ND TAX FREE FUND INC /ND/, 485APOS, 1999-02-26

ND TAX FREE FUND INC /ND/
485APOS, 1999-02-26

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As filed with the Securities and Exchange Commission on February, 26 1999

1933 Act Registration No. 33-25138
1940 Act Registration No. 811-5681

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No._____ [_]
Post-Effective Amendment No. 14 [X]

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 16

(Check appropriate box or boxes.)

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

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

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

with a copy to:
Robert E. Walstad Mark J. Kneedy
President Chapman and Cutler
ND Tax-Free Fund, Inc. 111 West Monroe Street
1 North Main Chicago, Illinois 60603
Minot, North Dakota 58703
(Name and Address of Agent for Service)

____________________

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

[ ] immediately upon filing pursuant to paragraph (b)

[ ] on (date) pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)

[X] on April 30, 1999 pursuant to paragraph (a)(1)

[ ] 75 days after filing pursuant to paragraph (a)(2)

[ ] on (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.

CONTENTS OF REGISTRATION STATEMENT

This Registration Statement comprises the following papers and contents:

The Facing Sheet

Part A - Prospectus for the Montana Tax-Free Fund, Inc., ND Tax-Free Fund,
Inc. and South Dakota Tax-Free Fund, Inc. (the "Funds")

Part B - Statement of Additional Information for the Funds

Part C - Other Information - ND Tax-Free Fund, Inc.

Signatures

Explanatory Note: This registration Statement contains the Prospectus and
Statement of Additional Information for the ND Tax-Free Fund, Inc., the
Montana Tax-Free Fund, Inc. and the South Dakota Tax-Free Fund, Inc., each
A separately registered investment company. Accordingly, a registration
statement for each of the Funds has been filed separately under their
Respective file numbers.

[INTEGRITY MUTUAL FUNDS LOGO]

MONTANA TAX-FREE FUND, INC.
ND TAX-FREE FUND, INC.
SOUTH DAKOTA TAX-FREE FUND, INC.

PROSPECTUS May 1, 1999
_______________________________________________________________________________

This prospectus is intended to provide important information to help you
evaluate whether one of the Integrity Mutual Funds listed above may be right
for you. Please read it carefully before investing and keep it for future
reference. To learn more about how the Integrity Mutual Funds can help you
achieve your financial goals, call us at (800) 276-1262.

The Securities and Exchange Commission has not approved or disapproved these
Securities or passed upon the adequacy of this prospectus. Any representations
to the contrary is a criminal offense.

TABLE OF CONTENTS

The Funds 3
Montana Tax-Free Fund, Inc. 3
Fund Summary 3
How the Fund Has Performed 3
What are the Fund's Expenses? 4
ND Tax-Free Fund, Inc. 5
Fund Summary 5
How the Fund Has Performed 5
What are the Fund's Expenses? 6
South Dakota Tax-Free Fund, Inc. 7
Fund Summary 7
How the Fund Has Performed 7
What are the Fund's Expenses? 8
Fund Management 9
Securities the Funds Invest In 9
How We Select Investments 10
Risk Factors 10
Risk Management 11
How To Purchase Shares 12
Systematic Investing - the Monthomatic Investment Plan 12
Special Services 13
How to Sell Shares 13
Systematic Withdrawal 14
Distributions and Taxes 14
Distribution and Service Plan 15
Net Asset Value 15
Fund Service Providers 16
Shareholder Inquiries 16
Financial Highlights 17
Appendix - Additional State Information 2

-2-

MONTANA TAX-FREE FUND, INC.

FUND SUMMARY

INVESTMENT OBJECTIVE
The fund seeks to provide as high a level of current income exempt from federal
and Montana income taxes as is consistent with preservation of capital.

HOW THE FUND PURSUES ITS OBJECTIVE
The fund purchases primarily quality municipal bonds that are rated investment
grade (AAA/Aaa to BBB/Baa) at the time of purchase by independent ratings
agencies. The fund may buy non-rated municipal bonds if the fund's investment
adviser judges them to be of comparable quality.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above average return.
The fund may also invest in futures and options on futures for hedging
purposes.

WHAT ARE THE RISKS OF INVESTING IN THE FUND?
The principal risks of investing in the fund are interest rate and credit risk.
Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated
bonds carry greater credit risk. The fund may bear additional risk because it
invests primarily in Montana bonds. The fund is non-diversified and may invest
more of its assets in a single issuer than a diversified fund. Greater concen-
tration may increase risk.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. A with any mutual fund investment, loss of money is a risk of investing.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.

IS THIS FUND RIGHT FOR YOU?

The fund may be a suitable investment for you if you seek to:

* Earn regular monthly tax-free dividends;
* Preserve investment capital over time;
* Reduce taxes on investment income;
* Set aside money systematically for retirement, estate planning or college
funding.

You should not invest in this fund if you seek to:

* Pursue an aggressive, high-growth investment strategy;
* Invest through an IRA or 401(k) plan;
* Avoid fluctuations in share price.

HOW THE FUND HAS PERFORMED

The chart and table below illustrate annual fund returns for each of the past
five years as well as annualized fund, peer group and market benchmark returns
for the one-, five-year and inception periods ending December 31, 1998. This
information is intended to help you assess the variability of fund returns over
the past five years (and consequently, the potential rewards and risks of a
fund investment).

<S> <C> <C> <C> <C> <C>
Total Returns 1994 1995 1996 1997 1998
-1.70% 12.85% 5.52% 5.96% 3.66%
</TABLE>

From inception in August, 1993 to December 31, 1998, the highest and lowest
quarterly returns were _____% and _____%, respectively for the quarters ending
________ and ________. The bar chart and highest/lowest quarterly returns do
not reflect sales charges, which would reduce returns, while the
average annual return table does.

Average Annual Total Returns
for the Periods Ending
December 31, 1998

1 Year 5 Year Inception
________________________________________________________
Fund (NAV) (0.30)% 5.15% _____%
________________________________________________________
Fund (NAV) (0.30)% 5.15%
________________________________________________________
LB Market1Benchmark

Lipper Peer Group2

______________________________________________
1 LB Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, and unmanaged index comprised of a broad range of
Investment grade municipal bonds.
2 Peer group represents the average annualized returns of the funds in the
Lipper Other States Municipal Debt Category. Returns assume reinvestment of
Dividends and do not reflect any applicable sales charges.

-3-

MONTANA TAX-FREE FUND, INC.

WHAT ARE THE FUND'S EXPENSES?

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.

SHAREHOLDER FEES
Paid Directly from Your Investment
Maximum Sales Charge Imposed on Purchases NONE
Maximum Sales Charge Imposed on Reinvested Dividends NONE
Maximum Deferred Sales Charge(1) 4.00%(2)
Redemption Fees NONE
Exchange Fee NONE

ANNUAL FUND OPERATING EXPENSES
Paid from Fund Assets
________________________________________________________________

Management Fees 0.60%
Distribution and Service (12b-1) Fees(3) 0.75%
Other Expenses 0.28%
Total Annual Fund Operating _____
Expenses-Gross (4) 1.63%

______________________________________________

(1) As a percentage of lesser of purchase price or redemption proceeds.
(2) Shares redeemed within five years of purchase are subject to a Contingent
Deferred Sales Charge ("CDSC") of 4% during the first and second years, 3%
during the third year, 2% during the fourth year and 1% during the fifth
year. Purchases of $1 million or more are subject to a reduced CDSC if
redeemed within 1 year of purchase. See "How to Purchase Shares."
(3) Because the fund pays 12b-1 fees, long-term shareholders may pay more in
distribution expenses that the economic equivalent of the maximum front-
end sales charges permitted by the NASD.
(4) The investment adviser and underwriter have voluntarily agreed to waive
fees through April 30, 2000 in order to prevent Total Operating Expenses
from exceeding 1.35% of the average daily net asset value of fund shares.
Accordingly, after fee waivers and expense reimbursements, the Fund's
actual total annual operating expenses was 1.30% for the fiscal year ended
December 31, 1998.

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.

This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that
the fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:

1 year 3 years 5 years 10 years
$57 $81 $99 $193
You would pay the following expenses if you did not redeem your shares:

1 year 3 years 5 years 10 years
$17 $51 $89 $193

-4-

ND TAX-FREE FUND, INC.

FUND SUMMARY

INVESTMENT OBJECTIVE
The fund seeks to provide as high a level of current income exempt from federal
and North Dakota income taxes as is consistent with preservation of capital.

IS THIS FUND RIGHT FOR YOU?

The fund may be a suitable investment for you if you seek to:

You should not invest in this fund if you seek to:

* Pursue an aggressive, high-growth investment strategy;
* Invest through an IRA or 401(k) plan;
* Avoid fluctuations in share price.

HOW THE FUND HAS PERFORMED

The chart and table below illustrate annual fund returns for each of the past
five years as well as annualized fund, peer group and market benchmark returns
for one-, five- and ten year periods ending December 31, 1998. This information
is intended to help you assess the variability of fund returns over the past
five years (and consequently, the potential rewards and risks of a fund
investment).

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Returns 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
5.91% 7.96% 7.86% 6.62% 5.94% -2.07% 8.68% 6.62% 4.17% 3.48%
</TABLE>

During the ten years ending December 31, 1998, the highest and lowest
quarterly returns were _____% and _____%, respectively for the quarters ending
________ and ________. The bar chart and highest/lowest quarterly returns do
not reflect sales charges, which would reduce returns, while the 1-, 5- and 10-
year average annual return table does.

Average Annual Total Returns
for the Periods Ending
December 31, 1998

1 Year 5 Year 10 Year
_______________________________________________________
Fund (NAV) (0.46)% 4.13% 5.18%
_______________________________________________________
LB Market1Benchmark

Lipper Peer Group2

-5-

ND TAX-FREE FUND, INC.

WHAT ARE THE FUND'S EXPENSES?

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.

ANNUAL FUND OPERATING EXPENSES
Paid from Fund Assets
________________________________________________________________

Management Fees 0.60%
Distribution and Service (12b-1) Fees(3) 0.85%
Other Expenses 0.24%
Total Annual Fund Operating _____
Expenses-Gross (4) 1.69%

______________________________________________

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.

1 year 3 years 5 years 10 years
$57 $83 $102 $200
You would pay the following expenses if you did not redeem your shares:

1 year 3 years 5 years 10 years
$17 $53 $92 $200

-6-

SOUTH DAKOTA TAX-FREE FUND, INC.

FUND SUMMARY

INVESTMENT OBJECTIVE
The fund seeks to provide as high a level of current income exempt from federal
and any future South Dakota income taxes as is consistent with preservation of
capital.

IS THIS FUND RIGHT FOR YOU?

The fund may be a suitable investment for you if you seek to:

You should not invest in this fund if you seek to:

* Pursue an aggressive, high-growth investment strategy;
* Invest through an IRA or 401(k) plan;
* Avoid fluctuations in share price.

HOW THE FUND HAS PERFORMED

The chart and table below illustrate annual fund returns for each of the past
four years as well as annualized fund, peer group and market benchmark returns
for one-year and inception periods ending December 31, 1998. This information is
intended to help you assess the variability of fund returns over the past four
years (and consequently, the potential rewards and risks of a fund investment).

<S> <C> <C> <C> <C>
Total Returns 1995 1996 1997 1998
11.47% 6.58% 5.10% 3.88%
</TABLE>

From inception in April, 1994 to December 31, 1998, the highest and lowest
quarterly returns were _____% and _____%, respectively for the quarters ending
________ and ________. The bar chart and highest/lowest quarterly returns do
not reflect sales charges, which would reduce returns, while the average annual
return table does.

Average Annual Total Returns
for the Periods Ending
December 31, 1998

1 Year Inception
________________________________________________________
Fund (NAV) (0.08)% 6.09%
________________________________________________________
LB Market1Benchmark

Lipper Peer Group2

-7-

SOUTH DAKOTA TAX-FREE FUND, INC.

WHAT ARE THE FUND'S EXPENSES?

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.

ANNUAL FUND OPERATING EXPENSES
Paid from Fund Assets
________________________________________________________________

Management Fees 0.60%
Distribution and Service (12b-1) Fees(3) 0.75%
Other Expenses 0.70%
Total Annual Fund Operating _____
Expenses-Gross (4) 2.05%

______________________________________________

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.

1 year 3 years 5 years 10 years
$61 $94 $120 $238
You would pay the following expenses if you did not redeem your shares:

1 year 3 years 5 years 10 years
$21 $64 $110 $238

-8-

FUND MANAGEMENT

The overall management of the business and affairs of the funds is the re-
sponsibility of the fund's Board of Directors. ND Money Management, Inc.
("ND Management"), 1 North Main, Minot, North Dakota 58703, is the investment
adviser to the funds. ND Management has been advising mutual funds since 1989
and is currently investment adviser to four funds with assets under management
of approximately $168 million. ND Management is responsible for the selection
and ongoing monitoring of the securities in each fund's portfolio, and, at its
own expense, provides all necessary administrative services, office space,
equipment and clerical services for managing the funds' investments and effect-
ing their portfolio transactions. ND Management also pays the salaries and
fees of all officers and directors of the funds who are affiliated persons of
ND Management.

ND Management determines the portfolio management strategy of the funds under
the general supervision and direction of Robert E. Walstad, President, and
Monte L. Avery, Chief Portfolio Strategist. Mr. Avery and W. Dan Korgel are
the portfolio managers for the funds and are primarily responsible for the
day-to-day management of each fund's portfolio, including credit analysis and
the execution of portfolio transactions. Mr. Walstad started in the securities
business with Paine Webber as a retail broker in 1972. In 1977, he became
branch manager with Dean Witter Reynolds and spent ten years in that capacity.
In 1987, Mr. Walstad founded ND Holdings Inc. ("ND Holdings"), which
wholly-owns the funds' investment adviser and underwriter.

Mr. Avery started in the securities business with Paine Webber in 1981 as a
retail broker transferring to Dean Witter in 1982. In 1988, Mr. Avery joined
Bremer Bank, N.A. (Minot, ND) to help start their Invest Center. He transfer-
red back to Dean Witter in 1993 until joining ND Holdings in 1995. Mr. Avery
is responsible for the daily pricing of the Integrity Mutual Funds as well as
their portfolio tradings. He is also portfolio manager for the Integrity Fund
of Funds, Inc. Mr. Korgel was employed in the trust banking business for 12
years prior to joining ND Holdings in 1988. Mr. Korgel was head of investments
and operations for the trust department of Bremer Bank N.A. (Minot, ND) for two
years. Mr. Korgel is Corporate Treasurer of ND Holdings.

