UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                    FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
                  For the fiscal year ended December 31, 2000

Commission file number 0-23430

            SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
             (Exact name of registrant as specified in its charter)

         SOUTH DAKOTA                         46-0401087
(State or other jurisdiction of            (I.R.S. Employer
 incorporation or organization)           Identification No.)

  1323 SOUTH MINNESOTA AVENUE
   SIOUX FALLS, SOUTH DAKOTA                    57105
(Address of principal executive offices)      (Zip Code)

Registrant's telephone number, including area code: (605) 334-4000

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:
        CLASS A PREFERRED STOCK, NO PAR VALUE, STATED VALUE $10 PER SHARE
                                (Title of class)

                 CLASS C COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES  X  NO
                                       ---    ---

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

     Class                                       Outstanding at March 21, 2001
     -----                                       -----------------------------
Class C Common Stock                                          1,398,607

The aggregate market value of the voting stock held by non-affiliates is not
determinable as there is no market or exchange where these shares are traded.

                        DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the document listed below have been incorporated by
Reference into the indicated part of this Form 10-K

                   DOCUMENT INCORPORATED     PART OF FORM 10-K
Proxy Statement for 2001 Annual Meeting Item 11 of Part III

                                     PART I

ITEM 1. BUSINESS

South Dakota State Medical Holding Company, Incorporated (the Company,
Corporation or DAKOTACARE), was incorporated in the State of South Dakota on May
5, 1988. Its corporate offices are located at 1323 South Minnesota Avenue, Sioux
Falls, South Dakota, 57105. The Articles of Incorporation permit the Company to
engage in the development of quality comprehensive health care delivery systems;
to conduct, promote, or operate alternative health care delivery systems and
other contractual health service arrangements, including but not limited to,
traditional third party reimbursement systems, preferred provider organizations,
and health maintenance organizations (HMO).

The Company contracts with over 98% of the physicians in the State of South
Dakota, 100% of the hospitals in the State of South Dakota, and many other
health care providers to provide medical services to its enrollees. Physicians
who are members of the South Dakota State Medical Association and who complete
the Company's credentialing process may participate with the Company by
purchasing one share of Class A voting preferred stock of the Company for $10.
The fee for non-members is $1,000. The South Dakota State Medical Association
owns 100% of the Class B voting preferred stock of the Company, and through this
ownership, maintains voting control of the Company.

The Company's agreements with participating physicians stipulate compensation on
a fee-for-service basis utilizing a relative value schedule developed by the
Company. This schedule assigns a value (measured in number of units) for each
individual service for which a physician may perform and submit a bill. These
values are then multiplied by an overall value per unit assigned by the Company,
and the product is the maximum amount allowed for payment to the physician.
Actual reimbursement is at the lower of this product or the actual billed
amount. The Company, at least annually, reviews the unit values and makes
adjustments when considered necessary. The effect of this reimbursement
mechanism is to establish a maximum allowable reimbursement, which is not
dependent upon actual billed charges. Regardless of the physician bill,
reimbursement will never exceed the maximum amount established by the relative
value schedule. Physicians also may not bill patients for any excess of the
billed charge over the amount allowed by the Company, but instead have
contractually agreed to hold the patient harmless for any such amounts.

The Company's agreements with participating physicians provide that up to 20% of
fees for services provided, as submitted to and allowed by the Company, may be
withheld to provide a contingency reserve that may be used to fund operations or
meet other financial requirements of the Company. The percentage withheld for
years 1998 through 2000 was 15%. The contingency reserve withholding is also
designed to encourage efficient medical practice by the physicians. Less
expensive medical outcomes enhance net income and consequently, an increased
likelihood of contingency reserve payouts to the physicians. The amounts
withheld may be paid to the participating physicians at the discretion of the
Board of Directors of the Company, although the Company is not contractually
obligated to pay out amounts withheld. Management estimates the expected amount
of contingency reserves and records a liability based upon factors such as cash
flow needs, net income, and accumulations of amounts withheld. The Company
withheld from payment to the participating physicians $1,497,780 and $1,375,904
for the years ended December 31, 2000 and 1999, respectively. Payments to
physicians are made at such times as the Board of Directors approves payouts.
The recorded liability for contingency reserves at December 31, 2000 and 1999,
was $2,875,472 and $2,723,351, respectively. The recorded liability is equal
to actual amounts withheld plus or minus claims adjustments for the years
ended December 31, 2000 and 1999, and for the years ended December 31, 1999
and 1998, respectively.
                                                                          2.
In 1992, the Company incorporated DAKOTACARE Administrative Services,
Incorporated (DAS), a wholly owned subsidiary of the Company. In 1994, the
Company organized and then purchased a 50.11% interest in Dakota Health Plans,
Incorporated (DHP). During December of 1998, DHP ceased business operations
and the Company expects to fully dissolve DHP in 2001.  In January 1996, the
Company incorporated DAKOTACARE Insurance, Ltd. (DIL), a wholly owned
subsidiary of the Company. DIL was formed to accept reinsurance risk on
stop-loss policies of DAS and DHP customers, reinsurance risk on group
term life insurance coverage of DAKOTACARE and DAS customers and other
insurance risks. In August 2000, the Company organized and purchased a 54.35%
interest in Carewest, Inc. (Carewest).  The Articles of Incorporation of DAS,
DHP and Carewest permit them to engage in the development of Third Party
Administration(TPA) services for health and welfare plans.  Carewest has
subcontracted with DAS to perform a substantial part of the TPA activities.

PRODUCTS AND MARKETING
The Company markets its products under the trade name of DAKOTACARE. The Company
has three reportable segments as defined by FASB Statement No. 131. The
segments' products include group managed health care products (HMO), managed
care and claims administration services for self-insured employer groups (TPA)
and the reinsurance segment, which provides excess medical stop loss coverage to
the self insured employer groups. A detailed analysis of the various segments is
contained in the Notes to the Consolidated Financial Statements-Note 12. The
Company markets its products through an exclusive network of independent
insurance agents throughout South Dakota.

The Company markets its products to employer groups with a minimum of two
covered employees and its' customers range in size from employers of this size
to its largest customer with over 7600 employees. As of January 1, 2001,
DAKOTACARE and its subsidiaries provided health care services and ancillary
products to approximately 90,000 individuals.

Approximately 12% of the state's population and approximately 18% of
DAKOTACARE's target market of approximately 450,000 is served by DAKOTACARE and
its subsidiaries, which does not include Medicare and Medicaid populations,
federal employee groups, the individual policy market, and other potential
populations. The Company's HMO enrollment, which was approximately 24,000 at
the end of 1998 and 1999, increased to approximately 30,000 by the end of 2000.
Net enrollment added for January 1, 2001 was approximately 2,000 members.
Commencing in 1993, the Company began its TPA business and by January 1, 2001,
had enrolled approximately 58,000 ASO enrollees, bringing the total individuals
served by the Company and its' subsidiaries to approximately 90,000. The
Company's HMO client disenrollment rate is lower than the industry rate as a
whole. All underwriting and pricing decisions are made by the DAKOTACARE
underwriting department based on underwriting policy and guidelines established
by senior management.  DAKOTACARE's underwriters evaluate the prior loss
history, the inherent risk characteristics, and the demographic makeup of the
applicants where appropriate.

The Company's policy is to reinsure that portion of risk in excess of $125,000
in 2000 and 1999 of covered hospital inpatient expenses of any enrollee per
contract year.  The covered expenses are subject to a coinsurance provision
which ranged from 50% to 90% in 2000 and 75% to 90% in 1999 based on average
daily amounts specified in the plan.  They are also subject to a $2,000,000
lifetime maximum benefit per enrollee in 2000 and 1999.  The Company would be
liable for any obligations that the reinsuring company is unable to meet under
the reinsurance agreement.  The reinsurance agreement also provides for
enrollee benefits to be paid in the event the Company should cease operations
or become insolvent, and a conversion privilege for all enrollees in the event
of plan insolvency and for any enrollee that moves out of the service area of
the Company.

                                                                          3.
The Company operates under a license issued by the South Dakota Department of
Commerce and Regulation, Division of Insurance, for the operation of the health
maintenance organization. DAS, DHP and Carewest are also registered as third
party administrators in South Dakota and several other states. The Company has
also received certification from the South Dakota Department of Labor as a
workers' compensation managed care plan.

The Company continually seeks out and evaluates opportunities for future growth
and expansion. These opportunities may include acquisitions or dispositions of
segments of its operations, marketing of insurance products underwritten by
other companies, the internal development of new products and techniques for the
containment of health care costs, and the measurement of the outcomes and
efficiency of health care delivered.

COMPETITION
The managed health care industry evolved primarily as a result of health care
buyers' concerns over rising health care costs. The industry's goal is to infuse
greater cost effectiveness and accountability into the health care system
through the development of different managed care products, while increasing the
accessibility and quality of health care services. The managed health care
industry has become increasingly competitive in many markets. As managed care
(HMO, Preferred Provider Organization, etc.) penetration of the health care
market increases, the Company expects that marketing to large employer groups
will become more difficult and competition for smaller employer groups will
intensify. In addition, more employers may choose to self-insure their health
care risk and seek benefit administration and managed care services from third
parties to assist them in controlling and reporting health care costs. In such
an environment, the Company believes that having a broad line of health care
programs and products available will be important in being selected by employers
to manage their health care programs. The Company's health care products compete
for group membership with traditional health insurance plans, Blue Cross/Blue
Shield plans, other HMO's, and third party administrators who provide
services to self-insured employers. The ability to increase the number of
individuals covered by the Company's services or to increase premiums can be
affected by the level of competition in any particular area. The Company
believes that the principal competitive factors affecting the Company include
price, the level and quality of service provided, provider network
capabilities, and marketplace reputation.

REGULATIONS
The Company is regulated by the South Dakota Department of Commerce and
Regulation, Division of Insurance (Division). South Dakota statutes require the
filing of periodic financial reports and maintenance of restricted deposits in
an amount of not less than the greater of fifty percent of unearned premiums of
the Company on its outstanding policies or $200,000. The Company requires
approval from the Division for the Company's benefits contracts and premium
rates, licensing of its agents, and other items. The Company is also subject to
periodic examination of its financial affairs and market conduct.

DAKOTACARE must comply with applicable insurance statutes and regulations which
prescribe the nature, form, quality, and relative amounts of investments which
may be made by insurance companies and HMOs. Generally, these statutes and
regulations permit companies to invest within varying limitations in state,
municipal, and federal government obligations, corporate obligations, preferred
and common stocks, bank certificates of deposit, and certain types of real
estate and first mortgage loans. The Company's management believes that its
investment strategy is conservative, with preservation of capital being the
foremost objective. Its investment strategy is also influenced by the terms of
its coverage written and by its expectations as to the timing of claims and
contingency reserves payments.

                                                                          4.

The following table sets forth, by type of investment, the percentage of the
total investment portfolio, excluding cash and cash equivalents and contracts
with life insurance companies, represented by each type of investment as of
December 31:

                                                       2000             1999
                                                       ----             ----
 Certificates of deposit                               20.7%             21.8%
 Obligations of state and political
   subdivisions                                        44.0              62.1
 Obligations of U.S. Treasury, government
   agencies and corporations                           21.8              10.0
 U.S. government agency collateralized
   mortgage obligations                                 0.0               0.2
 Obligations of Industry                               11.4               0.0
 Bond mutual funds                                      2.1               5.9
                                                      -----             -----

                                                      100.0%            100.0%
                                                      =====             =====

The Company's investment portfolio, excluding cash and cash equivalents and
contracts with life insurance companies, totaled $6,035,638 and $4,823,739 as
of December 31, 2000 and 1999, respectively. Cash and cash equivalents totaling
$7,439,514 and $5,494,336 at December 31, 2000 and 1999, respectively, are
invested substantially in interest bearing accounts.

The anti-kickback provisions of the Medicare law prohibit the payment or receipt
of any remuneration in return for the referral of a patient, the charges to whom
are subject to reimbursement by Medicare. The Company provides HMO coverage on a
group basis and does not provide coverage for the cost of medical and hospital
the Company, the Medicare eligible beneficiary may choose to have the Company
provide their health care benefits in lieu of coverage by Medicare. The Company
does not believe that it offers incentives to Medicare beneficiaries or that any
discounts the HMO receives from health care providers would violate the
anti-kickback provisions of the Medicare law.

Government regulation of employee benefit plans, including health care coverage,
health plans and the Company's specialty managed care products is a changing
area of law that varies from jurisdiction to jurisdiction and generally gives
responsible administrative agencies broad discretion. The Company believes that
it is in compliance in all material respects with the various federal and state
regulations applicable to its current operations. To maintain such compliance,
it may be necessary for the Company or its subsidiaries to make changes from
time to time in its services, products, structure, or marketing methods.
Additional governmental regulation or future interpretation of existing
regulation could increase the cost of the Company's compliance or otherwise
affect the Company's operations, products, profitability, or business prospects.
As a provider of cost effective managed care plans for medium and small
employers, the Company believes it is delivering products and services that
address current health care reform issues. The Company will continue to
evaluate its business strategy as necessary to maximize its ability to adapt
to the changing health care marketplace.







