Dear Shareholders,
We are pleased to enclose the annual report on the operations of the South
Dakota Tax-Free Fund, Inc. for the year ended December 31st, 1997. The Fund's
portfolio and related financial statements are presented within for your
review.
Will Rogers once said, "All I know is what I read in the paper." Well,
if you are reading today's financial reports all you get is confused.
Inflation or deflation? Higher rates or lower rates? Read a paper, watch
television or get on a mailing list and you will find diverse opinions of
economic forecasting are quite often contradictory.
As we enter the new year, the U.S. economy is enjoying nearly seven years of
uninterrupted growth, the unemployment rate is the lowest since 1973, the
stock market is at record highs, interest rates are low and inflation is the
most docile in a generation. Yet, despite these events the financial markets
are volatile.
Recent events in foreign equity markets and their impact on the U.S. stock
market causes us to pause and question whether the recent drop in interest
rates are sustainable at these levels, or will rates back up to higher levels
experienced earlier this year. Our sense is that yields on municipal bonds
will stay at their lower levels during the first half of 1998 when the bulk
of the Asian events slow down the U.S. economy, then edge higher in the
latter part of the year once the Asian drag subsides.
In spite of all this, tax-exempt yields on tax-free municipal bonds are
relatively cheap (a good value) when compared to U.S. Treasury bonds.
Long-term municipals historically offer 75% to 80% of the return available
from a 30 year treasury bond. As of this writing that ratio is about 85%.
The South Dakota Tax-Free Fund, Inc. began the year at $10.50 and then closed
at $10.49. During part of the period the Fund utilized a partial hedge.
Futures contracts in U.S. Treasury bonds were employed. In the first quarter
as interest rates rose this had the effect of minimizing share price erosion.
For the rest of the year as interest rates retreated share price increases
were tempered. The overall effect to the Fund for the year was a greater
degree of share price stability.
The Fund throughout the year has invested in high-grade South Dakota
tax-exempt bonds. Diversification remains an important strategy for the Fund.
Among our purchases in the primary and secondary markets throughout the year
were bonds issued by housing authorities, school districts, and utilities.
Reasonable income exempt from federal income taxes with preservation of
capital remain the chief objectives of the Fund.
We invite your personal calls and visits.
Sincerely,
Monte Avery Robert E. Walstad
Chief Portfolio Strategist President
TERMS & DEFINITIONS
- -------------------
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned
by the fund on an annual basis.
Contingent Deferred Sales Charge (CDSC)
A charge applied at the time of the redemption of which assumes
redemption at the end of the period.
Coupon Rate or Face Rate
The rate of interest annually payable based on the face amount of the
bond; expressed as a percentage.
Lehman Brothers Municipal Bond Index
An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt
bonds representative of the municipal bond market. The index does not
take into account brokerage commissions or other costs, may include bonds
different from those in the fund, and may pose different risks than the
fund.
Market Value
Actual (or estimated) price at which a bond trades in the market place.
Maturity
A measure of the term or life of a bond in years. When a bond "matures",
the issuer repays the principal.
Net Asset Value (NAV)
The value of all your fund's assets, minus any liabilities, divided by
the number of outstanding shares, not including any initial or contingent
deferred sales charge.
Quality Ratings
A designation assigned by independent rating companies to give a relative
indication of a bonds' credit worthiness. "AAA", "AA" and "A" indicate
highest quality. Ratings can range from a high of "AAA" to a low of "D".
Total Return
Measures both the net investment income and any realized and unrealized
appreciation or depreciation of the underlying investments in the fund's
portfolio for the period, assuming the reinvestment of all dividends. It
represents the aggregate percentage or dollar value change over the
period.
PERFORMANCE AND COMPOSITION
- ---------------------------
Portfolio Quality Ratings
(based on Total Long-Term Investments
- -------------------------------------
[pie chart]
AAA 37.5%
AA 13.7%
A 23.9%
BBB 2.0%
NR 22.9%
Quality ratings reflect the financial strength of the issuer. They are
assigned by independent rating services such as Moody's Investors Services
and Standard & Poor's. Non-rated bonds have been determined to be of
appropriate quality for the portfolio by ND Money Management, Inc., the
investment advisor.
