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, 1996
                                        -----------------
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 20, 1997
       -----                          -----------------------------
  Class C Common Stock	                       				1,505,760

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.
<PAGE> 1

                                    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 and receive 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 % 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 value and 
makes adjustments when considered necessary.  The effect of this reimbursement
mechanism is to establish a maxmium 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.
<PAGE> 2

The Company's agreements also 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 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.  The
recorded liability was an estimate of the projected payouts for prior amounts
withheld.  Management estimates the expected amount of the contingency
reserve 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 liabilities for contingency reserve payouts at December 31, 1996
and 1995, were $2,105,294 and $1,954,669 respectively.  
The Company withheld from payment to the participating physicians $1,120,049 
and $950,376 for the years ended December 31, 1996 and 1995, respectively.  
The liability recorded was equal to the actual amounts withheld for 1996 and 
1995.  The recorded liability for prior years was the estimate of the 
projected payouts for the prior amounts withheld.  As of January 1,1994, the 
percentage withheld was reduced from 20% to 15%.  See Note 6 of Notes to 
Consolidated Financial Statements.

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).  The Articles of Incorporation of DAS and DHP 
permit it to engage in the development of third party administration (TPA) 
services for health and welfare plans.  DHP has subcontracted with DAS to 
perform substantially all TPA activities.  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, and other insurance risks.

Products and Marketing
----------------------
The Company markets its products under the tradename of DAKOTACARE.  Its 
products include group managed health care products such as HMO products, in 
addition to managed care and claims administration services for self-insured 
employer groups.  Also, cafeteria plan administration and workers 
compensation managed care services are offered.  The Company markets its 
products through an exclusive network of independent insurance agents 
throughout South Dakota.
<PAGE> 3

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 2,500 employees.  As of January 1, 1997, 
DAKOTACARE and its subsidiaries provided health care services to 
approximately 89,000 individuals. Approximately 10.4% of the state's 
population and approximately 17% of DAKOTACARE's target market of 
approximately 425,000 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 had remained relatively stable from 1990 to 1995 at
approximately 20,000 enrollees, grew to nearly 24,000 in 1996.  Commencing in
1993, the Company began its Administrative Services Only (ASO) business and
by January 1, 1997, had enrolled approximately 61,000 ASO enrollees, bringing
the total individuals served by the Company to approximately 85,000.  The
Company's HMO client disenrollment rate is significantly lower than the
industry rate as a whole.  All underwriting and pricing decisions are made by
the DAKOTACARE underwriting department and reviewed by senior management.
DAKOTACARE's underwriters evaluate the prior loss history, the inherent risk
characteristics, and the demographic makeup of the applicants where 
appropriate.

Through a specific excess liability reinsurance agreement with Lincoln 
National Health and Casualty Insurance Company, the Company reinsures that 
portion of its risk in excess of $85,000 of covered inpatient expenses of any
enrollee per contract year, subject to a coinsurance provision which ranges 
from 50% to 90% based on average daily amounts specified in the subscriber 
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.  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.

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 and DHP are also registered as third 
party administrators.  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.  Such growth and expansion opportunities may include 
acquisitions or dispositions of segments of its operations, and 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.
<PAGE> 4

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, large 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, and third party administrators who provide services to self-
insured employers.  The ability to increase the number of persons 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, maintenance of restricted deposits 
in the minimum amount of fifty percent of the Company's unearned premium 
liability, approval of the Company's benefits contract 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.  The
Division completed an examination of DAKOTACARE for years through December
31, 1991, which was released in March, 1993.

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 reserve payments.

<PAGE> 5

The following table sets forth, by type of investment, the percentage of the 
total investment portfolio, excluding the cash surrender value of life 
insurance, represented by each type of investment as of December 31:

<TABLE>
<S>                                         <C>            <C>
								                                        1996         	 1995

	Certificates of deposit	                   			 24.0%       		 21.2%
	Obligations of state and political
	  subdivisions					                            35.7         	 39.5
	Obligations of U.S. government
	  corporations					                            32.4        		 30.3
	U.S. government agency collateralized
	  mortgage obligations			                       7.9		          9.0
                                               ------         ------
							                                       	100.0%        	100.0%
                                               ======         ======
</TABLE>
The Company's investment portfolio, excluding cash surrender value of life 
insurance, totaled $6,382,097 and $5,206,199 as of December 31, 1996 and 
1995, respectively.  In addition, substantially all of the cash and cash 
equivalents are in interest bearing accounts.  Cash and cash equivalents 
totaled $3,422,692 and $3,586,196 at December 31, 1996 and 1995, respectively.

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 which 
provides HMO coverage on a group basis does not provide coverage for the cost
of medical and hospital expenses to Medicare beneficiaries.  If otherwise 
eligible for coverage through 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 nor 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.  Numerous proposals have been introduced
in the United States Congress relating to health care reform.  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.
<PAGE> 6

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 recently 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, 1996, the Company employed 110 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
------------------
As of December 31, 1996, the Company leases approximately 14,900 square feet 
of space in Sioux Falls, South Dakota, from the South Dakota State Medical 
Association (an affiliated company).  The lease expired December 31, 1996, 
and was renewed for one year.  The Company has leased space from the South 
Dakota State Medical Association on one year lease terms from inception, and 
plans to do so in the future.  The Company anticipates being able to rent 
additional space from the South Dakota State Medical Association when
necessary.  On 1/1/97, the Company acquired a 5,520 square foot office 
building in Webster, South Dakota, (which was leased through 12/31/96), and 
also leases smaller offices in Rapid City, South Dakota, and Pierre, South 
Dakota.


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, 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.
<PAGE> 7


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
(A)	There were no matters submitted to shareholders vote in the 4th quarter of 
1996.

<PAGE> 8

                                 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.  However, limited 
infrequent exchanges of Class C shares have occurred directly between 
interested buyers and sellers and in across the desk stock transactions with 
a brokerage firm.  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, (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 92,410 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.
<PAGE> 9

Holders
-------
As of March 15, 1997, there were 1,038 holders of record of Class A preferred
stock, 1 holder of Class B preferred stock, and 673 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.  As approved
by the stockholders at a special meeting held on December 28, 1995, the 
Company is not required to pay annual cumulative dividends to its Class C 
common stock.  The Board of Directors, at its discretion, can elect to pay 
dividends in any amount subject to availability of funds and regulatory 
requirements on reserves. As long as the Company exceeds required regulatory 
capital, as required by the South Dakota Division of Insurance, it is not
restricted by the Division of Insurance in the amount of dividends it may pay.
At December 31, 1996, the Company exceeded this requirement by approximately
$6,513,000.  During 1996 and 1995, the Company paid out dividends of 
$271,037 and $310,563, respectively, on Class C shares.  On January 28,
1997, the Board of Directors approved payment of dividends of $.08 per share
to be paid on February 14, 1997, for shareholders of record of the Class C
common stock on January 28, 1997. 
<PAGE> 10

ITEM 6. SELECTED FINANCIAL DATA
-------------------------------
The following information for the Company is as of and for the years ended 
December 31, 1996, 1995, 1994, 1993, and 1992 (dollars in thousands, except 
per share data):

                         						          Year Ended December 31,         
                              ----------------------------------------------    
<TABLE>
<S>                            <C>      <C>      <C>      <C>      <C>
                         						  1996     1995     1994     1993     1992
                                 ----     ----     ----     ----     ----
Income Statement Data:
----------------------
  Net premiums             				$28,688  $26,643  $26,790  $24,936  $24,208
  Third party administration
   fees                       	  3,786    3,023    1,143      462        4
  Net investment income			         552      489      321      208      223
  Total revenues				            33,425   30,513   28,497   25,790   24,468
  Net claims incurred			        23,425   20,305   19,937   19,046   19,100
  Other operating expenses			    8,393    7,587    5,595    4,549    3,754
  Financing cost of debt			         --       --       14       91      151
  Income before income taxes		   1,607    2,621    2,951    2,104    1,463

  Net income	              				  1,041    1,790    1,906    1,433      940
                               =======  =======  =======  =======  =======

