Dear Shareholder:
We are pleased to enclose the annual report of the operations of South Dakota
Tax-Free Fund, Inc. for the year ended December 31, 1998. The Fund's
portfolio and related financial statements are presented within for your
review.
As we end 1998, the U.S. economy exhibited more strength than expected. While
there has been some weakening in factory orders reflective of foreign
competition, the housing market and domestic consumer sales have been strong.
Much of this strength can be contributed to the way computer technology has
allowed productivity to increase in the U.S.
In addition to new efficient technology, the U.S. is poised to benefit from
free international trade. The recent trade deficit has restrained U.S.
growth, but at the same time has kept inflation low. However, with the U.S.
dollar declining relative to Asian currencies and Europe improving,
international trade should become less of a drag on the U.S. economy. This,
along with an already robust domestic economy, should help the U.S. prosper.
The main story for municipal investors in 1998 was the increase in the ratio
between municipal and Treasury yields. At the beginning of the year,
municipals were yielding 87% as much as the 30-year Treasury bond. By
year-end, that ratio had climbed to 98%. As yields on the 30-year Treasury
bond fell from 5.92% to 5.09%, municipal yields dropped from 5.15% to 5.00%.
This abnormal relationship does not appear to be a concern over possible tax
law changes, but results from foreign and domestic investor demand for U.S.
Treasuries in times of economic turmoil abroad. Restoring municipals and
Treasuries to a more normal relationship will likely result as the U.S. trade
deficit puts downward pressure on the dollar, thus weakening foreign support
for Treasuries.
Municipal bonds remain ridiculously cheap (in terms of price) by historical
standards. Normally, buyers pay for the tax benefits of municipals by getting
a lower return. Today, however, investors are saving on taxes without giving
up return. Faced with a choice of paying taxes on investment income or not,
what would you do?
The South Dakota Tax-Free Fund, Inc. began the year at $10.49 and closed the
year at $10.38. The South Dakota Tax-Free Fund, Inc., at times during the
year, utilized a defensive position in U.S. Treasury futures to minimize the
effects of strong economic growth. Share price was tempered as yields on U.S.
Treasuries dropped to record lows in the fall and stabilized share price as
yields rose in the latter part of the year. Stability of share price is the
primary objective of a defensive position.
The Fund continues to invest in high-grade South Dakota tax-exempt bonds.
Diversification remains an important strategy for the Fund. Purchases
throughout the year in the primary and secondary markets include South Dakota
Housing Authority and South Dakota Health Facilities for Rapid City Regional
Hospital issues.
Income exempt from federal and South Dakota income taxes with preservation of
capital remain the chief objectives of the Fund.
Your calls and personal visits are always welcome.
Sincerely,
Monte L. 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
investment grade securities. 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 Ratings
(based on Total Long-Term Investments)
- --------------------------------------
[pie chart]
AAA 46.6
AA 12.1
A 14.4
BBB 4.2
NR 22.7
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
(As a % of Net Assets)
- --------------------------
[pie chart]
HC-Health Care 18.6
H-Housing 18.2
GO-General Obligation 17.4
U-Utilities 11.6
I-Industrial 8.3
O-Other 8.5
RE-Real Estate 7.7
S-School 4.3
WS-Water/Sewer 3.4
T-Transportation 2.0
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 a $10,000 investment in the
South Dakota Tax-Free Fund and the Lehman Bros. Municipal Bond
Index
South Dakota South Dakota Lehman Bros
Tax-Free Fund Tax-Free Fund Municipal Bond
W/0 CDSC W/max CDSC Index
- ---------------------------------------------------------------------------
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
1998 $13,334 $13,234 $14,313
Average Annual Total Returns
For periods ending December 31, 1998
-------------------------------------
Since Inception
1 year 5 year (April 5, 1994)
----------------------------------------------------------
Without CDSC 3.88% N/A 6.26%
With CDSC (.08%) N/A 6.09%
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. The Lehman Brothers index is a national index representative of the
national municipal bond market whereas the Fund concentrates its investments
in South Dakota municipal bonds. 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. All Fund and benchmark returns include
reinvested dividends. 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.
