<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1995
<TABLE>
<CAPTION>
NAME OF ISSUER RATINGS
----------------------------
Percentages represent the market value of each INV'M'T MOODY'S STD. & COUPON PRINCIPAL MARKET
investment category to total net assets ADVRS (UNAUDITED) POOR'S RATE MATURITY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (59.43%)
Cleveland Electric Illum. Co. (FSA Insured) AAA Aaa AAA 9.000% 03-01-17 $ 46,000 $ 48,451
Commonwealth Edison Co. (FSA Insured) AAA Aaa AAA 9.500 05-01-16 99,000 104,918
Commonwealth Edison Co. (FSA Insured) AAA Aaa AAA 9.125 05-01-16 49,000 51,872
Dayton Power & Light Co. (FGIC Insured) AAA Aa3 AA- 8.150 01-15-26 95,000 106,544
Dayton Power & Light Co. (FGIC Insured) AAA Aa3 AA- 7.875 02-15-24 125,000 137,528
Detroit Edison Co. (AMBAC Insured) AAA Aaa AAA 7.740 06-01-18 150,000 163,346
Duke Power Co. (FGIC Insured) AAA Aa2 AA- 8.375 12-01-21 40,000 41,812
Duke Power Co. (FGIC Insured) AAA Aa2 AA- 6.750 08-01-25 80,000 78,029
Gulf Power Co. (FGIC Insured) AAA A1 A+ 8.750 12-01-21 70,000 74,983
Mississippi Power & Light Co. (FSA Insured) AAA Aaa AAA 8.500 01-15-23 265,000 291,619
Pacific Gas & Electric Co. (MBIA Insured) AAA Aaa AAA 7.250 08-01-26 125,000 135,610
Public Service Elec. & Gas Co. (FGIC Insured) AAA A2 A- 8.500 06-01-22 94,000 101,928
Rochester Gas & Electric Corp. (MBIA Insured) AAA Aaa AAA 7.450 07-30-23 130,000 137,268
Southern California Edison Co. (FGIC Insured) AAA A2 A+ 7.250 03-01-26 100,000 101,889
Texas Utilities Electric Co. (AMBAC Insured) AAA Aaa AAA 8.500 08-01-24 47,000 52,210
Virginia Electric & Power Co. (MBIA Insured) AAA Aaa AAA 7.250 02-01-23 150,000 162,215
----------
TOTAL CORPORATE BONDS AND NOTES (COST: $1,722,559) $1,790,222
----------
U.S. GOVERNMENT AGENCIES (25.24%)
Federal National Mortgage Assn. Notes AAA Aaa NR 9.050% 05-10-21 $300,000 $ 323,157
Tennessee Valley Authority Bonds AAA Aaa AAA 8.625 11-15-29 180,000 208,487
Tennessee Valley Authority Bonds AAA Aaa NR 7.750 12-15-22 100,000 109,678
Tennessee Valley Authority Bonds AAA Aaa NR 7.625 09-01-22 110,000 118,939
----------
TOTAL U.S. GOVERNMENT AGENCIES (COST: $725,505) $ 760,261
----------
TAXABLE MUNICIPAL BONDS (12.35%)
*Peoria, AZ Sports Complex (MBIA Insured) AAA Aaa AAA 7.700% 07-01-13 $100,000 $ 106,272
*Provo City, UT Energy Sys. (MBIA Insured) AAA Aaa AAA 7.900 05-15-14 100,000 107,740
*Westmoreland County, PA (AMBAC Insured) AAA Aaa AAA 7.500 05-15-13 50,000 52,439
*Wisconsin Health & Edu. (AMBAC Insured) AAA Aaa AAA 7.850 08-15-22 100,000 105,575
----------
TOTAL TAXABLE MUNICIPAL BONDS (COST: $358,106) $ 372,026
----------
SHORT-TERM SECURITIES (1.82%)
Goldman Sachs Institutional Liquid Assets Treasury
Instruments Portfolio (Cost:$54,770) $ 54,770
TOTAL INVESTMENTS IN SECURITIES (COST: $2,860,940) $2,977,279
==========
</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 December 31, 1995
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
- -----------------------------------
ASSETS
<S> <C>
Investment in securities, at value
(cost: $2,860,940) $ 2,977,279
Accrued dividends receivable 306
Accrued interest receivable 52,702
Deferred organization costs, net 875
------------
Total Assets $ 3,031,162
------------
LIABILITIES
Dividends payable $ 15,257
Accrued expenses 3,815
------------
Total Liabilities $ 19,072
------------
NET ASSETS $ 3,012,090
============
Net asset value per share,
316,842 shares outstanding $ 9.51
============
STATEMENT OF OPERATIONS for the year
ended December 31, 1995
- -------------------------------------
INVESTMENT INCOME
Interest $ 224,474
Dividends 3,325
------------
Total Investment Income $ 227,799
------------
EXPENSES
Investment advisory fees $ 18,006
Custodian fees 704
Transfer agent fees 4,813
Accounting service fees 1,646
Audit and legal fees 4,280
Insurance 953
Directors fees 825
Printing and postage 4,123
License, fees, and registrations 2,253
Amortization of organization costs 3,745
------------
Total expenses $ 41,348
Less expenses waived or absorbed
by the Fund's manager 18,573
------------
Total Net Expenses $ 22,775
------------
NET INVESTMENT INCOME $ 205,024
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES:
Net realized gain (loss) from:
Investment transactions (6,591)
Futures transactions (109,885)
Net change in unrealized
appreciation (depreciation) of
investments 394,006
------------
Net Realized And Unrealized
Gain (Loss) On Investments $ 277,530