Portfolio Market Sectors
- ------------------------
[pie chart]
Housing 24.8%
Real Estate 15.5%
Health Care 15.1%
General Obligation 12.2%
Utilities 12.0%
Industrial 8.7%
School 5.0%
Water/Sewer 3.6%
Other 3.1%
Market sectors are breakdowns of the Fund's portfolio holdings into specific
investment classes.
COMPARATIVE INDEX GRAPH
- -----------------------
[line graph]
Comparison of change in value of $10,000 investment in South
Dakota Tax-Free Fundand Lehman Brothers Municipal Bond Index
<TABLE>
<CAPTION
South Dakota Tax-Free South Dakota Tax-Free Lehman Brothers
Fund w/o CDSC Fund w/ max applicable CDSC Municipal Bond Index
-------------------------------------------------------------------------------
<S> <C> <C> <C>
4/5/1994 $10,000 $10,000 $10,000
1994 $10,280 $ 9,885 $10,035
1995 $11,459 $11,059 $11,787
1996 $12,212 $11,912 $12,309
1997 $12,835 $12,735 $13,442
</TABLE>
Putting Performance into Perspective
The graph comparing your Fund's performance to a benchmark index provides you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities
index measures the performance of a theoretical portfolio. Unlike a fund, the
index is unmanaged; there are no expenses that affect the results. In
addition, few investors could purchase all of the securities necessary to
match the index. And, if they could, they would incur transaction costs and
other expenses.
KEY STATISTICS
- --------------
12-31-96 NAV(share value) $10.50
12-31-97 NAV $10.49
Average Maturity 18.8 years
Number of Issues 37
Total Net Assets $7,330,354
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------
For the periods ending December 31, 1997
- ---------------------------------------------------
1 year 5 year Since Inception
- ---------------------------------------------------
5.10 %* NA 6.90%*
- ---------------------------------------------------
*The 1yr. And Since Inception returns do not include the effect of the 4% and
2% respective Contingent Deferred Sales Charges. It would have been 1.11% and
6.68% respectively, if it had. Returns are historical and are not a guarantee
of future results. The Fund's share price, yields and total returns will
vary, so that shares, when redeemed, may be worth more or less than their
original cost.
<TABLE>
<CAPTION>
Schedule of Investments December 31, 1997
Name of Issuer
Percentages represent the market value Rating Coupon Principal Market
of each investment category to total net assets Moody's/S&P Rate Maturity Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SOUTH DAKOTA MUNICIPAL BONDS ( 97.5%)
Belle Fourche, SD School Dist. #9-1 G.O. FSA Aaa/NR 5.500% 01/15/18 $ 100,000 $ 103,440
Dakota Valley, SD (N. Sioux City) School Dist. #61-8 G.O. NR/NR 6.000 07/01/12 100,000 106,289
Dakota Valley, SD (N. Sioux City) School Dist. #61-8 G.O. NR/NR 5.650 07/01/14 200,000 209,150
Deadwood, SD Sewer, Water and Impvt. C.O.P.'s NR/NR 6.750 11/01/03 250,000 268,440
Grant Cty., SD (Northwestern Public. Svc.) PCR MBIA Aaa/AAA 5.900 06/01/23 400,000 426,196
Hamlin, SD School Dist. #28-3 G.O. NR/NR 6.100 12/15/15 140,000 151,543
