads
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of general interest trends by the Adviser may
still not result in a successful transaction.

Another risk is that the Adviser would be incorrect in its expectation as to the
extent of various interest rate movements or the time span within which the
movements take place. Closing out a futures contract purchase at a loss because
of higher interest rates will generally have one or two consequences depending
on whether, at the time of closing out, the "yield curve" is normal (long-term
rates exceeding short-term). If the yield curve is normal, it is possible that
the Fund will still be engaged in a program of buying long-term securities.
Thus, closing out the futures contract purchase at a loss will reduce the
benefit of the reduced price of the securities purchased. If the yield curve is
inverted, it is possible that the Fund will retain its investments in short-term
securities earmarked for purchase of longer term securities. Thus, closing out
of a loss will reduce the benefit of the incremental income that the Fund will
experience by virtue of the high short-term rates.

RISKS OF OPTIONS. The use of options and options on interest rate futures
contracts also involves additional risk. Compared to the purchase or sale of
futures contracts, the purchase of call or put options and options on futures
contracts involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs).

The effective use of options strategies is dependent, among other things, upon
the Fund's ability to terminate options positions at a time when the Adviser
deems it desirable to do so. Although the Fund will enter into an option
position only if the Adviser believes that a liquid secondary market exists for
such option, there is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The Funds'
transactions involving options on futures contracts will be conducted only on
recognized exchanges.

The Funds' purchase or sale of put or call options and options on futures
contracts will be based upon predictions as to anticipated interest rates by the
Adviser, which could prove to be inaccurate. Even if the expectations of the
Adviser are correct, there may be an imperfect correlation between the change in
the value of the options and of the Funds' portfolio securities.

The Funds, except the Money Market Fund, may purchase and sell put and call
options and options on interest rate futures contracts which are traded on a
United States exchange or board of trade as a hedge against changes in interest
rates, and will enter into closing transactions with respect to such options to
terminate existing positions. An interest rate futures contract provides for the
future sale by one party and the purchase by the other party of a certain amount
of a specific financial instrument (debt security) at a specified price, date,
time and place. An option on an interest rate futures contract, as contrasted
with the direct investment in such a contract, gives the purchaser the right, in
return for the premium paid, to assume a position in an interest rate futures
contract at a specified exercise price at any time prior to the expiration date
of

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<PAGE>

the option. Options on interest rate futures contracts are similar to options on
securities, which give the purchaser the right, in return for the premium paid,
to purchase or sell securities.

A call option gives the purchaser of such option the right to buy, and obliges
its writer to sell, a specified underlying futures contract at a stated exercise
price at any time prior to the expiration date of the option. A purchaser of a
put option has the right to sell, and the writer has the obligation to buy, such
contract at the exercise price during the option period. Upon exercise of an
option, the delivery of the futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated balance
in the writer's futures margin account, which represents the amount by which the
market price of the futures contract exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the closing
price of the interest rate futures contract on the expiration date. The
potential loss related to the purchase of an option on interest rate futures
contracts is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset values of the Fund.

PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS. The Funds (except the Money Market
Fund) may purchase put options on futures contracts if the Adviser anticipates a
rise in interest rates. Because the value of an interest rate or municipal bond
index futures contract moves inversely in relation to changes in interest rates,
a put option on such a contract becomes more valuable as interest rates rise. By
purchasing put options on futures contracts at a time when the Adviser expects
interest rates to rise, the Funds will seek to realize a profit to offset the
loss in value of its portfolio securities.

PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS. The Funds (except the Money
Market Fund) may purchase call options on futures contracts if the Adviser
anticipates a decline in interest rates. The purchase of a call option on an
interest rate or index futures contract represents a means of obtaining
temporary exposure to market appreciation at limited risk. Because the value of
an interest rate or index futures contract moves inversely in relation to
changes to interest rates, a call option on such a contract becomes more
valuable as interest rates decline. The Funds will purchase a call option on a
futures contract to hedge against a decline in interest rates in a market
advance when the Funds are holding cash. The Funds can take advantage of the
anticipated rise in the value of long-term securities without actually buying
them until the market is stabilized. At that time, the options can be liquidated
and the Funds' cash can be used to buy long-term securities.

The Funds expect that new types of futures contracts, options thereon, and put
and call options on securities and indexes may be developed in the future. As
new types of instruments are developed and offered to investors, the Adviser
will be permitted to invest in them provided that the Adviser believes their
quality is equivalent to the Funds' quality standards.

SWAP AGREEMENTS. Swap agreements are two party contracts entered into primarily
by institutional investors in which two parties agree to exchange the returns
(or differential rates of return) earned or realized on particular predetermined
investments or instruments.

The Funds, except the Money Market Fund, may enter into swap agreements for
purposes of attempting to obtain a particular investment return at a lower cost
to the Funds than if the Funds had invested directly in an instrument that
provided that desired return. Each Fund bears the risk of default by its swap
counterpart and may not be able to terminate its obligations under the agreement
when it is most advantageous to do so. In addition, certain tax aspects of swap
agreements are not entirely clear and their use, therefore, may be limited by
the requirements relating to the qualification of a Fund as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code").

ZERO COUPON SECURITIES
- --------------------------------------------------------------------------------
Each Fund is permitted to invest in zero coupon securities. Such securities are
debt obligations which do not entitle the holder to periodic interest payments
prior to maturity and are issued and traded at a discount from their face
amounts. The discount varies depending on the time remaining until maturity,
prevailing interest rates, liquidity of the security and

17
<PAGE>

the perceived credit quality of the issuer. The discount, in the absence of
financial difficulties of the issuer, decreases as the final maturity of the
security approaches and this acceretion (adjusted for amortization) is
recognized as interest income. Zero coupon securities can be sold prior to their
due date in the secondary market at the then-prevailing market value which
depends primarily on the time remaining to maturity, prevailing levels of
interest rates and the perceived credit quality of the issuer. The market prices
of zero coupon securities are more volatile than the market prices of securities
of comparable quality and similar maturity that pay interest periodically and
may respond to a greater degree to fluctuations in interest rates than do such
non-zero coupon securities.

WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
- --------------------------------------------------------------------------------
Each Fund may purchase securities on an "when-issued" basis and may purchase or
sell securities on a "forward commitment" basis. When such transactions are
negotiated, the price is fixed at the time the commitment is made, but delivery
and payment for the securities take place at a later date, which can be a month
or more after the date of the transaction. The Funds will not accrue income in
respect of a security purchased on a forward commitment basis prior to its
stated delivery date. At the time the Funds make the commitment to purchase
securities on a when-issued or forward commitment basis, they will record the
transaction and thereafter reflect the value of such securities in determining
their net asset value. At the time the Funds enter into a transaction on a
when-issued or forward commitment basis, a segregated account consisting of cash
and liquid high grade debt obligations equal to the value of the when-issued or
forward commitment securities will be established and maintained with the
custodian and will be marked to the market daily. On the delivery date, the
Funds will meet their obligations from securities that are then maturing or
sales of the securities held in the segregated asset account and/or from then
available cash flow. If a Fund disposes of the right to acquire a when-issued
security prior to its acquisition or disposes of its right to deliver or receive
against a forward commitment, it can incur a gain or loss due to market
fluctuation.

There is always a risk that the securities may not be delivered and that the
Funds may incur a loss or will have lost the opportunity to invest the amount
set aside for such transaction in the segregated asset account. Settlements in
the ordinary course of business, which may take substantially more than five
business days for non-U.S. securities, are not treated by the Funds as
when-issued or forward commitment transactions and, accordingly, are not subject
to the foregoing limitations even though some of the risks described above may
be present in such transactions.

REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
Each Fund, except U.S. Government Securities Fund, is permitted to invest in
repurchase agreements. A repurchase agreement is a contract by which a Fund
acquires the security ("collateral") subject to the obligation of the seller to
repurchase the security at a fixed price and date (within seven days). A
repurchase agreement may be construed as a loan pursuant to the 1940 Act. The
Funds may enter into repurchase agreements with respect to any securities which
they may acquire consistent with their investment policies and restrictions. The
Funds' custodian will hold the securities underlying any repurchase agreement in
a segregated account. In investing in repurchase agreements, the Funds' risk is
limited to the ability of the seller to pay the agreed-upon price at the
maturity of the repurchase agreement. In the opinion of the Adviser, such risk
is not material, since in the event of default, barring extraordinary
circumstances, the Funds would be entitled to sell the underlying securities or
otherwise receive adequate protection under federal bankruptcy laws for their
interest in such securities. However, to the extent that proceeds from any sale
upon a default are less than the repurchase price, the Funds could suffer a
loss. In addition, the Funds may incur certain delays in obtaining direct
ownership of the collateral. The Adviser will continually monitor the value of
the underlying securities to ensure that their value always equals or exceeds
the repurchase price. The Adviser will submit a list of recommended issuers of
repurchase agreements and other short-term securities which it has reviewed for
credit worthiness to the Funds' directors at least quarterly for their approval.

ILLIQUID SECURITIES
- --------------------------------------------------------------------------------
Each of Bond Fund, Tax-Free Income Fund, and Minnesota Tax-Free Income Fund may
invest up to 15% of their net assets in all forms of "illiquid securities." The
Money Market Fund may invest up to 10% of its assets in "illiquid securities."
As a fundamental policy, the U.S. Government Securities Fund is prohibited from
investing any of its assets in any form of restricted or illiquid securities.

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<PAGE>

An investment is generally deemed to be "illiquid" if it cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which the investment is valued by the Fund. Restricted securities are
securities which were originally sold in private placements and which have not
been registered under the Securities Act of 1933 (the "1933 Act"). Such
securities generally have been considered illiquid by the staff of the
Securities and Exchange Commission (the "SEC"), since such securities may be
resold only subject to statutory restrictions and delays or if registered under
the 1933 Act. However, the SEC has acknowledged that a market exists for certain
restricted securities (for example, securities qualifying for resale to certain
"qualified institutional buyers" pursuant to Rule 144A under the 1933 Act).
Additionally, a similar market exists for commercial paper issued pursuant to
the private placement exemption of Section 4(2) of the 1933 Act. The Funds may
invest without limitation in these forms of restricted securities if such
securities are determined by the Adviser to be liquid in accordance with
standards established by the Funds' Board of Directors. Under these standards,
the Adviser must consider (a) the frequency of trades and quotes for the
security, (b) the number of dealers willing to purchase or sell the security and
the number of other potential purchasers, (c) dealer undertakings to make a
market in the security, and (d) the nature of the security and the nature of the
marketplace trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer).

At the present time, it is not possible to predict with accuracy how the markets
for certain restricted securities will develop. Investing in restricted
securities could have the effect of increasing the level of a Fund's illiquidity
to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing these securities.

VARIABLE AND FLOATING RATE NOTES
- --------------------------------------------------------------------------------
Each Fund may purchase floating and variable rate notes. The interest rate is
adjusted either at predesignated periodic intervals (variable rate) or when
there is a change in the index rate on which the interest rate on the obligation
is based (floating rate). These notes normally have a demand feature which
permits the holder to demand payment of principal plus accrued interest upon a
specified number of days' notice. The issuer of floating and variable rate
demand notes normally has a corresponding right, after a given period, to prepay
at its discretion the outstanding principal amount of the note plus accrued
interest upon a specified number of days' notice to the noteholders.

FOREIGN DEBT SECURITIES
- --------------------------------------------------------------------------------
The Money Market Fund and the Bond Fund may invest in U.S. dollar denominated
debt securities of foreign corporations and foreign governments if rated in one
of the two highest categories by an NRSRO. Debt securities of foreign
governments may include securities of the governments of Canada, Japan and
members of the European Economic Community. All trades involving foreign debt
securities will be transacted through U.S. based brokerage firms or commercial
banks. Canadian investments will be made through the Toronto Stock Exchange
member firms in U.S. dollars. There may be less publicly available information
about foreign issuers, and foreign issuers generally are not subject to the
uniform accounting, auditing, and financial reporting standards and practices
applicable to domestic issuers. Delays may be encountered in settling securities
transactions in foreign markets. Custody charges are generally higher for
foreign securities. The income from foreign securities may be subject to foreign
taxes.

FOREIGN CURRENCY TRANSACTIONS
- --------------------------------------------------------------------------------
The Bond Fund may engage in foreign currency exchange transactions in connection
with the purchase and sale of its investments. The Fund may buy or sell foreign
currencies on a spot basis, enter into foreign currency forward contracts, and
buy and sell foreign currency options, foreign currency futures and options on
foreign currency futures. Foreign currency exchange transactions may be entered
into for the purpose of hedging against foreign currency exchange risk arising
from the Fund's investment or anticipated investment in securities denominated
in foreign securities. Foreign currency exchange transactions will be limited to
the total value of securities denominated in foreign currencies. A forward
foreign currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades.

19
<PAGE>

Forward foreign currency exchange contracts differ from foreign currency futures
contracts in certain respects. For example, the maturity date of a forward
contract may be any fixed number of days from the date of the contract agreed
upon by the parties, rather than a predetermined date in any given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.