                                                                          5.

ERISA
The provision of services to or through certain types of employee health benefit
plans is subject to the Employee Retirement Income Security Act of 1974 (ERISA).
ERISA is a complex set of laws and regulations that are subject to periodic
interpretation by the United States Department of Labor. ERISA places certain
controls on how DAKOTACARE may do business with employers covered by ERISA,
particularly employers who maintain self-funded plans. The Department of Labor
is engaged in an ongoing ERISA enforcement program, which may result in
additional constraints on how ERISA governed benefit plans conduct their
activities. There have been legislative attempts to limit ERISA's preemptive
effect on state laws. If such limitations were to be enacted, they might
increase DAKOTACARE's administrative costs and its liability exposure
under state law-based suits relating to employee health benefits offered by
DAKOTACARE's health plans.

EMPLOYEES
As of December 31, 2000, the Company employed 109 persons on a full-time basis.
None of these employees are covered by a collective bargaining agreement, and
the Company believes its employee relations are good.



ITEM 2. PROPERTIES

The Company leases office space in Sioux Falls, South Dakota, from the South
Dakota State Medical Association (Association). See ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS for additional details on this lease
with the Association, which is an affiliated company. In January 1997, the
Company purchased an office building in Webster, South Dakota, which was
previously leased. The Company leased an office in Rapid City starting
January 1, 2001 and terminates December 31, 2003.  The Company leased a small
office in Pierre, South Dakota through October 1999, at which time the office
lease was terminated.


ITEM 3. LEGAL PROCEEDINGS

The Company is involved in legal actions in the ordinary course of its business.
Although the outcome of any such legal actions cannot be predicted, management
believes there is no legal proceeding pending against or involving the Company
for which the outcome is likely to have a material adverse effect upon the
consolidated financial position or results of operations of the Company.

On September 9, 1998, a claim against the Company was filed in the 2nd
Judicial Circuit Court of South Dakota by Sioux Agency, Inc., D. Greg Heineman
and Roger D. Larsen, who are all stockholders of the Company, and by Williams
Insurance Agency, Inc., a non-stockholder of the Company.  The claim alleges
wrongful non-renewal of a sales agency contract.  The suit is seeking
compensatory damages of $3.3 million and punitive damages of $10.0 million.
Currently, the lawsuit is in the discovery stages.  Management believes the
lawsuit is without merit and the Company will vigorously defend itself in
this matter.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(A) There were no matters submitted to shareholder vote in the fourth quarter
of 2000.





                                                                          6.
                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

STOCK PRICES
There is no active trading for shares of stock of the Company and the stock is
not listed on any exchange or over-the-counter market, but a limited number of
exchanges of Class C shares have occurred directly between interested buyers
and sellers. The Company does not regularly receive price information on these
transactions. The amended and restated Articles of Incorporation of the Company
currently restrict the ownership of shares as follows: (i) the ownership of the
Company's Class A voting preferred stock is restricted to medical or osteopathic
physicians who have executed participating agreements with the Company and may
not be issued to or held by any hospital, (ii) the ownership of the Company's
Class B voting preferred stock is restricted to the South Dakota State Medical
Association, and (iii) the ownership of the Company's Class C non-voting common
stock is restricted to (a) medical or osteopathic physicians who have executed
participating physician agreements with the Company, (b) a trust or
self-directed individual retirement account controlled by such physicians, (c)
professional corporations, partnerships, or other entities domiciled in the
state of South Dakota, and in which a participating physician is a shareholder,
partner, or employee in the practice of medicine, (d) management employees or
agents of the Company, the South Dakota State Medical Association, the South
Dakota Foundation for Medical Care, or (e) a spouse or child of a shareholder of
the Company, if such shares were first held by one of the persons or entities
entitled to own Class C common stock. In addition, the Class C non-voting common
stock may not be issued or transferred to any hospital or to any natural person
or entity who is not a resident or domiciliary of the state of South Dakota.

SHARES ELIGIBLE FOR FUTURE SALE
The Company's Class A voting preferred stock is nontransferable and ownership of
the Company's Class B voting preferred stock is restricted to the South Dakota
State Medical Association. Approximately 95,400 shares of the Company's Class C
non-voting stock are currently owned by the officers and directors of the
Company. All of the remaining Class C shares are eligible for resale under Rule
144(k) of the Securities Act of 1933, as amended, subject to the ownership
restrictions contained in the Company's Amended and Restated Articles of
Incorporation. The Company intends to register under the Act the officers' and
directors' outstanding Class C non-voting common stock to enable the public
resale of such shares by the holders thereof, subject to the ownership
restrictions contained in the Company's Amended and Restated Articles of
Incorporation.

HOLDERS
As of March 21, 2001, there were 1,195 holders of record of Class A preferred
stock, 1 holder of Class B preferred stock, and 694 holders of record of Class C
common stock. There are no options or warrants outstanding.


DIVIDENDS
The Class A and B preferred stock are not entitled to dividends. The Company is
Board of Directors, at its discretion, can elect to pay dividends in any amount
subject to availability of funds and regulatory requirements. As long as the
Company exceeds required regulatory capital as required by the Division, there
are no dividend restrictions. Regulatory capital as required by the Division at
December 31, 2000 and 1999 was $200,000 on a statutory basis of accounting,
which the Company significantly exceeded. During 2000 and 1999, the Company paid
dividends of $69,930 and $73,267, respectively, on Class C stock.


                                                                          7.
STOCK REPURCHASE PLAN
As a service to the Company's shareholders to facilitate liquidity for Class C
common stock (Common Stock) in the event of death, disability, or retirement of
a shareholder, the Company's Board of Directors adopted a Stock Repurchase
Program (Program) which was implemented in February 1998. Participation in the
Program is voluntary. No shareholder is required to sell his or her shares of
Common Stock under the Program nor is the Company required to purchase any
Common Stock under the Program.  During 2000 and 1999, 34,341 and 32,397
shares, respectively, were acquired for the treasury under the program.  The
value per share was computed using guidelines established in 1995 by an
investment organization, and updated using audited consolidated financial
statements. These calculations are tested for accuracy and consistency by an
independent accounting firm. The purchase and sale of Common Stock under the
Program is subject to repurchase conditions as described in the Program.

UNREGISTERED SALES OF SECURITIES
Ownership of the Company's Class A Voting Preferred Stock is restricted to
medical or osteopathic physicians who have executed participating physician
agreements with the Company. Class A Preferred Stock is nontransferable and
holders of these shares do not receive dividends. Each such physician is issued
one share of Class A Voting Preferred Stock upon execution of his or her
participation agreement and the payment of $10 per share. Upon the termination
of a physician's participation agreement, his or her share of Class A Preferred
Stock is canceled. During 2000, the Company issued a net increase of 31 shares
of Class A Preferred Stock to physicians who entered into participation
agreements with the Company. To the extent that the registration provisions of
the Securities Act of 1933, as amended, were applicable to these transactions,
the Company relied on the exemption from registration contained in Section 4(2)
of that act.






























                                                                          8.



ITEM 6. SELECTED FINANCIAL DATA

The following information for the Company is as of and for the years ended
December 31, 2000, 1999, 1998, 1997, and 1996(dollars in thousands, except per
share data):
<TABLE>
<S>                                         <C>      <C>      <C>      <C>      <C>

                                                         Years Ended December 31,
                                            -------------------------------------------
                                              2000     1999     1998     1997     1996
                                            -------  -------  -------  ------   -------
Income Statement Data:
  Net premiums                              $43,574  $34,249  $35,718  $34,754  $28,688
  Third party administration fees             3,372    3,061    3,081    3,628    3,786
  Investment income                             767      514      607      615      552
  Total revenues                             48,424   38,428   40,053   39,581   33,425
  Net claims incurred                        35,151   30,095   30,615   30,976   23,425
  Other operating expenses                   10,395    9,147    8,835    8,727    8,393
  Income (loss) before income taxes
         and minority interest                2,878     (814)     603     (122)   1,607

  Net income (loss)                           1,954     (622)     483     (110)   1,041
                                            =======  =======  =======  =======  =======

Earnings (loss) per common share            $  1.38  $ (0.43) $  0.33  $ (0.07) $  0.69
                                            =======  =======  =======  =======  =======

Balance Sheet Data:
  Invested assets and cash                  $13,576  $10,425  $10,876  $10,981  $ 9,874
  Total assets                               17,704   13,654   14,277   14,011   12,777
  Reported and unreported
         claims payable                       5,831    4,667    4,410    4,164    3,188
  Contingency reserves payable                2,875    2,723    2,691    2,964    2,105
  Total liabilities                          11,796    9,414    9,017    8,807    7,137
  Stockholders' equity                        5,908    4,240    5,260    5,204    5,640


</TABLE>
Earnings (loss) per common share was calculated by dividing net income by the
weighted average number of Class C common shares outstanding during each
period as follows: 2000 1,412,869; 1999 1,448,600; 1998 1,482,635 shares;
1997 1,505,760 shares; 1996 1,505,760 shares.




















                                                                          9.


ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

GENERAL
The following operating statistics are presented for DAKOTACARE's operation as a
health maintenance organization only and do not include the operations of its
subsidiaries for the years ended December 31, 2000, 1999, 1998, and 1997. The
results indicated in the following tables are not indicative of future operating
results.

The combined ratio, which reflects underwriting results but not investment and
ancillary income, is a traditional measure of the underwriting performance of a
health maintenance organization. A combined ratio of less than 100% indicates
underwriting profitability while a combined ratio in excess of 100% indicates an
underwriting loss.

                                                  Years Ended December 31,
                                               -----------------------------
                                                2000    1999    1998    1997
                                                ----    ----    ----    ----
   Loss ratio                                   81.4%   87.5%   85.9%   88.7%
   Expense ratio                                15.1    15.8    15.0    14.5
                                               -----   -----    ----    ----
     Combined ratio                             96.5%  103.3%  100.9%  103.2%
                                               -----   -----    ----    ----
                                               -----   -----    ----    ----

The loss ratio is computed by dividing the net claims expense into net premium
revenue. The Company's results of operations will be affected by the changes in
the loss ratio. The loss ratio may vary from period to period depending
principally on claims experience. The expense ratio is computed by taking the
sum of the remaining operating expenses of the health maintenance organization
divided by net premium revenue.

The net decrease in the loss ratio was due to increased revenues on a per
member basis while claims per member remained fairly constant from the prior
year.  The decrease in the expense ratio is due to the large growth of revenues
with only a small increase in actual operating expense. See Comparison of Years
December 31, 2000 and December 31, 1999 and Comparison of Years December 31,
1999 and December 31, 1998.





















                                                                         10.
Activity in the liability for reported and unreported claims payable is
summarized as follows:
<TABLE>
<S>                                                  <C>       <C>       <C>       <C>
                                                            Years Ended December 31,
                                                     -----------------------------------
                                                      2000      1999      1998      1997
                                                     ------    ------    ------    ------
                                                            (dollars in thousands)

Balance at January 1                                 $4,667    $4,410    $4,164    $3,188
                                                     ------    ------    ------    ------

Incurred related to:
 Current year                                        36,026    30,227    30,198    30,237
 Prior years                                           (875)      911       417       739
 Contingency reserve written off                         --    (1,043)       --        --
                                                     ------    ------    ------    ------
Total incurred                                       35,151    30,095    30,615    30,976
                                                     ------    ------    ------    ------

Paid related to:
 Current year                                        29,843    24,241    25,705    26,217
 Prior years                                          4,195     5,321     4,710     3,921
                                                     ------     -----    ------    ------

Total paid                                           34,038    29,562    30,415    30,138
                                                     ------    ------    ------    ------

Less reinsurance recoverables at January 1                0      (276)     (230)      (92)
Plus reinsurance recoverables at December 31             51         0       276       230
                                                     ------    ------    ------    ------

Balance at December 31                               $5,831    $4,667    $4,410    $4,164
                                                     ------    ------    ------    ------
                                                     ------    ------    ------    ------
</TABLE>
The difference between the reserves reported in the accompanying tables, which
are presented in accordance with generally accepted accounting principles
(GAAP), and the statutory reserves reported to state regulatory authorities was
insignificant for all periods presented.




















                                                                         11.


The following table presents the development of DAKOTACARE's consolidated
balance sheet reserves for reported and unreported claims payable from 1991
through 2000. The top line of the table shows the reserves at the balance sheet
date for each of the indicated periods. This represents the original estimate of
reported and unreported claims payable established in the respective year. The
Company is not required to pay claims if they are submitted over one year past
the date of service. The Company also has paid over 99% of the covered claims
received within one year after service. Since there would be minimal impact on
discounting claims reserves, the Company does not follow the practice of
discounting claims reserves.

