<PAGE>
DEAR SHAREHOLDER:
We are pleased to enclose the semi-annual report on the operations of ND Insured
Income Fund, Inc. for the period ended June 30, 1995. The bond portfolio and
related financial statements are presented within for your review.
Bond prices increased during the period subsequent to efforts by the Federal
Reserve to tighten short term interest rates and slow economic growth.
Tolerable rates of inflation have been reported as of late and it is expected
that restrictive monetary policy will not be required in this economic
environment.
Shares in the fund increased during the period from $8.66 to $9.09. During the
year the fund utilized a partial hedge to maintain share price stability.
Futures contracts and options in U.S. Treasury Bonds were employed. Hedging
affected values by retarding share appreciation during periods of rising bond
prices, and by buffering share depreciation during periods of receding bond
prices.
The adviser has invested primarily in corporate utility bonds which were either
pre-insured at the time of purchase or which have been covered by portfolio
insurance since their purchase. Management intends to to remain conservative
and provide a competitive return from a high-quality list of securities.
We invite your personal calls and visits.
Sincerely,
Robert E. Walstad
President
<PAGE>
SCHEDULE OF INVESTMENTS June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
NAME OF ISSUER RATINGS
----------------------------
Percentages represent the market value of each INV'M'T STD. & COUPON PRINCIPAL MARKET
investment category to total net assets ADVRS MOODY'S POOR'S RATE MATURITY AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (56.02%)
Cleveland Electric Illum. Co. (FSA Insured) AAA Aaa AAA 9.000% 03-01-17 $ 46,000 $ 48,630
Commonwealth Edison Co. (FSA Insured) AAA Aaa AAA 9.500 05-01-16 99,000 106,208
Commonwealth Edison Co. (FSA Insured) AAA Aaa AAA 9.125 05-01-16 49,000 52,391
Dayton Power & Light Co. (FGIC Insured) AAA Aa3 AA- 8.150 01-15-26 95,000 101,077
Dayton Power & Light Co. (FGIC Insured) AAA Aa3 AA- 7.875 02-15-24 125,000 130,039
Detroit Edison Co. (AMBAC Insured) AAA Aaa AAA 7.740 06-01-18 150,000 151,918
Duke Power Co. (FGIC Insured) AAA Aa2 AA- 8.375 12-01-21 40,000 41,626
Duke Power Co. (FGIC Insured) AAA Aa2 AA- 6.750 08-01-25 80,000 73,546
Gulf Power Co. (FGIC Insured) AAA A1 A+ 8.750 12-01-21 70,000 74,593
Mississippi Power & Light Co. (FSA Insured) AAA Aaa AAA 8.500 01-15-23 265,000 286,113
Pacific Gas & Electric Co. (MBIA Insured) AAA Aaa AAA 7.250 08-01-26 125,000 124,684
Public Service Elec. & Gas Co. (FGIC Insured) AAA A2 A- 8.500 06-01-22 94,000 99,331
Rochester Gas & Electric Corp. (MBIA Insured) AAA Aaa AAA 7.450 07-30-23 130,000 131,820
Southern California Edison Co. (FGIC Insured) AAA A2 A+ 7.250 03-01-26 100,000 95,313
Texas Utilities Electric Co. (AMBAC Insured) AAA Aaa AAA 8.500 08-01-24 47,000 49,875
Virginia Electric & Power Co. (MBIA Insured) AAA Aaa AAA 7.250 02-01-23 150,000 149,633
-----------
TOTAL CORPORATE BONDS AND NOTES (COST: $1,725,042) $ 1,716,797
-----------
U.S. GOVERNMENT AGENCIES (26.97%)
Federal Home Loan Banks Debentures AAA Aaa NR 9.100 11-10-09 $ 100,000 $ 101,062
Federal National Mortgage Assn. Notes AAA Aaa NR 9.050 05-10-21 300,000 321,282
Tennessee Valley Authority Bonds AAA Aaa AAA 8.625 11-15-29 180,000 192,636
Tennessee Valley Authority Bonds AAA Aaa NR 7.750 12-15-22 100,000 107,479
Tennessee Valley Authority Bonds AAA Aaa NR 7.625 09-01-22 110,000 110,045
-----------
TOTAL U.S. GOVERNMENT AGENCIES (COST: $826,575) $ 826,504
-----------
TAXABLE MUNICIPAL BONDS (11.71%)
*Peoria, AZ Sports Complex (MBIA Insured) AAA Aaa AAA 7.700 07-01-13 $ 100,000 $ 102,786
*Provo City, UT Energy Sys. (MBIA Insured) AAA Aaa AAA 7.900 05-15-14 100,000 104,206
*Westmoreland County, PA (AMBAC Insured) AAA Aaa AAA 7.500 05-15-13 50,000 50,619
*Wisconsin Health & Edu. (AMBAC Insured) AAA Aaa AAA 7.850 08-15-22 100,000 110,045
-----------
TOTAL TAXABLE MUNICIPAL BONDS (COST: $358,350) $ 359,019
-----------
SHORT-TERM SECURITIES (.79%)
Goldman Sachs Institutional Liquid Assets Treasury Instruments Portfolio $ 4,056
September U.S. Treasury Bond Put Options 20,156
-----------
TOTAL SHORT-TERM SECURITIES (COST; $22,554) $ 24,212
-----------
TOTAL INVESTMENTS IN SECURITIES (COST: $2,932,521) $ 2,926,532