At the maturity of a forward or futures contract, the Fund may either accept or
make delivery of the currency specified in the contract, or, at or prior to
maturity, enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are affected on
a commodities exchange: a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.

Options on foreign currencies operate similarly to options on securities and are
traded primarily on the over-the-counter market, although options on foreign
currencies have recently been listed on several exchanges. Options traded on the
over-the-counter market are illiquid and it may not be possible for the Fund to
dispose of an option it has purchased or terminate its obligations under an
option it has written at a time when the Adviser believes it would be
advantageous to do so. Options on foreign currencies are affected by all of
those factors which influence foreign exchange rates and investments generally.

The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar and may have no relationship to the
investment merits of a foreign debt security. Because foreign currency
transactions occurring in the interbank market involve substantially larger
amounts than those that may be involved in the use of foreign currency options,
investors may be disadvantaged by having to deal in an odd-lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots. There is no
systematic reporting of last sale information for foreign currencies and there
is no regulatory requirement that quotations available through dealers or other
market sources be provided on a timely basis. Available quotation information is
generally representative of very large transactions in the interbank market and
thus may not reflect relatively smaller transactions (less than $1 million)
where rates may be less favorable. The interbank market in foreign currencies is
a global, around-the-clock market. To the extent that the U.S. options markets
are closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying markets
that cannot be reflected in the options markets.

Although foreign exchange dealers do not charge a fee for currency conversions,
they do realize a profit based upon the difference between prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the Bond Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer.

TRUST PREFERRED SECURITIES
- --------------------------------------------------------------------------------
The Bond Fund may purchase trust preferred securities issued primarily by
financial institutions such as banks and insurance companies. Trust preferred
securities purchased by the Fund generally have a stated par value, a stated
maturity typically of 30 years, are callable after a set time period of
typically five or ten years and pay interest quarterly or semi-annually. The
proceeds from the issuance of the securities are placed in a single asset trust
controlled by the issuer holding company, and the trust in turn purchases
long-term junior subordinated debt of the issuer holding company. The junior
subordinated debt held by the trust is senior to all common and preferred stock
of the issuer. The junior subordinated debt instruments include deferral
provisions whereby the issuer holding company may defer interest payments for up
to five years under certain circumstances, provided that no dividend payments
are made with respect to outstanding common and preferred stock, and during a
period of interest deferral the securities earn compounded interest which is
accrued by the issuer as an interest expense. The Federal Reserve Bank limits
the amount of trust preferred securities that an issuer may have outstanding
such that the total of cumulative preferred stock and trust preferred securities
outstanding may not exceed 25 percent of the issuer's Tier 1 capital base. The
securities provide that they are immediately callable in the event of a change
in the tax law whereby the interest paid by the issuer is no longer treated as
an interest expense deduction by the issuer.

20
<PAGE>

SIT MONEY MARKET FUND
- --------------------------------------------------------------------------------
The Funds may invest up to 25% of their total net assets in shares of money
market funds advised by the Adviser, which includes the Money Market Fund,
subject to the conditions contained in an exemptive order (the "Exemptive
Order") issued to the Funds and the Adviser by the Securities and Exchange
Commission. It is expected that only the Bond Fund will invest in the Money
Market Fund pursuant to the Exemptive Order.

Such investments may be made in lieu of direct investments in short term money
market instruments if the Adviser believes that they are in the best interest of
the Funds. The Exemptive Order requires the Adviser and its affiliates, in their
capacities as service providers for the Money Market Fund, to remit to the
Funds, or waive, an amount equal to all fees otherwise due to them under their
advisory and other agreements with the Money Market Fund to the extent such fees
are based upon a Fund's assets invested in shares of the Money Market Fund. This
requirement is intended to prevent shareholders of the Funds from being
subjected to double management and other asset-based fees as a result of a
Fund's investments in the Money Market Fund.

RATINGS OF DEBT SECURITIES
- --------------------------------------------------------------------------------
Investment grade debt securities are rated AAA, AA, A or BBB by Standard &
Poor's Corporation ("S& P"), Fitch IBCA ("Fitch"), and Duff & Phelps Credit
Rating Co. ("Duff & Phelps"); or Aaa, Aa, A or Baa by Moody's Investors Services
("Moody's"). Investment grade municipal notes are rated MIG 1, MIG 2, MIG 3 or
MIG 4 (VMIG 1, VMIG 2, VMIG 3 or VMIG 4 for notes with a demand feature) by
Moody's or SP-1 or SP-2 by S&P. Securities rated Baa, MIG 4, VMIG 4 or BBB are
medium grade, involve some speculative elements and are the lowest investment
grade available. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case with higher grade bonds. These securities generally have less
certain protection of principal and interest payments than higher rated
securities. Securities rated Ba or BB are judged to have some speculative
elements with regard to capacity to pay interest and repay principal. Securities
rated B by Moody's are considered to generally lack characteristics of a
desirable investment and the assurance of interest and principal payments over
any long period of time may be small. S&P considers securities rated B to have
greater vulnerability to default than other speculative grade securities.
Adverse economic conditions will likely impair capacity or willingness to pay
interest and principal. DEBT SECURITIES RATED BELOW INVESTMENT GRADE ARE
COMMONLY KNOWN AS JUNK BONDS. See Appendix A and B for further information about
ratings.

The commercial paper purchased by the Funds will consist only of obligations
which, at the time of purchase, are (a) rated at least Prime-1 by Moody's, A-1
by S&P, F-1 by Fitch, or D-1 by Duff & Phelps, or (b) if not rated, issued by
companies having an outstanding unsecured debt issue which at the time of
purchase is rated Aa or higher by Moody's or AA or higher by S&P.

Subsequent to their purchase, particular securities or other investments may
cease to be rated or their ratings may be reduced below the minimum rating
required for purchase by the Fund. Neither event will require the elimination of
an investment from a Fund's portfolio, but the Adviser will consider such an
event in its determination of whether the Fund should continue to hold the
security.

RISKS OF INVESTING IN HIGH YIELD SECURITIES
- --------------------------------------------------------------------------------
Minnesota Tax-Free Income Fund may invest up to 30% of its assets in securities
rated below investment-grade. In addition, although it does not currently intend
to invest in securities rated below investment-grade, Bond Fund may invest up to
25% of its total assets in such securities. Securities rated below
investment-grade are referred to as high yield securities or "junk bonds." Junk
bonds are regarded as being predominantly speculative as to the issuer's ability
to make payments of principal and interest. Investment in such securities
involves substantial risk. Issuers of junk bonds may be highly leveraged and may
not have available to them more traditional methods of financing. Therefore, the
risks associated with acquiring the securities of such issuers generally are
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, issuers of
junk bonds may be more likely to experience financial stress, especially if such
issuers are highly leveraged. In addition, the market for junk bonds is
relatively new and has not weathered a major economic recession, and it is
unknown what effects such a recession might have on such securities. During such
periods, such issuers may not have sufficient cash flows to meet their interest
payment obligations. The issuer's ability to service its debt obligations also
may be adversely affected by specific issuer developments, or the

21
<PAGE>

issuer's inability to meet specific projected business forecasts, or the
unavailability of additional financing. The risk of loss due to default by the
issuer is significantly greater for the holders of junk bonds because such
securities may be unsecured and may be subordinated to the creditors of the
issuer. While most of the junk bonds in which the Funds may invest do not
include securities which, at the time of investment, are in default or the
issuers of which are in bankruptcy, there can be no assurance that such events
will not occur after a Fund purchases a particular security, in which case the
Fund may experience losses and incur costs. Junk bonds frequently have call or
redemption features that would permit an issuer to repurchase the security from
the Fund. If a call were exercised by the issuer during a period of declining
interest rates, the Fund likely would have to replace such called security with
a lower yielding security, thus decreasing the net investment income to the Fund
and dividends to shareholders.

Junk bonds tend to be more volatile than higher-rated fixed income securities,
so that adverse economic events may have a greater impact on the prices of junk
bonds than on higher-rated fixed income securities. Factors adversely affecting
the market value of such securities are likely to affect adversely the Fund's
net asset value. Like higher-rated fixed income securities, junk bonds generally
are purchased and sold through dealers who make a market in such securities for
their own accounts. However, there are fewer dealers in the junk bond market,
which may be less liquid than the market for higher-rated fixed income
securities, even under normal economic conditions. Also there may be significant
disparities in the prices quoted for junk bonds by various dealers. Adverse
economic conditions and investor perceptions thereof (whether or not based on
economic fundamentals) may impair the liquidity of this market and may cause the
prices the Fund receives for its junk bonds to be reduced. In addition, the Fund
may experience difficulty in liquidating a portion of its portfolio when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
Under such conditions, judgment may play a greater role in valuing certain of
the Fund's portfolio securities than in the case of securities trading in a more
liquid market. In addition, the Fund may incur additional expenses to the extent
that it is required to seek recovery upon a default on a portfolio holding or to
participate in the restructuring of the obligation.

DIVERSIFICATION
- --------------------------------------------------------------------------------
As a fundamental policy, each Fund (except Minnesota Tax-Free Income Fund)
intends to operate as a "diversified" management investment company, as defined
in the Investment Company Act of 1940, as amended. A "diversified" investment
company means a company which meets the following requirements: At least 75% of
the value of the company's total assets is represented by cash and cash items
(including receivables), "Government Securities", securities of other investment
companies, and other securities for the purposes of this calculation limited in
respect of any one issuer to an amount not greater in value than 5% of the value
of the total assets of such management company and to not more than 10% of the
outstanding voting securities of such issuer. "Government Securities" means
securities issued or guaranteed as to principal or interest by the United
States, or by a person controlled or supervised by and acting as an
instrumentality of the Government of the United States pursuant to authority
granted by the Congress of the United States; or certificates of deposit for any
of the foregoing. Additionally, each of the Funds has adopted certain
restrictions that are more restrictive than the policies set forth in this
paragraph.

The Minnesota Tax-Free Income Fund is a nondiversified investment company as
defined in the 1940 Act which means that the Fund is not restricted by the
provisions of the 1940 Act with respect to diversification of its investments.
However, the Fund intends to comply with the diversification requirements
contained in the Internal Revenue Code of 1986. Accordingly, at the end of each
quarter of the Fund's taxable year (a) at least 50% of the market value of the
Fund's assets must be invested in cash, U.S. Government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and not more than 10% of the outstanding voting securities of the issuer,
and (b) not more than 25% of the value of the Fund's total assets can be
invested in the securities of any one issuer (other than U.S. Government
securities). Since a relatively high percentage of the Fund's assets may be
invested in the obligations of a limited number of issuers, some of which may be
within the same economic sector, the Fund's portfolio securities may be more
susceptible to any single economic, political or regulatory occurrence than the
portfolio securities of diversified investment companies.

22
<PAGE>

For purposes of such diversification, the identification of the issuer of
tax-exempt securities depends on the terms and conditions of the security. If a
State or a political subdivision thereof pledges its full faith and credit to
payment of a security, the State or the political subdivision, respectively, is
deemed the sole issuer of the security. If the assets and revenues of an agency,
authority or instrumentality of a State or a political subdivision thereof are
separate from those of the State or political subdivision and the security is
backed only by the assets and revenues of the agency, authority or
instrumentality, such agency, authority or instrumentality is deemed to be the
sole issuer. Moreover, if the security is backed only by revenues of an
enterprise or specific projects of the state, a political subdivision or agency,
authority or instrumentality, such as utility revenue bonds, and the full faith
and credit of the governmental unit is not pledged to the payment thereof, such
enterprise or specific project is deemed the sole issuer. If, however, in any of
the above cases, a state, political subdivision or some other entity guarantees
a security and the value of all securities issued or guaranteed by the guarantor
and owned by the Fund exceeds 10% of the value of the Fund's total assets, the
guarantee is considered a separate security and is treated as an issue of the
guarantor.

CONCENTRATION POLICY
- --------------------------------------------------------------------------------
As a fundamental policy, neither Minnesota Tax-Free Income Fund nor the Tax-Free
Income Fund will invest more than 25% of its assets in revenue bonds payable
only from revenues derived from facilities or projects within a single industry;
however, because other appropriate available investments may be in limited
supply, the industry limitation does not apply to housing authority obligations
or securities issued by governments or political subdivisions of governments.
Appropriate available investments may be in limited supply from time to time in
the opinion of the Adviser due to the Funds' investment policy of investing
primarily in "investment grade" securities. The Tax-Free Income Fund does not
intend to invest more than 25% of its net assets in securities of governmental
units or issuers located in the same state, territory or possession of the U.S.

PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
Generally, the Funds will not trade in securities for short-term profits, but if
circumstances warrant, securities may be sold without regard to length of time
held. Debt securities may be sold in anticipation of a market decline (a rise in
interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold.

