Rule 497(e)
File Nos. 33-63306
811-7738
SUPPLEMENT DATED JANUARY 7, 2000 TO PROSPECTUS DATED MAY 1, 1999
FOR
MONTANA TAX-FREE FUND, INC.
AND
ND TAX-FREE FUND, INC.
AND
SOUTH DAKOTA TAX-FREE FUND, INC.
Beginning on January 7, 2000, Montana Tax-Free Fund, Inc., ND Tax-Free
Fund, Inc., and South Dakota Tax-Free Fund, Inc. (each a "fund"), will each
offer two classes of shares: Class A and Class B.
Shares of each fund that are outstanding on January 7, 2000 will be
classified as Class B shares. No sales charge will be payable as a result
of this classification.
Investors purchasing shares of the funds on or after January 7, 2000 may
select Class A or Class B shares, with different sales charges and expense
levels. This supplement contains information concerning these classes to be
included in the current prospectus for these funds. Please determine which
class of shares best fits your particular situation. When you place
purchase orders and make redemption requests, please specify whether you wish
to purchase or redeem Class A or Class B shares.
1
1. On pages 5 and 6 for the Montana Tax-Free Fund, Inc., modify the
information under "What are the Fund's Expenses?" to reflect the following:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment)(1)
<S> <C> <C>
SHARE CLASS...................................................................... CLASS A CLASS B
Maximum Sales Charge (Load) Imposed on Purchases................................. 4.25%(2) None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load)............................................. None 4.00%(3)
(as a percentage of lesser of purchase price or redemption proceeds)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends...................... None None
Redemption Fees.................................................................. None None
Exchange Fee..................................................................... None None
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from fund assets)
Management Fees.................................................................. 0.60% 0.60%
Distribution and Service (12b-1) Fees............................................ 0.25% 0.75%(4)
Other Expenses.................................................................. 0.28%(5) 0.28%
----- -----
Total Annual Fund Operating Expenses(6).......................................... 1.13% 1.63%
</TABLE>
[FN]
(1) Authorized Dealers and other firms may charge additional fees for
shareholder transactions or for advisory services. Please see their
materials for details.
(2) Reduced Class A sales charges apply to purchases of $50,000 or more.
See "Class A Shares" under "How to Purchase Shares."
(3) Class B 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 "Class B
Shares" under "How To Purchase Shares."
(4) Because the fund pays 12b-1 fees, long-term Class B shareholders may pay
more in distribution expenses than the economic equivalent of the
maximum front-end sales charges permitted by the NASD.
(5) Based on historical expenses of the fund for Class B shares for the
fiscal year ended December 31, 1998. Actual expenses of Class A shares
may be higher or lower.
(6) 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 Class B
shares. Accordingly, after fee waivers and expense reimbursements,
the fund's actual total annual operating expenses for Class B shares was
1.30% for the fiscal year ended December 31, 1998. The investment
adviser and underwriter have also voluntarily agreed to waive fees
through April 30, 2000 in order to prevent Total Operating Expenses from
exceeding 0.95% of the average daily net assets of Class A shares.
</FN>
2
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 either redeem or do not 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:
REDEMPTION NO REDEMPTION
- --------------------------------------------------------------------
Share Class A B A B
- --------------------------------------------------------------------
1 Year $ 535 $ 570 $ 535 $ 170
- --------------------------------------------------------------------
3 Years $ 769 $ 810 $ 769 $ 510
- --------------------------------------------------------------------
5 Years $1,021 $ 990 $1,021 $ 890
- --------------------------------------------------------------------
10 Years $1,741 $1,930 $1,741 $1,930
- --------------------------------------------------------------------
3
2. On pages 9 and 10 for the ND Tax-Free Fund, Inc., modify the
information under "What are the Fund's Expenses?" to reflect the following:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment)(1)
<S> <C> <C>
SHARE CLASS....................................................................... CLASS A CLASS B
Maximum Sales Charge (Load) Imposed on Purchases................................. 4.25%(2) None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load)............................................. None 4.00%(3)
(as a percentage of lesser of purchase price or redemption proceeds)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends...................... None None
Redemption Fees.................................................................. None None
Exchange Fee..................................................................... None None
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from fund assets)
Management Fees.................................................................. 0.60% 0.60%
Distribution and Service (12b-1) Fees............................................ 0.25% 0.85%(4)
Other Expenses.................................................................. 0.24%(5) 0.24%
----- -----
Total Annual Fund Operating Expenses(6).......................................... 1.09% 1.69%
</TABLE>
[FN]
(1) Authorized Dealers and other firms may charge additional fees for
shareholder transactions or for advisory services. Please see
their materials for details.