Hamlin, SD School Dist. #28-3 Capital Outlay C.O.P.'s NR/NR 5.700 10/01/15 120,000 127,496
Heartland Consumers Power Dist., Elec. Rev. FSA Aaa/AAA 6.000 01/01/09 200,000 218,422
Heartland Consumers Power Dist., Elec. Rev. FSA Aaa/AAA 6.000 01/01/17 400,000 454,536
Henry, SD School Dist. #14-2 School Blding. G.O. NR/NR 6.450 01/01/12 75,000 80,150
Minnehaha Cty., SD C.O.P.'s Aa1/NR 6.000 12/01/12 100,000 106,121
Mitchell, SD School Dist. #17-2 Capital Outlay C.O.P.'s NR/A 6.200 01/15/13 60,000 64,889
Newell, SD School Dist. #09-2 Capital Outlay C.O.P.'s NR/NR 6.000 01/01/17 300,000 313,563
Pierre, SD Sales Tax Ref. Rev. NR/NR 6.000 10/01/14 200,000 213,982
Rapid City, SD School Dist. #51-4 C.O.P.'s MBIA Aaa/AAA 6.200 01/01/12 100,000 109,647
Sioux Falls, SD School Dist. #49-5 G.O. Aa/NR 5.500 07/01/20 150,000 152,576
SD Conservancy Dist. (State Revolving Fund) Rev. A1/NR 5.625 08/01/17 200,000 208,950
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa1/AA+ 6.550 05/01/14 100,000 106,381
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa1/AA+ 6.600 05/01/17 195,000 206,797
SD Hsg. Devl. Auth. Homeownership Mrtge. MBIA Aaa/AAA 6.150 05/01/26 250,000 262,572
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa1/AA+ 6.250 05/01/15 200,000 207,804
SD Hsg. Devl. Auth. Rev. A1/A+ 6.700 04/01/20 370,000 389,728
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa1/AA+ 6.000 05/01/21 200,000 202,452
SD Hlth. & Educ. Facs. Auth. (Huron Regl. Medl. Ctr.) Rev. NR/BBB- 7.250 04/01/20 125,000 140,224
SD Hlth. & Educ. Facs. Auth. (Univ. of Sioux Falls) Rev. NR/NR 7.100 04/01/15 150,000 166,289
*SD Hlth. & Educ. Auth. (Crippled Childrens) Rev. NR/A+ 7.100 07/01/09 260,000 264,355
SD Hlth. & Educ. Auth. (Vocational Educ.) Rev. A1/NR 6.700 08/01/22 150,000 168,518
SD Hlth. & Educ. Facs. Auth. (Rapid City Regl.) Rev.MBIA Aaa/AAA 7.000 09/01/14 90,000 96,242
SD Hlth. & Educ. Auth. (St. Luke's/Midland) Rev. MBIA Aaa/AAA 6.625 07/01/11 250,000 274,765
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa1/AAA 6.100 05/01/17 100,000 101,315
*SD Hsg. Devl. Auth. Homeownership Mrtge. Aa1/AAA 5.800 05/01/28 350,000 353,472
Winner, SD School Dist. #59-2 Capital Outlay C.O.P.'s NR/A 6.200 01/15/10 75,000 80,726
Northwestern School Dist. #56-3 Capital Outlay C.O.P.'s NR/A 6.800 01/15/13 100,000 110,380
SD Student Loan Program Rev. MBIA Aaa/AAA 7.625 08/01/06 45,000 48,018
SD Student Loan Finance Corp. Student Loan Notes A/NR 6.550 08/01/20 300,000 322,944
SD State Lease Rev. C.O.P.'s CGIC Aaa/AAA 6.500 09/01/08 200,000 227,922
Union Cty., SD G.O. A/NR 5.500 12/01/17 100,000 97,642
-----------
SOUTH DAKOTA MUNICIPAL BONDS (COST: $6,743,679) $ 7,143,936
-----------
SHORT-TERM SECURITIES (0.9%)
Federated Tax-Free Fund #15 $ 10,604
Federated Intermediate Municipal Trust #78 52,713
-----------
TOTAL SHORT-TERM SECURITIES (COST: $63,027) $ 63,317
-----------
TOTAL INVESTMENTS IN SECURITIES (COST: $6,806,706) $ 7,207,253
OTHER ASSETS LESS LIABILITIES 123,101
-----------
NET ASSETS $ 7,330,354
===========
</TABLE>
*Indicates bonds are segregated by the custodian to cover when-issued or
delayed-delivery purchases.