Earnings per common share(1) 		$  0.69  $  1.19  $  1.27  $  1.08  $     *
                               =======  =======  =======  =======  =======

Balance Sheet Data:
-------------------
  Invested assets and cash  			$ 9,874  $ 8,843  $ 7,804  $ 5,882  $ 5,691
  Total assets				              12,777   11,425    9,803    7,568    7,511
  Reported and unreported
	claims payable			               3,188    2,710    2,864    2,558    2,449
  Contingency reserve payable		  2,105    1,955    1,697    1,635    2,517
  Long-term debt (including
	current maturities)			             --       --       --      572    1,034
  Total liabilities				          7,137    6,545    6,432    5,667    7,701
  Stockholders' equity(deficit)	 5,640    4,880    3,372    1,901     (190)
</TABLE>

*Information is not available

(1)	Earnings per common share for 1995 and prior years have been restated 
from amounts previously reported to give retroactive effect to the 
recapitalization discussed in Note 9 of the Notes to Consolidated Financial 
Statements.  Earnings per common share is calculated by dividing net income 
by the weighted average number of Class C common shares outstanding during 
each period as follows:  1996 1,505,760 shares; 1995 1,505,760 shares; 
1994 1,505,760 shares; and 1993 1,329,373 shares.
<PAGE> 11

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, 1996, 1995, 1994, and 
1993.  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.

                               							   Year Ended December 31,    
                                   -----------------------------------
<TABLE>
<S>                                 <C>     <C>     <C>     <C>
							                                1996    1995    1994    1993
                                       ----    ----    ----    ----
	Loss ratio					                       81.7%   76.2%   74.4%   76.4%
	Expense ratio                     				16.3    18.4    17.2    17.1
                                       ----    ----    ----    ----
	  Combined ratio			                  	98.0%   94.6%   91.6%   93.5%
                                       ====    ====    ====    ====
</TABLE>

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 and the financing cost of debt divided by net premium revenue.

The increase in the loss ratio was due primarily to an unusually high number 
of high dollar claims in late 1996, and lower premium increases due to 
competitive market forces.  The decrease in expense ratio is due primarily to
increased premium volume and decreased expenses in many areas due to 
concentrated cost-cutting efforts.  See - Comparison of Years Ended 
December 31, 1996 and 1995 and Comparison of Years Ended December 31, 1995 
and December 31, 1994.
<PAGE> 12

The following table is a reconciliation of beginning and ending reserves for 
claims losses and loss adjustment expenses (LAE) balances:

							                                          Year Ended            
                                     ----------------------------------
<TABLE>
<S>                                 <C>      <C>      <C>      <C>
                               							 1996     1995     1994     1993
                                       ----     ----     ----     ----
                               							     (dollars in thousands)

	Reserves at beginning of year      		$2,710   $2,864   $2,558   $2,449
                                      ------   ------   ------   ------
	Provision for losses and LAE
	 for claims occurring in the
	 current year				                   	23,350   20,310   19,920   18,975
	Increase (decrease) in reserves
	 for claims occurring in
	 prior years					                        75       (5)      17       71
                      							         ______   ______   ______   ______

	Net losses and LAE incurred	        	23,425   20,305   19,937   19,046

	Losses and LAE payments for
	 claims occurring during:
	     	Current year               				20,248   17,425   17,142   16,400
	     	Prior years			                 	2,777    2,981    2,541    2,518
                                      ------   ------   ------   ------
						                               	23,025   20,406   19,683   18,918

	Reinsurance Recoverable:
     		Beginning of year                 (15)     (68)     (16)     (35)
	     	End of year				                    93       15       68       16
                                      ------   ------   ------   ------
							                                   78      (53)      52      (19)
                                      ------   ------   ------   ------ 
	Reserves at end of year	           		$3,188   $2,710   $2,864   $2,558
                                      ======   ======   ======   ====== 
</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.
<PAGE> 13

The following table presents the development of DAKOTACARE's balance sheet 
reserves for 1988 through 1996.  The top line of the table shows the reserves
at the balance sheet date for each of the indicated periods.  This represents
the estimated amount of losses and LAE arising in all prior years that are 
unpaid at the balance sheet date, including estimates of claims incurred but 
not reported (IBNR).  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 and expected to be 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.

                                      As of December 31,                      
                -------------------------------------------------------------
<TABLE>
<S>            <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
                 1996   1995   1994   1993   1992   1991   1990   1989   1988
                 ----   ----   ----   ----   ----   ----   ----   ----   ----
                                    (dollars in thousands)
Reserves for
 unpaid losses  3,188  2,710  2,864  2,558  2,449  2,456  2,532  3,382  3,788
  and LAE
 Paid (cumulative)
  as of:
	End of Year              --     --     --     --     --     --     --     --
	One Year Later        2,793  2,985  2,524  2,375  2,482  2,561  3,553  3,856
	Two Years Later          --  2,977  2,519  2,392  2,553  2,511  3,561  3,856
	Three Years Later        --     --  2,519  2,392  2,553  2,583  3,561  3,856
	Four Years Later         --     --     --  2,392  2,553  2,583  3,561  3,856
	Five Years Later         --     --     --     --  2,553  2,583  3,561  3,856
	Six Years Later          --     --     --     --     --  2,583  3,561  3,856
	Seven Years Later        --     --     --     --     --     --  3,561  3,856
Liability Reestimated
  as of:	
	End of Year    3,188  2,710  2,864  2,558  2,449  2,456  2,532  3,382  3,788
	One Year Later        2,793  2,985  2,524  2,375  2,482  2,561  3,553  3,856
	Two Years Later          --  2,977  2,519  2,392  2,553  2,511  3,561  3,856
	Three Years Later        --     --  2,519  2,392  2,553  2,583  3,561  3,856
	Four Years Later         --     --     --  2,392  2,553  2,583  3,561  3,856
	Five Years Later         --     --     --     --  2,553  2,583  3,561  3,856
	Six Years Later          --     --     --     --     --  2,583  3,561  3,856
	Seven Years Later        --     --     --     --     --     --  3,561  3,856
                _____  _____  _____  _____  _____  _____  _____  _____  _____
Redundancy
 (Deficiency)      --    (83)  (113)    39     57    (97)   (51)  (179)   (68)
                =====  =====  =====  =====  =====  =====  =====  =====  =====
</TABLE>

The Company has been taking steps to improve its estimation of reserves for 
unpaid losses and LAE.  This includes among other things improved 
underwriting standards which stabilize the Company's assumptions of risks, 
leading to more predictable estimate of losses and loss reserves.  Additional
approaches have also been developed to estimate the reserves.  In addition, 
with the exception of 1996 where enrollment increased by over 20%, the level 
of enrollees has remained fairly constant over the past several years leading
to more stable reserve requirements.  The Company believes its reserves at
December 31, 1996, are adequate. 
<PAGE> 14


RESULTS OF OPERATIONS

General
-------
The following results of operations includes the operations of DAKOTACARE and
its subsidiaries for the years ended December 31, 1996, 1995, and 1994.


COMPARISON OF YEARS DECEMBER 31, 1996 AND DECEMBER 31, 1995

General
-------
The Company's net income decreased $749,524 to $1,040,641 for the year ended 
December 31, 1996, as compared to $1,790,165 for the year ended December 31, 
1995, representing a 41.9% decrease.  This decrease was primarily due to an 
increase in claims expenses of $3,120,623 which was offset by an increase of 
$2,912,418 in total revenues and a $284,000 decrease in income taxes.

Revenues
--------
Total revenues increased $2,912,418, or 9.5%, for the year ended December 31,
1996, as compared to December 31, 1995.  Revenues from net premiums generated
by the health maintenance organization increased $2,044,586.  This increase 
is attributable to a 23.1% increase in the number of enrollees for the year 
ended December 31, 1996, as compared to December 31, 1995, and a 2.1% 
increase in the premiums earned per enrollee.  The increase in revenue per 
enrollee was in line with national averages.  The increase in enrollees was
primarily due to an emphasis on small group (2 to 50 employees) business and
competitive rates in relation to the local marketplace.  Revenues from the 
third party administration fees increased by $763,043 as the Company's 
subsidiaries increased the number of enrollees participating in these plans.
Net investment income increased $62,481 due primarily to an increase in the 
amount of assets invested.