(2) Reduced Class A sales charges apply to purchases of $50,000 or more.
See "Class A Shares" under "How to Purchase Shares."
(3) Class B 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 "Class B Shares"
under "How To Purchase Shares."
(4) Because the fund pays 12b-1 fees, long-term Class B shareholders may pay
more in distribution expenses than the economic equivalent of the
maximum front-end sales charges permitted by the NASD.
(5) Based on historical expenses of the fund for Class B shares for the
fiscal year ended December 31, 1998. Actual expenses of Class A shares
may be higher or lower.
(6) 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 Class B
shares. Accordingly, after fee waivers and expense reimbursements, the
fund's actual total annual operating expenses for Class B shares was
1.30% for the fiscal year ended December 31, 1998. The investment
adviser and underwriter have also voluntarily agreed to waive fees
through April 30, 2000 in order to prevent Total Operating Expenses from
exceeding 0.95% of the average daily net assets of Class A shares.
</FN>
4
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 either redeem or do not 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:
REDEMPTION NO REDEMPTION
- --------------------------------------------------------------------
Share Class A B A B
- --------------------------------------------------------------------
1 Year $ 531 $ 570 $ 531 $ 170
- --------------------------------------------------------------------
3 Years $ 757 $ 830 $ 757 $ 530
- --------------------------------------------------------------------
5 Years $1,000 $1,020 $1,000 $ 920
- --------------------------------------------------------------------
10 Years $1,697 $2,000 $1,697 $2,000
- --------------------------------------------------------------------
5
3. On pages 13 and 14 for the South Dakota Tax-Free Fund, Inc., modify
the information under "What are the Fund's Expenses?" to reflect the following:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment)(1)
<S> <C> <C>
SHARE CLASS CLASS A CLASS B
Maximum Sales Charge (Load) Imposed on Purchases................................ 4.25%(2) None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load)............................................ None 4.00%(3)
(as a percentage of lesser of purchase price or redemption proceeds)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends..................... None None
Redemption Fees................................................................. None None
Exchange Fee.................................................................... None None
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from fund assets)
Management Fees................................................................. 0.60% 0.60%
Distribution and Service (12b-1) Fees........................................... 0.25% 0.75%(4)
Other Expenses.................................................................. 0.70%(5) 0.70%
----- -----
Total Annual Fund Operating Expenses(6)......................................... 1.55% 2.05%
</TABLE>
[FN]
(1) Authorized Dealers and other firms may charge additional fees for
shareholder transactions or for advisory services. Please see their
materials for details.
(2) Reduced Class A sales charges apply to purchases of $50,000 or more.
See "Class A Shares" under "How to Purchase Shares."
(3) Class B 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 "Class B Shares"
under "How To Purchase Shares."
(4) Because the fund pays 12b-1 fees, long-term Class B shareholders may pay
more in distribution expenses than the economic equivalent of the
maximum front-end sales charges permitted by the NASD.
(5) Based on historical expenses of the fund for Class B shares for the
fiscal year ended December 31, 1998. Actual expenses of Class A shares
may be higher or lower.
(6) 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 Class B
shares. Accordingly, after fee waivers and expense reimbursements, the
fund's actual total annual operating expenses for Class B shares was
1.30% for the fiscal year ended December 31, 1998. The investment
adviser and underwriter have also voluntarily agreed to waive fees
through April 30, 2000 in order to prevent Total Operating Expenses from
exceeding 0.95% of the average daily net asset value of Class A shares.