Increased turnover results in increased brokerage costs and higher transaction
costs for the Funds and may affect the taxes shareholders pay. If a security
that has been held for less than the holding period set by law is sold, any
resulting gains will be taxed in the same manner as ordinary income as opposed
to long-term capital gain. Each Fund's turnover rate may vary from year to year.
For additional information, refer to "Taxes" and "Brokerage" below. The
portfolio turnover rates for each of the Funds are contained in the Financial
Highlights tables in the prospectus.

SECURITIES LENDING
- --------------------------------------------------------------------------------
In October 1995 the shareholders of each Fund approved a change to each Fund's
fundamental investment restrictions and authorized each Fund to lend portfolio
securities to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. If the borrower fails to
return the securities and the invested collateral declines in value, the Fund
could lose money. To date, the Funds have not loaned securities, and neither the
Funds nor the Adviser intend to lend securities in the immediate future.

DURATION
- --------------------------------------------------------------------------------
Duration is a measure of the expected life of a fixed income security on a
present value basis. Duration incorporates a bond's yield, coupon interest
payments, final principal at maturity and call features into one measure. It
measures the expected price sensitivity of a fixed income security (or
portfolio) for a given change in interest rates. For example, if interest rates
rise by one percent, the market value of a security (or portfolio) having a
duration of two years generally will fall by approximately two percent. The
Adviser uses several methods to compute various duration estimates appropriate
for particular securities held in portfolios.

Duration incorporates payments prior to maturity and therefore it is considered
a more precise measure of interest rate risk than "term to maturity." "Term to
maturity" measures only the time until a debt security provides its final
payment, and does not account for pre-maturity payments. Most debt securities
provide coupon interest payments in addition to a

23
<PAGE>

final ("par") payment at maturity, and some securities have call provisions
which allow the issuer to repay the instrument in part or in full before the
maturity date. Each of these may affect the security's price sensitivity to
interest rate changes.

For bonds that are not subject to calls prior to their maturity, duration is an
effective measure of price sensitivity to changing interest rates. However, it
does not properly reflect certain types of interest rate risk as bonds may be
subject to optional or special mandatory redemption provisions that affect the
timing of principal repayment and thus, the duration of the debt security. These
provisions include refunding calls, sinking fund calls and prepayment calls. For
example, while the stated final maturity of mortgage "pass-through" securities
is generally 30 years, expected prepayment rates are more important in
determining duration. Municipal bonds may also be subject to special redemption
from unexpended proceeds, excess revenues, sale proceeds or other sources of
funds, and municipal bonds may be advance refunded. Floating and variable rate
debt securities may have final maturities of ten or more years, yet their
interest rate risk corresponds to the frequency and benchmark index of the
coupon reset. In such situations, the Adviser uses more sophisticated analytical
techniques that incorporate these additional variables to arrive at a modified,
effective, implied or average life duration to reflect interest rate risk. These
techniques may involve the portfolio manager's expectations of future economic
conditions, and these assumptions may vary from actual future conditions. The
various methods used to compute appropriate duration estimates for certain bond
issues, particularly those that are traded infrequently and that have a low
amount of outstanding debt such as municipal bonds, may require greater reliance
on the use of such assumptions by the Adviser. Therefore, for those issues, the
effective or implied duration may be a less accurate estimate of interest rate
risk than it is for other types of bond issues.

ADDITIONAL INFORMATION ABOUT SELLING SHARES
- --------------------------------------------------------------------------------

SUSPENSION OF SELLING ABILITY
- --------------------------------------------------------------------------------
Each Fund may suspend selling privileges or postpone the date of payment:
- - During any period that the NYSE is closed other than customary weekend or
holiday closings, or when trading is restricted, as determined by the
Securities and Exchange Commission ("SEC");
- - During any period when an emergency exists, as determined by the SEC, as a
result of which it is not reasonably practical for the Fund to dispose of
securities owned by it or to fairly determine the value of its assets;
- - For such other periods as the SEC may permit.

TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
Once you place a telephone transaction request to Sit Mutual Funds, it cannot be
canceled or modified. The Funds use reasonable procedures to confirm that
telephone instructions are genuine, including requiring that payments be made
only to the shareholder's address of record or the bank account designated on
the application and requiring certain means of telephone identification. If the
Fund fails to employ such procedures, it may be liable for any losses suffered
by Fund shareholders as a result of unauthorized or fraudulent instructions.
During times of chaotic economic or market circumstances, a shareholder may have
difficulty reaching the Funds by telephone. Consequently, a redemption or
exchange by telephone may be difficult to implement at those times.

REDEMPTION-IN-KIND
- --------------------------------------------------------------------------------
If the Adviser determines that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in securities
or other financial assets, valued for this purpose as they are valued in
computing the NAV for a Fund's shares. Shareholders receiving securities or
other financial assets on redemption may realize a gain or loss for tax purposes
and will incur any costs of sale, as well as the associated inconveniences.

COMPUTATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------

Net asset value is determined as of the close of the New York Stock Exchange on
each day that the exchange is open for business and on any other day on which
there is sufficient trading in a Fund's securities to materially affect the
Fund's net asset value per share. The customary national business holidays
observed by the New York Stock Exchange and on which the Funds are closed are:
New Year's Day, Martin Luther King Jr. Day, President's Day, Good Friday,
Memorial Day, July

24
<PAGE>

Fourth, Labor Day, Thanksgiving Day and Christmas Day. The net asset value per
share will not be determined on these national holidays.

On March 31, 1999, the net asset value and public offering price per share for
each Fund was calculated as follows:

Money Market Fund:
net assets ($61,441,567)
-------------
shares outstanding (61,444,586) = NAV per share = public offering
price per share ($1.00)

U.S. Government Securities Fund:
net assets ($159,330,227)
-------------
shares outstanding (15,156,714) = NAV per share = public offering
price per share ($10.51)

Bond Fund:
net assets ($11,919,681)
-------------
shares outstanding (1,198,409) = NAV per share = public offering
price per share ($9.95)

Tax-Free Income Fund:
net assets ($895,353,179)
-------------
shares outstanding (86,209,089) = NAV per share = public offering
price per share ($10.39)

Minnesota Tax-Free Income Fund:
net assets ($271,274,775)
-------------
shares outstanding (25,709,302) = NAV per share = public offering
price per share ($10.55)

CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------

Advertisements and other sales literature for the Funds (other than Money Market
Fund) may refer to cumulative total return, average annual total return and
yield.

CUMULATIVE TOTAL RETURN. Total return means cumulative total return and is
calculated by finding the cumulative compounded rate of return over the period
indicated that would equate the initial amount invested to the ending redeemable
value, according to the following formula:

CTR = (ERV-P) X 100
-----
P
CTR = cumulative total return
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period
P = initial payment of $1,000

This calculation assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates and includes
all recurring fees, such as investment advisory and management fees, charged to
all shareholder accounts.

The Funds' cumulative total returns for the period ended March 31, 1999 were:

1-Year 5-Years 10-Years Inception
------ ------- -------- ---------
U.S. Government Securities Fund 5.05% 37.03% 113.00% 147.18%
Bond Fund 5.30 42.37 --- 40.63(1)
Tax-Free Income Fund 5.30 43.56 107.00 114.79
Minnesota Tax-Free Income Fund 5.58 41.15 --- 40.02(1)
(1) 12/1/93 Fund inception.

25
<PAGE>

AVERAGE ANNUAL TOTAL RETURN. Average annual total return is computed by finding
the average annual compounded rates of return over the periods indicated that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:

P(1+T)n= ERV
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period.

The Funds' average annual total returns for the period ended March 31, 1999
were:

1-Year 5-Years 10-Years Inception
------ ------- -------- ---------

U.S. Government Securities Fund 5.05% 6.50% 7.85% 7.95%
Bond Fund 5.30 7.32 --- 6.60(1)
Tax-Free Income Fund 5.30 7.50 7.55 7.55
Minnesota Tax-Free Income Fund 5.58 7.14 --- 6.52(1)
(1) 12/1/93 Fund inception.

YIELD. Yield is computed by dividing the net investment income per share (as
defined under Securities and Exchange Commission rules and regulations) earned
during the computation period by the maximum offering price per share on the
last day of the period, according to the following formula:

Yield = 2[( a - b + 1) 6 - 1]
-------
cd
a = dividends and interest earned during the periods;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of
the period.

The Funds' yields for the 30-day period ended March 31, 1999 were:

U.S. Government Securities Fund 5.25%
Bond Fund 5.77
Tax-Free Income Fund 4.54
Minnesota Tax-Free Income Fund 4.52

CURRENT YIELD AND EFFECTIVE YIELD FOR MONEY MARKET FUND
- -------------------------------------------------------
CURRENT YIELD The Money Market Fund's current yield is based on a seven-day
period and is computed by determining the net change in value, exclusive of
capital changes, of a hypothetical account having a balance of one share at the
beginning of the period. This number is then divided by the price per share at
the beginning of the period to obtain the base period return, and then
multiplying the base period return by (365/7) with the resulting yield figure
carried to at least the nearest hundredth of one percent.

The Money Market Fund's current yield for the 7-day period ended March 31, 1999
was 4.45%.

EFFECTIVE YIELD The Money Market Fund's effective yield is computed by using the
base period return as calculated above as follows: Effective yield = [ (Base
period return + 1) 365/7 ] - 1

The Money Market Fund's effective yield for the 7-day period ended March 31,
1999 was 4.54%.

26
<PAGE>

TAXABLE EQUIVALENT YIELD. The Tax-Free Income Fund and Minnesota Tax-Free Income
Fund may state a taxable equivalent yield which is computed by dividing that
portion of the yield of the Fund (as computed above) which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the yield of the Fund that is not tax-exempt. The taxable equivalent yield
for the Tax-Free Income Fund and Minnesota Tax-Free Income Fund assuming a 39.6%
marginal federal tax bracket and an 8.5% tax bracket for Minnesota residents
were 7.52% and 8.18% respectively, for the 30-day period ended March 31, 1999.

DISTRIBUTION RATE. The distribution rate is computed by dividing the net
investment income distributed to shareholders for a given period divided by a
Fund's average net asset value per share for that period, according to the
following formula:

Distribution Rate = a/b X 365 X 100
-----
c
a = net investment income distributed for the period;
b = number of days in the period;
c = average net asset value during the period;

The Funds' distribution rates for the 12-month period ended March 31, 1999 were:

U.S. Government Securities Fund 5.07%
Bond Fund 5.34
Tax-Free Income Fund 4.92
Minnesota Tax-Free Income Fund 4.87

A Fund may advertise its relative performance as compiled by outside
organizations or refer to publications which have mentioned its performance. The
Adviser may refer to the following indices in advertisements and other sales
literature: Lehman Aggregate Bond Index, Lehman 5-Year Municipal Bond Index,
Lehman Intermediate Government Bond Index.

MANAGEMENT
- --------------------------------------------------------------------------------

The Money Market Fund, U.S. Government Securities Fund, and the corporate issuer
of the Bond Fund, Tax-Free Income Fund and Minnesota Tax-Free Income Fund have
corporate officers and Boards of Directors. Pursuant to Minnesota law, the
Boards of Directors are responsible for the management of the Funds and the
establishment of the Funds' policies. The officers of the Funds manage the
day-to-day operation of the Funds.

The Sit Funds as a group (a total of 13 funds) pay each director, who is not
also an officer, an annual total fee of $12,000, $2,000 for each meeting
attended, and provide reimbursement for travel and other expenses. The following
table sets forth the aggregate compensation received by each Director for
services provided to the thirteen funds of the Sit Mutual Funds during such
periods. Pursuant to each Fund's investment management agreement with the
Adviser, the Adviser is obligated to pay the Funds' expenses, including fees
paid to the directors. (See discussion under "Investment Adviser" below.)
Directors who are officers of the Adviser or any of its affiliates did not
receive any such compensation and are not included in the table.

<TABLE>
<CAPTION>
Aggregate Pension or
Compensation For Retirement Benefits Estimated Total
Services Rendered Accrued As Part Annual Benefits Compensation From
Director to Each Fund of Fund Expenses Upon Retirement Fund Complex
- ------------ ----------------- ------------------- --------------- -----------------
<S> <C> <C> <C> <C>
John E. Hulse 1,355 None None 20,000
William E. Frenzel 1,355 None None 20,000
Sidney L. Jones 1,355 None None 20,000
Donald W. Phillips 1,355 None None 18,000
</TABLE>

The names, addresses, principal occupations and other affiliations of directors
and officers of the Funds are given below. Except as noted below, the business
address of each officer and director is the same as that of the Adviser - 4600
Norwest Center, Minneapolis, Minnesota.