Operating Expenses
------------------
Total operating expenses increased $3,926,989, or 14.1%, for the year ended 
December 31, 1996, as compared to December 31, 1995.  This was due to an 
increase in claims incurred, personnel expense, professional fees expense, 
and office expense.
<PAGE> 15

Net claims expense increased by $3,120,623, or 15.4%.  Average claims per 
enrollee increased by 9.6% in 1996 as compared to 1995 while the number of 
enrollees increased by 23.1%.  During 1996, the Company paid out $71,253 in 
contingency reserve payments in excess of the amount originally estimated.  
This amount was expensed in 1996.  Personnel expense increased by $478,980, 
or 14.9%, in 1996 as compared to 1995 due to the increased activity of its 
subsidiaries and additional employees for the Company as it expands its
business.  The Company's subsidiaries have increased  the number of enrollees
covered under various contracts from approximately 60,000 at January 1, 1996,
to approximately 64,000 at January 1, 1997.  Professional fees expense 
increased $181,790, or 20.2%, in 1996 as compared to 1995.  This was 
primarily due to increased consulting work being performed and an increase in
utilization review by outside companies with increased enrollment. Office 
expense increased $33,735, or 5.0%, primarily due to increases for printing, 
postage, and telephone expenses as a result of the increase in enrollment in
DAS and DHP.


Income Taxes
------------
Income tax expense represents 33.3% and 31.24% of income before income taxes 
and minority interest for the years ended December 31, 1996 and 1995, 
respectively.  As a result of existing levels of pretax earnings and the 
availability of recoverable income taxes paid in recent years, no valuation 
allowance is required for recorded deferred tax assets.  See Note 8 of the 
Notes to Consolidated Financial Statements.



COMPARISON OF YEARS DECEMBER 31, 1995 AND DECEMBER 31, 1994

General
-------
The Company's net income decreased $115,813 to $1,790,165 for the year ended 
December 31, 1995, as compared to $1,905,978 for the year ended December 31, 
1994, representing a 6.08% decrease.  This decrease was primarily due to an 
increase in operating expenses of $2,359,437 which was offset by an increase 
of $2,015,648 in total revenues and a $225,000 decrease in income taxes.

Revenues
--------
Total revenues increased $2,015,648, or 7.07%, for the year ended 
December 31, 1995, as compared to December 31, 1994.  The revenues from the 
net premiums generated by the health maintenance organization decreased 
$147,147.  This decrease is attributable to a 4.11% decrease in the number of
enrollees for the year ended December 31, 1995, as compared to December 31, 
1994, but was offset by a 3.72% increase in the premiums earned per enrollee.
The increase in revenue per enrollee was lower than the national average due 
to a shift by clients in their choice of benefit plans.  The decrease in
enrollees was primarily due to more restrictive underwriting standards and 
transfer of some groups to self-funded plans.  Revenues from the third party 
administration fees increased by $1,880,189 as the Company's subsidiaries 
increased the number of enrollees participating in these plans.  Net 
investment income increased $168,041 due primarily to the increase in the 
amount of assets invested.
<PAGE> 16

Operating Expenses
------------------
Total operating expenses increased $2,359,437, or 9.24%, for the year ended 
December 31, 1995, as compared to December 31, 1994.  This was due to an 
increase in claims incurred, personnel expense, professional fees expense, 
office expense, and advertising expense.

Net claims expense increased by $368,223, or 1.85%.  Average claims per 
enrollee increased by 6.22% in 1995 as compared to 1994 while the number of 
enrollees decreased by 4.11%.  During 1995, the Company paid out $154,569 in 
contingency reserve payments in excess of the amount originally estimated.  
This amount was expensed in 1995.  During 1995, the Company also had two 
unusually large claims incurred which totaled approximately $290,000, net of 
reinsurance.  Personnel expense increased by $1,036,904, or 47.41%, in 1995
as compared to 1994 due to the increase activity of its subsidiaries and
additional employees for the Company as it expands its business.  The 
Company's subsidiaries have increased the number of enrollees covered under
the ASO contracts from approximately 48,000 at January 1, 1995, to 
approximately 60,000 at January 1, 1996. The Company increased the number
of enrollees from approximately 20,000 at January 1, 1996 to approximately
25,000 at January 1, 1997.  Professional fees expense increased
$262,328, or 41.07%, in 1995 as compared to 1994. This was primarily due to 
increased consulting work being performed and an increase in utilization 
review by outside companies with increased enrollment.  Office expense
increased $238,322, or 58.36%, primarily due to increases for printing,
postage, and telephone expenses as a result of the increase in enrollment in
DAS and DHP.  Advertising expense increased $191,609, or 44.50%, in 1995 as 
compared to 1994.  This was primarily due to more television and radio 
advertising by all companies for the purpose of increasing enrollment in all
lines of business.

Income Taxes
------------
Income tax expense represents 31.24% and 35.38% of income before income taxes
and minority interest for the years ended December 31, 1995 and 1994, 
respectively.  As a result of existing levels of pretax earnings and the 
availability of recoverable income taxes paid in recent years, no valuation 
allowance is required for recorded deferred tax assets.  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 cost associated with them, 
and an agreement with participating physicians in which a percentage of fees 
for services is withheld for cash flows of the Company.  The Company in the 
past has had borrowings from banks and affiliated companies, but currently 
does not need to borrow for liquidity purposes.
<PAGE> 17

Net cash provided by operating activities decreased by $420,079 to $1,424,123
for the year ended December 31, 1996, as compared to 1995.  Changes in 
working capital components, primarily changes in payables and unearned 
premiums and fees, comprise a majority of the decrease in cash provided by 
operating activities, as well as a decrease in net income.

Other uses of cash and cash equivalents were for the payment of dividends, 
purchases of leasehold improvements and equipment, and the increase in 
purchases of investment securities.  The Company has invested cash not 
currently needed in operations into intermediate-term bonds, consisting 
primarily of municipal bonds and U.S. government securities.  At December 31,
1996, the Company has certificates of deposit of $500,000 on deposit with the
South Dakota Division of Insurance to meet the deposit requirement of state
insurance laws.

The Company is not contractually obligated to pay out the contingency reserve
withheld but has historically elected to pay out a majority of amounts 
withheld.  Historically, there has been a two year lag between the period in 
which the contingency reserve is withheld and the period in which the 
corresponding amount withheld is paid out.

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


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.
<PAGE> 18

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------

           CONSOLIDATED FINANCIAL STATEMENTS TABLE OF CONTENTS
<TABLE>
<S>                                                       <C>
                                                             Page
                                                             ----

Independent Auditor's Report                                 F-1

Consolidated Financial Statements

    	Balance Sheets                                          F-2
    	Statements of Income                                    F-4
	    Statements of Stockholders' Equity                      F-5
	    Statements of Cash Flows                                F-6
	    Notes to Financial Statements                           F-8
</TABLE>


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
-----------------------------------------------------------------------
FINANCIAL DISCLOSURES
---------------------
None.

<PAGE> 19
                               PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------
<TABLE>
<S>                         <C>       <C> 
Name                           Age       Positions
----                           ---       ---------

Robert L. Ferrell, M.D.      		57      		President and Director

Guy E. Tam, M.D.            			58      		Secretary/Treasurer and Director

James Jackson, M.D.	         		54      		Director

Patrick Beckman            				53      		Director

Frank D. Messner, M.D.       		53      		Director

K. Gene Koob, M.D.          			54      		Director

Ben J. Henderson, D.O.       		55       	Director

Douglas M. Holum, M.D.       		38      		Director

Jeffrey J. Rodman	           		41       	Director

Robert D. Johnson           			53	      	Chief Executive Officer

Kirk J. Zimmer		             		36      		Senior Vice President

William O. Rossing, M.D.     		62      		Vice President, Medical Director

Sharon K. Duncan	            		49      		Vice President, System Operations

Dean M. Krogman            				47      		Vice President, External Operations

Elizabeth D. Mendelson	       	43      		Vice President, Underwriting

Barbara A. Smith	            		35	      	Vice President, Operations

Thomas N. Nicholson         			37      		Vice President, Sales and Marketing

Bruce E. Hanson            				33      		Chief Financial Officer
</TABLE>
<PAGE> 20
Dr. Ferrell has been a director since inception and became President in 
May 1990.  Dr. Ferrell is a past President of the South Dakota State Medical 
Association and has been in practice as an otology, laryngology, rhinology 
specialist in Rapid City, South Dakota, since 1973.