</FN>
6
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 either redeem or do not 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:
REDEMPTION NO REDEMPTION
- --------------------------------------------------------------------
Share Class A B A B
- --------------------------------------------------------------------
1 Year $ 576 $ 610 $ 576 $ 210
- --------------------------------------------------------------------
3 Years $ 894 $ 940 $ 894 $ 640
- --------------------------------------------------------------------
5 Years $1,234 $1,200 $1,234 $1,100
- --------------------------------------------------------------------
10 Years $2,192 $2,380 $2,192 $2,380
- --------------------------------------------------------------------
4. Please replace the first five paragraphs under "How to Purchase Shares"
on page 19 with the following:
CLASS A SHARES
You can buy Class A shares at the offering price, which is the net asset
value per share plus an up-front sales charge. You may qualify for a reduced
sales charge, or the sales charge may be waived, as described below. The sales
charge also does not apply to Class A shares acquired through reinvestment of
dividends and capital gains distributions. Each fund has also adopted a
distribution and service plan under Rule 12b-1 under the Investment Company
Act (the "12b-1 Plan") that allows the fund to pay distribution fees for the
sale of its shares and for services provided to shareholders under the 12b-1
Plan. Class A shares are subject to an annual service fee of .25% of the
average daily net assets of Class A shares of the fund which compensates your
financial adviser for providing ongoing service to you. Because these fees
are paid out of fund assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges. The up-front Class A sales charge is as follows:
7
<TABLE>
<CAPTION>
Authorized Dealer
Sales Charge as % Sales Charge as % Commission as
Amount of of Public of Net % of Public
Purchase Offering Price Amount Invested Offering Price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.25% 4.44% 3.60%
- -------------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 3.75% 3.90% 3.15%
- -------------------------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.25% 3.36% 2.75%
- -------------------------------------------------------------------------------------------------------
$250,000 but less than $500,000 2.50% 2.56% 2.00%
- -------------------------------------------------------------------------------------------------------
$500,000 but less than $1,000,000 1.50% 1.52% 1.40%
- -------------------------------------------------------------------------------------------------------
$1,000,000 and over 0.75% 0.76% 0.70%
- -------------------------------------------------------------------------------------------------------
</TABLE>
We offer a number of ways to reduce or eliminate the up-front sales charge
on Class A shares.
<TABLE>
<CAPTION>
CLASS A SALES CHARGE REDUCTIONS CLASS A SALES CHARGE WAIVERS
<S> <C>
* Rights of Accumulation The funds may sell shares without a front-
* Letter of Intent end sales charge to:
* Group Purchase
* directors, officers, employees (including
retirees) of the funds, ND Holdings, ND
Management, and ND Capital for themselves
or certain members of their families;
* trusts, pension, profit-sharing, or other
plans for the benefit of directors, officers,
employees (including retirees) of the funds,
ND Holdings, 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;
* any broker-dealer, financial institution, or
other qualified firm which does not receive
commissions for selling shares to its clients; and
8
* purchases using redemptions from
unrelated funds.
</TABLE>
Please refer to the Statement of Additional Information, as supplemented, for
detailed eligibility requirements. Additional information is available by
calling (800) 276-1262. You or your financial advisor must notify the fund at
the time of each purchase if you are eligible for any of these programs. The
funds may modify or discontinue these programs at any time.
CLASS B SHARES
You can buy Class B shares at 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. Under the 12b-1 Plan, however, you will pay an annual distribution and
service fee of 0.75% of average daily assets of Class B shares (0.85% of
average daily net assets of Class B shares with respect to ND Tax-Free Fund,
Inc.). The annual distribution fee compensates ND Capital, Inc. ("ND
Capital"), the funds' underwriter, for paying dealers 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 of Class B shares to dealers
for providing ongoing service to you. Because these fees are paid out of the
fund's 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.
If you sell your Class B 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.
Years Since Purchase: 1 2 3 4 5 6 and up
CDSC 4% 4% 3% 2% 1% 0%
You do not pay a CDSC on any Class B shares you purchase by reinvesting
dividends and capital gains. When you redeem Class B shares subject to a CDSC,
the fund will first redeem any shares 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 Class B shares you have owned in the order purchased. 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.
9
Purchases of $1 million or more of Class B shares are subject to a reduced
CDSC of 1% if such 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 your initial purchase of your intent to purchase $1
million or more of Class B shares within 13 months and subsequently complete
this investment. Any Class B 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.