For providing management services, ND Management is paid an annual fund manage-
ment fee by each fund of .60% of the fund's average daily net assets, payable
monthly.

For the most recent fiscal year, the funds paid after expense reimbursements
the following management fees to ND Management, as a percentage of average
net assets:

Montana Tax-Free Fund .53%
ND Tax-Free Fund .56%
South Dakota Tax-Free Fund .10%

Each fund pays for its own operating expenses such as custodial, transfer
agent, accounting and legal fees; brokerage fees and commissions, if any;
distribution and service fees; insurance premiums; interest; organizational
expenses; taxes; and extraordinary expenses. See the Statement of Additional
Information for an additional discussion of fund expenses.

SECURITIES THE FUNDS INVEST IN

Each fund's investment objective and its investment policies, unless otherwise
noted, may not be changed without shareholder approval.

Municipal Obligations

Each fund will generally invest substantially all of its assets in municipal
bonds that pay interest exempt from both federal and the relevant state's
income taxes. Under normal circumstances, the Montana Tax-Free Fund and South
Dakota Tax-Free Fund will invest at least 65% of their total assets in obliga-
tions of the respective state and its political subdivisions, agencies, and
instrumentalities. In addition, each fund will invest, under normal circum-
stances, at least 80% of its net assets in municipal bonds which pay interest
that is not subject to the alternative minimum tax.

Quality Municipal Bonds

The funds purchase primarily quality municipal bonds that are either rated
investment grade (AAA/Aaa to BBB/Baa) by independent rating agencies at the
time of purchase or are non-rated but judged to be of comparable quality by the
fund's investment adviser. Each fund may also invest in municipal bonds of
U.S. territories and possessions (such as Puerto Rico and Guam) and of the
District of Columbia which are exempt from regular federal and state income
taxes. The funds will promptly dispose of a bond whose rating drops below
investment grade or is reduced in credit quality with respect to unrated
securities.

Portfolio Maturity

Each fund buys municipal bonds with different maturities in pursuit of its in-
vestment objectives, but expects under normal market conditions an investment
portfolio with an average weighted maturity of 15 to 25 years.

-9-

Delayed Delivery Securities

Each fund may buy or sell securities on a when-issued or delayed-delivery
basis, paying for or taking delivery of the securities at a later date,
normally within 15 to 45 days of the trade. Such transactions involve an
element of risk because the value of the securities to be purchased may
decline before the settlement date. In addition, because each fund is
required to set aside cash or liquid high-grade debt securities to satisfy
its commitments to buy when-issued or delayed-delivery securities, management
of a fund's investments may be limited if commitments to purchase these
securities exceed 25% of the value of the fund's total assets.

HOW WE SELECT INVESTMENTS

ND Management selects municipal obligations for the funds based upon its
assessment of a bond's relative value in terms of current yield, price, credit
quality and future prospects. ND Management reviews municipal securities
available for purchase, monitors the continued creditworthiness of each fund's
municipal investments, and analyzes economic, political and demographic trends
affecting the municipal markets. Based on our analysis of this research, we
select those municipal obligations that we believe represent the most at-
tractive values.

Portfolio Turnover

A fund buys and sells portfolio securities in the normal course of its invest-
ment activities. The proportion of the fund's investment portfolio that is sold
and replaced with new securities during a year is known as the fund's portfolio
turnover rate. The funds anticipate that their annual portfolio turnover rate
will generally be between 70% and 80%. A turnover rate of 100% would occur,
for example, if a fund sold and replaced securities valued at 100% of its net
assets within one year. Active trading would result in the payment by the fund
of increased brokerage costs and the realization of taxable capital gains.
The funds normally will not engage in the trading of securities to realize
short-term profits. The funds, however, may adjust their portfolios in view
of prevailing or anticipated market conditions and the fund's investment
objective. The funds may also make short-term trades to take advantage of
market opportunities.

RISK FACTORS

Risk is inherent in all investing. Investing in the funds involves risk, in-
cluding the risk that you may receive little or no return on your investment or
that you may even lose part or all of your investment. Before you invest, you
should consider the following risks:

Interest rate risk: the risk that the value of the fund's portfolio will
decline because of rising market interest rates (bond prices move in the
opposite direction of interest rates). The longer the average maturity
(duration) of a fund's portfolio, the greater its interest rate risk.

Income risk: the risk that the income from the fund's portfolio will decline
because of falling market interest rates. This can result when the fund invests
the proceeds from the new share sales, or from matured or called bonds, at
market interest rates that are below the portfolio's current earnings rate.

Credit risk: the risk that an issuer of a bond is unable to meet its obliga-
tion to make interest and principal payments due to changing market
conditions. Generally, lower rated bonds provide higher current income but
are considered to carry greater credit risk than higher rated bonds. Year 2000
issues may affect the ability of municipal issuers to meet their payment
obligations to their bond holders, and may adversely affect their credit
ratings.

State Concentration risk: because the funds primarily purchase municipal bonds
from a specific state, each fund also bears investment risk from the economic,
political or regulatory changes that could adversely affect municipal bond
issuers in that state and therefore the value of the fund's investment port-
folio. See "Appendix-Additional State Information."

Non-Diversification risk: Each fund is a non-diversified investment company
and as such, each fund may invest more than 5% of its assets in the obligations
of any issuer. Because a relatively high percentage of the fund's assets may
be invested in the municipal securities of a limited number of issuers, the
fund's portfolio securities may be more susceptible to any single economic,
political, or regulatory occurrence than the portfolio securities of a diversi-
fied investment company.

In addition, because of the relatively small number of issuers of municipal
securities in Montana, North Dakota, and South Dakota, the funds are more
likely to invest a higher percentage of their assets in the securities of a
single issuer than an investment company which invests in a broad range of
tax-exempt securities. The funds are therefore subject to greater risks of
loss if an issuer is unable to make interest or principal payments or if the
market value of such securities declines.

Inflation risk: the risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the value of the funds' assets can decline as can the
value of the funds' distributions.

-10-

Year 2000 Disclosure

ND Management and the funds' service providers each rely on computer systems
to manage the funds' investments, process transactions and provide account
maintenance. Because of the way computers historically have stored dates, some
of these systems currently may not be able to correctly process activity
occurring in the year 2000. ND Management is working with the funds' service
providers to adapt their systems to address this "Year 2000" issue. ND Manage-
ment and the funds expect, but there can be no absolute assurance, that the
necessary work will be completed on a timely basis.

RISK MANAGEMENT

Investment Limitations

The funds have adopted certain limitations that cannot be changed without
shareholder approval and are designed to limit your investment risk. Under
these restrictions, each fund may not invest 25% or more of its total assets
in any industry. In applying this limitation, government issuers of municipal
securities are not considered part of any "industry." However, municipal
securities backed by the assets and revenues of non-governmental users will be
considered issued by these users in applying this limitation. Each fund may
also invest in industrial development bonds whose revenues derive from similar
types of projects (such as, education, electric utilities or health care).
See the Statement of Additional Information for more information regarding the
funds' investment restrictions.

Hedging and Other Defensive and Temporary Investment Strategies

Each fund may invest up to 100% of its assets in short-term high quality
taxable securities as well as short-term municipal bonds as a temporary
defensive measure in response to adverse market conditions. These short-term
securities include obligations of the U.S. government (its agencies and
instrumentalities), debt securities rated within the three highest grades by
independent rating agencies, commercial paper, certificates of deposit, muni-
cipal securities and any such securities subject to short-term repurchase
agreements. During these periods, a fund may not be able to achieve its
investment objective. For more detailed information on eligible short-term
investments, see the Statement of Additional Information.

Each fund may also engage in various investment strategies designed to hedge
against interest rate changes or other market conditions using financial in-
struments whose prices, in the opinion of the fund's investment adviser,
correlate with the values of securities the fund owns or expects to purchase.
The securities used to implement these strategies include financial futures
contracts (such as future contracts in U.S. Treasury securities and interest-
related indices) and options on financial futures. The ND Tax-Free Fund may
also use options on municipal securities and temporary investments, as well as
index options. The ND Tax-Free Fund may write (sell) covered call options and
secured put options on up to 25% of its net assets. In addition, the fund will
not purchase put and call options if more than 5% of its net assets are in-
vested in the premiums of such options. The ability of a fund to benefit from
options and futures is largely dependent on ND Management's ability to use such
strategies successfully. A fund could lose money on futures transactions or an
option can expire worthless.

HOW TO PURCHASE SHARES

You can buy shares at the offering price, which is the net asset value per
share without any up-front sales charge so that the full amount of your
purchase is invested in the fund. However, you will pay an annual distribution
and service fee of 0.75% of average daily assets (0.85% of average daily net
assets with respect to the ND Tax-Free Fund). The annual distribution fee
compensates ND Capital, Inc. ("ND Capital"), the funds' underwriter, for paying
dealers who sell fund shares an up-front sales commission of 3-3/4% on amounts
invested (1% on sales of $1 million or more), excluding sales to investors
exempt from the contingent deferred sales charge ("CDSC"). ND Capital may
use a portion of this fee to pay an annual service fee of up to 0.25% of
average daily net assets to dealers for providing ongoing service to you.
If you sell your shares within five years of purchase, you will have to pay
a CDSC based on either your purchase price or what you sell your shares for,
whichever amount is lower, according to the following schedule. You do not
pay a CDSC on any shares you purchase by reinvesting dividends.

Years Since Purchase 1 2 3 4 5 6 and up
CDSC 4% 4% 3% 2% 1% 0%

Purchases of $1 million or more are subject to a reduced CDSC of 1% if shares
are redeemed within 12 months of purchase. Purchases of $1 million or more
made within 13 months of the initial purchase may qualify for the reduced
CDSC. To be eligible, you must notify the fund in writing at the time of our
initial purchase of your intent to purchase $1 million or more within 13 months
and subsequently complete this investment. Any shares purchased and sold
during this 13 month period will be deducted in computing your total purchase.
The 1% CDSC applies for one year after your purchases total $1 million.

CDSC Waivers

The funds may sell shares without a CDSC to:

-11-

* directors, officers, employees (including retirees) of the funds, ND
Holdings, Inc., ND Management, and ND Capital for themselves or certain
members of their family;

* trusts, pension, profit-sharing or other plans for the benefit of direc-
tors, officers, employees (including retirees) of the funds, ND Holdings,
Inc., ND Management and ND Capital and certain members of their families;

* authorized broker-dealers and financial institutions and certain employees
(including their spouses and children) of such dealers and institutions; and

* any broker-dealer, financial institution or other qualified firm which does
not receive commissions for selling shares to its clients.

Please refer to the Statement of Additional Information for detailed
eligibility requirements. Additional information is available by calling
(800) 276-1262.

Minimum Investments and Share Price

You may open an account with $1,000 ($100 for the Monthomatic Investment Plan)
and make additional investments at any time with as little as $50. The funds
may change these minimum initial investments at any time. You may purchase
shares from investment dealers who have sales agreements with ND Capital or
directly from ND Capital. If you do not have a dealer, call (800) 276-1262
and ND Capital can refer you to one.

The price you pay for shares will depend on when the fund receives your order.
You will receive the share price next determined after the fund has received
your order. Your order must be received by the fund prior to close of trading
(normally 3:00 p.m. Minot, North Dakota time) for you to receive that day's
price. However, orders received by dealers prior to the close of trading and
received by the fund prior to the close of business will receive that day's
price. Dealers are obligated to transmit orders promptly. See "Net Asset
Value" for a discussion of how shares are priced.

SYSTEMATIC INVESTING - THE MONTHOMATIC INVESTMENT PLAN

Once you have established a fund account, systematic investing allows you to
make regular investments through automatic deductions from your bank account
(simply complete the appropriate section of the account application form) or
call ND Resources at (800) 601-5593 for appropriate forms.

With the Monthomatic Investment Plan, you can make regular investments of $50
or more per month by authorizing us to draw either checks or debits on your
bank account. Such account must have check or draft writing privileges. You
can stop the withdrawals at any time by sending a written notice to ND
Resources, Inc. ("ND Resources"), the funds' transfer agent, at P.O. Box 759,
Minot, ND 58702. The termination will become effective within 7 days after
the transfer agent has received the request. The funds may terminate or
modify this privilege at any time and may immediately terminate a shareholder's
monthomatic plan if any item is unpaid by the shareholder's financial
institution. There is no charge for this plan.

SPECIAL SERVICES

To help make your investing with us easy and efficient, we offer you the
following services at no extra cost.

Exchanging Shares

You may exchange fund shares into an identically registered account at any time
for shares of any mutual fund advised and underwritten by ND Capital or Ranson
Capital Corporation or ND Management at net asset value. If the shares of the
original fund are subject to a CDSC, the CDSC and the holding period of your
original investment will be carried forward into the fund in which you are
exchanging and applied in the event you redeem any or all of your shares in
this fund. If you paid a front-end sales charge on the shares being exchanged,
you will not pay a CDSC in the event you redeem any or all of your shares.
Your exchange must meet the minimum purchase requirements of the fund into
which you are exchanging and be available in your state. Because an exchange
is treated for tax purposes as a concurrent sale and purchase, and any gain may
be subject to tax, you should consult your tax adviser about the tax
consequences of any contemplated exchange.

The exchange privilege is not intended to allow you to use a fund for short-
term trading. Because excessive exchanges may interfere with portfolio
management, raise fund operating expenses or otherwise have an adverse effect
on other shareholders, each fund reserves the right to revise or suspend the
exchange privilege, limit the amount or number of exchanges, or reject any
exchange. For additional information on how to exercise the exchange
privilege, call ND Resources at (800) 601-5593.

Reinstatement Privilege

If you redeem fund shares, you may reinstate all or part of your redemption
proceeds without incurring any additional charges. If you paid a CDSC, we will
refund your CDSC as additional shares in proportion to the reinstatement amount
of your redemption proceeds. Your holding period will also be reinstated. An
investor

-12-

exercising this privilege a year or more after redemption must complete a new
account application and provide proof that the investor was a shareholder of
the fund. The funds may modify or terminate this privilege at any time.