<TABLE>
<S>                        <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
                                                           As of December 31,
                           -------------------------------------------------------------------
                           2000   1999   1998   1997   1996   1995   1994   1993   1992   1991
                           ----   ----   ----   ----   ----   ----   ----   ----   ----   ----
                                                         (dollars in thousands)

Reported and unreported
  claims payable           5,831 4,667  4,410  4,164  3,188  2,710  2,864  2,558  2,449  2,456
         Paid (cumulative) as of:
         End of Year                --     --     --     --     --     --     --     --
         One Year Later          4,222  5,321  4,581  3,927  2,793  2,985  2,524  2,375  2,482
         Two Years Later            --  4,891  4,581  3,927  2,793  2,977  2,519  2,392  2,553
         Three Years Later          --     --  4,581  3,927  2,793  2,977  2,519  2,392  2,553
         Four Years Later           --     --     --  3,927  2,793  2,977  2,519  2,392  2,553
         Five Years Later           --     --     --     --  2,793  2,977  2,519  2,392  2,553
         Six Years Later            --     --     --     --     --  2,977  2,519  2,392  2,553
         Seven Years Later          --     --     --     --     --     --  2,519  2,392  2,553
         Eight Years Later          --     --     --     --     --     --     --  2,392  2,553
         Nine Years Later           --     --     --     --     --     --     --     --  2,553
Liability reestimated as of:
         End of Year      5,831  4,667  4,410  4,164  3,188  2,710  2,864  2,558  2,449  2,456
         One Year Later          4,222  5,321  4,581  3,927  2,793  2,985  2,524  2,375  2,482
         Two Years Later            --  4,891  4,581  3,927  2,793  2,977  2,519  2,392  2,553
         Three Years Later          --     --  4,581  3,927  2,793  2,977  2,519  2,392  2,553
         Four Years Later           --     --     --  3,927  2,793  2,977  2,519  2,392  2,553
         Five Years Later           --     --     --     --  2,793  2,977  2,519  2,392  2,553
         Six Years Later            --     --     --     --     --  2,977  2,519  2,392  2,553
         Seven Years Later          --     --     --     --     --     --  2,519  2,392  2,553
         Eight Years Later          --     --     --     --     --     --     --  2,392  2,553
         Nine Years Later           --     --     --     --     --     --     --     --  2,553
                          -----  -----  -----  -----  -----  -----  -----  -----  -----  -----

Redundancy (Deficiency)      --    445   (481)  (417)  (739)   (83)  (113)    39     57    (97)
                          -----  -----  -----  -----  -----  -----  -----  -----  -----  -----
                          -----  -----  -----  -----  -----  -----  -----  -----  -----  -----
</TABLE>
The Company is continually taking steps to improve its estimation of reserves
for reported and unreported claims payable. This includes, among other things,
improved underwriting standards, which stabilize the Company's assumptions of
risks, leading to a more predictable estimate of reported and unreported claims
payable. Additional approaches have also been developed to estimate claims
payable. The Company believes its reserves at December 31, 2000, are adequate.






                                                                         12.


RESULTS OF OPERATIONS

GENERAL
The following results of operations include the operations of DAKOTACARE and its
subsidiaries for the years ended December 31, 2000, 1999, and 1998.



COMPARISON OF YEARS DECEMBER 31, 2000 AND DECEMBER 31, 1999

GENERAL
The Company's net income increased $2,575,791 to income of $1,953,977 for the
year ended December 31, 2000, as compared to a loss of $621,814 for the year
ended December 31, 1999.  This increase was primarily due to an increase in
net premium income of $9,325,028, an increase in other revenues of $670,836,
and an increase in minority interest in loss of subsidiaries of $115,065.  These
were offset by an increase in net claims expense of $5,055,492, an increase
in administrative expenses of $1,247,786, and an increase in income taxes of
$1,231,860.

REVENUES
Total revenues increased $9,995,864, or 26.0%, for the year ended December 31,
2000, as compared to December 31, 1999.  Revenues from net premiums generated
by the health maintenance organization increased $9,315,180. This increase is
attributable to a 16.2% increase in the number of enrollee months and a 9.9%
increase in the net premium earned per enrollee for the year ended
December 31, 2000, as compared to December 31, 1999.  Revenues from the third
party administration fees increased by $311,163 due to increased fees per
enrollee totalling 7.5%.  Enrollee months also increased by 2.6%.  Investment
income increased $253,586 due primarily to an increase in the amount of
average invested assets during the year and higher interest rates earned.

OPERATING EXPENSES
Total operating expenses increased $6,303,278, or 16.1%, for the year ended
December 31, 2000, as compared to December 31, 1999. The change was due
primarily to an increase in claims incurred, personnel expenses, commissions,
occupancy expenses, state insurance taxes, and other general and administrative
expenses. During 1999, the Company's Board of Directors, with approval from the
Division of Insurance, voted to write off $1,043,131 of contingency reserves
withheld in 1997, which reduced claims expense in 1999.

Net claims expense increased by $5,055,492, or 16.8%, for the year ended
December 31, 2000, as compared to December 31, 1999.  The average claims paid
per enrollee increased by 1.5% while the number of enrollee months increased
by 16.2%.  Commissions and state insurance taxes increased by $371,383 and
$122,541, respectively, in 2000 as compared to 1999 due to the increased
premium income of the HMO. Personnel expenses increased $401,268, or 9.8%,
in 2000 as compared to 1999. This was due primarily to annual compensation
adjustments and an increase in staffing needs due to the increased volume.
Occupancy expense increased $94,501, or 13.6%, due to increased depreciation
expense resulting from the additional equipment purchased in 1999.  Other
general and administrative expenses increased $184,435, or 40.3%, in 2000
as compared to 1999.  This was primarily due to the continued addition
of licenses and service fees in using computer databanks for information.
Insurance expenses also increased due to rising costs and coverage increases
elected.  A fee settlement of a subsidiary is also included in the increase.


INCOME TAXES
Income tax expense (benefit) represents 35.9% and 24.2% of income (loss) before
income taxes and minority interest for the years ended December 31, 2000 and

                                                                        13.
1999, respectively.  Permanent tax differences and the change in the valuation
allowance recorded against deferred income taxes increased the provision
percentage above the expected 34% in 2000.  The valuation allowance was
originally added in 1999, which reduced the amount of income tax benefit below
the expected tax rate of 34%.  See Note 8 of the Notes to Consolidated
Financial Statements.


COMPARISON OF YEARS DECEMBER 31, 1999 AND DECEMBER 31, 1998

GENERAL
The Company's net income decreased $1,104,852 to a loss of $621,814 for the
year ended December 31, 1999, as compared to income of $483,038 for the year
ended December 31, 1998, representing a 228.7% decrease. This decrease was
primarily due to a decrease in net premium income of $1,469,046, a decrease in
other revenues of $155,829, and an increase in administrative expenses of
$312,117.  These were offset by a decrease in net claims of $519,521 and a
decrease in income taxes of $320,568.

REVENUES
Total revenues decreased $1,624,875, or 4.1%, for the year ended December 31,
1999, as compared to December 31, 1998. Revenues from net premiums generated
by the health maintenance organization decreased $1,441,204. This decrease is
attributable to a 6.8% decrease in the number of enrollee months for the year
ended December 31, 1999, as compared to December 31, 1998, but was somewhat
offset by a 2.9% increase in the premiums earned per enrollee.  The increase
in revenue per enrollee was needed to keep pace with rising claim costs per
enrollee. The decrease in enrollees was due to the competitive business climate
in the local marketplace. Revenues from the third party administration fees
decreased by $20,364 eventhough enrollees participating in the Company's
subsidiaries' TPA plans increased.  This decrease in revenue per enrollee stems
from the competitive local marketplace, also.  Investment income decreased
$93,016 due primarily to a decrease in the amount of average invested assets
used for operations.

OPERATING EXPENSES
Total operating expenses decreased $207,404, or 0.5%, for the year ended
December 31, 1999, as compared to December 31, 1998. The change was due
primarily to a decrease in claims incurred, commissions and state insurance
taxes, but was offset by an increase in personnel, professional fees, office,
occupancy and other general and administrative expenses.  During 1999, the
Company's Board of Directors, with approval from the Division of Insurance,
voted to write off $1,043,131 of contingency reserves withheld in 1997,
which reduced claims expense in 1999.


Net claims expense decreased by $519,521, or 1.7%, for the year ended
December 31, 1999, as compared to December 31, 1998.  Average claims per
enrollee increased by 4.4% while the number of enrollees decreased by 6.8%.
The enrollee decline caused the overall net claims expense to decrease.
Commissions expense and state insurance taxes decreased by $39,891 and $39,647,
respectively, in 1999 as compared to 1998 due to the decreased premium income
of the HMO. Personnel expenses increased $193,678, or 5.0%, in 1999 as compared
to 1998. This was due primarily to annual compensation adjustments and a
minimal amount of staff turnover.  Professional fees expense increased $20,452,
or 2.0%, in 1999 as compared to 1998. This was primarily due to increased
actuarial services needed during the year.  Office expense increased $54,518,
or 8.7%, in 1999 as compared to 1998 due primarily from additional postage and
printing expenses as a result of increased communications with enrollees.
Occupancy expense increased $36,184, or 5.5%, due to increased depreciation
expense resulting from the additional equipment purchased in 1999 as compared

                                                                         14.
to 1998.  Other general and administrative expenses increased $79,181, or 20.9%,
in 1999 as compared to 1998.  This was primarily due to the continued addition
of licenses and service fees in using computer databanks for information.
Insurance expenses also increased due to rising costs and coverage increases
elected.

INCOME TAXES
Income tax expense (benefit) represents 24.2% and 20.5% of income (loss) before
income taxes and minority interest for the years ended December 31, 1999 and
1998, respectively.  In 1999, permanent tax differences and a valuation
allowance recorded against deferred income taxes reduced the amount of income
tax benefit.  This reduced the percentage below the expected 34%.  In 1998,
permanent tax differences and the effect on the tax rate brackets decreased the
estimated provision, thus decreasing the related percentage.  See Note 8 of the
Notes to Consolidated Financial Statements.



LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of cash have been premium and fee revenue,
collection of premiums in advance of the claims costs associated with them, and
an agreement with participating physicians in which a percentage of fees for
had borrowings from banks and affiliated companies, but currently does not need
to borrow for liquidity purposes.

Net cash provided by operating activities increased by $3,018,900 to $3,370,640
for the year ended December 31, 2000, as compared to 1999.  Net cash provided
by operating activities increased primarily due to increases in net income,
reported and unreported claims payable, accounts payable and accrued expenses,
unearned premiums and contingency reserves payable since December 31, 1999.
The cash provided from these items were offset by an increase in receivables
since December 31, 1999.

Other uses of cash and cash equivalents were for the payment of dividends, the
purchases of property and equipment, the purchase of treasury stock, and the
purchase of securities held to maturity.  The Company has invested cash not
currently needed in operations into intermediate-term bonds, consisting
primarily of municipal bonds, U.S. government securities and corporate bonds.

At December 31, 2000, the Company has certificates of deposit of $700,000 on
deposit with the Division to meet the deposit requirements of state insurance
laws.

The Company is not contractually obligated to pay out contingency reserves
withheld but has historically elected to pay out a majority of amounts withheld.
In 2000, the Company paid $1,345,659 which was the total withheld for claims
incurred in 1998.  In 1999, the Company paid $299,990 of the total $1,343,121
withheld for claims incurred in 1997.  The balance was claimed as a reduction
of claims expense and removed from the contingency reserves as directed by the
Board of Directors.  Typically, two years lapse from the date the contingency
reserves are withheld to the date which the corresponding amounts are paid to
the participating physicians.  Currently, the reserves withheld from claims
with a date of service in 2000 and 1999 are the only amounts remaining within
the contingent reserve payable.

The Company believes that cash flows generated by operations, withholding of
contingency reserves, cash on hand, and short-term investment balances will be
sufficient to fund operations, pay out projected contingency reserves payable,
and pay dividends on the Class C common stock.

                                                                         15.
INFLATION

A substantial portion of the Company's operating expenses consist of health care
costs, which, in the general economy, have been rising at a rate greater than
that of the overall Consumer Price Index. The Company believes that its cost
control measures and risk sharing arrangements reduce the effect of inflation on
such costs. Historically, market conditions and the regulatory environment in
which the Company operates have permitted the Company to offset a portion or all
of the impact of inflation on the cost of health care benefits through premium
increases. If the Company was not able to continue to increase premiums, a
material adverse impact on the Company's operations could result. Inflation does
not have a material effect on the remainder of the Company's operating expenses.



TRENDS, EVENTS, OR UNCERTAINTIES

In recent years, there has been a trend by clients to switch to plans with
higher employee cost-sharing levels in order to maintain lower premiums. As a
provider of cost effective managed care plans for medium and small employers,
the Company believes it is delivering products and services that address current
health care reform issues. The Company will continue to evaluate its business
strategy as necessary to maximize its ability to adapt to the changing health
care marketplace.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not have any material market risk as defined by Item 305 of
Regulation S-K. The Company has market risk with its cash and investments, but
due to the conservative nature of the invested assets, management feels that
market risk is limited.


























