Dear Shareholder:
Enclosed is the annual report of the operations of the South Dakota Tax-Free
Fund, Inc., the "Fund," for the year ended December 31, 1999. The Fund's
portfolio and related financial statements are presented within for your
review.
As we start the new millennium, 1999 will go down as one of the worst years in
bond market history. The benchmark 30-year Treasury bond has seen a value
loss of approximately 27% as yields have risen from a January yield of 5.07%
to a year ending 6.48%. Stabilizing global economies and a U.S. economy
growing at what many economists believe is an unsustainable pace has led the
Federal Reserve to raise short-term interest rates three times in 1999 for a
total increase of three quarters of one percent. Strong consumer confidence,
low unemployment, housing and retail sales at record levels, and a doubling of
crude oil prices contributed to the Federal Reserve's actions.
Tax-free municipal bonds haven't faired much better. A long-term tax-free
bond worth $1,000.00 on December 31, 1998 would be worth roughly $860.00
today, as yields have risen from a January yield of 4.94% to a year ending
5.94% on AAA rated bonds. As a result, we are now seeing South Dakota
municipal bonds paying 90% to as high as 100% of the 30-year Treasury yield.
Historically, municipals have averaged 85% of the 30-year Treasury yield over
the past ten years. In terms of real rates of return, this is a very
attractive opportunity.
The Fund began the year at $10.38 and closed the year at $9.72, for a total
return of (1.63%)*. In anticipation of stronger economic growth, the Fund at
times during the year utilized a defensive position in U.S. Treasury futures.
Share price was stabilized as yields on U.S. Treasuries rose throughout the
year. Stability of share price is the primary objective of a defensive
position.
Diversification remains an important strategy of the Fund. Throughout the
year, purchases in the primary and secondary market included Parkston County
School District, Sioux Falls School District, and South Dakota Student Loans
issues.
High current income exempt from federal and state income tax with preservation
of capital remain the objectives of the Fund.
Sincerely,
Monte L. Avery Robert E. Walstad
Chief Portfolio Strategist President
* without C.D.S.C
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 redemption, assuming redemption at the end
of the period.
Coupon Rate or Face Rate
The rate of interest payable annually, 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 charges.
Quality Ratings
A designation assigned by independent rating companies to give a relative
indication of a bond's 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 42.5%
AA 11.4%
A 28.7%
BBB 3.9%
NR 13.5%
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 adviser.
Portfolio Market Sectors
(as a % of Net Assets)
- ------------------------
[pie chart]
HC-Health Care 20.2%
H-Housing 18.8%
I-Industrial 16.5%
S-School 15.6%
GO-General Obligation 14.8%
C/L-C.O.P./Lease 7.0%
U-Utilities 5.9%
O-Other 1.2%
Market sectors are breakdowns of the Fund's portfolio holdings into specific
investment classes.
These percentages are subject to change.
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 Brothers Municipal Bond Index
South Dakota Tax-Free Fund Lehman Brothers
w/o CDSC Municipal Bond Index
- ------------------------------------------------------------------------------
4/5/1994 $10,000 $10,000
1994 $10,280 $10,034
1995 $11,459 $11,786
1996 $12,212 $12,309
1997 $12,835 $13,442
1998 $13,334 $14,313
1999 $13,116 $14,017
Average Annual Total Returns
- ----------------------------
For periods ending December 31, 1999
--------------------------------------
Since Inception
1 year 5 year 10 year (April 5, 1994)
----------------------------------------------------------
Without CDSC (1.63%) 4.99% N/A 4.84%
With CDSC (4% max) (5.38%) N/A N/A N/A
Putting Performance into Perspective
Returns are historical and are not a guarantee of future results. 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. 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