HOW TO SELL SHARES

You may sell (redeem) your shares on any day the New York Stock Exchange is
open. You will receive the share price next determined after the fund has
received your properly completed redemption request. Your redemption request
must be received before the close of trading for you to receive that day's
price. While the funds do not charge a redemption fee, you may be assessed a
CDSC, if applicable. When you redeem shares subject to a CDSC, the fund will
first redeem any shares that are not subject to a CDSC or that represent an
increase in the value of your fund account due to capital appreciation, and
then redeem the shares you have owned in the order purchased. No CDSC is
imposed on shares you buy through the reinvestment of dividends and capital
gains. When you redeem shares subject to a CDSC, the CDSC is calculated on the
lower of your purchase price or redemption proceeds, deducted from your
redemption proceeds, and paid to ND Capital.

You can sell your shares at any time by sending a written request to the
appropriate fund, c/o ND Resources, P.O. Box 759, Minot, ND 58703. Your
request must include the following information:

* The fund's name;

* Your name and account number;

* The dollar or share amount you wish to redeem;

* The signature of each owner exactly as it appears on the account;

* The name of the person to whom you want your redemption proceeds paid (if
other than to the shareholder of record);

* The address where you want your redemption proceeds sent (if other than the
address of record);

* Any certificates you have for the shares (signed certificate or a duly
endorsed stock power); and

* Any required signature guarantees.

We will normally mail your check the next business day, but in no event more
than seven days after we receive your request. If you purchased your shares
by check, your redemption proceeds will not be mailed until your check has
cleared. Guaranteed signatures are required if you are redeeming more than
$50,000, you want the check payable to someone other than the shareholder of
record or you want the check sent to another address. Signature guarantees
must be obtained from a commercial bank, trust company, savings and loan
association, or brokerage firm. A notary public cannot provide a signature
guarantee.

You should note that the fund reserves the right to liquidate your account upon
60 days' written notice if the value of your account falls below $1,000 for any
reason other than a fluctuation in the market value of the fund shares.

A fund may also suspend the right of redemption under the following unusual
circumstances:

* when the New York Stock Exchange is closed (other than weekends and
holidays) or trading is restricted;

* when an emergency exists, making disposal of portfolio securities or the
valuation of net assets not reasonably practicable; or

* during any period when the SEC has by order permitted a suspension of re-
demption for the protection of shareholders.

SYSTEMATIC WITHDRAWAL

If the value of your fund account is at least $5,000, you may request to have
$50 more withdrawn automatically from your account, subject to any applicable
CDSC. You may elect to receive payments monthly, quarterly, semi-annually or
annually. If payments exceed reinvested dividends and distributions, an in-
vestor's shares will be reduced and eventually depleted. You must complete
the appropriate section of the account application to participate in the fund's
systematic withdrawal plan. A shareholder who participates in the Monthomatic
Investment Plan is ineligible to participate in this plan.

DISTRIBUTIONS AND TAXES

The funds declare dividends daily on shares for which they have received
payment. The funds pay tax-free dividends monthly and any taxable capital
gains or other taxable distributions once a year after the end of the fund's
fiscal year. The funds have also adopted a policy whereby they will distribute
to shareholders more than the fund's net investment income and net realized
capital gains. These excess distributions represent a return of capital to
shareholders. These policies are non-fundamental and may be modified or
eliminated by the funds at any time.

-13-

The following table sets forth the percentage of each fund's distributions that
constituted a return of capital for the fiscal year ended December 31, 1998:

Montana Tax-Free Fund 11%
ND Tax-Free Fund 10%
South Dakota Tax-Free Fund 10%

Reinvestments Options

The funds automatically reinvest your dividends in additional fund shares
unless you request otherwise. You may request to have your dividends and
capital gains paid to you in the following ways:

* income dividends in cash and capital gain dividends reinvested in additional
fund shares;

* income and capital gain dividends in cash; or

* income and capital gain dividends reinvested in shares of Integrity Fund of
Funds, Inc. ("Integrity") at net asset value, provided you open an account
with Integrity with a minimum balance of $100.

The funds will send a check to investors selecting to receive dividends in
cash. You may have your distribution check paid to a third party or sent to
an address other than your address of record (although a signature guarantee
will be required). For further information, contact ND Resources at
(800) 601-5593.

Taxes and Tax Reporting

Because the funds invest in municipal bonds, the regular monthly dividends you
receive will be exempt from regular federal income tax. All or a portion of
these dividends, however, may be subject to any state and local taxes or to the
federal alternative minimum tax (AMT).

Although the funds do not seek to realize taxable income or capital gains, the
funds may realize and distribute taxable income or capital gains from time to
time as a result of each fund's normal investment activities. Each fund will
distribute in December any taxable income or capital gains realized over the
preceding year. Net short-term gains are taxable as ordinary income. Net
long-term capital gains are taxable as long-term capital gains regardless of
how long you have owned your investment. Taxable dividends do not qualify for
a dividends received deduction if you are a corporate shareholder. For
information regarding the state tax consequences of a fund investment, see
Appendix-Additional State Information.

Early in each year, you will receive a statement detailing the amount and
nature of all dividends and capital gains, including any percentage of your
fund dividends attributable to municipal obligations, that you were paid during
the prior year. The tax status of your dividends is not affected by whether
you reinvest your dividends or receive them in cash. If you receive social
security benefits, you should be aware that any tax-free income is taken into
account in calculating the amount of these benefits that may be subject to
federal income tax.

Tax laws are subject to change, so we urge you to consult your tax adviser
about your particular tax situation and how it might be affected by current
tax law.

Please note that if you do not furnish us with your correct Social Security
number or employer identification number, federal law requires us to withhold
federal income tax from your distributions and redemption proceeds at a rate
of 31%.

Buying or Selling Shares Close to a Record Date

Buying fund shares shortly before the record date for a taxable dividend is
commonly known as "buying the dividend." The entire dividend may be taxable
to you even though a portion of the dividend effectively represents a return
of your purchase price. Similarly, if you sell or exchange fund shares shortly
before the record date for a tax-exempt dividend, a portion of the price you
receive may be treated as a taxable capital gain even though it reflects
tax-free income earned but not yet distributed by the fund.

DISTRIBUTION AND SERVICE PLAN

ND Capital serves as the distributor of the funds' shares. In this capacity,
ND Capital manages the offering of the funds' shares and is responsible for
all sales and promotional activities. In order to reimburse ND Capital for
its costs in connection with these activities, including compensation paid to
authorized dealers, each fund has adopted a distribution and service plan (the
"Plan") under Rule 12b-1 under the Investment Company Act of 1940. See "How to
Purchase Shares" for a description of the distribution and service fees paid
under this plan.

ND Capital receives the 12b-1 fee for fund shares primarily for providing
compensation to authorized dealers including ND Capital in connection with the
distribution of shares and related financing costs. ND Capital may also use
the fee to compensate authorized dealers for providing account services to
shareholders. These services may include answering shareholder inquiries,
assisting in redeeming shares, interpreting confirmations, statements and other
documents, and providing other personal services to shareholders. These fees
also compensate ND Capital for other expenses, including printing and dis-
tributing prospectuses to persons other than shareholders, and preparing,
printing, and distributing advertising and sales literature and reports to
shareholders used in connection with the sale

-14-

of shares and other overhead expenses (such as rent and salaries). Payments
made to ND Capital under the Plan are not dependent upon expenses incurred, and
therefore payments made under the Plan may exceed ND Capital's expenses in any
given year. Because these fees are paid out of the funds' assets on an on-
going basis, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.

NET ASSET VALUE

The price you pay for your shares is based on the fund's net asset value per
share which is determined as of the close of trading (normally 3:00 p.m. Minot,
North Dakota time) on each day the New York Stock Exchange is open for
business. Net asset value is calculated by taking the total value of the
fund's assets, including interest or dividends accrued but not yet collected,
less all liabilities, and dividing by the total number of shares outstanding.
The result, rounded to the nearest cent, is the net asset value per share. All
valuations are subject to review by the funds' Board of Directors or its
delegate.

In determining net asset value, expenses are accrued and applied daily. The
prices of municipal bonds are provided by ND Management which establishes
market value based on prices and yields of comparable municipal bonds.
Options that are traded on an exchange are valued at the last sales price,
unless there is no last sales price. In that case, the options will be valued
at the mean between the closing bid and ask prices. Financial futures are
valued at their settlement prices established on the board of trade or exchange
on which they are traded. Other securities, including restricted securities,
and other assets are valued at fair value as established by the Board of
Directors or its delegate. If an event were to occur, after the value of an
instrument was established but before net asset value per share was determined,
which would likely materially change the net asset value, then the instrument
would be valued using fair value considerations by the Board of Directors or
its delegate.

FUND SERVICE PROVIDERS

The custodian of the assets of the ND Tax-Free Fund and the South Dakota Tax-
Free Fund is Bremer Bank, N.A., 20 First Street SW, Minot, North Dakota 58701.
The custodian of the assets of the Montana Tax-Free Fund is First Western Bank
& Trust, 900 South Broadway, Minot, North Dakota 58701. ND Resources, a
wholly-owned subsidiary of ND Holdings, is the funds' transfer agent. As
transfer agent, ND Resources performs bookkeeping, data processing, accounting
and other administrative services for the operation of the funds and the main-
tenance of shareholder accounts.

ND Management and ND Resources each rely on computer systems to manage the
funds' investments, process shareholder transactions and provide shareholder
account maintenance. Because of the way computers historically have stored
dates, some of these systems currently may not be able to correctly process
activity occurring in the year 2000. ND Management is working with the funds'
service providers to adapt their systems to address this "Year 2000" issue.
ND Management and the funds expect, but there can be no absolute assurance,
that the necessary work will be completed on a timely basis.

SHAREHOLDER INQUIRIES

All inquiries regarding the funds should be directed to ND Capital at 1 North
Main, Minot, ND 58703 or call (800) 276-1262.

All inquiries regarding account information should be directed to ND Resources
at P.O. Box 759, Minot, ND 58702 or call (800) 601-5593.

-15-

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the fund's
recent past performance. Certain information reflects financial results for a
single fund share. The total returns in the tables represent the rate that an
investor would have earned on an investment in the fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
Brady, Martz & Associates, P.C., whose report, along with the funds' financial
statements are included in the funds' Statement of Additional Information.
Further information about a fund's performance is contained in the fund's
latest annual shareholder report. You may obtain a free copy of the fund's
latest annual shareholder report and Statement of Additional Information upon
request from the fund.

MONTANA TAX-FREE FUND, INC.

For The For The For The For The For The
Year Year Year Year Year
Ended Ended Ended Ended Ended
December December December December December
31, 1998 31, 1997 31, 1996 31, 1995 31, 1994
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $ $ $ $
--------------------------------------------------------
Income from Investment Operations:
Net Investment Income $ $ $ $ $
Net realized and unrealized gain (loss) on
investment and futures transactions $ $ $ $ $
--------------------------------------------------------
Total Income (Loss) From Investment Operations $ $ $ $ $
--------------------------------------------------------
Less Distributions:
Dividends from net investment income $ $ $ $ $
Return of capital distributions $ $ $ $ $
Distributions from net realized gains $ $ $ $ $
--------------------------------------------------------
Total Distributions $ $ $ $ $
--------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ $ $ $ $
========================================================
Total Return _____% _____%(A) _____ %(A) _____ %(A) _____%(A)

Ratios/Supplemental Data:
Net assets, end of period (in thousands) $______ $______ $______ $______ $_______
Ratio of net expenses (after expense assumption)
to average net assets ____% ____%(B) ____%(B) ____%(B) ____%(B)
Ratio of net investment income to average net
assets ____% ____% ____% ____% _____%
Portfolio turnover rate ____% ____% ____% ____% _____%
</TABLE>
____________________
(A) Excludes contingent deferred sales charge of 4%.
(B) Ratio was annualized.
(C) During the periods indicated above, ND Holdings, Inc. assumed expenses of
$_____, $_____, $_____, $_____, and $_____. If the expenses had not been
assumed, the annualized ratio of total expenses to average net assets
would have been ____%, ____%, ____%, ___% and ____%, respectively.

-16-

ND TAX-FREE FUND, INC.

For The For The For The For The For The
Year Year Year Year Year
Ended Ended Ended Ended Ended
1998 1997 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ ____ $ ____ $ ____ $ ____ $ ____
-----------------------------------------------------------------------
Income from Investment Operations:
Net Investment Income $ ___ $ ___ $ ___ $ ___ $ ___
Net realized and unrealized
gain (loss) on investments
and futures transactions ___ ___ ___ ___ ___
-----------------------------------------------------------------------
Total Income (Loss) From
Investment Operations $ ___ $ ___ $ ___ $ ___ $ ___
---------------------------------------------------------------------
Less Distributions:
Dividends from net investment income $ ___ $ ___ $ ___ $ ___ $ ___
Return of capital distributions ___ ___ ___ ___ ___
Distributions from net realized gains ___ ___ ___ ___ ___
---------------------------------------------------------------------
Total Distributions $ ___ ___ ___ ___ ___
---------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ ____ $ ____ $ ____ $ ____ $ ____
---------------------------------------------------------------------
Total Return ____%(A) ____%(A) ____% (A) ____%(A) ____%(A)

Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $______ $______ $______ $______ $______
Ratio of net expenses
(after expense assumption) to
average net assets ____% ____%(B) ____%(B) ____%(B) ____%(B)
Ratio of net investment income
to average net assets ____% ____% ____% ____% ____%
Portfolio turnover rate ____% ____% ____% ____% ____%
</TABLE>
____________________
(A) Excludes contingent deferred sales charge of 4%.
(B) During the periods indicated above, ND Holdings, Inc. assumed expenses of
$______, $______, $______, $______, and $______, respectively. If the
expenses had not been assumed, the annualized ratios of total expenses to
average net assets would have been ____%, ____%, ____%, ____% and ____%,
respectively.

-17-

SOUTH DAKOTA TAX-FREE FUND, INC.