Key Statistics
- ---------------
12-31-97 NAV (share value) $10.49
12-31-98 NAV $10.38
Average Maturity 17.7 years
Number of Issues 35
Total Net Assets $7,748,258
<TABLE>
<CAPTION>
Schedule of Investments December 31, 1998
Name of Issuer
Percentages represent the Rating
market value of each Moody's/ Coupon Principal Market
investment category to total net assets S&P Rate Maturity Amount Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SOUTH DAKOTA MUNICIPAL BONDS(91.4%)
Belle Fourche, SD School Dist. #9-1 G.O. FSA Aaa/NR 5.500% 01/15/18 $ 100,000 $ 104,688
Dakota Valley, SD (N. Sioux City) School Dist. #61-8 G.O. NR/NR 6.000 07/01/12 100,000 103,249
Dakota Valley, SD (N. Sioux City) School Dist. #61-8 G.O. NR/NR 5.650 07/01/14 200,000 203,936
Deadwood, SD Sewer, Water and Impvt. Capital Outlay NR/NR 6.750 11/01/03 250,000 261,658
#Grant Cty., SD (Northwestern Public. Svc.) PCR MBIA Aaa/AAA 5.900 06/01/23 400,000 429,568
Hamlin, SD School Dist. #28-3 Capital Outlay NR/NR 5.700 10/01/15 120,000 122,657
Hamlin, SD School Dist. #28-3 G.O. NR/NR 6.100 12/15/15 140,000 143,917
#Heartland Consumers Power Dist., Elec. Rev. FSA Aaa/AAA 6.000 01/01/09 200,000 226,426
*Heartland Consumers Power Dist., Elec. Rev. FSA Aaa/AAA 6.000 01/01/17 400,000 460,040
Henry, SD School Dist. #14-2 School Blding. G.O. NR/NR 6.450 01/01/12 75,000 81,527
Minnehaha Cty., SD Capital Outlay Aa-1/NR 6.000 12/01/12 100,000 107,997
Mitchell, SD School Dist. #17-2 Capital Outlay NR/A 6.200 01/15/13 60,000 65,387
Newell, SD School Dist. #09-2 Capital Outlay NR/NR 6.000 01/01/17 300,000 318,945
Northwestern School Dist. #56-3 Capital Outlay NR/A 6.800 01/15/13 100,000 112,936
Pierre, SD Sales Tax Ref. Rev. NR/NR 6.000 10/01/14 200,000 212,050
Rapid City, SD Parking Rev. Baa-1/NR 5.700 12/01/18 150,000 155,315
Rapid City, SD School Dist. #51-4 Capital Outlay MBIA Aaa/AAA 6.200 01/01/12 100,000 108,596
SD Conservancy Dist. (State Revolving Fund) Rev. Aa-3/NR 5.625 08/01/17 200,000 210,250
*SD Hlth. & Educ. Auth. (Crippled Childrens) Rev. NR/A+ 7.100 07/01/09 260,000 261,040
*SD Hlth. & Educ. Auth. (St. Luke's/Midland) Rev. MBIA Aaa/AAA 6.625 07/01/11 250,000 269,340
SD Hlth. & Educ. Auth. (Vocational Educ.) Rev. A-1/NR 6.700 08/01/22 150,000 167,201
SD Hlth. & Educ. Facs. Auth. (Huron Medl. Ctr.) Rev. NR/BBB 7.250 04/01/20 125,000 140,648
SD Hlth. & Educ. Facs. Auth. (Univ. of Sioux Falls) Rev. NR/NR 7.100 04/01/15 150,000 164,157
SD Hlth. & Educ. Facs. Auth. (Rapid City Regl.) MBIA Aaa/AAA 5.000 09/01/22 400,000 394,324
SD Hlth. & Educ. Facs. Auth. (Rapid City Regl.) MBIA Aaa/AAA 7.000 09/01/14 45,000 47,248
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa-1/AAA 6.550 05/01/14 95,000 102,193
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa-1/AAA 6.600 05/01/17 190,000 203,353
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa-1/AAA 6.000 05/01/21 200,000 208,950
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa-1/AAA 6.100 05/01/17 100,000 106,944
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa-1/AAA 5.400 05/01/24 400,000 404,884
SD Hsg. Devl. Auth. Rev. Aa/NR 6.700 04/01/20 370,000 382,550
SD State Lease Rev. Capital Outlay FSA Aaa/AAA 6.500 09/01/08 200,000 231,624
*SD Student Loan Finance Corp. Student Loan Notes A/NR 6.550 08/01/20 300,000 330,003
Sioux Falls, SD School Dist. #49-5 G.O. Aa/NR 5.500 07/01/20 150,000 157,979
Winner, SD School Dist. #59-2 Capital Outlay NR/A 6.200 01/15/10 75,000 81,380
--------------
SOUTH DAKOTA MUNICIPAL BONDS (COST: $6,677,344) $ 7,082,958
--------------
SHORT-TERM SECURITIES (6.4%)
Federated Tax-Free Fund #15 $ 256,403