------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 482,554
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FINANCIAL STATEMENTS December 31, 1995
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1995 and 1994
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1995 December 31, 1994
---------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 205,024 $ 187,991
Net realized gain (loss) on investment and futures transactions (116,476) 84,376
Net unrealized appreciation (depreciation) on investments 394,006 (283,579)
---------------------------------------
Net Increase (Decrease) in Net Assets Resulting From Operations $ 482,554 $ (11,212)
---------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income $ (205,024) $ (187,991)
Distributions from net realized gain on investment and futures transactions 0 (84,376)
---------------------------------------
Total Dividends and Distributions $ (205,024) $ (272,367)
---------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares $ 209,568 $ 925,405
Proceeds from reinvested dividends 190,630 104,946
Cost of shares redeemed (483,527) (373,958)
---------------------------------------
Net Increase (Decrease) in Net Assets Resulting
From Capital Share Transactions $ (83,329) $ 656,393
---------------------------------------
TOTAL INCREASE IN NET ASSETS $ 194,201 $ 372,814
NET ASSETS, BEGINNING OF PERIOD 2,817,889 2,445,075
---------------------------------------
NET ASSETS, END OF PERIOD $ 3,012,090 $ 2,817,889
=======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS December 31, 1995
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 Funds 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 US 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.
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,
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
<PAGE>
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.
A futures contract is an agreement between two parties to buy or sell
units of a particular index or a certain amount of US 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.
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.
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 December 31 1995, there were 200,000,000 shares of $.001 par value
authorized; 316,842 and 325,280 were outstanding at December 31, 1995
and, 1994, respectively.
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Shares Amount
----------------------------- -----------------------------
For the For the For the For the
year ended year ended year ended year ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 22,961 100,550 $ 209,568 $ 925,405
Shares issued on reinvestment of dividends 21,438 11,396 190,630 104,946
Shares redeemed (52,837) (40,927) (483,527) (373,958)
-------------------------------------------------------------
Net increase (decrease) (8,438) 71,019 $ (83,329) $ 656,393
=============================================================
</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 .60% of
the Fund's average daily net assets. Total investment advisory fees
incurred during the year ended December 31, 1995 were $10,771. 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 year ended December, 1995 amounted to $18,573.
As of December 31, 1995, the Fund owed ND Money Management $1,077 for
investment advisory fees incurred but not paid, and owed ND Holdings,
Inc. $875 for unamortized costs associated with the initial registration
and public offerings of the shares of the Fund, and $957 for other
expenses.
Note 5. INVESTMENT SECURITY TRANSACTIONS
Proceeds from sale of investment securities (excluding short-term
securities) aggregated $100,000 and $150,422 for corporate bonds and
notes and U.S. government obligations respectively, with no purchases
for the year ended December 31, 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 December, 1995:
<TABLE>
<CAPTION>
Divided by
Net Asset (1.00 - 0.045) Maximum
Value of For a 4.50% Offering
One Share Sales Charge Price
----------- -------------- --------
<S> <C> <C>
$9.51 .955 $9.96
</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,
<PAGE>
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 December 31, 1995, the aggregate cost of securities for federal
income tax purposes was $2,860,940, and the net unrealized appreciation
of investments based on the cost was $116,338, which is comprised of
$117,694 aggregate gross unrealized appreciation and $1,356 aggregate
gross unrealized depreciation.