<TABLE>
<CAPTION>
For The
For The For The For The For The Period Since
Year Ended Year Ended Year ended Year Ended Inception(April
Dec. 31, Dec. 31, Dec. 31, Dec. 31, 5, 1994) Through
1998 1997 1996 1995 Dec. 31, 1994
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ _____ $ _____ $ _____ $ _____ $ _____
---------------------------------------------------------------------
Income from Investment
Operations:
Net investment income $ _____ $ _____ $ _____ $ _____ $ _____
Net realized and
unrealized gain (loss)
on investment and
futures transactions $ _____ $ _____ $ _____ $ _____ $ _____
_________________________________-----------------------------------------------------------------
Total Income(Loss) From
Investment Operations $ _____ $ _____ $ _____ $ _____ $ _____
-----------------------------------------------------------------
Less Distributions:
Dividends from net
investment income $ _____ $ _____ $ _____ $ _____ $ _____
Return of capital
Distributions $ _____ $ _____ $ _____ $ _____ $ _____
Distributions from net
realized gain $ _____ $ _____ $ _____ $ _____ $ _____
-----------------------------------------------------------------
Total Distributions $ _____ $ _____ $ _____ $ _____ $ _____
-----------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ _____ $ _____ $ _____ $ _____ $ _____
=================================================================

Total Return ____%(A) ____%(A) ____%(A) ____%(A) ____%(A)

Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $ _____ $ _____ $ _____ $ _____ $ _____
Ratio of net expenses
(after expense assumption)
to average net assets ____% ____%(C) ____%(C) ____%(C) ____%(B)
Ratio of net investment
income to average net assets ____% ____% ____% ____% ____%(B)
Portfolio turnover rate ____% ____% ____% ____% ____%

</TABLE>

____________________
(A) Excludes contingent deferred sales charge of 4%.
(B) Ratio was annualized.
(C) During the periods indicated above, ND Holdings, Inc. assumed expenses of
$______, $_______, $______, $_______, respectively. If the expenses had
not been assumed, the annualized ratio of total expenses to average net
assets would have been _____%, ____%, ____% and ____%, respectively.

-18-

APPENDIX - ADDITIONAL STATE INFORMATION

Because the funds primarily purchase municipal bonds from a specific state,
each fund also bears investment risk from economic, political or regulatory
changes that could adversely affect municipal bond issuers in that state and
therefore the value of the fund's investment portfolio. The following discus-
sion of special state considerations was obtained from official offering state-
ments of these issuers and has not been independently verified by the funds.
The discussion includes general state tax information related to an investment
in fund shares. Because tax laws are complex and often change, you should
consult your tax adviser about the state tax consequences of a specific fund
investment.

Montana

Montana's economy is primarily based on agriculture, mining and the processing
of minerals and agricultural forest products. Montana's economy, however,
continues to parallel the national trend of moving to more service producing
industries. In 1997, the largest industries in the state were services, state
and local government, and retail trade. The state's population, employment and
income continue to grow. Montana's population had a 10% growth rate between
1990 and 1997 which exceeded the national average of 7.69% over the same
period. Although agricultural employment continues to decline, other areas
show gains in employment, particularly in the private services sector which
represents various business, professional, and personal service sectors.
Between 1996 and 1997, employment as measured by non-farm payroll increased
by 1.5% At this same time, the statewide unemployment rate remained basically
stable at 5.4%, higher than the national average of 4.9%. Per capital income
in 1997 was $19,704 reflecting an increase of 4.6% from 1996. Moody's
currently gives the State's general obligation debt an Aa3 rating and Standard
& Poor's gives it an AA-.

Tax Treatment

The Montana Tax-Free Fund's regular monthly dividends to shareholders that are
individuals, estates and trusts will not be subject to the Montana income tax
to the extent they are paid out of income earned on state and local municipal
bonds. These dividends are subject to Montana tax for shareholders that are
corporations. You will be subject to Montana income tax, however, to the
extent the Montana Tax-Free Fund distributes any taxable income or realized
capital gains, or if you sell or exchange Montana Tax-Free Fund shares and
realize a capital gain on the transaction. Montana taxes capital gains
(including capital gain distributions paid by the fund) at the same rates as
ordinary income.

North Dakota

North Dakota's economy is primarily dependent on agriculture and energy and
mineral products. North Dakota's economy continues its decade-long path of
growth but the rate of growth is beginning to slow. Taxable sales and
purchases reported by the state's business community grew by a modest 2.86%
in the second quarter in 1998 compared to the second quarter in 1997. This
growth rate, however, may be somewhat skewed by the extensive post-flood
rebuilding efforts that bolstered the 1997 figures. North Dakota's wholesale
trade sector declined in the second quarter while the state's transportation,
communication and public utilities sectors experienced a 23.4% increase in
this period. Retail trade, the largest sector, also grew by 4% during this
period. Agriculture, North Dakota's mainstay industry, however, continues to
struggle due to low prices for the state's major crops and depressed cattle
prices. In addition, low oil prices are responsible for a slowdown in oil
production in the state. These factors make the outlook for North Dakota's
economy mixed. In 1997, North Dakota's unemployment rate was 2.5%, below the
national average of 4.9%, and per capital income was $20,213 down from $20,308
in 1996.

Tax Treatment

The North Dakota Tax-Free Fund's regular monthly dividends will not be subject
to North Dakota income taxes to the extent they are paid out of income earned
on North Dakota state and local government municipal bonds. You will be
subject to North Dakota income taxes, however, to the extent the North Dakota
Tax-Free Fund distributes any taxable income, or if you sell or exchange North
Dakota Fund shares and realize a capital gain on the transaction.

The treatment of corporate shareholders of the North Dakota Tax-Free Fund is
similar to that described above. However, the above dividends are not exempt
from North Dakota tax for shareholders that are banks or other entities subject
to North Dakota tax on financial institutions.

For individuals, trusts and estates using the North Dakota short-form to
compute your North Dakota income tax as a percentage of your federal income
taxes, dividends characterized as long-term capital gains for federal tax
purposes will be similarly treated for state tax purposes. If you, however,
use the regular method of calculating North Dakota taxable income, these
long-term capital gains will be taxed at the same rates as ordinary income.

South Dakota

South Dakota's economy is dominated by wholesale and retail trade and
agriculture. South Dakota's economy has been one of the healthiest
economies among the fifty states. A prime indication of the strength of
South Dakota's economy during 1997 was the growth in South Dakota's labor
force. During 1997, the South Dakota labor force

-2-

grew to an all-time high, with the construction and finance, insurance and
real estate sectors leading the way, with growth rates of 3.8% and 8.0%,
respectively. At the same time, South Dakota enjoyed one of the lowest
unemployment rates in the nation at 2.8%, far below the national unemployment
rate of 4.9%. All major non-farm sectors in South Dakota, excluding retail
trade, transportation, and public utilities realized growth in jobs. Finally,
total personal income in South Dakota grew 7.9%, compared to the national
growth rate of 5.8%. Per capita income was $21,183.

The State does not issue general obligation bonds, however, certain instrumen-
talities of the State and non-profit corporations may issue debt.

Tax Treatment

Currently, South Dakota does not assess personal income or corporate income
tax.

-3-

INTEGRITY MUTUAL FUNDS

Montana Tax-Free Fund, Inc.
ND Tax-Free Fund, Inc.
South Dakota Tax-Free Fund, Inc.

Several additional sources of information are available to you. The Statement
of Additional Information (SAI), incorporated by reference into this
prospectus, contains detailed information on the funds' policies and
operation. Shareholder reports contain management's discussion of market
conditions, investment strategies and performance results as of the fund's
latest semiannual or annual fiscal year end. Call ND Capital at (800) 276-1262
to request a free copy of any of these materials.

You may also obtain this and other fund information directly from the
Securities and Exchange Commission (SEC). The SEC may charge a copying fee for
this information. Visit the SEC on-line at http://www.sec.gov or in person at
the SEC's Public Reference Room in Washington, D.C. Call the SEC at
(800) SEC-0330 for room hours and operation. You may also request fund
information by writing to the SEC's Public Reference Section, Washington, D.C.
20549.

Integrity Mutual Funds
1 North Main
Minot, North Dakota 58703
(800) 276-1262

File Nos. 811-5681 (ND Tax-Free Fund)
811-7738 (Montana Tax-Free Fund)
811-8124 (South Dakota Tax-Free Fund)

PART B
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999

MONTANA TAX-FREE FUND, INC.
ND TAX-FREE FUND, INC.
SOUTH DAKOTA TAX-FREE FUND, INC.
1 North Main
Minot, North Dakota 58703
(701) 852-5292
(800) 601-5593 / Transfer Agent
(800) 276-1262 / Marketing

This Part B Statement of Additional Information is not a prospectus. It
Should be read in conjunction with the Prospectus of the Montana Tax-Free Fund,
Inc., the ND Tax-Free Fund, Inc. and the South Dakota Tax-Free Fund, Inc. (the
"Funds"), dated May 1, 1999. The Prospectus may be obtained without charge
from the Funds by writing to the above address or calling (800) 276-1262.

Table of Contents
Section Page
Investments 1
Investment Policies and Techniques 3
Investment Restrictions 10
Additional Risk Considerations 12
Management of the Funds 12
Control Persons and Principal Holders of Securities 14
Investment Advisory and Other Services 15
Distribution Plans 16
Expenses 19
Portfolio Transactions 19
Purchase and Redemption of Shares 20
Monthomatic Investment Plan 21
Exchange Privilege 21
Minimum Investment 21
Redemptions 22
Contingent Deferred Sales Charges 22
Systematic Withdrawal Plan 24
Net Asset Value 25
Underwriter 25
Dividends and Taxes 26
Calculation of Performance Data 29
Tax-Free Versus Taxable Income 33
Organization and Share Attributes 35
Shareholder Meetings 36
Appendix-Ratings of Investments 36
Financial Statements 37

INVESTMENTS

MUNICIPAL SECURITIES

The Montana Tax-Free Fund, Inc. (the "Montana Fund"), the ND Tax-Free Fund,
Inc. (the "ND Fund"), and the South Dakota Tax-Free Fund, Inc. (the "South
Dakota Fund") are each registered open-end, non-diversified, management invest-
ment companies. Each Fund seeks to achieve its objective by investing in a
portfolio of obligations issued by or on behalf of states, territories, and
possessions of the United States and the District of Columbia and their politi-
cal subdivisions, agencies, and instrumentalities, the interest from which is
exempt from federal income taxes ("Municipal Securities"). Municipal
Securities are debt obligations issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as airports, bridges, highways, housing, hospitals, mass transportation,
schools, streets, and water and sewer works. Other public purposes for which
Municipal Securities may be issued include refunding of outstanding
obligations, obtaining funds for general operating expenses, and obtaining
funds to loan to other public institutions and facilities. In addition,
certain types of industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide privately-operated housing
facilities, sports facilities, convention or trade show facilities, airport,
mass transit, port or parking facilities, air or water pollution control
facilities, and certain local facilities for water supply, gas, electricity, or
sewage or solid waste disposal. Such obligations, which may include lease
arrangements, are included within the term Municipal Securities if the interest
paid thereon qualifies as exempt from federal income tax. Other types of
industrial development bonds, the proceeds of which are used for the construc-
tion, equipment, repair, or improvement of privately-operated industrial or
commercial facilities, may constitute Municipal Securities, although the
current federal tax laws place substantial limitations on the size of such
issues.

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

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

Each Fund may invest in "private activity" bonds. Each Fund may also
purchase participation interests in Municipal Securities (such as industrial
development bonds) from financial institutions, including banks, insurance
companies and broker-dealers. A participation interest gives the Fund an un-
divided interest in the Municipal Securities in the proportion that the Fund's
participation interest bears to the total principal amount of the Municipal
Securities. These instruments may be variable or fixed rate.

With respect to the ND Fund and the Montana Fund, not more than 5% of the
net assets of the respective Fund will be invested in participation interests
in Municipal Securities during the coming year. With respect to the South
Dakota Fund, not more than 5% of the net assets of the Fund will be invested in
municipal lease obligations with non-appropriation clauses.

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

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

Each Fund will seek to achieve its objective by investing primarily in tax-
exempt securities issued by the State after which the Fund is named and its
political subdivisions, agencies, and instrumentalities which are within the
four highest grades of either Moody's (Aaa, Aa, A, or Baa) or S&P's (AAA, AA,
A or BBB) or which are unrated but are of comparable quality, as determined by
the fund's investment adviser, ND Money Management, Inc. (the "Investment
Adviser" or "ND Money Management"). Municipal Securities within the four
highest grades of Moody's and S&P's are generally considered to be "investment
grade." Those rated Baa by Moody's or BBB by S&P's (and equivalent for unrated
securities) may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds. A Fund will promptly dispose of a bond whose rating drops below
investment grade or is reduced in credit quality with respect to unrated
securities. The characteristics of the rating categories are described in the
Appendix under "Ratings of Investments." There is no assurance that a Fund
will achieve its objective.

B-2

TEMPORARY INVESTMENTS

For temporary defensive purposes, each Fund may invest in any of the follow-
ing short-term, fixed-income obligations, the interest on which is subject to
federal income taxes: obligations of the United States Government, its agencies,
or instrumentalities; debt securities rated within the three highest grades of
Moody's or S&P; commercial paper rated in the highest two grades by either of
those rating services (P-1, P-2 or A-1, A-2, respectively); certificates of
deposit of domestic banks with assets of $25,000,000 or more; and Municipal
Securities or any of the foregoing temporary investments subject to short-
term repurchase agreements. When a Fund invests in accordance with this
policy, it may do so without percentage limits. A repurchase agreement is an
instrument under which the purchaser acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which price is higher than the purchase price),
thereby determining the yield during the holding period. Maturity of the
securities subject to repurchase may exceed one year. In the event of a bank-
ruptcy or other default of a seller of a repurchase agreement, the Fund might
incur expenses in enforcing its rights and could experience losses, including a
decline in the value of the underlying securities and loss of income.
Dividends from interest income from temporary investments may be taxable to
shareholders as ordinary income. See "Dividends and Taxes" below. For a
description of the ratings of commercial paper and other debt securities
permitted as temporary investments, see "Appendix-Ratings of Investments."

INVESTMENT POLICIES AND TECHNIQUES

GENERAL

Each Fund may engage in future transactions and options on such futures in
accordance with its investment objective and policies for hedging purposes and
not for speculation. The ND Fund may also engage in option transactions on
securities in accordance with its objective and policies. Each Fund intends to
engage in such transactions if it appears advantageous to the Investment
Adviser to do so in order to pursue its investment objective, to hedge against
the effects of fluctuating interest rates, and to stabilize the value of its
assets. The use of futures and options, possible benefits, and attendant risks
are discussed below, along with information concerning certain other investment
policies and techniques.

Financial Futures Contracts

A Fund may enter into financial futures contracts. Financial futures
contracts are commodity contracts that obligate the long or short holder to
take or make delivery of a specified quantity of a financial instrument, such
as a security, or the cash value of a securities index during a specified
future period at a specified price. Each Fund may enter into financial futures
contracts for the future delivery of a financial instrument, such as a
security, or the cash value of a security index. This investment technique is
designed primarily to hedge (i.e., protect) against anticipated future changes
in interest rates or market conditions which otherwise might adversely affect
the value of securities which the Fund holds or intends to purchase. A "sale"
of a futures contract means the undertaking of a contractual obligation to
deliver the securities or the cash

B-3

value of an index called for by the contract
at a specified price during a specified delivery period. A "purchase" of a
futures contract means the undertaking of a contractual obligation to acquire
the securities or cash value of an index at a specified price during a
specified delivery period. At the time of delivery in the case of fixed
income securities pursuant to the contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different
interest rate than that specified in the contract. In some cases, securities
called for by a futures contract may not have been issued at the time the
contract was written.

