<PAGE>
SCHEDULE OF INVESTMENTS June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
RATINGS
NAME OF ISSUER --------------------------
Percentages represent the market value of each INV'M'T STD. & COUPON PRINCIPAL
investment category to total net assets ADVRS MOODY'S POOR'S RATE MATURITY AMOUNT MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (55.2%)
Cleveland Electric Illum. Co. (FSA Insured) AAA Aaa AAA 9.000% 03-01-17 $ 46,000 $ 46,920
Commonwealth Edison Co. (FSA Insured) AAA Aaa AAA 9.500 05-01-16 99,000 101,203
Commonwealth Edison Co. (FSA Insured) AAA Aaa AAA 9.125 05-01-16 49,000 49,980
Dayton Power & Light Co. (FGIC Insured) AAA Aa3 AA- 8.150 01-15-26 95,000 97,307
Dayton Power & Light Co. (FGIC Insured) AAA Aa3 AA- 7.875 02-15-24 125,000 125,341
Detroit Edison Co. (AMBAC Insured) AAA Aaa AAA 7.740 06-01-18 150,000 146,739
Duke Power Co. (FGIC Insured) AAA Aa2 AA- 8.375 12-01-21 40,000 40,818
Duke Power Co. (FGIC Insured) AAA Aa2 AA- 6.750 08-01-25 80,000 71,186
Gulf Power Co. (FGIC Insured) AAA A1 A+ 8.750 12-01-21 70,000 72,945
Mississippi Power & Light Co. (FSA Insured) AAA Aaa AAA 8.500 01-15-23 265,000 278,303
Pacific Gas & Electric Co. (MBIA Insured) AAA Aaa AAA 7.250 08-01-26 125,000 120,412
Public Service Elec. & Gas Co. (FGIC Insured) AAA A2 A- 8.500 06-01-22 93,000 95,106
Southern California Edison Co. (FGIC Insured) AAA A2 A+ 7.250 03-01-26 100,000 93,164
Texas Utilities Electric Co. (AMBAC Insured) AAA Aaa AAA 8.500 08-01-24 47,000 48,071
Virginia Electric & Power Co. (MBIA Insured) AAA Aaa AAA 7.250 02-01-23 150,000 144,692
----------
TOTAL CORPORATE BONDS AND NOTES (COST: $1,585,900) $1,532,187
----------
U.S.GOVERNMENT (16.0%)
U.S. Treasury AAA Aaa AAA 6.000 02-15-26 $500,000 $ 443,750
----------
TOTAL U.S. GOVERNMENT (COST: $445,445) $ 443,750
----------
U.S.GOVERNMENT AGENCIES (14.1%)
Tennessee Valley Authority Bonds AAA Aaa AAA 8.625 11-15-29 $180,000 $ 186,340
Tennessee Valley Authority Bonds AAA Aaa NR 7.750 12-15-22 100,000 98,230
Tennessee Valley Authority Bonds AAA Aaa NR 7.625 09-01-22 110,000 106,539
----------
TOTAL U.S. GOVERNMENT AGENCIES (COST: $400,575) $ 391,109
----------
TAXABLE MUNICIPAL BONDS (12.4%)
*Peoria, AZ Sports Complex (MBIA Insured) AAA Aaa AAA 7.700% 07-01-13 $100,000 $ 98,929
*Provo City, UT Energy Sys. (MBIA Insured) AAA Aaa AAA 7.900 05-15-14 100,000 100,203
*Westmoreland County, PA (AMBAC Insured) AAA Aaa AAA 7.500 05-15-13 50,000 48,830
*Wisconsin Health & Edu. (AMBAC Insured) AAA Aaa AAA 7.850 08-15-22 100,000 96,773
----------
TOTAL TAXABLE MUNICIPAL BONDS (COST: $357,856) $ 344,735
----------
SHORT-TERM SECURITIES (1.9%)
Goldman Sachs Institutional Liquid Assets Treasury Instruments Portfolio (COST: $53,263) $ 53,263
TOTAL INVESTMENTS IN SECURITIES (COST: $2,843,039) $2,765,044
==========
*Indicates bonds are segregated by the custodian to cover when-issued or delayed-delivery purchases.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FINANCIAL STATEMENTS June 30,1996
STATEMENT OF ASSETS AND LIABILITIES June 30,1996 (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investment in securities, at value $ 2,765,044
(cost: $2,843,039)
Accrued dividends receivable 170
Accrued interest receivable 58,942
-----------
Total Assets $ 2,824,156
-----------
LIABILITIES
Bank overdraft $ 32,567
Dividends payable 13,881
Accrued expenses 1,981
-----------
Total Liabilities $ 48,429
-----------
NET ASSETS $ 2,775,727
===========
Net asset value per share, 304,377 shares
outstanding $ 9.12
===========
STATEMENT OF OPERATIONS for the six months ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 103,210
Dividends 2,191
-----------
Total Investment Income $ 105,401
-----------
EXPENSES
Investment advisory fees $ 8,664
Custodian fees 134
Transfer agent fees 2,267
Accounting service fees 12,713
Audit and legal fees 4,860
Insurance 4,060
Directors fees 445
Printing and postage 1,904
License, fees, and registrations 1,629
Amortization of organization costs 875
-----------
Total expenses $ 37,551
Less expenses waived or absorbed
by the Fund's manager 24,705
-----------
Total Net Expenses $ 12,846
===========
NET INVESTMENT INCOME $ 92,555
===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES:
<S> <C>
Net realized gain (loss) from:
Investment transactions $ 6,825
Futures transactions 67,086
Net change in unrealized appreciation (depreciation)
of investments (194,333)
-----------
Net Realized And Unrealized Gain (Loss) On $ (120,422)
Investments -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (27,867)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FINANCIAL STATEMENTS June 30, 1996
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1996 and year ended December 31, 1995
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Six Months Ended
June 30, 1996 For the Year Ended
(Unaudited) December 31, 1995
-------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 92,555 $ 205,024
Net realized gain (loss) on investment and futures
transactions 73,911 (116,476)
Net unrealized appreciation (depreciation) on