===========
</TABLE>
*Indicates bonds are segregated by the custodian to cover when-issued or
delayed-delivery purchases.
The accompanying notes are an integral part of these financial statements.
<PAGE>
FINANCIAL STATEMENTS June 30, 1995
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES June 30, 1995 (Unaudited)
-------------------------------------------------------------
<S> <C>
ASSETS
Investment in securities, at value (cost: $2,932,521) $ 2,926,532
Accrued dividends receivable 24
Accrued interest receivable 56,739
Deferred organization costs, net 2,752
Security sales receivable 100,000
-----------
Total Assets $ 3,086,047
-----------
LIABILITIES
Dividends payable $ 16,575
Accrued expenses 4,663
-----------
Total Liabilities $ 21,238
-----------
NET ASSETS $ 3,064,809
===========
Net asset value per share, 337,123 shares outstanding $ 9.09
============
STATEMENT OF OPERATIONS for the six months ended June 30, 1995 (Unaudited)
--------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 115,828
Dividends 791
-----------
Total Investment Income $ 116,619
-----------
EXPENSES
Management fees $ 8,894
Custodian fees 344
Transfer agent fees 2,390
Audit and legal fees 5,775
Insurance 1,577
Directors fees 891
Printing and postage 5,323
License, fees, and registrations 2,266
Amortization of organization costs 1,867
-----------
Total expenses $ 29,327
Less expenses waived or absorbed by the Fund's manager 18,701
-----------
Total Net Expenses $ 10,626
-----------
NET INVESTMENT INCOME $ 105,993
-----------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FUTURES, AND OPTIONS:
Net realized gain (loss) from:
Investment transactions $ (6,591)
Futures transactions (122,339)
Net change in unrealized appreciation (depreciation)
of investments 271,678
Net Realized And Unrealized Gain (Loss) On
Investments, Futures, And Options $ 142,748
------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 248,741
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FINANCIAL STATEMENTS June 30, 1995
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1995 and year ended December 31, 1994
-----------------------------------------------------------------------
For the Six Months For the Year
Ended June 30, 1995 Ended December
(Unaudited) 31, 1994
----------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 105,993 $ 187,991
Net realized gain (loss) on investments, futures, and option transactions (128,930) 84,376
Net unrealized appreciation (depreciation) on investments 271,678 (283,579)
----------------------------------------
Net Increase (Decrease) in Net Assets Resulting From Operations $ 248,741 $ (11,212)
----------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income $ (105,993) $ (187,991)
Distributions from net realized gain on investments, futures,
and option transactions 0 (84,376)
----------------------------------------
Total Dividends and Distributions $ (105,993) $ (272,367)
----------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares $ 77,309 $ 925,405
Proceeds from reinvested dividends 127,567 104,946
Cost of shares redeemed (100,704) (373,958)
----------------------------------------
Net Increase (Decrease) in Net Assets Resulting
From Capital Share Transactions $ 104,172 $ 656,393
----------------------------------------
TOTAL INCREASE IN NET ASSETS $ 246,920 $ 372,814
NET ASSETS, BEGINNING OF PERIOD 2,817,889 2,445,075
----------------------------------------
NET ASSETS, END OF PERIOD $ 3,064,809 $ 2,817,889
========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS June 30, 1995 (Unaudited)
Note 1. ORGANIZATION
ND Insured Income Fund, Inc. (the Fund) is registered under the
Investment Company Act of 1940 as a non-diversified, open-end management
investment company. The Fund incorporated under the laws of the State of
North Dakota on November 27, 1990 and commenced operations on March 19,
1991.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT SECURITY VALUATION - Investments in securities traded on
national securities exchanges are valued at the last reported sales
price at the close of each business day. Securities for which market
quotations are not readily available are valued at fair value as
determined in good faith by the portfolio management team. The Fund
follows industry practice and records security transactions on the trade
date.