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

A Fund may engage in financial futures as an attempt to hedge against the
effects of fluctuations in interest rates and other market conditions. For
example, if a Fund owned long-term Municipal Securities and interest rates were
expected to rise, it could sell futures on a Municipal Securities Index. If
interest rates did increase, the value of the Municipal Securities in the Fund
would decline, but this decline would be offset in whole or in part by an
increase in the value of the Fund's futures contracts. If, on the other hand,
long-term interest rates were expected to decline, a Fund could hold short-
term Municipal Securities and benefit from the income earned by holding such
securities, while at the same time the Fund could purchase futures contracts on
a Municipal Securities Index. Thus, a Fund could take advantage of the
anticipated rise in the value of long-term Municipal Securities without
actually buying them. The futures contracts and short-term Municipal
Securities could then be liquidated and the cash proceeds used to buy long-
term Municipal Securities. A Fund will not enter into any futures contracts
or options on futures contracts if the aggregate of the contract value of the
outstanding options written by the Fund would exceed 50% of the total assets of
the respective Fund.

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

There may be an imperfect correlation between movements in prices of futures
contracts and portfolio securities that are being hedged. The degree of
difference in price movements

B-4

between futures contracts and the securities being hedged depends upon such
things as variations in speculative market demand for futures contracts
and debt securities and differences between the securities being hedged
and the securities underlying the futures contracts, e.g., interest
rates, tax status, maturities, and creditworthiness of issuers. While
interest rates on taxable securities generally move in the same direction
as interest rates on Municipal Securities, there are frequently differences in
the rate of such movements and temporary dislocations. Accordingly, the use of
a financial futures contract on a taxable security or a taxable securities
index may involve a greater risk of an imperfect correlation between the price
movements of the futures contract and of the Municipal Security being hedged
than when using a financial futures contract on a Municipal Security or a
Municipal Securities Index. If a liquid secondary market did not exist when a
Fund wished to close out a financial futures contract, it would not be able to
do so and would have to continue making daily cash payments of variation margin
in the event of adverse price movements. In addition, futures markets have
daily market price movement limits for many futures contracts which may further
inhibit the Investment Adviser's ability to manage the Fund's portfolio.
Futures contracts held by a Fund may be illiquid during periods when daily
market price movement limits have reached. As a result, net assets of the Fund
may be impacted negatively until normal futures trading resumes or until the
Fund's future contracts are closed out. In addition to the foregoing, the
market prices of futures contracts may be affected by certain factors. If
participants in the futures market elect to close out their contracts through
off-setting transactions rather than meet margin requirements, distortions in
the normal relationship between the debt securities and futures markets could
result. Price distortions could also result if investors in futures contracts
decide to make or take delivery of underlying securities rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, from the point of view of speculators, the margin
requirements in the futures market are less onerous than margin requirements in
the cash market. Thus, increased participation by speculators in the futures
market could cause temporary price distortions. Due to the possibility of
price distortions in the futures market and because of the imperfect correla-
tion between movements in the prices of securities and movements in the prices
of futures contracts, a correct forecast of market trends by the Investment
Adviser may still not result in a successful hedging transaction. If this
should occur, a Fund could lose money on the financial futures contracts and
also on the value of its portfolio securities.

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

Options on Financial Futures Contracts

Each Fund may purchase and write call and put options on financial futures
contracts in an attempt to hedge against the effects of fluctuations in
interest rates and other market conditions. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time

B-5

during the period of the option. A call option gives the purchaser the right
to buy, and the writer the obligation to sell, the underlying futures contract
at the exercise price during the option period. A put option gives the
purchaser the right to sell, and the writer the obligation to buy the underly-
ing futures contracts at the exercise price during the option period. A Fund
would be required to deposit with its Custodian initial margin and maintenance
margin with respect to put and call options on futures contracts written by it.
Options on futures contracts involve risks similar to those risks relating to
transactions in financial futures contracts described above. Also, an option
purchased by a Fund may expire worthless, in which case the Fund would lose the
premium paid therefor.

Options on Securities

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

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

B-7

exercise of the call option, it realizes a gain or loss from the sale of the
underlying security, with the proceeds being increased by the amount of the
premium.

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

Options on Securities Indices

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

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

Options on securities and index options involve risks similar to those risks
relating to transactions in financial futures contracts described above.
Price movements in securities which the Fund owns or intends to purchase will
not correlate perfectly with movements in the level of the index, and, there-
fore, the Fund bears the risk that a loss on an index option would not be
completely offset by movements in the price of such securities. The use of
index options on a taxable security may involve a greater risk of an imperfect
correlation between price movements in the Municipal Securities being hedged
and the movements in the level of the index. Because index options are settled
in cash, a call writer cannot determine the amount of its settlement obliga-
tions in advance and, unlike call writing on specific securities, cannot
provide in advance for, or cover, its potential settlement obligations by
acquiring and holding the underlying securities. Also, an option purchased by
the ND Fund may expire worthless, in which case the Fund would lose the
premium paid therefor.

Delayed Delivery Transactions

Each Fund may purchase portfolio securities on a when-issued or delayed
delivery basis. When issued or delayed delivery transactions involve a
commitment by the respective Fund to purchase securities with payment and
delivery to take place in the future in order to secure what is considered to
be an advantageous price or yield to the Fund at the time of entering into the
transaction. When a Fund enters into a delayed delivery purchase, it becomes
obligated to purchase securities and it has all the rights and risks attendant
to ownership of a security, although delivery and payment occur at a later
date. The value of fixed income securities to be delivered in the future will
fluctuate as interest rates vary. At the time a Fund makes the commitment to
purchase a security on a when-issued or delayed delivery basis, it will record
the transaction and reflect the amount due and the value of the security in
determining its net asset value. A Fund generally has the ability to close
out a purchase obligation on or before the settlement date, rather than to
purchase the security. Because a Fund is required to segregate cash or
liquid high-grade debt securities to satisfy its commitments to purchase
when-issued or delayed-delivery securities, management of the Fund's invest-
ments may be limited if commitments to purchase when-issued or delayed-delivery
securities were to exceed 25% of the value of its total assets.

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

Diversification and Concentration Policies

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

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

A Fund will not invest 25% or more of its total assets in any industry.
Governmental issuers of Municipal Securities are not considered part of an
"industry." However, Municipal Securities backed only by the assets and
revenues of non-governmental users will for this purpose be deemed to be
issued by such non-governmental users, in which case the 25%

B-8

limitation would apply to such obligations. Accordingly, no more than 25%of a
Fund's assets will be invested in obligations deemed to be issued by non-
governmental users in any one industry and in taxable obligations of issuers
in the same industry. In addition, each Fund may invest more than 25% of its
net assets in industrial development bonds whose revenue sources are from
similar types of projects, for example, education, electric utilities, health
care, housing, transportation, or water, sewer, and gas utilities. There may
be economic, business, or political developments or changes that affect all
securities of a similar type, such as proposed legislation affecting the
financing of certain projects, shortages or price increases of necessary
materials, or declining market needs for such projects. Therefore, develop-
ments affecting a single issuer, industry, or securities financing similar
types of projects could have a significant effect on the Fund's performance.

Portfolio Turnover

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

Regulatory Restrictions

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

To the extent required to comply with Commodity Futures Trading Commission
Regulation 4.5 to avoid "commodity pool operator" status, each Fund will use
futures and options positions only (a) for "bona fide hedging purposes" (as
defined in CFTC regulations) or (b) for other purposes so long as aggregate
initial margins and premiums required in connection with non-hedging positions
do not exceed 5% of the liquidation value of the investment company's port-
folio. Each Fund will not engage in transactions in financial futures
contracts or options thereon for speculation, but only to attempt to hedge
against changes in market conditions affecting the values of securities which
the Fund holds or intends to purchase. With respect to the ND Fund, when
futures contracts or options thereon are purchased to protect

B-9

against a price increase on securities intended to be purchased later, it is
anticipated that at least 75% of such intended purchases will be completed.
In addition, when other futures contracts or options thereon are purchased,
the underlying value of such contracts will at all times not exceed the sum
of: (1) accrued profit on such contracts held by the broker; (2)cash or high
quality money market instruments set aside in an identifiable manner; and
(3) cash proceeds from investments due in 30 days.

INVESTMENT RESTRICTIONS

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

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

(2) Purchase securities (other than securities of the United States
Government, its agencies or instrumentalities, or securities of the state
after which the Fund was named (e.g., the State of North Dakota for the ND
Fund) or their respective political subdivisions, agencies, or instrumentali-
ties) if as a result of such purchase 25% or more of the Fund's total assets
would be within any industry.

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

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

(5) Make short sales of securities.

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

(7) Invest more than 15% of its net assets in illiquid securities, including
(a) securities which at the time of such investment are not readily marketable,
(b) securities

B-10

restricted as to disposition under the federal securities laws, and (c) repur-
chase agreements maturing in more than seven days.

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

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

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

(11) Invest more than 10% of its total assets in securities of other invest-
ment companies, except in connection with a merger, consolidation, reorganiza-
tion, or acquisition of assets.

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

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

(14) Invest in real estate (or real estate mortgage loans in the case of the
Montana Fund and the South Dakota Fund), although a Fund may invest in
Municipal Securities which are secured by real estate and securities of
issuers which invest or deal in real estate.

In addition to the foregoing, the ND Fund, as a fundamental policy, may not
write, purchase, or sell puts, calls, or combinations thereof, except in
accordance with its investment objective and policies.

Interest paid on funds borrowed as permitted by (4) above will decrease the
net earnings of the respective Fund.

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

Each Fund may invest more than 25% of its net assets in industrial develop-
ment bonds.

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

B-11

ADDITIONAL RISK CONSIDERATIONS

An investment in the Funds are subject to a number of risks, some of which
have been described in the Funds' Prospectus under "Fund Summary" for each
Fund and the "Risk Factors" Section. See also "Investments" and "Investment
Policies and Techniques" above for some of the risks associated with the Funds'
investment policies. In addition to the foregoing, you should note that each
Fund is a separately registered investment company the shares of which are
being offered through the same prospectus. Accordingly, one Fund could be
liable for any misstatement, inaccuracy, or incomplete disclosure in the
prospectus concerning another Fund.

MANAGEMENT OF THE FUNDS

The management of each Fund, including general supervision of the duties
performed for a Fund under its Investment Advisory Agreement, is the responsi-
bility of its Board of Directors. The number of directors of each Fund is
five, two of whom are "interested persons" (as the term "interested persons"
is defined in the Investment Company Act of 1940) and three of whom are "dis-
interested persons." The names and business addresses of the directors and
officers of the Funds and their principal occupations and other affiliations
during the past five years are set forth below, with the directors who are
"interested persons" of the Funds indicated by an asterisk.

B-12
<TABLE>
<CAPTION>
<S> <C> <C> <C>
POSITIONS HELD
NAME AND ADDRESS AGE WITH EACH FUND PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS1

Lynn W. Aas2 77 Director Retired; Attorney; Director, ND Holdings, Inc.;
904 NW 27th Director, Integrity Fund of Funds, Inc.; Trustee,
Minot, North Dakota 58701 Ranson Managed Portfolios; Director, First Western
Bank & Trust

Orlin W. Backes3 63 Director Attorney; Director, Integrity Fund
15 2nd Ave. SW, Suite 305 of Funds, Inc.; Trustee, Ranson Managed
Minot, North Dakota 58701 Portfolios; Director, First Western Bank & Trust

R. James Maxson4 51 Director Attorney; Director, Integrity Fund of Funds, Inc.;
6 - 9th Street SE Trustee, Ranson Managed Portfolios
Minot, ND 58701

*Peter A. Quist5 65 Director Director and Vice President, ND Holdings, Inc.;
1 North Main Vice- Director, Vice President, and Secretary, ND Money
Minot, North Dakota 58703 President Management, Inc., ND Capital, Inc., ND Resources, Inc.,
Secretary and Integrity Fund of Funds, Inc.; Ranson Capital Corporation;
Trustee, Vice President and Secretary, Ranson Managed Portfolios;

*Robert E. Walstad6 54 Director Director and President, ND Holdings, Inc.; Director, President,
1 North Main President and Treasurer, ND Money Management, Inc., ND Capital, Inc., ND
Minot, North Dakota 58703 Treasurer Resources, Inc., and Integrity Fund of Funds, Inc.; Trustee,
Chairman, President, and Treasurer, Ranson Managed Portfolios;
Director, President, CEO, and Treasurer, Ranson Capital Corporation
</TABLE>
__________________________
1 Except as otherwise indicated, each individual has held the office(s) shown
for the past five years. Mssrs. Aas, Backes, and Walstad were elected to the
Board of Trustees of Ranson Managed Portfolios at a joint special meeting of
the shareholders of The Kansas Municipal Fund Series, The Kansas Insured
Municipal Fund - Limited Maturity Series (subsequently renamed "The Kansas
Insured Intermediate Fund"), and The Nebraska Municipal Fund Series of Ranson
Managed Portfolios held on December 11, 1995, but did not assume office until
January 5, 1996. Mssrs. Quist and Walstad were elected as directors and
officers of The Ranson Company, Inc., and Ranson Capital Corporation on January
5, 1996.
2 Mr. Aas resigned as a director of ND Holdings, Inc., on August 17, 1994. He
was elected to the board of directors of Integrity Fund of Funds, Inc., on
August 19, 1994, and to the boards of each Fund on December 2, 1994.
3 Mr. Backes was elected to the board of directors of each Fund and of the
Integrity Fund of Funds, Inc., in 1995.
4 Mr. R. James Maxson was elected to the board of directors of each Fund,
Integrity Fund of Funds, Inc., and the board of trustees for the five series
of the Ranson Managed Portfolios on December 4, 1998, effective January 1, 1999.
5 Mr. Quist has served on the board of directors of Montana Fund, Integrity
Fund of Funds, Inc., and the ND Fund since their inceptions. He was elected to
the board of South Dakota Fund on April 7, 1995, and has served as the vice
president and secretary of each of the aforementioned funds since their
inceptions.
6 Mr. Walstad has served as a director and as the president and treasurer of
each Fund and the Integrity Fund of Funds, Inc., since their inceptions.

