<PAGE>
As filed with the Securities and Exchange Commission
February 28, 1997
File Nos. 33-38559 and 811-6238
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
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Post-Effective Amendment No. 9 [X]
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AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 10
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ND INSURED INCOME FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
1 North Main, Minot, North Dakota 58703
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
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(701) 852-5292
Robert E. Walstad
President
ND Insured Income Fund, Inc.
1 North Main
Minot, North Dakota 58703
-------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
X immediately upon filing pursuant to paragraph (b)
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on (date) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)
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on (date) pursuant to paragraph (a) of Rule 485.
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Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Section 24(f) of the Investment Company Act
of 1940. Registrant's Rule 24f-2 Notice for the fiscal year ended December 31,
1996, was filed on or before February 28, 1997.
Page 1 of 72 pages
<PAGE>
ND INSURED INCOME FUND, INC.
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
<TABLE>
<CAPTION>
Part A
Item
Number Prospectus Caption
<S> <C>
1. Cover Page........................... Cover Page
2. Synopsis............................. FEE AND EXPENSE TABLE
and SYNOPSIS
3. Condensed Financial Information...... FINANCIAL HIGHLIGHTS
4. General Description of Registrant.... GENERAL DESCRIPTION OF
THE FUND
5. Management of the Fund............... MANAGEMENT
5A. Management's Discussion
of Fund Performance................ Included in Annual Report
6. Capital Stock and Other Securities... SHARES
7. Purchase of Securities Being Offered. PURCHASE OF SHARES
8. Redemption or Repurchase............. REDEMPTION OF SHARES
9. Pending Legal Proceedings............ Inapplicable
Part B
Item Statement of Additional
Number Information Caption
10. Cover Page........................... Cover Page
11. Table of Contents.................... TABLE OF CONTENTS
12. General Information and History...... Inapplicable
13. Investment Objectives and Policies... INVESTMENT POLICIES
AND TECHNIQUES
14. Management of the Fund............... MANAGEMENT OF THE FUND
15. Control Persons and Principal
Holders of Securities.............. CONTROL PERSONS AND
PRINCIPAL HOLDERS
OF SECURITIES
16. Investment Advisory and Other
Services........................... INVESTMENT ADVISORY
AND OTHER SERVICES
17. Brokerage Allocation and
Other Practices.................... PORTFOLIO TRANSACTIONS
18. Capital Stock and Other Securities... Included in Prospectus
19. Purchase, Redemption and
Pricing of Securities
Being Offered...................... PURCHASE AND
REDEMPTION OF SHARES
20. Tax Status........................... DIVIDENDS AND TAXES
21. Underwriters......................... UNDERWRITER
22. Calculation of Performance Data...... CALCULATION OF
PERFORMANCE DATA
23. Financial Statements................. FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part C
Item
Number Page
<S> <C>
24. Financial Statements and Exhibits............ C-1
25. Persons Controlled by or Under
Common Control with Registrant............... C-2
26. Number of Holders of Securities.............. C-2
27. Indemnification.............................. C-2
28. Business and Other Connections
of Investment Adviser........................ C-3
29. Principal Underwriters....................... C-3
30. Location of Accounts and Records............. C-4
31. Management Services.......................... C-4
32. Undertakings................................. C-4
33. Signature Page............................... C-4
</TABLE>
<PAGE>
[LOGO OF INTEGRITY ND INSURED ND INSURED INCOME FUND, INC.
INCOME FUND APPEARS HERE] 1 North Main . Minot, North Dakota 58703
(701) 852-5292
Prospectus May 1, 1996 (As amended June 25, 1996 and February 28, 1997)
ND Insured Income Fund, Inc. (the "Fund"), is an open-end, non-diversified,
management investment company. 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 United States Government securities and insured corporate
bonds (See "General Description of the Fund" - "Investment Objective and
Policies."). Under normal market conditions, at least 65% of the Fund's total
assets will be invested in securities that will be protected by insurance
guaranteeing the timely payment of principal and interest.
This Prospectus contains information about the Fund that a prospective
investor should know before investing and should be retained for future
reference. More detailed information concerning the Fund is contained in the
Statement of Additional Information dated May 1, 1996 (as amended June 25, 1996
and February 28, 1997), which has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference. A free copy of
the Statement of Additional Information may be obtained by contacting the Fund
at the address or telephone number at the top of the page.
-----------------------------------------
TABLE OF CONTENTS
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Fee and Expense Table................. 2
Synopsis.............................. 3
Financial Highlights.................. 5
General Description of the Fund....... 6
Management............................ 14
Shares................................ 16
Purchase of Shares.................... 18
Redemption of Shares.................. 21
Special Features...................... 22
Performance........................... 23
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FEE AND EXPENSE TABLE
The purpose of the Fee and Expense Table is to assist the investor in
understanding the various costs and expenses that a shareholder in the Fund will
bear directly or indirectly. For more complete descriptions of these costs and
expenses, see "Management"--"Expenses" and "Purchase of Shares."
=========================================
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..................... 4.5% (1)
Maximum Sales Load Imposed on Reinvested Dividends ............................................. None
Deferred Sales Load............................................................................. None
Redemption Fees................................................................................. None
Exchange Fee.................................................................................... None
Annual Fund Operating Expenses (After Expense Assumption)
(As a percentage of average net assets) (2)
Management Fees................................................................................. 0.60%
12b-1 Fees ..................................................................................... None
Other Expenses After Expense Assumption......................................................... 0.40% (3)
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Total Fund Operating Expenses (After Expenses Assumption)....................................... 1.00% (4)
</TABLE>
<TABLE>
<CAPTION>
Example (5) 1 Year 3 Years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period: $55 $75 $98 $162
</TABLE>
=========================================
(1) Reduced sales charges apply to purchases of $100,000 or more.
(2) Assumes that the percentages shown remain the same in each year. The
percentages have been restated to reflect operating expenses that are
expected to occur during the current fiscal year.
(3) "Other Expenses" are estimated. During the fiscal year ended December 31,
1996, the Fund incurred total expenses of $65,978. ND Holdings, Inc.
("Holdings"), assumed payment of $40,723 of these expenses, leaving a
balance of $25,255 which was paid by the Fund. Absent the assumption by
Holdings, the annualized ratio of total expenses to average net assets would
have been 2.36%. Holdings has voluntarily agreed to assume any "Other
Expenses" in excess of 0.40% of the Fund's average net assets on an
(4) Absent the fee waiver and expense assumption, estimated "Total Fund
Operating Expenses" would have been 2.36% of average daily net assets on an
annualized basis for fiscal year 1996.
(5) The example is based upon percentages in table above and should not be
considered a representation of past or future expenses. Actual expenses may
be greater or lesser than those shown. If the expense assumption is removed,
the expenses contained in the example will increase. The Securities and
Exchange Commission requires the use of an assumed 5% annual return. The
example assumes the reinvestment of all dividends and distributions. All
dollar figures have been rounded to the nearest dollar.
2
<PAGE>
SYNOPSIS
Investment Objective; Permitted Investments
The Fund is an open-end, non-diversified, management investment company. 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
United States Government securities and insured corporate bonds. There is no
assurance that the Fund's objective will be achieved. The Fund may also purchase
and sell financial futures contracts and options thereon. See "General
Description of the Fund" - "Investment Objective and Policies" and "Other
Investment Practices."
Investment Adviser and Underwriter
ND Money Management, Inc. (the "Investment Adviser"), has been retained
under an Investment Advisory Agreement to act as the Fund's investment adviser.
The Investment Adviser furnishes the Fund with investment advice and, in
general, supervises the management and investment program of the Fund. Under the
Investment Advisory Agreement, the Fund has agreed to pay the Investment Adviser
an annual fee, payable monthly, of 0.60% of the Fund's average daily net assets.
See "Management" - "Investment Adviser."
ND Capital, Inc. (the "Underwriter"), is the Fund's principal underwriter.
See "Purchase of Shares."
Purchases and Redemptions
Investors may purchase the Fund's shares at net asset value plus a maximum
sales charge of 4.5% of the offering price. Reduced sales charges apply to
purchases of $100,000 or more. With certain exceptions, the minimum initial
investment (including the applicable sales charge) is $1,000, and subsequent
investments must be at least $50. See "Purchase of Shares." Shares may be
redeemed without charge of penalty at net asset value, which may be more or less
than original cost. See "Redemption of Shares."
Investors in the Fund
The Fund is designed for persons who are seeking a high level of current
income from a portfolio consisting primarily of insured corporate or government
issued or guaranteed debt securities. Through an investment in shares of the
Fund, investors receive the benefits of professional management and liquidity.
In addition, the Fund offers the economic advantages of block purchases of
securities and relief from administrative details, such as accounting for
distributions and the safekeeping of securities. The Fund's yield and net asset
value will fluctuate.
Dividends
The Fund declares daily dividends of its net investment income on shares for
which it has received payment. The Fund distributes income dividends monthly
and distributes any net realized short-term and long-term capital gains
annually. Investors may elect to have income and capital gains dividends
automatically reinvested in shares of the Fund without a sales charge. See
"Shares" - "Dividends and Taxes."
Organization; Share Attributes; Meetings
The Fund is organized as a corporation under the laws of the State of North
Dakota and is authorized to issue a total of 200,000,000 shares, all of one
class and one series, with a par value of $.001 per share.
3
<PAGE>
Shares are fully paid and nonassessable when issued, are redeemable and freely
transferable, and have equal rights and preferences in all matters, including
voting. There are no subscription, preemptive, or conversion rights. Regular
meetings of shareholders will not be held unless required under the North Dakota
Business Corporation Act or the Investment Company Act of 1940. Special meetings
of shareholders may be called for any purpose at any time in the manner
prescribed under the North Dakota Business Corporation Act.
Special Considerations
An investment in the Fund is subject to a number of different risks, some of
which are described under "General Description of the Fund" - "Investment
Objective and Policies" and "Other Investment Practices." As with other mutual
funds, there can be no assurance that the Fund will achieve its objective.
Because it is registered as a non-diversified investment company, the Fund
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. Accordingly, an
investment in the Fund should not be considered as a complete investment
program. See "General Description of the Fund" - "Other Investment Practices" -
"Diversification Policy."
Under normal market conditions, at least 65% of the Fund's total assets will
be invested in securities that will be protected by insurance guaranteeing the
timely payment of principal and interest. The Fund's investments in United
States Government securities will not be counted toward the 65% policy unless
insured under items (i), (ii), or (iii) below. This insurance may be provided
under (i) a "new issue" insurance policy obtained by the issuer or underwriter
of a security, (ii) a "secondary market" policy purchased by the Fund with
respect to a security, or (iii) a portfolio insurance policy maintained by the
Fund. In each case, 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. These forms of insurance, which are
more fully described below under "Other Investment Practices" - "Portfolio
Insurance," are available from a number of insurance companies. The Fund will
only acquire insurance from, and purchase securities insured by, companies whose
claims paying ability is rated AAA or Aaa at the time of purchase. Changes in
the financial condition of an insurer could result in a subsequent reduction or
withdrawal of such rating.
4
<PAGE>
FINANCIAL HIGHLIGHTS
Selected per share data and ratios in the table have been derived from the
financial statements of the Fund which have been audited by Price Waterhouse and
Brady, Martz & Associates, P.C. ("Brady, Martz"), the Fund's former and present
independent public accountant, respectively. The Fund's complete, current
audited financial statements, including Brady, Martz' report thereon, are
contained in the Statement of Additional Information. Further information about
the Fund's performance is contained in the 1996 Annual Report to shareholders.
Copies of the Statement of Additional Information and 1996 Annual Report may be
obtained from the Fund upon request and without charge.
<TABLE>
<CAPTION>
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31,
1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 9.51 $ 8.66 $ 9.62 $ 9.68 $ 9.69
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Income from Investment Operations:
Net investment income........................ $ .59 $ .62 $ .64 $ .68 $ .73
Net realized and unrealized gain (loss)
on investments and futures transactions...... (.27) .85 (.70) (.01) (.01)
---------------------------------------------------------------------------
Total From Investment Operations......... $ .32 $ 1.47 $ (.06) $ .67 $ .72
---------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income........ $ (.59) $ (.62) $ (.64) $ (.68) $ (.73)
Distributions from net realized gains....... .00 .00 (.26) (.05) .00
---------------------------------------------------------------------------
Total Distributions...................... $ (.59) $ (.62) $ (.90) $ (.73) $ (.73)
---------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD................... $ 9.24 $ 9.51 $ 8.66 $ 9.62 $ 9.68
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Total Return..................................... 3.65%(A) 17.53%(A) (.58)%(A) 6.86%(A) 7.78%(A)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).... $ 2,696 $ 3,012 $ 2,818 $ 2,445 $ 1,839
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)
Ratio of net investment income to average
net assets................................. 6.47% 6.85% 7.02% 7.11% 7.56%
Portfolio turnover rate..................... 49.27% 0.00%(C) 14.55% 102.00% 58.00%
</TABLE>
(A) Excludes maximum sales charge of 4.5%.
(B) During the periods indicated above, ND Holdings, Inc. assumed expenses of
$40,723, $18,573, $23,697, $35,570, and $32,228, respectively. If the
expenses had not been assumed, the annualized ratios of total expenses to
average net assets would have been 2.36%, 1.38%, 1.53%, 2.52%, and 3.40%,
respectively.
(C) No investment securities were purchased during the period.
5
<PAGE>
GENERAL DESCRIPTION OF THE FUND
Organization and Classification
The Fund is an open-end, non-diversified, management investment company, which
is a type of company commonly known as a "mutual fund." The Fund was
incorporated under the laws of the State of North Dakota on November 27, 1990.
Investment Objective and Policies
The Fund's investment objective is to provide its shareholders with 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 its objective by investing primarily in a portfolio of insured
debt securities, including United States Government securities and insured
corporate bonds. The Fund will concentrate in the utilities industry by
investing at least 25% of its total assets in securities of issuers in that
industry. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in income-producing securities (excluding zero coupon
securities) that will be protected by insurance guaranteeing the timely payment
of principal and interest. Specifically, at least 90% of the Fund's assets will
be invested in the following:
(1) Obligations of, or guaranteed by, the United States of America, its
agencies or instrumentalities;
(2) Corporate debt securities which are rated Aaa, Aa, A, or Baa by Moody's
Investors Service, Inc. ("Moody's"), or AAA, AA, A, or BBB by Standard & Poor's
Corporation ("S&P");
(3) Bank certificates of deposit issued by domestic-chartered banks having
total deposits of 50 million dollars or more;
(4) Financial futures contracts and options on financial futures contracts, as
described under "Other Investment Practices," in connection with attempts to
hedge its portfolio investments and not for speculation; and
(5) Cash.
Any policy or restriction which involves a maximum percentage of securities or
assets will not be considered to be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition of
securities or assets of, or borrowing by, the Fund. Changes due to market action
will not cause a violation of a policy or restriction.
There are market and investment risks with any security, and the value of an
investment in the Fund may fluctuate over time. Normally, the value of the
Fund's investments varies inversely with changes in interest rates. There can be
no assurance that the objective of the Fund will be achieved.
The Fund will not normally engage in the trading of securities for the purpose
of realizing short-term profits, but it will adjust its portfolio as considered
advisable in view of prevailing or anticipated market conditions and the Fund's
Investment objective. Accordingly, the Fund may sell portfolio securities in
anticipation of a rise in interest rates and purchase securities in anticipation
of a decline in interest rates. In addition, a security may be sold and another
of comparable quality purchased at approximately the same time to take advantage
of what the Investment Adviser believes to be a temporary disparity in the
normal yield relationship between the two securities. Yield disparities may
occur for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates, such as changes in the overall
demand for or supply of various types of debt securities or changes in the
investment objectives of some investors. Frequency of portfolio turnover will
not be a limiting factor should the Investment Adviser deem it desirable to
purchase or sell securities.
6
<PAGE>
The Fund has adopted certain investment restrictions which are presented in
the Statement of Additional Information and which, together with the investment
objective and policies of the Fund, cannot be changed without approval by
holders of a majority of its outstanding shares. As defined in the Investment
Company Act of 1940, this means the lesser of the vote of (a) 67% of the
outstanding shares of the Fund present at a meeting where more than 50% of the
outstanding shares are present in person or by proxy; or (b) more than 50% of
the outstanding shares of the Fund.
Utilities Industry - Description and Risk Factors
The Fund will concentrate in the utilities industry by investing at
least 25% of its total assets in securities of issuers in that industry.
According to ND Money Management, Inc. (the "Investment Adviser"), debt
securities of utilities companies historically have yielded slightly more than
similar debt securities of industrial companies and have had higher total
returns. For certain periods, the total return of utilities companies'
securities has underperformed that of industrial companies' securities. There
can be no assurance that positive relative returns on utilities securities will
occur in the future.
The utilities companies in which the Fund invests include companies engaged in
the ownership or operation of facilities used to provide electricity,
communications, gas, and water. Utilities companies are generally subject to
substantial regulation, which is intended to ensure appropriate standards of
review and adequate capacity to meet public demand. The nature of regulation of
the utilities industry is evolving. Although certain companies may develop more
profitable opportunities, others may be forced to defend their core businesses
and may be less profitable. Electric utilities companies have historically been
subject to the risks associated with increases in fuel and other operating
costs, high interest costs on borrowings, costs associated with compliance with
environmental, nuclear facility, and other safety regulations, and changes in
the regulatory climate. Increased scrutiny of electric utilities might result in
higher costs and higher capital expenditures, with the risk that regulators may
disallow inclusion of these costs in rate authorizations. Increasing competition
due to past regulatory changes in the telephone communications industry
continues, and whereas certain companies have benefited, many companies may be
adversely affected in the future. Gas transmission companies and gas
distribution companies continue to undergo significant changes as well. Many
companies have diversified into oil and gas exploration and development, making
returns more sensitive to energy prices. Water supply utilities are in an
industry that is highly fragmented due to local ownership, and generally the
companies are more mature and are experiencing little or no per capita volume
growth. There is no assurance that favorable developments will occur in the
utilities industry generally or that business opportunities will continue to
undergo significant changes or growth.
U.S. Government Securities
The Fund intends to invest some of its assets in Government National Mortgage
Association ("GNMA") Certificates. GNMA Certificates are debt securities issued
by a mortgage banker or other mortgagee and represent an interest in a single
mortgage or a pool of mortgages insured by the Federal Housing Administration or
the Farmers Home Administration or guaranteed by the Veterans Administration.
There are two types of GNMA Certificates, the modified pass-through type in
which GNMA guarantees the timely payment of monthly installments of principal
and interest at the time such payments are due, whether or not such amounts are
collected by the issuer of these Certificates on the underlying mortgages, and
the straight pass-through type in which the payment of principal and interest on
a timely basis is not guaranteed. The National Housing Act provides that the
full faith and credit of the United States is pledged to the timely payment of
principal and interest by GNMA of amounts due on modified pass-through GNMA
Certificates, and an assistant attorney general of the United States has
rendered an opinion that this guarantee by GNMA is a general obligation of the
United States backed by its full faith and credit.
7
<PAGE>
Mortgages included in single family residential mortgage pools backing an
issue of GNMA Certificates have a maximum maturity of 30 years. Scheduled
payments of principal and interest are made to the registered holders of GNMA
Certificates (such as the Fund) each month. Unscheduled prepayments of mortgages
included in these pools occur as a result of the prepayment or refinancing of
such mortgages by homeowners or as a result of the foreclosure of such
mortgages. Such prepayments are passed through to the registered holders of GNMA
Certificates with the regular monthly payments of principal and interest, which
has the effect of reducing future payments on such Certificates. That portion of
monthly payments received by the Fund which represents interest and discount
will be included in the Fund's net income. See "Shares" - "Dividends and Taxes."
Principal payments on a GNMA Certificate will be reinvested by the Fund.
The balance of the Fund's assets which are invested in U.S. Government
securities, other than those invested in GNMA Certificates, will be invested in
obligations issued or guaranteed by the United States or by its agencies. There
are two broad categories of U.S. Government-related debt instruments: direct
obligations of the Treasury, and (2) securities issued or guaranteed by U.S.
Government agencies. Some obligations issued or guaranteed by agencies of the
U.S. Government are backed by the full faith and credit of the United States
(such as Maritime Administration Title XI Ship Financing Bonds and Agency for
International Development Housing Guarantee Program Bonds) and others are backed
only by the rights of the issuer to borrow from the U.S. Treasury (such as
Federal Home Loan Bank Bonds and Federal National Mortgage Association Bonds).
With respect to securities supported only by the credit of the issuing agency or
by an additional line of credit with the U.S. Treasury, there is no guarantee
that the U.S. Government will provide support to such agencies, and such
securities may involve risk of loss of principal and interest. U.S. Government
securities may include "zero coupon" securities that have been stripped by the
U.S. Government of their unmatured interest coupons (See "Investment Policies
and Techniques" - "Zero Coupon Bonds" in the Statement of Additional Information
for a discussion of their features and risks.) and collateralized obligations
issued or guaranteed by a U.S. Government agency or instrumentality (See
"Collateralized Obligations" below.).
U.S. Government securities of the type in which the Fund may invest have
historically involved little risk of loss of principal if held to maturity. The
government guarantee of the U.S. Government securities in the Fund's portfolio,
however, does not guarantee the market value of the shares of the Fund. There
are market risks inherent in all investments in securities, and the value of an
investment in the Fund will fluctuate over time. Normally, the value of the
Fund's investments varies inversely with changes in interest rates. For example,
as interest rates rise the value of the Fund's investments will tend to decline,
and as interest rates fall the value of the Fund's investments will tend to
increase. In addition, the potential for appreciation in the event of a decline
in interest rates may be limited or negated by increased principal prepayments
in respect to certain mortgage-backed securities, such as GNMA Certificates.
Prepayments of high interest rate mortgage-backed securities during times of
declining interest rates will tend to lower the return of the Fund and may even
result in losses to the Fund if some securities were acquired at a premium. With
respect to U.S. Government securities supported only by the credit of the
issuing agency or by an additional line of credit with the U.S. Treasury, there
is no guarantee that the U.S. Government will provide support to such agencies,
and such securities may involve risk of loss of principal and interest.
Collateralized Obligations
A collateralized obligation is a debt security issuedby a corporation,
trust, or custodian, or by a U.S. Government agency or instrumentality that is
collateralized by a portfolio or pool of mortgages, mortgage-backed securities,
or U.S. Government securities. The issuer's obligation to make interest and
principal payments is secured by the underlying pool or portfolio of securities.
Collateralized obligations in which the
8
<PAGE>
Fund may invest are issued or guaranteed by a U.S. Government agency or
instrumentality, such as the Federal Home Loan Mortgage Corporation. A variety
of types of collateralized obligations are available currently, and others may
become available in the future.
The Fund will currently invest only in collateralized obligations that are
fully collateralized. Fully collateralized means that the collateral will
generate cash flows sufficient to meet obligations to holders of the
collateralized obligations under even the most conservative prepayment and
interest rate projections. Thus, the collateralized obligations are structured
to anticipate a worst case prepayment condition and to minimize the reinvestment
rate risk for cash flows between coupon dates for the collateralized
obligations. A worst case prepayment condition generally assumes immediate
prepayment of all securities purchased at a premium and zero prepayment of all
securities purchased at a discount. Reinvestment rate risk may be minimized by
assuming very conservative reinvestment rates and by other means, such as by
maintaining the flexibility to increase principal distributions in a low
interest rate environment. The requirements as to collateralization are
determined by the issuer or sponsor of the collateralized obligation in order to
satisfy the U.S. Government agency or instrumentality guaranteeing the
obligation.