DEFERRED ORGANIZATION COSTS - Costs incurred by the Fund in connection
with the initial registration and public offering of shares of the Fund
amounted to $18,725. These costs have been paid by ND Holdings, Inc.
(the Fund's sponsor) and may be reimbursed by the Fund. These costs are
currently being waived by ND Holdings, Inc. and are being amortized over
a five year period. If the Manager redeems any or all of its shares in
the Fund representing initial capital prior to the end of the 60-month
amortization period, the Manager will reimburse the Fund for the
unamortized balance in the same proportion as the number of shares
redeemed bear to the number of initial shares outstanding at the time of
redemption.
FEDERAL AND STATE INCOME TAXES - It is the Fund's policy to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its net taxable income and
any net realized gain on investments, to its shareholders. Therefore, no
federal income tax provision is required.
DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income,
declared daily and payable monthly, are reinvested in additional shares
of the Fund at net asset value or payable in cash. Capital gains, when
available, are distributed along with the last income dividend of the
calendar year.
INVESTMENT INCOME - Dividend income is recognized on the ex-dividend
date and interest income is recognized on an accrual basis. Premiums on
securities purchased are amortized over the life of the respective
securities, unless callable, in which case they are amortized to the
earliest call date.
FUTURES CONTRACTS AND OPTIONS - The Fund may enter into financial
futures contracts. Upon entering into a futures contract, the Fund is
required to deposit with a broker an amount of cash or securities equal
to the minimum initial margin requirement of the futures exchange on
which the contract is traded. Subsequent payments (variation margin)
are made or received by the Fund, dependent on
<PAGE>
the fluctuations in the value of the underlying index, and are recorded
for financial reporting purposes as unrealized gains or losses by the
fund. When entering into a closing transaction, the Fund will realize,
for book purposes, a gain or loss equal to the difference between the
value of the futures contracts sold and the futures contracts to buy.
Futures contracts are valued at the most recent settlement price, unless
such price does not reflect the fair market value of the contract, in
which case the position will be valued using methods approved by the
Board of Directors of the Company.
The Fund may purchase options on financial futures contracts. Daily
fluctuations in the value of the options are recorded for financial
reporting purposes as unrealized gains or losses by the fund. Upon sale
or expiration of the option, the Fund will realize, for book purposes, a
gain or loss equal to the difference between the cost of the option and
the value on sale or expiration date.
Certain risks may arise upon entering into futures contracts and
options. These risks may include changes in the value of the futures
contracts and options that may not directly correlate with changes in
the value of the underlying securities.
Note 3. SHARE TRANSACTIONS
As of June 30, 1995, there were 200,000,000 shares of $.001 par value
authorized; 337,123 and 325,280 were outstanding at June 30, 1995 and
December 31, 1994, respectively.