Directors who are not an "interested person" as that term is defined in the
1940 Act of the Funds are paid an annual fee of $10,000 for serving on the
boards of the Funds in the complex. In addition to the three Funds, the di-
rectors are also directors of six open-end investment companies advised by ND
Money Management, Inc. or Ranson Capitals Corporation, an affiliate of the
Investment Adviser. Each of these funds (which includes the five series of
Ranson Managed Portfolios), pays a pro rata share of the fee based upon its
respective assets. Messrs. Quist and Walstad, who are the only "interested
persons" of such funds, receive no compensation from the funds.

B-13

The following table sets forth compensation paid by each Fund to each of
the directors of the Funds and total compensation paid to each director for
the fiscal year ended December 31, 1998. The Funds have no retirement or
pension plans.

COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
TOTAL**
AGGREGATE* COMPENSATION FROM
AGGREGATE* AGGREGATE* COMPENSATION FROM FUNDS AND FUND
NAME OF PERSON, COMPENSATION FROM COMPENSATION FROM THE SOUTH DAKOTA COMPLEX PAID TO
POSITION(S) THE MONTANA FUND THE ND FUND FUND DIRECTORS

Lynn W. Aas
Director $1,330.12 $1,795.20 $613.90 $10,000.00

Orlin W. Backes
Director $1,330.11 $1,795.20 $613.91 $10,000.00

Arthur A. Link(1)
Director $1,330.12 $1,795.20 $613.91 $10,000.00
R. James Maxson(2)
Director -0- -0- -0- -0-

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

Robert E. Walstad
Director, President,
and Treasurer -0- -0- -0- -0-
___________ __________ __________ ___________
TOTALS $3,990.35 $5,385.60 $1,841.74 $30,000.00
</TABLE>
____________________
(1) Mr. Link has retired effective December 4, 1998.
(2) Mr. Maxson was appointed to the board of each Fund on December 4, 1998,
effective January 1, 1999.
* Based on compensation paid to the directors for the one-year period ended
December 31, 1998 for services to the respective Fund.
** Based on the compensation paid to the trustees for the one-year period
ended December 31, 1998 for services to the Funds and six other open-end funds
advised by ND Money Management, Inc. or Ranson Capital Corporation.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of ____________________________, no person owned of record or was known
by a Fund to own of record or beneficially 5 percent or more of the Fund's out-
standing shares. In addition, as of _________________, the officers and
directors of each Fund, in the aggregate, own less than 1% of the shares of
each Fund.

B-14

INVESTMENT ADIVSORY AND OTHER SERVICES

INVESTMENT ADVISER

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

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

For the management services and facilities furnished by ND Money Management,
each of the Funds has agreed to pay the Investment Adviser an annual management
fee, payable monthly, of 0.60% of the respective Fund's average daily net
assets. In addition, the Investment Adviser voluntarily agreed to waive all
or a portion of its management fee or reimburse certain expenses of a Fund for
the year ended April 30, 2000 in order to prevent total operating expenses
excluding extraordinary expenses from exceeding 1.35% of the average daily net
asset value of the shares of the relevant Fund. The table below sets forth the
advisory fees paid by the Funds, net of expenses reimbursements and the fees
waived and expenses reimbursed by the Investment Adviser for the periods
indicated.

MANAGEMENT FEES NET OF
EXPENSE REIMBURSEMENT FEE WAIVERS AND
TO ND MONEY MANAGEMENT EXPENSE REIMBURSEMENTS
FOR THE YEAR ENDED FOR THE YEAR ENDED
______________________________ ______________________________
12/31/96 12/31/97 12/31/98 12/31/96 12/31/97 12/31/98
Montana Fund $170,943 $246,178 $285,851 $6,570 -0- $40,905
ND Fund $560,900 $544,971 $469,016 -0- -0- $36,818
South Dakota
Fund $ 33,385 $ 44,337 $ 7,592 $1,384 -0- $37,094

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

B-15

Investment Adviser in the performance of its duties or by reason of its reck-
less disregard of its obligations and duties under the respective Investment
Advisory Agreement.

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

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

DISTRIBUTION PLANS

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

To compensate the Underwriter for its services and expenses in distributing
shares, including the foregoing payments, each Fund has adopted a Plan pursuant
to Rule l2b-1 under the Investment Company Act of 1940. Rule 12b-1 provides
that any payments made by a Fund in connection with the distribution of its
shares may be made only pursuant to a written plan describing all material
aspects of the proposed financing of the distribution and also requires that
all agreements with any person relating to the implementation of a plan must be
in writing. Each Fund has also entered into a related Distribution Agreement
with the Underwriter.

Each Fund's Plan and its related Distribution Agreement provide that the
respective Fund will pay the Underwriter an annual fee for certain expenses
incurred in connection with the offer and sale of such Fund's shares. The
fee is calculated daily and paid monthly at the annual rate of 0.85% of the
average daily net assets of the ND Fund (0.75% of the average daily net assets
of the Montana Fund and South Dakota Fund). The fee under each Fund's Plan may
be used by the Underwriter to cover any expenses primarily intended to result
in the sale of the respective Fund's shares, including, but not limited to,
sales commissions and other fees paid to dealers who sell Fund shares; payments
made to, and expenses of, persons who provide support services

B-16

in connection with the distribution of such Fund's shares; costs relating to
the formulation and implementation of marketing and promotional activities;
costs of printing and distributing prospectuses, statements of additional
information, and reports of the relevant Fund to prospective shareholders;
costs involved in preparing, printing, and distributing advertising and sales
literature; and other sales expenses.

In addition to reimbursing the Underwriter for commissions previously paid
to dealers and related financing costs (together with amounts received from
contingent deferred sales charges), the Plan also provides the Underwriter
with reasonable compensation for its services and other expenses. Other
expenses incurred by the Underwriter may include allocable overhead expenses,
such as salaries, rent, printing, and communications.

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

Each Fund's Plan continues in effect from year to year, provided that each
such continuance is approved at least annually by a vote of the Fund's Board
of Directors, including a majority of the directors who are not "interested
persons" of such Fund and have no direct or indirect financial interest in the
operation of the Plan or in the related Distribution Agreement or in any other
agreement related to the Plan (the "Qualified Directors"), cast in person at a
meeting called for the purpose of voting on such continuance. Each Fund's Plan
may be terminated at any time, without penalty, by vote of a majority of the
Qualified Directors of the Fund or by vote of a majority of the outstanding
shares of the Fund. If the Fund's Plan is terminated and not continued, the
Underwriter is not legally entitled to any payment for amounts expended but
not yet recovered. However, the Board of Directors of the respective Fund
reserves the right to make payments to the Underwriter notwithstanding a
termination or non-continuance. Any amendment to a Plan to increase
materially the amount the Fund is authorized to pay thereunder would require
approval by a majority of the outstanding shares of the respective Fund.
Other material amendments to a Fund's Plan would be required to be approved
by vote of the Board of Directors of such Fund, including a majority of the
Qualified Directors, cast in person at a meeting called for that purpose.
Each Fund's Plan further provides that as long as the respective Fund's Plan
remains in effect, the selection and nomination of the Qualified Directors will
be committed to the discretion of the Qualified Directors then in office. It
is expected that payments made under a Plan will serve to encourage the Under-
writer and investment dealers to sell Fund shares and to provide ongoing
services to Fund shareholders.

The Underwriter has voluntarily agreed (not as part of the Distribution
Agreement) to waive a portion of the fee payable under the Distribution Plan
during the early stages of a Fund's existence. The table below provides the
fees paid by Funds, under the Distribution Plan, net of waivers, for the
periods indicated:

B-17

12B-1 FEES PAID FOR
THE FISCAL YEARS ENDED
12/31/96 12/31/97 12/31/98
________ ________ ________
Montana Fund $88,756 $157,458 $272,297
ND Fund $303,489 $452,996 $421,529
South Dakota Fund $ 17,384 $ 26,399 $ 37,238

The 12b-1 fees paid by the ND Fund during the fiscal year ended December
31, 1998 were spent on distribution expenses including $_________ on adver-
tising, $_________ on compensation to dealers (including commission and
service fees), $____________ on distribution related overhead of the Under-
writer, and $___________ as compensation to the Underwriter. During this same
period, the 12b-1 fees paid by the Montana Fund and the South Dakota Fund were
spent on distribution expenses including $____________ and $__________ on adver-
tising, $___________ and $___________ on compensation to dealers (including
commission and service fees) and $__________ and ____________ on distribution
related overhead of the Underwriter, respectively.

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

CUSTODIAN AND TRANSFER AGENT

Bremer Bank, N.A., 20 First Street SW, Minot, North Dakota 58701 performs
custodial services for the securities and cash of the ND Fund and South Dakota
Fund. First Western Bank & Trust, 900 South Broadway, Minot, North Dakota
58701, performs custodial services for the securities and cash of the Montana
Fund. ND Resources ("ND Resources"), a wholly-owned subsidiary of ND Holdings,
1 North Main, Minot, North Dakota 58703, is the Funds' Transfer Agent. As
Transfer Agent, ND Resources performs many of the Funds' clerical and
administrative functions. For its services, each Fund pays ND Resources a
monthly fee ranging from .16 of 1% of the net asset value of all the respective
Fund's outstanding shares up to $10 million down to .09 of 1% for net assets in
excess of $50 million. ND Resources also provides internal accounting and
related services for each Fund, for which it is paid a monthly fee of $2,000
plus 0.05% of the respective Fund's average daily net assets on an annual basis
for the first $50 million down to 0.01% for the net assets in excess of $500
million.

ACCOUNTANTS AND REPORTS TO SHAREHOLDERS

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

B-18

so by the respective Fund. Shareholders will receive annual audited financial
statements and semiannual unaudited financial statements.

EXPENSES

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

PORTFOLIO TRANSACTIONS

Allocation of portfolio brokerage transactions to various brokers is deter-
mined by the Investment Adviser in its best judgment and in a manner deemed
fair and reasonable to shareholders. The Investment Adviser may consider a
number of factors in determining which brokers to use for a Fund's portfolio
transactions. The primary consideration is prompt and efficient execution of
orders in an effective manner at the most favorable price. Subject to this
consideration, brokers who provide supplemental investment research, statisti-
cal, or other services to the Investment Adviser may receive orders for trans-
actions by a Fund. Information thus received will enable the Investment
Adviser to supplement its own research and analysis with the views and informa-
tion of other securities firms and may be used for the benefit of clients of
the Investment Adviser other than the Funds. Research services may include
advice as to the value of securities; the advisability of investing in,
purchasing, or selling securities; the availability of securities or purchasers
or sellers of securities; furnishing analyses and reports concerning issues,
industries, securities, economic factors and trends, portfolio strategy, and
performance of accounts; and effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement). A broker's
sales of a Fund's shares may also be considered a factor if the Investment
Adviser is satisfied that the respective Fund would receive from that broker
the most favorable price and execution then available for a transaction. Muni-
cipal bonds, notes, and short-term securities in which a Fund invests are
traded primarily in the over-the-counter market on a net basis and do not
normally involve either brokerage commissions or transfer taxes. Accordingly,
the Investment Adviser expects that transactions in Municipal Securities will
be effected on a principal (as opposed to an agency) basis and therefore does
not expect to pay any brokerage commissions on such transactions. Purchases
may be made from underwriters, dealers, or issuers. The Fund's cost of port-
folio securities transactions will consist primarily of dealer or underwriter
spreads. The Funds may also pay mark-ups on

B-19

principal transactions. The Funds will not engage in principal transactions
with affiliates. Commissions will be paid on the Funds' futures and options
transactions, if any.

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

The table below reflects the aggregate amount of commissions paid by the
Funds for the periods indicated.

COMMISSION PAID FOR
FISCAL YEAR ENDED
______________________________
12/31/96 12/31/97 12/31/98
_______ _______ _______
Montana Fund $15,825 $20,925 $ 1,250
ND Fund $ 1,968 $31,938 $ 9,225
South Dakota Fund $ 1,610 $ 1,750 $ -0-

ND Capital, Inc., the Funds' underwriter (the "Underwriter"), was the only
dealer through which transactions involving the payment of commissions was
effected. Accordingly, 100% of the brokerage commissions paid by the Funds
(as reflected above) were paid to ND Capital. Fluctuations in commissions
were due to changes in procedures in the purchase and sale of municipal
securities.

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

PURCHASE AND REDEMPTION OF SHARES

Fund shares may be purchased from investment dealers who have sales agree-
ments with the Fund's Underwriter or from the Underwriter. Fund shares are
sold at their public offering price, which is the net asset value next deter-
mined after an order and payment are received in proper form. On December 31,
1998, the net asset value per share of each Fund was calculated as follows: for
the ND Fund, net assets of $80,987,062 were divided by 9,055,044 shares out-
standing to equal a net asset value per share of $8.94; with respect to the
Montana Fund, net assets of $58,878,852 were divided by 5,857,896 shares out-
standing to equal a net asset value per share of $10.05; and with respect to
the South Dakota Fund, the net assets of $7,748,258 were divided by 746,382
shares outstanding to equal a net asset value per share of $10.38.

No sales charge is imposed when shares are purchased. However, a contingent
deferred sales charge is imposed if certain shares are redeemed within five
years after their purchase. See "How to Purchase Shares" in the Funds'
Prospectus. The Underwriter will pay a sales

B-20

commission to investment dealers and to its salesmen who sell Fund shares. The
Underwriter may also provide additional promotional incentives to dealers who
sell Fund shares. In some instances, these incentives may be offered only to
certain dealers who have sold or may sell significant amounts of shares.

Each Fund reserves the right to withdraw all or any part of the offering of
its shares and to reject purchase orders. Also, from time to time, a Fund may
temporarily suspend the offering of its shares to new investors. During the
period of such suspension, persons who are already shareholders of the respec-
tive Fund normally will be permitted to continue to purchase additional shares
and to have dividends reinvested.

In order to facilitate redemptions and to eliminate the need for safe-
keeping, the Transfer Agent will not issue certificates for shares of the
Funds unless requested to do so. A shareholder or broker may obtain a
certificate by writing to the Transfer Agent at P.O. Box 759, Minot, North
Dakota 58702.