Class B shares will automatically convert to Class A shares approximately
eight years after you buy them so that the distribution fees you pay over the
life of your investment are limited. You will continue to pay an annual
service fee on any converted Class B shares of .25% of the average daily net
assets applicable to Class A shares. The conversion will be based on the
relative net asset values of Class A and Class B shares without imposing any
sales load, fee or other charge. The conversion will be effected on the
fifteenth day of the month in which the eighth anniversary of the issuance of
the Class B shares occurs or if the anniversary occurs after the fifteenth,
the conversion will be based on the relative net assets per share of the
two classes on the fifteenth day of the following month. If the fifteenth is
not a business day, the conversion will be effected on the first business
day following the fifteenth. Class B shares outstanding on January 7, 2000
that have been held for 8 years or more after purchase will be converted to
Class A shares effective January 18, 2000. Since the net asset value per share
of the Class B shares and the Class A shares may differ at the time of the
conversion, a shareholder may receive more or fewer Class A shares than the
number of Class B shares converted, but the dollar value will be the same.
This conversion feature may be suspended or terminated if it comes to our
attention that such conversion would constitute a taxable event under federal
income tax law.
The funds may also sell Class B shares without a CDSC to certain investors.
See "CDSC Waivers" for additional information.
5. Please include the following sentence after the first sentence under
"Minimum Investment and Shares Price" on the page 20: The minimum investment
requirements apply per fund share class.
6. Please replace the third sentence in the paragraph under "Exchanging
Shares" to state: If the shares of the original fund are subject to an up-front
sales charge, you will not pay any up-front sales charge or CDSC when
exchanging into shares of a fund that imposes such sales charges.
7. Please include the following sentence in the paragraph under
"Reinstatement Privilege" on page 21: You may only reinvest into the same
share class you redeemed.
8. Please replace the second paragraph under "Distribution and Service
Plan" on page 24, with the following:
10
ND Capital receives a 12b-1 distribution and service fee for
Class B shares primarily for providing compensation to
authorized dealers, including ND Capital, in connection with
the distribution of shares and related financing costs.
These fees also compensate ND Capital for other expenses,
including printing and distributing prospectuses to
persons other than shareholders; preparing, printing, and
distributing advertising and sales literature, and reports to
shareholders used in connection with the sale of shares; and
other overhead expenses (such as rent and salaries).
ND Capital may also use a portion of this fee to pay an annual
service fee to authorized dealers, including ND Capital, for
providing account services to shareholders. Similarly, ND Capital
uses the service fee for Class A shares to compensate authorized
dealers, including ND Capital, 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. Payments made to ND Capital
under the 12b-1 Plan are not dependent upon expenses incurred, and
therefore payments made under the 12b-1 Plan may exceed ND
Capital's expenses in any given year.
Please retain this supplement for future reference. If you want additional
information, please call us at (800) 276-1262.
Supplement dated January 7, 2000
To
Statement of Additional Information dated May 1, 1999
For
Montana Tax-Free Fund, Inc.
ND Tax-Free Fund, Inc.
South Dakota Tax-Free Fund, Inc.
Beginning on January 7, 2000, Montana Tax-Free Fund, Inc., ND Tax-Free
Fund, Inc., and South Dakota Tax-Free Fund, Inc. (each a "Fund"), will each
offer two classes of shares: Class A and Class B.
Shares of each Fund that are outstanding on January 7, 2000 will be
classified as Class B shares. Investors purchasing shares of the Funds on
or after January 7, 2000 may select Class A or Class B shares, with different
sales charges and expense levels. This supplement contains information
concerning these classes to be included in the current Statement of
Additional Information.
1. On pages B-16 to B-17, please replace the first four paragraphs
under "Distribution Plans" with the following:
Each Fund has adopted a plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940, which provides that Class B shares
will be subject to an annual distribution and service fee, and that Class A
shares will be subject to an annual service fee. Each Fund has also entered
into a related Distribution Agreement with ND Capital, Inc. (the "Underwriter"
or "ND Capital").
The 12b-1 fee applicable to Class B shares under each Fund's Plan
will be payable to reimburse ND Capital for services and expenses incurred in
connection with the distribution of Class B shares. These expenses include
sales commissions and other fees paid, together with related financing costs,
to brokers, dealers or other selling entities having a dealer agreement in
effect ("Authorized Dealers"), including ND Capital, who are brokers of record
with respect to the Class B shares, as well as, without limitation, costs
relating to the formulation and implementation of marketing and promotional
activities including, but not limited to, direct mail promotions and
television, radio, newspaper, magazine and other mass media advertising;
expenses of printing and distributing prospectuses, statements of additional
information and reports of the Fund to persons other than shareholders of the
Fund; expenses of preparing, printing and distributing advertising and sales
literature; costs involved in obtaining whatever information, analyses and
reports with respect to marketing and promotional activities that the Fund may
from time to time deem advisable; and reasonable compensation for the
Underwriter's services and other expenses, including allocable overhead
expenses, such as salaries, rent and printing and communications. The Fund
may also use a portion of this fee to compensate Authorized Dealers for
providing services to Class B shareholders of such Fund, as noted below.