Federated Intermediate Municipal Trust #78 238,980
-------------
TOTAL SHORT-TERM SECURITIES (COST: $495,705) $ 495,383
--------------
TOTAL INVESTMENTS IN SECURITIES (COST: $7,173,049) $ 7,578,341
OTHER ASSETS LESS LIABILITIES 169,917
--------------
NET ASSETS $ 7,748,258
==============
</TABLE>
*Indicates bonds are segregated by the custodian to cover when-issued or
delayed-delivery purchases.
#Indicates bonds are segregated by the custodian to cover initial margin
requirements.
FOOTNOTE: Non-rated (NR) securities have been determined to be of investment
grade quality by the Fund's Manager.
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31,1998
Statement of Assets and Liabilities December 31, 1998
- ------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in securities, at value (cost: $7,173,049) $ 7,578,341
Receivable for fund shares sold 25,000
Accrued dividends receivable 1,299
Accrued interest receivable 133,399
Variation margin 49,834
--------------
Total Assets $ 7,787,873
--------------
LIABILITIES
Dividends payable $ 30,191
Accrued expenses 9,424
--------------
Total Liabilities $ 39,615
--------------
NET ASSETS $ 7,748,258
==============
Net assets are represented by:
Capital stock outstanding, at par $ 746
Additional paid-in capital 7,543,832
Accumulated undistributed net realized
gain(loss) on investments (201,612)
Unrealized appreciation on investments 405,292
------------
Total amount representing net
assets applicable to 746,382 outstanding
shares of $.001 par value common stock
(200,000,000 shares authorized) $ 7,748,258
=============
Net asset value per share $ 10.38
=============
Statement of Operations for the year ended December 31, 1998
- ------------------------------------------------------------
INVESTMENT INCOME
Interest $ 413,156
Dividends 8,613
-------------
Total Investment Income $ 421,769
-------------
EXPENSES
Investment advisory fees $ 7,592
Distribution fees (12b-1) 37,238
Custodian fees 2,292
Transfer agent fees 11,905
Accounting service fees 27,686
Professional fees 5,355
Reports to shareholders 1,250
Directors fees 1,842
Transfer agent out of pocket 1,159
License, fees, and registrations 500
-------------
Total expenses $ 96,819
-------------
NET INVESTMENT INCOME $ 324,950
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FUTURES
Net realized gain (loss) from:
Investment transactions $ 28,204
Futures transactions (111,760)
Net change in unrealized appreciation
(depreciation) of:
Investments 4,745
Futures 43,592
------------
Net Realized And Unrealized
Gain (Loss) On Investments
and Futures $ (35,219)
--------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 289,731
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 1998
Statement of Changes in Net Assets for the years ended
December 31, 1998 and 1997
- -------------------------------------------------------
<TABLE>
<CAPTION>
For The For The
Year Ended Year Ended
December 31, December 31,
1998 1997
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 324,950 $ 323,688
Net realized gain (loss) on investment and
futures transactions (83,556) (157,311)
Net change inunrealized appreciation (depreciation) on
investments and futures 48,337 173,630
-------------- --------------
Net Increase (Decrease) in Net Assets
Resulting From Operations $ 289,731 $ 340,007
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment
income(.46 and .53, respectively) $ (324,950) $ (323,688)
Return of capital distributions
(.05 and .04, respectively) (37,238) (26,399)
Distributions from net realized gain on
investment transactions 0 0
-------------- --------------
Total Dividends and Distributions $ (362,188) $ (350,087)