MONTHOMATIC INVESTMENT PLAN

A shareholder may purchase additional Fund shares through an automatic
investment program (minimum initial investment is $100). With the Monthomatic
Investment Plan ("Monthomatic"), monthly investments (minimum $50) are made
automatically from the shareholder's account at a bank, savings and loan
association, or credit union into the shareholder's Fund account. By enrolling
in Monthomatic, the shareholder authorizes the Fund and its agents to either
draw checks or initiate Automated Clearing House debits against the designated
account at a bank or other financial institution. Such account must have check
or draft writing privileges. A shareholder may terminate the Monthomatic by
sending written notice to the Transfer Agent. See "Systematic-Investing - the
Monthomatic Plan" in the Funds' Prospectus for additional information.

EXCHANGE PRIVILEGE

As described in the Funds' Prospectus under "Exchanging Shares," each Fund
offers an exchange privilege pursuant to which a shareholder in a Fund may
exchange some or all of his shares in any of the funds advised and under-
written by the Underwriter or Ranson Capital Corporation or ND Management at
net asset value. The exchange privilege may be changed or discontinued upon
60 days' written notice to shareholders and is available only to shareholders
where such exchanges may be legally made. A shareholder considering an ex-
change should obtain and read the prospectus of the Fund and consider the
differences between it and the fund whose shares he owns before making an
exchange. For further information on how to exercise the exchange privilege,
contact the Transfer Agent.

B-21

MINIMUM INVESTMENT

The minimum initial investment for each Fund is $1,000 ($100 for the Month-
omatic Investment Plan), and the minimum subsequent investment is $50, but such
minimum amounts may be changed at any time.

REDEMPTIONS

Any Fund shareholder may require its respective Fund to redeem shares. All
registered owners must sign a letter of instruction which needs to be signature
guaranteed if the request is over $50,000 and sent to the Transfer Agent at
P.O. Box 759, Minot, North Dakota 58702. When certificates for shares have
been issued, they must be mailed to or deposited with the Transfer Agent, along
with a duly endorsed stock power with signatures guaranteed over $50,000 and
accompanied by a written request for redemption. Signatures must be guaranteed
by a commercial bank, trust company, savings and loan association, or member
firm of a national securities exchange. A notary public may not provide a
signature guarantee. The redemption request and stock power must be signed
exactly as the account is registered including any special capacity of the
registered owner. The redemption price will be the net asset value next
determined following receipt of a properly executed request with any required
documents, less any applicable contingent deferred sales charge, as described
below. Payment for shares redeemed will be made in cash as promptly as practi-
cable but in no event later than seven days after receipt of a properly
executed letter of instruction accompanied by any outstanding share certifi-
cates in proper form for transfer. When a Fund is requested to redeem shares
for which it may not yet have received good payment (e.g., cash or certified
check on a United States bank), it may delay the mailing of a redemption check
until such time as it has assured itself that good payment has been collected
for the purchase of such shares (which will generally be within 15 calendar
days).

CONTINGENT DEFERRED SALES CHARGES

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

B-22

PERCENTAGE
CONTINGENT
YEAR SINCE REDEMPTION DEFERRED
AMOUNT WAS INVESTED SALES CHARGE
______________________________ ____________
First 4.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 1.0%
Sixth and following No Charge

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

All purchases are considered made on the trade date. In determining whether
a contingent deferred sales charge is payable on any redemption, the Fund will
first redeem shares not subject to any charge. Thereafter, in determining the
applicable percentage rate, the amount of dollars redeemed will be charged
against the aggregate cost of shares purchased in each year, beginning with the
shares purchased earliest. This will result in a shareholder paying the lowest
possible contingent deferred sales charge rate.

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

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

B-23

(500 shares times $20 per share times the applicable rate of 4.0%). If in the
same year you redeemed your remaining 500 shares, the Fund would treat this as
a redemption of your $10,000 investment made one year ago, applying a charge at
the rate of 4.0%.

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

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

Each Fund reserves the right to redeem Fund accounts that are reduced to a
value of less than $1,000 (for any reason other than fluctuation in the market
value of the Fund's portfolio securities). Should a Fund elect to exercise
this right, the investor will be notified before such redemption is processed
that the value of the investor's account is less than $1,000 and that the in-
vestor will have sixty days to increase the account to at least the $1,000
minimum amount before the account is redeemed. Each Fund allocates net
interest income to those shares for which the Fund has received payment. A
Fund receives the entire public offering price of all of its shares sold.

B-24

SYSTEMATIC WITHDRAWAL PLAN

A shareholder who owns shares with an aggregate value of $5,000 or more may
establish a Systematic Withdrawal Plan (the "Withdrawal Plan"). Under the
Withdrawal Plan, a shareholder may redeem at net asset value, subject to any
applicable contingent deferred sales charge (see Contingent Deferred Sales
Charge above), the number of full and fractional shares that will produce
whatever monthly, quarterly, semi-annual, or annual payments (minimum $50
per payment) are selected. No additional charge is made for this service.

A shareholder who participates in the Monthomatic Investment Plan is in-
eligible to participate in the Withdrawal Plan. If payments exceed reinvested
dividends and distribution, a shareholder's shares will be reduced and
eventually depleted. The Withdrawal Plan may be terminated at any time by a
shareholder or the Fund.

NET ASSET VALUE

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

UNDERWRITER

ND Capital, a subsidiary of ND Holdings, is the principal underwriter of the
Funds' shares in a continuous public offering. ND Capital is located at 1
North Main, Minot, North Dakota 58703. Robert E. Walstad and Peter A. Quist,
who are directors and the president and treasurer and vice president and
secretary, respectively, of the Funds, are also the only two directors and
officers of the Underwriter. The Underwriter sells shares to or through
brokers, dealers, or other qualified financial intermediaries (collectively
referred to as "Dealers"), or others, in a manner consistent with the then
effective registration statement of the Funds. ND Capital, Inc. may act as
such a Dealer.

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

B-25

applicable Fund's shares and to undertake such advertising and promotion as it
believes is reasonable in connection with such solicitation. The Underwriter
pays a sales commission currently equal to 3-3/4% (1% on sales of $1 million or
more) of the amount invested to dealers who sell shares (excluding sales to
investors exempt from the contingent deferred sales charge). For the fiscal
year ended December 31, 1998, the Underwriter paid commissions in connection
with sales of the shares of the Montana Fund, the ND Fund and the South Dakota
Fund of $511,779, $110,268 and $39,884, respectively. As a further inducement
to the sale of Fund shares and in recognition of services provided to share-
holders, the Underwriter may also pay service fees to dealers at the annual
rate of up to 0.25% of the average net assets which are attributable to share-
holders of the Fund for whom such dealers are designated as the dealers of
record. See "Distribution Plans" for additional information.

Because shares of the Funds are sold without any front-end sales loads, the
Underwriter does not receive underwriting commissions. The Underwriter,
however, does receive compensation pursuant to a distribution plan adopted
by the Funds pursuant to Rule 12b-1. For a description of such compensation,
see "Distribution Plans." The Underwriter also receives any CDSCs imposed on
redemptions of shares.

The following table sets forth the amount of compensation on redemptions,
brokerage commissions and other compensation received by the Underwriter from
each of the Funds for the last fiscal year ended December 31, 1998.

COMPENSATION ON BROKERAGE OTHER
REDEMPTIONS COMMISSION COMPENSATION*
________________________________________
Montana Fund $67,416 $1,250 $_________
North Dakota Fund $38,428 $9,225 $_________
South Dakota Fund $11,940 $ -0- $_________
_______________________
* The amounts received by the Underwriter as compensation under each Fund's
12b-1 Distribution Plan, after expenses and payments to dealers who sell Fund
Shares.

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

B-26

DIVIDENDS AND TAXES

DIVIDENDS

All of the net investment income of each Fund is declared daily as a divi-
dend on shares for which the applicable Fund has received payment. Net invest-
ment income of a Fund consists of all interest income earned on portfolio
assets less all expenses of such Fund. Income dividends will be distributed
monthly, and dividends of net realized short-term and long-term capital gains,
if any, will normally be paid out once a year after the end of the Fund's
fiscal year. Each Fund may at any time vary the foregoing dividend practices
and, therefore, each Fund reserves the right from time to time to either
distribute or retain for reinvestment such of its net investment income and
its net short-term and long-term capital gains as the Board of Directors of
the Fund determines appropriate under the then current circumstances. In
particular, and without limiting the foregoing, each Fund may make additional
distributions of net investment income or capital gain net income in order to
satisfy the minimum distribution requirements contained in the Internal Revenue
Code of 1986, as amended (the "Code").

Income and capital gains dividends, if any, of a Fund will be credited to
shareholder's accounts in full and fractional of such Fund shares at net asset
value on the reinvestment date unless shareholders indicate in writing to the
Transfer Agent that they wish to receive them in cash. See "Reinvestment
Options" in the Funds' Prospectus for a description of the dividend payment
options available to shareholders.

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

A check will be generated on the date on which distributions are payable for
dividends to be received in cash. A shareholder can expect to receive this
check within seven days. If the U.S. Postal Service cannot deliver the check
of if the check remains uncashed for six months, a letter will be sent to the
shareholder. If the shareholder has not cashed the check or called within a
month and if the shareholder has shares in his or her account, the check will
be reinvested in the shareholder's account at the then-current net asset value.
If the shareholder has a zero balance, we will contact the shareholder by phone
or contact his or her broker. If the shareholder has misplaced or lost the
check, we will then issue a new check.

Distribution checks may be sent to parties other than the investor. The
Transfer Agent of the Fund will accept a letter from the shareholder. Please
attach a voided check if payable to your bank account (signature guarantee is
not required). If payable to a person or address other than the person or
address under which the shares are registered, a signature guarantee is
required.

B-27

TAXES

Each Fund intends to qualify as a regulated investment company under Sub-
chapter M of the Code and, if so qualified, will not be liable for federal
income taxes to the extent its earnings are distributed. Each Fund intends to
meet the requirements of the Code applicable to regulated investment companies
distributing tax-exempt interest dividends, and, therefore, dividends
representing net interest received on Municipal Securities will not be in-
cludable by shareholders in their gross income for federal income tax purposes,
except to the extent such interest is subject to the alternative minimum tax as
discussed hereinafter. Dividends representing taxable net investment income
(such as net interest income from temporary investments in obligations of the
United States), net short-term capital gains, and gains on the sale of market
discount bonds purchased after April 30, 1993, if any, are taxable to share-
holders as ordinary income, and long-term capital gain dividends are generally
taxable to shareholders as long-term capital gains, regardless of how long the
shares have been held and whether received in cash or shares. Dividends
declared by a Fund in October, November, or December to shareholders of record
as of a date in one of those months and paid before the following January are
treated as paid on December 31 of the calendar year declared for federal income
tax purposes. All taxpayers are required to disclose on their federal income
tax returns the amount of tax-exempt interest earned during a year, including
exempt-interest dividends from the Funds. Dividends from the Funds will not be
eligible for the dividends received deduction available to corporate
shareholders.

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

Redemption of shares of a Fund will be a taxable transaction for federal
income tax purposes. Gain or loss realized on the sale or exchange of shares
in a Fund will be treated as capital gain or loss, provided that (as is usually
the case) the shares represented a capital asset in the hands of the share-
holder. In such case, the shareholder will recognize capital gain or loss in
an amount equal to the difference between the basis of the shares and the
amount received. Such gain or loss will be long-term gain or loss if the
shares were held more than one year. The loss on shares held six months or
less will be a long-term capital loss to the extent any long-term capital
gain distribution is made with respect to such shares during the period the
investor owns the shares. In the case of shareholders holding shares of the
Fund for less than six months and subsequently selling those shares at a loss
after receiving an exempt-interest dividend, the loss will be disallowed to
the extent of the exempt- interest dividends received.

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

B-28

Net interest on certain "private activity bonds" issued on or after August
8, 1986, is treated as an item of tax preference and may, therefore, be subject
to both the individual and corporate alternative minimum tax. To the extent
provided by regulations to be issued by the Secretary of the Treasury, exempt-
interest dividends from a Fund are to be treated as interest on "private-
activity bonds" in proportion to the interest the Fund receives from private
activity bonds, reduced by allowable deductions. The Funds may not be an
appropriate investment for persons who are "substantial users" of facilities
financed by private activity bonds held by a Fund or are "related persons" to
such users. Such persons should consult their tax adviser before investing in
a Fund.

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

Interest on indebtedness which is incurred to purchase or carry shares of a
mutual fund which distributes exempt-interest dividends during the year is not
deductible for federal income tax purposes.

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

If in any year a Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Fund would incur a regular
corporate federal income tax upon its income for that year (other than interest
from Municipal Securities), and distribution to its shareholders would be
taxable to shareholders as ordinary dividend income for federal income tax
purposes to the extent of the Fund's available earnings and profits.

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

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

B-29

STATE TAXES

ND FUND

To the extent that dividends are derived from earnings on North Dakota state
and local government issues, such dividends will be exempt from North Dakota
income taxes in the hands of shareholders that are corporations, individuals,
estates, and trusts.

MONTANA FUND

Dividends to the extent of interest received on Montana state and local gov-
ernment issues are exempt from Montana state income taxes in the hands of
shareholders that are individuals, estates, and trusts. Such dividends are
subject to Montana tax, however, in the hands of shareholders that are corp-
orations. Moreover, Montana taxes capital gains (including capital gain dis-
tributions paid by the Fund) at the same rates as ordinary income.

SOUTH DAKOTA

South Dakota does not assess personal or corporate income tax.

CALCULATION OF PERFORMANCE DATA

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

Yields are calculated according to accounting methods that are standardized
by the SEC for all stock and bond funds. Because yield calculation methods
differ from the methods used for other accounting purposes, a Fund's yield may
not equal its distribution rate, the income paid to an investor's account, or
the income reported in the Fund's financial statements. A Fund may also
include in advertisements performance rankings compiled by independent organ-
izations such as Lipper Analytical Services and publications which monitor the
performance of mutual funds. Performance information may be quoted numerically
or may be represented in a table, graph, or other illustration.

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

YIELD

As of December 31, 1998, the 30-day SEC Yield for the ND Fund, the Montana
Fund, and the South Dakota Fund, was 3.262%, 3.593% and 3.144%, respectively.
Absent fee waivers and expense assumptions, the 30-day SEC Yield as of December
31, 1998 for the ND Fund, Montana Fund and South Dakota Fund, would have been
2.865%, 3.284% and 2.471%, respectively.

B-30

Yield reflects the income per share deemed earned by a Fund's portfolio
investments. Yield is determined by dividing the net investment income per
share deemed earned during the preceding 30-day period by the maximum offering
price per share on the last day of the period and annualizing the result
according to the following formula:

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

Where:
a = dividends and interest earned during the period.