                                                                         16.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


               CONSOLIDATED FINANCIAL STATEMENTS TABLE OF CONTENTS


                                                             Page
                                                             ----

Independent Auditor's Report                                 F-1

Consolidated Financial Statements

     Balance Sheets                                          F-2
     Statements of Operations                                F-4
     Statements of Stockholders' Equity                      F-5
     Statements of Cash Flows                                F-7
     Notes to Financial Statements                           F-9

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURES

None.





































                                                                         17.


PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


Name                               Age      Positions
- ----                             ---      ---------

K. Gene Koob, M.D.                  58      President and Director

James A. Engelbrecht, M.D.          53      Secretary/Treasurer and Director

Ben J. Henderson, D.O.              58      Vice President and Director

Thomas L. Krafka, M.D.              55      Director

Stephan D. Schroeder, M.D.          50      Director

John E. Rittmann, M.D.              63      Director

John Sternquist                     52      Director

James R. Reynolds, M.D.             57      Director

Bob L. Sutton                       32      Director

R. Van Johnson                      56      Director

L. Paul Jensen                      52      Chief Executive Officer

Kirk J. Zimmer                      40      Senior Vice President

William O. Rossing, M.D.            66      Vice President, Medical Director

Sharon K. Duncan                    53      Vice President, System Operations

Dean M. Krogman                     51      Vice President, External Operations

Barbara A. Smith                    39      Vice President, Medical Services

Thomas N. Nicholson                 41      Vice President, Sales and Marketing

Bruce E. Hanson                     37      Vice President, Finance

Brian E. Meyer                      38      Vice President, Information Systems

Scott L. Jamison                    43      Vice President, Provider Relations



Dr. Koob became a director of the Company in June 1994. He is a member of the
South Dakota State Medical Association and has been engaged as a neurologist in
Sioux Falls, South Dakota, since 1974.

Dr. Engelbrecht became a director of the Company in June 1997. He is a member of
the South Dakota State Medical Association and has been engaged in the practice
of internal medicine and rheumatology in Rapid City, South Dakota, since 1980.

Dr. Henderson became a director of the Company in June 1995. He is a member of
the South Dakota State Medical Association and has been engaged in the practice
of internal medicine in Mobridge, South Dakota, since 1972.

                                                                         18.
Dr. Krafka became a director of the Company in October 1998. He is a member of
the South Dakota State Medical Association and has been engaged in the practice
of radiology in Rapid City, South Dakota, since 1976.

Dr. Schroeder became a director of the Company in October 1998. He is a member
of the South Dakota State Medical Association and has been engaged in practice
as a family practitioner in Miller, South Dakota, since 1980.

Dr. Rittmann became a director of the Company in June 1997. He is a member of
as a family practitioner in Watertown, South Dakota, since 1973.

Dr. Sternquist became a director of the Company in October 2000. He is a member
of the South Dakota State Medical Association and has been engaged in the
practice as a general surgeon in Yankton, South Dakota, since 1980.

Dr. Reynolds became a director of the Company in September 1999.  He is a
member of the South Dakota State Medical Association and has been engaged in
the practice of cardiac surgery, thoracic surgery, and vascular surgery in
Sioux Falls since 1975.

Mr. Sutton became a director of the Company in September 1999.  He is the
Executive Vice President of the South Dakota Bankers Association and previously,
Mr. Sutton was the Executive Director of the South Dakota Petroleum Council,
from 1995 to 1998.

Mr. Johnson became a director of the Company in September 1999.  He is a
Lobbyist and former Executive Vice President of the South Dakota Automobile
Dealers Association and the former Executive Director of the South Dakota
Trucking Association.

Mr. Jensen became the Company's Chief Executive Officer in August 1999.  He
has also served as the Chief Executive Officer of the South Dakota State Medical
Association since 1999, and as Chief Executive Officer of the South Dakota
Foundation for Medical Care from 1996 to 1999.

Mr. Zimmer joined the Company in May 1988 and became the Company's Senior Vice
President in January 1990. Mr. Zimmer had been a Vice President since November
1988. Mr. Zimmer had been previously employed, since 1982, with McGladrey &
Pullen, LLP, a national certified public accountant firm and was a general
services manager from 1986 to 1988.

Dr. Rossing became the Company's Vice President and Medical Director
upon joining the Company in August 1996. Prior to his retirement from active
practice in July 1996, Dr. Rossing had been in the practice of internal
medicine in Sioux Falls, South Dakota, since 1966, following his tenure with
the U.S. Army Medical Service.

Ms. Duncan became the Company's Vice President of System Operations in February
1990. Prior to joining DAKOTACARE, Ms. Duncan had served as Vice President with
Blue Shield of South Dakota since 1986.

Mr. Krogman joined the Company in May 1993 and became the Company's Vice
President of External Operations in July 1994. Mr. Krogman is also employed by
the South Dakota State Medical Association. Mr. Krogman has been a contract
lobbyist since 1989 and was a broker/owner of Borchardt/Krogman and Associates,
a real estate company, until 1993.

Ms. Smith joined the Company in June 1996 and became the Company's Vice
President of Operations in September 1996.  Ms. Smith had served for four years
as the Secretary of the South Dakota Department of Health and for the prior
two years as Special Advisor to the Governor of the State of South Dakota.
                                                                         19.
Mr. Nicholson joined the Company in July 1996 as the Vice President of Sales and
Marketing. Mr. Nicholson had been previously employed, since 1981, by the
Williams Insurance Agency and was an Executive Vice President since 1994.

Mr. Hanson joined the Company in December 1996 and became the Vice President of
Finance in March 1997. Mr. Hanson had been in private practice as a certified
public accountant since 1991, and previously had been employed, since 1985, with
Charles Bailly & Co., a regional certified public accountant firm.

Mr. Meyer joined the Company in July 1997 as the Vice President of Information
Systems. Mr. Meyer had been previously employed since 1985 with Berkley
Information Services and was Vice President of Systems Development since 1990.

Mr. Jamison joined the Company in May 2000 as the Vice President of Provider
Relations.  Mr. Jamison had been employed by a clinic in Sioux Falls, SD.

Pursuant to the Company's Bylaws, the Board of Directors consists of ten
directors who are elected for three-year terms expiring at each successive
annual meeting of shareholders. Currently, no director may serve more than
three consecutive terms. No positions are currently vacant.  The terms of
Dr. K. Gene Koob, Dr. Frank Messner, and Dr. James Engelbrecht expired
at the 2000 Annual Meeting of Shareholders, but the terms of Dr. K. Gene
Koob, and Dr. James Engelbrecht were renewed at that time.  The term of Dr.
John Sternquist commenced in October 2000.  The terms of Dr. John Rittman,
Dr. Ben Henderson, Dr. Thomas Krafka and Dr. Stephan Schroeder expire at
the 2001 Annual Meeting of Shareholders; the terms of Dr. James Reynolds,
Mr. Bob Sutton and Mr. Van Johnson expire at the 2002 Annual Meeting of the
Shareholders; the terms of Dr K. Gene Koob, Dr. James Engelbrecht and Dr.
John Sternquist expire at the 2003 Annual Meeting.

The Bylaws currently require that eight of the directors be holders of Class A
voting preferred stock of the Company and two of the directors be consumers.
The Articles of Incorporation restrict ownership of Class A voting preferred
stock to medical or osteopathic physicians who have executed Participating
Physician Agreements with the Company. To assure equal eligibility and
opportunity throughout the state of South Dakota and avoid domination of the
Board of Directors by any geographic area or areas, the number of physician
directors from any one District Medical Society of the South Dakota State
Medical Association can not exceed two. The consumer directors may be from any
geographic location which is served by South Dakota State Medical Holding
Company and their residence does not affect the geographic restriction for
physician directors. The consumer directors are currently Mr. Bob Sutton and
Mr. Van Johnson.  The officers of the Company are appointed by the Board of
Directors and hold office until their successors are chosen and qualified.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten-percent stockholders are also required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.

To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, during the fiscal year ended December 31, 2000, all Section 16(a)
filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were timely complied with.
                                                                         20.


ITEM 11.  EXECUTIVE COMPENSATION

Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in June, 2001.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of March 21, 2001, regarding the
beneficial ownership of securities of the Company by (i) each person or group
who is known by the Company to be the beneficial owner of more than 5% of the
outstanding voting securities, (ii) all directors of the Company, (iii) each of
the executive officers of the Company named in the Summary Compensation Table,
and (iv) all directors and executive officers of the Company as a group. The
Company believes that the beneficial owners of the securities listed below,
based on information furnished by such owners, have sole voting and investment
the respective classes of securities of the Company and the information
contained in the notes to the table.
                                                   Amount & Nature
 Title                Name and Address of           of Beneficial    Percent
of Class               Beneficial Owner               Ownership      of Class
- --------              -------------------          ---------------   --------
Class B Preferred     South Dakota State                1,300          100%
                      Medical Association(1)
                      1323 South Minnesota Avenue
                      Sioux Falls, SD 57105

Class A Preferred     Lloyd Solberg, M.D.                   1           .08%
Class C Common        P. O. Box 5054                  135,330          9.68%
                      Sioux Falls, SD 57117-5054

Class A Preferred     Thomas L. Krafka, M.D.                1          .08%
Class C Common                                         16,640         1.16%

Class A Preferred     John C. Sternquist, M.D.              1          .08%
Class C Common                                            560          .04%

Class A Preferred     K. Gene Koob, M.D.                    1          .08%

Class A Preferred     Ben J. Henderson, D.O.                1          .08%
Class C Common                                          1,060          .08%

Class A Common        Stephan D. Schroeder                  1          .08%
Class C Common                                          1,920          .14%

Class A Preferred     James Engelbrecht, M.D.               1          .08%
Class C Common                                          1,160          .08%

Class A Preferred     John Rittmann, M.D.                   1          .08%
Class C Common                                          8,340          .60%

Class A Preferred     James Reynolds, M.D.                  1          .08%
Class C Common                                         50,440         3.61%

Class C Common        Bob Sutton                           --           --

Class C Common        Van Johnson                          --           --
                                                                          21.

Class C Common        L. Paul Jensen(2)                 5,760          .41%
                      1323 South Minnesota Avenue
                      Sioux Falls, SD 57105

Class C Common        William Rossing, M.D.             8,720          .61%

Class C Common        Kirk J. Zimmer                      800          .06%

Class C Common        Thomas Nicholson                     --           --

Class A Preferred     All Directors and Executive           8          .68%
                      Officers as a Group
Class C Common        (14 people)                      95,400         6.82%


- --------------
(1) The South Dakota State Medical Association is an affiliated company.
(2) L. Paul Jensen is the Chief Executive Officer of the South Dakota State
Medical Association.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company leases office space from the Association. The Company has a
one-year lease which is renewed through December 31, 2001.  The lease
requires minimum rental payments of $211,016.  Total rental payments
for office space for the years December 31, 2000, 1999 and 1998 were
$217,162, $204,870 and $204,870, respectively.

The Company provides group health insurance coverage for employees of the
Association. Total premium income from the affiliate for the years ended
December 31, 2000, 1999 and 1998 was $55,689, $48,330 and $47,721,
respectively.

L. Paul Jensen received salaries and retirement contributions totaling $94,273
and $30,312 from the South Dakota Medical Association for the years ended 2000
and 1999, respectively.  No compensation was received in 1998.

Robert D. Johnson retired CEO of the Company, received salaries and retirement
contributions totaling $0, $332,400 and $110,860, from the South Dakota State
Medical Association for the years ended 2000, 1999 and 1998, respectively.

















                                                                         22.





ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

The following documents are filed as part of this report:


FINANCIAL STATEMENTS                                        Page
                                                            ----

Independent Auditor's Report                                F-1
Consolidated Financial Statements
     Balance Sheets                                         F-2
     Statements of Operations                               F-4
     Statements of Stockholders' Equity                     F-5
     Statements of Cash Flows                               F-7
     Notes to Financial Statements                          F-9


EXHIBITS
Exhibit No.     Description
-----------     -----------

3.1             The Amended and Restated Articles of Incorporation of the
                Company (incorporated by reference to Exhibit 3.1 to the
                Company's Form 8-A, as filed with the Securities and Exchange
                Commission on January 19, 1996)

3.2             The Amended and Restated Bylaws of the Company (incorporated
                by reference to Exhibit 3.2 to the Company's Form 8-A, as
                filed with the Securities and Exchange Commission on
                January 19, 1996)

3.3             Form of Specimen Certificate for Class A Voting Preferred Stock
                (incorporated by reference to Exhibit 4.1 to the Company's
                Form 8-A, as filed with the Securities and Exchange Commission
                on January 19, 1996)

4.2             Form of Stock Certificate for Class C Non-Voting Common Stock
                (incorporated by reference to Exhibit 4.2 to the Company's
                Form 10-K, as filed with the Securities and Exchange
                Commission on March 29, 1996)

10              Office Lease with the South Dakota State Medical Association

21              Subsidiaries of the Registrant



REPORTS ON FORM 8-K
None.












                                                                         23.