Each Fund may spend up to .75 of 1% per year of the average daily net
assets of the Class B shares (.85 of 1% of the average daily net assets of
Class B shares of the ND Tax-Free Fund) as a distribution and service fee. The
Underwriter may use a portion of this fee to pay an annual service fee of up
to .25 of 1% per year of the average daily net assets attributable to the
Class B shares to dealers for providing personal services and/or maintenance
of shareholder accounts to shareholders of such Fund for whom the dealers are
designated as dealers of record.
Similarly, each Fund may spend up to .25 of 1% per year of average
daily net assets of Class A shares as a service fee to compensate Authorized
Dealers, including ND Capital, for personal services and/or maintenance of
shareholder accounts to shareholders of such Fund for whom the dealers are
designated as dealers of record. These services may include answering
routine inquiries regarding the Funds, assisting shareholders in interpreting
confirmations, statements and other documents; assisting shareholders in
redeeming shares; processing shareholder transactions; office space and
telephone facilities; and providing any other shareholder service not
provided by the Funds' transfer agent and for which service fees may be paid.
To determine the service fee payable to Authorized Dealers who are
designated the dealer of record for a shareholder account, "average daily net
assets" attributable to the shares in a shareholder account means the product
of (i) the average daily share balance of the account and (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 the continuance of
the Fund's Plan.
2. On page B-18, please replace the sixth paragraph under "Distribution
Plans" with the following:
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 with respect to a
Fund or as to any given Class A or Class B shares, by vote of a majority of the
Qualified Directors of the Fund or by vote of a majority of the outstanding
shares of the affected Class. 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 with
respect to Class A or Class B shares would require approval by a majority of
the outstanding voting shares of the affected Class of the respective Fund.
2
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 Fund's Directors who
are not interested persons of the Fund will be committed to the discretion
of the disinterested Directors then in office. It is expected that payments
made under a Plan will serve to encourage the Underwriter and investment
dealers to sell Fund shares and to provide ongoing services to Fund
shareholders.
3. On page B-20, please replace the second sentence in the first
paragraph under "Purchase and Redemption of Shares" with the following:
Class B shares of each Fund are sold at the net asset value next determined
after an order and payment are received in proper form. Class A shares of
each Fund are sold at the public offering price equal to the applicable net
asset value plus an up-front sales charge. Please also modify the third
sentence in such paragraph to include "Class B" prior to the words "share"
in that sentence.
4. On page B-20, please replace the second paragraph under "Purchase and
Redemption of Shares" with the following:
As described in the Prospectus, the Funds provide you with alternative
ways of purchasing Fund shares based upon your individual investment needs and
preferences by offering Class A shares and Class B shares, as described below.
.
CLASS A SHARES
You may purchase Class A shares at a public offering price equal to the
applicable net asset value per share plus an up-front sales charge imposed
at the time of purchase as set forth in the Prospectus. You may qualify for
a reduced sales charge, or the sales charge may be waived in its entirety,
as described below. Class A shares are also subject to an annual service fee
of .25% of the average daily net assets of Class A shares of the Fund. Set
forth below is an example of the method of computing the offering price of
the Class A shares of each of the Funds. The example assumes a purchase on
January 7, 2000 of Class A shares from a Fund aggregating less than $50,000
subject to the schedule of sales charges set forth in the Prospectus at a
price based upon the net asset value of the Class A shares.
3
<TABLE>
<CAPTION>
Montana ND Tax-Free South Dakota
Tax-Free Fund Fund Tax-Free Fund
<S> <C> <C> <C>
Net Asset Value per share $9.33 $8.38 $9.70
Per Share Sales Charge-4.25%
of public offering price (4.54%
of net asset value per share) $0.41 $0.37 $0.43
Per Share Offering Price to the
Public $9.74 $8.75 $10.13
</TABLE>
Each Fund receives the entire net asset value of all Class A shares that
are sold. ND Capital retains the full applicable sales charge from which it
pays a commission shown in the Prospectus to Authorized Dealers.