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 1997
Statement of Assets and Liabilities December 31, 1997
- -----------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities, at value (cost: $6,806,706) $ 7,207,253
Receivable for fund shares sold 5,000
Accrued dividends receivable 169
Accrued interest receivable 134,628
Variation margin on futures 23,125
---------------
Total Assets $ 7,370,175
---------------
LIABILITIES
Dividends payable $ 32,057
Accrued expenses 7,764
---------------
Total Liabilities $ 39,821
---------------
NET ASSETS $ 7,330,354
===============
Net assets are represented by:
Capital stock outstanding, at par $ 699
Additional paid-in capital 6,690,209
Accumulated undistributed net realized gain(loss) on investments (161,648)
Unrealized appreciation on investments 400,547
---------------
Total amount representing net assets applicable to
698,991 outstanding shares of $.001 par value
common stock (200,000,000 shares authorized) $ 7,330,354
===============
Net asset value per share $ 10.49
===============
Statement of Operations for the year ended December 31, 1997
INVESTMENT INCOME
Interest $ 397,499
Dividends 6,544
---------------
Total Investment Income $ 404,043
---------------
EXPENSES
Investment advisory fees $ 41,337
Distribution fees (12b-1) 51,672
Custodian fees 1,745
Transfer agent fees 11,085
Accounting service fees 27,447
Audit and legal fees 4,673
Insurance 541
Directors fees 1,908
Printing and postage 7,413
License, fees, and registrations 1,072
---------------
Total expenses $ 148,893
Less expenses waived or absorbed
by the Fund's manager 68,538
---------------
Total Net Expenses $ 80,355
---------------
NET INVESTMENT INCOME $ 323,688
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES
Net realized gain (loss) from:
Investment transactions $ 10,127
Futures transactions (167,438)
Net change in unrealized appreciation (depreciation) of:
Investments 165,616
Futures 8,014
---------------
Net Realized And Unrealized Gain (Loss) On Investments
and Futures $ 16,319
---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 340,007
===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 1997
Statement of Changes in Net Assets
For the years ended December 31, 1997 and 1996
- ----------------------------------------------
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
December 31, 1997 December 31, 1996
------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
<S> <C> <C>
Net investment income $ 323,688 $ 289,434
Net realized gain (loss) on investment and futures transactions (157,311) 105,676
Net unrealized appreciation (depreciation) on investments and futures 173,630 (23,170)
------------------------------------------
Net Increase (Decrease) in Net Assets Resulting From Operations $ 340,007 $ 371,940
------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income $ (323,688) $ (289,434)
Distributions in excess of net investment income (26,399) (17,384)
Distributions from net realized gain on investment transactions 0 0
------------------------------------------
Total Dividends and Distributions $ (350,087) $ (306,818)
------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares $ 988,297 $ 1,387,696
Proceeds from reinvested dividends 209,007 166,205
Cost of shares redeemed (253,697) (385,225)
------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
From Capital Share Transactions $ 943,607 $ 1,168,676
------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 933,527 $ 1,233,798
NET ASSETS, BEGINNING OF PERIOD 6,396,827 5,163,029
------------------------------------------
NET ASSETS, END OF PERIOD $ 7,330,354 $ 6,396,827
==========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements December 31, 1997
Note 1. ORGANIZATION
South Dakota Tax-Free Fund, Inc. (the Fund) is registered under the Investment
Company Act of 1940 as a non-diversified, open-end management investment
company. The Fund incorporated under the laws of the State of North Dakota on
October 1, 1993 and commenced operations on April 5, 1994. The Fund's
objective is 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. The Fund will seek to achieve this by investing primarily in a
portfolio of South Dakota tax-exempt securities.
Shares of the Fund are offered with no initial sales charge. Shares may be
subject to a contingent deferred sales charge, if those shares are redeemed
within five years of purchase.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation - Investments in securities traded on national
securities exchanges are valued at the last reported sales price at the close
of each business day. Securities for which market quotations are not readily
available are valued at fair value as determined in good faith by the
portfolio management team. The Fund follows industry practice and records
security transactions on the trade date.
The Fund concentrates its investments in a single state. This concentration
may result in the Fund investing a relatively high percentage of its assets
in a limited number of issuers.
Federal income taxes - The Fund's policy is to comply with the requirements
of the Internal Revenue Code that are applicable to regulated investment
companies, and to distribute all of its net investment income and any net
realized gain on investments, to its shareholders. Therefore, no provision for
income taxes is required. The Fund has available at December 31, 1997, a net
capital loss carryforward totaling $161,648, which may be used to offset
capital gains realized during subsequent years through December 31, 2005.
Distributions to shareholders - Dividends from net investment income, declared
daily and payable monthly, are reinvested in additional shares of the Fund at
net asset value or paid in cash. Capital gains, when available, are
distributed along with the last income dividend of the calendar year.
Investment income - Dividend income is recognized on the ex-dividend date and
interest income is recognized daily on an accrual basis. Premiums and
discounts on securities purchased are amortized using the effective interest
method over the life of the respective securities, unless callable, in which
case they are amortized to the earliest call date.