SIGNATURES


Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED


By /s/L. Paul Jensen                        Dated   03/29/2001
   ----------------------------------             --------------------
     L. Paul Jensen
     Chief Executive Officer
     (Principal Executive Officer)


By /s/Kirk J. Zimmer                        Dated   03/29/2001
   ----------------------------------             --------------------
     Kirk J. Zimmer
     Senior Vice President
     (Principal Financial Officer)


By /s/Bruce E. Hanson                       Dated   03/29/2001
   ----------------------------------             --------------------
     Bruce E. Hanson
     Vice President Finance


By /s/ K. Gene Koob                         Dated   03/29/2001
   ----------------------------------             --------------------
     K. Gene Koob, M.D.
     President and Director


By /s/James Engelbrecht                     Dated   03/29/2001
   ----------------------------------             --------------------
     James Engelbrecht, M.D.
     Secretary/Treasurer and Director


By /s/Ben J. Henderson                      Dated   03/29/2001
   ----------------------------------             --------------------
     Ben J. Henderson, D.O.
     Vice President and Director


By /s/Thomas L. Krafka                      Dated   03/29/2001
   ----------------------------------             --------------------
     Thomas L. Krafka, M.D.
     Director


By /s/James R. Reynolds                     Dated   03/29/2001
   ----------------------------------             --------------------
     James R. Reynolds, M.D.
     Director


                                                                         24.



By /s/ John Sternquist                      Dated   03/29/2001
   ----------------------------------             --------------------
     John Sternquist, M.D.
     Director


By /s/John Rittmann                         Dated   03/29/2001
   ----------------------------------             --------------------
     John Rittmann, M.D.
     Director


By /s/ Stephan D. Schroeder                 Dated   03/29/2001
   ----------------------------------             --------------------
     Stephan D. Schroeder, M.D.
     Director


By /s/ Bob Sutton                           Dated   03/29/2001
   ----------------------------------             --------------------
     Bob Sutton
     Director


By /s/Van Johnson                           Dated   03/29/2001
   ----------------------------------             --------------------
     Van Johnson
     Director































                                                                         25.

INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
South Dakota State Medical Holding Company, Incorporated
   d/b/a DAKOTACARE
Sioux Falls, South Dakota

We have audited the accompanying consolidated balance sheets of South Dakota
State Medical Holding Company, Incorporated d/b/a DAKOTACARE and subsidiaries
as of December 31, 2000 and 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2000.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits 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 are free
of material misstatement.  An audit 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
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of South
Dakota State Medical Holding Company, Incorporated d/b/a DAKOTACARE and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with generally accepted accounting
principles.


                                    /s/ McGLADREY & PULLEN, LLP


Sioux Falls, South Dakota
March 6, 2001

                                      F-1























SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
d/b/a DAKOTACARE
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999

<TABLE>
<S>                                                <C>              <C>

ASSETS                                                  2000            1999
-------------------------------------------------------------------------------

Current Assets
  Cash and cash equivalents                        $ 7,439,514      $ 5,494,336
  Investment in securities held to maturity
   (Note 5)                                            455,018          431,570
  Certificates of deposit                              500,000          500,000
  Receivables (Note 3)                               1,869,688          929,028
  Prepaids and other assets                            101,430          140,513
  Deferred income taxes (Note 8)                       811,000          639,000
                                                   ----------------------------
    TOTAL CURRENT ASSETS                            11,176,650        8,134,447
                                                   ----------------------------


Long-Term Investments
  Investment in securities held to maturity
   (Note 5)                                          4,205,220        3,055,769
  Investment in securities available for sale
   (Note 5)                                            125,400          286,400
  Pledged certificates of deposit (Note 5)             700,000          500,000
  Certificate of deposit                                50,000           50,000
  Contracts with life insurance companies              101,119          107,089
                                                   ----------------------------
                                                     5,181,739        3,999,258
                                                   ----------------------------


Property and Equipment, at cost,
  net of accumulated depreciation                      903,191        1,110,477


Deferred Income Taxes (Note 8)                         442,000          409,600
                                                   ----------------------------
                                                   $17,703,580      $13,653,782
                                                   ----------------------------
                                                   ----------------------------

</TABLE>
See Notes to Consolidated Financial Statements.

                                      F-2











<TABLE>
<S>                                                <C>              <C>
LIABILITIES AND STOCKHOLDERS' EQUITY                   2000             1999
-------------------------------------------------------------------------------

Current Liabilities
  Reported and unreported claims payable (Note 7)  $ 5,831,471      $ 4,667,253
  Unearned premiums and administration fees          1,026,511          849,777
  Accounts payable and accrued expenses              1,712,748          818,401
  Contingency reserves payable (Note 6)              1,300,000        1,300,000
                                                   ----------------------------
     TOTAL CURRENT LIABILITIES                       9,870,730        7,635,431
                                                   ----------------------------
Contingency Reserves Payable (Note 6)                1,575,472        1,423,351
                                                   ----------------------------
Minority Interest in Subsidiaries                      349,331          355,001
                                                   ----------------------------
Commitments and Contingencies (Notes 4 and 13)

Stockholders' Equity (Note 9)
  Class A preferred, voting, no par value, $10
    stated value, 2,500 shares authorized; 1,179
    and 1999                                            11,790           11,480
  Class B preferred, voting, no par value,
    $1 stated value, 2,500 shares authorized;
    issued and outstanding 1,300 shares                  1,300            1,300
  Class C common, nonvoting, $.01 par value,
    10,000,000 shares authorized; issued
    1,505,760 shares                                    15,058           15,058
  Additional paid-in capital                         3,749,342        3,749,342
  Retained earnings                                  2,960,959        1,076,912
  Accumulated other comprehensive income (loss)         (1,223)         (34,914)
  Less cost of Class C common treasury stock,
    2000 107,153 shares, 1999 72,812 shares           (829,179)        (579,179)
                                                   ----------------------------
                                                     5,908,047        4,239,999
                                                   ----------------------------
                                                   $17,703,580      $13,653,782
                                                   ----------------------------
                                                   ----------------------------

</TABLE>
                                      F-3





















SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
D/B/A DAKOTACARE
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
<TABLE>
<S>                                     <C>                 <C>                 <C>

                                            2000                1999                1998
--------------------------------------------------------------------------------------------

Revenues:
  Premiums                              $ 44,090,588        $ 34,705,625        $ 36,157,947
  Less premiums ceded for reinsurance       (517,055)           (457,120)           (440,396)
                                        ------------        ------------        ------------
                                          43,573,533          34,248,505          35,717,551
  Third party administration fees          3,371,746           3,060,583           3,080,947
  Investment income                          767,185             513,599             606,615
  Other income                               711,488             605,401             647,850
                                        ------------        ------------        ------------
        TOTAL REVENUES                    48,423,952          38,428,088          40,052,963
                                        ------------        ------------        ------------

Operating expenses:
  Claims incurred                         35,286,842          30,539,355          31,318,143
  Less reinsurance recoveries               (136,291)           (444,296)           (703,563)
                                        ------------        ------------        ------------
                                          35,150,551          30,095,059          30,614,580
  Personnel expenses                       4,486,221           4,084,953           3,891,275
  Commissions                              1,757,300           1,385,917           1,425,808
  Professional fees expenses               1,075,733           1,040,665           1,020,213
  Office expenses                            687,326             680,132             625,614
  Occupancy expenses                         787,892             693,391             657,207
  State insurance taxes                      541,413             418,872             458,519
  Advertising expenses                       417,676             386,280             378,638
  Other general and administrative expenses  641,616             457,181             378,000
                                        ------------        ------------        ------------
        TOTAL OPERATING EXPENSES          45,545,728          39,242,450          39,449,854
                                        ------------        ------------        ------------
        INCOME (LOSS) BEFORE INCOME
          TAXES AND MINORITY INTEREST      2,878,224            (814,362)            603,109
Income taxes (benefit) (Note 8)            1,034,917            (196,943)            123,625
                                        ------------        ------------        ------------
INCOME (LOSS) BEFORE MINORITY INTEREST     1,843,307            (617,419)            479,484
Minority interest in income (loss)
  of subsidiaries                           (110,670)              4,395              (3,554)
                                        ------------        ------------        ------------
        NET INCOME (LOSS)               $  1,953,977         $  (621,814)       $    483,038
                                        ------------        ------------        ------------
                                        ------------        ------------        ------------

Earnings (loss) per common share        $       1.38         $     (0.43)      $        0.33
                                        ------------        ------------        ------------
                                        ------------        ------------        ------------
</TABLE>

See Notes to Consolidated Financial Statements.


                                     F-4





SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
D/B/A DAKOTACARE
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
<TABLE>
<S>                                           <C>              <C>            <C>

                                                                               Additional
                                             Comprehensive      Capital          Paid-In
                                                 Income          Stock           Capital
- ---------------------------------------------------------------------------------------
Balance, December 31, 1997                                     $ 27,048       $ 3,749,342
   Issuance of Class A preferred stock                              900                 -
   Redemption of Class A preferred stock                           (540)                -
   Dividends paid on Class C common stock                             -                 -
   Purchase of treasury stock (Note 9)                                -                 -
   Comprehensive income:
      Net income                              $  483,038              -                 -
      Net change in unrealized loss on
        securities available for sale               (697)             -                 -
                                              -----------
      Comprehensive income                    $  482,341
                                              -------------------------------------------
Balance, December 31, 1998                                       27,048         3,749,342
   Issuance of Class A preferred stock                              850                 -
   Redemption of Class A preferred stock                           (420)                -
   Dividends paid on Class C common stock                             -                 -
   Purchase of treasury stock (Note 9)                                -                 -
   Comprehensive income:
      Net (loss)                              $ (621,814)             -                 -
      Net change in unrealized loss on
        Securities available for sale            (26,276)             -                 -
                                              -----------
      Comprehensive income                    $ (648,090)
                                              -------------------------------------------
Balance, December 31, 1999                                       27,838         3,749,342
   Redemption of Class A preferred stock                           (640)                -
   Dividends paid on Class C common stock                             -                 -
   Purchase of treasury stock (Note 9)                                -                 -
   Comprehensive income:
      Net income                              $1,953,977              -                 -
      Net change in unrealized loss on
        Securities available for sale             33,691              -                 -
                                              -----------
      Comprehensive income                    $1,987,668
                                              -------------------------------------------
Balance, December 31, 2000                                     $ 28,148       $ 3,749,342
                                                             ----------------------------
                                                             ----------------------------
</TABLE>
See Notes to Consolidated Financial Statements.


                                     F-5







<TABLE>
<S>                                       <C>           <C>         <C>          <C>

                                                        Accumulated
                                                           Other
                                           Retained    Comprehensive   Treasury
                                           Earnings        Income        Stock     Total
- --------------------------------------------------------------------------------------------
Balance, December 31, 1997                $ 1,435,709   $ (7,941)   $       -    $ 5,204,158
   Issuance of Class A preferred stock              -          -            -            900
   Redemption of Class A preferred stock            -          -            -           (540)
   Purchase of treasury stock (Note 9)              -          -     (280,480)      (280,480)
   Dividends paid on Class C common stock    (146,754)         -            -       (146,754)
   Comprehensive income:
      Net income                              483,038          -            -        483,038
      Net change in unrealized loss on
        securities available for sale               -       (697)           -           (697)
      Comprehensive income
                                   -----------------------------------------------------------
Balance, December 31, 1998                  1,771,993     (8,638)    (280,480)     5,259,625
   Issuance of Class A preferred stock              -          -            -            850
   Redemption of Class A preferred stock            -          -            -           (420)
   Dividends paid on Class C common stock     (73,267)         -            -        (73,267)
   Purchase of treasury stock (Note 9)              -          -     (298,699)      (298,699)
   Comprehensive income:
      Net (loss)                             (621,814)         -            -       (621,814)
      Net change in unrealized loss on
        securities available for sale               -    (26,276)           -        (26,276)
      Comprehensive income (loss)
                                   -----------------------------------------------------------
Balance, December 31, 1999                  1,076,912    (34,914)    (579,179)     4,239,999
   Issuance of Class A preferred stock              -          -            -            950
   Redemption of Class A preferred stock            -          -            -           (640)
   Dividends paid on Class C common stock     (69,930)         -            -        (69,930)
   Purchase of treasury stock (Note 9)              -          -     (250,000)      (250,000)
   Comprehensive income:
      Net income                            1,953,977          -            -      1,953,977
      Net change in unrealized loss on
        securities available for sale               -     33,691            -         33,691
      Comprehensive income
                                   -----------------------------------------------------------
Balance, December 31, 2000                $ 2,960,959   $ (1,223)  $ (829,179)   $ 5,908,047
                                   -----------------------------------------------------------
                                   -----------------------------------------------------------