REDUCTION OF UP-FRONT SALES CHARGE ON CLASS A SHARES
LETTERS OF INTENT
An investor may qualify for a reduced up-front sales charge immediately by
stating his or her intention to invest in one or more of the Funds, during a
13-month period, an amount that would qualify for a reduced sales charge and by
signing a nonbinding Letter of Intent, which may be signed at any time within
90 days after the first investment to be included under the Letter of
Intent. After signing the Letter of Intent, each investment made by an
investor will be entitled to the sales charge applicable to the total
investment indicated in the Letter of Intent. If an investor does not complete
the purchases under the Letter of Intent within the 13-month period, the
sales charge will be adjusted upward, corresponding to the amount actually
purchased. When an investor signs a Letter of Intent, shares of a Fund with
a value of up to 5% of the amount specified in the Letter of Intent will be
restricted. If the total purchases made by an investor under the Letter of
Intent, less redemptions, equals or exceeds the amount specified in the Letter
of Intent, the restriction on the shares will be removed. In addition, if the
total purchases exceed the amount specified and qualify for a further quantity
discount, the Underwriter will make a retroactive price adjustment and will
apply the adjustment to purchase additional Class A shares at the then current
applicable offering price. If an investor does not complete purchases
under a Letter of Intent, the sales charge is adjusted upward, and, if after
written notice to the investor, he or she does not pay the increased sales
charge, sufficient restricted shares will be redeemed at the current net asset
value to pay such charge. In connection with the determination of sales
charges applicable to the purchase of shares of a Fund, the Letter of Intent
program will take into account investments in shares of any other mutual fund
carrying a sales load of which ND Capital is the Underwriter.
4
GROUP PROGRAM
Each Fund has a group investment and reinvestment program (the "Group
Program") which allows investors to purchase shares of a Fund with a lower
minimum initial investment and with a lower sales charge if the investor and
the Group Program of which he or she is a participant meet the cost savings
criteria set forth below.
Description of Group Program. If the investor's Group Program (such as an
employee investment program) meets the requirements described below, a Fund
will modify the $1,000 initial investment requirement to such minimum
investment as may be determined by the Fund. The sales charge set forth in
the Funds' Prospectus for each purchase by a participant of a Group Program
will be based on (i) the combined current purchases of such group of shares
together with (ii) the combined net asset value of shares of such group at
the time of such investment. The dealer or agent, if any, through which the
Group Program was initiated will be entitled to a dealer concession or agency
commission based on the sales charges paid by participants of such Group
Program.
Criteria for the Group Program. The cost savings criteria to a Fund that
must be met in order for a Group Program to qualify for the benefits set forth
above are:
(a) The administrator of an investor's investment program must have
entered into an agreement with the Underwriter.
(b) Such agreement must provide that the administrator must submit a
single order and make payment with a single remittance for all investments
during each investment period (e.g., each pay period or distribution period)
by all investors who choose to invest through the Group Program.
(c) Such agreement must provide that the administrator will provide the
Transfer Agent with appropriate backup data for each participating investor in
a computerized format compatible with the Transfer Agent's processing system.
Additional Criteria for the Group Program. As further requirements for
obtaining these special benefits under the Group Program, each Fund requires
that investments be in the form of an open account (with no share certificates
being issued), that all dividends and other distributions be reinvested in
additional shares without any systematic withdrawal program described herein
and that the minimum new investment in shares of a Fund by each participant in
an employee investment program be at least $25 per month. Each Fund reserves
the right to modify or terminate this program at any time.
5
Rights of Accumulation
A purchase of shares may qualify for a cumulative quantity discount.
The applicable sales charge will be based on the total of:
(a) the investor's current purchase; and
(b) the net asset value (at the close of business on the previous day)
of the shares of the Funds held by an investor.
For example, if an investor owned shares worth $40,000 at the current net
asset value and purchased an additional $10,000 of shares, the sales charge
for the $10,000 purchase would be at the rate applicable to a single $50,000
purchase.