Futures contracts - The Fund may purchase and sell financial futures contracts
to hedge against changes in the values of tax-exempt municipal securities the
Fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of
a particular index or a certain amount of U.S. Government or municipal
securities at a set price on a future date. Upon entering into a futures
contract, the Fund is required to deposit with a broker an amount of cash or
securities equal to the minimum "initial margin" requirement of the futures
exchange on which the contract is traded. Subsequent payments ("variation
margin") are made or received by the Fund, dependent on the fluctuations in
the value of the underlying index. Daily fluctuations in value are recorded
for financial reporting purposes as unrealized gains or losses by the fund.
When entering into a closing transaction, the Fund will realize, for book
purposes, a gain or loss equal to the difference between the value of the
futures contracts sold and the futures contracts to buy. Unrealized
appreciation (depreciation) related to open futures contracts is required to
be treated as realized gain (loss) for Federal income tax purposes.
Certain risks may arise upon entering into futures contracts. These risks may
include changes in the value of the futures contracts that may not directly
correlate with changes in the value of the underlying securities.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note 3. CAPITAL SHARE TRANSACTIONS
As of December 31, 1997, there were 200,000,000 shares of $.001 par value
authorized; 698,991 and 609,039 shares were outstanding at December 31, 1997
and December 31, 1996, respectively. Transactions in capital shares were as
follows:
Shares
----------------------------------------
For The Year For The Year
Ended Ended
December 31, 1997 December 31,1996
----------------------------------------
Shares sold 94,215 133,378
Shares issued on reinvestment
of dividends 19,917 16,005
Shares redeemed (24,180) (37,361)
----------------------------------------
Net increase 89,952 112,022
========================================
Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
ND Money Management, Inc., the Fund's investment adviser, ND Capital, Inc.,
the Fund's underwriter, and ND Resources, Inc., the Fund's transfer and
accounting services agent, are subsidiaries of ND Holdings, Inc., the Fund's
sponsor.
The Fund has engaged ND Money Management, Inc., to provide investment advisory
and management services to the Fund. The Investment Advisory Agreement
provides for fees to be computed at an annual rate of 0.60% of the Fund's
average daily net assets. The Fund has recognized $41,337 of investment
advisory fees for the year ended December 31, 1997. The Fund has a payable
to ND Money Management, Inc. of $3,882 at December 31, 1997 for investment
advisory fees. Certain officers and directors of the Fund are also officers
and directors of the investment adviser.
The Fund has adopted a distribution plan (the Plan) pursuant to Rule
12b-1 under the 1940 Act, whereby the Fund shall pay to ND Capital, Inc.
(Capital), its principal underwriter, an annual fee for certain expenses
incurred by Capital in connection with the distribution of the Fund's shares.
The annual fee paid to Capital under the Plan is calculated daily and paid
monthly by the Fund at the annual rate of 0.75% of the average daily net
assets of the Fund. The Fund has recognized $26,399 of 12b-1 fee expenses
after partial waiver for the year ended December 31, 1997. The Fund has a
payable to Capital of $2,588 at December 31, 1997 for 12b-1 fees. In addition,
the Fund has engaged Capital as agent for the purchase of certain investment
securities. For the year ended December 31, 1997 commissions earned by
Capital totaled $1,750 and are included in the cost basis of the securities
acquired.
ND Resources, Inc., (the transfer agent), provides shareholder services for
a monthly fee equal to an annual rate of 0.16% of the Fund's first $10
million of net assets, 0.13% of the Fund's net assets on the next $15 million,
0.11% of the Fund's net assets on the next $15 million, 0.10% of the Fund's
net assets on the next $10 million, and 0.09% of the Fund's net assets in
excess of $50 million. The Fund has recognized $11,085 of transfer agency
fees for the year ended December 31, 1997. ND Resources, Inc. also acts
as the Fund's accounting services agent for a monthly fee equal to the sum of
a fixed fee of $2,000, and a variable fee equal to 0.05% of the Fund's
average daily net assets on an annual basis for the Fund's first $50 million
and at a lower rate on the average daily net assets in excess of $50 million.
The Fund has recognized $27,447 of accounting service fees for the year ended
December 31, 1997.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment securities
(excluding short-term securities) aggregated $1,460,165 and $223,860,
respectively, for the year ended December 31, 1997.