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

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

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

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

(a) Compute the yield to maturity of each obligation held by the Fund based
on the market value of the obligation (including actual accrued interest) at
the close of business on the last business day of each month, or, with respect
to obligations purchased during the month, the purchase price (plus actual
accrued interest). The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date.

(b) Divide the yield to maturity by 360 and multiply the quotient by the
market value of the obligation (including actual accrued interest) to determine
the interest income on the obligation for each day of the subsequent month that
the obligation is in the portfolio. Assume that each month has 30 days.

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

B-31

TAX EQUIVALENT YIELD

As of December 31, 1998, the Tax Equivalent Yield for the ND Fund, the
Montana Fund, and the South Dakota and was 6.19%, 6.86% and 5.62%, respective-
ly. The tax equivalent calculation for the ND Fund, Montana Fund and South
Dakota Fund were based on combined federal and state income tax rates of
47.26%, 47.64% and 44.02%, respectively.

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

TEY = CY / (1-SITR)

Where:

TEY = Tax Equivalent Yield

CY = Current Yield

SITR = Stated Income Tax Rate

For additional tax equivalent yield information, see "Tax-Free vs. Taxable
Income".

TOTAL RETURN

As of December 31, 1998, the total return for the ND Fund, the Montana Fund,
and the South Dakota Fund was 65.64%, 32.01% and 33.34%, respectively.

Total return is the percentage change in the value of a hypothetical invest-
ment that has occurred in the indicated time period, taking into account the
imposition of various fees, including the contingent deferred sales charge, and
assuming the reinvestment of all dividends and distributions. Cumulative total
return reflects a Fund's performance over a stated period of time and is
computed as follows:

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

Where:

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

P = a hypothetical initial payment of $1,000

In calculating cumulative and average annual total return, the maximum
contingent deferred sales charge is deducted from the hypothetical investment.
However, such total return

B-32

quotations may also be accompanied by quotations which do not reflect the
contingent deferred sales charges, and which therefore will be higher.

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

P(1 + T)n = ERV

Where:

P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

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

The following table reflects the average annual total return for each of the
Funds for the periods indicated:

AVERAGE ANNUAL TOTAL RETURN
______________________________________________________
ONE YEAR* FIVE YEARS FROM INCEPTION**
ENDED ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998
______________________________________________________
Montana Fund 3.66% 5.15% 5.29%
ND Fund 3.48% 4.13% 5.18%
South Dakota Fund 3.88% N/A 6.26%
_______________________________
* The 1 year return does not include the effect of the 4% maximum Contingent
Deferred Sales Charge. Taking into account the CDSC, the one year return for
the ND Fund, Montana Fund and South Dakota Fund would have been (.46)%, (.30)%
and (.08)%, respectively.
** The inception date for the Montana Fund, the ND Fund and the South Dakota
Fund is August 12, 1993, January 3, 1989, and April 5, 1994, respectively.

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

TAX-FREE VERSUS TAXABLE INCOME

The taxable equivalent yield is the current yield you would need to earn on
a taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like
the Funds with taxable alternative instruments, the tables below present the
taxable equivalent yields for hypothetical tax-free yields and tax rates.
Taxable equivalent yield is computed by dividing that portion of the Fund's
yield which is tax-exempt by the remainder of 1 minus the stated combined
federal and state income tax rate and adding the product to that portion, if
any, of the Fund's yield that is not tax-exempt. Our calculations below are
based on the maximum federal statutory tax rates applicable in 1999. The

B-33

highest marginal federal tax rate for 1999 can be in excess of the statutory
maximum federal tax rate due to the disallowance of a portion of itemized
deductions and personal exemptions.

NORTH DAKOTA

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

We have calculated the combined marginal tax rate based on a family with
adjusted gross income from $180,000 to $300,000 for 1999 filing on a married
filing jointly basis with two dependent children. At this level of income,
the highest federal marginal tax rate is 44.02%. In addition, this assumes
the investor is not subject to alternative minimum tax and has a reasonable
amount of itemized deductions. Assuming the deductibility of North Dakota
taxes in computing federal taxable income, the combined marginal tax rate for
this taxpayer is approximately 47.26%.

The following table uses the combined marginal tax rate of 47.26% to
present the equivalent taxable yield for taxpayers in the situation presented
above.

ND TAX-FREE EQUIVALENT TAXABLE YIELD
YIELD FOR TAXPAYER IN 1998
___________ _______________________
5.0% 9.48%
5.5% 10.43%
6.0% 11.38%
6.5% 12.32%
7.0% 13.27%
7.5% 14.22%
8.0% 15.17%

MONTANA

The following table shows the rate of return an individual Montana investor
would need to receive from a taxable investment to equal the rate of return
from the Montana Fund. The table assumes that the investor's income from a
taxable investment would be subject to federal income tax at the maximum
federal rate and Montana state income tax at a rate equal to 11% of the Montana
taxable income. This assumes that the maximum Montana individual income tax
rate will remain at 11%.

We have calculated the combined marginal tax rate based on families with
adjusted gross incomes of $180,000 to $300,000 for 1999 filing on a married
filing jointly basis with two dependent children. At this level of income,
the highest federal marginal tax rate is 44.02%. In

B-34

addition, this assumes the investor is not subject to alternative minimum tax
and has a reasonable amount of itemized deductions.

The following table uses the combined marginal tax rate of 47.64% for
adjusted gross income of $180,000 to $300,000 to present the equivalent taxable
yield for taxpayers in the situations presented above assuming that federal
income taxes are deductible in calculating Montana taxable income and that
Montana income taxes are deductible in calculating federal taxable income.

MONTANA TAX-FREE EQUIVALENT TAXABLE YIELD
YIELD FOR TAXPAYER IN 1999
_______________ _______________________
5.0% 9.55%
5.5% 10.50%
6.0% 11.46%
6.5% 12.41%
7.0% 13.37%
7.5% 14.32%
8.0% 15.28%

SOUTH DAKOTA

The following table shows the rate of return an individual South Dakota
investor would need to receive from a taxable investment to equal the rate of
return from the South Dakota Fund. Because South Dakota does not have an
individual income tax system, the table assumes that the investor's income from
a taxable investment would be subject to federal income tax only, at the
maximum federal rate.

We have calculated the effective marginal tax rate for three different
taxable income brackets (31%, 36%, and 39.6%). Each bracket assumes that the
investor is filing jointly with two dependent children.

B-35

In addition, this assumes the investor is not subject to alternative minimum
tax and has a reasonable amount of itemized deductions.

TAXABLE INCOME HIGHEST MARGINAL
BETWEEN TAX RATE
_____________ _______________
#1 $128,600 31.93%
and
158,550
#2 $158,550 40.02%
and
283,150
#3 $283,150 44.02%
and
OVER

The following table uses the marginal tax rate for each taxable income
bracket to present the equivalent taxable yield for taxpayers in the situations
above.

SOUTH DAKOTA EQUIVALENT TAXABLE YIELD
TAX-FREE FOR TAXPAYER IN 1998
YIELD WITH TAXABLE INCOME AS IN

#1 #2 #3
5.0% 7.35% 8.34% 8.93%
5.5% 8.08% 9.17% 9.82%
6.0% 8.81% 10.00% 10.72%
6.5% 9.55% 10.84% 11.61%
7.0% 10.28% 11.67% 12.50%
7.5% 11.02% 12.50% 13.40%
8.0% 11.75% 13.34% 14.29%

ORGANIZATION AND SHARE ATTRIBUTES

Each Fund is organized as a corporation under the laws of the State of
North Dakota and is authorized to issue shares all of one class and one series,
with a par value of $.001 per share. The ND Fund was incorporated on October
7, 1988, the Montana Fund was incorporated on April 15, 1993, and the South
Dakota Fund was incorporated on October 1, 1993. The ND Fund is authorized to
issue a total of 100,000,000 shares and the Montana Fund and South Dakota Fund
are each authorized to issue 200,000,000 shares. Shares are fully paid and
nonassessable when issued, are redeemable and freely transferable, and have
equal rights and preferences in all matters, including voting. Cumulative
voting, a form of proportional representation, is permitted in the election of
directors. Under cumulative voting, a shareholder may cumulate votes either
by casting for one candidate a number of votes equal to the number of directors
to be elected multiplied by the number of votes represented by the shares
entitled to vote or by distributing all

B-36

of those votes on the same principle among any number of candidates. There are
no subscription, preemptive, or conversion rights.

SHAREHOLDER MEETINGS

It is probable that a Fund will not hold regular meetings of shareholders.
Each Fund's Bylaws provide the regular meetings of shareholders may be held on
an annual or other less frequent basis but need not be held unless required by
law. Under the North Dakota Business Corporation Act, if a regular meeting of
shareholders has not been held during the immediately preceding fifteen months,
a shareholder or shareholders holding 5% or more of the voting power of all
shares entitled to vote may demand a regular meeting by written notice of
demand given to the president or secretary of the Fund. Within thirty days
after receipt of the demand, the Board of Directors must cause a regular meet-
ing of shareholders to be called, or if the Board fails to do so, the share-
holder or shareholders making the demand may call the meeting by giving notice
as prescribed by law. All necessary expenses of the notice and the meeting
must be paid by the respective Fund.

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

APPENDIX - RATINGS OF INVESTMENTS

The four highest ratings of Moody's Investors Service, Inc. ("Moody's"),
for municipal bonds are Aaa, Aa, A, and Baa. Municipal bonds rated Aaa are
judged to be of the "best quality." The rating of Aa is assigned to municipal
bonds which are of high quality by all standards, but as to which margins of
protection or other elements make long-term risks appear somewhat larger than
Aaa rated municipal bonds. The Aaa, Aa, and A rated municipal bonds comprise
what are generally known as "high grade bonds." Municipal bonds which are
rated A by Moody's possess many favorable investment attributes and are
considered "upper medium grade obligations." Factors giving security to
principal and interest of A rated municipal bonds are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future. Municipal bonds which are rated Baa are considered
as medium grade obligations; i.e., they are neither highly protected nor
poorly secured. Interest coverage and principal security appear adequate
for the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.

The four highest ratings of Standard & Poor's Corporation ("S&P") for muni-
cipal bonds are AAA, AA, A, and BBB. Municipal bonds rated AAA have the
highest rating assigned by S&P to a debt obligation. Capacity to pay interest
and repay principal is extremely strong. Bonds rated AA have a very strong
capacity to pay interest and repay principal and differ from the highest rated
issues only in small degree. Bonds rated A have a strong capacity to pay

B-37

interest and repay principal although they are somewhat susceptible to the
adverse effects of changes in circumstances and economic conditions than bonds
in higher rated categories. Bonds rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity than for bonds in
higher rated categories.

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

Taxable or tax-exempt commercial paper ratings of A-1 or A-2 by S&P and P-1
or P-2 by Moody's are the highest paper ratings of the respective agencies.
The issuer's earnings, quality of long term debt, management, and industry
position are among the factors considered in assigning such ratings.

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

FINANCIAL STATEMENTS

To be filed by amendment.

B-38

ND TAX-FREE FUND, INC.
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation(1)
(b) Bylaws(2)
(c) Specimen Copy of Share Certificate(1)
(d) Form of Investment Advisory Agreement(1)
(e) (1)Form of Distribution Agreement(1)
(e) (2)Form of Dealer Sales Agreement(4)
(f) Not Applicable.
(g) Form of Custodian Agreement(3)
(h) (1)Form of Transfer Agency Agreement(3)
(h) (2)Form of Accounting Services Agreement(5)
(i) Opinion of Pringle & Herigstad, P. C.(2)
(j) Consent of Independent Accountant(6)
(k) Not Applicable.
(l) Form of Purchase Agreement(1)
(m) Form of Distribution Plan(3)
(n) Financial Data Schedules.(6)
(o) Not Applicable.
___________________________________

(1) Previously filed as an exhibit to Registrant's Registration Statement on
Form N-1A filed with the Securities and Exchange Commission on October 25,
1988, and incorporated by reference herein.
(2) Previously filed as an exhibit to Pre-effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A filed with the Securities and
Exchange Commission on December 13, 1989, and incorporated by reference herein.
(3) Previously filed as an exhibit to Post-effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A filed with the Securities and
Exchange Commission on October 25, 1988, and incorporated by reference herein.
(4) Previously filed as an exhibit to Post-effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A filed with the Securities and
Exchange Commission on May 1, 1995, and incorporated by reference herein.
(5) Previously filed as an exhibit to Post-effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A filed with the Securities and
Exchange Commisison on May 1, 1996, and incorporated by reference herein.
(6) To be filed by amendment.

C-1

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

Not Applicable.

Item 25. Indemnification

Section 4 of the Distribution Agreement [Exhibit (e)(1)] provides for the
indemnification of ND Capital, Inc., Registrant's principal underwriter,
against certain losses. Section 12 of the Transfer Agency Agreement [Exhibit
(h)(1)] provides for the indemnification of ND Resources, Inc., Registrant's
transfer agent, against certain losses.

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

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

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

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

C-2

Item 26. Business and Other Connections of Investment Adviser

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

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

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

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

Item 27. Principal Underwriters

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

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

NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT

Robert E. Walstad President, Treasurer President, Treasurer
1 North Main and Director and Director
Minot, North Dakota 58703

Peter A. Quist Vice President, Vice President, Secretary
1 North Main Secretary, and Director
Minot, North Dakota 58703 and Director

C-3

Item 28. Location of Accounts and Records

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

Item 29. Management Services

Not Applicable.

Item 30. Undertakings

Not Applicable.

C-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Invest-
ment Company Act of 1940, Registrant has duly caused this Post-effective
Amendment No. 14 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Minot, State of
North Dakota, on the 25th day of February, 1999.

ND TAX-FREE FUND, INC.

By /s/ Robert E. Walstad
Robert E. Walstad
President

Pursuant to the requirements of the Securities Act of 1933, this Post-
effective Amendment No. 14 to Registrant's Registration Statement on Form N-1A
has been signed below by the following persons in the capacities and on the
date indicated.

/s/ Lynn W. Aas February 25, 1999
Lynn W. Aas
Director

/s/ Orlin W. Backes February 25, 1999
Orlin W. Backes
Director

/s/ R. James Maxson February 25, 1999
R. James Maxson
Director

/s/ Peter A. Quist February 25, 1999
Peter A. Quist
Director, Vice President, and Secretary

/s/ Robert E. Walstad February 25, 1999
Robert E. Walstad,
Director, President, and Treasurer

C-5