To qualify for the cumulative quantity discount on a purchase through a
broker-dealer, when each purchase is made, the investor or broker-dealer must
provide the respective Fund with sufficient information to verify that the
purchase qualifies for the discount.
WAIVERS OF UP-FRONT SALES CHARGE ON CLASS A SHARES
Each Fund may sell Class A shares without an up-front sales charge to
directors, officers, and employees (including retirees) of the Fund, of ND
Holdings, Inc., of ND Money Management, and of ND Capital, Inc., for
themselves or their spouses, children, or parents and parents of spouse, or to
any trust, pension, or profit-sharing, or other benefit plan for only such
persons at net asset value and in any amount. Each Fund may also sell shares
without an up-front 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 up-front sales charge for by certain classes of persons is provided
because of anticipated economies of scale and reduced sales related efforts.
REDEMPTIONS FROM OTHER FUNDS
Class A shares of the Funds may be purchased at net asset value where the
amount invested is documented to the Fund to be proceeds from the redemption of
shares of an unrelated investment company which does not impose a contingent
deferred sales charge or redemption fee and where the investor paid an initial
sales charge. Purchases must be made within 60 days of the redemption date.
Each Fund reserves the right to modify or terminate this privilege at any time.
6
CLASS B SHARES
You may purchase Class B shares at the applicable net asset value per
share without any up-front sales charge. Since Class B shares are sold without
an initial sales charge, the full amount of your purchase payment will be
invested in Class B shares. Class B shares are subject to an annual
distribution and service fee to compensate ND Capital for its costs in
connection with the sale of Class B shares and to compensate Authorized Dealers
for providing you with ongoing financial advice and other account services.
See "Distribution Plans."
You may be subject to a contingent deferred sales charge ("CDSC" or
"charge") if you redeem your Class B shares within five years after purchase.
Any CDSC will be imposed on the lower of the redeemed shares' cost or net asset
value at the time of redemption. Class B shares acquired through the
reinvestment of dividends are not subject to a CDSC. Each Fund may also sell
Class B shares to certain investors without a CDSC. See "Contingent Deferred
Sales Charges" for additional information.
Class B shares will automatically convert to Class A shares approximately
eight years after purchase. The purpose of the conversion is to limit the
distribution fees you pay over the life of your investment. All conversions
will be done at net asset value without the imposition of any sales load, fee,
or other charge, so that the value of each shareholder's account immediately
before conversion will be the same as the value of the account immediately
after conversion. The conversion will be based on the relative net asset values
of the two classes on the fifteenth day of the month in which the eighth
anniversary of the issuance of Class B shares occurs or if the anniversary
occurs after the fifteenth, the conversion will be based on the relative net
asset value per share of the two classes on the fifteenth day of the following
month. If the fifteenth is not a business day, the conversion will be effected
on the first business day following the fifteenth. In addition, if a
shareholder effected an exchange into Class B shares from a fund advised or
underwritten by ND Capital, Ranson Capital Corporation or ND Money Management
and the shares of the original fund are subject to a CDSC, the holding period
of your original investment will be counted toward the eight year period.
Class B shares that are converted to Class A shares will remain subject
to an annual service fee of up to .25 of 1% of the average daily net assets
attributable to the Class A shares. Since the net asset value per share of
the Class B shares and the Class A shares may differ at the time of
conversion, a shareholder may receive more or fewer Class A shares than
the number of Class B shares converted. This conversion feature may be
suspended or terminated if it comes to our attention that such conversion
would constitute a taxable event under federal income tax law.
GENERAL
The Underwriter will pay a sales commission to investment dealers and
to its salesmen who sell Fund shares. The Underwriter may also provide
additional promotional incentives to dealers who sell Fund shares. In some
instances, these incentives may be offered only to certain dealers who have
sold or may sell significant amounts of shares.
7
5. On page 22, please include the following sentence at the end of
paragraph under "Minimum Investment": The minimum investment restrictions
apply per Fund share class.