27
<PAGE>

NAME (AGE) & ADDRESS POSITION WITH THE FUNDS PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- -------------------- ----------------------- ----------------------------------------
<S> <C> <C>
Eugene C. Sit, CFA (61) * Director and Chairman, CEO and CIO Sit Investment Associates,Inc.
Chairman (the "Adviser"); Chairman, CEO and CIO of Sit/Kim
International Investment Associates, Inc. ("Sit/Kim");
Director and Chairman of the Sit Funds and Director of
SIA Securities Corp. (the "Distributor")

Peter L. Mitchelson, CFA (58) * Director and President and Director of the Adviser; Executive Vice
Vice Chairman President and Director of Sit/Kim; Director and Vice
Chairman of the Sit Funds and Director of the Distributor

Michael C. Brilley (54) * Director, Senior Vice President, Senior Vice President and Senior Fixed Income Officer
and Senior Portfolio Manager of the Adviser

Melvin C. Bahle (79) Director Emeritus Director Emeritus of the Sit Funds; Director of the Sit
#1 Muirfield Lane Funds until October, 1995; Financial consultant;
St. Louis, MO 63141 Director and/or Officer of several companies, foundations
and religious organizations

William E. Frenzel (69) * Director Director of the Sit Funds; Advisory Director of the
1775 Massachusetts Ave. NW Adviser; Director of Sit/Kim; Senior Visiting Scholar
Washington, DC 20036 at the Brookings Institution; Former senior member
of Congress and a ranking member on the House Ways
and Means Committee and Vice Chairman of the
House Budget Committee

John E. Hulse (66) Director Director of the Sit Funds; Director, Vice Chairman and
4303 Quail Run Lane Chief Financial Officer at Pacific Telesis Group until
Danville, CA 64506 June 1992; Trustee, Benild Religious & Charitable Trust;
Trustee, Pacific Gas & Electric Nuclear
Decommissioning Trust

Sidney L. Jones (63) Director Director of the Sit Funds; Adjunct Faculty, Center for
8505 Parliament Drive Public Policy Education, The Brookings Institution;
Potomac, MD 20854 Visiting Research Associate in Economics at Carleton
College; Former Assistant Secretary for Economic Policy,
United States Department of the Treasury

Donald W. Phillips (51) Director Director of the Sit Funds; President of Forstmann-Leff
111 West Jackson Blvd International, Inc.; Executive Vice President and Director
Chicago, IL 60606 of Equity Financial and Management Company until
1997; Chairman of Equity Institutional Investors, Inc.,
until 1997

Mary K. Stern, CFA (50) President President of the Sit Mutual Funds; President of Mutual
Fund Group and Executive Vice President of Society
Bank, Cleveland, Ohio until 1994

Paul E. Rasmussen (38) Vice President & Treasurer Vice President, Secretary and Controller for the Adviser
and Sit/Kim; Vice President and Treasurer of the Sit
Funds; President and Treasurer of the Distributor
</TABLE>

28
<PAGE>

NAME (AGE) & ADDRESS POSITION WITH THE FUNDS PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- -------------------- ----------------------- ----------------------------------------
<S> <C> <C>
Debra A. Sit, CFA (38) Vice President - Investments; Vice President - Investments of the Tax-Free Fund and
Assistant Treasurer Minnesota Tax-Free Fund and Assistant Treasurer of all
Funds

Bryce A. Doty, CFA(32) Vice President - Investments Vice President - Investments of the U.S. Government
Securities Fund and Bond Fund; Head of the Public
Trading desk at Minnesota Mutual Life Insurance
Company until November, 1995

Paul J. Jungquist, CFA (37) Vice President - Investments Vice President - Investments of the Money Market Fund

Michael P. Eckert (43) Vice President Vice President - Mutual Fund Sales of the Adviser

Michael J. Radmer (54) Secretary Secretary of the Sit Funds; Partner of the Funds'
220 South Sixth Street general counsel, Dorsey & Whitney, LLP
Minneapolis, MN
</TABLE>

* Directors who are deemed to be "interested persons" of the Funds as that
term is defined by the Investment Company Act of 1940. Messrs. Sit, Brilley
and Mitchelson are interested persons because they are officers of the
Adviser. Mr. Frenzel may be deemed to be an interested person because he is
an advisory director of the Adviser.

Ms. Debra Sit is the daughter of Eugene C. Sit.

INVESTMENT ADVISER
- --------------------------------------------------------------------------------

Sit Investment Associates, Inc. (the "Adviser") was incorporated in Minnesota on
July 14, 1981 and has served as the Funds' investment adviser since the
inception of each Fund pursuant to Investment Management Agreements.

TERMS COMMON TO ALL FUNDS' INVESTMENT MANAGEMENT AGREEMENTS
- --------------------------------------------------------------------------------
Each Fund's Investment Management Agreement provides that the Adviser will
manage the investment of the Fund's assets, subject to the applicable provisions
of the Fund's articles of incorporation, bylaws and current registration
statement (including, but not limited to, the investment objective, policies and
restrictions delineated in the Fund's current prospectus and Statement of
Additional Information), as interpreted from time to time by the Fund's Board of
Directors. Under each Agreement, the Adviser has the sole and exclusive
responsibility for the management of the Fund's investment portfolio and for
making and executing all investment decisions for the Fund. The Adviser is
obligated under each Agreement to report to the Fund's Board of Directors
regularly at such times and in such detail as the Board may from time to time
determine appropriate, in order to permit the Board to determine the adherence
of the Adviser to the Fund's investment policies. Each Agreement also provides
that the Adviser shall not be liable for any loss suffered by the Fund in
connection with the matters to which the Agreement relates, except losses
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its obligations and duties or by reason of its
reckless disregard of its obligations and duties under the Agreement.

Each Agreement provides that the Adviser shall, at its own expense, furnish all
office facilities, equipment and personnel necessary to discharge its
responsibilities and duties under the Agreement and that the Adviser will
arrange, if requested by the Fund, for officers or employees of the Adviser to
serve without compensation from the Fund as directors, officers or employees of
the Fund if duly elected to such positions by the shareholders or directors of
the Fund.

Each Agreement provides that it will continue in effect from year to year only
as long as such continuance is specifically approved at least annually by the
applicable Fund's Board of Directors or shareholders and by a majority of the
Board of Directors who are not "interested persons" (as defined in the 1940 Act)
of the Adviser or the Fund. The Agreement is

29
<PAGE>

terminable upon 60 days' written notice by the Adviser or the Fund and will
terminate automatically in the event of its "assignment" (as defined in the 1940
Act).

COMPENSATION AND ALLOCATION OF EXPENSES
- --------------------------------------------------------------------------------
Under each Fund's Investment Management Agreement, the Fund is obligated to pay
the Adviser a flat monthly fee, which is equal on an annual basis to .80%
(except for the U.S. Government Securities Fund and Money Market Fund) of the
average daily net assets of the Fund. However, under each such Fund's Agreement,
the Adviser has agreed to bear all of the Fund's expenses, except for
extraordinary expenses (as designated by a majority of the Fund's disinterested
directors), interest, brokerage commissions and other transaction charges
relating to the investing activities of the Fund.

Under the current Investment Management Agreement for each of U.S. Government
Securities Fund and Money Market Fund, the Fund is obligated to pay the Adviser
a flat monthly fee equal on an annual basis to 1.00% of the first $50 million of
average daily net assets and .80% of average daily net assets in excess of $50
million for U.S. Government Securities Fund and equal on an annual basis to .80%
of the first $50 million of average daily net assets and .60% of average daily
net assets in excess of $50 million for Money Market Fund. However, under each
such Fund's current Agreement, the Adviser is obligated to bear all of the
Fund's expenses, except for extraordinary expenses (as designated by a majority
of the Fund's disinterested directors), interest, brokerage commissions and
other transaction charges relating to the investing activities of the Fund.

For the period October 1, 1993 through December 31, 2000 the Adviser has
voluntarily agreed to limit the management fee (and, thereby, all Fund expenses,
except those not payable by the Adviser as set forth above) of Government Fund
and Money Market Fund to .80% and .50% of average daily net assets per year,
respectively, and of Tax-Free Income Fund to .70% of the Fund's average daily
net assets in excess of $250 million and .60% of the Funds' daily net assets in
excess of $500 million. After December 31, 2000, this voluntary fee waiver may
be discontinued by the Adviser in its sole discretion.

Set forth below are the investment management fees paid by each Fund, during the
fiscal years ended March 31, 1999, 1998, and 1997, and other fees and expenses
paid by the Funds during such years and fees and expenses of the Funds waived or
paid by the Adviser during such years:

<TABLE>
<CAPTION>
MONEY U.S. GOVT. TAX-FREE MN TAX-FREE
MARKET SECURITIES BOND INCOME INCOME
1999 FUND FUND FUND FUND FUND
- ---- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Advisory Fees $ 338,767 $1,121,843 $ 90,395 $5,485,395 $1,597,679
Expenses Waived (126,552) (100,000) 00 (621,348) 00
Net Fund Expenses 212,215 1,021,843 90,395 4,864,047 1,597,679

1998
- ----
Investment Advisory Fees $ 263,629 $ 797,954 $ 62,780 $3,365,321 $ 926,184
Expenses Waived (98,857) (100,000) 00 (171,504) 00
Net Fund Expenses 164,772 697,954 62,780 3,193,817 926,184

1997
- ----
Investment Advisory Fees $ 208,145 $ 564,216 $ 43,801 $2,374,577 $ 590,061
Expenses Waived (78,042) (99,999) 00 (46,819) 00
Net Fund Expenses 130,103 464,217 43,801 2,327,758 590,061
</TABLE>

DISTRIBUTOR
- --------------------------------------------------------------------------------

Sit Mutual Funds II, Inc. (the "Company") on behalf of the Bond Fund, Minnesota
Tax-Free Income Fund, and the Tax-Free Income Fund; the U.S. Government
Securities Fund, and the Money Market Fund have entered into an Underwriting and
Distribution Agreement with SIA Securities Corp. ("Securities"), an affiliate of
the Adviser, pursuant to which Securities acts as each Fund's principal
underwriter. Securities markets each Fund's shares only to certain institutional
investors and all other sales of each Fund's shares are made by each Fund. The
Adviser pays all expenses of Securities in connection with

30
<PAGE>

such services and Securities is otherwise not entitled to any other compensation
under the Underwriting and Distribution Agreement. Each Fund will incur no
additional fees in connection with the Underwriting and Distribution Agreement.

Pursuant to the Underwriting and Distribution Agreement, Securities has agreed
to act as the principal underwriter for each Fund in the sale and distribution
to the public of shares of each Fund, either through dealers or otherwise.
Securities has agreed to offer such shares for sale at all times when such
shares are available for sale and may lawfully be offered for sale and sold. The
Underwriting and Distribution Agreement is renewable from year to year if the
Fund's directors approve such agreement. The Fund or Securities can terminate
the Underwriting and Distribution Agreement at any time without penalty on 60
days' notice written notice to the other party. The Underwriting and
Distribution Agreement terminates automatically upon its assignment. In the
Underwriting and Distribution Agreement, Securities agrees to indemnify each
Fund against all costs of litigation and other legal proceedings and against any
liability incurred by or imposed on the Fund in any way arising out of or in
connection with the sale or distribution of each Fund's shares, except to the
extent that such liability is the result of information which was obtainable by
Securities only from persons affiliated with the Fund but not Securities.

BROKERAGE
- --------------------------------------------------------------------------------

Transactions on a stock exchange in equity securities will be executed primarily
through brokers that will receive a commission paid by the applicable Fund.
Fixed income securities, as well as equity securities traded in the
over-the-counter market, are generally traded on a "net" basis with dealers
acting as principals for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten fixed income and equity offerings, securities are purchased at a
fixed price that includes an amount of compensation to the underwriter,
generally referred to as the underwriter's selling concession or discount.
Certain of these securities may also be purchased directly from the issuer, in
which case neither commissions nor discounts are paid.

The Adviser selects and, where applicable, negotiates commissions with the
broker-dealers who execute the transactions for one or more of the Funds. The
primary criterion for the selection of a broker-dealer is the ability of the
broker-dealer, in the opinion of the Adviser, to secure prompt execution of the
transactions on favorable terms, including the best price of the security, the
reasonableness of the commission and considering the state of the market at the
time. When consistent with these objectives, business may be placed with
broker-dealers who furnish investment research or services to the Adviser. Such
research or services include advice, both directly and in writing, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities, or purchasers or sellers of
securities. Such services also may include analyses and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts. This allows the Adviser to supplement its own
investment research activities and enables the Adviser to obtain the views and
information of individuals and research staffs of many different securities
firms prior to making investment decisions for the Funds. To the extent
portfolio transactions are effected with broker-dealers who furnish research
services to the Adviser, the Adviser receives a benefit, not capable of
valuation in dollar amounts, without providing any direct monetary benefit to
the applicable Funds from these transactions. The Adviser believes that most
research services they receive generally benefit several or all of the
investment companies and private accounts which they manage, as opposed to
solely benefiting one specific managed fund or account. Normally, research
services obtained through managed funds or accounts investing in common stocks
would primarily benefit the managed funds or accounts which invest in common
stock; similarly, services obtained from transactions in fixed income securities
would normally be of greater benefit to the managed funds or accounts which
invest in debt securities.