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Shares Amount
------ ------
For the For the For the For the
Six Months ended year ended Six Months ended year ended
June 30, 1995 Dec. 31, 1994 June 30, 1995 Dec. 31, 1994
<S> <C> <C> <C> <C>
Shares sold 10,695 100,550 $ 77,309 $ 925,405
Shares issued on reinvestment of dividends 14,556 11,396 127,567 104,946
Shares redeemed (13,408) (40,927) (100,704) (373,958)
------- ------- --------- ---------
Net increase 11,843 71,019 $ 104,172 $ 656,393
======= ======= ========= =========
</TABLE>
Note 4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
ND Money Management, Inc., the Fund's investment adviser, ND Capital,
Inc., the Fund's underwriter, and ND Resources, Inc., the Fund's
transfer agent, are subsidiaries of ND Holdings, Inc., the Fund's
sponsor. ND Resources, Inc. owns 11,262 shares of the Fund as of June
30, 1995.
The Fund has engaged ND Money Management, Inc., to provide investment
advisory and management services to the Fund. The Investment Advisory
Agreement provides for fees to be computed at an annual rate of .60% of
the Fund's average daily net assets. Total investment advisory and
management fees incurred during the six month period ended June 30, 1995
were $8,894. Certain officers and directors of the Fund are also
officers and directors of the investment adviser.
<PAGE>
ND Holdings, Inc. has elected to reimburse certain administrative costs
incurred by the Fund to provide a fair return to the investors during
the growth stage of the Fund. As the Fund grows, these expenses will be
assumed gradually by the Fund. The expenses reimbursed by ND Holdings,
Inc. for the six month period ended June 30, 1995 amounted to $18,701.
As of June 30, 1995, the Fund owed ND Money Management $884 for
management fees incurred but not paid, and owed ND Holdings, Inc. $2,752
for unamortized costs associated with the initial registration and
public offerings of the shares of the Fund, and $1,010 for other
expenses.
Note 5. INVESTMENT SECURITY TRANSACTIONS
Proceeds from sale of investment securities (excluding short-term
securities) aggregated $100,000 and $50,422 for corporate bonds and
notes and U.S. government obligations, with no purchases for the period
ended June 30, 1995.
Note 6. CALCULATION OF PUBLIC OFFERING PRICE
Using the net asset value of one share and the sales charge percentage,
the maximum public offering price was determined as follows for an
investment of less than $100,000 made on June 30, 1995:
<TABLE>
<CAPTION>
Divided by Maximum
Net Asset (1.00 - 0.045) Public
Value of For a 4.50% Offering
One Share Sales Charge Price
--------- ------------ -----
<S> <C> <C>
$9.09 .955 $9.52
</TABLE>
On sales of greater than $100,000, the sales charge is reduced on a
sliding scale.
Note 7. SPECIAL RISK CONSIDERATIONS
The Fund is registered as a non-diversified investment company, and
therefore will be able to invest a relatively high percentage of its
assets in a limited number of issuers, thus making the Fund more
susceptible to a single economic, political, or regulatory occurrence
than a diversified company. The Fund also is exposed to a certain degree
of market risk and liquidity risk in that as cash flow needs arise,
investment securities may have to be sold under unfavorable market
conditions.
Under normal market conditions, at least 65% of the Fund's portfolio
securities will be protected by insurance. The insurance policies
guarantee only the timely payment of principal and interest on the
insured securities. Market value, which may fluctuate due to changes in
interest rates or factors affecting the credit of the issuer or the
insurer, is not insured.
Note 8. INVESTMENT IN SECURITIES
At June 30, 1995, the aggregate cost of securities for federal income
tax purposes was $2,932,521, and the net unrealized depreciation of
investments based on the cost was
<PAGE>
$5,989, which is comprised of $33,832 aggregate gross unrealized
appreciation and $39,821 aggregate gross unrealized depreciation.
Note 9. CERTAIN RECLASSIFICATIONS
In accordance with a recently approved accounting pronouncement
(Statement of Position 93-2), the Fund has reclassified certain items.
These reclassifications have no impact on the net asset value of the
Fund and are designed to present the Fund's capital accounts on a tax
basis.