</TABLE>

                                     F-6



















SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
d/b/a DAKOTACARE
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
<TABLE>
<S>                                                <C>            <C>            <C>
                                                      2000            1999           1998
----------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
 Net income (loss)                                 $1,953,977     $ (621,814)    $  483,038
 Adjustments to reconcile net income (loss) to
   net cash provided by operating activities:
   Depreciation                                       336,776        329,472        307,211
   Minority interest in income (loss) of subsidiaries(110,670)         4,395         (3,554)
   Amortization of discounts and premiums on
     investments and certificates of deposit, net    (134,399)      (130,662)      (138,461)
   Loss on disposal of equipment                       16,076              -              -
   Loss on sale of equity securities                   27,437              -              -
   (Increase) decrease in receivables                (940,660)       323,752       (453,385)
   (Increase) decrease in prepaids and other assets    39,083         13,417        (29,201)
   (Increase) decrease in deferred income taxes      (204,400)        33,400         60,000
   Increase in reported and unreported
     claims payable                                 1,164,218        257,631        245,818
   Increase in accounts payable
     and accrued expenses                             894,347         98,632         32,875
   Increase in unearned premiums
     and administration fees                          176,734         10,734        209,260
   Increase (decrease) in contingency
     reserves payable                                 152,121         32,783       (273,278)
                                                  ------------------------------------------
       NET CASH PROVIDED BY OPERATING ACTIVITIES    3,370,640        351,740        440,323
                                                  ------------------------------------------
 Cash Flows From Investing Activities
   Available for sale securities:
     Purchased                                        (46,310)        (6,976)        (6,397)
     Sales                                            213,564              -              -
   Held to maturity securities:
     Matured                                          437,248        560,000        985,000
     Purchased                                     (1,484,233)             -       (367,364)
   Proceeds from maturities of certificates
     of deposit                                     1,000,000      1,075,000      1,447,000
   Purchase of certificates of deposit             (1,200,000)    (1,000,000)    (1,175,000)
   (Increase) decrease in contracts with
     life insurance companies                           5,970        (15,245)       (19,000)
   Purchase of property and equipment                (145,566)      (526,943)      (256,533)
                                                  ------------------------------------------
       NET CASH PROVIDED BY (USED IN)
         INVESTING ACTIVITIES                      (1,210,842)       141,675        891,254
                                                  ------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.

                                     F-7







<TABLE>
<S>                                                  <C>            <C>            <C>
                                                         2000           1999           1998
                                                    ------------------------------------------
 Cash Flows From Financing Activities
   Proceeds from issuance of capital stock           $      950     $      850     $      900
   Redemption of capital stock                             (640)          (420)          (540)
   Payment of dividends                                 (69,930)       (73,267)      (146,754)
   Purchase of treasury stock                          (250,000)      (298,699)      (280,480)
   Minority investment in subsidiary                    105,000              -              -
                                                    ------------------------------------------
        NET CASH (USED IN) FINANCING ACTIVITIES        (214,620)      (371,536)      (426,874)
                                                    ------------------------------------------
        INCREASE IN CASH AND CASH EQUIVALENTS         1,945,178        121,879        904,703


 Cash and Cash Equivalents
   Beginning                                          5,494,336      5,372,457      4,467,754
                                                    ------------------------------------------
   Ending                                            $7,439,514     $5,494,336     $5,372,457
                                                    ------------------------------------------
                                                    ------------------------------------------
 Supplemental Disclosures of Cash Flow Information
   Cash payments for:
     Income taxes, net of refunds                    $1,007,032     $ (250,000)    $  315,275

 Supplemental Disclosures of Noncash Investing
   and Financing Activities
     (Increase) decrease in unrealized loss on
       securities available for sale                 $   33,691     $  (26,276)    $     (697)

</TABLE>
                                      F-8





























SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
D/B/A DAKOTACARE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS:  South Dakota State Medical Holding Company, Incorporated
(the Company), is a South Dakota licensed health maintenance organization (HMO)
d/b/a DAKOTACARE.  The Company has contracted with hospitals, physicians and
other providers to provide health care services to policyholders.  Policyholders
are employee groups located in South Dakota.

A summary of the Company's significant accounting policies follows:
PRINCIPLES OF CONSOLIDATION:  The accompanying consolidated financial
statements include the accounts of the Company, its wholly-owned
subsidiaries, DAKOTACARE Administrative Services, Incorporated (DAS), and
DAKOTACARE Insurance, LTD. (DIL), its 50.11% owned subsidiary, Dakota Health
Plans, Incorporated (DHP), and its 54.35% owned subsidiary, Carewest, Inc.
(Carewest).  DAS, DHP, and Carewest are third party administrators of health
care plans for independent employer companies.  DIL's primary activity is in
providing reinsurance quota share excess medical stop loss coverage to
DAS' self funded customers.  In August 2000, the Company organized and
purchased a majority interest in Carewest, Inc.  Its function as a third
party administrator focuses on the market in western South Dakota.  During
December of 1998, DHP ceased business operations.  Management expects to
formally dissolve DHP during 2001 with no material effect on the consolidated
financial statements.  All intercompany balances and transactions have been
eliminated in consolidation.

BASIS OF FINANCIAL STATEMENT PRESENTATION:  The consolidated financial
statements have been prepared in conformity with generally accepted
accounting principles.  In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the balance sheet.  Actual
results could differ significantly from those estimates.  Material estimates
that are particularly susceptible to significant change in the near-term
relate to the liabilities for contingency reserves payable and reported and
unreported claims payable.

CASH AND CASH EQUIVALENTS:  For purposes of reporting the statements of cash
flows, the Company includes as cash equivalents all cash accounts and highly
liquid debt instruments which are not subject to withdrawal restrictions or
penalties.  Certificates of deposit are considered investments as all have
been purchased with maturities in excess of ninety days.  The Company believes
it is not exposed to any significant credit risk on cash and cash equivalents.

INVESTMENT SECURITIES:  Investment securities classified as held to maturity
are those debt securities that the Company has both the intent and ability to
hold to maturity regardless of changes in market condition, liquidity needs,
or changes in general economic conditions.  These securities are stated at
amortized cost.

Investment securities classified as available for sale are marketable equity
securities and those debt securities that the Company intends to hold for an
indefinite period of time, but not necessarily to maturity.  Any decision to
sell a security classified as available for sale would be based on various
factors, including significant movements in interest rates, changes in the
maturity mix of the Company's assets and liabilities, liquidity needs,
regulatory capital considerations, and other similar factors.  Investment
securities available for sale are carried at fair value.  Unrealized gains or
losses are reported as increases or decreases in comprehensive income, net of
the related deferred tax effect.
                                    F-9
SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
D/B/A DAKOTACARE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

- -------------------------------------------------------------------------

NOTE 1.   NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVESTMENT SECURITIES (continued):  Premiums and discounts on investments in
debt securities are amortized over their contractual lives, except for
collateralized mortgage obligations, for which prepayments are probable and
of the underlying mortgages.  The method of amortization results in a constant
effective yield on those securities (the interest method).  Interest on debt
securities is recognized in income as accrued.  Realized gains and losses on
the sale of investment securities are determined using the specific
identification method.

DEPRECIATION:  Building and building improvements are depreciated using
straight-line methods over the estimated useful lives of the assets, which
are twenty to thirty-nine years.  Depreciation on furniture, equipment and
automobiles is computed using straight-line methods based upon the estimated
useful lives of the respective assets, which is principally five to seven
years. A summary of property and equipment is as follows:

                                               2000                1999
                                          ----------------------------------
Furniture, equipment and automobiles       $ 2,248,544         $ 2,740,214
Building and building improvements              53,370              53,370
Other                                          134,818             134,818
                                          ----------------------------------
                                             2,436,732           2,928,402
Less accumulated depreciation                1,533,541           1,817,925
                                          ----------------------------------
                                            $  903,191         $ 1,110,477
                                          ----------------------------------
                                          ----------------------------------

REVENUE RECOGNITION:  Premiums are billed in advance of their respective
coverage periods.  Income from such premiums is recorded as earned during the
coverage period; the unearned portion of premiums received prior to the end of
the coverage period is recorded as unearned premiums.  Revenue is reduced by
reinsurance premiums ceded to reinsurance companies.  Third party
administration fees are recorded as earned in the period in which the related
services are performed.  The unearned portion of fees received but not earned
prior to the end of the contract is recorded as unearned administration fees.

REPORTED AND UNREPORTED CLAIMS PAYABLE:  The coverage offered by the Company
is on an occurrence basis which provides for payment of claims which occur
during the period of coverage regardless of when the claims are reported.
Reported and unreported claims payable consist of actual claims reported to
be paid and estimates of health care services rendered but not reported and
to be paid.  The liabilities for reported and unreported claims payable have
been estimated by utilizing statistical information developed from historical
data, current enrollment, health service utilization statistics and other
related information. In addition, the Company uses the services of an
independent actuary in the determination of its year end liabilities.  The
accruals are continually monitored and reviewed and as adjustments to the
estimated liabilities become necessary, such adjustments are reflected in
current operations.

                                    F-10

SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
D/B/A DAKOTACARE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

- -----------------------------------------------------------------------------

NOTE 1.   NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES:  Deferred taxes are provided on an asset and liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards and deferred tax liabilities
are recognized for taxable temporary differences.  Temporary differences are
the differences between the reported amounts of assets and liabilities and
their tax bases.  Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.  Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.

EARNINGS (LOSS) PER COMMON SHARE:  Earnings (loss) per common share was
calculated by dividing net income (loss) by the weighted average number of
Class C common shares outstanding during each period.  The weighted average
number of Class C common shares outstanding was 1,412,869 in 2000, 1,448,600
in 1999, and 1,482,635 in 1998.  All references to earnings (loss) per share
in the consolidated financial statements are to basic earnings (loss) per
share, as the Company has no potentially issuable common stock.


NOTE 2.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

Cash and cash equivalents and certificates of deposit:  The carrying amount
approximates fair value because of the relative short maturity of those
instruments.

Investments:  Fair values for the Company's investment securities are based on
quoted market prices.  At December 31, 2000, the carrying amount and fair
value of the Company's investment securities was $4,785,638 and $4,866,245,
At December 31, 1999, the carrying amount and fair value of the Company's
investment securities was $3,773,739 and $3,760,201, respectively.

Accrued interest receivable:  The carrying amount approximates fair value due
to the nature of the balances recorded.



                                    F-11













SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
d/b/a DAKOTACARE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-----------------------------------------------------------------------------

NOTE 3. RECEIVABLES

Receivables consist of the following:

                                                 2000            1999
                                               --------      ----------
  Drug manufacturer chargebacks              $  272,853     $  145,064
  Premiums                                       91,218         86,667
  Subrogation, net of recovery expenses          72,730         88,500
  Interest                                       38,238         21,099
  Reinsurance                                    51,158              -
  Income taxes                                   13,600        252,000
  Funds withheld by ceding insurer              145,470        115,270
  Lawsuit settlement                            850,000              -
  Other                                         334,421        220,428
                                             ----------      ----------
                                              1,869,688        929,028
  Less allowance for doubtful accounts               --             --
                                             ----------      ----------
                                             $1,869,688     $  929,028
                                             ----------      ----------
                                             ----------      ----------

NOTE 4. REINSURANCE

The Company's policy is to reinsure that portion of risk in excess of $125,000
of covered hospital inpatient expenses of any enrollee per contract year,
subject to a coinsurance provision which ranged from 50% to 90% based on
average daily amounts specified in the plan, and a $2,000,000 lifetime maximum
benefit per enrollee.  The Company would be liable for any obligations that
the reinsuring company is unable to meet under the reinsurance agreement.

This reinsurance agreement also provides for enrollee benefits to be paid in
the event the Company should cease operations or become insolvent, and a
any enrollee that moves out of the service area of the Company.