The Adviser maintains an informal list of broker-dealers, which is used from
time to time as a general guide in the placement of Fund business, in order to
encourage certain broker-dealers to provide the Adviser with research services
which the Adviser anticipates will be useful to them in managing the Funds.
Because the list is merely a general guide, which is to be used only after the
primary criterion for the selection of broker-dealers (discussed above) has been
met, substantial deviations from the list are permissible and may be expected to
occur. The Adviser will authorize a Fund to pay an amount of commission for
effecting a securities transaction in excess of the amount of commission another
broker-dealer would have charged only if the Adviser determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either that particular

31
<PAGE>

transaction or the Adviser's overall responsibilities with respect to the
accounts as to which it exercises investment discretion. Generally, a Fund pays
commissions higher than the lowest commission rates available.

Fund management does not currently anticipate that a Fund will effect brokerage
transactions in its portfolio securities with any broker-dealer affiliated
directly or indirectly with the Funds or the Adviser.

The Adviser has entered into agreements with Capital Institutional Services,
Inc. ("CIS"), and Autranet, Inc. ("AI"), unaffiliated registered broker-dealers.
All transactions placed with CIS and AI are subject to the above criteria. CIS
and AI provide the Adviser with a wide variety of economic, performance,
analytical and investment research information, resources from Egan-Jones Rating
Company, Fitch Investors Service, Inc., Moody's Investors Service Inc.,
Municipal Market Data, Standard & Poor's Corporation, Bloomburg, L.P.,
Institutional Investor, Pattern Recognition Research Inc., and Stone & McCarthy
Research Associates.

Investment decisions for each Fund are made independently of those for other
clients of the Adviser, including the other Funds. When the Funds or clients
simultaneously engage in the purchase or sale of the same securities, the price
of the transactions is averaged and the amount allocated in accordance with a
formula deemed equitable to each Fund and client. In some cases, this system may
adversely affect the price paid or received by the Fund or the size of the
position obtainable. All trades will be transacted through U.S. based brokerage
firms and commercial banks.

Brokerage commissions paid by the Funds for the fiscal years ended March 31,
1999, 1998, and 1997 were:

1999 1998 1997
---- ---- ----
Money Market Fund 0 0 0
U.S. Government Securities Fund $13,784 $29,252 $2,891
Bond Fund 1,515 1,069 1,214
Tax-Free Income Fund 36,236 77,251 0
Minnesota Tax-Free Income Fund 15,406 20,442 225

The amount of commissions paid by the Tax-Free Income Fund and the Minnesota
Tax-Free Income Fund fluctuate from year to year due to the amount of each
Fund's transactions in securities issued by certain closed-end funds during the
period.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------

The following persons owned of record or beneficially 5% or more of the
respective Fund's outstanding shares as of April 30, 1999:

<TABLE>
<CAPTION>
Record Beneficially Of Record &
Person Only Only Beneficially
- ------ ---- ---- ------------
<S> <C> <C> <C>
MONEY MARKET FUND
- -----------------
Metropolitan Sports Facilities Commission
900 South 5th Street, Minneapolis, MN 16%

U.S. GOVERNMENT SECURITIES FUND
- -------------------------------
Charles Schwab & Company, Inc., Special Custody Account for
Benefit Cust, 101 Montgomery Street, San Francisco, CA 42%

National Financial Services Corporation for
Benefit Cust, P.O. Box 3908, New York, NY 11%

BOND FUND
- ---------
Charles Schwab & Company, Inc., Special Custody Account for
Benefit Cust, 101 Montgomery Street, San Francisco, CA 12%
</TABLE>

32
<PAGE>

<TABLE>
<CAPTION>
Record Beneficially Of Record &
Person Only Only Beneficially
- ------ ---- ---- ------------
<S> <C> <C> <C>
BOND FUND (continued)
- ---------
Northern Trust Cust IRA Rollover for Benefit Cust, S. Walter Richey,
900 2nd Avenue S. Ste. 1800, Minneapolis, MN 8%

Northern Trust Cust IRA Rollover for Benefit Cust, Frank R. Zimmerman,
4291 Maitland Road, P.O. Box 87, Acme, MI 7%

Norwest Bank MN NA, Cust Victor C. Wallestad,
733 Marquette Avenue MS 0036, Minneapolis, MN 27%

TAX-FREE INCOME FUND
- --------------------
Charles Schwab & Company, Inc., Special Custody Account for
Benefit Cust, 101 Montgomery Street, San Francisco, CA 32%

National Financial Services Corporation for
Benefit Cust, P.O. Box 3908, New York, NY 13%

MINNESOTA TAX-FREE INCOME FUND
- ------------------------------
Charles Schwab & Company, Inc., Special Custody Account for
Benefit Cust, 101 Montgomery Street, San Francisco, CA 23%
</TABLE>

As of May 24, 1999, the officers and directors of the Funds, as a group, owned
1.04% of the shares of U.S. Government Securities Fund; 1.15% of the shares of
Minnesota Tax-Free Income Fund, and less than 1% of the shares of Tax-Free
Income Fund, Money Market Fund, and Bond Fund.

TAXES
- --------------------------------------------------------------------------------

Each Fund intends to fulfill the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), as a regulated investment
company. If so qualified, each Fund will not be liable for federal income taxes
to the extent it distributes its taxable income to its shareholders.

To qualify under Subchapter M for tax treatment as a regulated investment
company, each Fund must, among other things: (1) distribute to its shareholders
at least 90% of its investment company taxable income (as that term is defined
in the Code determined without regard to the deduction for dividends paid) and
90% of its net tax-exempt income; (2) derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock or securities, or other income derived
with respect to its business of investing in such stock, securities, or
currency, and (3) diversify its holdings so that, at the end of each fiscal
quarter of the Fund, (a) at least 50% of the market value of the Fund's assets
is represented by cash, cash items, United States Government securities and
securities of other regulated investment companies, and other securities, with
these other securities limited, with respect to any one issuer, to an amount no
greater than 5% of the Fund's total assets and no greater than 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
market value of the Fund's total assets is invested in the securities of any one
issuer (other than United States Government securities or securities of other
regulated investment companies).

Each Fund is subject to a non-deductible excise tax equal to 4% of the excess,
if any, of the amount required to be distributed for each calendar year over the
amount actually distributed. In order to avoid the imposition of this excise
tax, each Fund must declare and pay dividends representing 98% of its net
investment income for that calendar year and 98% of its capital gains (both
long-term and short-term) for the twelve-month period ending October 31 of the
calendar year.

When shares of a Fund are sold or otherwise disposed of, the Fund shareholder
will realize a capital gain or loss equal to the difference between the purchase
price and the sale price of the shares disposed of, if, as is usually the case,
the Fund shares

33
<PAGE>

are a capital asset in the hands of the Fund shareholder. In addition, pursuant
to a special provision in the Code, if Fund shares with respect to which a
long-term capital gain distribution has been made are held for six months or
less, any loss on the sale or other disposition of such shares will be a
long-term capital loss to the extent of such long-term capital gain
distribution. Any loss on the sale or exchange of shares of the Tax-Free Income
Fund or the Minnesota Tax-Free Income Fund held for six months or less (although
regulations may reduce this time period to 31 days) will be disallowed for
federal income tax purposes to the extent of the amount of any exempt-interest
dividend received with respect to such shares. Certain deductions otherwise
allowable to financial institutions and property and casualty insurance
companies will be eliminated or reduced by reason of the receipt of certain
exempt-interest dividends.

Any loss on the sale or exchange of shares of a Fund generally will be
disallowed to the extent that a shareholder acquires or contracts to acquire
shares of the same Fund within 30 days before or after such sale or exchange.

Under the Code, interest on indebtedness incurred or continued to purchase or
carry shares of an investment company paying exempt-interest dividends, such as
the Tax-Free Income Fund or the Minnesota Tax-Free Income Fund, will not be
deductible by a shareholder in proportion to the ratio of exempt-interest
dividends to all dividends other than those treated as long-term capital gains.
Indebtedness may be allocated to shares of the Tax-Free Income Fund or the
Minnesota Tax-Free Income Fund even though not directly traceable to the
purchase of such shares. Federal law also restricts the deductibility of other
expenses allocable to shares of such Fund.

The Tax-Free Income Fund and the Minnesota Tax-Free Income Fund intend to take
all actions required under the Code to ensure that each Fund may pay
"exempt-interest dividends." Distributions of net interest income from
tax-exempt obligations that are designated by the Funds as exempt-interest
dividends are excludable from the gross income of the Funds' shareholders. The
Funds' present policy is to designate exempt-interest dividends annually. The
Funds will calculate exempt-interest dividends based on the average annual
method and the percentage of income designated as tax-exempt for any particular
distribution may be substantially different from the percentage of income that
was tax-exempt during the period covered by the distribution. Shareholders are
required for information purposes to report exempt-interest dividends and other
tax-exempt interest on their tax return. Distributions paid from other taxable
interest income and from any net realized short-term capital gains will be
taxable to shareholders as ordinary income, whether received in cash or in
additional shares.

For federal income tax purposes, an alternative minimum tax ("AMT") is imposed
on taxpayers to the extent that such tax exceeds a taxpayer's regular income tax
liability (with certain adjustments). Exempt-interest dividends attributable to
interest income on certain tax-exempt obligations issued after August 7, 1986 to
finance certain private activities are treated as an item of tax preference that
is included in alternative minimum taxable income for purposes of computing the
federal AMT for all taxpayers and the federal environmental tax on corporations.
The Tax-Free Income Fund and Minnesota Tax-Free Income Fund may each invest up
to 20% of its net assets in securities that generate interest that is treated as
an item of tax preference. In addition, a portion of all other tax-exempt
interest received by a corporation, including exempt-interest dividends, will be
included in adjusted current earnings and in earnings and profits for purposes
of determining the federal corporate AMT and the branch profits tax imposed on
foreign corporations under Section 884 of the Code.

Because liability for the AMT depends upon the regular tax liability and tax
preference items of a specific taxpayer, the extent, if any, to which any tax
preference items resulting from investment in the Tax-Free Income Fund or the
Minnesota Tax-Free Income Fund will be subject to the tax will depend upon each
shareholder's individual situation. For shareholders with substantial tax
preferences, the AMT could reduce the after-tax economic benefits of an
investment in the Tax-Free Income Fund or the Minnesota Tax-Free Income Fund.
Each shareholder is advised to consult his or her tax adviser with respect to
the possible effects of such tax preference items.

In addition, shareholders who are or may become recipients of Social Security
benefits should be aware that exempt-interest dividends are includable in
computing "modified adjusted gross income" for purposes of determining the
amount of Social Security benefits, if any, that is required to be included in
gross income. The maximum amount of Social Security benefits includable in gross
income is 85%.

34
<PAGE>

The Tax Reform Act of 1986 imposed new requirements on certain tax-exempt bonds
which, if not satisfied, could result in loss of tax exemption for interest on
such bonds, even retroactively to the date of issuance of the bonds. Proposals
may be introduced before Congress in the future, the purpose of which will be to
further restrict or eliminate the federal income tax exemption for tax-exempt
securities. The Tax-Free Income Fund and the Minnesota Tax-Free Income Fund
cannot predict what additional legislation may be enacted that may affect
shareholders. The Funds will avoid investment in tax-exempt securities which, in
the opinion of the investment adviser, pose a material risk of the loss of tax
exemption. Further, if a tax-exempt security in a Fund's portfolio loses its
exempt status, the Fund will make every effort to dispose of such investment on
terms that are not detrimental to the Fund.

If the Funds invest in zero coupon obligations upon their issuance, such
obligations will have original issue discount in the hands of the Fund.
Generally, the original issue discount equals the difference between the "stated
redemption price at maturity" of the obligation and its "issue price" as those
terms are defined in the Code. If a Fund acquires an already issued zero coupon
bond from another holder, the bond will have original issue discount in the
Fund's hands, equal to the difference between the "adjusted issue price" of the
bond at the time a Fund acquires it (that is, the original issue price of the
bond plus the amount of original issue discount accrued to date) and its stated
redemption price at maturity. In each case, a Fund is required to accrue as
ordinary interest income a portion of such original issue discount even though
it receives no cash currently as interest payment on the obligation.
Furthermore, if a Fund invests in U.S. Treasury inflation-protection securities,
it will be required to treat as original issue discount any increase in the
principal amount of the securities that occurs during the course of its taxable
year. If a Fund purchases such inflation-protection securities that are issued
in stripped form either as stripped bonds or coupons, it will be treated as if
it had purchased a newly issued debt instrument having original issue discount.

Because each Fund is required to distribute substantially all of its net
investments income (including accrued original issue discount), a Fund investing
in either zero coupon bonds or U.S. Treasury inflation protection securities may
be required to distribute to shareholders an amount greater than the total cash
income it actually receives. Accordingly, in order to make the required
distributions, the Fund may be required to borrow or to liquidate securities.

The foregoing relates only to federal income taxation and is a general summary
of the federal tax law in effect as of the date of this Statement of Additional
Information.