6. On page B-22, please replace the first paragraph prior to the table
under "Contingent Deferred Sales Charges" with the following:
Except as otherwise provided below, a contingent deferred sales
charge is imposed only if a shareholder redeems Class B shares purchased
within the preceding five years. Class B shares acquired by reinvestment of
dividends may be redeemed without a CDSC 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 Class B 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 CDSC is
determined based on the lower of the redeemed shares' cost or net asset value
at the time of redemption and will depend on the number of years the dollar
amount being redeemed was invested according to the following table:
7. On page B-23, please replace the third paragraph under "Contingent
Deferred Sales Charges" with the following:
All purchases are considered made on the trade date. In determining
whether a contingent deferred sales charge is payable on any redemption, a
Fund will first redeem shares not subject to any charge, or that represent
an increase in the value of a Fund account due to capital appreciation and
then will redeem Class B shares held for the longest period.
8. On pages B-23 and B-24, please insert "Class B" before each reference
to "shares" in the fifth and sixth paragraphs under "Contingent Deferred Sales
Charges." Please also replace the reference to "public offering price"
with "net asset value" in the last sentence in the eighth paragraph
under "Contingent Deferred Sales Charges."
9. On page B-26, please replace the second sentence of the carryover
paragraph to state that:
The Underwriter pays a sales commission to dealers as set forth in
the Funds' Prospectus, as supplemented.
Please also replace the penultimate sentence in this paragraph to state that:
The Underwriter may also use the service fees applicable to Class A
shares and Class B shares to compensate dealers for providing personal service
and/or account maintenance to Class A and Class B shareholders, respectively.
8
10. On page B-26, please replace the first full paragraph with the
following:
Class A shares are sold subject to an up-front sales charge. ND
Capital retains the full applicable up-front sales charge from which it
pays the uniform reallowances shown in the Funds' Prospectus, as supplemented,
to Authorized Dealers. Class B shares are sold at net asset value but are
subject to a CDSC. ND Capital receives any contingent deferred sales
charges imposed on redemptions of Class B shares. In addition, ND Capital
receives any Rule 12b-1 distribution or service fees applicable to Class A
and Class B shares for services and expenses incurred in connection with
the distribution of shares. For a description of such compensation, see
"Distribution Plans."
11. On page B-30, please insert under the heading "Calculation of
Performance Data" the following:
The Funds' performance figures reflected below including yield,
tax equivalent yield and total returns are for Class B shares.
12. On page B-36, please replace the first sentence in the paragraph
under "Organization and Share Attributes" with the following:
Each Fund is organized as corporation under the laws of the State
of North Dakota and is authorized to issue multiple classes and one series,
with a par value of $.001 per share. Each Fund has established four classes
but is publicly offering only two classes designated Class A and Class B
shares.
Each class of shares of a Fund represents an interest in the same
portfolio of investments. Each class of shares is identical in all respects
except that each class bears its own class expenses, including distribution and
administration expenses; each class has exclusive voting rights with respect
to any matters submitted to shareholders that relate solely to that class or
for which the interests of one class differ from the interests of another
class or classes; such differences relating to eligible investors as may be
set forth in the Funds' Prospectus or Statement of Additional Information from
time to time; the designation of each class of shares; and any conversion or
exchange features. As a result of the differences in the expenses borne by
each class of shares, net income per share, dividends per share and net asset
value per share will vary among a Fund's classes of shares. There are no
conversion, preemptive or other subscription rights, except that Class B
shares automatically convert into Class A shares as described above. The Board
of Directors of each Fund has the right to establish additional classes in
the future, to change those classes and to determine the preferences, voting
powers, rights and privileges thereof.
Shareholders of each class will share expenses proportionately for
services that are received equally by all shareholders. A particular class
of shares will bear only those expenses that are directly attributable to that
class, where the type or amount of services received by a class varies from
one class to another. For example, class-specific expenses generally will
include distribution and service fees. The expenses to be borne by specific
classes of shares may include, but are not limited to, 12b-1 distribution
fees and service fees, expenses associated with the addition of share classes
to a Fund (to the extent that the expenses were not fully accrued prior to the
issuance of the new classes of shares), expenses of administrative personnel
and services required to support the shareholders of a specific class,
litigation or other legal expenses relating to a specific class of shares,
9
directors' fees or expenses incurred as a result of issues relating to a
specific class of shares and accounting expenses relating to a specific
class of shares.
13. On page 36, please delete the last sentence in the paragraph under
"Organization and Share Attributes" and replace the third sentence in this
paragraph with the following:
Shares are fully paid and non-assessable when issued, are redeemable
and fully transferable.
Please retain this Supplement for future reference. If you want
additional information, please call us at (800) 276-1262.
10