                                      F-12


















SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
d/b/a DAKOTACARE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

- -----------------------------------------------------------------------------

NOTE 5. INVESTMENT SECURITIES

Investment securities at December 31, 2000 are as follows:
<TABLE>
<S>                                    <C>             <C>            <C>           <C>
                                                         Gross         Gross       Estimated
                                        Amortized      Unrealized   Unrealized       Fair
                                           Cost          Gains       (Losses)        Value
                                      --------------------------------------------------------
Debt securities held to maturity:
  Obligations of U.S. treasury, government
    agencies and corporations          $1,315,979      $  37,177      $  (3,261)    $1,349,895
  Obligations of state and
    political subdivisions              2,657,348         36,977         (6,516)     2,687,809
  Corporate bonds                         684,822         16,263              -        701,085
  U.S. governmental agency collateralized
    mortgage obligations                    2,089              -            (33)         2,056
                                      --------------------------------------------------------
                                       $4,660,238      $  90,417      $  (9,810)    $4,740,845
                                      --------------------------------------------------------
                                      --------------------------------------------------------
Equity securities available for sale:
  Bond mutual fund                     $  126,623      $       -      $  (1,223)    $  125,400
                                      --------------------------------------------------------
                                      --------------------------------------------------------
</TABLE>
The amortized cost and estimated fair values of debt securities, by contractual
maturity, are shown below.  Expected maturities will differ from contractual
maturities because the borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<S>                                         <C>                <C>
                                                    December 31, 2000
                                            ------------------------------
                                              Amortized         Estimated
                                                 Cost           Fair Value
                                            ------------------------------

  Due in one year                           $   455,018        $   456,341
  Due after one year through five years       1,969,631          2,011,724
  Due after five years through ten years      2,160,040          2,194,511
  Due after ten years                            73,460             76,213
                                            ------------------------------
                                              4,658,149          4,738,789
  Collateralized mortgage obligations             2,089              2,056
                                            ------------------------------
                                            $ 4,660,238        $ 4,740,845
                                            ------------------------------
                                            ------------------------------
</TABLE>

                                      F-13







SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
d/b/a DAKOTACARE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

- -----------------------------------------------------------------------------

NOTE 5. INVESTMENT SECURITIES (CONTINUED)

Investment securities at December 31, 1999 are as follows:
<TABLE>
<S>                               <C>             <C>              <C>            <C>
                                                    Gross            Gross        Estimated
                                    Amortized     Unrealized       Unrealized        Fair
                                      Cost           Gains          (Losses)         Value
                                  -----------------------------------------------------------
Debt securities held to maturity:
  Obligations of U.S. treasury, government
    agencies and corporations     $   482,228     $   4,530        $   (284)      $   486,474
  Obligations of state and political
    subdivisions                    2,994,536        18,904         (36,364)        2,977,076
  U.S. governmental agency collateralized
    mortgage obligations               10,575             -            (324)           10,251
                                  ------------------------------------------------------------
                                  $ 3,487,339     $  23,434        $(36,972)      $ 3,473,801
                                  ------------------------------------------------------------
                                  ------------------------------------------------------------
Equity securities available for sale:
  Bond mutual funds               $   321,314     $       -        $(34,914)      $   286,400
                                  ------------------------------------------------------------
                                  ------------------------------------------------------------
</TABLE>
The components of other comprehensive income (loss) - net change in unrealized
(loss) on securities available for sale are as follows:
<TABLE>
<S>                                               <C>              <C>            <C>
                                                            Years Ended December 31,
                                                  ------------------------------------------
                                                       2000            1999          1998
                                                  ------------------------------------------
Unrealized holding gain (loss) arising
  during the period                               $   6,254        $(26,276)      $   (697)
Add reclassification adjustment for net
  losses realized in net income                      27,437               -              -
                                                  ------------------------------------------
          Net change in unrealized (loss)
            before income taxes                      33,691         (26,276)          (697)
Income taxes                                              -               -              -
                                                  ------------------------------------------
          Other comprehensive income - net
            change in unrealized (loss) on
            securities available for sale         $  33,691        $(26,276)      $   (697)
                                                  ------------------------------------------
                                                  ------------------------------------------
</TABLE>
Proceeds from the sale of securities available for sale in 2000 were $213,564
and resulted in gross losses of $27,437.  There were no sales of debt or equity
securities during the years ended December 31, 1999 or 1998, and accordingly,
no reclassification adjustments on investment securities for those years.  At
December 31, 2000 and 1999, no individual investments in obligations of state
and political subdivisions exceeded 10% of the Company's equity.  At December
31, 2000 and 1999, the Company had certificates of deposit of $700,000 and
$500,000, respectively, on deposit with the South Dakota Department of Commerce
and Regulation, Division of Insurance (Division of Insurance), to meet the
deposit requirement of state insurance laws.
                                      F-14
d/b/a DAKOTACARE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

- -----------------------------------------------------------------------------

NOTE 6.  CONTINGENCY RESERVES PAYABLE

The Company's agreements with participating physicians provide that up to 20%
of fees for services provided, as submitted to the Company, may be withheld
to provide a contingency reserve that may be used to fund operations or meet
other financial requirements of the Company.  The percentage withheld for the
years 1998 through 2000 was 15%.  The amounts withheld may be paid to the
participating physicians at the discretion of the Board of Directors of the
Company, although the Company is not contractually obligated to pay out
amounts withheld.  Management estimates the expected amount of contingency
reserves to be paid to participating physicians and records a liability based
upon factors such as cash flow needs, net income, and accumulations of
amounts withheld.  Payments to physicians are made at such times as the Board
of Directors approves payouts.  The recorded liability at December 31, 2000,
is equal to actual amounts withheld for the years ended December 31, 2000 and
1999.  During 1999, the Company's Board of Directors, with approval from the
Division of Insurance, voted to write off $1,043,131 of contingency reserves
withheld in 1997, which reduced claims expense in 1999 and was accounted for
as a change in accounting estimate.  This change had the effect of decreasing
net loss for 1999 by $688,470, or $.48 per common share, net of income taxes.


NOTE 7.  REPORTED AND UNREPORTED CLAIMS PAYABLE

Activity in the liability for reported and unreported claims payable is
summarized as follows:

<TABLE>
<S>                                       <C>                 <C>                 <C>
                                              2000                1999                1998
                                          ---------------------------------------------------
Balance at January 1                      $ 4,667,253         $ 4,409,622         $ 4,163,804
                                          ---------------------------------------------------
Incurred related to:
  Current year                             36,025,786          30,226,506          30,197,890
  Prior years                                (875,235)            911,684             416,690
  Contingency reserves written off                  -          (1,043,131)                  -
                                          ---------------------------------------------------
Total incurred                             35,150,551          30,095,059          30,614,580
                                          ---------------------------------------------------
Paid related to:
  Current year                             29,842,349          24,240,777          25,704,590
  Prior years                               4,195,142           5,321,000           4,710,337
                                          ---------------------------------------------------
Total paid                                 34,037,491          29,561,777          30,414,927
                                          ---------------------------------------------------
Less reinsurance recoverables at January 1          -            (275,651)           (229,486)
Plus reinsurance recoverables at December 31   51,158                   -             275,651
                                          ---------------------------------------------------
Balance at December 31                    $ 5,831,471         $ 4,667,253         $ 4,409,622
                                          ---------------------------------------------------
                                          ---------------------------------------------------
</TABLE>

                                      F-15


SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
d/b/a DAKOTACARE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-------------------------------------------------------------------------------

NOTE 8.  INCOME TAX MATTERS

The Company is taxable as a property and casualty insurance company under
section 831 of the Internal Revenue Code.  The code prescribes certain
adjustments to book income to arrive at taxable income which include
adjustments to unearned premiums, discounting of loss reserves and proration
of tax-exempt income.  In addition, increases in contingency reserves, which
are included as claims expenses, are not allowable as tax deductions until
actually paid.  The Company files a consolidated income tax return with its
wholly-owned subsidiaries, DAS and DIL.

The components of income tax expense as of December 31 are as follows:


                                    2000         1999           1998
                                ---------------------------------------
Current (recoverable)           $1,239,317   $ (230,343)     $  63,625
Deferred (benefit)                (204,400)      33,400         60,000
                                ---------------------------------------
                                $1,034,917   $ (196,943)     $ 123,625
                                ---------------------------------------
                                ---------------------------------------

Total income tax expense differed from the amounts computed by applying the
U.S. federal income tax rate of 35 percent to income before income taxes as a
result of the following:
<TABLE>
<S>                                                 <C>            <C>           <C>
                                                       2000           1999          1998
                                                    ---------------------------------------
Computed "expected" tax expense (benefit)           $1,007,000     $(285,000)    $ 211,000
Tax exempt interest                                    (40,487)      (42,788)      (43,281)
Lobbying                                                 5,562         2,977         4,866
Reversal of (over) under accrual of
   Prior year's taxes                                   39,148             -       (26,576)
Change in valuation allowance for deferred
  tax assets                                            27,700       108,400             -
Effect of tax rate brackets and other                   (4,006)       19,468       (22,384)
                                                    ---------------------------------------
                                                    $1,034,917     $(196,943)    $ 123,625
                                                    ---------------------------------------
                                                    ---------------------------------------
</TABLE>


                                      F-16











SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
d/b/a DAKOTACARE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

- -----------------------------------------------------------------------------

NOTE 8.  INCOME TAX MATTERS (CONTINUED)

The net deferred tax assets consist of the following components at December 31:
<TABLE>
<S>                                                          <C>              <C>

                                                                   2000           1999
                                                             ----------------------------
Deferred tax assets:
  Contingency reserves payable                               $   978,000      $   926,000
  Reported and unreported claims payable                          57,500           45,500
  Unearned premiums                                               68,000           50,800
  Accrued expenses and other                                     226,000           83,300
  Net unrealized loss on securities available for sale                 -           11,900
  Net operating loss carryforward of subsidiaries                148,000          108,400
                                                               1,477,000        1,225,900
  Less valuation allowance                                       148,000          120,300
                                                             ----------------------------
                                                               1,329,000        1,105,600
                                                             ----------------------------
Deferred tax liability:
  Property and equipment                                         (76,000)         (57,000)
                                                             ----------------------------
                                                             $ 1,253,000      $ 1,048,600
                                                             ----------------------------
                                                             ----------------------------

Reflected on the accompanying balance sheets as follows:

                                                                  2000           1999
                                                             ----------------------------
Current assets                                               $   811,000      $   639,000
Noncurrent assets                                                442,000          409,600
                                                             ----------------------------
                                                             $ 1,253,000      $ 1,048,600
                                                             ----------------------------
                                                             ----------------------------
</TABLE>
                                      F-17


















SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
d/b/a DAKOTACARE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------

NOTE 9.  CAPITAL STOCK

The Class A voting preferred stock is not entitled to receive dividends or
other distributions, except for redemption by the Company.  In the event of a
liquidation, each share of Class A preferred stock would be given priority
over Class B and C stock and would be entitled to receive a preferential
payment in an amount up to (and not to exceed) its stated value of $10 per
share.  The Class A preferred stock is restricted to ownership by medical and
osteopathic physicians who have executed a participating physician agreement
with the Company and may not be issued to or held by a hospital.

The Class B voting preferred stock is restricted to ownership by the South
Dakota State Medical Association, an affiliated company, and is not entitled
to receive dividends.

The Class C nonvoting common stock is not entitled to cumulative dividends
and has no preference in a liquidation.  The Class C common stock is
restricted to ownership by  the following persons or entities: (1) physicians
entitled to ownership of Class A stock, (2) a trust or self-directed
individual retirement account controlled by a physician entitled to ownership
of Class A stock, (3) a professional corporation, partnership or other entity
domiciled in the State of South Dakota and in which a physician entitled to
ownership of Class A stock is a shareholder, partner, or employee in the
practice of medicine, (4) management, employees or agents of the Company, the
South Dakota State Medical Association, or the South Dakota Foundation for
Medical Care, or (5) the spouse or children of such physician or other person
set forth in (1) or (4) above.

To facilitate liquidity for Class C common stock (Common Stock) in the event
of death, disability, or retirement of a shareholder, the Company's Board of
Directors adopted a Stock Repurchase Program (Program) which was implemented
in February 1998.  Participation in the Program is voluntary.  No shareholder
is required to sell his or her shares of Common Stock under the Program nor
is the Company required to purchase any Common Stock under the Program.  The
purchase and sale of Common Stock under the Program is subject to repurchase
conditions as described in the Program.  The Board of Directors of the
Company may, at any time, modify or terminate the Program.  The Company may
also, at its discretion, offer to repurchase shares of Common Stock outside
of the Program in compliance with applicable laws.  During 2000 and 1999,
34,341 and 32,397 shares, respectively, were acquired for the treasury under
the Program.

Regulatory capital as required by the Division of Insurance at December 31,
2000 and 1999 was $200,000 on a statutory basis of accounting, which the
Company significantly exceeded.  As long as the Company exceeds required
regulatory capital, it is not restricted by the Division of Insurance in the
amount of dividends it may pay.

The Company is also subject to risk based capital (RBC) requirements
promulgated by the National Association of Insurance Commissioners (NAIC).
The RBC standards establish uniform minimum capital requirements for
insurance companies.  The RBC formula applies various weighting factors to
financial balances or various levels of activities based on the perceived
degree of risk.  At December 31, 2000, the Company's stockholders' equity
exceeded the minimum levels required by the RBC standards.


                                      F-18
SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
d/b/a DAKOTACARE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

- -----------------------------------------------------------------------------

NOTE 10.  TRANSACTIONS WITH AFFILIATE

The Company leases office space from the South Dakota State Medical
Association (Association).  The Company has a one year lease which
automatically renews for one year terms each January 1, unless terminated
with at least 30 days notice prior to the end of the lease term.  The 2000
lease renewal requires minimum rental payments of $211,016.  Total rental
payments for this office space for the years ended December 31, 2000, 1999
and 1998 were $217,162, $204,870 and $204,870, respectively.

The Company provides group health insurance coverage for employees of the
Association.  Total premium income from the affiliate for the years ended
December 31, 2000, 1999 and 1998 was $55,689, $48,330, and $47,721,
respectively.

NOTE 11.  RETIREMENT PLAN AND DEFERRED COMPENSATION

The Company is included in a qualified money-purchase pension plan with the
South Dakota State Medical Association and the South Dakota Foundation for
Medical Care.  This multiple-employer plan covers employees who have attained
age 21, and have completed one year of service.   Contributions, which are
required under the plan, were an amount equal to 11.5% of the participants'
compensation for the twelve-month periods ending September 1, 2000, 1999 and
1998.  Retirement plan expense for the years ended December 31, 2000, 1999
and 1998 was $275,421, $238,689, and $233,483, respectively.