- --------------
12-31-98 NAV (share value) $10.38
12-31-99 NAV $ 9.72
Average Maturity 18.4 years
Number of Issues 38
Total Net Assets $6,929,566
<TABLE>
<CAPTION>
Schedule of Investments December 31, 1999
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
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
South Dakota Municipal Bonds (100.8%)
Belle Fourche, SD School Dist. #9-1 G.O. FSA Aaa/NR 5.500% 01/15/18 $ 100,000 $ 97,142
Deadwood, SD C.O.P. ACA NR/A 6.375 11/01/20 200,000 194,710
SD (Education Loans, Inc.) Student Loan Rev. Gtd. A/NR 5.600 06/01/20 350,000 324,320
#Grant Cty., SD (Northwestern Public. Svc.) PCR MBIA Aaa/AAA 5.900 06/01/23 400,000 392,804
Hamlin, SD School Dist. #28-3 NR/NR 5.700 10/01/15 120,000 115,346
Hamlin, SD School Dist. #28-3 NR/NR 5.000 12/15/14 105,000 96,693
#Heartland Consumers Power Dist., Elec. Rev. FSA Aaa/AAA 6.000 01/01/09 200,000 211,234
Henry, SD School Dist. #14-2 School Blding. G.O. NR/NR 6.450 01/01/12 75,000 77,662
Minnehaha Cty., SD C.O.P.'s Aa/NR 6.000 12/01/12 100,000 101,064
Mitchell, SD School Dist. #17-2 C.O.P.'s NR/A 6.200 01/15/13 60,000 60,868
Newell, SD School Dist. #09-2 NR/NR 6.000 01/01/17 300,000 300,948
Parkston Cty., SD School Dist. #33-3 FSA NR/AAA 5.700 01/01/18 250,000 247,175
Pierre, SD C.O.P. AMBAC Aaa/NR 5.625 07/01/19 100,000 95,582
Pierre, SD Sales Tax Ref. Rev. NR/NR 6.000 10/01/14 200,000 197,712
Rapid City, SD Parking Rev. Baa-1/NR 5.700 12/01/18 150,000 143,200
Sioux Falls, SD School Dist. #49-5 G.O. Aa/NR 5.500 07/01/20 150,000 144,056
Sioux Falls, SD School Dist. #49-5 G.O. Aa-3/NR 5.550 09/01/19 100,000 96,889
SD Conservancy Dist. (State Revolving Fund) Rev. Aa-3/NR 5.625 08/01/17 200,000 194,158
SD Economic Dev. Fin. Auth. (D.T.S. Inc Project) NR/A 5.500 04/01/19 300,000 280,461
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa-1/AAA 6.550 05/01/14 90,000 93,472
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa-1/AAA 6.600 05/01/17 175,000 179,846
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa/NR 6.700 04/01/20 265,000 261,298
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa-1/AAA 6.000 05/01/21 200,000 199,342
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa-1/AAA 6.100 05/01/17 100,000 102,543
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa-1/AAA 5.400 05/01/24 395,000 370,941
SD Hsg. Devl. Auth. Homeownership Mrtge. Aa-1/AAA 5.125 05/01/27 100,000 92,493
SD Hlth. & Educ. Auth. (Huron Regl. Medl. Ctr.) Rev. NR/BBB 7.250 04/01/20 125,000 130,525
SD Hlth. & Educ. Auth. (Univ. of Sioux Falls) Rev. NR/NR 7.100 04/01/15 150,000 152,849
SD Hlth. & Educ. Auth. (Vocational Educ.) Rev. AMBAC Aaa/AAA 5.500 08/01/22 150,000 139,854
SD Hlth. & Educ. Auth. (Rapid City Regl. Hosp.) MBIA Aaa/AAA 5.000 09/01/22 200,000 172,422
*SD Hlth. & Educ. Auth. (Crippled Childrens) Rev. NR/A+ 7.100 07/01/09 260,000 260,000
*SD Hlth. & Educ. Auth. (St. Luke's/Midland) Rev. MBIA Aaa/AAA 6.625 07/01/11 250,000 261,368
SD Hlth. & Educ. Auth. (Prairie Crossings) Rev. AMBAC Aaa/AAA 6.000 11/01/24 100,000 98,345
SD Hlth. & Educ. Auth. (Children's Care Hosp. & Home) NR/A+ 6.125 11/01/29 200,000 186,722
Northwestern School Dist. #56-3 C.O.P.'s NR/A 6.800 01/15/13 100,000 107,198
SD State Bldg. Auth. Rev. A-1/A+ 5.125 09/01/19 300,000 270,645
*SD Student Loan Finance Corp. (Student Loan Notes) A/NR 6.550 08/01/20 300,000 316,851
SD State Lease Rev. C.O.P.'s FSA Aaa/AAA 6.500 09/01/08 200,000 215,428
------------
SOUTH DAKOTA MUNICIPAL BONDS (COST: $7,081,264) $ 6,984,166
------------
SHORT-TERM SECURITIES (1.6%)
Federated Tax-Free Fund 15 $ 61,489
Federated Intermediate Municipal Trust 78 49,603
------------
TOTAL SHORT-TERM SECURITIES (COST: $111,489) $ 111,092
------------
TOTAL INVESTMENTS IN SECURITIES (COST: $7,192,753) $ 7,095,258
OTHER ASSETS LESS LIABILITIES (165,692)
------------
NET ASSETS $ 6,929,566
============
</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, 1999
Statement of Assets and Liabilities December 31, 1999
- -----------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities, at value (cost: $7,192,753) $ 7,095,258