Payments of principal and interest on the underlying collateral securities
are not passed through directly to the holders of the collateralized obligations
as such. Collateralized obligations often are issued in two or more classes with
varying maturities and stated rates of interest. Because interest and principal
payments on the underlying securities are not passed through directly to holders
of collateralized obligations, such obligations of varying maturities may be
secured by a single portfolio or pool of securities, the payments on which are
used to pay interest on each class and to retire successive maturities in
sequence. These relationships may in effect "strip" the interest payments from
principal payments of the underlying securities and allow for the separate
purchase of either the interest or the principal payments (sometimes called
interest only and principal only securities). Collateralized obligations are
designed to be retired as the underlying securities are repaid. In the event of
prepayment on or call of such securities, the class of collateralized obligation
first to mature generally will be paid down first. Therefore, although in most
cases the issuer of collateralized obligations will not supply additional
collateral in the event of such prepayment, there will be sufficient collateral
to secure collateralized obligations that remain outstanding.
Because the collateralized obligations may be issued in classes with varying
maturities and interest rates, the investor may obtain greater predictability of
maturity than with direct investments in mortgage-backed securities. Thus,
classes with shorter maturities may have lower volatility and lower yield while
those with longer maturities may have higher volatility and higher yield. This
provides the investor with greater control over the characteristics of the
investment in a changing interest rate environment. With respect to the interest
only and principal only securities, an investor has the option to select from
the pool of underlying collateral the portion of the cash flows that most
closely corresponds to the investor's forecast of interest rate movement. These
instruments tend to be highly sensitive to prepayment rates on the underlying
collateral and thus place a premium on accurate prepayment projections by the
investor.
The staff of the Securities and Exchange Commission has determined that
certain issuers of collateralized mortgage obligations are investment companies
for purposes of Section 12(d) of the Investment Company Act of 1940. See, in
this connection, restriction (12) under "Investment Restrictions" in the
Statement of Additional Information.
Corporate Debt Securities
Corporate debt securities rated within the four highest grades of Moody's or
S&P (See item 3 under "Investment Objective and Policies" above.) are generally
considered to be "investment grade."
9
<PAGE>
Like higher-rated corporate debt securities, debt securities rated in the BBB
or Baa categories are considered to have adequate capacity to pay principal and
interest, although they may have fewer protective provisions than higher-rated
debt securities and thus may be adversely affected by severe economic
circumstances and are considered to have speculative characteristics.
The Fund may invest up to 10% of its total assets in corporate debt securities
that are rated below BBB by S&P and Baa by Moody's or are unrated. These
securities are frequently referred to as "junk bonds." The Investment Adviser
will not invest more than 5% of the Fund's net assets in "junk bonds" for fiscal
year 1996. These lower-rated debt securities are considered, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation and generally will
involve more credit risk than debt securities in the higher-rated categories.
The market values of such debt securities tend to reflect individual corporate
developments to a greater extent than do those of higher-rated debt securities,
which react primarily to fluctuations in the general level of interest rates.
Such lower-rated debt securities also tend to be more sensitive to economic
conditions than are higher-rated debt securities. Adverse publicity and investor
perception, whether or not based on fundamental analysis, regarding lower-rated
debt securities may depress the prices for such securities. The Fund may have
difficulty disposing of certain high-yield debt securities, because they may
have a thin trading market. The lack of a liquid secondary market may have an
adverse effect on market price and the Fund's ability to dispose of particular
issues and may also make it more difficult for the Fund to obtain accurate
market quotations for purposes of valuing these assets. The risk involved in
owning lower-rated debt securities can be offset by insurance. However, higher
insurance premiums are charged for insuring them, which may tend to limit the
Fund's investment in lower-rated debt securities.
The characteristics of the rating categories are described in the Statement of
Additional Information under "Appendix" - "Ratings of Investments."
Bank Certificates of Deposit
Bank certificates of deposit ("CDs") are issued by banks in various
denominations and maturities and are federally insured at member institutions.
CDs, which can have similar maturities and vary in interest rate payable between
issuers, are issued both in discount and interest-bearing form and sometimes
with variable rates. Other variations include split-rate CDs, where a higher
rate is paid early in the CD's term than in its later life; convertible-term
CDs, which convert from fixed-rate to variable-rate instruments; and expandable
CDs, which allow adding to the investment at the original rate. CDs can also be
purchased from some brokers who make bulk purchases of high-yielding CDs from
issuing banks and then resell them.
CDs may be subject to early withdrawal penalties, or the issuer may refuse
withdrawal prior to maturity, except in certain limited cases. Large CDs traded
by dealers and institutional investors and smaller CDs marketed by brokers have
secondary market values that rise and fall in inverse relation to prevailing
interest rates. There is no secondary market for consumer-size CDs purchased
directly from banks. Most CDs are insured to $100,000 per depositor by the Bank
Insurance Fund which is a unit of the Federal Deposit Insurance Corporation, a
federally-sponsored agency.
Although there is a risk in purchasing CDs in amounts in excess of available
insurance, the Investment Adviser is authorized to do so when in its opinion the
risk is commensurate with a higher rate of return and the financial condition of
the issuing bank.
10
<PAGE>
Other Investment Practices
Financial Futures Transactions
The Fund may engage in financial futures transactions. Financial futures
contracts are commodity contracts that obligate the long or short holder to take
or make delivery of a specified quantity of a financial instrument, such as a
security, or the cash value of a securities index during a specified future
period at a specified price. A "sale" of a futures contract means the
undertaking of a contractual obligation to deliver the securities or the cash
value of an index called for by the contract at a specified price during a
specified delivery period. A "purchase" of a futures contract means the
undertaking of a contractual obligation to acquire the securities or cash value
of an index at a specified price during a specified delivery period. Although
some financial futures contracts call for making or taking delivery of the
underlying securities, in most cases these obligations are closed out before
delivery. The closing of such a contractual obligation is accomplished by
purchasing or selling an identical offsetting futures contract. Such a
transaction cancels the obligation under the original contract to make or take
delivery. Other financial futures contracts, such as futures contracts on a
securities index, by their terms call for cash settlements.
At the time the Fund enters into a futures contract, it is required to deposit
with its Custodian, on behalf of the broker, a specified amount of cash or
eligible securities called "initial margin." The initial margin required for a
futures contract is set by the exchange on which the contract is traded.
Subsequent payments, called "variation margin," to and from the broker are made
on a daily basis as the market price of the futures contract fluctuates.
The Fund may engage in financial futures transactions as an attempt to hedge
against the effects of fluctuations in interest rates and other market
conditions. For example, if the Fund owned long-term bonds and interest rates
were expected to rise, it could sell financial futures contracts. If interest
rates did rise, the value of the bonds in the Fund would decline, but this
decline would be offset in whole or in part by an increase in the value of the
Fund's futures contracts. If, on the other hand, long-term interest rates were
expected to decline, the Fund could hold short-term debt securities and benefit
from the income earned by holding such securities, while at the same time the
Fund could purchase futures contracts on long-term bonds. Thus, the Fund could
take advantage of the anticipated rise in the value of long-term bonds without
actually buying them. The futures contracts and short-term debt securities could
then be liquidated and the cash proceeds used to buy long-term bonds.
There are risks associated with the use of financial futures contracts,
because there may be an imperfect correlation between the price movements of the
futures contracts and price movements of the securities which the Fund owns or
intends to purchase. The Fund could lose money on the financial futures
contracts and also on the price of such securities. The degree of difference in
price movements between futures contracts and the securities being hedged
depends upon such things as variations in speculative market demand for futures
contracts and debt securities and differences between the securities being
hedged and the securities underlying the futures contracts, e.g., interest
rates, tax status, maturities, and creditworthiness of issuers. If a liquid
secondary market did not exist when the Fund wished to close out a financial
futures contract, it would not be able to do so and would have to continue
making daily cash payments of variation margin in the event of adverse price
movements. If the Investment Adviser's judgment about the general direction of
interest rates or markets is wrong, the overall performance may be poorer than
if no such contracts had been used. The costs incurred in connection with
futures transactions would also reduce the Fund's yield. In addition, futures
markets have daily market price movement limits for many futures contracts which
may further inhibit the Investment Adviser's ability to manage the Fund's
portfolio. Futures contracts held by the Fund may be illiquid during periods
when daily market price movement limits have been reached. As a result, net
assets for the Fund may be impacted negatively until nor-
11
<PAGE>
mal futures trading resumes or until the Fund's futures contracts are closed
out. Finally, certain provisions of Subchapter M of the Internal Revenue Code
restrict the use of futures contracts and options techniques. See "Taxes" in the
Statement of Additional Information.
The Fund may also purchase and write call and put options on financial futures
contracts in an attempt to hedge against the effects of fluctuations in interest
rates and other market conditions. A call option gives the purchaser the right
to buy, and the writer the obligation to sell, the underlying futures contract
at the exercise price during the option period. A put option gives the purchaser
the right to sell, and the writer the obligation to buy, the underlying futures
contract at an exercise price during the option period. Upon exercise, the
writer (seller) of the option delivers the futures contract to the holder
(buyer) at the exercise price. An option purchased by the Fund may expire
worthless, in which case the Fund would lose the premium paid for it.
The Fund may engage in future transactions only on commodities or securities
exchanges or boards of trade. The Fund will not engage in transactions in
financial futures contracts or related options for speculation, but only as an
attempt to hedge against changes in interest rates or market conditions
affecting the values of securities which the Fund owns or intends to purchase.
Although the successful use of futures contracts and options techniques requires
skills different from those needed to select portfolio securities, the
Investment Adviser has experience in the use of these techniques.
To the extent necessary to comply with Securities and Exchange Commission
Release No. 10666, when purchasing a futures contract, writing a put option, or
entering into a delayed delivery purchase, the Fund will maintain in a
segregated account with its Custodian cash or liquid high-grade debt securities
equal to the value of such contracts. The amount held by the Custodian is less
than the amount held by any futures commission agent as initial margin and will
be marked to market daily.
Delayed Delivery Transactions
The Fund may purchase or sell portfolio securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions involve a
commitment by the Fund to purchase or sell securities with payment and delivery
to take place in the future in order to secure what is considered to be an
advantageous price or yield to the Fund at the time of entering into the
transaction. The value of fixed income securities to be delivered in the future
will fluctuate as interest rates vary. Because the Fund is required to set aside
cash or liquid high-grade securities to satisfy its commitments to purchase
when-issued or delayed delivery securities, flexibility to manage the Fund's
investments may be limited if commitments to purchase when-issued or delayed
delivery securities were to exceed 25% of the value of its assets.
To the extent the Fund engages in when-issued or delayed delivery purchases,
it will do so for the purpose of acquiring portfolio securities consistent with
the Fund's investment objective and policies and not for the purpose of
investment leverage or to speculate in interest rate changes. The Fund will only
make commitments to purchase securities on a when-issued or delayed delivery
basis with the intention of actually acquiring the securities, but the Fund
reserves the right to sell these securities before the settlement date if deemed
advisable.
Borrowing
The Fund may borrow money for temporary or emergency purposes and then only in
amounts not exceeding the lesser of 10% of its total assets valued at cost or 5%
of its total assets valued at market and, in any event, only if immediately
thereafter there is an asset coverage of at least 300%. The Fund will not
purchase portfolio securities when outstanding borrowings exceed 5% of total
assets. Interest paid on borrowed funds will decrease the net earnings of the
Fund. The Fund may mortgage, pledge, or hypothecate
12
<PAGE>
its assets in an amount not exceeding 10% of its total assets to secure
temporary or emergency borrowing. The policies set forth in this paragraph are
fundamental and may not be changed without the approval of a majority of the
Fund's shares.
Portfolio Turnover
The portfolio turnover rate of the Fund is not expected to exceed 100%
annually, but on occasions when there are substantial adjustments in the
portfolio brought about by market conditions, such as significant changes in
interest rates, the portfolio turnover rate may be higher. A 100% annual
portfolio turnover rate would occur, for example, if all the investments in the
Fund's portfolio (exclusive of securities with less than one year to maturity)
were replaced once in a period of one year. Higher portfolio turnover rates
(over 100%) may result in increased expenses and taxable capital gains.
Diversification Policy
Because the Fund is registered as a non-diversified investment company, it
will be able to invest more than 5% of its assets in the obligations of an
issuer, subject to the diversification requirements of Subchapter M of the
Internal Revenue Code applicable to the Fund. This allows the Fund, as to 50% of
its assets, to invest more than 5% of its assets, but not more than 25%, in the
fixed income securities of an individual government or corporate issuer. Because
the Fund may invest a relatively high percentage of its assets in the
obligations of a limited number of issuers, the Fund may be more susceptible to
any single economic, political, or regulatory occurrence than a diversified
investment company. See "Investment Restrictions" in the Statement of Additional
Information.
Portfolio Insurance
The three types of insurance which the Fund may obtain are "new issue"
insurance, portfolio insurance, and "secondary market" insurance. The Fund may
obtain a portfolio insurance policy which will guarantee the timely payment of
principal and interest on eligible portfolio securities which are not otherwise
insured by "new issue" insurance or "secondary market" insurance and which
would, therefore, require insurance coverage under the Fund's investment
policies. Under a portfolio policy, the insurer may from time to time establish
criteria for determining securities eligible for insurance. The Fund will not
purchase a security which is not eligible for coverage under a portfolio policy
unless the security is otherwise insured or is excepted from the insurance
requirements.
Unlike securities covered by "new issue" insurance, which continues in force
for the life of the security, a security will be entitled to the benefit of
insurance under a portfolio policy only so long as the Fund owns the security.
If the Fund sells the security, the insurance protection ends. As a result, the
Fund will generally not attribute any value to portfolio insurance in valuing
its investments. However, if any security is in default or presents a material
risk of default, the Fund intends to continue to hold the security in its
portfolio and to place a value on the insurance protection. Thus, the Investment
Adviser's ability to manage the portfolio of the Fund or to obtain portfolio
insurance from other insurers may be limited to the extent that it holds
defaulted securities. Portfolio insurance cannot be cancelled by the insurer
with respect to any security already held by the Fund except for non-payment of
premiums. However, there is no assurance that portfolio insurance will be
available at reasonable premium rates.
The Fund may at times purchase "secondary market" insurance on securities
which it holds or acquires. Like "new issue" insurance, this insurance continues
in force for the life of the security for the benefit of any holder of the
security. The purchase of "secondary market" insurance will be reflected in the
market value of the security and, if available, may enable the Fund to dispose
of a defaulted security at a price
13
<PAGE>
similar to that of comparable, undefaulted securities. Insurance premiums paid
by the Fund for portfolio insurance will be treated as an expense of the Fund,
reducing the Fund's net investment income. While the amount of premiums depends
on the composition of the Fund's portfolio, the Fund estimates that, at current
rates, its annual premium expense for portfolio insurance, if purchased, will
range from 0.1% to 0.5% of that portion of the Fund's assets covered by such
insurance. Premiums paid, however, for "secondary market" insurance will be
treated as capital costs, increasing the Fund's cost basis in its investments
and reducing its effective yield.
Illiquid Securities
The Fund may not invest more than 15% of its net assets in illiquid
securities, including (a) securities which at the time of such investment are
not readily marketable, (b) securities restricted as to disposition under the
federal securities laws, and (c) repurchase agreements maturing in more than
seven days. This limitation is in addition to investment restriction (8) in the
Statement of Additional Information.
MANAGEMENT
Board of Directors
Responsibility for overall management of the Fund rests with its Board of
Directors.
Investment Adviser
ND Money Management, Inc. (the "Investment Adviser"), has been retained under
an Investment Advisory Agreement to act as the Fund's investment adviser subject
to the authority of the Board of Directors. The Investment Adviser is a
wholly-owned subsidiary of ND Holdings, Inc., a North Dakota venture capital
corporation which is also the Fund's sponsor.
The Investment Adviser was incorporated under North Dakota law on August
19,1988, and also serves as investment adviser for ND Tax-Free Fund, Inc.,
Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., and Integrity
Fund of Funds, Inc. The address of the Investment Adviser is 1 North Main,
Minot, North Dakota 58703. The Investment Adviser furnishes the Fund with
investment advice and, in general, supervises the management and investment
program of the Fund. The Investment Adviser furnishes at its own expense all
necessary administrative services, office space, equipment, and clerical
personnel for managing the investments and effecting the portfolio transactions
of the Fund. In addition, the Investment Adviser pays the salaries and fees of
all officers and directors of the Fund who are affiliated persons of the
Investment Adviser.
Under the Investment Advisory Agreement, the Fund has agreed to pay the
Investment Adviser an annual fee, payable monthly, of 0.60% of the Fund's
average daily net assets. During the fiscal year ended December 31, 1996, the
Fund incurred advisory fees of $14,031.
W. Dan Korgel, portfolio manager, is primarily responsible for the day-to-day
management of the Fund's portfolio under the supervision and direction of Robert
E. Walstad, president of the Fund. Mr. Korgel has been portfolio manager of the
Fund since November 1990 and has served in a similar capacity for four related
funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota
Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., since April 1988, July
1993, March 1994, and December 1994( through December 1995), respectively. Mr.
Walstad is also president of ND Tax-Free Fund, Inc., Montana Tax-Free Fund,
Inc., South Dakota Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., and
has supervised and directed the management of their portfolios since they
commenced operations.
14
<PAGE>
Custodian, Transfer Agent, and Accounting Services Agent
First American Bank West, 20 First Street SW, Minot, North Dakota 58701,
serves as Custodian for the Fund's portfolio securities and cash. ND Resources,
Inc. ("Resources"), a wholly-owned subsidiary of ND Holdings, Inc., 1 North
Main, Minot, North Dakota 58703, is the Fund's Transfer Agent. As Transfer
Agent, Resources performs many of the Fund's clerical and administrative
functions, for which it is paid a monthly fee ranging from .16 of 1% of the net
asset value of all outstanding Fund shares up to $10 million down to .09 of 1%
from $50,000,001 and larger. Resources also provides internal accounting and
related services for the Fund, for which it is paid a monthly fee of $2,000 plus
0.05% of the Fund's average daily net assets on an annual basis for the first
$50 million down to 0.01% for net assets in excess of $500 million.
Expenses
The expenses of the Fund are deducted from its total income before dividends
are paid. These expenses include, but are not limited to, organizational
expenses; taxes; interest; brokerage fees and commissions, if any; fees and
expenses of directors and officers of the Fund who are not officers or directors
of the Investment Adviser; Securities and Exchange Commission fees and state
securities laws fees; charges of custodians and transfer and dividend disbursing
agents; insurance premiums; outside auditing and legal expenses; costs of
maintenance of the Fund's existence; costs attributable to investor services,
including, without limitation, administrative service fees and telephone and
personnel expenses; costs of preparing and printing prospectuses and statements
of additional information for regulatory purposes and for distribution to
existing shareholders; costs of shareholders' reports and meetings of the
shareholders of the Fund and of the officers and Board of Directors of the Fund;
and any extraordinary expenses.
For the fiscal year ended December 31, 1996, total expenses amounted to 2.36%
of average net assets on an annualized basis. Net expenses (after expense
assumption by ND Holdings, Inc., the Fund's sponsor) for the same period
amounted to 0.90% of average net assets on an annualized basis. There can be no
assurance that the expense assumption will continue.
Portfolio Transactions
The Investment Adviser, in effecting purchases and sales of portfolio
securities for the account of the Fund, will implement the Fund's policy of
seeking best execution of orders, which includes best net prices. Consistent
with this policy, orders for portfolio transactions are placed with
broker-dealer firms giving consideration to the quality, quantity, and nature of
each firm's professional services which include execution, clearance procedures,
wire service quotations, and statistical and other research information provided
to the Fund and the Investment Adviser. In selecting among firms believed to
meet the criteria for handling a particular transaction, the Investment Adviser
may give consideration to those firms that have sold or are selling shares of
the Fund, as well as to those firms that provide market, statistical, and other
research information to the Fund and the Investment Adviser, although the
Investment Adviser is not authorized to pay higher commissions to firms that
provide such services. For further details, see "Portfolio Transactions" in the
Statement of Additional Information.
In effecting purchases and sales of the Fund's portfolio securities, the
Investment Adviser and the Fund may place orders with and pay brokerage
commissions to brokers which are affilliated with the Fund, the Investment
Adviser, the Distributor or selected dealers participating in the offering of
the Fund's shares. Subject to rules adopted by the Securities and Exchange
Commission, the Fund may also purchase municipal securities from other members
of underwriting syndicates of which the Underwriter or other affiliates of the
Fund are members.
15
<PAGE>
SHARES
Share Attributes
The Fund is authorized to issue a total of 200,000,000 shares, all of one
class and one series, with a par value of $.001 per share. All shares, when
issued, are fully paid and non-assessable and are redeemable and freely
transferable. All shares are common shares and have equal rights and preferences
in all matters, including voting. Cumulative voting, a form of proportional
representation, is permitted in the election of directors. Under cumulative
voting, a shareholder may cumulate votes either by casting for one candidate a
number of votes equal to the number of directors to be elected multiplied by the
number of votes represented by the shares entitled to vote or by distributing
all of those votes on the same principle among any number of candidates. There
are no subscription, preemptive, or conversion rights.
Shareholder Meetings
It is probable that the Fund will not hold regular meetings of shareholders.
The Fund's Bylaws provide that regular meetings of shareholders may be held on
an annual or other less frequent basis but need not be held unless required by
law. Under the North Dakota Business Corporation Act, if a regular meeting of
shareholders has not been held during the immediately preceding fifteen months,
a shareholder or shareholders holding 5% or more of the voting power of all
shares entitled to vote may demand a regular meeting by written notice of demand
given to the president or secretary of the Fund. Within thirty days after
receipt of the demand, the Board of Directors must cause a regular meeting of
shareholders to be called, or if the Board fails to do so, the shareholder or
shareholders making the demand may call the meeting by giving notice as
prescribed by law. All necessary expenses of the notice and the meeting must be
paid by the Fund.
In addition to regular meetings, special meetings of shareholders may be
called for any purpose at any time in the manner prescribed under the North
Dakota Business Corporation Act. Meetings of shareholders will also be held
whenever required in order to comply with the Investment Company Act of 1940;
however, the Fund does not intend to hold annual shareholder meetings.
Shareholders have the right to remove directors.
Dividends and Taxes
Dividends
All the net income of the Fund is declared daily as a dividend on shares for
which the Fund has received payment. Net income of the Fund consists of all
interest income earned on portfolio assets less all expenses of the Fund. Income
dividends will be distributed monthly, and dividends of net realized short-term
and long-term capital gains, if any, will normally be paid out once a year after
the end of the Fund's fiscal year. The Fund may at any time vary the foregoing
dividend practices and, therefore, reserves the right from time to time to
either distribute or retain for reinvestment such of its net investment income
and its net short-term and long-term capital gains as the Board of Directors of
the Fund determines appropriate under the then current circumstances. In
particular, and without limiting the foregoing, the Fund may make additional
distributions of net investment income or capital gain net income in order to
satisfy the minimum distribution requirements contained in the Internal Revenue
Code.
Income and capital gain dividends, if any, will be credited to shareholder
accounts in full and fractional Fund shares at net asset value on the
reinvestment date, except that upon written request to the Transfer Agent a
shareholder may select one of the following options:
16
<PAGE>
(1) To receive income dividends in cash and capital gain dividends in shares
at net asset value; or
(2) To receive both income and capital gain dividends in cash.