MINNESOTA INCOME TAXATION - MINNESOTA TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------

Minnesota taxable net income is based generally on federal taxable income. The
portion of exempt-interest dividends paid by the Minnesota Tax-Free Income Fund
that is derived from interest on Minnesota tax exempt obligations is excluded
from the Minnesota taxable net income of individuals, estates and trusts,
provided that the portion of the exempt-interest dividends from such Minnesota
sources paid to all shareholders represents 95% or more of the exempt-interest
dividends paid by the Fund. The remaining portion of such dividends, and
dividends that are not exempt-interest dividends or capital gain dividends, are
included in the Minnesota taxable net income of individuals, estates and trusts,
except for dividends directly attributable to interest on obligations of the
U.S. government, its territories and possessions. Exempt-interest dividends are
not excluded from the Minnesota taxable income of corporations and financial
institutions. Dividends qualifying for federal income tax purposes as capital
gain dividends are to be treated by shareholders as long-term capital gains.
Minnesota has repealed the favorable treatment of long-term capital gains, while
retaining restrictions on the deductibility of capital losses. Exempt-interest
dividends attributable to interest on certain private activity bonds issued
after August 7, 1986 will be included in Minnesota alternative minimum taxable
income of individuals, estates and trusts for purposes of computing Minnesota's
alternative minimum tax. Dividends generally will not qualify for the
dividends-received deduction for corporations and financial institutions.

The 1995 Minnesota Legislature enacted a statement of intent that interest on
obligations of Minnesota governmental units and Indian tribes be included in net
income of individuals, estates and trusts for Minnesota income tax purposes if a
court determines that Minnesota's exemption of such interest unlawfully
discriminates against interstate commerce because interest on obligations of
governmental issuers located in other states is so included. This provision
applies to taxable years that begin during or after the calendar year in which
any such court decision becomes final, irrespective of the date on which the
obligations were issued. Minnesota Tax-Free Income Fund is not aware of any
decision in which a court has held that a

35
<PAGE>

state's exemption of interest on its own bonds or those of its political
subdivisions or Indian tribes, but not of interest on the bonds of other states
or their political subdivisions or Indian tribes, unlawfully discriminates
against interstate commerce or otherwise contravenes the United States
Constitution. Nevertheless, the Fund cannot predict the likelihood that interest
on the Minnesota bonds held by the Fund would become taxable under this
Minnesota statutory provision.

CAPITALIZATION AND VOTING RIGHTS
- --------------------------------------------------------------------------------

Each of the Funds (or the corporate issuer of their shares) is organized as a
Minnesota corporation. Each of the Funds (or its corporate issuer) has only one
class of shares -- common shares. The U.S. Government Securities Fund and Money
Market Fund each has one series of common shares consisting of ten billion
shares with a par value of one-tenth of one cent per share. The corporate issuer
of Tax-Free Income Fund, Minnesota Tax-Free Income Fund, and Bond Fund (Sit
Mutual Funds II, Inc.) is organized as a series fund with one trillion shares of
common stock authorized and a par value of one tenth of one cent per share. Ten
billion of these shares have been designated by the Board of Directors for each
series: Series A Common Shares, which represent shares of Tax-Free Income Fund;
Series B Common Shares, which represent shares of Minnesota Tax-Free Income
Fund; Series C Common Shares which represent shares of Bond Fund. The Board of
Directors of Sit Mutual Funds II, Inc. is empowered to issue other series of
common stock without shareholder approval.

The shares of each Fund are nonassessable, can be redeemed or transferred and
have no preemptive or conversion rights. All shares have equal, noncumulative
voting rights which means that the holders of more than 50% of the shares voting
for the election of Directors can elect all of the Directors if they choose to
do so. A shareholder is entitled to one vote for each full share (and a
fractional vote for each fractional share) then registered in his/her name on
the books of each Fund. The shares of each Fund are of equal value and each
share is entitled to a pro rata portion of the income dividends and any capital
gain distributions.

FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

The financial statements included in the Funds' annual report to shareholders
for the fiscal year ended March 31, 1999 are incorporated by reference in this
Statement of Additional Information.

OTHER INFORMATION
- --------------------------------------------------------------------------------

CUSTODIAN; COUNSEL; ACCOUNTANTS
- --------------------------------------------------------------------------------
The Northern Trust Co., 50 South LaSalle Street, Chicago, IL 60675 acts as
custodian of the Funds' assets and portfolio securities; Dorsey & Whitney LLP,
220 South Sixth Street, Minneapolis, Minnesota 55402, is the independent General
Counsel for the Funds; and KPMG Peat Marwick LLP, 4200 Norwest Center,
Minneapolis, Minnesota 55402, acts as the Funds' independent accountants.

LIMITATION OF DIRECTOR LIABILITY
- --------------------------------------------------------------------------------

Under Minnesota law, each director of the Funds owes certain fiduciary duties to
the Funds and to their shareholders. Minnesota law provides that a director
"shall discharge the duties of the position of director in good faith, in a
manner the director reasonably believes to be in the best interest of the
corporation, and with the care an ordinarily prudent person in a like position
would exercise under similar circumstances." Fiduciary duties of a director of a
Minnesota corporation include, therefore, both a duty of "loyalty" (to act in
good faith and act in a manner reasonably believed to be in the best interests
of the corporation) and a duty of "care" (to act with the care an ordinarily
prudent person in a like position would exercise

36
<PAGE>

under similar circumstances). Minnesota law authorizes corporations to eliminate
or limit the personal liability of a director to the corporation or its
shareholders for monetary damages for breach of the fiduciary duty of "care".
Minnesota law does not, however, permit a corporation to eliminate or limit the
liability of a director (i) for any breach of the directors' duty of "loyalty"
to the corporation or its shareholders, (ii) for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
(iii) for authorizing a dividend, stock repurchase or redemption or other
distribution in violation of Minnesota law or for violation of certain
provisions of Minnesota securities laws or (iv) for any transaction from which
the director derived an improper personal benefit. The Articles of Incorporation
of the Company limit the liability of directors to the fullest extent permitted
by Minnesota statutes, except to the extent that such liability cannot be
limited as provided in the Investment Company Act of 1940 (which Act prohibits
any provisions which purport to limit the liability of directors arising from
such directors' willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their role as directors).

Minnesota law does not eliminate the duty of "care" imposed upon a director. It
only authorizes a corporation to eliminate monetary liability for violations of
that duty. Minnesota law, further, does not permit elimination or limitation of
liability of "officers" to the corporation for breach of their duties as
officers (including the liability of directors who serve as officers for breach
of their duties as officers). Minnesota law does not permit elimination or
limitation of the availability of equitable relief, such as injunctive or
rescissionary relief. Further, Minnesota law does not permit elimination or
limitation of a director's liability under the Securities Act of 1933 or the
Securities Exchange Act of 1934, and it is uncertain whether and to what extent
the elimination of monetary liability would extend to violations of duties
imposed on directors by the Investment Company Act of 1940 and the rules and
regulations adopted under such Act.

The Funds are not required under Minnesota law to hold annual or periodically
scheduled meetings of shareholders. Minnesota corporation law provides for the
Board of Directors to convene shareholder meetings when it deems appropriate.
However, the Funds intend to hold meetings of shareholders annually. In
addition, if a regular meeting of shareholders has not been held during the
immediately preceding fifteen months, a shareholder or shareholders holding
three percent or more of the voting shares of the Funds may demand a regular
meeting of shareholders by written notice of demand given to the chief executive
officer or the chief financial officer of the Funds. Within ninety days after
receipt of the demand, a regular meeting of shareholders must be held at the
expense of the Funds. Irrespective of whether a regular meeting of shareholders
has been held during the immediately preceding fifteen months, in accordance
with Section 16(c) under the 1940 Act, the Board of Directors of the Funds shall
promptly call a meeting of shareholders for the purpose of voting upon the
question of removal of any director when requested in writing so to do by the
record holders of not less than 10 percent of the outstanding shares.
Additionally, the 1940 Act requires shareholder votes for all amendments to
fundamental investment policies and restrictions and for all investment advisory
contracts and amendments thereto. The Funds will assist in communications with
other shareholders as required by Section 16(c) of the 1940 Act.

37
<PAGE>

APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS

BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
-------------------------------
Rating Definition
------ ----------
Aaa Judged to be the best quality, carry the smallest
degree of investment risk.
Aa Judged to be of high quality by all standards.
A Possess many favorable investment attributes and are
to be considered as higher medium grade obligations
Baa Medium grade obligations. Lack outstanding investment
characteristics.
Ba Judged to have speculative elements. Protection of
interest and principal payments may be very moderate.
B Generally lack characteristics of a desirable
investment. Assurance of interest and principal
payments over any long period of time may be small.
Moody's also applies numerical indicators, 1, 2, and 3, to rating
categories Aa through Ba. The modifier 1 indicates that the
security is in the higher end of the rating category; the modifier
2 indicates a mid-range ranking; and 3 indicates a ranking toward
the lower end of the category.

STANDARD & POOR'S CORPORATION
-----------------------------
Rating Definition
------ ----------
AAA Highest grade obligations and possess the ultimate
degree of protection as to principal and interest.
AA Also qualify as high grade obligations, and in the
majority of instances differ from AAA issues only in
small degree.
A Regarded as upper medium grade, have considerable
investment strength but are not entirely free from
adverse effects of changes in economic and trade
conditions, interest and principal are regarded as
safe.
BBB Considered investment grade with adequate capacity to
pay interest and repay principal.
BB Judged to be speculative with some inadequacy to meet
timely interest and principal payments.
B Has greater vulnerability to default than other
speculative grade securities. Adverse economic
conditions will likely impair capacity or willingness
to pay interest and principal.
Standard & Poor's applies indicators "+", no character, and "-" to
the above rating categories AA through B. The indicators show
relative standing within the major rating categories.

FITCH IBCA
----------
Rating Definition
------ ----------
AAA Highest credit quality with exceptional ability to pay
interest and repay principal.
AA Investment grade and very high credit quality ability
to pay interest and repay principal is very strong,
although not quite as strong as AAA.
A Investment grade with high credit quality. Ability to
pay interest and repay principal is strong.
BBB Investment grade and has satisfactory credit quality.
Adequate ability to pay interest and repay principal.
BB Considered speculative. Ability to pay interest and
repay principal may be affected over time by adverse
economic changes.
B Considered highly speculative. Currently meeting
interest and principal obligations, but probability of
continued payment reflects limited margin of safety.
+ and - indicators indicate the relative position within the rating
category, but are not used in AAA category.

DUFF & PHELPS CREDIT RATING CO.
-------------------------------
Rating Definition
------ ----------
AAA Highest credit quality, risk factors are negligible.
AA High credit quality with moderate risk.
A Protection factors are average but adequate, however,
risk factors are more variable and greater in periods
of economic stress.
BBB Below average protection factors, but still considered
sufficient for prudent investment.
BB Below investment grade but likely to meet obligations
when due.
B Below investment grade and possessing risk that
obligations will not be met when due.

38
<PAGE>

+ and - indicators indicate the relative position within the rating
category, but are not used in AAA category.

COMMERCIAL PAPER RATINGS
MOODY'S
-------
Commercial paper rated "Prime" carries the smallest degree of
investment risk. The modifiers 1, 2, and 3 are used to denote
relative strength within this highest classification.

STANDARD & POOR'S
-----------------
The rating A-1 is the highest commercial paper rating assigned by
Standard & Poor's Corporation. The modifier "+" indicates that the
security is in the higher end of this rating category.

FITCH IBCA
----------
F-1+ Exceptionally strong credit quality.
F-1 Strong credit quality.

DUFF & PHELPS
-------------
Category 1 (top grade):
Duff1+ Highest certainty of timely payment.
Duff1 Very high certainty of timely payment.
Duff1- High certainty of timely payment.

39
<PAGE>

APPENDIX B
MUNICIPAL BOND, MUNICIPAL NOTE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS

MUNICIPAL BOND RATINGS
STANDARD & POOR'S CORPORATION:
Rating Definition
------ ----------
AAA Highest rating; extremely strong security.
AA Very strong security; differs from AAA in only a small
degree.
A Strong capacity but more susceptible to adverse
economic effects than two above categories.
BBB Adequate capacity but adverse economic conditions more
likely to weaken capacity.
BB Judged to be speculative with some inadequacy to meet
timely interest and principal payments.
B Has greater vulnerability to default than other
speculative grade securities. Adverse economic
conditions will likely impair capacity or willingness
to pay interest and principal.
Standard & Poor's applies indicators "+", no character, and "-" to
the above rating categories AA through B. The indicators show
relative standing within the major rating categories.

MOODY'S INVESTORS SERVICES, INC.:
Rating Definition
------ ----------
Aaa Best quality; carry the smallest degree of investment
risk.
Aa High quality; margins of protection not quite as large
as the Aaa bonds.
A Upper medium grade; security adequate but could be
susceptible to impairment.
Baa Medium grade; neither highly protected nor poorly
secured--lack outstanding investment characteristics
and sensitive to changes in economic circumstances.
Ba Judged to have speculative elements. Protection of
interest and principal payments may be very moderate.
B Generally lack characteristics of a desirable
investment. Assurance of interest and principal
payments over any long period of time may be small.
Moody's also applies numerical indicators, 1, 2, and 3, to rating
categories Aa through Ba. The modifier 1 indicates that the
security is in the higher end of the rating category; the modifier
2 indicates a mid-range ranking; and 3 indicates a ranking toward
the lower end of the category.