Accrued dividends receivable 417
Accrued interest receivable 118,588
Prepaid expenses 321
-------------
Total Assets $ 7,214,584
-------------
LIABILITIES
Payable for fund shares redeemed $ 53,997
Security purchase payable 195,241
Dividends payable 29,241
Accrued expenses 6,539
-------------
Total Liabilities $ 285,018
-------------
NET ASSETS $ 6,929,566
=============
Net assets are represented by:
Capital stock outstanding, at par $ 713
Additional paid-in capital 7,167,621
Accumulated undistributed net realized gain (loss) on investments (141,273)
Unrealized depreciation on investments (97,495)
-------------
Total amount representing net assets applicable to
712,840 outstanding shares of $.001 par value
common stock (200,000,000 shares authorized) $ 6,929,566
-------------
Net asset value per share $ 9.72
=============
Statement of Operations For the year ended December 31, 1999
- -------------------------------------------------------------
INVESTMENT INCOME
Interest $ 412,307
Dividends 9,223
-------------
Total Investment Income $ 421,530
-------------
EXPENSES
Investment advisory fees $ 44,443
Distribution fees (12b-1) 55,185
Transfer agent fees 11,766
Accounting service fees 27,690
Custodian fees 2,831
Professional fees 5,740
Reports to shareholders 2,057
Directors fees 1,901
Transfer agent out of pockets 1,305
License, fees, and registrations 745
Insurance expense 550
--------------
Total Expenses $ 154,213
Less expenses waived or absorbed
by the Fund's manager (58,597)
--------------
Total Net Expenses $ 95,616
--------------
NET INVESTMENT INCOME $ 325,914
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES
Net realized gain (loss) from:
Investment transactions $ (1,183)
Futures transactions 79,324
Net change in unrealized appreciation (depreciation) of:
Investments (502,787)
Futures (17,802)
--------------
Net Realized And Unrealized Gain (Loss) On Investments
and Futures $ (442,448)
--------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (116,534)
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 1999
Statement of Changes in Net Assets For the year ended December 31, 1999,
and the year ended December 31, 1998
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, 1999 December 31, 1998
-------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 325,914 $ 324,950
Net realized gain (loss) on investment and
futures transactions 78,141 (83,556)
Net change in unrealized appreciation (depreciation) on
investments and futures (520,589) 48,337
----------------------------------------------
Net Increase (Decrease) in Net Assets Resulting From
Operations $ (116,534) $ 289,731
----------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income
($.45 and $.46 per share, respectively) $ (325,914) $ (324,950)
Return of capital distributions
($.05 and $.05 per share, respectively) (35,729) (37,238)
Distributions from net realized gain on
investment and futures transactions 0 0
-----------------------------------------------
Total Dividends and Distributions $ (361,643) $ (362,188)
-----------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares $ 629,703 $ 1,063,581
Proceeds from reinvested dividends 258,376 230,313
Cost of shares redeemed (1,228,594) (803,533)
-----------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
From Capital Share Transactions $ (340,515) $ 490,361
-----------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS $ (818,692) $ 417,904
NET ASSETS, BEGINNING OF PERIOD 7,748,258 7,330,354
-----------------------------------------------
NET ASSETS, END OF PERIOD $ 6,929,566 $ 7,748,258
===============================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements December 31, 1999
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 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, and 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, 1999,
a net capital loss carry forward totaling $141,273, 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 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.