(3) To receive both income and capital gain dividends in shares of Integrity
Fund of Funds, Inc. ("Integrity"), at net asset value. If you select this
option, you must first open a new account with Integrity with a minimum of $100.
Cash dividends and reinvested dividends will be paid or reinvested, as the
case may be, on the last day of the month. Share certificates are issued only
for full shares and only upon a request by the shareholder to the Transfer
Agent.
Taxes
The Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code and, if so qualified, will not be liable for
federal income taxes to the extent its earnings are distributed. Dividends
derived from net investment income, net short-term capital gains, and gains on
the sale of market discount bonds (purchased after April 30, 1993) are taxable
to shareholders as ordinary income, and long-term capital gain dividends are
taxable to shareholders as long-term capital gain regardless of how long the
shares have been held and whether received in cash or shares. Long-term capital
gain dividends received by individual shareholders whose marginal rate on
ordinary income is at least 31% are taxed at a minimum federal rate of 28%.
Dividends declared in October, November, or December to shareholders of record
as of a date in one of those months and paid during the following January are
treated as paid on December 31 of the calendar year declared. No part of the
dividends paid by the Fund will qualify for the dividends received deduction
available to corporate shareholders.
The Fund is required by law to withhold 31% of taxable dividends and
redemption proceeds paid to certain shareholders who do not furnish a correct
taxpayer identification number (in the case of individuals, a social security
number) and in certain other circumstances.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that confirmations of dividend
reinvestment for Individual Retirement Accounts and other fiduciary accounts for
which First American Bank West serves as trustee will be sent quarterly. In
addition, the statement will show the details of prior transactions in the
account during the calendar year. Information for income tax purposes will be
provided after the end of the calendar year.
Net Asset Value
The net asset value per share is determined by calculating the total value of
the Fund's assets, which will normally be composed mainly of investment
securities, deducting total liabilities, and dividing the result by the number
of shares outstanding. Fixed income securities are valued by using market
quotations or independent pricing services that use prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Portfolio securities
that are traded on a domestic securities exchange are valued at the last sale
price on the exchange where primarily traded or, if there is no recent sale
price available, at the last current bid quotation. Securities not so traded or
listed are valued at the last current bid quotation if market quotations are
available. Financial futures are valued at the settlement price established each
day by the board of trade or exchange on which they are traded. Other
securities, including restricted securities, and other assets are valued at fair
value as determined in good faith by the Board of Directors. If an event were to
occur, after the value of a
17
<PAGE>
security was so established but before the net asset value per share was
determined, which was likely to materially change the net asset value, then that
security would be valued using fair value considerations by the Board of
Directors or its delegates. On each day the New York Stock Exchange (the
"Exchange") is open for trading, the net asset value is determined as of the
close of the Exchange (normally, 3:00 p.m. Central Time).
PURCHASE OF SHARES
General
The Fund's principal underwriter is ND Capital, Inc. (the "Underwriter"), 1
North Main, Minot, North Dakota 58703. Shares may be purchased from investment
dealers who have sales agreements with the Underwriter or from the Underwriter
at the public offering price, which is the net asset value next determined after
the Fund receives an order, plus a sales charge that is a percentage of the
public offering price and varies as shown in the table below. Except as
otherwise provided, the minimum initial investment is $1,000, and the minimum
subsequent investment is $50. The minimum initial investment for an Individual
Retirement Account is $250, and the minimum subsequent investment is $50. Under
the Monthomatic Investment Plan, the minimum initial investment is $100, and the
minimum subsequent investment is $50. The Fund reserves the right to redeem Fund
accounts that are reduced to a value of less than $1,000 (for any reason other
than fluctuation in the market value of the Fund's portfolio securities). Should
the Fund elect to exercise this right, the investor will be notified before such
redemption is processed that the value of the investor's account is less than
$1,000 and that the investor will have sixty days to increase the account to at
least the $1,000 minimum amount before the account is redeemed.
<TABLE>
<CAPTION>
Sales Charge
----------------------------------------------------
Allowed to
As a As a Dealers as a
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Net Asset Value* Offering Price
- ------------------ -------------- --------------- --------------
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than 250,000 3.50% 3.63% 3.00%
$250,000 but less than 500,000 2.50% 2.56% 2.25%
$500,000 but less than 1,000,000 2.00% 2.04% 1.75%
$1,000,000 and over .10% .10% .10%
</TABLE>
*Rounded to the nearest one-hundredth percent
The Fund receives the entire net asset value of all shares sold. The
Underwriter retains the sales charge from which it allows discounts from the
applicable public offering price to investment dealers. The usual discount
allowed to dealers is set forth in the table above. Upon notice to all dealers
with whom it has sales agreements, the Underwriter may reallow up to the full
applicable sales charge as shown in the table above during periods or for
transactions specified in such notice, and such reallowances may be based upon
attainment of minimum sales levels. During periods when 90% or more of the sales
charge is reallowed, such dealers may be deemed to be an "underwriter" as that
term is defined in the Securities Act of 1933.
The Underwriter may also pay banks and other financial services firms that
provide services to facilitate transactions in shares of the Fund for their
clients a transaction fee up to the level of the discount allowable to dealers
as described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers
18
<PAGE>
pursuant to state law. If banking firms were prohibited from acting in any
capacity or providing any of the described services, the Board of Directors
would consider what action, if any, would be appropriate. The Board does not
believe that termination of a relationship with a bank would result in any
material adverse consequences to the Fund.
In addition to the discounts from the applicable public offering price
described above, the Underwriter may from time to time pay or allow additional
discounts or promotional incentives in the form of cash or other compensation to
firms that sell shares of the Fund. In some instances, such discounts or other
incentives may be offered only to certain firms that sell or are expected to
sell during specified time periods certain minimum amounts of shares of the Fund
or other funds underwritten by the Underwriter.
The Underwriter also provides information and administrative services for Fund
shareholders and may enter into arrangements with various financial services
firms, such as broker-dealer firms or banks ("firms"), that provide services and
facilities for their customers or clients who are shareholders of the Fund. Such
administrative services and assistance may include, but are not limited to,
establishing and maintaining shareholder accounts and records, processing
purchase and redemption transactions, answering routine inquiries regarding the
Fund, and such other services as may be agreed upon from time to time and
permitted by applicable statute, rule, or regulation. The Underwriter bears all
its expenses of providing such services, including the payment of any service
fees. In return, the Fund pays the Underwriter a fee, payable monthly, at the
annual rate of .10 of 1% of average daily net assets of the Fund. The
Underwriter then pays each firm a service fee at an annual rate of up to .10 of
1% of net assets of those accounts in the Fund that it maintains and services. A
firm becomes eligible for the service fee based on assets in the accounts in the
month following the month of purchase, and the fee continues until terminated by
the Underwriter or the Fund. The fees are calculated monthly and paid quarterly.
The Underwriter may provide some of the above services and may retain any
portion of the fee not paid to firms to compensate itself for administrative
functions performed for the Fund. The administrative service fee payable to the
Underwriter is based only upon Fund assets in accounts for which there is a firm
listed on the Fund's records. The effective administrative service fee rate to
be charged against all assets of the Fund while this procedure is in effect will
depend upon the proportion of Fund assets that is in accounts for which there is
a firm of record. The administrative service fee may be increased to an annual
rate of .25 of 1% of average daily net assets in the discretion of the Board of
Directors and without shareholder approval.
Shares may be sold to directors, officers, and employees (including retirees)
of the Fund, of ND Tax-Free Fund, Inc., of ND Holdings, Inc., of ND Money
Management, Inc., and of the Underwriter, for themselves or their spouses,
children, or parents and parents of spouses, or to any trust, pension,
profit-sharing, or other benefit plan for only such persons at net asset value
and in any amount. The Fund may also sell shares at net asset value to
broker-dealers having sales agreements with ND Capital, Inc., and registered
representatives and other employees of such broker-dealers, including their
spouses and children; to financial institutions having sales agreements with ND
Capital, Inc., and employees of such financial institutions, including their
spouses and children; and to any broker-dealer, financial institution, or other
qualified firm which receives no commissions for selling shares to its clients.
Such shares are sold for investment purposes and on the condition that they will
not be resold except through redemption by the Fund. The Fund may also issue
shares at net asset value in connection with the acquisition of the assets of or
merger or consolidation with another investment company or to shareholders in
connection with the investment or reinvestment of income and capital gain
dividends.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes the following: an individual; or an individual, his
or her spouse, and children under the age of 21; or a trustee or other fiduciary
of a single trust estate or single fiduciary account; or an organization exempt
from
19
<PAGE>
federal income tax under Section 501(c)(3) or (13) of the Internal Revenue Code;
or a pension, profit-sharing, or other employee benefit plan whether or not
qualified under Section 401 of the Internal Revenue Code; or other organized
group of persons whether incorporated or not, provided that the organization has
been in existence for at least six months and has some purpose other than the
purchase of redeemable securities of a registered investment company at a
discount. In order to qualify for a lower sales charge, all orders from an
organized group will have to be placed through a single investment dealer or
other firm and identified as originating from a qualifying purchaser.
Orders for the purchase of shares of the Fund will be confirmed at a price
based on the net asset value next determined after receipt of the order in
proper form by the Fund. However, orders received by dealers or other financial
services firms prior to the determination of net asset value (See "Net Asset
Value.") and received by the Fund prior to the close of its business day will be
confirmed at a price based on the net asset value effective as of the close of
the New York Stock Exchange on that day. Dealers and other financial services
firms are obligated to transmit orders promptly. If an order is accompanied by a
check drawn on a foreign bank or a money order, funds must normally be collected
before shares will be purchased. See "Purchase and Redemption of Shares" in the
Statement of Additional Information.
The Fund reserves the right to withdraw all or any part of the offering made
by this Prospectus and to reject purchase orders. Also, from time to time, the
Fund may temporarily suspend the offering of its shares to new investors. During
the period of such suspension, persons who are already shareholders of the Fund
normally will be permitted to continue to purchase additional shares and to have
dividends reinvested.
In order to facilitate redemptions and to eliminate the need for safekeeping,
the Transfer Agent will not issue certificates for shares unless requested to do
so. A shareholder may obtain a certificate by writing to the Transfer Agent at
the address shown on the cover of the Prospectus.
Shareholders should direct their inquiries to the Fund at the address and
telephone number shown on the cover page of the Prospectus or to the investment
dealer from which they received the Prospectus.
Robert E. Walstad and Peter A. Quist, who are directors and the
president-treasurer and vice president-secretary, respectively, of the Fund, are
also the only two directors and officers of the Underwriter. The Underwriter is
a subsidiary of ND Holdings, Inc., a North Dakota venture capital corporation
which is the Fund's sponsor.
Exchange Privilege
By contacting the Transfer Agent, a shareholder may exchange some or all of
his shares in any of the funds underwritten by ND Capital, Inc. or Ranson
Capital Corporation at net asset value, subject to these conditions: (1) The
length of time of the investment will be carried forward to the Fund. (2) If you
paid a front-end sales charge, no contingent deferred sales charge will be
imposed in the event you redeem any or all of your shares. (3) If the original
fund is subject to a contingent deferred sales charge("CDSC"), the CDSC will be
carried forward into the Fund and will be applied in the event you redeem any or
all of your shares.
Each exchange involves the redemption of fund shares to be exchanged and the
purchase of Fund shares. As a result, any gain or loss on the redemption of fund
shares exchanged is reportable on the shareholder's federal income tax return.
The exchange privilege may be changed or discontinued upon 60 days' written
notice to shareholders and is available only to shareholders in states where
such exchanges may be legally made. A sharehold considering an exchange should
obtain and read the prospectus of the Fund and consider the differences between
it and the fund whose shares he owns before making an exchange.
For further information on how to excercise the exchange privilege, contact
the Transfer Agent.
20
<PAGE>
REDEMPTION OF SHARES
General
Any shareholder may require the Fund to redeem shares. When shares are held
for the account of a shareholder by the Fund's Transfer Agent, the shareholder
may redeem them by making a written request with signatures guaranteed to the
Transfer Agent at the address shown on the back cover of the Prospectus. When
certificates for shares have been issued, they must be mailed to or deposited
with the Transfer Agent, along with a duly endorsed stock power with signatures
guaranteed and accompanied by a written request for redemption. Except as
otherwise provided below, signatures must be guaranteed by a commercial bank,
trust company, savings and loan association, or member firm of a national
securities exchange, and a signature guarantee will be required before payment
is made in connection with a redemption. A notary public may not provide a
signature guarantee. Further documentation may be requested from institutional
or fiduciary accounts, such as corporations, custodians (e.g., under the Uniform
Transfers to Minors Act), executors, administrators, trustees, or guardians. The
redemption request and stock power must be signed exactly as the account is
registered, including any special capacity of the registered owner.
The redemption price will be the net asset value next determined following
receipt of a properly executed request with any required documents. Payment for
shares redeemed will be made in cash as promptly as practicable but in no event
later than seven days after receipt of a properly executed request accompanied
by any outstanding share certificates in proper form for transfer. When the Fund
is requested to redeem shares for which it may not have yet received good
payment, it may delay the mailing of a redemption check until it has determined
that collected funds have been received for the purchase of such shares, which
will generally be within 15 calendar days.
Because of the high cost of maintaining small accounts, the Fund reserves the
right to redeem an account that falls below the minimum investment level,
currently $1,000, as a result of redemptions. Individual Retirement Accounts and
employee benefit plan accounts are not subject to this procedure at the present
time. A shareholder will be notified in writing and will be allowed 60 days to
make additional purchases to bring the account value up to the minimum
investment level before the Fund redeems the shareholder account. The investment
required to reach that level may be made at net asset value without any sales
charge.
Reinstatement Privilege
You may reinvest up to the amount of your redemption proceeds free of all
sales charges. You will receive the net asset value per share the day your check
arrives at the Fund. An investor using this privilege a year or more after such
investor redeemed shares of the Fund must file a new account application and
provide proof that such investor was a shareholder of the Fund. The Fund
reserves the right to modify or terminate this privilege at any time. If you
have redeemed shares in a retirement plan, be sure to review the plan document
you received when you opened your account for rules and limitations if you are
repurchasing shares in the same retirement account.
21
<PAGE>
SPECIAL FEATURES
Letter of Intent
Reduced sales charges, as shown in the Prospectus, also apply to the aggregate
amount of purchases of the Fund made by any purchaser within a 13-month period
under a written Letter of Intent ("Letter") provided by the Underwriter. The
Letter, which imposes no obligation to purchase or sell additional shares,
provides for a price adjustment depending upon the actual amount purchased
within such period. The Letter provides that the first purchase following
execution of the Letter must be at least 5% of the amount of the intended
purchase, and that 5% of the amount of the intended purchase will be held in
escrow in the form of shares pending completion of the intended purchase. If the
total investments under the Letter are less than the intended amount and thereby
qualify only for a higher sales charge than actually paid, the appropriate
number of escrowed shares are redeemed and the proceeds used toward satisfaction
of the obligation to pay the increased sales charge. A shareholder may include
the value (at the maximum offering price) of all shares held of record as of the
initial purchase date under the Letter as an "accumulation credit" toward the
completion of the Letter, but no price adjustment will be made on such shares.
Cumulative Discount
The Fund's shares may also be purchased at the rate applicable to the discount
bracket attained by adding to the cost of Fund shares being purchased the value
of all shares of the Fund (computed at the maximum offering price at the time of
the purchase for which the discount is applicable) already owned by the
investor.
Availability of Quantity Discounts
An investor or the investor's dealer or other financial services firm must
notify the Transfer Agent or the Underwriter whenever a quantity discount or
reduced sales charge is applicable to a purchase. Upon such notification, the
investor will receive the lowest applicable sales charge. Quantity discounts
described above may be modified or terminated at any time.
Systematic Withdrawal Plan
The owner of $5,000 or more of the Fund's shares at offering price (net asset
value plus the sales charge) may provide for the payment from the owner's
account of any requested dollar amount to be paid to the owner or a designated
payee monthly, quarterly, semiannually, or annually. The minimum periodic
payment is $100. Shares are redeemed so that the payee will receive payment
approximately the first of the month. Any income and capital gain dividends will
be automatically reinvested at net asset value on the reinvestment date. A
sufficient number of full and fractional shares will be redeemed to make the
designated payment. Depending upon the size of the payments requested and
fluctuations in the net asset value of the shares redeemed, redemptions for the
purpose of making such payments may reduce or even exhaust the account.
The purchase of shares while participating in a systematic withdrawal plan
will ordinarily be disadvantageous to the investor, because the investor will be
paying a sales charge on the purchase of shares at the same time that the
investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, the Fund will not knowingly permit additional investments of
less than $2,000 if the investor is at the same time making systematic
withdrawals. The right is reserved to amend the systematic withdrawal plan on
thirty days' notice. The plan may be terminated at any time by the investor or
the Fund.
22
<PAGE>
Tax-Sheltered Retirement Plans
The Underwriter provides retirement plan services and documents and can
establish investor accounts in the following types of retirement plans:
. Individual Retirement Accounts (IRA's) trusteed by First American Bank
West ("First American"). This includes Simplified Employee Pension Plan
(SEP) IRA accounts and prototype documents.
. 403(b)(7) Custodial Accounts also trusteed by First American. This type of
plan is available to employees of most nonprofit organizations.
Brochures describing the above plans are available from the Underwriter upon
request. The brochures for plans trusteed by First American describe the current
fees payable to First American for its services as trustee. Investors should
consult with their own tax advisers before establishing a retirement plan.
Monthomatic
A shareholder may purchase additional Fund shares through an automatic
investment program. With the Monthomatic Investment Plan, monthly investments
(minimum $50) are made automatically from the shareholder's account at the bank,
savings and loan association, or credit union into the shareholder's Fund
account. By enrolling in Monthomatic, the shareholder authorizes the Fund and
its agents to either draw checks or initiate Automated Clearing House debits
against the designated account at a bank or other financial institution. Such
account must have check or draft writing privileges. This privilege may be
selected by completing the appropriate section on the Account Application or by
contacting the Underwriter for appropriate forms.
A shareholder may terminate the Plan by sending written notice to the Transfer
Agent at the address shown on the back cover of the Prospectus. Termination by a
shareholder will become effective within 7 days after the Transfer Agent has
received the request. The Fund may immediately terminate a shareholder's Plan in
the event that any item is unpaid by the shareholder's financial institution.
Fund shares purchased by Monthomatic must be owned for 15 days before they may
be redeemed. The Fund may terminate or modify this privilege at any time.
PERFORMANCE
From time to time, the Fund may advertise several types of performance
information. These are "yield," "average annual total return:" and "total
return." Each of these figures is based upon historical results and is not
necessarily representative of the future performance of the Fund.
The Fund's yield is a measure of the net investment income per share earned
over a specific one-month or 30-day period expressed as a percentage of the
maximum offering price of the Fund's shares at the end of the period. Yield is
an annualized figure, which means that it is assumed that the Fund generates the
same level of net investment income over a one-year period. Net investment
income is assumed to be compounded semiannually when it is annualized. Average
annual total return and total return figures measure both the net investment
income generated by, and the effect of any realized and unrealized appreciation
or depreciation of, the underlying investments in the Fund's portfolio for the
period in question, assuming the reinvestment of all dividends. Thus, these
figures reflect the change in the value of an investment in the Fund during a
specified period.
Average annual total return will be quoted for at least the one, five, and
ten-year periods ending on a recent calendar quarter. Average annual total
return figures are annualized and, therefore, represent the average annual
percentage change over the period in question. Total return figures are not
annualized and represent the aggregate percentage or dollar value change over
the period in question.
23
<PAGE>
From time to time, the Fund's performance may be compared to that of the
Consumer Price Index or various unmanaged bond indexes such as the Salomon
Brothers High Grade Bond Index, the Merrill Lynch Government/Corporate Master
Index, and the Shearson Lehman Government/Corporate Bond Index and may also be
compared to the performance of other fixed income mutual funds or mutual fund
indexes as reported by Lipper Analytical Services, Inc. ("Lipper"), or CDA
Investment Technologies, Inc. ("CDA"). Lipper and CDA are widely recognized
independent mutual fund reporting services. Lipper and CDA performance
calculations are based upon changes in net asset value with all dividends
reinvested and do not include the effect of any sales charges.
From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for the Fund.
Distribution rate is simply a measure of the level of dividends distributed for
a specified period. It differs from yield, which is a measure of the income
actually earned by the Fund's investments, and from total return, which is a
measure of the income actually earned by, plus the effect of any realized and
unrealized appreciation or depreciation of, such investments during the period.
Distribution rate is, therefore, not intended to be a complete measure of
performance. Distribution rate may sometimes be greater than yield because, for
instance, it may include gains from the sale of options or other short-term and
possibly long-term gains (which may be non-recurring) and may not include the
effect of amortization of bond premiums.
The Fund's shares are sold at net asset value plus a maximum sales charge of
4.5% of the offering price. While the maximum sales charge is normally reflected
in the Fund's performance figures, certain total return calculations may not
include such charge, and those results would be reduced if it were included. The
Fund's returns and net asset value will fluctuate. Shares of the Fund are
redeemable by an investor at the then current net asset value, which may be more
or less than original cost. Additional information concerning the Fund's
performance appears in the Statement of Additional Information.
24
<PAGE>
INSTITUTIONAL ACCOUNT APPLICATION GUIDE
ND INSURED INCOME FUND, INC.
Instructions
Please make sure you are using the correct application. Use the Institutional
Account Application for corporate, trust, or other fiduciary accounts. Use the
Individual Account Application for individual, joint owners, and Transfer to
Minor accounts.
This application cannot be used for any modification of an existing account.
This application also cannot be used to establish a Retirement Account with
First American Bank West as trustee. To obtain an application for such accounts
or forms to modify your account, call 1-701-857-0240. o Please print information
exactly as you wish it to appear on the account.
. Please check the box that is applicable to the type of account
you are opening.
. Please be sure to complete both Sections I and II.
. Please be sure to sign this application.
. Signature(s) of authorized person(s) are required.
READ THIS IMPORTANT INFORMATION.
Fund Features
Exchanges. If you elect this option:
. Shares held in certificated form may not be exchanged until they have
been received by the Fund's Transfer Agent and deposited to the account.
. If exchanging to a new account, the minimum requirement is $1,000.
. Subsequent exchanges may be made for at least $50.
Certification
The account owners certify that they have the power and authority to establish
this account and select the privileges requested. The account owners release the
Fund and its agents and representatives from all liability and agree to
indemnify the same from any and all losses, damages, or costs for acting in good
faith in accordance with the privileges selected herein. In no event shall the
Fund or its agents or representatives be liable for consequential damages. The
account owners certify that the current prospectus for the Fund has been
received and read and that the authorizations hereon shall continue until the
Fund receives written notice of a modification signed by all appropriate parties
or a termination signed by any party. This account is subject to the terms of
the Fund's prospectus, as amended from time to time, and the terms herein set
forth, and is subject to acceptance by the Fund and to the laws of North Dakota.
All terms shall be binding upon the heirs, representatives, successors, and
assigns of the account owners.
All persons signing as representatives warrant as individuals that each person
signing is an authorized representative of the account owner, that the account
and privileges selected have been duly authorized, that all signatures hereon
are genuine, and that the persons indicated hereon are authorized to sign.