--------------- --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares $ 1,063,581 $ 988,297
Proceeds from reinvested dividends 230,313 209,007
Cost of shares redeemed (803,533) (253,697)
------------- --------------
Net Increase (Decrease) in Net Assets Resulting
From Capital Share Transactions $ 490,361 $ 943,607
------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS $ 417,904 $ 933,527
NET ASSETS, BEGINNING OF PERIOD 7,330,354 6,396,827
------------- -------------
NET ASSETS, END OF PERIOD $ 7,748,258 $ 7,330,354
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements December 31, 1998
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 - Securities for which quotations are not
readily available (which will constitute a majority of the securities
held by the Fund) are valued using a matrix system at fair value as
determined by ND Money Management. The matrix system has been
developed based on procedures approved by the Board of Directors which
include consideration of the following: yields or prices of municipal
bonds of comparable quality, type of issue, coupon, maturity and
rating, indications as to value from dealers and general market
conditions. Because the market value of securities can only be
established by agreement between parties in a sales transaction, and
because of the uncertainty inherent in the valuation process, the fair
values as determined may differ from the values that would have been
used had a ready market for the securities existed. 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, 1998, a net capital loss carryforward totaling $201,612
which may be used to offset capital gains realized during subsequent years
through December 31, 2006.
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.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Schedule of
Investments. The Statement of Assets and Liabilities reflects a
receivable or payable for the daily mark to market for variation
margin.
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.
At December 31, 1998, the Fund had outstanding futures contracts to
sell debt securities as follows:
<TABLE>
Contracts to Sell Expiration Number of Valuations as of Unrealized
Date Futures Contracts December 31, 1998 Appreciation (Depreciation)
- -----------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
U.S. Treasury Notes 03/99 10 $49,834 $17,802
</TABLE>
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.
Reclassifications - Certain prior year amounts have been reclassified to
conform to the current year presentation.
Note 3.CAPITAL SHARE TRANSACTIONS
As of December 31, 1998, there were 200,000,000 shares of $.001 par value
authorized; 746,382 and 698,991 shares were outstanding at December 31, 1998
and December 31, 1997, respectively. Transactions in capital shares were as
follows:
Shares
For the Year For The Year
Ended Ended
December 31, 1998 December 31, 1997
----------------------------------------
Shares sold 102,248 94,215
Shares issued on reinvestment
of dividends 22,109 19,917
Shares redeemed (76,966) (24,180)
--------------- ----------------
Net increase(decrease) 47,391 89,952
=============== ===============
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 $7,592
of investment advisory fees after partial waiver for the year ended
December 31, 1998. The Fund has a payable to ND Money Management, Inc.
of $1,195 at December 31, 1998 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 $37,238 of 12b-1 fee expenses after partial waiver for the
year ended December 31, 1998. The Fund has a payable to Capital of
$3,174 at December 31, 1998 for 12b-1 fees.