investments (194,333) 394,006
-------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
From Operations $ (27,867) $ 482,554
-------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income $ (92,555) $ (205,024)
Distributions from net realized gain on investment and
futures transactions 0 0
-------------------------------------------
Total Dividends and Distributions $ (92,555) $ (205,024)
-------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares $ 59,480 $ 209,568
Proceeds from reinvested dividends 60,882 190,630
Cost of shares redeemed (236,303) (483,527)
-------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
From Capital Share Transactions $ (115,941) $ (83,329)
-------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS $ (236,363) $ 194,201
NET ASSETS, BEGINNING OF PERIOD 3,012,090 2,817,889
-------------------------------------------
NET ASSETS, END OF PERIOD $2,775,727 $3,012,090
===========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS June 30, 1996 (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. The Fund's objective is to provide as high a level of current
income as is consistent with prudent investment management, preservation
of capital, and ready marketability of its portfolio. The Fund will seek
to achieve this objective by investing primarily in a portfolio of debt
securities, including U.S. Government securities and insured corporate
bonds.
Shares of the Fund are offered at net asset value plus a maximum sales
charge of 4.5% of the offering price.
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.
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
provision for income taxes 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 daily on an accrual basis.
Premiums and discounts on securities purchased are amortized using the
effective interest method over the life of the respective securities,
unless callable, in which case they are amortized to the earliest call
date.
FUTURES CONTRACTS AND OPTIONS - The Fund may purchase and sell financial
futures and option contracts to hedge against changes in the values of
securities the Fund owns or expects to purchase.
<PAGE>
A futures contract is an agreement between two parties to buy or sell
units of a particular index or a certain amount of U.S. Government
securities at a set price on a future date. Upon entering into a futures
contract, the Fund is required to deposit with a broker an amount of
cash or securities equal to the minimum "initial margin" requirement of
the futures exchange on which the contract is traded. Subsequent
payments ("variation margin") are made or received by the Fund,
dependent on the fluctuations in the value of the underlying index, 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.
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.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Note 3. SHARE TRANSACTIONS
As of June 30, 1996, there were 200,000,000 shares of $.001 par value
authorized; 304,377 and 316,842 were outstanding at June 30, 1996 and
December 31, 1995, 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, 1996 Dec. 31, 1995 June 30, 1996 Dec. 31, 1995
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 6,614 22,961 $ 59,480 $ 209,568
Shares issued on reinvestment of 6,603 21,438 60,882 190,630
dividends
Shares redeemed (25,682) (52,837) (236,303) (483,527)
---------------------------------------------------------------------
Net increase (decrease) (12,465) (8,438) $(115,941) $ (83,329)
=====================================================================
</TABLE>
<PAGE>
Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
ND Money Management, Inc., the Fund's investment adviser, ND Capital,
Inc., the Fund's underwriter, and ND Resources, Inc., the Fund's
transfer agent, are subsidiaries of ND Holdings, Inc., the Fund's
sponsor.
The Fund has engaged ND Money Management, Inc., to provide investment
advisory and management services to the Fund. The Investment Advisory
Agreement provides for fees to be computed at an annual rate of 0.60% of
the Fund's average daily net assets. Total investment advisory fees
incurred during the six months ended June 30, 1996 were $7,137. Certain
officers and directors of the Fund are also officers and directors of
the investment adviser.
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 months ended June 30, 1996 amounted to $24,705.
As of June 30, 1996, the Fund owed ND Money Management $1,078 for
investment advisory fees incurred but not paid, and owed ND Holdings,
Inc. $863 for other expenses.
ND Resources, Inc., (the transfer agent), provides shareholder services
for a monthly fee equal to an annual rate of 0.16% of the Fund's first
$10 million of net assets, 0.13% of the Fund's net assets on the next
$15 million, 0.11% of the Fund's net assets on the next $15 million,
0.10% of the Fund's net assets on the next $10 million, and 0.09% of the
Fund's net assets in excess of $50 million. The Fund has recognized
$2,267 of transfer agency fees for the six months ended June 30, 1996.