The account owners authorize the Fund to provide the trustees or custodian of
their tax-deferred retirement plan any information necessary to administer such
a plan.
Questions
Shareholders may call 1-800-601-5593 to speak to a Fund Services
Representative. Financial Representatives may call 1-800-276-1262 to speak to a
Dealer Services Representative.
25
<PAGE>
Letter of Intent ("LOI") Conditions
(Applicable if Item 4 Letter of Intent selected)
The first investment hereunder must equal or exceed $1,000 or 5% of the
indicated amount, whichever is greater. The value of shares owned by me on the
initial purchase date is determined by the maximum offering price on that date.
Each investment will be made at the public offering price applicable to a
single transaction of the dollar amount indicated on the application, as
described in the Fund prospectus in effect at the time of such investment. I
agree that the sales charge schedule for the Fund is subject to change.
I am making no commitment to purchase shares, but if my investments within
thirteen months from the initial purchase date do not aggregate the sum
specified, I will pay the increased amount of sales charge as prescribed below.
In determining the total amount of purchases, any shares purchased under this
LOI and then sold within the 13-month period will be deducted from my total
purchases. Exchanges between the Fund and other funds for which ND Money
Management, Inc., serves as the investment adviser (the "funds") will not be
deducted.
Five percent (5%) of the dollar amount specified in this LOI will be held in
escrow by ND Capital, Inc. (the "Principal Underwriter"), in the form of shares
of the Fund (computed to the nearest full share at public offering price)
registered in my name. All income and capital gain dividends on the escrowed
shares will be reinvested in additional shares or paid in cash per my dividend
instructions. If the shares held in escrow in connection with this LOI are to be
exchanged in accordance with the Exchange Privilege described in the Fund
prospectus, the smallest number of full shares of the funds to be issued on the
exchange having the same aggregate net asset value as the shares being exchanged
shall be substituted in the escrow account. If I complete the investment
specified within the thirteen-month period, the escrowed shares will be
released.
If my total investments pursuant to this Letter are less than the amount
specified, I will remit to the Principal Underwriter the difference in the sales
charge actually paid and the sales charge which I would have paid if my total
investments hereunder had been made at a single time. If I do not pay such
difference in sales charge within 7 business days after written request by the
Principal Underwriter or my dealer, I irrevocably constitute and appoint the
Principal Underwriter, my attorney, with full power of substitution, to
surrender for redemption the necessary number of the escrowed shares to realize
such difference without further notice or demand. In the event of a deficiency
after such surrender, I shall remain liable for such deficiency.
I agree that my dealer or I will refer to this LOI in placing any future order
for me for shares of the Fund hereunder.
All purchases under this LOI must be by the same purchaser as described in the
Fund prospectus.
I agree that this LOI is subject to the terms of the Fund prospectus that is
currently in effect and that neither the Principal Underwriter nor the Fund has
any obligation to sell shares of the Fund hereunder.
26
<PAGE>
INDIVIDUAL ACCOUNT APPLICATION GUIDE
ND INSURED INCOME FUND, INC.
Instructions
Please make sure you are using the correct application. Use the Individual
Account Application for individual, joint owners, and Transfer to Minor
accounts. Use the Institutional Account Application for corporate, trust, or
other fiduciary accounts. This application cannot be used for any modification
of an existing account. This application also cannot be used to establish an
Individual Retirement Account (IRA) with First American Bank West as trustee. To
obtain an IRA application or forms to modify your account, call 1-701-857-0240.
. Please print information exactly as you wish it to appear on the account.
. Please check the box that is applicable to the type of account you are
opening.
. Please ensure that the social security number for a joint account is for
the first named registrant and for a transfer to minor account is for
the minor.
. Please be sure to complete both Sections I and lI.
. Please be sure to sign this application. If the account is registered in
the name of:
. an individual, the individual must sign.
. joint owners, all must sign.
. a custodian for a minor, the custodian must sign.
READ THIS IMPORTANT INFORMATION.
Fund Features
Exchanges. If you elect this option:
. Shares held in certificated form may not be exchanged until they have
been received by the Fund's Transfer Agent and deposited to the account.
. If exchanging to a new account, the minimum requirement is $1,000.
. Subsequent exchanges may be made for at least $50.
Systematic Withdrawal Plans. If you elect this option:
. Shares may not be held in certificated form.
. The Plan may not be selected in conjunction with a Letter of Intent.
. Your account value must be at least $5,000.
. All dividends will be reinvested.
Certification
The account owners certify that they have the power and authority to establish
this account and select the privileges requested. The account owners release the
Fund and its agents and representatives from all liability and agree to
indemnify the same from any and all losses, damages, or costs for acting in good
faith in accordance with the privileges selected herein. In no event shall the
Fund or its agents or representatives be liable for consequential damages. The
account owners certify that the current prospectus for the Fund has been
received and read and that the authorizations hereon shall continue until the
Fund receives written notice of a modification signed by all appropriate parties
or a termination signed by any party. This account is subject to the terms of
the Fund's prospectus, as amended from time to time, and the terms herein set
forth, and is subject to acceptance by the Fund and to the laws of North Dakota.
All terms shall be binding upon the heirs, representatives, and assigns of the
account owners.
Questions
Shareholders may call 1-800-601-5593 to speak to a Fund Services
Representative. Financial Representatives may call 1-800-276-1262 to speak to a
Dealer Services Representative.
27
<PAGE>
Letter of Intent ("LOI") Conditions
(Applicable if Item 4 Letter of Intent selected)
The first investment hereunder must equal or exceed $1,000 or 5% of the
indicated amount, whichever is greater. The value of shares owned by us on the
initial purchase date is determined by the maximum offering price on that date.
Each investment will be made at the public offering price applicable to a
single transaction of the dollar amount indicated on the application, as
described in the Fund prospectus in effect at the time of such investment. We
agree that the sales charge schedule for the Fund is subject to change.
We are making no commitment to purchase shares, but if our investments within
thirteen months from the initial purchase date do not aggregate the sum
specified, we will pay the increased amount of sales charge as prescribed below.
In determining the total amount of purchases, any shares purchased under this
LOI and then sold within the 13-month period will be deducted from our total
purchases. Exchanges between the Fund and other funds for which ND Money
Management, Inc., serves as the investment adviser (the "funds") will not be
deducted.
Five percent (5%) of the dollar amount specified in this LOI will be held in
escrow by ND Capital, Inc. (the "Principal Underwriter"), in the form of shares
of the Fund (computed to the nearest full share at public offering price)
registered in our name. All income and capital gain dividends on the escrowed
shares will be reinvested in additional shares or paid in cash per our dividend
instructions. If the shares held in escrow in connection with this LOI are to be
exchanged in accordance with the Exchange Privilege described in the Fund
prospectus, the smallest number of full shares of the funds to be issued on the
exchange having the same aggregate net asset value as the shares being exchanged
shall be substituted in the escrow account. If we complete the investment
specified within the thirteen-month period, the escrowed shares will be
released.
If our total investments pursuant to this Letter are less than the amount
specified, we will remit to the Principal Underwriter the difference in the
sales charge actually paid and the sales charge which we would have paid if our
total investments hereunder had been made at a single time. If we do not pay
such difference in sales charge within 7 business days after written request by
the Principal Underwriter or our dealer, we irrevocably constitute and appoint
the Principal Underwriter, our attorney, with full power of substitution, to
surrender for redemption the necessary number of the escrowed shares to realize
such difference without further notice or demand. In the event of a deficiency
after such surrender, we shall remain liable for such deficiency.
We agree that our dealer or we will refer to this LOI in placing any future
order for us for shares of the Fund hereunder.
All purchases under this LOI must be by the same purchaser as described in the
Fund prospectus.
We agree that this LOI is subject to the terms of the Fund prospectus that is
currently in effect and that neither the Principal Underwriter nor the Fund has
any obligation to sell shares of the Fund hereunder.
28
<PAGE>
ND INSURED INCOME
FUND, INC.
1 North Main
Minot, ND 58703
(701) 852-5292
ND
INSURED INCOME
FUND, INC.
A mutual fund for investors
seeking high current income
from a portfolio consisting
primarily of insured corporate
or government issued or
guaranteed debt securities
==============================
Prospectus
May 1, 1996
(As amended June 25, 1996
and February 28, 1997)
[LOGO OF INTEGRITY INCOME FUND APPEARS HERE]
Investment Adviser
ND Money Management, Inc.
1 North Main
Minot, ND 58703
Principal Underwriter
ND Capital, Inc.
1 North Main
Minot, ND 58703
Custodian
First American Bank West
20 First Street SW
P.O. Box 1548
Minot, ND 58702
Transfer Agent
ND Resources, Inc.
1 North Main
Minot, ND 58703
Independent Public Accountant
Brady, Martz & Associates, P.C.
24 West Central Avenue
Minot, ND 58701
Legal Counsel
Pringle & Herigstad, P.C.
20 First Street SW
P.O. Box 1000
Minot, ND 58702
29
<PAGE>
INTEGRITY MUTUAL FUNDS
ACCOUNT APPLICATION ND INSURED INCOME FUND, INC.
Mail To: ND Insured Income Fund, Inc.
P.O. Box 759, Minot, ND 58702-0759
If you have any questions on this form or any shareholder services questions,
phone 1-800-601-5593.
- --------------------------------------------------------------------------------
1. Account Registration (Please print.) - First Name, Middle Initial,
and Last Name
Individual Joint* *Joint tenants with rights of
- --- --- survivorship, unless you specify
otherwise
- ---------------------------------- ----------------------------------------
Name Joint Owner's Name
Gift or transfer to a minor (UGMA/UTMA)
- ---
as custodian for under the
- ------------------ ------------------ -------------
Custodian's name Minor's name State
Uniform Gifts/Transfers to Minors Act
Trust*
- ---
as trustee(s) of
- --------------------- ------------------ ------------------
Trustee's name Name of trust Date of trust
agreement agreement
*Please include copy of first and last page of trust agreement.
Corporation/other entity*
- ---
- ---------------------------------- ----------------------------------------
Name of corporation or other entity Type of organization (i.e.,
corporation, partnership, etc.)
*Please attach a certified copy of the corporate resolution showing the
person(s) authorized to act on this account.
IRA* *IRA information available upon request.
- ---
TOD (Transfer on Death)* *Transfer on Death form available upon
- --- request
Address City, State, Zip
---------------------------- -----------------------------
Telephone Number
-------------------
- --------------------------------------------------------------------------------
2. Initial Investment
Check enclosed for $ . Minimum initial investment is $1,000
----------------
($100 in Monthomatic Plan); subsequent $50. Make check payable to: ND Insured
Income Fund, Inc.
- --------------------------------------------------------------------------------
3. Dividends Choose how you wish to receive dividends. If no box is checked,
option A will be assigned.
A. All income and capital gains dividends reinvested into
----
my account.
B. All income dividends in cash and capital gains reinvested
----
in my account. Complete cash dividends section below.
C. All income and capital gains dividends paid to me in cash.
----
Complete cash dividends section below.
D. All income and capital gains dividends reinvested in Integrity
----
Fund of Funds account #
------------------------------------
Please send cash dividends to: Account registration address OR
------
Special payee as follows:
------
Name
----------------------------------------------------------------------------
Address City, State, Zip
---------------------------- ----------------------------
Account number (if applicable) Attach voided check if payable to
----------------
your bank account (signature guarantee not required).
* If payable to person or address other than registration, PLEASE signature
guarantee here:
- --------------------------------------------------------------------------------
4. Letter of Intent
I request establishment of a Letter of Intent to purchase shares of ND Insured
Income Fund, Inc. as described in this prospectus. These shares will be
purchased over a thirteen-month period; the aggregate amount of these purchases
will be at least equal to the amount indicated below:
$50,000 $100,000 $250,000 $500,000 $1,000,000
- ----- ----- ----- ----- -----
This is an amended Letter of Intent
- -----
- --------------------------------------------------------------------------------
5. Rights of Accumulation
If this account qualifies for a reduced sales charge under the Rights of
Accumulation as described in this prospectus, please give the following
information:
Account Number of Related Accounts Relationship to Investor
- -------------------------------------- -------------------------------------
- -------------------------------------- -------------------------------------
<PAGE>
6. Systematic Investment Program (Monthomatic) Complete the following if you
are establishing a Systematic Investment Program.
I authorize the Fund's Agent to draw checks or initiate Automated
Clearing House ("ACH") debits against the bank account provided below in the
amount of $ (minimum $50)
------------------------
Please check one: starting on the 5th OR the 20th
----- ----- ----------------
(indicate month)
Name of Depositor Bank Account Number
--------------------- ----------------------
(As shown on bank records)
Name of Bank Address of Bank
-------------------------- --------------------------
(The account must have check or draft writing privileges.)
City State, Zip
---------------------------------- -------------------------------
As a convenience to us, we hereby request and authorize you to honor and charge
to our account (i) checks drawn on our account by ND Insured Income Fund, Inc.,
and payable to the order of the Fund, and (ii) Automated Clearing House ("ACH")
debit entries initiated by any of us through ND Insured Income Fund, Inc., for
the account of the Fund, provided in either case that there are sufficient
collected funds in said account to pay the same upon presentation. We agree that
your rights with respect to each such check or ACH debit shall be the same as if
either were signed personally by each of us. This authority is to remain in
effect until revoked by us in writing to you, and until you actually receive
such notice, we agree that you shall be fully protected in honoring any such
checks or ACH debits. We further agree that if any check or ACH debit be
dishonored, whether with or without cause and whether intentionally or
inadvertently, you shall be under no liability whatsoever.
Signature(s) of depositor(s):* Date:
-------------------------------
*Sign exactly as shown on bank records
X X
----------------------------- -----------------------------
Signature Signature
Please attach a VOIDED check to ensure correct encoding.
- --------------------------------------------------------------------------------
7. Systematic Withdrawal Plan (Note: All distributions from the Fund must
be reinvested)
Systematic Withdrawal (available only for accounts of $5,000 or more) - Redeem
sufficient shares or dollars on the 1st of the month and send check to the owner
listed above: Monthly Quarterly Semiannually Yearly for
--- --- --- ---
$ or shares (minimum $50). The first redemption is to
------------ ------------
take place on the 1st of (Indicate month.)
---------------------------
If systematic withdrawal checks are payable to person or address other than as
registered above, make check payable to:*
Name
-----------------------------------------------------
Address City, State, Zip
------------------------------- -----------------------
Account Number (if applicable) Attach voided check if payable to
---------------
your bank account (signature guarantee not required).
*if payable to person or address other than registration, PLEASE signature
guarantee here:
- --------------------------------------------------------------------------------
8. Your Signature and Tax Certifications
See enclosed substitute instructions and important notice. The Fund reserves
the right to refuse to open an account without either a certified taxpayer
identification number ("TIN") or a certification of foreign status. Failure to
provide the tax certifications in this section may result in backup withholding
on payments relating to your account and/or in your inability to qualify for
treaty withholding rates.
OR
- ------------------------------- -------------------------------
Social Security Number Employer Identification Number
(In UGMA/UTMA Minor's SSN)
I am a citizen of: U.S. My country of residence for tax purposes is:
---- ----tax purposes is:
U.S. Other
- --- --------------------
Check one of the following:
The number shown above is my correct TIN. I am not subject to backup
- ------
withholding due to underreporting of interest or dividend income either
because no notification has been received from the IRS or because the
IRS has notified me that I am no longer subject to backup withholding.
(If you are subject to backup withholding, please cross out the second
sentence.)
Awaiting TIN. A TIN has not been issued to me, but I am in the process
- ------
of applying for a TIN from either the appropriate Internal Revenue
Service Center or Social Security Administration Office. I understand
that if I do not provide a TIN to the Fund within 60 days, the Fund is
required to commence backup withholding until I provide a certified TIN.
I am not subject to backup withholding due to underreporting of interest
or dividend income either because no notification has been received from
the IRS or because the IRS has notified me that I am no longer subject
to backup withholding. (If you are subject to backup withholding, please
cross out the third sentence.)
Exempt Recipient. I am an Exempt Recipient. The instructions give a list
of the most common Exempt Recipients. (You should still provide a TIN.)
- ------
Exempt Foreign Person. I am an Exempt Foreign Person as explained in
- ------
the instructions. Under the penalties of perjury, I certify that
(1) the information provided on this application is true, correct,
and complete, (2) I have read the prospectus for the Fund in which I
am investing and agree to the terms thereof, and (3) I am of legal age
or an emancipated minor.
Date
-----------------------------
The IRS does not require your consent to any provision of this document other
than the certifications required to avoid backup withholding.
X X
---------------------------------- ----------------------------------
Signature Signature
- --------------------------------------------------------------------------------
9. Broker/Dealer Use Only (Please print.)
We hereby submit this application for the purchase of shares of ND Insured
Income Fund, Inc., indicated within the terms of our selling agreement with ND
Holdings, Inc., and with the prospectus for ND Insured Income Fund, Inc. We
agree to notify distributor of any purchases made under a letter of intent or
right of accumulation.
Firm Name
-------------------------------------
Branch Address
--------------------------------
Representative's Name
-------------------------
Representative's Number
-----------------------
Representative's Phone Number
-----------------
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
(As amended June 25, 1996 and February 28, 1997)
ND INSURED INCOME FUND, INC.
1 North Main
Minot, North Dakota 58703
(701) 852-5292
This Part B Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of ND Insured Income Fund, Inc. (the
"Fund"), dated May 1, 1996 (as amended June 25, 1996 and February 28, 1997). The
Prospectus may be obtained without charge from the Fund.
TABLE OF CONTENTS
Page
Investment Policies and Techniques........................................ B-1
Investment Restrictions................................................... B-4
Management of the Fund.................................................... B-6
Control Persons and Principal Holders of Securities....................... B-8
Investment Advisory and Other Services.................................... B-8
Portfolio Transactions.................................................... B-9
Purchase and Redemption of Shares......................................... B-10
Underwriter............................................................... B-11
Dividends and Taxes....................................................... B-12
Performance............................................................... B-13
Appendix - Ratings of Investments......................................... B-14
Financial Statements...................................................... F-1
INVESTMENT POLICIES AND TECHNIQUES
General
The Fund may engage in futures and options transactions in accordance with its
investment objective and policies. The Fund intends to engage in such
transactions if it appears advantageous to the Investment Adviser to do so in
order to pursue its investment objective, to hedge against the effects of
fluctuating interest rates, and to stabilize the value of its assets. The use of
futures and options, possible benefits, and attendant risks are discussed below,
along with the information concerning certain other investment policies and
techniques.
Financial Futures Contracts
The Fund may enter into financial futures contracts for the future delivery of
a financial instrument, such as a security, or the cash value of a securities
index. This investment technique is designed primarily to hedge (i.e., protect)
against anticipated future changes in interest rates or market conditions which
otherwise might
B-1
<PAGE>
adversely affect the value of securities which the Fund holds or intends to
purchase. A "sale" of a futures contract means the undertaking of a contractual
obligation to deliver the securities or the cash value of an index called for by
the contract at a specified price during a specified delivery period. A
"purchase" of a futures contract means the undertaking of a contractual
obligation to acquire the securities or cash value of an index at a specified
price during a specified delivery period. At the time of delivery in the case of
fixed income securities pursuant to the contract, adjustments are made to
recognize differences in value arising from the delivery of securities with a
different interest rate than that specified in the contract. In some cases,
securities called for by a futures contract may not have been issued at the time
the contract was written. The Fund will not enter into any futures contracts or
options on futures contracts if the aggregate of the contract value of the
outstanding options written by the Fund would exceed 50% of the total assets of
the Fund.
Although some financial futures contracts by their terms call for the actual
delivery or acquisition of securities, in most cases the contractual commitment
is closed out before delivery without having to make or take delivery of the
security by purchasing (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, if effected through a member of an exchange, cancels the
obligation to make or take delivery of the securities. All transactions in the
futures market are made, offset, or fulfilled through a clearing house
associated with the exchange on which the contracts are traded. The Fund will
incur brokerage fees when it purchases or sells contracts and will be required
to maintain margin deposits. Futures contracts entail risks. If the Investment
Adviser's judgment about the general direction of interest rates or markets is
wrong, the overall performance may be poorer than if no such contracts had been
made.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio securities being hedged. In addition, the market prices
of futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the debt securities and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities rather than engage in closing
transactions because of the resultant reduction in the liquidity of the futures
market. In addition, from the point of view of speculators, the margin
requirements in the futures market are less onerous than margin requirements in
the cash market. Thus, increased participation by speculators in the futures
market could cause temporary price distortions. Due to the possibility of price
distortions in the futures market and because of the imperfect correlation
between movements in the prices of securities and movements in the prices of
futures contracts, a correct forecast of market trends by the Investment Adviser
may still not result in a successful hedging transaction. If this should occur,
the Fund could lose money on the financial futures contracts and also on the
value of its portfolio securities.
Options on Financial Futures Contracts
The Fund may purchase and write call and put options on financial futures
contracts. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the period of the option. Upon
exercise, the writer of the option delivers the futures contract to the holder
at the exercise price. The Fund would be required to deposit with its Custodian
initial margin and maintenance margin with respect to put and call options on
futures contracts written by it. Options on futures contracts involve risks
similar to those risks relating to transactions in financial futures contracts
described above. Also, an option purchased by the Fund may expire worthless, in
which case the Fund would lose the premium paid therefor.
B-2
<PAGE>
Delayed Delivery Transactions
The Fund may purchase or sell portfolio securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions involve a
commitment by the Fund to purchase or sell securities with payment and delivery
to take place in the future in order to secure what is considered to be an
advantageous price or yield to the Fund at the time of entering into the
transaction. When the Fund enters into a delayed delivery purchase, it becomes
obligated to purchase securities and it has all the rights and risks attendant
to ownership of a security, although delivery and payment occur at a later date.
The value of fixed income securities to be delivered in the future will
fluctuate as interest rates vary. At the time the Fund makes the commitment to
purchase a security on a when-issued or delayed delivery basis, it will record
the transaction and reflect the liability for the purchase and the value of the
security in determining its net asset value. Likewise, at the time the Fund
makes the commitment to sell a security on a delayed delivery basis, it will
record the transaction and include the proceeds to be received in determining
its net asset value; accordingly, any fluctuations in the value of the security
sold pursuant to a delayed delivery commitment are ignored in calculating net
asset value as long as the commitment remains in effect. The Fund generally has
the ability to close out a purchase obligation on or before the settlement date,
rather than take delivery of the security.
To the extent the Fund engages in when-issued or delayed delivery purchases,
it will do so for the purpose of acquiring portfolio securities consistent with
the Fund's investment objective and policies and not for the purpose of
investment leverage or to speculate in interest rate changes. The Fund will only
make commitments to purchase securities on a when-issued or delayed delivery
basis with the intention of actually acquiring the securities, but the Fund
reserves the right to sell these securities before the settlement date if deemed
advisable.
Regulatory Restrictions
To the extent required to comply with Securities and Exchange Commission
Release No. IC-10666, when purchasing a futures contract, writing a put option,
or entering into a delayed delivery purchase, the Fund will maintain in a
segregated account with its Custodian cash or liquid high-grade securities equal
to the value of such contracts. The amount held by the Custodian is less than
the amount held by any futures commission agent as initial margin and will be
marked to market daily.