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 $11,905 of transfer agency fees for the year ended December
31, 1998. The Fund has a payable to ND Resources, Inc. of $1,001 at
December 31, 1998 for transfer agency fees. 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 $27,686 of
accounting service fees for the year ended December 31, 1998. The Fund
has a payable to ND Resources, Inc. of $2,308 at December 31, 1998 for
accounting service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment
securities (excluding short-term securities) aggregated $1,131,312
and $1,223,659, respectively, for the year ended December 31, 1998.
Note 6. INVESTMENT IN SECURITIES
At December 31, 1998, the aggregate cost of securities for federal
income tax purposes was $7,173,049 and the net unrealized appreciation
of investments based on the cost was $405,292, which is comprised of
$405,745 aggregate gross unrealized appreciation and $453 aggregate
gross unrealized depreciation.
Financial Highlights Selected per share data and ratios for the period
indicated
- ----------------------------------------------------------------------
<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 $ 10.49 $ 10.50 $ 10.39 $ 9.86 $ 10.00
---------------------------------------------------------------------
Income from Investment
Operations:
Net investment income $ .46 $ .53 $ .52 $ .55 $ .39
Net realized and
unrealized gain (loss)
on investment and
futures transactions (.06) .03 .14 .55 (.11)
-----------------------------------------------------------------
Total Income(Loss) From
Investment Operations $ .40 $ .56 $ .66 $ 1.10 $ .28
-----------------------------------------------------------------
Less Distributions:
Dividends from net
investment income $ (.46) $ (.53) $ (.52) $ (.55) $ (.39)
Return of capital
Distributions (.05) (.04) (.03) (.02) (.02)
Distributoins from net
realized gain .00 .00 .00 .00 (.01)
-----------------------------------------------------------------
Total Distributions $ (.51) $ (.57) $ (.55) $ (.57) $ (.42)
-----------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.38 $ 10.49 $ 10.50 $ 10.39 $ 9.86
=================================================================
Total Return 3.88%(A) 5.10%(A) 6.58%(A) 11.47%(A) 3.72%(A)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $7,748 $ 7,330 $ 6,397 $ 5,163 $ 2,890
Ratio of net expenses
(after expense assumption)
to average net assets 1.30% 1.17%(C) 0.93%(C) 0.61%(C) 0.46%(B)
Ratio of net investment
income to average net assets 4.36% 4.70% 5.01% 5.35% 5.62%(B)
Portfolio turnover rate 15.75% 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, 1998, 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 four 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, 1998, 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, 1998, 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.
Minot, North Dakota
February 03, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 7173049
<INVESTMENTS-AT-VALUE> 7578341
<RECEIVABLES> 159698
<ASSETS-OTHER> 49834
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7787873
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 39815
<TOTAL-LIABILITIES> 39815
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7544578
<SHARES-COMMON-STOCK> 746382
<SHARES-COMMON-PRIOR> 698991
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (201612)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 405292
<NET-ASSETS> 7748258
<DIVIDEND-INCOME> 8613
<INTEREST-INCOME> 413156
<OTHER-INCOME> 0
<EXPENSES-NET> 96819
<NET-INVESTMENT-INCOME> 324950
<REALIZED-GAINS-CURRENT> (83556)
<APPREC-INCREASE-CURRENT> 48337
<NET-CHANGE-FROM-OPS> 289731
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (324950)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (37238)
<NUMBER-OF-SHARES-SOLD> 102248
<NUMBER-OF-SHARES-REDEEMED> 76966
<SHARES-REINVESTED> 22109
<NET-CHANGE-IN-ASSETS> 417904
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7592
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 96819
<AVERAGE-NET-ASSETS> 7450816
<PER-SHARE-NAV-BEGIN> 10.49
<PER-SHARE-NII> .46
<PER-SHARE-GAIN-APPREC> (.06)
<PER-SHARE-DIVIDEND> (.46)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.05)
<PER-SHARE-NAV-END> 10.38
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