Dr. Tam became a director of the Company in May 1990, and became Secretary 
in September 1990.  Dr. Tam is a member of the South Dakota State Medical 
Association and has been engaged in practice as a family practitioner in 
Sioux Falls, South Dakota, since 1968.

Dr. Jackson became a director of the Company in June 1988.  He is a member of
the South Dakota State Medical Association and has been engaged in the 
practice of cardiology in Rapid City, South Dakota, since 1979.

Mr. Beckman became a director of the Company in June 1991.  Mr. Beckman has 
been engaged in the real estate business in Sioux Falls, South Dakota, since 
1969.  Mr. Beckman was a principal in Beckman-Zea Realty, Inc., from 1979 to 
1992.  Since then he is the sole owner of Beckman Realty and Development 
Corporation.

Dr. Messner 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 
radiologist in Yankton, South Dakota, since 1974.

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. 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.

Dr. Holum became a director of the Company in June 1995.  He is a member of 
the South Dakota State Medical Association and has been engaged as a family 
practitioner in Mitchell, South Dakota, since 1992.

Mr. Rodman became a director of the Company in June 1996.  Mr. Rodman has 
been Executive Vice President of the South Dakota Banker's Association since 
1989.  He has also served as Chairman of the South Dakota Banker's Insurance 
Services, Inc., since 1993.

Mr. Johnson became the Company's Chief Executive Officer upon its inception.
He has also served as the Chief Executive Officer of the South Dakota State 
Medical Association since 1972, and as Chief Executive Officer of the South 
Dakota Foundation for Medical Care from 1973 to 1996.
<PAGE> 21

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. Mendelson joined the Company in November 1991 and became the Company's 
Vice President of Underwriting in July 1995.  Prior to joining DAKOTACARE, 
Ms. Mendelson had served for nine years at Blue Shield of California, most 
recently as Senior Manager, Individual Products.

Ms. Smith joined the Company in June 1996 and became the Company's Vice 
President of Operations in September 1996.  Prior to joining the Company, 
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.

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 as its Chief Financial 
Officer.  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.
<PAGE> 22

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.  One director position is currently vacant due to 
the resignation of Gerald E. Tracy, M.D., in January 1997.  The terms of 
Dr. James Jackson, Dr. K. Gene Koob, and Dr. Frank Messner expire at the 1997
Annual Meeting of Shareholders; the terms of Dr. Robert Ferrel, Dr. Douglas
Holum, and Dr. Ben Henderson expire at the 1998 Annual Meeting of 
Shareholders; and the terms of Dr. Guy Tam, Mr. Patrick Beckman, and Mr. 
Jeffrey Rodman expire at the 1999 Annual Meeting of Shareholders.  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 two consumer directors are currently Mr. Patrick 
Beckman and Mr. Jeffrey Rodman.  The officers of the Company are appointed by
the Board of Directors and hold office until their successors are chosen and
qualified.


ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

                       SUMMARY COMPENSATION TABLE
                       --------------------------
<TABLE>
<S>                      <C>        <C>        <C>          
       (a)                  (b)         (c)           (i)
Name and Principal                                  All Other
     Position               Year      Salary $   Compensation(1)
------------------          ----      --------   ---------------

Robert D. Johnson           1996       $58,632       $12,373
Chief Executive Officer     1995       $41,330       $13,968
                            1994       $31,625        $6,440

Russell H. Harris, M.D.     1996(2)    $48,937        $9,469
Vice President,             1995      $101,029       $11,431
  Medical Affairs           1994       $95,662       $10,935
</TABLE>

(1) Consists of retirement plan contribution and premiums paid on the 
    deferred compensation plan.
(2) Dr. Harris passed away in June 1996.
<PAGE> 23

No other officer received total annual salary and bonus in excess of $100,000
during 1996, 1995, or 1994.  The Board of Directors receives $250 per Board 
meeting attended and are reimbursed for costs associated with the attendance 
of such meetings.  The Company currently has no stock options or other 
equity-based compensation for its directors, officers, or employees.

The Company intends to enter into indemnification agreements with each 
executive officer and director.  The Company has employment agreements with 
its executive officers and maintains key person insurance of $250,000 on 
Robert D. Johnson and $188,700 on Kirk J. Zimmer.

In connection with employment contracts between the Company, the Chief
Executive Officer and one other executive officer, provision has been made
for the future compensation which is payable upon the completion of the 
earlier of 25 years or any earlier retirement age specified by the Board
of Directors by resolution.  At December 31, 1996, $40,851 has been accrued
under these contracts.
 
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------

The Board of Directors currently performs the functions of a compensation 
committee.  Robert D. Johnson participates in the deliberation of all 
officer's compensation except for his salary. There are no compensation 
committee interlocks with other companies and none of the nonemployee 
directors has been an officer, employee, or insider of the Company or its 
subsidiaries.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------

The following table sets forth information, as of March 15, 1997, 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 power (or shares such powers with his or her
spouse), subject to the terms of the respective classes of securities of the 
Company and the information contained in the notes to the table.
<PAGE> 24

<TABLE>
<S>                 <C>                       <C>                <C>
                                                 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 C Common        Lloyd Solberg, M.D.           133,360          8.86%
                      P. O. Box 5054
                      Sioux Falls, SD 57117-5054   

Class A Preferred     Robert L. Ferrell, M.D.             1           .10%
Class C Common                                       31,840          2.11%

Class A Preferred     Gerald E. Tracy, M.D.               1           .10%
Class C Common                                       28,960          1.92%

Class A Preferred     Guy E. Tam, M.D.                    1           .10%
Class C Common                                        4,360           .29%

Class C Common        Bernard Christenson               960           .06%

Class A Preferred     James Jackson, M.D.                 1           .10%
Class C Common                                        3,570           .24%

Class C Common        Patrick Beckman                    --            --

Class A Preferred     Frank D. Messner, M.D.              1           .10%
Class C Common                                        8,800           .58%

Class A Preferred     K. Gene Koob, M.D.                  1           .10%

Class A Preferred     Ben J. Henderson, D.O.              1           .10%
Class C Common                                          560           .04%

Class A Preferred     Douglas M. Holum, M.D.              1           .10%

Class C Common        Jeffrey J. Rodman                  --            --

Class C Common        Robert D. Johnson(2)           14,560           .97%
                      1323 South Minnesota Avenue
                      Sioux Falls, SD 57105

Class A Preferred     Russell H. Harris, M.D.             1           .10%
Class C Common                                       12,000           .80%

Class A Preferred     All Directors and Executive         8           .77%
                      Officers as a Group
Class C Common        (18 people)                    92,410          6.14%
</TABLE>
____________________________
(1) The South Dakota State Medical Association is an affiliated company.
(2) Robert D. Johnson is the Chief Executive Officer of the South Dakota 
State Medical Association.

<PAGE> 25

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------

The Company leases office space from the Association.  In January 1996 the 
Company signed a one year lease, which expired December 31, 1996, which 
required minimum annual rental payments of $158,400.  A one year lease was 
entered into with the Association in January 1997 which requires minimum 
annual rental payments of $168,120.  Total rental payments for office space 
to the Association were $158,400, $144,650, and $119,000, for the years ended
December 31, 1996, 1995, and 1994, respectively.  Commencing in 1995, 
employees of the Foundation provided management services for the Company.
Total management fees paid to the Foundation for the years ended December 31,
1996 and 1995, were $138,000 and $46,000, respectively.  The Company provides
group health insurance coverage for employees of the Association and the 
Foundation.  Total premium income from the affiliates was $85,186, $128,191,
$129,535, in the years ended December 31, 1996, 1995, and 1994, respectively.