To the extent required to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid "commodity pool operator" status, the Fund will
not enter into a futures contract or purchase an option thereon if immediately
thereafter the initial margin deposits for futures contracts held by the Fund
plus premiums paid by it for open options on futures would exceed 5% of the
Fund's total assets. The Fund will not engage in transactions in financial
futures contracts or options thereon for speculation, but only to attempt to
hedge against changes in market conditions affecting the values of securities
which the Fund holds or intends to purchase. When futures contracts or options
thereon are purchased to protect against a price increase on securities intended
to be purchased later, it is anticipated that at least 75% of such intended
purchases will be completed. When other futures contracts or options thereon are
purchased, the underlying value of such contracts will at all times not exceed
the sum of: (1) accrued profit on such contracts held by the broker; (2) cash or
high quality money market instruments set aside in an identifiable manner; and
(3) cash proceeds from investments due in 30 days.
B-3
<PAGE>
Zero Coupon Bonds
The Fund may invest in zero coupon U.S. Government securities. Zero coupon
bonds are purchased at a discount from the face amount. The buyer receives only
the right to receive a fixed payment on a certain date in the future and does
not receive any periodic interest payments. These securities may include those
created directly by the U.S. Treasury and those created as collateralized
obligations through various proprietary custodial, trust, or other
relationships, provided such obligations are issued or guaranteed by a U.S.
Government agency or instrumentality (See "General Description of the Fund" -
"Investment Objective and Policies" - "Collateralized Obligations" in the
Prospectus.). The effect of owning instruments which do not make current
interest payments is that a fixed yield is earned not only on the original
investment but also, in effect, on all discount accretion during the life of the
obligations. This implicit reinvestment of earnings at the same rate eliminates
the risk of being unable to reinvest distributions at a rate as high as the
implicit yield on the zero coupon bond but at the same time eliminates any
opportunity to reinvest earnings at higher rates. For this reason, zero coupon
bonds are subject to substantially greater price fluctuations during periods of
changing market interest rates than are comparable securities that pay interest
currently, and the fluctuation is likely to be greater as the period to maturity
is longer. Zero coupon bonds created as collateralized obligations are similar
to those created through the U.S. Treasury, but the former investments do not
provide absolute certainty as to the timing of the maturity or of cash flows
after prior classes of the collateralized obligations are retired. The Fund
currently does not intend to invest more than 5% of its net assets in zero
coupon bonds during the coming year.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions which, together with the
investment objective and policies, cannot be changed without approval by holders
of a majority of its outstanding voting shares. As defined in the Investment
Company Act of 1940, this means the lesser of the vote of (a) 67% or more of the
outstanding shares of the Fund present at a meeting where more than 50% of the
outstanding shares are present in person or by proxy; or (b) more than 50% of
the outstanding shares of the Fund. The Fund may not:
(1) Invest in securities other than those specified under "General Description
of the Fund" - "Investment Objectives and Policies" and "Other Investment
Practices" in the Prospectus. This restriction does not prevent the Fund from
holding common stocks or other corporate securities not qualifying as debt
obligations if such securities are acquired through conversion provisions of
debt securities or from corporate reorganizations. Nor does it prevent the
holding of debt securities whose quality rating is reduced by the rating
services below those specified under "Investment Objective and Policies" after
purchase by the Fund.
(2) Except with respect to securities of issuers in the utilities industry, the
Fund may not purchase securities (other than securities issued by the U.S.
Government or any agency or instrumentality thereof) if as a result of such
purchase 25% or more of the Fund's total assets would be invested in any
industry. The Fund will concentrate in the utilities industry by investing at
least 25% of the Fund's total assets in securities of issuers in that industry.
The utilities industry includes water, communications, electric, and gas
utilities.
(3) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements, and short-term obligations
in accordance with its objective and policies are not prohibited.
(4) Borrow money except for temporary or emergency purposes and then only in
amounts not exceeding the lesser of 10% of its total assets valued at cost, or
5% of its total assets valued at market, and, in any event,
B-4
<PAGE>
only if immediately thereafter there is an asset coverage of at least 300%; or
mortgage, pledge, or hypothecate its assets in an amount exceeding 10% of its
total assets to secure temporary or emergency borrowing.
(5) Make short sales of securities or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and options transactions.
(6) Write, purchase, or sell puts, calls, combinations thereof, or similar
options, except in accordance with its investment objective and policies.
(7) Purchase or retain the securities of any issuer if any of its officers or
directors or of the Investment Adviser owns beneficially more than 1/2 of 1% of
the securities of such issuer and together own more than 5% of the securities of
such issuer.
(8) Invest in (a) securities which at the time of such investment are not
readily marketable, (b) securities restricted as to disposition under the
federal securities laws, and (c) repurchase agreements maturing in more than
seven days, if, as a result, more than 10% of the Fund's total assets (taken at
current value) would then be invested in securities described in (a), (b), and
(c) above.
(9) Invest for the purpose of exercising control or management of another
issuer.
(10) Invest in commodities or commodity futures contracts, although it may buy
or sell financial futures contracts and options on such contracts.
(11) Invest in interests in oil, gas, or other mineral exploration or
development programs, although it may invest in the securities of issuers which
invest in or sponsor such programs.
(12) Purchase or otherwise acquire any securities issued by any other investment
company if the Fund immediately after such purchase or acquisition owns in the
aggregate (i) more than 3% of the total outstanding voting stock of the acquired
company; (ii) securities issued by the acquired company having an aggregate
value in excess of 5% of the value of the total assets of the Fund; or (iii)
securities issued by the acquired company and all other investment companies
(other than treasury shares of the Fund) having an aggregate value in excess of
10% of the value of the total assets of the Fund; provided, however, that the
foregoing restrictions do not apply in connection with a merger, consolidation,
reorganization, or acquisition of assets.
(13) Underwrite securities issued by others, except to the extent that the Fund
may be deemed to be an underwriter under the federal securities laws in
connection with the disposition of portfolio securities.
(14) Issue senior securities as defined in the Investment Company Act of 1940,
except money borrowed as permitted by (4) above.
(15) Invest in real estate, although it may invest in securities which are
secured by real estate and securities of issuers which invest or deal in real
estate.
During the coming year, the Fund does not intend to invest more than 5% of its
net assets in securities of other investment companies.
Any policy or restriction which involves a maximum percentage of securities or
assets will not be considered to be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition of
securities or assets of, or borrowing by, the Fund. Changes due to market action
will not cause a violation of a policy or restriction.
B-5
<PAGE>
MANAGEMENT OF THE FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Position(s) Held Principal Occupation(s)
Name, Address, and Age with Fund During Past 5 Years/(1)/
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Lynn W. Aas/(2)/ Director Retired; Attorney; Director, ND Holdings, Inc.;
904 NW 27th Director, ND Tax-Free Fund, Inc., Montana
Minot, North Dakota 58701 Tax-Free Fund, Inc., South Dakota Tax-Free
76 Fund, Inc., and Integrity Fund of Funds, Inc.; Trustee,
Ranson Managed Portfolios; Director, First Western
Bank & Trust
Orlin W. Backes/(3)/ Director Attorney; Director, ND Tax-Free Fund, Inc.,
15 2nd Ave. SW, Suite 305 Montana Tax-Free Fund, Inc., South Dakota
Minot, North Dakota 58701 Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.;
61 Trustee, Ranson Managed Portfolios; Director, First
Western Bank & Trust
Arthur A. Link/(4)/ Director Director, ND Tax-Free Fund, Inc., Montana
2001 Grimsrud Drive Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc.,
Bismarck, North Dakota 58501 and Integrity Fund of Funds, Inc.; Trustee, Ranson
82 Managed Portfolios; Director, Bank Center First
*Peter A. Quist/(5)/ Director Director and Vice President, ND Holdings, Inc.;
1 North Main Vice President Director, Vice President, and Secretary, ND Money
Minot, North Dakota 58703 Secretary Management, Inc., ND Capital, Inc., ND Resources,
62 Inc., ND Tax-Free Fund, Inc., Montana
Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc.,
and Integrity Fund of Funds, Inc.; The Ranson
Company, Inc., and Ranson Capital Corporation; Vice
President and Secretary, Ranson Managed Portfolios
*Robert E. Walstad/(6)/ Director Director and President, ND Holdings, Inc.; Director,
1 North Main President President, and Treasurer, ND Money Management,
Minot, North Dakota 58703 Treasurer Inc., ND Capital, Inc., ND Resources, Inc., ND
52 Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc.,
South Dakota Tax-Free Fund, Inc., and Integrity
Fund of Funds, Inc.; Trustee, Chairman, President, and
Treasurer, Ranson Managed Portfolios; Director,
President, CEO, and Treasurer, The Ranson Company,
Inc., and Ranson Capital Corporation
</TABLE>
*"Interested person" as defined in the Investment Company Act of 1940
(1) Except as otherwise indicated, each individual has held the office(s)
shown for the past five years. Mssrs. Aas, Backes, Link, and Walstad were
elected to the Board of Trustees of Ranson Managed Portfolios at a joint
special meeting of the shareholders of The Kansas Municipal Fund Series,
The Kansas Insured Municipal Fund - Limited Maturity (subsequently renamed
"The Kansas Insured Intermediate Fund") Series, and The Nebraska Municipal
Fund Series of Ranson Managed Portfolios held on December 11, 1995, but
did not assume office until January 5, 1996. Mssrs. Quist and Walstad were
elected as directors and officers of The Ranson Company, Inc., and Ranson
Capital Corporation on January 5, 1996.
(2) Mr. Aas resigned as a director of ND Holdings, Inc., on August 17, 1994.
He was elected to the board of directors of Integrity Fund of Funds, Inc.,
on August 19, 1994, and to the boards of ND Tax-Free Fund, Inc., Montana
Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., and the Fund on
December 2, 1994.
B-6
<PAGE>
(3) Mr. Backes was elected to the boards of directors of ND Tax-Free Fund,
Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc.,
Integrity Fund of Funds, Inc., and the Fund in 1995.
(4) Mr. Link has served on the boards of directors of ND Tax-Free Fund, Inc.,
Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity
Fund of Funds, Inc., and the Fund since their inceptions.
(5) Mr. Quist has served on the boards of directors of ND Tax-Free Fund, Inc.,
Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., and the Fund
since their inceptions. He was elected to the board of South Dakota
Tax-Free Fund, Inc., on April 7, 1995, and has served as the vice
president and secretary of each of the aforenamed funds since their
inceptions.
(6) Mr. Walstad has served as a director and as the president and treasurer of
ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free
Fund, Inc., Integrity Fund of Funds, Inc., and the Fund since their
inceptions.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
COMPENSATION TABLE*
- -------------------------------------------------------------------------------------------------------------
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated Annual from Fund and Fund
Name of Person, Compensation as Part of Fund Benefits Upon Complex Paid to
Position(s) from Fund Expenses Retirement Directors
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lynn W. Aas $297.00 -0- -0- $10,000.00
Director
Orlin W. Backes $222.75 -0- -0- $7,500.00
Director
Arthur A. Link $297.00 -0- -0- $10,000.00
Director
Peter A. Quist -0- -0- -0- -0-
Director,
Vice President, and
Secretary
Robert E. Walstad -0- -0- -0- -0-
Director, President,
and Treasurer
------- ------- ------- ----------
Totals $816.75 -0- -0- $27,500.00
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Directors who are not an "interested person" as that term is defined in the
1940 Act are paid an annual fee of $10,000 for serving on the boards of the
funds in the complex. Each of the funds, including the four series of Ranson
Managed Portfolios, pays a pro rata share of the fee based upon its respective
assets. Mssrs. Quist and Walstad, who are the only "interested persons" of the
funds, receive no compensation from the funds.
B-7
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 28, 1997, the following persons owned of record or were known
by the Registrant to own of record or beneficially 5 percent or more of
Registrant's outstanding shares:
<TABLE>
<CAPTION>
Percentage of Nature of
Name and Address Ownership Ownership
<S> <C> <C>
West Brand & Co. as nominee for First
Western Bank & Trust, 8.11% Record
P.O. Box 1090, Minot, ND 58702
Oakes Community Hospital, 7.30% Record
314 South 8th Street, Oakes, ND 58474
West Brand and Co. as nominee for First
Western Bank & Trust,
fbo Mann's Automotive Supply, Inc. 401(k) 6.39% Record
P.O. Box 1090, Minot, ND 58702
</TABLE>
As of February 18, 1997, directors and officers (including family members) of
the Registrant as a group owned 3,276.428 shares, or 1.13% of Registrant's
outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
ND Money Management, Inc. (the "Investment Adviser"), has been retained under
an Investment Advisory Agreement to act as the Fund's investment adviser,
subject to the authority of the Board of Directors. The Investment Adviser is a
wholly-owned subsidiary of ND Holdings, Inc., a venture capital corporation
organized under the laws of the State of North Dakota on September 22, 1987,
which is also the Fund's sponsor. The Investment Adviser was incorporated under
North Dakota law on August 19, 1988, and also serves as the investment adviser
for ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free
Fund, Inc., and Integrity Fund of Funds, Inc. The address of the Investment
Adviser is 1 North Main, Minot, North Dakota 58703.
The Investment Adviser furnishes the Fund with investment advice and, in
general, supervises the management and investment program of the Fund. The
Investment Adviser furnishes at its own expense all necessary administrative
services, office space, equipment, and clerical personnel for servicing the
investments of the Fund and investment advisory facilities, and executive and
supervisory personnel for managing the investments and effecting the portfolio
transactions of the Fund. In addition, the Investment Adviser pays the salaries
and fees of all officers and directors of the Fund who are affiliated persons of
the Investment Adviser. All other charges and expenses, as more fully described
in the Prospectus under "Management" - "Expenses," are paid by the Fund.
Under the Investment Advisory Agreement, the Fund has agreed to pay the
Investment Adviser an annual fee, payable monthly, of 0.60% of the Fund's
average daily net assets. For the fiscal years ended December 31, 1993, 1994,
1995, and 1996, the Fund paid the Investment Adviser $11,783, $16,097, $18,006,
and $14,031, respectively, pursuant to the Investment Advisory Agreement.
B-8
<PAGE>
The Investment Advisory Agreement provides that the Investment Adviser will
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which the Investment
Advisory Agreement relates, except a loss resulting from willful misfeasance,
bad faith, or gross negligence on the part of the Investment Adviser in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under the Investment Advisory Agreement.
The Investment Advisory Agreement continues in effect from year to year as
long as its continuation is approved at least annually by a majority of the
directors who are not parties to the Investment Advisory Agreement or interested
persons of any such party except in their capacity as directors of the Fund and
by the shareholders or the Board of Directors. lt may be terminated at any time
upon 60 days' written notice by the Fund or by a majority vote of the
outstanding shares and will terminate automatically upon assignment.
Robert E. Walstad and Peter A. Quist, directors and officers of the Fund, are
also directors and officers of the Investment Adviser as indicated under
"Management of the Fund."
Custodian, Transfer Agent, and Accounting Services Agent
First American Bank West, 20 First Street SW, Minot, North Dakota 58701,
serves as Custodian for the Fund's portfolio securities and cash. ND Resources,
Inc. ("Resources"), a wholly-owned subsidiary of ND Holdings, Inc., 1 North
Main, Minot, North Dakota 58703, is the Fund's Transfer Agent. As Transfer
Agent, Resources performs many of the Fund's clerical and administrative
functions, for which it is paid a monthly fee ranging from .16 of 1% of the net
asset value of all outstanding Fund shares up to $10 million down to .09 of 1%
from $50,000,001 and larger. Resources also provides internal accounting and
related services for the Fund, for which it is paid a monthly fee of $2,000 plus
0.05% of the Fund's average daily net assets on an annual basis for the first
$50 million down to 0.01% for net assets in excess of $500 million.
Accountants and Reports to Shareholders
The Fund's independent public accountant, Brady, Martz & Associates, P.C., 24
West Central Avenue, Minot, North Dakota 58701, audits and reports on the Fund's
annual financial statements, reviews certain regulatory reports and the Fund's
federal income tax return, and performs other professional accounting, auditing,
tax, and advisory services when engaged to do so by the Fund. Shareholders will
receive annual audited financial statements and semiannual unaudited financial
statements.
PORTFOLIO TRANSACTIONS
ND Money Management, Inc. (the "Investment Adviser"), is the investment
adviser for the Fund and also furnishes investment advice to other clients,
including ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota
Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. At times investment
decisions may be made to purchase or sell the same investment securities for the
Fund and for one or more of the other clients advised by the Investment Adviser.
When two or more of such clients are simultaneously engaged in the purchase or
sale of the same security, the transactions are allocated as to amount and price
in a manner considered equitable to each and so that each receives to the extent
practicable the average price of such transactions.
B-9
<PAGE>
National securities exchanges have established limitations governing the
maximum number of options in each class which may be written by a single
investor or group of investors acting in concert. An exchange may order the
liquidation of positions found to be in violation of these limits, and it may
impose certain other sanctions. These position limits may restrict the number of
options the Fund will be able to write on a particular security.
The above-mentioned factors may have a detrimental effect on the quantities or
prices of securities, options, or futures contracts available to the Fund. On
the other hand, the ability of the Fund to participate in volume transactions
may produce better executions for the Fund in some cases. The Board of Directors
of the Fund believes that the benefits of the Investment Adviser's organization
outweigh any limitations that may arise from simultaneous transactions.
The Investment Adviser, in effecting purchases and sales of portfolio
securities for the account of the Fund, will implement the Fund's policy of
seeking best execution of orders, which includes best net prices. Consistent
with this policy, orders for portfolio transactions are placed with
broker-dealer firms giving consideration to the quality, quantity, and nature of
each firm's professional services which include execution, clearance procedures,
wire service quotations, and statistical and other research information provided
to the Fund and the Investment Adviser. Any research benefits derived are
available for all clients. Because statistical and other research information is
only supplementary to research efforts of the Investment Adviser and still must
be analyzed and reviewed by its staff, the receipt of research information is
not expected to materially reduce its expenses. In selecting among firms
believed to meet the criteria for handling a particular transaction, the
Investment Adviser may give consideration to those firms that have sold or are
selling shares of the Fund, as well as to those firms that provide market,
statistical, and other research information to the Fund and the Investment
Adviser, although the Investment Adviser is not authorized to pay higher
commissions to firms that provide such services. The Fund will not engage in
principal transactions with affiliates. Finally, the Fund has not paid any
brokerage commissions since it commenced operations.
In effecting purchases and sales of the Fund's portfolio securities, the
Investment Adviser and the Fund may place orders with and pay brokerage
commissions to brokers which are affilliated with the Fund, the Investment
Adviser, the Distributor or selected dealers participating in the offering of
the Fund's shares. Subject to rules adopted by the Securities and Exchange
Commission, the Fund may also purchase municipal securities from other members
of underwriting syndicates of which the Underwriter or other affiliates of the
Fund are members.
PURCHASE AND REDEMPTION OF SHARES
Fund shares are sold at their public offering price, which is the net asset
value next determined after an order and payment are received in proper form
plus a sales charge as described in the Fund's Prospectus. The minimum initial
investment is $1,000, and the minimum subsequent investment is $50, but such
minimum amounts may be changed at any time. See the Prospectus for certain
exceptions to these minimums. An order for the purchase of shares that is
accompanied by a check drawn on a foreign bank (other than a check drawn on a
Canadian bank in United States dollars) or a money order will not be considered
in proper form and will not be processed unless and until the Fund determines
that it has received payment of the proceeds of the check or money order. The
time required for such a determination will vary and cannot be determined in
advance.
B-10
<PAGE>
Upon receipt by the Transfer Agent of a request for redemption, shares will be
redeemed by the Fund at the applicable net asset value as described in the
Fund's Prospectus. When the Fund is asked to redeem shares for which it may not
yet have received good payment, it may delay the mailing of a redemption check
until it has determined that collected funds have been received for the purchase
of such shares, which will generally be within 15 calendar days.
Scheduled variations in or the elimination of the sales charge for purchases
by certain classes of persons or through certain types of transactions as
described in the Prospectus is provided because of anticipated economies in
sales and sales related efforts.
The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the New York Stock Exchange is closed for
trading (other than customary weekend and holiday closings), (b) when trading in
the markets the Fund normally utilizes is restricted or an emergency exists as
determined by the Securities and Exchange Commission so that disposal of the
Fund's investments or determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the Securities and Exchange
Commission by order may permit for protection of the Fund's shareholders. The
New York Stock Exchange is currently closed on the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving, and Christmas. The amount received by a shareholder
upon redemption may be more or less than the amount paid for such shares
depending on the market value of the Fund's portfolio securities at the time.
UNDERWRITER
ND Capital, Inc. (the "Underwriter"), a subsidiary of ND Holdings, Inc., the
Fund's sponsor, is the principal underwriter of the Fund's shares in a
continuous public offering.
Under the terms of the Distribution Agreement between the Fund and the
Underwriter, the Underwriter has agreed to use its best efforts to solicit
orders for the sale of the Fund's shares and to undertake such advertising and
promotion as it believes is reasonable in connection with such solicitation.
The Fund receives the entire net asset value of all shares sold. The
Underwriter retains the sales charge from which it allows discounts from the
applicable public offering price to investment dealers. For the fiscal years
ended December 31, 1993, 1994, 1995, and 1996, the Underwriter received and
retained $3,828, $4,022, $1,000, and $311, respectively, in sales charges from
the sale of Fund shares. The usual discounts allowed to dealers are set forth in
the table under "Purchase of Shares" in the Prospectus. In order to provide
better shareholder service and better compensate those who help provide it, the
Fund may also pay administrative service fees to dealers at the annual rate of
up to 0.25% of the average net assets which are attributable to shareholders of
the Fund for whom such dealers are designated as the dealers of record.
The Distribution Agreement must be approved at least annually by the Fund's
Board of Directors and a vote of a majority of the Fund's directors who are not
interested persons (as defined in the 1940 Act) of the Fund and who have no
direct or indirect financial interest in the operation of the Distribution
Agreement or any agreement related thereto (the "Qualified Directors"), by vote
cast in person at a meeting called for the purpose of voting on such approval.
The Distribution Agreement will terminate automatically in the event of its
assignment and is terminable with respect to the Fund without penalty on 60
days' written notice by vote of a majority of the Qualified Directors or by vote
of a majority (as defined in the 1940 Act) of the outstanding voting securities
of the Fund.
Robert E. Walstad and Peter A. Quist, directors and officers of the Fund, are
also directors and officers of the Underwriter as indicated under "Management of
the Fund."
B-11
<PAGE>
DIVIDENDS AND TAXES
Dividends
All the net investment income of the Fund is declared daily as a dividend on
shares for which the Fund has received payment. Net investment income of the
Fund consists of all interest income earned on portfolio assets less all
expenses of the Fund. Income dividends will be distributed monthly, and
dividends of net realized capital gains, if any, will normally be paid out once
a year after the end of the Fund's fiscal year. The Fund may at any time vary
the foregoing dividend practices and, therefore, reserves the right from time to
time to either distribute or retain for reinvestment such of its net investment
income and its net short-term and long-term capital gains as the Board of
Directors of the Fund determines appropriate under the then current
circumstances. In particular, and without limiting the foregoing, the Fund may
make additional distributions of net investment income or capital gain net
income in order to satisfy the minimum distribution requirements contained in
the Internal Revenue Code (the "Code"). Dividends will be reinvested in shares
of the Fund unless shareholders indicate in writing that they wish to receive
them in cash.