FITCH IBCA:
Rating Definition
------ ----------
AAA Highest credit quality with exceptional ability to pay
interest and repay principal.
AA Investment grade and very high credit quality ability
to pay interest and repay principal is very strong,
although not quite as strong as AAA.
A Investment grade with high credit quality. Ability to
pay interest and repay principal is strong.
BBB Investment grade and has satisfactory credit quality.
Adequate ability to pay interest and repay principal.
BB Considered speculative. Ability to pay interest and
repay principal may be affected over time by adverse
economic changes.
B Considered highly speculative. Currently meeting
interest and principal obligations, but probability of
continued payment reflects limited margin of safety.
+ and - indicators indicate the relative position within the rating
category, but are not used in AAA category.

DUFF & PHELPS CREDIT RATING CO.:
Rating Definition
------ ----------
AAA Highest credit quality, risk factors are negligible.
AA High credit quality with moderate risk.
A Protection factors are average but adequate, however,
risk factors are more variable and greater in periods
of economic stress.
BBB Below average protection factors, but still considered
sufficient for prudent investment.
BB Below investment grade but likely to meet obligations
when due.
B Below investment grade and possessing risk that
obligations will not be met when due.
+ and - indicators indicate the relative position within the rating
category, but are not used in AAA category.

40
<PAGE>

MUNICIPAL NOTE RATINGS
STANDARD & POOR'S CORPORATION:
Rating Definition
------ ----------
SP-1 Very strong or strong capacity to pay principal and
interest. Those issues determined to possess
overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.

MOODY'S INVESTORS SERVICE, INC.:
Rating* Definition
------ ----------
MIG 1 Best quality.
MIG 2 High quality.
MIG 3 Favorable quality.
MIG 4 Adequate quality.

* A short-term issue having a demand feature, i.e., payment relying
on external liquidity and usually payable upon demand rather than
fixed maturity dates, is differentiated by Moody's with the use
of the symbols VMIG1 through VMIG4.

TAX-EXEMPT COMMERCIAL PAPER RATINGS
STANDARD & POOR'S CORPORATION:
Rating Definition
------ ----------
A-1+ Highest degree of safety.
A-1 Very strong degree of safety.

MOODY'S INVESTORS SERVICE, INC.:
Rating Definition
------ ----------
Prime 1(P-1) Superior capacity for repayment.

41
<PAGE>

PART C

OTHER INFORMATION

Item 23. Exhibits

Explanatory Note: This Registration Statement contains the combined Part C
for Sit U.S. Government Securities Fund, Inc., Sit Mutual Funds II, Inc.,
and Sit Money Market Fund, Inc.

(a) Articles of Incorporation
1. Sit U.S. Government Securities Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 11 to
the Fund's Registration Statement.)
2. Sit Mutual Funds II, Inc.
(Incorporated by reference to Post-Effective Amendment No. 12 to
the Fund's Registration Statement.)
3. Sit Money Market Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 12 to
the Fund's Registration Statement.)

(b) Bylaws
1. Sit U.S. Government Securities Fund, Inc.
(Incorporated by reference to the Fund's original Registration
Statement.)
2. Sit Mutual Funds II, Inc.
(Incorporated by reference to the Fund's original Registration
Statement.)
3. Sit Money Market Fund, Inc.
(Incorporated by reference to the Fund's original Registration
Statement.)

(d) Form of Investment Management Agreement
1. Sit U.S. Government Securities Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 10 to
the Fund's Registration Statement.)
2. Sit Mutual Funds II, Inc.
(Incorporated by reference to Post-Effective Amendment No. 11 to
the Fund's Registration Statement.)
3. Sit Money Market Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 11 to
the Fund's Registration Statement.)

(e) Underwriting and Distribution Agreement
1. Sit U.S. Government Securities Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 12 to
the Fund's Registration Statement.)
2. Sit Mutual Funds II, Inc.
(Incorporated by reference to Post-Effective Amendment No. 16 to
the Fund's Registration Statement.)
3. Sit Money Market Fund, Inc.

<PAGE>

(Incorporated by reference to Post-Effective Amendment No. 13 to
the Fund's Registration Statement.)

(f) Bonus or Profit Sharing Contracts
Not applicable.

(g) Custodian Agreement
1. Sit U.S. Government Securities Fund, Inc. (Incorporated by
reference to Post-Effective Amendment No. 15 to the Fund's
Registration Statement.)

2. Sit Mutual Funds II, Inc. (Incorporated by reference to
Post-Effective Amendment No. 19 to the Fund's Registration
Statement.)

3. Sit Money Market Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 17 to the Fund's Registration
Statement.)

(h.1) Transfer Agency and Services Agreement
1. Sit U.S. Government Securities Fund, Inc. (Incorporated by
reference to Post-Effective Amendment No. 15 to the Fund's
Registration Statement.)
2. Sit Mutual Funds II, Inc. (Incorporated by reference to
Post-Effective Amendment No. 19 to the Fund's Registration
Statement.)
3. Sit Money Market Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 17 to the Fund's Registration
Statement.)

(h.2) Accounting Services Agreement
1. Sit U.S. Government Securities Fund, Inc. (Incorporated by
reference to Post-Effective Amendment No. 15 to the Fund's
Registration Statement.)
2. Sit Mutual Funds II, Inc. (Incorporated by reference to
Post-Effective Amendment No. 19 to the Fund's Registration
Statement.)
3. Sit Money Market Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 17 to the Fund's Registration
Statement.)

(i) Opinions and Consents of Dorsey & Whitney
1. Sit U.S. Government Securities Fund, Inc. (Incorporated by
reference to Post-Effective Amendment No. 8 to the Fund's
Registration Statement.)
2. Sit Mutual Funds II, Inc.
(Incorporated by reference to Post-Effective Amendment No. 9 to
the Fund's Registration Statement.)
3. Sit Money Market Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 9 to
the Fund's Registration Statement.)

(j) Consent of KPMG Peat Marwick
1. Sit U.S. Government Securities Fund, Inc.
(Filed herewith.)
2. Sit Mutual Funds II, Inc.
(Filed herewith.)
3. Sit Money Market Fund, Inc.
(Filed herewith.)

C-2
<PAGE>

(k) Omitted Financial Statements
Not applicable.

(l) Letter of Investment Intent
1. Sit U.S. Government Securities Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 9 to
the Fund's Registration Statement.)
2. Sit Mutual Funds II, Inc.
(Incorporated by reference to Post-Effective Amendment No. 10 to
the Fund's Registration Statement.)
3. Sit Money Market Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 10 to
the Fund's Registration Statement.)

(m) Rule 12b-1 Plan
Not applicable.

(n) Financial Data Schedule
1. Sit U.S. Government Securities Fund, Inc.
(Filed herewith.)
2. Sit Mutual Funds II, Inc.
(Filed herewith.)
3. Sit Money Market Fund, Inc.
(Filed herewith.)

(o) Rule 18f-3 Plan
Not applicable.

Item 24. Persons Controlled by or Under Common Control with Registrant

See the section of the Prospectus entitled "Investment Adviser" and the
section of the Statement of Additional Information entitled "Investment
Adviser."

Item 25. Indemnification

Each Registrant's Articles of Incorporation and Bylaws provide that the
Registrant shall indemnify such persons, for such expenses and liabilities, in
such manner, under such circumstances, and to such extent as permitted by
Section 302A.521 of the Minnesota Statutes, as now enacted or hereafter amended;
provided, however, that no such indemnification may be made if it would be in
violation of Section 17(h) of the Investment Company Act of 1940, as now enacted
or hereinafter amended, and any rules, regulations or releases promulgated
thereunder.

Each Registrant may indemnify its officers and directors and other
"persons" acting in an "official capacity" (as such terms are defined in Section
302A.521) pursuant to a determination by the board of directors or shareholders
of the Registrant as set forth in Section 302A.521, by special legal counsel
selected by the board or a committee thereof for the purpose of making such a
determination, or by a Minnesota court upon application of the person seeking
indemnification. If a director is seeking indemnification for conduct in the
capacity of director or officer of a Registrant, then such director generally
may not be counted for the purpose of determining either the presence of a
quorum or such director's eligibility to be indemnified.

C-3
<PAGE>

In any case, indemnification is proper only if the eligibility determining
body decides that the person seeking indemnification:
(a) has not received indemnification for the same conduct from any other
party or organization;
(b) acted in good faith;
(c) received no improper personal benefit;
(d) in the case of criminal proceedings, had no reasonable cause to
believe the conduct was unlawful;
(e) reasonably believed that the conduct was in the best interest of a
Registrant, or in certain contexts, was not opposed to the best
interest of a Registrant; and
(f) had not otherwise engaged in conduct which precludes indemnification
under either Minnesota or Federal law (including, but not limited to,
conduct constituting willful misfeasance, bad faith, gross negligence,
or reckless disregard of duties as set forth in Section 17(h) and (i)
of the Investment Company Act of 1940).

If a person is made or threatened to be made a party to a proceeding, the
person is entitled, upon written request to a Registrant, to payment or
reimbursement by a Registrant of reasonable expenses, including attorneys' fees
and disbursements, incurred by the person in advance of the final disposition of
the proceeding, (a) upon receipt by a Registrant of a written affirmation by the
person of a good faith belief that the criteria for indemnification set forth in
Section 302A.521 have been satisfied and a written undertaking by the person to
repay all amounts so paid or reimbursed by the Registrant, if it is ultimately
determined that the criteria for indemnification have not been satisfied, and
(b) after a determination that the facts then known to those making the
determination would not preclude indemnification under Section 302A.521. The
written undertaking required by clause (a) is an unlimited general obligation of
the person making it, but need not be secured and shall be accepted without
reference to financial ability to make the repayment.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of a
Registrant pursuant to the foregoing provisions, or otherwise, each Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by a Registrant of expenses incurred or
paid by a director, officer or controlling person of such Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless, in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

Each Registrant undertakes to comply with the indemnification requirements
of Investment Company Release 7221 (June 9, 1972) and Investment Company Release
11330 (September 2, 1980).

Item 26. Business and other Connections of Investment Adviser

Sit Investment Associates, Inc. (the "Adviser"), serves as the investment
adviser of each of the Sit Mutual Funds in addition to serving as the investment
adviser to the Sit Mutual Funds and to various other public and private
accounts.

Below is a list of the officers and directors of the Adviser and their
business/employment during the past two years:

C-4
<PAGE>

Business and Employment During Past Two Years;
Name Principal Business Address
- ---- --------------------------------------------------------
Eugene C. Sit Chairman, CIO and Treasurer of the Adviser; Chairman and
CEO of the Sit/Kim International Investment Associates,
Inc. ("Sit/Kim"); Chairman of the Board of Directors of
all Sit Mutual Funds.

Peter L. Mitchelson President and Director of the Adviser; Director and
Executive Vice President of Sit/Kim; Senior Portfolio
Manager of the Sit Large Cap Growth Fund; Vice Chairman
& Director of all Sit Mutual Funds.

Frederick Adler Director of the Adviser; Senior Partner, Fulbright &
Jaworski
1520 S. Ocean Boulevard
Palm Beach, FL 33480

Norman Bud Grossman Director of the Adviser; President, Cogel Management
4670 Norwest Center
Minneapolis, MN 55402

William Frenzel Advisory Director of the Adviser; Director of the Sit
Mutual Funds; Director of Sit/Kim; Senior Visiting
Scholar at the Brookings Institution

Roger J. Sit Executive Vice President - Research & Investment
Management of the Adviser; Assistant to the Sit/Kim
International Chief Investment Officer for Investment
Policy and Portfolio Management; Vice President and
Senior Equity Research Analyst for Goldman Sachs &
Company until December, 1997

Michael C. Brilley Senior Vice President and Senior Fixed Income Officer of
the Adviser; Director and Senior Vice President of Sit
U.S. Government Securities Fund Inc., Sit Money Market
Fund, Inc., Sit Mutual Funds II, Inc. and Sit Balanced
Fund

Debra A. Sit Vice President - Bond Investments of the Adviser;
Assistant Treasurer of all Sit Mutual Funds; Assistant
Treasurer of Sit/Kim; Vice President - Investments of
Sit U.S. Government Securities Fund, Inc., Sit Money
Market Fund, Inc., and Sit Mutual Funds II, Inc.

Ronald D. Sit Vice President - Research & Investment Management of the
Adviser

Erik S. Anderson Vice President - Research & Investment Management of the
Adviser

John T. Groton, Jr. Vice President - Research & Investment Management of the
Adviser

Kent L. Johnson Vice President - Research & Investment Management of the
Adviser

Robert W. Sit Vice President - Equity Research Analyst of the Adviser

Paul E. Rasmussen Vice President, Secretary and Controller of the Adviser
and Sit/Kim; Vice President and Treasurer of all Sit
Mutual Funds

C-5
<PAGE>

Business and Employment During Past Two Years;
Name Principal Business Address
- ---- --------------------------------------------------------
Carla J. Rose Vice President - Administration & Deputy Controller of
the Adviser

Debra K. Beaudet Vice President - Staff Operations of the Adviser

Mary K. Stern Vice President of the Adviser; President of all Sit
Mutual Funds

David A. Brown Vice President - Client Relations Marketing of the
Adviser

Item 27. Principal Underwriters

The Distributor for each Registrant is SIA Securities Corp., 4600 Norwest
Center, Minneapolis, MN 55402, an affiliate of the Adviser, which distributes
only shares of each Registrant.