In connection with employment contracts between the Company and certain
officers, provision has been made for the future compensation which is
payable upon the completion of the earlier of 25 years of service to the
Company and related organizations or attainment of the age of 65 or any
earlier retirement age specified by the Board of Directors by resolution.  At
December 31, 2000 and 1999, $89,036 and $97,131, respectively, was accrued
under these contracts.

NOTE 12.  SEGMENT INFORMATION

The Company has three reportable segments:  Health Maintenance Organization
(HMO), Third Party Administration (TPA) and Reinsurance.  The HMO segment
consists of the operations of the Company.  The Company is a South Dakota
systems.  The TPA segment consists of the operations of DAS, DHP and Carewest,
which are TPA's of health care plans for independent employer companies.  The
reinsurance segment consists of the operations of DIL.  DIL's primary
activity is in providing reinsurance quota share excess medical stop loss
coverage to DAS's self funded customers.

The Company evaluates performance and allocates resources based on net income
determined under general accepted accounting principles.  The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies.  The Company allocates payroll
costs incurred based on the activities of admitting new enrollees and in
adjudicating claims.  The HMO segment profit includes the equity in earnings
(loss) of the TPA and reinsurance segments.  Intersegment revenues primarily
relate to equipment rental charges which are based on the depreciation on the
underlying assets.

                                      F-19
SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
d/b/a DAKOTACARE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

- -----------------------------------------------------------------------------

NOTE 12.  SEGMENT INFORMATION (CONTINUED)

The Company's reportable segments are derived from the operations of the
Company and subsidiaries that offer different products.  The reportable
segments are managed separately because they provide distinct services.
<TABLE>
<S>                                <C>             <C>            <C>            <C>
Year Ended December 31, 2000
- --------------------------------------------------------------------------------------------
                                         HMO            TPA        Reinsurance       Totals
                                  ----------------------------------------------------------

Revenues from external customers   $ 44,194,355    $ 3,588,674    $ 661,462      $ 48,444,491
Intersegment revenues                         -        255,824            -           255,824
Investment income                       685,367         63,040       18,778           767,185
Depreciation expense                     80,549        256,227            -           336,776
Segment profit (loss)                 1,953,977       (168,270)      78,139         1,863,846
Equity in net income of subsidiaries     20,539              -            -            20,539
Income tax expense                    1,004,667         30,250            -         1,034,917
Segment assets                       16,838,497      1,839,801      598,647        19,276,945


Year Ended December 31, 1999
- -------------------------------------------------------------------------------------------
                                        HMO            TPA        Reinsurance       Totals
                                   --------------------------------------------------------
Revenues from external customers   $ 34,048,724    $ 3,259,507      $ 646,836    $ 37,955,067
Intersegment revenues                         -        241,325              -         241,325
Investment income                       455,461         44,138         14,000         513,599
Depreciation expense                     88,147        241,325              -         329,472
Segment (loss)                         (621,814)      (267,738)      (200,888)     (1,090,440)
Equity in net (loss) of subsidiaries   (473,021)             -              -        (473,021)
Income tax (benefit)                    (55,950)      (140,993)             -        (196,943)
Segment assets                       12,905,809      1,699,895        457,870      15,063,574


Year Ended December 31, 1998
- ------------------------------------------------------------------------------------------
                                         HMO            TPA        Reinsurance       Totals
                                   ----------------------------------------------------------
Revenues from external customers   $ 35,796,765    $ 3,540,988      $ 673,790    $ 40,011,543
Intersegment revenues                         -        236,526              -         236,526
Investment income                       538,170         55,333              -         593,503
Depreciation expense                     85,787        221,424              -         307,211
Segment profit (loss)                   483,038        (68,319)        23,345         438,064
Equity in net (loss) of subsidiaries    (41,420)             -              -         (41,420)
Income tax expense (benefit)            158,350        (34,725)             -         123,625
Segment assets                       13,607,488      1,953,572        475,006      16,036,066

</TABLE>

                                      F-20





SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
d/b/a DAKOTACARE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-------------------------------------------------------------------------------

NOTE 12.  SEGMENT INFORMATION (CONTINUED)
<TABLE>
<S>                                             <C>               <C>            <C>
                                                      2000           1999           1998
                                                ---------------------------------------------
Revenues
Total external revenues for reportable segments $ 48,444,491      $ 37,955,067   $ 40,011,543
Intersegment revenues for reportable segments        255,824           241,325        236,526
Elimination of intersegment revenues                (255,824)         (241,325)      (236,526)
Elimination of net income of subsidiaries             20,539          (473,021)       (41,420)
                                                ---------------------------------------------
    Total consolidated revenues                 $ 48,423,952      $ 38,428,088   $ 40,052,963
                                                ---------------------------------------------
                                                ---------------------------------------------

Income or Loss
Total income (loss) for reportable segments     $  1,863,846      $  1,090,440   $    438,064
Elimination of equity in net (loss)
  of subsidiaries                                     20,539          (473,021)       (41,420)
Minority interest in income (loss) of subsidiaries  (110,670)            4,395         (3,554)
                                                ---------------------------------------------
    Total consolidated net income (loss)        $  1,953,977       $  (621,814)  $    483,038
                                                ---------------------------------------------
                                                ---------------------------------------------

Assets
Total assets for reportable segments            $ 19,276,945      $ 15,063,574   $ 16,036,066
Elimination of intercompany receivable              (153,092)         (135,058)      (100,922)
Elimination of investment in subsidiaries         (1,420,273)       (1,274,734)    (1,657,755)
                                                ---------------------------------------------
    Total consolidated assets                   $ 17,703,580      $ 13,653,782   $ 14,277,389
                                                ---------------------------------------------
                                                ---------------------------------------------
</TABLE>
NOTE 13.  LITIGATION

During 1998, a substantial claim was filed against the Company in circuit
court which alleges wrongful non-renewal of a sales agency contract and seeks
compensatory and punitive damages.  As of March 2000, the lawsuit is still in
the discovery stage.  Management believes the lawsuit is without merit and the
Company will vigorously defend itself in this matter.

In addition, the Company is involved in other legal actions in the ordinary
course of its business.  Although the outcome of any such legal actions cannot
be predicted, in the opinion of management, there is no legal proceeding
pending against or involving the Company for which the outcome is likely to
have a material adverse effect upon the consolidated financial position or
results of operations of the Company.

                                      F-21







SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
d/b/a DAKOTACARE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-------------------------------------------------------------------------------
<TABLE>
<S>                                 <C>           <C>            <C>           <C>
NOTE 14.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Year ended December 31, 2000         1st Quarter    2nd Quarter    3rd Quarter    4th Quarter
-----------------------------------------------------------------------------------------------
Total revenues                      $10,812,637   $11,612,390    $12,350,361   $13,648,564
Claims incurred, net                  7,380,452     7,774,623      8,992,386    11,003,090 (1)
Total operating expenses              9,775,972    10,322,148     11,418,495    14,029,113
Net income (loss)                       679,234       788,872        647,474      (161,603)

Earnings (loss) per share           $      0.47   $      0.55    $      0.46   $     (0.11)


Year ended December 31, 1999         1st Quarter    2nd Quarter    3rd Quarter    4th Quarter
-----------------------------------------------------------------------------------------------
Total revenues                      $ 9,318,509   $ 9,438,767    $ 9,719,459   $ 9,951,353
Claims incurred, net                  7,656,802     8,332,346      7,745,387     6,360,524 (2)
Total operating expenses              9,947,714    10,896,476      9,964,848     8,433,412
Net income (loss)                      (379,685)   (1,006,261)    (1,026,572)    1,790,704 (2)

Earnings (loss) per share           $     (0.26)  $     (0.69)   $     (0.71)  $      1.24
</TABLE>

(1) Includes an $850,000 receivable (reduction of incurred amount) and $420,000
    payable (increase in incurred amount) recorded in the fourth quarter of
    2000 relating to the settlement of two separate lawsuits relating to claims
    paid in prior years.

(2) During the fourth quarter of 1999, the Company wrote off contingency
    reserves of $1,043,131, and also reversed a valuation allowance on deferred
    tax assets of $913,000 which had been recorded in prior quarters.



                                      F-22
























                                  EXHIBIT INDEX
                                  -------------

Exhibit No.       Description
- -----------       -----------
10                Office Lease with the South Dakota State Medical Association

21                Subsidiaries of the Registrant






















































                                                                     EXHIBIT 10

                                      LEASE


This LEASE made this 1st day of January, 1999, between SOUTH DAKOTA STATE
MEDICAL ASSOCIATION of Sioux Falls, South Dakota, Lessor, and South Dakota State
Medical Holding Company, Inc., Sioux Falls, South Dakota, Lessee, is in
agreement with:

                                       1.

That the said lessor leases to the said lessee the property described as:

         Office space in the following structures: "The Southeast Quarter and
         the East 11.5 feet of the Southwest quarter of Block 32 in Park
         Addition to Sioux Falls, together with the East 25 feet of the South 88
         feet of Lot E in Perry's Subdivision of part of Block 32 Park Addition"
         surveyed, platted, and recorded in Minnehaha County, South Dakota; as
         well as Lots C, D, and E, except the East 25 feet of the South 88 feet
         of Lot E of Perry's Subdivision of part of Block 32 of Park Addition to
         Sioux Falls, Minnehaha County, South Dakota, according to the recorded
         plat thereof. The parking lot space on "The Northwest Quarter of Block
         32 in Park Addition to Sioux Falls" surveyed, platted, and recorded in
         Minnehaha County, South Dakota.

The term of this lease shall begin on the 1st day of January, 1999, and end on
the 31st day of December, 1999, and shall automatically renew for successive one
(1) year terms unless terminated with not less than thirty (30) days notice
prior to the end of the lease term. Rent payable pursuant to this lease shall
be:

         The sum of Seventeen Thousand Five Hundred Eighty-Four Ten Dollars and
         Sixty-Eight Cents ($17,584.68) per month, payable on the first day of
         each month.

                                       2.

It is further agreed that the lessor shall furnish all and full maintenance for
the property leased hereunder including but not limited to heat, air
conditioning, electricity, gas, water, janitorial service, maintenance of
building fixtures, replacement of building glass breakage, and snow and ice
removal.
                                       3.


It is provided that the lessor shall cause nothing upon the premises to become a
nuisance.

                                       4.

It is understood that the lessor will be responsible for all real property
taxes, and that each individual party will be responsible for their own personal
property taxes.

                                       5.

The said lessee hereby covenants with the lessor to pay the said rent at the
times and in the manner hereinbefore specified; not at any time to assign this
agreement or to sublet the demised premises, or any portion thereof, without the
written consent of the said lessor or its representatives; to keep the premises
in good order; and to surrender the possession of the premises at the end of the
said term.


                                       6.

It is hereby agreed that, if the building on the premises shall be destroyed or
rendered untenantable by fire or other unavoidable accident, all liability for
rent hereunder shall cease upon payment thereon proportionally to the day of
such fire or unavoidable accident.

                                       7.

It is also agreed that each said party shall be responsible for insuring its own
property against damage or destruction by fire, wind, or other unavoidable
disaster.

                                       8.

It is further agreed by and between the said parties that any fixtures or
equipment placed in said premises by the lessee herein shall be and remain the
property of said lessee, provided, however, that in the event that the
installation of any such fixtures or equipment shall require a substantial
change or alteration of the premises described herein, then and in such event
prior approval before installation must be obtained from the lessor.

                                       9.

It is further agreed that if the lessee shall violate any of the foregoing
covenants on its part, the lessor shall have the right without formal notice to
re-enter and take possession.

                                       10.

Each party hereto waives all claims for recovery from the other party for any
loss or damage of its property insured under valid and collectible insurance
policies to the extent of any recovery collectible under such insurance subject
to the limitation that this waiver shall apply only when permitted by the
applicable policy of insurance.

                                       11.

This lease may be terminated by either party upon thirty (30) days written
Notice to the other party irrespective of any other covenants herein.

The lessees hereby acknowledge the receipt of a true and correct copy of this
lease.

                     SOUTH DAKOTA STATE MEDICAL ASSOCIATION
                                                     Lessor
                     By:   /s/ Robert D Johnson
                         ------------------------------
                             Chief Executive Officer


                     DAKOTACARE
                         Lessee
                     By:   /s/ Kirk J. Zimmer
                         ------------------------------
                           Senior Vice-President






                                                                      EXHIBIT 21







EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT

Name                                  Incorporation               % Owned
- ----                                -------------               -------

DAKOTACARE Administrative             South Dakota                  100%
  Services, Incorporated

Dakota Health Plans, Incorporated     South Dakota                50.11%

DAKOTACARE Insurance, Ltd.            Cayman Islands                100%

Carewest, Inc.                        South Dakota                54.35%