Robert D. Johnson received salaries and retirement contributions totaling 
$110,934, $110,628, and $107,253, from the South Dakota State Medical 
Association for the years ended 1996, 1995, and 1994, respectively.
<PAGE> 26

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

The following documents are filed as part of this report:
<TABLE>
<S>                                                     <C>
FINANCIAL STATEMENTS                                        Page
                                                            ---- 
Independent Auditor's Report                                F-1
Consolidated Financial Statements
	    Balance Sheets                                         F-2
	    Statements of Income                                   F-4
    	Statements of Stockholders' Equity                     F-5
	    Statements of Cash Flows                               F-6
	    Notes to Financial Statements                          F-8


EXHIBITS

</TABLE>
<TABLE>
<S>           <C>
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)

 4.1          			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
 
10            			Office Lease with the South Dakota State Medical Association

21            			Subsidiaries of the Registrant
</TABLE>

REPORTS ON FORM 8-K

None.
<PAGE> 27

                              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/ Robert D. Johnson _______	Dated __03/28/97______________
	Robert D. Johnson
	Chief Executive Officer
	(Principal Executive Officer)


By _/s/ Kirk J. Zimmer___________	Dated __03/28/97________________
	Kirk J. Zimmer
	Senior Vice President
	(Principal Financial Officer)


By __/s/ Bruce E. Hanson_________	Dated ___03/28/97_______________
	Bruce E. Hanson
	Chief Financial Officer
	(Principal Accounting Officer)


By __/s/ Robert L. Ferrell, MD___	Dated ____03/28/97______________
	Robert L. Ferrell, M.D.
	Director


By __/s/ Guy E. Tam, MD__________	Dated ____03/28/97______________
	Guy E. Tam, M.D.
	Director


By __/s/ James Jackson, MD_______	Dated ____03/28/97_______________
	James Jackson, M.D.
	Director


By __/s/ Patrick Beckman_________	Dated ____03/28/97_______________
	Patrick Beckman
	Director

<PAGE> 28




By __/s/ Frank Messner, MD________	Dated ____03/28/97_______________
	Frank Messner, M.D.
	Director


By __/s/ K. Gene Koob, MD_________	Dated ____03/28/97_______________
	K. Gene Koob, M.D.
	Director


By __/s/ Ben J. Henderson, DO_____	Dated ____03/28/97_______________
	Ben J. Henderson, D.O.
	Director


By __/s/ Douglas M. Holum, MD_____	Dated ___03/28/97________________
	Douglas M. Holum, M.D.
	Director


By __/s/ Jeffrey J. Rodman________	Dated ___03/28/97_________________
	Jeffrey J. Rodman
	Director

<PAGE> 29








                    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 as of 
December 31, 1996 and 1995, and the related consolidated  statements of 
income, stockholders' equity and cash flows for each of the three years in 
the period ended December 31, 1996.  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 audit.

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 as of 
December 31, 1996 and 1995, and the results of their operations and their 
cash flows for each of the three years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles.

As described in Note 1 to the consolidated financial statements, on 
January 1, 1994, the Company changed its method of accounting for investments
in marketable debt and equity securities to adopt FASB Statement No. 115.

                                         McGladrey & Pullen, LLP.



Sioux Falls, South Dakota
March 17, 1997
                                  F-1
<PAGE> 
SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
D/B/A DAKOTACARE

CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995 
<TABLE>
<S>                                            <C>             <C>
 
 ASSETS                                              1996             1995 
-----------------------------------------------------------------------------
 Current Assets 
 	Cash and cash equivalents                     $  3,422,692      $ 3,586,196 
 	Investment in securities held to
    maturity  (Note 5)                               524,511        1,195,129
 	Certificates of deposit                            875,000          604,900 
 	Receivables (Note 3)                               836,364          534,570 
 	Prepaids and other assets                          138,487           71,957 
 	Deferred income taxes (Note 8)                     518,000          462,000 	
                                                -----------------------------
				Total current assets                           6,315,054        6,454,752
                                                ----------------------------- 
  
 
 Long-Term Investments 
 	Investment in securities held to 
    maturity (Note 5)                              4,034,271        2,613,470 
 	Investment in securities available 
    for sale (Note 5)                                288,550          292,700 
 	Pledged certificates of deposit (Note 5)           500,000          500,000 
 	Certificates of deposit                            159,765              - 
 	Cash surrender value of life insurance              69,000           51,000 
                                                 ---------------------------- 
                                                   5,051,586        3,457,170 
                                                 ----------------------------
 
 
 Leasehold Improvements and Equipment, at cost, 
   net of accumulated depreciation                 1,070,650        1,173,891 
  
 
 Deferred Income Taxes (Note 8)                      340,000          339,000
                                                 ----------------------------
                                                 $12,777,290      $11,424,813
                                                 ============================
 
</TABLE>
 
See Notes to Consolidated Financial Statements.
                                     F-2 
<PAGE> 
 
<TABLE>
 <S>                                        <C>              <C> 
 
 LIABILITIES AND STOCKHOLDERS' EQUITY                1996            1995 
-----------------------------------------------------------------------------
 Current Liabilities 
 	Reported and unreported claims 
    payable (Note 7)                            $ 3,188,455       $ 2,710,000 
 	Unearned premiums and administration fees         854,905           815,653 
 	Accounts payable and accrued expenses             679,421           787,008 
 	Contingency reserve payable (Note 6)              950,000           973,000 
                                                -----------------------------
 				Total current liabilities                    5,672,781         5,285,661 
                                                -----------------------------
 
 Contingency Reserve Payable (Note 6)             1,155,294           981,669 
                                                -----------------------------
 
 Minority Interest in Subsidiary                    309,143           277,892 
                                                -----------------------------
 
 Commitments and Contingencies (Notes 4, 10 and 12) 
 
 
 Stockholders' Equity (Note 9) 
 	Class A preferred, voting, no par value, 
    $10 stated value, 2,500 shares authorized;
    issued and outstanding 1,042	and 976 shares
    at December 31, 1996 and 1995                   10,420              9,760 
 	Class B preferred, voting, no par value, 
    $1 stated value,	2,500 shares authorized; 
    issued and outstanding 1,300 and 1,000 
    shares at December 31, 1996 and 1995             1,300              1,000 
 	Class C common, nonvoting, $.01 par value, 
    10,000,000 shares authorized; issued and 
    outstanding 1,505,760 shares                    15,058             15,058 
 	Additional paid-in capital                     3,749,342          3,749,342 
 	Retained earnings                              1,877,084          1,107,480 
 	Unrealized loss on securities available 
    for sale                                       (13,132)            (3,049) 
                                              -------------------------------
                                                 5,640,072          4,879,591 
                                              -------------------------------
                                              $ 12,777,290       $ 11,424,813 
                                              =============================== 
</TABLE>
                                      F-3
 <PAGE>
 
SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
D/B/A DAKOTACARE

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995 and 1994 
<TABLE>
 <S>                            <C>            <C>            <C>
 
                                       1996           1995           1994 
-----------------------------------------------------------------------------
 Revenues: 
   Premiums                        $ 29,071,245   $ 27,056,671   $ 27,187,727 
 	Less premiums ceded for 
    reinsurance                        (383,408)      (413,420)      (397,329) 
                                   ------------------------------------------
                                     28,687,837     26,643,251     26,790,398
 
 	Third party administration fees     3,786,427      3,023,384      1,143,195 
 	Investment income                     551,734        489,253        321,212 
 	Other income                          399,203        356,895        242,330 
 			                               ------------------------------------------	
    Total revenues                   33,425,201     30,512,783     28,497,135 
                                   ------------------------------------------
 