Below is a list of the officers and directors of the Distributor and their
business/employment during the past two years:

Business and Employment During Past Two Years;
Name Principal Business Address
- ---- --------------------------------------------------------
Eugene C. Sit Chairman, CIO and Treasurer of the Adviser; Chairman and
CEO of Sit/Kim; Chairman of the Board of Directors of
all Sit Mutual Funds.

Paul E. Rasmussen Vice President, Secretary, and Controller for the
Adviser; Vice President & Treasurer of all Sit Mutual
Funds

Item 28. Location of Accounts and Records

The Custodian for each Registrant is The Northern Trust Company, 50 South
LaSalle Street, Chicago, IL 60675. The Transfer Agent for each Registrant is
First Data Investor Services, 4400 Computer Drive, Westboro, MA 01581. Other
books and records are maintained by the Adviser, which is located at 4600
Norwest Center, Minneapolis, MN 55402.

Item 29. Management Services

Not applicable

Item 30. Undertakings

Not applicable.

C-6
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunder
duly authorized, in the City of Minneapolis, State of Minnesota, on the 26th day
of May 1999.

SIT U.S. GOVERNMENT SECURITIES FUND, INC.
(Registrant)

By /s/ Eugene C. Sit
--------------------------------------
Eugene C. Sit, Chairman

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.

Signature and Title
-------------------

/s/ Eugene C. Sit Dated: May 26, 1999
- --------------------------------------
Eugene C. Sit Chairman
(Principal Executive Officer and Director)

/s/ Paul E. Rasmussen Dated: May 26, 1999
- --------------------------------------
Paul E. Rasmussen, Treasurer
(Principal Financial Officer and Accounting Officer)

John E. Hulse, Director*

Sidney L. Jones, Director*

Peter L. Mitchelson, Director*

Donald W. Phillips, Director*

*By /s/ Eugene C. Sit Dated: May 26, 1999
----------------------------------
Eugene C. Sit, Attorney-in-fact
(Pursuant to Powers of Attorney filed
previously with the Commission.)

C-7
<PAGE>

SIGNATURES

SIT MUTUAL FUNDS II, INC.
(Registrant)

By /s/ Eugene C. Sit
--------------------------------------
Eugene C. Sit, Chairman

Signature and Title
-------------------

/s/ Eugene C. Sit Dated: May 26, 1999
- --------------------------------------
Eugene C. Sit Chairman
(Principal Executive Officer and Director)

/s/ Paul E. Rasmussen Dated: May 26, 1999
- --------------------------------------
Paul E. Rasmussen, Treasurer
(Principal Financial Officer and Accounting Officer)

John E. Hulse, Director*

Sidney L. Jones, Director*

Peter L. Mitchelson, Director*

Donald W. Phillips, Director*

*By /s/ Eugene C. Sit Dated: May 26, 1999
----------------------------------
Eugene C. Sit, Attorney-in-fact
(Pursuant to Powers of Attorney filed
previously with the Commission.)

C-8
<PAGE>

SIGNATURES

SIT MONEY MARKET FUND, INC.
(Registrant)

By /s/ Eugene C. Sit
--------------------------------------
Eugene C. Sit, Chairman

Signature and Title
-------------------

/s/ Eugene C. Sit Dated: May 26, 1999
- --------------------------------------
Eugene C. Sit Chairman
(Principal Executive Officer and Director)

/s/ Paul E. Rasmussen Dated: May 26, 1999
- --------------------------------------
Paul E. Rasmussen, Treasurer
(Principal Financial Officer and Accounting Officer)

John E. Hulse, Director*

Sidney L. Jones, Director*

Peter L. Mitchelson, Director*

Donald W. Phillips, Director*

*By /s/ Eugene C. Sit Dated: May 26, 1999
----------------------------------
Eugene C. Sit, Attorney-in-fact
(Pursuant to Powers of Attorney filed
previously with the Commission.)

C-9
<PAGE>

REGISTRATION STATEMENT ON FORM N-1A

EXHIBIT INDEX

EXHIBIT NO. NAME OF EXHIBIT PAGE NO.
- ----------- --------------- --------

(j) Independent Auditors' Consent C-11
(n) Financial Data Schedule C-12

C-10

EXHIBIT (j)

Independent Auditors' Consent

The Board of Directors and Shareholders
Sit Mutual Funds II, Inc.
Sit U.S. Government Securities Fund, Inc.
Sit Money Market Fund, Inc.:

We consent to the use of our report dated May 7, 1999 incorporated herein by
reference and to the references to our Firm under the headings "Financial
Highlights" in Part A and "Custodian; Counsel; Accountants" in Part B of the
Registration Statement.

/s/ KPMG Peat Marwick LLP

KPMG Peat Marwick LLP

Minneapolis, Minnesota
May 21, 1999

C-11

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<CIK> 0000809981
<NAME> SIT U.S. GOVERNMENT SECURITIES FUND, INC.
<SERIES>
<NUMBER> 001
<NAME> SIT U.S. GOVERNMENT SECURITIES FUND, INC.

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 157,862,252
<INVESTMENTS-AT-VALUE> 157,363,192
<RECEIVABLES> 2,324,137
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 159,687,329
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 357,102
<TOTAL-LIABILITIES> 357,102
<SENIOR-EQUITY> 151,567
<PAID-IN-CAPITAL-COMMON> 159,975,407
<SHARES-COMMON-STOCK> 15,156,714
<SHARES-COMMON-PRIOR> 9,767,850
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 297,687
<ACCUM-APPREC-OR-DEPREC> (499,060)
<NET-ASSETS> 159,330,227
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,495,747
<OTHER-INCOME> 0
<EXPENSES-NET> 1,021,843
<NET-INVESTMENT-INCOME> 6,473,904
<REALIZED-GAINS-CURRENT> 847,820
<APPREC-INCREASE-CURRENT> (1,417,691)
<NET-CHANGE-FROM-OPS> 5,904,033
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,473,904
<DISTRIBUTIONS-OF-GAINS> 1,378,000
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,272,214
<NUMBER-OF-SHARES-REDEEMED> 4,561,161
<SHARES-REINVESTED> 677,811
<NET-CHANGE-IN-ASSETS> 55,462,011
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 232,493
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,121,843
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,121,843
<AVERAGE-NET-ASSETS> 129,018,301
<PER-SHARE-NAV-BEGIN> 10.63
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> (.01)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.65)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.51
<EXPENSE-RATIO> 0.80
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<CIK> 0000746601
<NAME> SIT MUTUAL FUNDS II, INC.
<SERIES>
<NUMBER> 001
<NAME> SIT TAX FREE FUND

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 870,478,124
<INVESTMENTS-AT-VALUE> 888,096,368
<RECEIVABLES> 13,726,663
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 901,823,031
<PAYABLE-FOR-SECURITIES> 3,956,738
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,513,114
<TOTAL-LIABILITIES> 6,469,852
<SENIOR-EQUITY> 86,209
<PAID-IN-CAPITAL-COMMON> 877,715,880
<SHARES-COMMON-STOCK> 86,209,089
<SHARES-COMMON-PRIOR> 49,932,471
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 67,154
<ACCUM-APPREC-OR-DEPREC> 17,618,244
<NET-ASSETS> 895,353,179
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 38,501,473
<OTHER-INCOME> 0
<EXPENSES-NET> 4,864,047
<NET-INVESTMENT-INCOME> 33,637,426
<REALIZED-GAINS-CURRENT> 1,808,557
<APPREC-INCREASE-CURRENT> (2,343,717)
<NET-CHANGE-FROM-OPS> 33,102,266
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 33,644,852
<DISTRIBUTIONS-OF-GAINS> 3,365,000
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 58,814,075
<NUMBER-OF-SHARES-REDEEMED> 25,488,804
<SHARES-REINVESTED> 2,951,347
<NET-CHANGE-IN-ASSETS> 375,774,526
<ACCUMULATED-NII-PRIOR> 7,426
<ACCUMULATED-GAINS-PRIOR> 1,489,289
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,485,395
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,485,395
<AVERAGE-NET-ASSETS> 691,828,014
<PER-SHARE-NAV-BEGIN> 10.41
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> .03
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .56
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.39
<EXPENSE-RATIO> .71
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<CIK> 0000746601
<NAME> SIT MUTUAL FUNDS II, INC.
<SERIES>
<NUMBER> 002
<NAME> MN TAX FREE FUND

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 265,785,470
<INVESTMENTS-AT-VALUE> 270,935,579
<RECEIVABLES> 4,219,906
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 275,155,485
<PAYABLE-FOR-SECURITIES> 3,250,829
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 629,881
<TOTAL-LIABILITIES> 3,880,710
<SENIOR-EQUITY> 25,709
<PAID-IN-CAPITAL-COMMON> 266,134,735
<SHARES-COMMON-STOCK> 25,709,302
<SHARES-COMMON-PRIOR> 13,697,612
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 35,778
<ACCUM-APPREC-OR-DEPREC> 5,150,109
<NET-ASSETS> 271,274,775
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,263,897
<OTHER-INCOME> 0
<EXPENSES-NET> 1,597,679
<NET-INVESTMENT-INCOME> 9,666,218
<REALIZED-GAINS-CURRENT> 56,447
<APPREC-INCREASE-CURRENT> 642,985
<NET-CHANGE-FROM-OPS> 10,365,650
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,675,296
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,329,590
<NUMBER-OF-SHARES-REDEEMED> 9,077,623
<SHARES-REINVESTED> 759,723
<NET-CHANGE-IN-ASSETS> 127,641,105
<ACCUMULATED-NII-PRIOR> 9,078
<ACCUMULATED-GAINS-PRIOR> (92,225)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,597,679
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,597,679
<AVERAGE-NET-ASSETS> 201,069,345
<PER-SHARE-NAV-BEGIN> 10.49
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .51
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.55
<EXPENSE-RATIO> .80
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<CIK> 0000746601
<NAME> SIT MUTUAL FUNDS II, INC.
<SERIES>
<NUMBER> 003
<NAME> SIT BOND FUND

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 11,819,633
<INVESTMENTS-AT-VALUE> 11,811,664
<RECEIVABLES> 121,407
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<TOTAL-ASSETS> 11,933,071
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,390
<TOTAL-LIABILITIES> 13,390
<SENIOR-EQUITY> 1,198
<PAID-IN-CAPITAL-COMMON> 11,924,858
<SHARES-COMMON-STOCK> 1,198,409
<SHARES-COMMON-PRIOR> 1,067,125
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,594
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (7,969)
<NET-ASSETS> 11,919,681
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 693,447
<OTHER-INCOME> 0
<EXPENSES-NET> 90,395
<NET-INVESTMENT-INCOME> 603,052
<REALIZED-GAINS-CURRENT> 92,909
<APPREC-INCREASE-CURRENT> (123,900)
<NET-CHANGE-FROM-OPS> 572,061
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 603,052
<DISTRIBUTIONS-OF-GAINS> 76,000
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 373,409
<NUMBER-OF-SHARES-REDEEMED> 306,375
<SHARES-REINVESTED> 64,250
<NET-CHANGE-IN-ASSETS> 1,213,430
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (15,315)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 90,395
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 90,395
<AVERAGE-NET-ASSETS> 11,365,687
<PER-SHARE-NAV-BEGIN> 10.03
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> (.02)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .60
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.95
<EXPENSE-RATIO> .80
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<CIK> 0000746603
<NAME> SIT MONEY MARKET FUND, INC.
<SERIES>
<NUMBER> 001
<NAME> SIT MONEY MARKET FUND, INC.

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 59,906,744
<INVESTMENTS-AT-VALUE> 59,906,744
<RECEIVABLES> 7,389,938
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 67,296,682
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,855,115
<TOTAL-LIABILITIES> 5,855,115
<SENIOR-EQUITY> 61,445
<PAID-IN-CAPITAL-COMMON> 61,380,122
<SHARES-COMMON-STOCK> 61,444,567
<SHARES-COMMON-PRIOR> 43,113,793
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 61,441,567
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,267,154
<OTHER-INCOME> 0
<EXPENSES-NET> 212,215
<NET-INVESTMENT-INCOME> 2,054,939
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,054,939
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,054,939
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 521,895,983
<NUMBER-OF-SHARES-REDEEMED> 505,288,726
<SHARES-REINVESTED> 1,723,536
<NET-CHANGE-IN-ASSETS> 18,330,793
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 338,767
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 338,767
<AVERAGE-NET-ASSETS> 42,481,754
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .50
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0

</TABLE>