Taxes
The Fund intends to qualify as a regulated investment company under Subchapter
M of the Code and, if so qualified, will not be liable for federal income taxes
to the extent its earnings are distributed. For federal income tax purposes, the
Fund is generally required to recognize its unrealized gains and losses at year
end on financial futures contracts and options thereon. Any gain or loss
recognized on such financial instruments is generally considered to be 60%
long-term and 40% short-term without regard to the holding period of the
contract or option. One of the requirements of Subchapter M is that the Fund
must derive less than 30% of its gross income from gains (not reduced by losses)
on stocks and securities and certain other investments held for less than three
months. The Fund may be limited in its options and futures transactions in order
to prevent recognition of such gains. Dividends from the Fund will not be
eligible for the dividends received deduction available to corporate
shareholders.
The Fund's options and futures transactions are subject to special tax
provisions that may accelerate or defer recognition of certain gains or losses,
change the character of certain gains or losses, or alter the holding periods of
certain of the Fund's securities.
A shareholder who redeems shares of the Fund will recognize capital gain or
loss for federal income tax purposes measured by the difference between the
amount redeemed and the basis of the shares. The gain or loss will be a capital
gain or loss and will be long-term if the shares are held for a period of more
than one year. The loss on shares held six months or less will be a long-term
capital loss to the extent any long-term capital gain distribution is made with
respect to such shares during the period the investor owns the shares.
A shareholder who has redeemed shares of the Fund may reinvest the amount
redeemed at net asset value at the time of the reinvestment in shares of the
Fund within 60 days of the redemption as described under "Redemption of Shares"
- - "Reinvestment Privilege." If the redeemed shares were purchased after
October 3, 1989, and were held less than 91 days, then the lesser of (1) the
sales charge not incurred on the reinvestment shares, or (2) the sales charge
incurred on the redeemed shares is included in the basis of the reinvestment
shares and is not included in the basis of the redeemed shares. If a shareholder
realizes a loss on the redemption of Fund shares and reinvests in Fund shares
within 30 days before or after the redemption, the transactions may be subject
to the wash sale rules resulting in a postponement of the
B-12
<PAGE>
recognition of such loss for federal income tax purposes. An exchange of Fund
shares for shares of any other funds for which ND Money Management, Inc., serves
as the investment adviser is treated as a redemption and reinvestment for
federal income tax purposes upon which gain or loss may be recognized.
PERFORMANCE
As described in the Prospectus, the Fund's historical performance or return
may be shown in the form of "yield," "average annual total return," and "total
return" figures. These various measures of performance are described below.
Yield is a measure of the net investment income per share earned over a
specific one-month or 30-day period expressed as a percentage of the maximum
offering price of the Fund's shares at the end of the period. Average annual
total return and total return measure both the net investment income generated
by, and the effect of any realized or unrealized appreciation or depreciation
of, the underlying investments in the Fund's portfolio.
The Fund's yield is computed in accordance with a standardized method
prescribed by rules of the Securities and Exchange Commission. The Fund's yield
is computed by dividing the net investment income per share earned during the
specified one-month or 30-day period by the maximum offering price per share on
the last day of the period, according to the following formula:
6
YIELD= 2[(a-b + 1) - 1]
---
cd
Where:a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
In computing the foregoing yield, the Fund follows certain standardized
accounting practices specified by Securities and Exchange Commission rules.
These practices are not necessarily consistent with those that the Fund uses to
prepare its annual and interim financial statements in conformity with generally
accepted accounting principles.
The Fund's average annual total return quotation is computed in accordance
with a standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for the Fund for a specific period
is found by first taking a hypothetical $1,000 investment ("initial investment")
in the Fund's shares on the first day of the period, adjusting to deduct the
maximum sales charge, and computing the "redeemable value" of that investment at
the end of the period. The redeemable value is then divided by the initial
investment, and this quotient is taken to the Nth root (N representing the
number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. The calculation assumes that all income and
capital gains dividends paid by the Fund have been reinvested at net asset value
on the reinvestment dates during the period.
B-13
<PAGE>
Calculation of the Fund's total return is not subject to a standardized
formula. Total return performance of a specific period is calculated by first
taking an investment ("initial investment") in the Fund's shares on the first
day of the period, either adjusting or not adjusting to deduct the maximum sales
charge, and computing the "ending value" of that investment at the end of the
period. The total return percentage is then determined by subtracting the
initial investment from the ending value and dividing the remainder by the
initial investment and expressing the result as a percentage. The calculation
assumes that all income and capital gains dividends paid by the Fund have been
reinvested at net asset value on the reinvestment dates during the period. Total
return may also be shown as the increased dollar value of the hypothetical
investment over the period. Total return calculations that do not include the
effect of the sales charge would be reduced if such charge were included.
The Fund's performance figures are based upon historical results and are not
necessarily representative of future performance. The Fund's shares are sold at
net asset value plus a maximum sales charge of 4.5% of the offering price.
Returns and net asset value will fluctuate. Factors affecting the Fund's
performance include general market conditions, operating expenses, and
investment management. Any additional fees charged by a dealer or other
financial services firm would reduce the returns described in this section.
Shares of the Fund are redeemable at the then current net asset value, which may
be more or less than original cost.
Investors may want to compare the Fund's performance to that of certificates
of deposit issued by banks and other depository institutions. Certificates of
deposit represent an alternative income producing product. Certificates of
deposit may offer fixed or variable interest rates, and principal is guaranteed
and may be insured. Withdrawal of the deposit prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution. The
shares of the Fund are not insured, and net asset value as well as yield will
fluctuate. Shares of the Fund are redeemable at net asset value, which may be
more or less than original cost. The bonds in the Fund's portfolio are generally
of longer term than most certificates of deposit and may reflect long-term
market interest rate fluctuations.
Investors may also want to compare the Fund's performance to that of United
States Treasury Bills, Notes, or Bonds, because such instruments represent
alternative income producing products. Rates of Treasury obligations are fixed
at the time of issuance, and payment of principal and interest is backed by the
full faith and credit of the United States Treasury. The market value of such
instruments will generally fluctuate inversely with interest rates prior to
maturity and will equal par value at maturity. Shares of the Fund are redeemable
at net asset value, which may be more or less than original cost. The Fund's
yield will also fluctuate.
APPENDIX--RATINGS OF INVESTMENTS
The four highest ratings of Moody's Investors Service, Inc. ("Moody's"), for
corporate debt securities are Aaa, Aa, A, and Baa. Bonds which are rated Aaa are
judged to be the best quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds, because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which
B-14
<PAGE>
make the long-term risks appear somewhat larger than in Aaa securities. Bonds
which are rated A possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggests a susceptibility to impairment sometime in the future. Bonds
which are rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
The four highest ratings of Standard & Poor's Corporation ("S&P") for
corporate debt securities are AAA, AA, A, and BBB. Debt rated AAA has the
highest rating assigned by S&P. Capacity to pay interest and repay prinicipal is
extremely strong. Debt rated AA has a very strong capacity to pay interest and
repay prinicipal and differs from the higher-rated issues only in small degree.
Debt rated A has a strong capacity to pay interest and repay principal, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories. Debt
rated BBB is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher-rated categories.
Subsequent to its purchase by the Fund, an issue of bonds may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event requires the elimination of such obligation from its
portfolio, but the Investment Adviser will consider such an event in its
determination of whether the Fund should continue to hold such obligation. To
the extent that the ratings accorded by S&P or Moody's for bonds may change as a
result of changes in such organizations or changes in their rating systems, the
Fund will attempt to use comparable ratings as standards for its investments in
bonds in accordance with the investment policies contained in the Prospectus.
B-15
<PAGE>
[BRADY MARTZ logo appears here]
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, 1996, 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 five 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.
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, 1996, 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, 1996, 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 five years in
the period then ended, in conformity with generally accepted accounting
principles.
/S/ Brady, Martz
BRADY, MARTZ & ASSOCIATES, P.C.
February 10, 1997
F-1
<PAGE>
ND INSURED INCOME FUND, INC.
Schedule of Investments December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Ratings
Name of Issuer -----------------------
Percentages represent the market value Inv'm't Std. & Coupon Principal Market
of each 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 (74.55%)
Cleveland Electric Illum. Co. (FSA Insured)...... AAA Aaa AAA 9.000% 03/01/17 46,000 45,299
Commonwealth Edison Co. (FSA Insured)............ AAA Aaa AAA 9.500 05/01/16 99,000 97,713
Commonwealth Edison Co. (FSA Insured)............ AAA Aaa AAA 9.125 05/01/16 34,000 33,481
Consolidated Edison (MBIA)...................... AAA Aaa AAA 7.500 06/15/23 300,000 305,736
Dayton Power & Light Co. (FGIC Insured).......... AAA Aa3 AA- 8.150 01/15/26 95,000 99,546
Dayton Power & Light Co. (FGIC Insured).......... AAA Aa3 AA- 7.875 02/15/24 125,000 128,335
Detroit Edison Co. (AMBAC Insured)............... AAA Aaa AAA 7.740 06/01/18 130,000 131,071
Duke Power Co. (FGIC Insured).................... AAA Aa AA- 8.375 12/01/21 40,000 41,140
Duke Power Co. (FGIC Insured).................... AAA Aa AA- 6.750 08/01/25 80,000 72,570
*Mississippi Power & Light Co. (FSA Insured)...... AAA Aaa AAA 8.500 01/15/23 265,000 268,909
Pacific Gas & Electric Co. (MBIA Insured)........ AAA Aaa AAA 7.250 08/01/26 125,000 124,386
Public Service Elec. & Gas Co. (FGIC Insured).... AAA A3 A- 8.500 06/01/22 93,000 97,014
Southern California Edison Co. (FGIC Insured).... AAA A A+ 7.250 03/01/26 100,000 95,882
Texas Utilities Electric Co. (AMBAC Insured)..... AAA Aaa AAA 8.500 08/01/24 47,000 49,375
*U.S. West Communications......................... AA Aa3 A+ 8.875 06/01/31 250,000 270,188
Virginia Electric & Power Co. (MBIA Insured)..... AAA Aaa AAA 7.250 02/01/23 150,000 149,292
----------
Total Corporate Bonds and Notes (COST: $2,041,317)...................................................... $2,009,937
----------
U.S.GOVERNMENT AGENCIES (15.06%)
Tennessee Valley Authority Bonds................. AAA Aaa AAA 8.625% 11/15/29 $180,000 $ 193,882
Tennessee Valley Authority Bonds................. AAA Aaa NR 7.750 12/15/22 100,000 102,226
Tennessee Valley Authority Bonds................. AAA Aaa NR 7.625 09/01/22 110,000 109,799
----------
Total U.S. Government Agencies (COST: $406,633)......................................................... $ 405,907
----------
TAXABLE MUNICIPAL BONDS (1.86%)
*Westmoreland County, PA (AMBAC Insured) AAA Aaa AAA 7.500% 05/15/13 $ 50,000 $ 50,123
----------
Total Taxable Municipal Bonds (COST: $50,000)........................................................... $ 50,123
----------
SHORT-TERM SECURITIES (7.51%)
Goldman Sachs Institutional Liquid Assets Treasury Instruments Portfolio (COST: $202,425)................... $ 202,425
----------
TOTAL INVESTMENTS IN SECURITIES (COST: $2,700,375).......................................................... $2,668,392
==========
</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.
F-2
<PAGE>
ND INSURED INCOME FUND, INC.
Financial Statements December 31, 1996
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1996
- -----------------------------------------------------------------
<S> <C>
ASSETS
Investment in securities, at value
(cost: $2,700,375)............................. $2,668,392
Accrued dividends receivable................... 498
Accrued interest receivable.................... 42,986
Variation margin on futures.................... 11,296
----------
Total Assets................................ $2,723,172
----------
LIABILITIES
Bank overdraft................................. $ 10,183
Dividends payable.............................. 14,858
Accrued expenses............................... 2,115
----------
Total Liabilities........................... $ 27,156
----------
NET ASSETS.......................................... $2,696,016
----------
----------
Net asset value per share, 291,865
shares outstanding........................... $ 9.24
----------
----------
Statement of Operations
For the year ended December 31, 1996
- -----------------------------------------------------------------
INVESTMENT INCOME
Interest........................................ $ 200,631
Dividends....................................... 5,356
----------
Total Investment Income..................... $ 205,987
----------
EXPENSES
Investment advisory fees........................ $ 16,938
Custodian fees.................................. 585
Transfer agent fees............................. 4,434
Accounting service fees......................... 25,394
Audit and legal fees............................ 4,050
Insurance....................................... 3,975
Directors fees.................................. 1,351
Printing and postage............................ 6,868
License, fees, and registrations................ 1,508
Amortization of organization costs.............. 875
----------
Total expenses............................... $ 65,978
Less expenses waived or absorbed
by the Fund's manager.......................... 40,723
----------
Total Net Expenses............................. $ 25,255
----------
NET INVESTMENT INCOME
(LOSS)............................................... $ 180,732
----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND FUTURES
Net realized gain (loss) from:
Investment transactions......................... $ (2,068)
Futures transactions............................ 67,086
Net change in unrealized appreciation
(depreciation) of:
Investments..................................... (148,320)
Futures......................................... (2,003)
----------
Net Realized And Unrealized Gain (Loss)
On Investments And Futures..................... $ (85,305)
----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS...................................... $ 95,427
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ND INSURED INCOME FUND, INC.
Financial Statements December 31, 1996
Statement of Changes in Net Assets
For the years ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1996 December 31, 1995
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income.......................... $ 180,732 $ 205,024
Net realized gain (loss) on investment and
futures transactions......................... 65,018 (116,476)
Net unrealized appreciation (depreciation)
on investments and futures................... (150,323) 394,006
-----------------------------------
Net Increase (Decrease) in Net
Assets Resulting From Operations......... $ 95,427 $ 482,554
-----------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income........... $ (180,732) $ (205,024)
Distributions from net realized gain on
investment and futures transactions.......... 0 0
-----------------------------------
Total Dividends and Distributions.......... $ (180,732) $ (205,024)
-----------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares................... $ 73,819 $ 209,568
Proceeds from reinvested dividends............. 119,801 190,630
Cost of shares redeemed........................ (424,389) (483,527)
-----------------------------------
Net Increase (Decrease) in
Net Assets Resulting
From Capital Share Transactions............ $ (230,769) $ (83,329)
-----------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............. $ (316,074) $ 194,201
NET ASSETS, BEGINNING OF PERIOD..................... 3,012,090 2,817,889
-----------------------------------
NET ASSETS, END OF PERIOD........................... $ 2,696,016 $ 3,012,090
-----------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ND INSURED INCOME FUND, INC.
Notes to Financial Statements December 31, 1996
Notes to Financial Statements December 31, 1996
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 - The Fund may purchase and sell financial futures
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 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. Unrealized appreciation (depreciation) related to open
futures contracts is required to be treated as realized gain (loss) for
Federal income tax purposes.
Certain risks may arise upon entering into futures contracts. These
risks may include changes in the value of the futures contracts 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.
F-5
<PAGE>
Note 3. SHARE TRANSACTIONS
As of December 31, 1996, there were 200,000,000 shares of $.001 par
value authorized; 291,865 and 316,842 were outstanding at December 31,
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
Year Ended Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1996 December 31, 1995
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 8,164 22,961 $ 73,819 $ 209,568
Shares issued on
reinvestment of dividends 13,030 21,438 119,801 190,630
Shares redeemed - (46,171) (52,837) (424,389) (483,527)
-----------------------------------------------------------------------------------------
Net increase (decrease) (24,977) (8,438) $(230,769) $(83,329)
==========================================================================================
</TABLE>
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 and accounting services 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 year ended December 31, 1996 were $14,031. Certain
officers and directors of the Fund are also officers and directors of
the investment adviser.
As of December 31, 1996, the Fund owed ND Money Management $1,175 for
investment advisory fees incurred but not paid, and owed ND Holdings,
Inc. $940 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
$4,434 of transfer agency fees for the year ended December 31, 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 $25,394 of accounting service fees for the year ended
December 31, 1996.
Note 5. INVESTMENT SECURITY TRANSACTIONS
Proceeds from sale of investment securities (excluding short-term
securities) aggregated $568,207, $736,420 and $297,549 for corporate
bonds and notes, U.S. Government obligations and taxable municipal
securities respectively, with cost of purchases totaling $739,471 and
$563,765 for U.S. Government obligations and corporate bonds and notes
for the year ended December 31, 1996.
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 31, 1996:
<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>
$9.24 .955 $9.68
</TABLE>
On sales of greater than $100,000, the sales charge is reduced on a
sliding scale.
F-6
<PAGE>
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 December 31, 1996, the aggregate cost of securities for federal
income tax purposes was $2,700,375, and the net unrealized depreciation
of investments based on the cost was $31,983, which was comprised of
$27,056 aggregate gross unrealized appreciation and $59,039 aggregate
gross unrealized depreciation.
F-7
<PAGE>
ND INSURED INCOME FUND, INC.
Notes to Financial Statements December 31, 1996
<TABLE>
<CAPTION>
Financial Highlights Selected per share data and ratios for the period indicated
- --------------------------------------------------------------------------------------------------------------------------
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31
1996 1995 1994 1993 1992
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 9.51 $ 8.66 $ 9.62 $ 9.68 $ 9.69
-----------------------------------------------------------------------
Income from Investment Operations:
Net investment income....................... $ .59 $ .62 $ .64 $ .68 $ .73
Net realized and unrealized gain (loss)
on investments and futures transactions..... (.27) .85 (.70) (.01) (.01)
-----------------------------------------------------------------------
Total From Investment Operations........ $ .32 $ 1.47 $ (.06) $ .67 $ .72
-----------------------------------------------------------------------
Less Distributions:
Dividends from net investment income....... $ (.59) $ (.62) $ (.64) $ (.68) $ (.73)
Distributions from net realized gains...... .00 .00 (.26) (.05) .00
-----------------------------------------------------------------------
Total Distributions..................... $ (.59) $ (.62) $ (.90) $ (.73) $ (.73)
-----------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.................. $ 9.24 $ 9.51 $ 8.66 $ 9.62 $ 9.68
=======================================================================
Total Return.................................... 3.65%(A) 17.53%(A) (.58)%(A) 6.86%(A) 7.78%(A)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)... $ 2,696 $ 3,012 $ 2,818 $ 2,445 $ 1,839
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)
Ratio of net investment income to
average net assets........................ 6.47% 6.85% 7.02% 7.11% 7.56%
Portfolio turnover rate.................... 49.27% 0.00%(C) 14.55% 102.00% 58.00%
</TABLE>
(A) Excludes maximum sales charge of 4.5%.
(B) During the periods indicated above, ND Holdings, Inc. assumed expenses of
$40,723, $18,573, $23,697, $35,570, and $32,228, respectively. If the
expenses had not been assumed, the annualized ratios of total expenses to
average net assets would have been 2.36%, 1.38%, 1.53%, 2.52%, and 3.40%,
respectively.
(C) No investment securities were purchased during the period.
F-8
<PAGE>
ND INSURED INCOME FUND, INC.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Included in Part B of the Registration Statement:
Independent Public Accountant's Report, dated February 10, 1997
Schedule of Investments as of December 31, 1996
Statement of Assets and Liabilities as of December 31, 1996
Statement of Operations for the Year Ended December 31, 1996
Statement of Changes in Net Assets for the Years Ended
December 31, 1996 and 1995
Notes to Financial Statements
Financial Highlights
Schedules II through VII are ommitted because inapplicable.
(b) Exhibits
(1) Articles of Incorporation *
(2) Bylaws *
(4) Specimen Copy of Share Certificate *
(5) Form of Investment Advisory Agreement *
(6)(a) Form of Distribution Agreement *
(6)(b) Form of Dealer Sales Agreement ****
(8) Form of Custodian Agreement ***
(9)(a) Form of Transfer Agency Agreement ***
(9)(b) Form of Accounting Services Agreement *****
(10) Opinion of Pringle & Herigstad, P. C. *
(11) Consent of Independent Public Accountant
(13)(a) Form of Subscription Agreement *
(13)(b) Executed Subscription Agreements **
-----------------------------
* Previously filed as an exhibit to Registrant's Registration
Statement on Form N-1A filed with the Securities and Exchange
Commission on January 14, 1991, and incorporated by reference
herein.
** Previously filed as an exhibit to Post-effective Amendment No.
1 to Registrant's Registration Statement on Form N-1A filed
with the Securities and Exchange Commission on March 27, 1991,
and incorporated by reference herein.
C-1
<PAGE>
*** Previously filed as an exhibit to Post-effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A filed with the
Securities and Exchange Commission on April 26, 1994, and incorporated
by referenced herein.
**** Previously filed as an exhibit to Post-effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A filed with the
Securities and Exchange Commission on May 1, 1995, and incorporated by
referenced herein.
***** Previously filed as an exhibit to Post-effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A filed with the
Securities and Exchange Commission on May 1, 1996, and incorporated by
referenced herein.
Item 25. Persons Controlled by or Under Common Control with Registrant
Inapplicable
Item 26. Number of Holders of Securities
Title of Class Number of Record Holders
Shares, par value 110
$.001 per share (As of February 18, 1997)
Item 27. Indemnification
Section 4 of the Distribution Agreement [ Exhibit (6) (a) ] provides
for the indemnification of ND Capital, Inc., Registrant's principal underwriter,
against certain losses. Section 12 of the Transfer Agency Agreement [Exhibit 9]
provides for the indemnification of ND Resources, Inc., Registrant's transfer
agent, against certain losses.
Indemnification of directors, officers, employees, and agents of
Registrant is required under Section 10-19.1-91 of the North Dakota Century
Code. In addition, Registrant has obtained an insurance policy on behalf of
directors and officers against any liability asserted against and incurred by
the person in or arising from that person's official capacity to the extent
permitted by law.
In no event will Registrant indemnify its directors, officers,
employees, or agents against any liability to which such person would otherwise
be subject by reason of his willful misfeasance, bad faith, gross negligence in
the performance of his duties, or by reason of his reckless disregard of the
duties involved in the conduct of his office arising under his agreement with
Registrant.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the ques-
C-2
<PAGE>
tion of whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
Anything in the North Dakota Business Corporation Act (Chapters 10-19
through 10-23 of the North Dakota Century Code), the Fund's Articles of
Incorporation or Bylaws, or the Investment Advisory, Distribution, or Transfer
Agency Agreements to the contrary notwithstanding, Registrant will comply in all
respects with the provisions of Investment Company Act Release No. 11330
(September 4, 1980) concerning indemnification.
Item 28. Business and Other Connections of Investment Adviser
ND Money Management, Inc. (the "Investment Adviser"), is a wholly-owned
subsidiary of ND Holdings, Inc. ("Holdings"), Registrant's promoter. The
Investment Adviser was organized under the laws of the State of North Dakota on
August 19, 1988, and also serves as investment adviser for ND Tax-Free Fund,
Inc. ("NDIIF"), Montana Tax-Free Fund, Inc. ("MTFF"), South Dakota Tax-Free
Fund, Inc. ("SDTFF"), and Integrity Fund of Funds, Inc. ("IFF").
The officers and directors of the Investment Adviser are Robert E.
Walstad and Peter A. Quist. Mssrs. Walstad and Quist are also officers and
directors of Holdings, ND Capital, Inc. ("Capital"), Registrant's principal
underwriter, ND Resources, Inc. ("Resources"), Registrant's transfer agent,
NDTFF, MTFF, SDTFF, and IFF.