Note 6. INVESTMENT IN SECURITIES
At December 31, 1997, the aggregate cost of securities for federal income
tax purposes was $6,806,706 and the net unrealized appreciation of investments
based on the cost was $400,547, which is comprised of $402,905 aggregate gross
unrealized appreciation and $2,358 aggregate gross unrealized depreciation.
Financial Highlights Selected per share data and ratios for the period indicated
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The Period
Since Inception
For The Year For The Year For The Year (April 5, 1994)
Ended Ended Ended Through
December 31, December 31, December 31, December 31,
1997 1996 1995 1994
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.50 $ 10.39 $ 9.86 $ 10.00
--------------------------------------------------------------------------
Income from Investment Operations:
Net investment income $ .53 $ .52 $ .55 $ .39
Net realized and unrealized gain (loss) on
investment and futures transactions .03 .14 .55 (.11)
--------------------------------------------------------------------------
Total From Investment Operations $ .56 $ .66 $ 1.10 $ .28
--------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income $ (.53) $ (.52) $ (.55) $ (.39)
Distributions in excess of net investment income (.04) (.03) (.02) (.02)
From net realized gain on investment transactions .00 .00 .00 (.01)
--------------------------------------------------------------------------
Total Distributions $ (.57) $ (.55) $ (.57) $ (.42)
--------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.49 $ 10.50 $ 10.39 $ 9.86
==========================================================================
Total Return 5.10%(A) 6.58%(A) 11.47%(A) 3.72%(A)(B)
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 7,330 $ 6,397 $ 5,163 $ 2,890
Ratio of net expenses (after expense assumption)
to average net assets 1.17%(C) 0.93%(C) 0.61%(C) 0.46%(B)(C)
Ratio of net investment income to average net
assets 4.70% 5.01% 5.35% 5.62%(B)
Portfolio turnover rate 3.35% 2.47% 0.66% 31.32%
</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 $68,538, $54,598, $37,053, and $24,509, respectively. If the
expenses had not been assumed, the annualized ratio of total expenses
to average net assets would have been 2.16%, 1.88%, 1.51% and 2.15%,
respectively.
The accompanying notes are an integral part of these financial statements.
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors of
South Dakota Tax Free Fund, Inc.
We have audited the accompanying statement of assets and liabilities of South
Dakota Tax Free Fund, Inc. (the Fund), including the schedule of investments,
as of December 31, 1997, the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended and for the period since inception (April 5,1994)
through December 31,1994. These financial statements and financial highlights
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
South Dakota Tax Free Fund, Inc. as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for
each of the respective periods stated in the first paragraph, in conformity
with generally accepted accounting principles.
BRADY, MARTZ & ASSOCIATES, P.C.
February 12, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 6,806,706
<INVESTMENTS-AT-VALUE> 7,207,253
<RECEIVABLES> 139,797
<ASSETS-OTHER> 23,125
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,370,175
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 39,821
<TOTAL-LIABILITIES> 39,821
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,091,455
<SHARES-COMMON-STOCK> 698,991
<SHARES-COMMON-PRIOR> 609,039
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (161,648)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 400,547
<NET-ASSETS> 7,330,354
<DIVIDEND-INCOME> 6,544
<INTEREST-INCOME> 397,499
<OTHER-INCOME> 0
<EXPENSES-NET> (80,355)
<NET-INVESTMENT-INCOME> 323,688
<REALIZED-GAINS-CURRENT> (157,311)
<APPREC-INCREASE-CURRENT> 173,630
<NET-CHANGE-FROM-OPS> 340,007
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (323,688)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (26,399)
<NUMBER-OF-SHARES-SOLD> 94,215
<NUMBER-OF-SHARES-REDEEMED> 24,180
<SHARES-REINVESTED> 19,917
<NET-CHANGE-IN-ASSETS> 933,527
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 41,337
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 148,893
<AVERAGE-NET-ASSETS> 6,887
<PER-SHARE-NAV-BEGIN> 10.50
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> .03
<PER-SHARE-DIVIDEND> (.53)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.04)
<PER-SHARE-NAV-END> 10.49
<EXPENSE-RATIO> 1.17<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Ratio of net expenses to average net assets.
</FN>
</TABLE>