 Operating expenses: 
 	Claims incurred                    23,528,141     20,667,382     20,242,387
 	Less reinsurance recoveries          (102,780)      (362,644)      (305,872) 
                                   ------------------------------------------
                                     23,425,361     20,304,738     19,936,515 
 	Personnel expenses                  3,703,067      3,224,087      2,187,183 
 	Commissions                         1,225,271      1,109,817      1,053,688
 	Professional fees expenses          1,082,816        901,026        638,698 
 	Office expenses                       713,964        680,229        441,907 
 	Occupancy expenses                    625,541        518,527        430,578 
 	Advertising expenses                  386,174        519,907        328,298 
 	State insurance taxes                 330,574        319,837        318,750 
 	Other general and administrative 
    expenses                            325,541        313,152        196,266 
                                   ------------------------------------------ 
 				Total operating expenses        31,818,309     27,891,320     25,531,883 
                                   ------------------------------------------
 				Income from operations           1,606,892      2,621,463      2,965,252 
 Financing cost of debt                      -              -          14,080 
                                   ------------------------------------------
 					Income before income taxes 
 						and minority interest          1,606,892      2,621,463      2,951,172 
 Income taxes (Note 8)                  535,000        819,000      1,044,000 
                                   ------------------------------------------
 					Income before minority interest 1,071,892      1,802,463      1,907,172 
 Minority interest in income 
   of subsidiary                         31,251         12,298          1,194 
                                   ------------------------------------------
 					Net income                    $ 1,040,641    $ 1,790,165    $ 1,905,978 
                                   ==========================================
 
 Earnings per common share          $      0.69    $      1.19    $      1.27 
                                   ========================================== 
</TABLE>
 
See Notes to Consolidated Financial Statements.
                                        F-4
<PAGE>

SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
D/B/A DAKOTACARE

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994 
<TABLE>
<S>                       <C>         <C>          <C>          <C>  
                                                                    Unrealized
                                                                     Loss on
                                          Additional    Retained    Securities
                              Capital      Paid-In      Earnings    Available
                               Stock       Capital      (Deficit)    for Sale 
  ---------------------------------------------------------------------------
 Balance, December 31, 1993  $  47,184  $ 3,726,756  $ (1,873,149) $       -
 	Issuance of Class A 
    common stock                   850           -             -           -
 	Redemption of Class A 
    common stock                  (190)          -             -           - 
 	Dividends paid on Class C
    preferred	stock                 -            -       (404,951)         - 
 	Increase in unrealized 
    loss on securities 
    available for sale              -            -             -      (30,589) 
 	Net income                        -            -      1,905,978          -
                             ------------------------------------------------
 Balance, December 31, 1994     47,844    3,726,756      (372,122)    (30,589) 
 	Issuance of Class A 
    common stock                   910           -             -           -  
 	Redemption of Class A 
    common stock                  (350)          -             -           -
 	Dividends paid on Class C
    preferred stock                 -            -       (310,563)         -
 	Adjustment to reflect 
    recapitalization effective 
    December 29, 1995	(Note 9) (22,586)      22,586            -           -
 	Decrease in unrealized loss 
    on securities available 
    for sale                        -            -             -       27,540 
 	Net income                        -            -      1,790,165          - 
                              -----------------------------------------------   
 Balance, December 31, 1995     25,818    3,749,342     1,107,480      (3,049) 
 	Issuance of Class A 
    preferred stock                990           -             -           - 
 	Redemption of Class A 
   preferred	stock                (330)          -             -           -
 	Issuance of Class B 
    preferred stock                300           -             -           - 
 	Dividends paid on Class C 
    common stock                    -            -       (271,037)         - 
 	Increase in unrealized loss
    on securities available 
    for sale                        -            -             -      (10,083) 
 	Net income                        -            -      1,040,641          - 
                             ------------------------------------------------
 Balance, December 31, 1996   $ 26,778  $ 3,749,342   $ 1,877,084   $ (13,132) 
                             ================================================
</TABLE>
 
See Notes to Consolidated Financial Statements.
                                      F-5
<PAGE>


SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
D/B/A DAKOTACARE

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994 

<TABLE>
 <S>                                 <C>         <C>           <C>
                                           1996         1995        1994 
-----------------------------------------------------------------------------
 Cash Flows From Operating Activities 
 	Net income                            $ 1,040,641  $ 1,790,165  $ 1,905,978 
 	Adjustments to reconcile net income 
   to	net cash provided by operating
   activities: 
 		Depreciation                             318,297      251,222      196,221 
 		Loss on disposal of equipment              1,664           -         2,065 
 		Minority interest in income of 
     subsidiary                              31,251       12,298        1,194 
 		Amortization of discounts and premiums 
     on	investments and certificates 
     of deposit, net                       (103,151)    (100,888)     (85,160) 
 		(Increase) in receivables               (301,794)     (68,892)     (84,828) 
 		(Increase) in prepaids and other assets  (66,530)      (6,111)     (29,377) 
 		(Increase) in deferred income taxes      (57,000)    (120,000)     (67,000) 
 		Increase (decrease) in reported and 
 			unreported claims payable               478,455     (154,000)     305,512 
 		Increase (decrease) in accounts payable 
 			and accrued expenses                   (107,587)     (21,028)     402,349 
 		Increase in unearned premiums and  
 			administration fees                      39,252        3,692      316,074 
 		Increase in contingency reserve payable  150,625      257,744       61,798 
                                          -----------------------------------
 				Net cash provided by operating
       activities                         1,424,123    1,844,202    2,924,826
                                          -----------------------------------
 
 Cash Flows From Investing Activities 
 	Purchases of securities available 
   for sale                                  (5,933)      (5,660)    (207,710)
 	Held to maturity securities: 
 		 Matured                               1,200,000    1,147,884      752,000
 	 	Purchases                            (1,983,309)  (1,386,995)  (2,711,231)
 	Repayments on collateralized 
    mortgage obligations                    133,471       45,409       45,348 
 	Proceeds from maturities of 
    certificates of deposit               1,104,900    1,200,000    2,050,000
 	Purchase of certificates of deposit    (1,531,959)  (1,604,900)  (1,200,000)
 	Receipt of principal payments on 
    mortgage loan on real estate                 -            -       132,156
 	(Increase) in cash surrender value 
    of life insurance                       (18,000)     (11,000)     (10,410)
 	Purchase of leasehold improvements 
    and equipment                          (216,720)    (637,994)    (345,216) 
 	Proceeds from sale of equipment                -            -         7,200
                                       --------------------------------------
 				Net cash (used in) investing 
       activities                        (1,317,550)  (1,253,256)  (1,487,863)
                                       --------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
                                      F-6
<PAGE> 

<TABLE>
 <S>                                 <C>           <C>         <C>
                                              1996         1995      1994 
 ----------------------------------------------------------------------------    
 Cash Flows From Financing Activities 
 	Proceeds from issuance of stock       $     1,290   $      910   $      850 
 	Redemption of stock                          (330)        (350)        (190) 
 	Payments of dividends                    (271,037)    (310,563)    (404,951) 
 	Minority investment in subsidiary              -        15,000      249,400 
 	Payments on long-term debt                     -            -      (572,156) 
                                        -------------------------------------
 		Net cash (used in) financing activities (270,077)    (295,003)    (727,047)
                                        -------------------------------------
 		Increase (decrease) in cash and 
 				 cash equivalents                     (163,504)     295,943      709,916 
  
 
 Cash and Cash Equivalents 
 	 Beginning                              3,586,196    3,290,253    2,580,337 
                                        -------------------------------------
 	 Ending                                $3,422,692   $3,586,196   $3,290,253
                                        =====================================
 
 Supplemental Disclosures of Cash Flow Information 
 	Cash payments for: 
 		 Interest                             $       -    $       -    $   14,080 
 		Income taxes                             790,000      881,008    1,141,000
 
 Supplemental Disclosures of Noncash 
  Investing and Financing Activities 
 		(Increase) decrease in unrealized 
   loss on securities available for sale    (10,083)      27,540      (30,589) 
 		(Decrease) in Class C common stock due 
 			to recapitalization                          -       (22,586)          - 
 		Increase in additional paid-in capital 
    due	to recapitalization                      -        22,586           - 
</TABLE>
                                        F-7 
 <PAGE>
  
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, which began operations in January 1996), and its 50.11%
owned subsidiary, Dakota Health Plans, Incorporated (DHP), which began 
operations in May 1994.  DAS & DHP's primary activity is as a third party 
administrator 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 and DHP's self funded customers.  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 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 remaining maturities in excess of ninety days.