Mr. Walstad served as a stockbroker and branch manager of the Minot,
North Dakota, office of Dean Witter Reynolds from September 1977 to October 1987
when he resigned to organize Holdings. Mr. Quist was Securities Commissioner of
the State of North Dakota from May 6, 1983, to January 31, 1988, when he
resigned to join Holdings as vice president and director.
The principal business address of the Investment Adviser, Holdings,
Capital, Resources, NDTFF, MTFF, SDTFF, and IFF is 1 North Main, Minot, North
Dakota 58703.
Item 29. Principal Underwriters
(a) Other investment companies for which Registrant's principal
underwriter also acts as principal underwriter, depositor, or investment
adviser: ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota
Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.
(b) Information concerning each director, officer, or partner of the
principal underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
------------------------- -------------------------- --------------------------
<S> <C> <C>
Robert E. Walstad President, Treasurer, President, Treasurer,
1 North Main and Director and Director
Minot, North Dakota 58703
Peter A. Quist Vice President, Secretary, Vice President, Secretary
1 North Main and Director and Director
Minot, North Dakota 58703
</TABLE>
(c) Inapplicable
C-3
<PAGE>
Item 30. Location of Accounts and Records
First American Bank West, 20 First Street SW, Minot, North Dakota
58701, serves as custodian of Registrant and maintains all records related to
that function. ND Resources, Inc. ("Resources"), serves as transfer agent,
dividend disbursing, administrative, and accounting services agent of Registrant
and maintains all records related to those functions. ND Capital, Inc.
("Capital"), serves as the principal underwriter of Registrant and maintains all
records related to that function. ND Money Management, Inc. ("Money
Management"), serves as Registrant's investment adviser and maintains all
records related to that function. Registrant maintains all of its corporate
records. The address of Resources, Capital, Money Management, and Registrant is
1 North Main, Minot, North Dakota 58703.
Item 31. Management Services
Inapplicable
Item 32. Undertakings
Inapplicable
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant certifies that it meets all of the
requirements for effectiveness of this Post-effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A filed with the Securities and
Exchange Commission on January 14, 1991, pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-effective Amendment No. 9
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Minot, State of North Dakota, on the 19th day of February, 1997.
ND INSURED INCOME FUND, INC.
By:
----------------------
Robert E. Walstad
President
C-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Post-effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A has been signed below by the
following persons in the capacities and on the date indicated.
February 19, 1997
- -------------------------------------------- -------------------
Lynn W. Aas
Director
February 19, 1997
- -------------------------------------------- -------------------
Orlin W. Backes
Director
February 19, 1997
- -------------------------------------------- -------------------
Arthur A. Link
Director
February 19, 1997
- -------------------------------------------- -------------------
Peter A. Quist
Director, Vice President, and Secretary
February 19, 1997
- -------------------------------------------- -------------------
Robert E. Walstad
Director, President, and Treasurer
C-5
<PAGE>
ND INSURED INCOME FUND, INC.
Registration Statement on Form N-lA under
the Securities Act of 1933 and the
Investment Company Act of 1940
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
(1) Articles of Incorporation
(2) Bylaws
(4) Specimen Copy of Share Certificate
(5) Form of Investment Advisory Agreement
(6)(a) Form of Distribution Agreement
(6)(b) Form of Dealer Sales Agreement
(8) Form of Custodian Agreement
(9) Form of Transfer Agency Agreement
(10) Opinion of Pringle & Herigstad, P. C.
(11) Consent of Independent Accountants*
(13) Form of Subscription Agreement
*To be filed by Amendment
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,700,375
<INVESTMENTS-AT-VALUE> 2,668,392
<RECEIVABLES> 43,484
<ASSETS-OTHER> 11,296
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,723,172
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,156
<TOTAL-LIABILITIES> 27,156
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 291,865
<SHARES-COMMON-PRIOR> 316,842
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (51,458)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (31,983)
<NET-ASSETS> 2,696,016
<DIVIDEND-INCOME> 5,356
<INTEREST-INCOME> 200,631
<OTHER-INCOME> 0
<EXPENSES-NET> 25,255
<NET-INVESTMENT-INCOME> 180,732
<REALIZED-GAINS-CURRENT> 65,018
<APPREC-INCREASE-CURRENT> (150,323)
<NET-CHANGE-FROM-OPS> 95,427
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 180,732
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,164
<NUMBER-OF-SHARES-REDEEMED> 46,171
<SHARES-REINVESTED> 13,030
<NET-CHANGE-IN-ASSETS> (316,074)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16,938
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 65,978
<AVERAGE-NET-ASSETS> 2,791,834
<PER-SHARE-NAV-BEGIN> 9.51
<PER-SHARE-NII> .59
<PER-SHARE-GAIN-APPREC> (.27)
<PER-SHARE-DIVIDEND> (.59)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.24
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
ARTICLES OF INCORPORATION
<PAGE>
6,235,900
(LOGO)ARTICLES OF INCORPORATION-NORTH DAKOTA BUSINESS FOR OFFICE USE ONLY
-------------------
OR FARMING CORPORATION Validation
NORTH DAKOTA SECRETARY OF STATE
SFN 16812 (6-89)
SEE PAGE 4 FOR FILING AND MAILING INSTRUCTIONS
FILE NO. 6,235,900
We, the undersigned natural persons of the age of eighteen years or more,
acting as incorporators of a corporation organized under North Dakota Business
Corporation Act, adopt the following Articles of incorporation for such
Corporation:
Article 1. The name of said Corporation shall be: ND Insured Income Fund, Inc.
Article 2. The period of its duration is perpetual, or
Article 3. The purpose for which the Corporation is organized are general
business purposes, OR:
To engage in business as a management investment company registered under
the Investment Company Act of 1940.
To do everything necessary, proper, advisable, or convenient for the
accomplishment of the above purpose and to do every other act and thing
incidental thereto.
page 1
<PAGE>
Article 4. 6235900
A. Aggregate number of shares the corporation has authority to issue Two
hundred million (200,000,000)
B. Par value per share authorized by corporation
One mill ($.001)
C. If shares are divided into classes they are identified as follows:
CLASS NO. OF SHARES PAR VALUE PER SHARE
Article 5.
- ---------
A. Name of Registered Agent
Robert E. Walstad
B. Social Security or Federal *ID # of Registered Agent ###-##-####
C. Address of Registered Office City State Zip Code
201 South Broadway Minot ND 58701
D. Address of Executive Office (if different than "C")City State Zip Code
E. The articles of incorporation are accompanied by a signed consent of the
registered agent with a filing fee of $10.
Article 6. Other provisions by which this corporation shall be governed; (if
none, insert "none")
No shareholder shall be entitled as a matter of right to subscribe for or
purchase or receive any new or additional issue of shares or securities
convertible into shares, whether now or hereafter authorized or whether issued
for money, for a consideration other than money, or by way of dividend.
Any action, other than an action requiring shareholder approval, may be
taken by written action signed by the number of directors that would be required
to take the same action at a meeting of the board of directors at which all
directors were present.
The number of directors of the corporation shall be five, which number may
be changed in accordance with the bylaws of the corporation. The names of the
directors who shall serve until the first regular meeting of shareholders or
until their successors are elected and qualify are;
Charles E. Bailly
Arthur A. Link
Ben Meier
Peter A. Quist
Robert E. Walstad
<PAGE>
6,235,900
Article 7. A. The name, social security number, and address of each
incorporator:
SOCIAL SECURITY
NAME NUMBER ADDRESS CITY STATE Zip
Peter A. Quist ###-##-#### 1728 Country W. Rd., Bismarck, ND 58501
B. SIGNATURES
I (We), the above named incorporator(s), have read the foregoing Articles
of Incorporation, know the contents, and believe the statements made therein to
be true.
Dated November 27 1990
/Peter A. Quist/
8. FEES:
Filing $30.00
Consent of Registered Agent $10.00
Minimum License Fee $50.00
Additional License Fees
(Equal to $10.00 for every additional
$10,000 in excess of $50,000)
SEE INSTRUCTIONS ON PAGE 4.
OFFICE USE ONLY
---------------
Date Filed 11-27-90
Fee Paid /Jim Kusler/
*Filed By signature
Page 3
<PAGE>
SEAL
State of North Dakota
C E R T I F I C A T E OF I N C O R P O R A T I O N
OF
ND INSURED INCOME FUND, INC.
The undersigned, as Secretary of State of the State of North Dakota, hereby
certifies that duplicate originals of Articles of Incorporation for the
incorporation of
ND INSURED INCOME FUND,INC.
duly signed and verified pursuant to the provisions of the North Dakota
BUSINESS CORPORATION Act, have been received in this office and are found to
conform to law.
ACCORDINGLY the undersigned, as such
Secretary of State, and by virtue of the authority vested in him by law,
hereby issues this Certificate of Incorporation to
ND INSURED INCOME FUND, INC.
and attaches hereto a duplicate original of the Articles
of Incorporation.
Dated: November 27, 1990
/Jim Kusler
Jim Kusler
Secretary of State
<PAGE>
EXHIBIT 99.2
BYLAWS
<PAGE>
BYLAWS
OF
ND INSURED INCOME FUND, INC.
Except as otherwise expressly provided in these bylaws or in the articles of
incorporation or as required under any federal laws and rules and regulations to
which the corporation is subject, the management, business, and affairs of the
corporation shall be governed by and conducted in accordance with the provisions
of the North Dakota Business Corporation Act.
ARTICLE I
OFFICES
The corporation shall have offices at such places either within or without
the State of North Dakota as the board of directors may determine.
ARTICLE II
SHAREHOLDERS
Section 1. Regular Meetings. Regular meetings of shareholders may be held
on an annual or other less frequent basis, but need not be held unless required
by law. Regular meetings shall be held on a date and at a time and place,
either within or without the State of North Dakota, as the board of directors
shall determine.
Section 2. Quorum. The holders of one-third of the shares entitled to vote
at a meeting constitute a quorum for the transaction of business.
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
Section 1. Number. The business and affairs of the corporation shall be
managed by a board of directors consisting of three or more directors. The
number of directors may be determined either by the vote of a majority of the
entire board or by vote of the shareholders and initially shall be five.
Section 2. Election and Qualifications. The directors of the corporation,
other than the first board of directors named in the articles of incorporation,
shall be elected by the shareholders for indefinite terms that expire at the
next regular meeting of the shareholders. Directors hold office until
successors are elected and have qualified or until their earlier death,
resignation, removal, or disqualification. Directors need not be residents of
the State of North Dakota or shareholders of the corporation.
Section 3. Regular Meetings. Regular meetings of the board of directors may
be held at such time and place, either within or without the State of North
Dakota, as the board may determine, and no notice shall be required for regular
meetings.
Section 4. Special Meetings. Special meetings of the board of directors may
be called by or at the request of the president or any two directors. Notice of
the date, time, and place of special meetings shall be given to each director at
least forty eight hours prior to the meeting, unless the notice is given orally
or delivered in person, in which case it shall be given at least twenty-four
hours prior to the meeting.
2
<PAGE>
ARTICLE IV
OFFICERS
Section 1. Enumeration of Offices. The officers of the corporation shall be
a president, one or more vice presidents (the number thereof to be determined by
the board of directors), a secretary, and a treasurer, each of whom shall be
elected by the board of directors. The board of directors may also appoint or
elect any other officers, assistant officers, and agents that it may deem
necessary. Any two or more offices may be held by the same person.
Section 2. Election and Term of Office. The officers shall be elected by
the board of directors. Unless otherwise provided by the board of directors,
each officer shall hold office until the first meeting of the board of directors
following the next election of directors and until a successor is elected and
has qualified or until the earlier death, resignation, removal, or
disqualification of the officer.
Section 3. Powers and Duties. The powers and duties of the several officers
shall be as provided from time to time by resolution or other directive of the
board of directors. In the absence of such provisions, the respective officers
shall have the powers and shall discharge the duties customarily and usually
held and performed by like officers of corporations similar in organization and
business purposes to this corporation.
Section 4. Salaries. The salaries of the officers shall be fixed from time
to time by the board of directors, and no officer shall be prevented from
receiving a salary by reason of the fact that he is also a director of the
corporation.
3
<PAGE>
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be any period of twelve consecutive
months which the board of directors may designate by resolution or other
directive.
Adopted this 3rd day of December, 1990.
/Robert E. Walstad/
Robert E. Walstad
/Peter A. Quist/
Peter A. Quist
/Charles E. Bailly
Charles E. Bailly
/Ben Meier/
Ben Meier
/Arthur A. Link
Arthur A. Link
4
<PAGE>
EXHIBIT (4)
SPECIMEN COPY OF SHARE CERTIFICATE
<PAGE>
NUMBER SHARES
000
ND INSURED INCOME FUND, INC.
Incorporated under the Laws
of North Dakota
Cusip No.
THIS IS TO CERTIFY THAT: ACCOUNT NO:
SOC.SEC.:
is the owner of.............. ............... fully paid and non-
assessable shares of the par value of one mill ($ .001) each of ND Insured
Income Fund, Inc. transferable on the books of the corporation by the holder
hereof, in person or by attorney, upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are subject to the
Articles of Incorporation and Bylaws of the corporation as from time to time
amended. This certificate is not valid until countersigned by the Transfer
Agent.
In Witness Whereof, the corporation has caused the facsimile signatures of
its proper officers to be affixed this
day of
*Countersigned
By
First American Bank & Trust of Minot
President Transfer Agent
By By
Secretary Authorized Signature
<PAGE>
EXHIBIT 99.5
FORM OF INVESTMENT ADVISORY AGREEMENT
<PAGE>
INVESTMENT ADVISORY AGREEMENT
December 3, 1990
ND Money Management, Inc.
201 South Broadway
Minot, North Dakota 58701
Dear Sirs:
ND Insured Income Fund, Inc. (the "Fund"), a corporation organized under the
laws of the State of North Dakota, herewith confirms its agreement with ND Money
Management, Inc. (the "Adviser"), as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and and
reinvesting in investments of the kind and in accordance with the limitations
specified in its Prospectus and Statement of Additional Information, as from
time to time in effect, and in such manner and to such extent as may from time
to time be approved by the Board of Directors of the Fund. Copies of the Fund's
Prospectus and Statement of Additional Information have been or will be
submitted to the Adviser. The Fund desires to employ and hereby appoints the
Adviser to act as its investment adviser. The Adviser accepts the compensation
set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of Directors of
the Fund, the Adviser will (a) act in conformity with the Investment Company Act
of 1940 and the Investment Advisers Act of 1940, as the same may from time to
time be amended, (b) manage the Fund in accordance with the Fund's investment
objective(s) and policies as stated in the Fund's Prospectus and Statement of
Additional Information as from time to time in effect, (c) make investment
decisions for the Fund, and (d) place purchase and sale orders on behalf of the
Fund. In providing those services, the Adviser will provide investment research
and supervision of the Fund's investments and conduct a continual program of
<PAGE>
investment, evaluation, and, if appropriate, sale and reinvestment of the Fund's
assets. In addition, the Adviser will furnish the Fund with whatever
statistical information the Fund may reasonably request with respect to the
securities that the Fund may hold or contemplate purchasing.
3. Brokerage
In executing transactions for the Fund and selecting brokers or
dealers, the Adviser will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any Fund
transaction, the Adviser will consider all factors it deems relevant including,
but not limited to, breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of any commission for the specific transaction
and on a continuing basis. In selecting brokers or dealers to execute a
particular transaction and in evaluating the best overall terms available, the
Adviser may consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Fund and/or other accounts over which the Adviser exercises investment
discretion.
4. Information Provided to the Fund
The Adviser will keep the Fund informed of developments materially
affecting the Fund and will, on its own initiative, furnish the Fund from time
to time with whatever information the Adviser believes is appropriate for this
purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the
services listed in paragraphs 2 and 3 above. The Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect the Adviser
against any liability to the Fund or to shareholders of the Fund to which the
Adviser would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence on its part in the performance of its duties or by reason of
the Adviser's reckless disregard of its obligations and duties under this
Agreement.
2
<PAGE>
6. Independent Contractor
The Adviser shall be deemed to be an independent contractor under this
Agreement and, unless otherwise expressly provided or authorized, shall have no
authority to act for or represent the Fund in any way or otherwise be deemed as
agent of the Fund.
7. Compensation
In consideration of the services rendered pursuant to this Agreement,
the Fund will pay the Adviser on the first business day of each month a fee for
the previous month at the annual rate of .60 of 1.00% of the Fund's average
daily net assets. The fee for the period from the date of the Fund's initial
registration statement is declared effective by the Securities and Exchange
Commission to the end of the month during which the initial registration
statement is declared effective shall be prorated according to the proportion
that such period bears to the full monthly period. Upon any termination of this
Agreement before the end of a month, the fee for such part of that month shall
be prorated according to the proportion that such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement. For the purpose of determining fees payable to the Adviser, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus or Statement of Additional Information as
from time to time in effect.
8. Expenses
--------
The Adviser will bear all expenses in connection with the performance
of its services under this Agreement. The Fund will bear certain other expenses
to be incurred in its operation, including: organization expenses; taxes;
interest; brokerage fees and commissions, if any; fees and expenses of directors
and officers of the Fund who are not officers or directors of the Adviser;
Securities and Exchange Commission fees and state securities laws fees; charges
of custodians and transfer and dividend disbursing agents; insurance premiums;
outside auditing and legal expenses; costs of maintenance of the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of the shareholders of the Fund and of the officers and Board of
Directors of the Fund; and any extraordinary expenses.
3
<PAGE>
9. Services to Other Companies or Accounts
The Fund understands that the Adviser may act in the future as
investment adviser to fiduciary and other managed accounts and as investment
adviser to one or more other investment companies, and the Fund has no objection
to the Adviser so acting, provided that whenever the Fund and one or more other
accounts or investment companies advised by the Adviser have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each entity. Similarly,
opportunities to sell securities will be allocated in an equitable manner. The
Fund recognizes that in some cases this procedure may adversely affect the size
of the position that may be acquired or disposed of for the Fund. In addition,
the Fund understands that the persons employed by the Adviser to assist in the
performance of the Adviser's duties hereunder will not devote their full time to
such service, and nothing contained herein shall be deemed to limit or restrict
the right of the Adviser or any affiliate of the Adviser to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature.
10. Term of Agreement
This Agreement shall continue until December 3, 1992, and thereafter
shall continue automatically for successive annual periods ending on December 3
of each year, provided such continuance is specifically approved at least
annually by (i) the Board of Directors of the Fund or (ii) a vote of a
'majority" (as defined in the Investment Company Act of 1940) of the Fund's
outstanding voting securities, provided that in either event the continuance is
also approved by a majority of the Board of Directors who are not "interested
persons" (as defined in said Act) of any party to this Agreement, by vote cast
in person at a meeting called for the purpose of voting on such approval. This
Agreement is terminable, without penalty, on 60 days' written notice, by the
Board of Directors of the Fund or by vote of holders of a majority of the Fund's
shares, or upon 90 days' written notice, by the Adviser. This Agreement will
also terminate automatically in the event of its assignment (as defined in said
Act).
11. Limitation of Liability
-----------------------
This Agreement has been executed on behalf of the Fund by the undersigned
officer of the Fund in his capacity as an officer of the Fund. The obligations
of this Agreement shall be binding upon the assets and property of the Fund only
and shall not be binding upon any director, officer, or shareholder of the Fund
individually.
4
<PAGE>
If the foregoing is in accordance with your understanding, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
ND INSURED INCOME FUND, INC.
By: /Robert E. Walstad/
President
Accepted:
ND MONEY MANAGEMENT, INC.
By: /Robert E. Walstad/
Authorized Officer
5
<PAGE>
EXHIBIT 99.6A
FORM OF DISTRIBUTION AGREEMENT
<PAGE>
DISTRIBUTION AGREEMENT
December 3, 1990
ND Capital, Inc.
201 South Broadway
Minot, ND 58701
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, ND Insured Income Fund, Inc. (the "Fund"), an open-
end, non-diversified, management investment company organized as a corporation
under the laws of the State of North Dakota, has agreed that ND Capital, Inc.
("Capital"), shall be, for the period of this Agreement, the principal
underwriter of shares issued by the Fund (the "Shares").
1. Services as Underwriter
1.1 Capital will act as principal underwriter for the distribution of
the Shares covered by the registration statement, prospectus, and statement of
additional information then in effect (the "Registration Statement") under the
Securities Act of 1933, as amended (the "1933 Act"), and the Investment Company
Act of 1940, as amended (the "1940 Act").
1.2 Capital agrees to use its best efforts to solicit orders for the
sale of the Shares at the public offering price, as determined in accordance
with the Registration Statement, and will undertake such advertising and
promotion as it believes is reasonable in connection with such solicitation.
1.3 All activities by Capital as underwriter of the Shares shall
comply with all applicable laws, rules, and regulations, including, without
limitation, all rules and regulations made or adopted by the Securities and
Exchange Commission (the "SEC") or by any securities association registered
under the Securities Exchange Act of 1934.
1.4 Capital will provide one or more persons during normal business
hours to respond to telephone questions concerning the Fund.
1.5 Capital acknowledges that, whenever in the judgment of the Fund's
officers such action is warranted for any reason, including, without limitation,
market, economic, or political conditions, those officers may decline to accept
any orders for, or make any sales of, the Shares until such time as those
officers deem it advisable to accept such orders and to make such sales.
1.6 Capital shall be deemed to be an independent contractor and, except
as specifically provided or authorized herein, shall have no authority to act
for or represent the Fund. Capital will act only on its own behalf as principal
should it choose to enter into selling agreements with selected dealers or
others.
<PAGE>
1.7 Capital shall retain the sales charge resulting from the sale of
Fund Shares from which it shall allow discounts from the applicable public
offering price to investment dealers. The usual discount allowed to dealers is
set forth in the following table. Upon notice to all dealers with whom it has
sales agreements, Capital may reallow up to the full applicable sales charge as
shown in the table during periods or for transactions specified in such notice,
and such reallowances may be based upon attainment of minimum sales levels.
<TABLE>
<CAPTION>
Sales Charge
Allowed to
As a As a Dealers as a
Percentage of Percentage of Percentage of
Offering Price Net Asset Value Offering Price
<S> <C> <C> <C>
Amount of Purchase
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than 250,000 3.50% 3.63% 3.00%
$250,000 but less than 500,000 2.50% 2.56% 2.25%
$500,000 but less than 1,000,000 2.00% 2.04% 1.75%
$1,000,000 and over .1O% .10% .10%
'Rounded to the nearest one-hundredth percent
</TABLE>
1.8 Capital shall also provide information and administrative services for
Fund shareholders and may enter into arrangements with various financial
services firms, such as broker-dealer firms or banks ("firms"), that provide
services and facilities for their customers or clients who are shareholders of
the Fund. Such administrative services and assistance may include, but are not
limited to, establishing and maintaining shareholder accounts and records,
processing purchase and redemption transactions, answering routine inquiries
regarding the Fund, and such other services as may be agreed upon from time to
time and permitted by applicable statute, rule, or regulation. Capital, shall
bear all of its expenses of providing such services, including the payment of
any service fees. In return, the Fund shall pay Capital a fee, payable monthly,
at the annual rate of .10 of 1% of average daily net assets of the Fund.