<PAGE>
FINANCIAL HIGHLIGHTS Selected per share data and ratios for the period indicated
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year For the Year For the Year For the Year For the Period
Ended Ended Ended Ended Since Inception
December 31, December 31, December 31, December 31, (March 19, 1991
1995 1994 1993 1992 to December 31, 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 $ .62 $ .64 $ .68 $ .73 $ .60
Net realized and unrealized
gain (loss) on investments
and futures transactions .85 (.70) (.01) (.01) .14
--------------------------------------------------------------------------------------
Total From Investment Operations $ 1.47 $ (.06) $ .67 $ .72 $ .74
--------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income $ (.62) $ (.64) $ (.68) $ (.73) $ (.60)
Distributions from net realized gains 0 (.26) (.05) .00 .00
--------------------------------------------------------------------------------------
Total Distributions $ (.62) $ (.90) $ (.73) $ (.73) $ (.60)
--------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.51 $ 8.66 $ 9.62 $ 9.68 $ 9.69
======================================================================================
TOTAL RETURN 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) $3,012 $2,818 $2,445 $1,839 $1,251
Ratio of net expenses (after expense
assumption) to average net assets .76%(B) .65%(B) 0.85%(B) 1.31%(B) 0.82%(A)(B)
Ratio of net investment income to
average net assets 6.85% 7.02% 7.11% 7.56% 7.58%(A)
Portfolio turnover rate 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
$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 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.
[GRAPH APPEARS HERE]
Comparison of change in value of $10,000 investment in
ND Insured Income Fund, Inc. and Lehman Corporate Bond Index (Unaudited)
- -------------------------------------------------------------------------------
ND Insured Income Fund ND Insured Income Fund Lehman Corporate
without sales charge with maximum sales charge Bond Index
- -------------------------------------------------------------------------------
3/19/1991 $10,000 $9,550 $10,000
- -------------------------------------------------------------------------------
1992 $10,510 $10,276 $11,507
- -------------------------------------------------------------------------------
1993 $11,514 $11,112 $12,506
- -------------------------------------------------------------------------------
1994 $12,414 $11,856 $14,028
- -------------------------------------------------------------------------------
1995 $12,342 $11,787 $13,477
- -------------------------------------------------------------------------------
1996 $14,506 $13,854 $16,474
- -------------------------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors of
ND Insured Income Fund, Inc.
We have audited the accompanying statement of assets and liabilities of ND
Insured Income Fund, Inc. (the Fund), including the schedule of investments, as
of December 31, 1995, the related statement of operations for the year then
ended, the statements of changes in net assets for the each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits. The financial highlights of ND Insured Income Fund, Inc. for the
period from inception (March 19, 1991) through December 31, 1991, were audited
by other auditors whose report dated February 20, 1992, expressed an unqualified
opinion on those statements.
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 and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of ND
Insured Income Fund, Inc. as of December 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and financial highlights for each of the
four years in the period then ended, in conformity with generally accepted
accounting principles.
BRADY, MARTZ & ASSOCIATES, P.C.
February 12, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 2860940
<INVESTMENTS-AT-VALUE> 2977279
<RECEIVABLES> 53008
<ASSETS-OTHER> 875
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3031162
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19072
<TOTAL-LIABILITIES> 19072
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 316842
<SHARES-COMMON-PRIOR> 325280
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (116476)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 116339
<NET-ASSETS> 3012090
<DIVIDEND-INCOME> 3325
<INTEREST-INCOME> 224474
<OTHER-INCOME> 0
<EXPENSES-NET> 22775
<NET-INVESTMENT-INCOME> 205024
<REALIZED-GAINS-CURRENT> (116476)
<APPREC-INCREASE-CURRENT> 394006
<NET-CHANGE-FROM-OPS> 482554
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 205024
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22961
<NUMBER-OF-SHARES-REDEEMED> 52837
<SHARES-REINVESTED> 21438
<NET-CHANGE-IN-ASSETS> 194201
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18006
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 41348
<AVERAGE-NET-ASSETS> 2993751
<PER-SHARE-NAV-BEGIN> 8.66
<PER-SHARE-NII> .62
<PER-SHARE-GAIN-APPREC> .85
<PER-SHARE-DIVIDEND> .62
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 9.51
<EXPENSE-RATIO> .76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