Investment securities:  The Financial Accounting Standards Board Statement 
---------------------
No. 115, "Accounting for Certain Investments in Debt and Equity Securities",
requires that all debt securities and equity securities that have a readily 
determinable fair value be classified in three categories and accounted for 
as follows:

- Trading securities

Trading securities are held for resale in anticipation of short-term 
(generally 90 days or less) fluctuations in market prices.  Trading 
securities, consisting primarily of actively traded equity and debt 
securities, are stated at fair value.  Realized and unrealized gains and 
losses are included in income.

- Held to maturity securities

Held to maturity securities consist solely of debt securities which the 
Company has the positive intent and ability to hold to maturity and are 
stated at amortized cost.
                                   F-8
<PAGE>

Note 1.	Nature of Business and Significant Accounting Policies (continued)

Investment securities (continued):
---------------------------------

- Available for sale securities

Available for sale securities consist of debt securities and marketable 
equity securities not classified as trading or held to maturity.  Available 
for sale securities are stated at fair value and unrealized holding gains and
losses, net of the related deferred tax effect, are reported as a separate 
component of stockholders' equity.

Statement No. 115 requires that management determine the appropriate 
classification of securities at the date of adoption, and thereafter at the 
date individual investment securities are acquired, and that the 
appropriateness of such classification be reassessed at each balance sheet 
date.  Since the Company does not buy investment securities in anticipation 
of short-term fluctuations in market prices, investment securities have been 
classified as available for sale or held to maturity in accordance with 
Statement No. 115.

Prior to the adoption of the accounting change, the Company stated its 
investment securities at amortized cost except for mutual funds, which were 
stated at lower of cost or market.  The effect of adoption on January 1, 1994
was immaterial.

Premiums and discounts on investments in debt securities are amortized over 
their contractual lives.  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 are
determined on the basis of the specific securities sold.

Depreciation:  Leasehold improvements are depreciated using straight-line 
------------
methods based upon the estimated useful lives of the assets or the life of 
the lease, whichever is shorter.  Depreciation on equipment 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 leasehold 
improvements and equipment is as follows:

<TABLE>
 <S>                                       <C>             <C>
                                                  1996              1995 
                                            ---------------------------------
 Furniture, equipment and automobiles        $ 2,190,608      $ 1,978,052 
 Leasehold improvements                           72,817           72,817
                                            --------------------------------- 
                                               2,263,425        2,050,869
 Less accumulated depreciation                 1,192,775          876,978 
                                            ---------------------------------
                                             $ 1,070,650      $ 1,173,891
                                            =================================
</TABLE>
                                       F-9
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------

Note 1.	Nature of Business and Significant Accounting Policies (continued)

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 paid 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.

Income taxes:  Deferred taxes are provided on a 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 per common share:  Earnings per common share for 1995 and 1994 have 
-------------------------
been restated from amounts previously reported to give retroactive effect to 
the recapitalization discussed in Note 9.  Earnings per common share is 
calculated by dividing net income by the weighted average number of Class C 
common shares outstanding during each period as follows:  1996 1,505,760 
shares, 1995 1,505,760 shares and 1994 1,505,760 shares.

                                    F-10
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------

Note 2.	 Fair Value of Financial Instruments

FASB Statement No. 107, "Disclosures About Fair Value of Financial 
Instruments", requires disclosure of fair value information about financial 
instruments, whether or not recognized in the balance sheet, for which it is 
practicable to estimate that value.  Statement No. 107 excludes certain 
financial instruments and all nonfinancial instruments from its disclosure 
requirements.

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, 1996, the carrying amount of the 
Company's investment securities was $4,847,332 and the fair value of the 
investment securities was $4,872,684.

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

Note 3. 	Receivables

Receivables are recorded at net estimated collectible amounts and consist of 
the following:
<TABLE>
 <S>                                       <C>                <C>
                                                  1996              1995 
                                            ---------------------------------
 Commissions                                 $     31,250       $   119,580 
 Drug manufacturer chargebacks                     86,547           108,953 
 Premiums                                         120,363            82,944
 Subrogation, net of recovery expenses             75,000            75,000 
 Interest                                          34,689            29,139
 Reinsurance (Note 4)                              92,579            14,972
 Income taxes                                     223,000            11,000
 Funds withheld by ceding insurer                  77,455                -
 Other                                             95,481            92,982 
                                            ---------------------------------
                                                  836,364           534,570 
 Less allowance for doubtful accounts                  -                 -
                                            ---------------------------------
                                             $    836,364       $   534,570 
                                            =================================
</TABLE>
                                    F-11
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------

Note 4. Reinsurance

The Company's policy is to reinsure that portion of the risk in excess of 
$85,000 of covered inpatient expenses of any enrollee per contract year, 
subject to a coinsurance provision which ranges 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 
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.

Note 5. 	Investment Securities

Investment securities at December 31, 1996 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                 $1,966,481  $  17,480  $    (491) $1,983,470 
 	Obligations of state and 
    political subdivisions        2,090,031     37,004    (19,136)  2,107,899 
 	U.S. governmental agency 
    collateralized mortgage 
    obligations                     502,270         -      (9,505)    492,765
                                 --------------------------------------------
                                 $4,558,782  $  54,484  $ (29,132) $4,584,134
                                 ============================================
 
 Equity securities available for sale: 
 	Bond mutual funds              $  301,682  $      -   $ (13,132) $  288,550 
                                 ============================================
</TABLE>
                                      F-12
<PAGE>

NOTES TO CONSOLIDATAED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
Note 5.	Investment Securities (continued)

The amortized cost and estimated fair value 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, 1996 
                                          -----------------------------------
                                              Amortized         Estimated
                                                Cost            Fair Value
                                          -----------------------------------
 Due in  one year                          $     524,511     $    525,187 
 Due after one year through five years         2,117,778        2,120,048 
 Due after five years through ten years        1,341,091        1,370,599
 Due after ten years                              73,132           75,535 
                                          -----------------------------------
                                               4,056,512        4,091,369
 Collateralized mortgage obligations             502,270          492,765 
                                          -----------------------------------
                                           $   4,558,782     $  4,584,134 
                                          ===================================
</TABLE>
Investment securities at December 31, 1995 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 $1,481,673  $   29,558  $      (21)  $1,511,210
 	Obligations of state and 
   political subdivisions      1,859,712      46,711      (6,327)   1,900,096
 	U.S. governmental agency 
   collateralized mortgage 
   obligations                   467,214       1,176      (9,202)     459,188
                             ------------------------------------------------
                              $3,808,599  $   77,445  $  (15,550)  $3,870,494
                             ================================================
 
 Equity securities available for sale: 
 	Bond mutual funds           $  295,749  $       -   $   (3,049)  $  292,700 
                             ================================================
</TABLE>
There were no sales of debt securities during the years ended December 31, 
1996, 1995 or 1994.  At December 31, 1996 and 1995, no individual investments
in obligations of state and political subdivisions exceeded 10% of the 
Company's equity.


At December 31, 1996 and 1995, the Company had certificates of deposit of 
$500,000 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 law.

                                     F-13
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------

Note 6. 	Contingency Reserve 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 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.  Effective January 1, 1994, the percentage 
withheld from participating physicians was reduced from 20% to 15%. Management
estimates the expected amount of the contingency reserve 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 liability recorded was equal to actual amounts withheld for the 
years ended December 31, 1996 and 1995.  The recorded liability for prior 
years was an estimate of the projected payouts for prior amounts withheld. 
Payments to physicians in 1996 and 1995 exceeded amounts accrued by $71,253 
and $154,569, respectively, which are accounted for as a change in accounting
estimate.