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, 1999, there were 200,000,000 shares of $.001 par value
authorized; 712,840 and 746,382 shares were outstanding at December 31, 1999,
and December 31, 1998, respectively. Transactions in capital shares were as
follows:
Shares
---------------------------------------
For the Year For the Year
Ended Ended
December 31, 1999 December 31, 1998
----------------------------------------
Shares sold 62,183 102,248
Shares issued on reinvestment
of dividends 25,470 22,109
Shares redeemed (121,195) (76,966)
-----------------------------------------
Net increase (decrease) (33,542) 47,391
=========================================
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 $5,302 of investment
advisory fees after partial waiver for the year ended December 31, 1999.
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 $35,729 of 12b-1 fee expenses after partial waiver for
the year ended December 31, 1999. The Fund has a payable to Capital of $2,104
at December 31, 1999 for 12b-1 fees.
The Fund has engaged ND Capital, Inc. as agent for the purchase of certain
investment securities. For the year ended December 31, 1999, no commissions
were earned by ND Capital, Inc.
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 $11,766 of transfer agency fees for
the year ended December 31, 1999. The Fund has a payable to ND Resources,
Inc. of $934 at December 31, 1999 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 $27,690 of accounting service fees for the
year ended December 31, 1999. The Fund has a payable to ND Resources, Inc.
of $2,291 at December 31, 1999 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 $2,430,550 and $2,033,104,
respectively, for the year ended December 31, 1999.
Note 6. INVESTMENT IN SECURITIES
At December 31, 1999, the aggregate cost of securities for federal income tax
purposes was $7,192,753 and the net unrealized depreciation of investments
based on the cost was $97,495, which is comprised of $95,091 aggregate gross
unrealized appreciation and $192,586 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
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.38 $ 10.49 $ 10.50 $ 10.39 $ 9.86
----------------------------------------------------------------------------
Income from Investment Operations:
Net investment income $ .45 $ .46 $ .53 $ .52 $ .55
Net realized and unrealized gain (loss) on
investment and futures transactions (.61) (.06) .03 .14 .55
----------------------------------------------------------------------------
Total Income (Loss) From
Investment Operations $ (.16) $ .40 $ .56 $ .66 $ 1.10
----------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income $ (.45) $ (.46) $ (.53) $ (.52) $ (.55)
Return of capital distributions (.05) (.05) (.04) (.03) (.02)
Distributions from net realized gain .00 .00 .00 .00 .00
----------------------------------------------------------------------------
Total Distributions $ (.50) $ (.51) $ (.57) $ (.55) $ (.57)
----------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.72 $ 10.38 $ 10.49 $ 10.50 $ 10.39
============================================================================
Total Return (1.63%)(A) 3.88%(A) 5.10%(A) 6.58%(A) 11.47%(A)
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 6,930 $ 7,748 $ 7,330 $ 6,397 $ 5,163
Ratio of net expenses (after expense assumption)
to average net assets 1.30%(B) 1.30%(B) 1.17%(B) 0.93%(B) 0.61%(B)
Ratio of net investment income to average net
assets 4.43% 4.36% 4.70% 5.01% 5.35%
Portfolio turnover rate 28.48% 15.75% 3.35% 2.47% 0.66%
</TABLE>
[FN]
(A)Excludes contingent deferred sales charge of 4%.
(B)During the periods indicated above, ND Holdings, Inc. assumed/waived
expenses of $58,597, $55,713, $68,538, $54,598, and $37,053, respectively.
If the expenses had not been assumed/waived, the annualized ratio of total
expenses to average net assets would have been 2.10%, 2.05%, 2.16%, 1.88%,
and 1.51%, respectively.
</FN>
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, 1999, 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 five years
in the period then ended. 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, 1999, 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, 1999, 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, 2000