Note 10. MATTERS SUBMITTED TO A VOTE OF SHAREHOLDERS
A special meeting of the shareholders of ND Insured Income Fund, Inc.
was held on March 31, 1995. A quorum was declared present and voting
for the election of directors occurred with the following results:
<TABLE>
<CAPTION>
Votes Cast To Votes Cast To
Votes Cast Withhold All Withhold An
Nominee For Nominees Nominees Individual Nominee Abstentions
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lynn W. Aas 172,730.730 0 0 0
Orlin W. Backes 172,730.730 0 0 0
Arthur A. Link 172,066.159 0 664.571 0
Peter A. Quist 172,730.730 0 0 0
Robert E. Walstad 172,730.730 0 0 0
</TABLE>
In addition, Brady, Martz & Associates P.C. was ratified as the Fund's
independent public accountant with 169,266.478 votes cast for,
3,228.779 votes cast against, and 235.473 abstentions.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS Selected per share data and ratios for the period indicated
--------------------------------------------------------------------------------
For the six For the Year For the Year For the Year For the Period Since
months ended Ended Ended Ended Inception (March 19,
June 30, 1995 December 31, December 31, December 31, 1991) to December 31,
(unaudited) 1994 1993 1992 1991)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.66 $ 9.62 $ 9.68 $ 9.69 $ 9.55
--------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income $ .32 $ .64 $ .68 $ .73 $ .60
Net realized and unrealized gain (loss)
on investments, futures, and options .47 (.70) (.01) (.01) .14
--------------------------------------------------------------------------------------
Total From Investment Operations $ .79 $ (.06) $ .67 $ .72 $ .74
--------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income $ (.36) $ (.64) $ (.68) $ (.73) $ (.60)
Distributions from net capital gains 0 (.26) (.05) .00 .00
--------------------------------------------------------------------------------------
Total Distributions $ (.36) $ (.90) $ (.73) $ (.73) $ (.60)
--------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.09 $ 8.66 $ 9.62 $ 9.68 $ 9.69
======================================================================================
TOTAL RETURN 17.50%(A)(C) (.58)%(C) 6.86%(C) 7.78%(C) 10.47%(C)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $3,065 $2,818 $2,445 $1,839 $1,251
Ratio of net expenses (after expense
assumption) to average net assets .72%(A)(B) .65%(B) 0.85%(B) 1.31%(B) 0.82%(A)(B)
Ratio of net investment income to
average net assets 7.15%(A) 7.02% 7.11% 7.56% 7.58%(A)
Portfolio turnover rate 0.00%(D) 14.55% 102.00% 58.00% 0.00%(D)
</TABLE>
(A) Ratio was annualized.
(B) During the six month period ended June 30, 1995 and the periods ended
December 31, 1994, 1993, 1992 and 1991, ND Holdings, Inc. assumed expenses
of $18,701, $23,697, $35,570, $32,228 and $39,704, respectively. If the
expenses had not been assumed, the annualized ratios of total expenses to
average net assets would have been 1.98%, 1.53%, 2.52%, 3.40%, and 7.27%,
respectively. 1991 percentage of 7.27% includes 2.24% of federal and state
income tax.
(C) Excludes maximum sales charge of 4.5%
(D) No investment securities were purchased during the period.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 2932521
<INVESTMENTS-AT-VALUE> 2926532
<RECEIVABLES> 156763
<ASSETS-OTHER> 2752
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3086047
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21238
<TOTAL-LIABILITIES> 21238
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 337123
<SHARES-COMMON-PRIOR> 325280
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (128930)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5989)
<NET-ASSETS> 3064809
<DIVIDEND-INCOME> 791
<INTEREST-INCOME> 115828
<OTHER-INCOME> 0
<EXPENSES-NET> 10626
<NET-INVESTMENT-INCOME> 105993
<REALIZED-GAINS-CURRENT> (128930)
<APPREC-INCREASE-CURRENT> 271678
<NET-CHANGE-FROM-OPS> 248741
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 105993
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10695
<NUMBER-OF-SHARES-REDEEMED> 13408
<SHARES-REINVESTED> 14556
<NET-CHANGE-IN-ASSETS> 246920
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8894
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 29327
<AVERAGE-NET-ASSETS> 2963255
<PER-SHARE-NAV-BEGIN> 8.66
<PER-SHARE-NII> .32
<PER-SHARE-GAIN-APPREC> .47
<PER-SHARE-DIVIDEND> (.32)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.09
<EXPENSE-RATIO> .72<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1> Ratio of net expenses to averge net assets, annualized.
</FN>
</TABLE>