ND Resources, Inc. also acts as the Fund's accounting services agent for
a monthly fee equal to the sum of a fixed fee of $2,000, and a variable
fee equal to 0.05% of the Fund's average daily net assets on an annual
basis for the Fund's first $50 million and at a lower rate on the
average daily net assets in excess of $50 million. The Fund has
recognized $12,713 of accounting service fees for the six months ended
June 30, 1996.
Note 5. INVESTMENT SECURITY TRANSACTIONS
Proceeds from sale of investment securities (excluding short-term
securities) aggregated $137,838 and $420,745 for corporate bonds and
notes and U.S. Government obligations respectively, with cost of
purchases totaling $445,445 for U.S. Government obligations for the six
months ended June 30, 1996.
<PAGE>
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, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
Divided by Maximum
Net Asset (1.00 - 0.045) Public
Value of For a 4.50% Offering
One Share Sales Charge Price
--------- ------------- --------
$9.12 .955 $9.55
</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, 1996, the aggregate cost of securities for federal income
tax purposes was $2,843,039, and the net unrealized depreciation of
investments based on the cost was $77,995, which was comprised of
$10,973 aggregate gross unrealized appreciation and $88,968 aggregate
gross unrealized depreciation.
<PAGE>
FINANCIAL HIGHLIGHTS Selected per share data and ratios for the period indicated
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The For the Year For the Year For the Year For the Year For the Period Since
Six Months Ended Ended Ended Ended Ended Inception (March 19,
June 30, 1996 December 31, December 31, December 31, December 31, 1991) to December 31,
(Unaudited) 1995 1994 1993 1992 1991)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 9.51 $ 8.66 $ 9.62 $ 9.68 $ 9.69 $ 9.55
------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income $ .30 $ .62 $ .64 $ .68 $ .73 $ .60
Net realized and unrealized
gain (loss) on investments
and futures transactions (.39) .85 (.70) (.01) (.01) .14
------------------------------------------------------------------------------------------------
Total From Investment
Operations $ (.09) $ 1.47 $ (.06) $ .67 $ .72 $ .74
------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income $ (.30) $ (.62) $ (.64) $ (.68) $ (.73) $ (.60)
Distributions from net realized
gains 0 0 (.26) (.05) .00 .00
------------------------------------------------------------------------------------------------
Total Distributions $ (.30) $ (.62) $ (.90) $ (.73) $ (.73) $ (.60)
------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.12 $ 9.51 $ 8.66 $ 9.62 $ 9.68 $ 9.69
================================================================================================
TOTAL RETURN (.94)%(A)(C) 17.53%(C) (.58)%(C) 6.86%(C) 7.78%(C) 10.47%(A)(C)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $2,776 $3,012 $2,818 $ 2,445 $1,839 $1,251
Ratio of net expenses
(after expense assumption)
to average net assets 0.90%(B) 0.76%(B) 0.65%(B) 0.85%(B) 1.31%(B) 0.82%(A)(B)
Ratio of net investment
income investment income
to average net assets 6.48%(A) 6.85% 7.02% 7.11% 7.56% 7.58%(A)
Portfolio turnover rate 16.03% 0.00%(D) 14.55% 102.00% 58.00% 0.00%(E)
</TABLE>
(A) Ratio was annualized.
(B) During the periods indicated above, ND Holdings, Inc. assumed expenses of
$24,705, $18,573, $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 2.62%, 1.38%, 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.
(E) No investment securities were sold during the period.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 2843039
<INVESTMENTS-AT-VALUE> 2765044
<RECEIVABLES> 59112
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2824156
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48429
<TOTAL-LIABILITIES> 48429
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 304377
<SHARES-COMMON-PRIOR> 316842
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (42565)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (77995)
<NET-ASSETS> 2775727
<DIVIDEND-INCOME> 2191
<INTEREST-INCOME> 103210
<OTHER-INCOME> 0
<EXPENSES-NET> 12846
<NET-INVESTMENT-INCOME> 92555
<REALIZED-GAINS-CURRENT> 73911
<APPREC-INCREASE-CURRENT> (194333)
<NET-CHANGE-FROM-OPS> (27867)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 92555
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6614
<NUMBER-OF-SHARES-REDEEMED> 25682
<SHARES-REINVESTED> 6603
<NET-CHANGE-IN-ASSETS> (236363)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8664
<INTEREST-EXPENSE> 103210
<GROSS-EXPENSE> 37551
<AVERAGE-NET-ASSETS> 2859072
<PER-SHARE-NAV-BEGIN> 9.51
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> (.39)
<PER-SHARE-DIVIDEND> .30
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 9.12
<EXPENSE-RATIO> .90<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Ratio of net expense to average net assets, annualized.
</FN>
</TABLE>