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>
                                         1996           1995         1994 
                                    ----------------------------------------
 Balance at January 1                $ 2,710,000    $ 2,864,000  $ 2,558,488 
                                    ----------------------------------------
 
 Incurred related to: 
 	Current year                        23,350,462     20,309,552   19,919,641 
 	Prior years                             74,899         (4,814)      16,874
                                     --------------------------------------- 
 Total incurred                       23,425,361     20,304,738   19,936,515 
                                     ---------------------------------------
 
 Paid related to: 
 	Current year                        20,247,806     17,425,015   17,141,489
 	Prior years                          2,776,707      2,980,476    2,541,252
                                     ---------------------------------------
 Total paid                           23,024,513     20,405,491   19,682,741 
                                     ---------------------------------------
 
 Less reinsurance recoverables
   at January 1                          (14,972)       (68,219)     (16,481) 
 Plus reinsurance recoverables 
   at December 31                         92,579         14,972       68,219
                                      ---------------------------------------
 Balance at December 31               $ 3,188,455   $ 2,710,000  $ 2,864,000
                                      =======================================
</TABLE>
                                     F-14
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------

Note 8.	 Income Tax Matters

The Company is taxable as a property and casualty insurance company under 
section 832 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:
<TABLE>
<S>                                  <C>           <C>          <C>
                                         1996          1995          1994 
                                       --------------------------------------
 Current                                $592,000      $939,000     $1,111,000
 Deferred (credits)                      (57,000)     (120,000)       (67,000) 
                                       --------------------------------------
                                        $535,000      $819,000     $1,044,000 
                                       ======================================
</TABLE>
Income taxes recorded in the accompanying financial statements are in 
accordance with FASB Statement No. 109, "Accounting for Income Taxes", which 
requires an asset and liability approach to financial accounting and 
reporting for income taxes.  Deferred income tax assets and liabilities are 
computed annually for differences between the financial statement and tax 
bases of assets and liabilities that will result in taxable or deductible 
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax 
assets to the amount expected to be realized.  Income tax expense is the tax 
payable or refundable for the period plus or minus the change during the 
period in deferred tax assets and liabilities.

Total income tax expense differed from the amounts computed by applying the 
U.S. federal income tax rates of 35 percent to income before income taxes as 
a result of the following:
<TABLE>
<S>                                   <C>        <C>         <C>
                                           1996       1995        1994 
                                       ------------------------------------  
 Computed "expected" tax expense         $ 562,400  $ 917,500  $ 1,032,900 
 Tax exempt interest                       (30,771)   (28,760)     (22,468)
 Effect of tax rate brackets and other       3,371    (69,740)      33,568 
                                       ------------------------------------
                                         $ 535,000  $ 819,000  $ 1,044,000 
                                       ====================================
</TABLE>
                                    F-15
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------

Note 8.	Income Tax Matters (continued)

The net deferred income taxes in the accompanying balance sheets includes the
following amounts of deferred tax assets and liabilities:
<TABLE>
<S>                                           <C>              <C>
                                                    1996           1995 
                                                ----------------------------
 Deferred tax asset                              $ 909,000       $ 821,000 
 Valuation allowance for deferred tax asset             -               - 
  Deferred tax liability                           (51,000)        (20,000) 
                                                ----------------------------
                                                 $ 858,000       $ 801,000 
                                                ============================

Reflected on the accompanying balance sheets as follows:

                                                    1996            1995 
                                                 ---------------------------
 Current assets                                   $ 518,000       $ 462,000 
 Noncurrent assets                                  340,000         339,000
                                                 ---------------------------
                                                  $ 858,000       $ 801,000
                                                 ===========================

The tax effects of principal temporary differences are as follows:

                                                     1996            1995 
                                                  --------------------------
 Contingency reserve payable                       $ 716,000       $ 665,000 
 Claims payable                                       62,000          57,000
 Unearned premiums                                    53,000          55,000 
 Equipment                                           (51,000)        (20,000) 
 Accrued expenses                                     78,000          44,000
                                                  ---------------------------
                                                   $ 858,000       $ 801,000 
                                                  ===========================
</TABLE>
                                     F-16
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------

Note 9. 	Capital Stock, Restrictions, Warrants and Recapitalization

On December 28, 1995, the holders of Class A, B, and C stock approved a 
recapitalization plan which became effective December 29, 1995.  Under the 
recapitalization plan, the former Class A voting common stock became Class A 
voting preferred stock.  The Class A 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 continues to be
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.

Also under the recapitalization plan, the former Class B voting common stock 
became Class B voting preferred stock.  The Class B preferred stock continues
to be restricted to ownership by the South Dakota State Medical Association,
an affiliated company and is not entitled to receive dividends.

Pursuant to the recapitalization plan, the former Class C nonvoting preferred
stock became Class C nonvoting common stock.  The former Class C preferred 
stock had been entitled to cumulative dividends of a minimum of $6.00 each 
year and had preference in a liquidation.  As of December 31, 1996, there 
were no cumulative unpaid dividends.  As a result of the recapitalization, 
the new Class C 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, affiliated companies, or (5) the spouse or children of such physician
or other person set forth in (1) or (4) above. 

On December 29, 1995, the Company reduced the par value of its Class C common
stock from $1 per share to $.01 per share and issued the 1,468,116 additional
shares necessary to effect a 40-for-1 common stock split.  The earnings per 
common share for the years ended December 31, 1995 and 1994 have been 
retroactively adjusted for this split as if it occurred on January 1, 1993.

Regulatory capital as required by the Division of Insurance at December 31, 
1996 and 1995 was $200,000 on a statutory basis of accounting, which the 
Company exceeded by approximately $6,513,000 and $5,652,000, respectively.  
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.

                                       F-17
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------------

Note 10. 	Transactions With Affiliates

The Company leases office space from the South Dakota State Medical 
Association (Association).  In January 1997, the Company signed a one year 
lease which expires December 31, 1997 and requires minimum rental payments 
of $168,120.  Total rental payments for office space for the years ended 
December 31, 1996, 1995 and 1994 were $158,400, $144,650 and $119,000, 
respectively.  Commencing in 1995, employees of the South Dakota Foundation 
for Medical Care (Foundation) provided management services for the Company.
Total management fees paid to the Foundation for the years ended December 31,
1996 and 1995 were $138,000 and $46,000, respectively.

The Company provides group health insurance coverage for employees of the 
Association and the Foundation.  Total premium income from the affiliates for
the years ended December 31, 1996, 1995 and 1994 was $85,186, $128,191 and 
$129,535, 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 
discretionary by the Board of Directors, were an amount equal to 11.5% of the
participants' compensation for the twelve-month periods ending September 1, 
1996, 1995 and 1994.  Retirement plan expense for the years ended December 31, 
1996, 1995 and 1994 was $245,104, $182,175 and $127,059, 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, 1996, $40,851 has been accrued under these contracts.

Note 12. 	Litigation

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, 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-18
<PAGE>

                            	EXHIBIT INDEX
                             -------------
<TABLE>
<S>           <C>
Exhibit No.     	Description
-----------      -----------

4.2           			Form of Stock Certificate for Class C Non-Voting Common Stock

10	            		Office Lease with the South Dakota State Medical Association

21	            		Subsidiaries of the Registrant
</TABLE>
<PAGE>

	EXHIBIT 4.2
<PAGE> 

	EXHIBIT 10

                                LEASE

This LEASE made this 1st day of January, 1997, 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 present structure located on "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.  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, 1997, and end
on the 31st day of December, 1997, 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 Fourteen Thousand Ten Dollars ($14,010) 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.
<PAGE>
                                      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.

<PAGE>

                                      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
                               

<PAGE>



EXHIBIT 21.  SUBSIDIARIES OF THE REGISTRANT
             ------------------------------  
<TABLE>
<S>                                    <C>              <C>
Name                                      Incorporation    % Owned
----                                      -------------    -------
DAKOTACARE Administrative                 South Dakota       100%
  Services, Incorporated


Dakota Health Plans, Incorporated         South Dakota      50.11%


DAKOTACARE Insurance, Ltd.                Cayman Islands     100%

</TABLE>