Capital, in turn, shall pay each firm a service fee at an annual rate of up to
.10 of 1% of net assets of those accounts in the Fund that it maintains and
services. A firm becomes eligible for the service fee based on assets in the
accounts in the month following the month of purchase, and the fee continues
until terminated by Capital or the Fund. The fees shall be calculated monthly
and paid quarterly. Capital may provide some of the above services and may
retain any portion of the fee not paid to firms to compensate itself for
administrative functions performed for the Fund. The administrative service fee
payable to Capital shall be based only upon Fund assets in accounts for which
there is a firm listed on the Fund's records. The effective administrative
service fee rate to be charged against all assets of the Fund
2
<PAGE>
while this procedure is in effect will depend upon the proportion of Fund assets
that is in accounts for which there is a firm of record. The administrative
service fee may be increased to an annual rate of .25 of 1% of average daily net
assets in the discretion of the Board of Directors and without shareholder
approval.
1.9 Capital will bear all expenses in connection with the performance
of its services and the incurring of distribution expenses under this Agreement.
For purposes of this Agreement, "distribution expenses" of Capital shall mean
all expenses borne by Capital or by any other person with which Capital has an
agreement approved by the Fund, which expenses represent payment for activities
primarily intended to result in the sale of Shares, including, but not limited
to, the following:
(a) payments made to, and expenses of, persons who provide support
services in connection with the distribution of Shares, including, but not
limited to, office space and equipment, telephone facilities, answering routine
inquiries regarding the Fund, processing shareholder transactions, and providing
any other shareholder services;
(b) costs relating to the formulation and implementation of marketing
and promotional activities, including, but not limited to, direct mail
promotions and television, radio, newspaper, magazine, and other mass media
advertising;
(c) costs of printing and distributing prospectuses and reports of
the Fund to prospective shareholders of the Fund;
(d) costs involved in preparing, printing, and distributing sales
literature pertaining to the Fund; and
(e) costs involved in obtaining whatever information, analyses, and
reports with respect to marketing and promotional activities that the Fund may,
from time to time, deem advisable;
except that distribution expenses shall not include any expenditures in
connection with services which Capital, any of its affiliates, or any other
person has agreed to bear without reimbursement.
1.10 Capital shall prepare and deliver reports to the Treasurer of the
Fund and to the Investment Adviser on a regular, at least quarterly, basis,
showing the distribution expenses incurred pursuant to this Agreement and the
purposes therefor, as well as any supplemental reports as the Directors, from
time to time, may reasonably request.
3
<PAGE>
2. Duties of the Fund
2.1 The Fund agrees at its own expense to execute any and all
documents, to furnish any and all information, and to take any other actions
that may be reasonably necessary in connection with the qualification of the
Shares for sale in those states that Capital may designate.
2.2 The Fund shall furnish from time to time, for use in connection
with the sale of the Shares, such information reports with respect to the Fund
and its Shares as Capital may reasonably request, all of which shall be signed
by one or more of the Fund's duly authorized officers; and the Fund warrants
that the statements contained in any such reports, when so signed by one or more
of the Fund's officers, shall be true and correct. The Fund shall also furnish
Capital upon request with: (a) annual audits of the Fund's books and accounts
made by independent public accountants regularly retained by the Fund, (b) semi-
annual unaudited financial statements pertaining to the Fund, (c) quarterly
earnings statements prepared by the Fund, (d) a monthly itemized list of the
securities in the portfolio of the Shares, (e) monthly balance sheets as soon as
practicable after the end of each month, and (f) from time to time such
additional information regarding the Fund's financial condition as Capital may
reasonably request.
3. Representations and Warranties
The Fund represents to Capital that all registration
statements, prospectuses, and statements of additional information filed by the
Fund with the SEC under the 1933 Act and the 1940 Act with respect to the Shares
of the Fund have been carefully prepared in conformity with the requirements of
the 1933 Act, the 1940 Act, and the rules and regulations of the SEC thereunder.
As used in this Agreement, the terms "registration statement," "prospectus," and
"statement of additional information" shall mean any registration statement,
prospectus, and statement of additional information filed by the Fund with the
SEC and any amendments and supplements thereto which at any time shall have been
filed with the SEC. The Fund represents and warrants to Capital that any
registration statement, prospectus, and statement of additional information,
when such registration statement becomes effective, will include all statements
required to be contained therein in conformity with the 1933 Act, the 1940 Act,
and the rules and regulations of the SEC; that all statements of fact contained
in any registration statement, prospectus, or statement of additional
information will be true and correct when such registration statement becomes
effective; and that neither any registration statement nor any prospectus or
statement of additional information will include an untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading to a purchaser of Shares. Capital
may, but shall not be obligated to, propose from time to time such amendment or
amendments to
4
<PAGE>
any registration statement and such supplement or supplements to any prospectus
or statement of additional information as, in the light of future developments,
may, in the opinion of Capital's counsel, be necessary or advisable. If the
Fund shall not propose such amendment or amendments and/or supplement or
supplements within fifteen days after receipt by the Fund of a written request
from Capital to do so, Capital may, at is option, terminate this Agreement. The
Fund shall not file any amendment to any registration statement or supplement to
any prospectus or statement of additional information without giving Capital
reasonable notice thereof in advance; provided, however, that nothing contained
in this Agreement shall in any way limit the Fund's right to file at any time
such amendments to any registration statement and/or supplements to any
prospectus or statement of additional information, of whatever character, as the
Fund may deem advisable, such right being in all respects absolute and
unconditional.
4. Indemnification
4.1 The Fund authorizes Capital and any dealer with whom Capital has
entered into dealer agreements to use any prospectus or statement of additional
information furnished by the Fund from time to time in connection with the sale
of Shares. The Fund agrees to indemnify, defend, and hold Capital, its several
officers and directors, and any person who controls Capital within the meaning
of Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities, and expenses (including the cost of investigating
or defending such claims, demands, or liabilities and any counsel fees incurred
in connection therewith) which Capital, its officers and directors, or any such
controlling person may incur under the 1933 Act, the 1940 Act, or common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any registration statement, any
prospectus, or any statement of additional information, or arising out of or
based upon any omission or alleged omission to state a material fact required to
be stated in any registration statement, any prospectus, or any statement of
additional information, or necessary to make the statements in any of them not
misleading; provided, however, that the Fund's agreement to indemnify Capital,
its officers or directors, and any such controlling person shall not be deemed
to cover any claims, demands, liabilities, or expenses arising out of or based
upon any statements or representations made by Capital or its representatives or
agents other than such statements and representations as are contained in any
registration statement, prospectus, or statement of additional information and
in such financial and other statements as are furnished to Capital pursuant to
paragraph 2.2 hereof; and further provided that the Fund's agreement to
indemnify Capital and the Fund's representations and warranties hereinbefore set
forth in paragraph 3 shall not be deemed to cover any liability to the Fund or
its shareholders to which Capital would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of its
duties, or by reason of Capital's reckless disregard of its obligations and
duties under this
5
<PAGE>
Agreement. The Fund's agreement to indemnify Capital, its officers and
directors, and any such controlling person, as aforesaid, is expressly
conditioned upon the Fund's being notified of any action brought against
Capital, its officers or directors, or any such controlling person, such
notification to be given by letter or by telegram addressed to the Fund at its
principal office in Minot, North Dakota, and sent to the Fund by the person
against whom such action is brought, within ten days after the summons or other
first legal process shall have been served. The failure so to notify the Fund of
any such action shall not relieve the Fund from any liability that the Fund may
have to the person against whom such action is brought by reason of any such
untrue or alleged untrue statement or omission or alleged omission otherwise
than on account of the Fund's indemnity agreement contained in this paragraph
4.1. The Fund's indemnification agreement contained in this paragraph 4.1 and
the Fund's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of Capital, its officers and directors, or any controlling person,
and shall survive the delivery of any Shares. This Agreement of indemnity will
insure exclusively to Capital's benefit, to the benefit of its several officers
and directors, and their respective estates, and to the benefit of the
controlling persons and their successors. The Fund agrees to notify Capital
promptly of the commencement of any litigation or proceedings against the Fund
or any of its officers or directors in connection with the issuance and sale of
any Shares.
4.2 Capital agrees to indemnify, defend, and hold the Fund, its
several officers and directors, and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities, and expenses (including the costs of
investigating or defending such claims, demands, or liabilities and any counsel
fees incurred in connection therewith) that the Fund, its officers or directors,
or any such controlling person may incur under the 1933 Act, the 1940 Act, or
common law or otherwise, but only to the extent that such liability or expense
incurred by the Fund, its officers or directors, or such controlling person
resulting from such claims or demands shall arise out of or be based upon (a)
any unauthorized sales literature, advertisements, information, statements, or
representations or (b) any untrue or alleged untrue statement of a material fact
contained in information furnished in writing by Capital to the Fund and used in
the answers to any of the items of the registration statement or in the
corresponding statements made in the prospectus or statement of additional
information, or shall arise out of or be based upon any omission or alleged
omission to state a material fact in connection with such information furnished
in writing by Capital to the Fund and required to be stated in such answers or
necessary to make such information not misleading. Capital's agreement to
indemnify the Fund, its officers and directors, and any such controlling person,
as aforesaid, is expressly conditioned upon Capital's being notified of any
action brought against the Fund, its officers or di-
6
<PAGE>
rectors, or any such controlling person, such notification be given by letter or
telegram addressed to Capital at its principal office in Minot, North Dakota,
and sent to Capital by the person against whom such action is brought, within
ten days after the summons or other first legal process shall have been served.
The failure so to notify Capital of any such action shall not relieve Capital
from any liability that Capital may have to the Fund, its officers or directors,
or to such controlling person by reason of any such untrue or alleged untrue
statement or omission or alleged omission otherwise than on account of Capital's
indemnity agreement contained in this paragraph 4.2. Capital agrees to notify
the Fund promptly of the commencement of any litigation or proceedings against
Capital or any of its officers or directors in connection with the issuance and
sale of any Shares.
4.3 In case any action shall be brought against any indemnified
party under paragraph 4.1 or 4.2, and it shall notify the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish to do so, to assume the
defense thereof with counsel satisfactory to such indemnified party. If the
indemnifying party opts to assume the defense of such action, the indemnifying
party will not be liable to the indemnified party for any legal or other
expanses subsequently incurred by the indemnified party in connection with the
defense thereof other than (a) reasonable costs of investigation or the
furnishing of documents or witnesses and (b) all reasonable fees and expenses of
separate counsel to such indemnified party if (i) the indemnifying party and the
indemnified party shall have agreed to the retention of such counsel or (ii) the
indemnified party shall have concluded reasonably that representation of the
indemnifying party and the indemnified party by the same counsel would be
inappropriate due to actual or potential differing interests between them in
tile conduct of the defense of such action.
5. Effectiveness of Registration
None of the Shares shall be offered by either Capital or
the Fund under any of the provisions of this Agreement and no orders for the
purchase or sale of the Shares hereunder shall be accepted by the Fund if and so
long as the effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the provisions of
the 1933 Act or if and so long as a current prospectus as required by Section
5(b)(2) of the 1933 Act is not on file with the SEC; provided, however, that
nothing contained in this paragraph 5 shall in any way restrict or have an
application to or bearing upon the Fund's obligation to repurchase Shares from
any shareholder in accordance with the provisions of the Fund's prospectus,
statement of additional information, or articles of incorporation.
7
<PAGE>
6. Notice to Capital
The Fund agrees to advise Capital immediately in writing:
(a) of any request by the SEC for amendments to the registration
statement, prospectus, or statement of additional information then in effect or
for additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement, prospectus, or
statement of additional information then in effect or the initiation of any
proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement of
a material fact made in the registration statement, prospectus, or statement of
additional information then in effect or that requires the making of a change in
such registration statement, prospectus, or statement OF additional information
in order to make the statements therein not misleading; and
(d) of all actions of the SEC with respect to any amendment to any
registration statement, prospectus, or statement of additional information which
may from time to time be filed with the SEC.
7. Term of Agreement
This Agreement shall continue until December 3, 1992, and thereafter
shall continue automatically for successive annual periods ending on December 3
of each year, provided such continuance is specifically approved at least
annually by (a) the Fund's Board of Directors and (b) a vote of a majority (as
defined in the 1940 Act) of the Fund's Directors who are not interested persons
(as defined in the 1940 Act) of the Fund and who have no direct or indirect
financial interest in this Agreement (the "Qualified Directors"), by vote cast
in person at a meeting called for the purpose of voting on such approval. This
Agreement is terminable with respect to the Fund, without penalty, (a) on 60
days' written notice, by vote of a majority of the Qualified Directors or by
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund or (b) on 90 days' written notice by Capital. This
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act).
8. Miscellaneous
8.1 The Fund recognizes that directors, officers, and employees of
Capital may from time to time serve as directors, officers, and employees of
corporations and business trusts (including other investment companies) and that
Capital or its
8
<PAGE>
affiliates may enter into distribution or other agreements with such other
corporations and trusts.
8.2 It is expressly agreed that the obligations of the Fund hereunder
shall not be binding upon any of the directors, shareholders, nominees,
officers, agents, or employees of the Fund, personally, but bind only the
property of the Fund. The execution and delivery of this Agreement have been
authorized by the Directors and signed by an authorized officer of the Fund,
acting as such, and neither such authorization by such Director nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the property of the Fund.
8.3 This Agreement shall be construed in accordance with the laws of
the State of North Dakota.
8.4 This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original; but such counterparts shall,
together, constitute only one instrument.
8.5 This Agreement may not be amended or modified in any manner
except by both parties with the same formality as this Agreement and as may be
permitted or required by the 1940 Act.
8.6 The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth herein.
ND INSURED INCOME FUND, INC.
By: /Robert E. Walstad
Title: President
Date: December 3, 1990
Accepted:
ND CAPITAL, INC.
By: Robert E. Walstad
Title: President
Date: December 3, 1990
9
<PAGE>
EXHIBIT 99.6B
FORM OF DEALER SALES AGREEMENT
<PAGE>
DEALER SALES AGREEMENT
To the undersigned Dealer:
Gentlemen:
ND Capital, Inc., the principal underwriter of shares, par value $.001,
issued by ND Insured Income Fund, Inc. (the "Fund"), an open-end, non-
diversified, management investment company registered under the Investment
Company Act of 1940, understands that you are a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"), and that you and
any individuals who represent you are properly qualified and registered, if
required, with the Securities and Exchange Commission and with the state
securities administrators of the various states in which Fund shares are to be
offered for sale or sold by you. In consideration of the mutual promises stated
below, you and we hereby agree as follows:
1. Compliance with Prospectus. Offers and sales of shares by you will
---------- ----------
comply in all respects with the terms and conditions contained in the then-
current prospectus of the Fund.
2. Purchase Restrictions. You agree to purchase shares solely through us and
---------------------
only for the purpose of covering purchase orders already received from customers
or for your own bona fide investment. You agree not to purchase for any other
securities dealer unless you have an agreement with such other dealer or broker
to handle clearing arrangements and then only in the ordinary course of business
for such purpose and only if such other dealer has executed a Dealer Sales
Agreement with us. You also agree not to withhold any customer order so as to
profit therefrom.
3. Processing Orders. The procedures relating to the handling of orders shall
-----------------
be subject to instructions which we will forward from time to time to all
dealers with whom we have entered into a Dealer Sales Agreement. The minimum
initial and subsequent purchase order shall be specified in the Fund's then-
current prospectus. All purchase orders are subject to receipt of shares by us
from the Fund and to acceptance of such orders by us. We reserve the right in
our sole discretion to reject any order.
4. Purchase Orders. We shall accept orders only on the basis of the then-
---------------
current offering price. You agree to place orders in respect of shares
immediately upon the receipt of orders from your customers for the same number
of shares. orders which you receive from your customers shall be deemed to be
placed with us when received by us. Orders which you receive prior to the close
of business, as defined in the prospectus, and placed with us within the time
frame set forth in the prospectus shall be priced at the
<PAGE>
offering price next computed after they are received by you. We will not accept
a conditional order from you on any basis. All orders shall be subject to
confirmation by us.
5. Settlement. Unless otherwise agreed, settlement shall be made at the
office of the Fund's transfer agent within five (5) business days after our
acceptance of the order. If payment is not so received or made within ten (10)
business days of our acceptance of the order, we reserve the right to cancel the
sale or, at our option, to sell the shares to the Fund at the then-prevailing
net asset value. In this event, or in the event that you cancel the trade for
any reason, you agree to be responsible for any loss resulting to the Fund or to
us from your failure to make payments as aforesaid. You shall not be entitled
to any gains generated thereby.
6. Dealer Discounts. You shall receive for each sale of shares of the Fund,
----------------
except shares sold which are not subject to a sales charge, a discount in
accordance with the table which follows, The amount of the discount is subject
to change by us without notice.
<TABLE>
<CAPTION>
Sales Charge
------------
Allowed to
As a As a Dealers as a
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Net Asset Value, Offering
price
<S> <C> <C> <C>
Less than $100.000 4.50% 4.71% 4.00%
100,000 but less than 250,000 3.50% 3.63% 3.00%
250,000 but less than 500,000 2.50% 2.56% 2.25%
500,000 but less than 1,000,000 2.00% 2.04% 1.75%
1,000,000 and over .10% .10% .10%
*Rounded to the nearest one-hundredth percent
</TABLE>
7. Redemptions. Redemptions of shares by the Fund will be effected in the
manner and upon the terms described in the then-current prospectus. We will,
upon your request, assist you in processing orders for redemptions. If any
shares sold to you are redeemed by the Fund or are tendered to the Fund for
redemption within seven (7) business days after the date of our confirmation to
you of your original purchase order therefor, you agree to pay forthwith to us
the full amount of the discount allowed you on the sale.
8. Suspension of Sales and Amendments to Agreement. We reserve the right
in our discretion without notice to you to suspend sales or withdraw an offering
of shares entirely, to change the offering price as provided in the prospectus,
or, upon notice to you, to amend or cancel this Agreement. You agree that any
order to purchase shares placed by you after notice of any amendment to this
Agreement has been sent to you shall constitute your agreement to any such
amendment.
9. Dealer Status. In every transaction, you shall act as an independent
contractor and not as an agent for the Fund, the Fund's transfer agent, any
other dealer, or us. You agree that
2
<PAGE>
neither the Fund, the Fund's transfer agent, any other dealer, nor we shall be
deemed an agent of you. Nothing herein shall constitute you as a partner of the
Fund, the Fund's transfer agent, any other dealer, or us or render any of us
liable for your obligations.
10. Representations Concerning the Fund. No person is authorized to make any
representations concerning shares of the Fund except those contained in the
then-current prospectus. You shall not sell shares of the Fund pursuant to this
Agreement unless the then-current prospectus is furnished to the purchaser prior
to or at the time of purchase. You shall not use any supplemental sales
literature of any kind without our prior written approval unless it is furnished
by us for such purpose. In offering and selling shares of the Fund, you will
rely solely on the representations contained in the then-current prospectus.
11. Dealer's Representations and Agreements. By accepting this Agreement, you
represent that you: (i) are registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended; (ii) are qualified to act as a dealer in the
states in which the Fund's shares are offered for sale or sold by you; (iii) are
a member in good standing of the NASD; and (iv) will maintain such
registrations, qualifications, and memberships throughout the term of this
Agreement. You agree to abide by the Rules of Fair Practice of the NASD and all
federal and state laws and rules and regulations that are now or may become
applicable to the transactions hereunder. Your expulsion from the NASD will
automatically terminate this Agreement without notice. Your suspension from the
NASD or violation of applicable state and federal laws and rules and regulations
will terminate this Agreement effective upon our notice to you. You shall not
be entitled to any compensation during any period in which you have been
suspended or expelled from membership in the NASD.
12. Indemnification. You hereby agree to indemnify and to hold harmless the
Fund and us and each person, if any, who controls the Fund or us within the
meaning of Section 15 of the Securities Act of 1933, as amended (the "Act"),
from and against any and all losses, claims, demands, or liabilities to which
the Fund or we may become subject under the Act, or otherwise, insofar as such
losses, claims, demands, or liabilities (or actions in respect thereof) arise
out of or are based upon any unauthorized use of sales materials by you or your
salesmen or upon alleged misrepresentations or omission to state material facts
in connection with statements made by you or your salesmen orally or by other
means or upon sales of shares in any state or jurisdiction in which the shares
are not registered or qualified for sale; and you will reimburse the Fund and us
for any legal or other expenses reasonably incurred in connection with the
investigation or defense of any such action or claim. We shall, after receiving
the first summons or other legal process disclosing the nature of the action
being served upon the Fund or us, in any proceeding in respect of which
indemnity may be sought by the Fund or us hereunder, notify
3
<PAGE>
you in writing of the commencement thereof within a reasonable time. In case
any such litigation be brought against the Fund or us, we shall notify you of
the commencement thereof, and you shall be entitled to participate in (and to
the extent you shall wish, to direct) the defense thereof at your expense, but
such defense shall be conducted by counsel in good standing satisfactory to the
Fund and us. If you shall fail to provide such defense, the Fund or we may
defend such action at your cost and expense. Your obligation under this Section
12 shall survive the termination of this Agreement.
13. Dealer's Expenses. All expenses incurred in connection with your
activities under this Agreement shall be borne by you.
14. Supervisory Responsibility. By accepting this Agreement, you assume full
responsibility for the registration, qualification, and training of your
representatives in connection with the offer and sale of shares of the Fund.
15. Prospectuses and Statements of Additional Information. We will supply you
with copies of the prospectus and statement of additional information of the
Fund (including any amendments thereto) in reasonable quantities upon request.
You will provide all customers with a prospectus prior to or at the time such
customer purchases shares. You will provide any customer who so requests a copy
of the statement of additional information on file with the Securities and
Exchange Commission.
16. Assignment. This Agreement may not be assigned by you without our consent.
17. Waiver. No failure, neglect, or forebearance on our part to require
strict performance of this Agreement shall be construed as a waiver of our
rights or remedies hereunder.
18. Termination. Either party may terminate this Agreement at anytime upon
giving written notice to the other party.
19. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of North Dakota.
20. Entire Agreement. This Agreement constitutes the entire agreement
between the undersigned and supersedes all prior oral or written agreements
between the parties hereto.
ND CAPITAL, INC.
Date By
The undersigned accepts your invitation to become a dealer and agrees to
abide by the foregoing terms and conditions.
Date By
Signature and Title
Dealer Name
4
<PAGE>
EXHIBIT 99.8
FORM OF CUSTODIAN AGREEMENT
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT dated as of January 8, 1991, between ND Insured Income Fund, Inc.
(the "Fund"), a corporation organized under the laws of the State of North
Dakota, having its principal office and place of business at 201 South Broadway,
Minot, North Dakota 58701, and First American Bank West (the "Custodian"), a
bank organized under the laws of the State of North Dakota with its principal
place of business at 20 First Street *SW, Minot, North Dakota 58701.
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set forth,
the Fund and the Custodian agree as follows;
1. Definitions.
Whenever used in this Agreement or in any Schedules to this Agreement,
the following words and phrases, unless the context otherwise requires, shall
have the following meanings:
(a) "Authorized Person" shall be deemed to include the President, the
Vice President, the Secretary, and the Treasurer of the Fund or any other
person, whether or not any such person is an officer of the Fund, duly
authorized by the Board of Directors of the Fund to give Oral Instructions and
Written Instructions on behalf of the Fund or such other certification as may be
received by the Custodian from time to time.
(b) "Book-Entry System" shall mean the Federal Reserve/ Treasury book-
entry system for United States and federal agency securities, its successor or
successors, and its nominee or nominees.
(c) "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission under
Section 17(a) of the Securities Exchange Act of 1934, as amended, its successor
or successors and its nominee or nominees, in which the Custodian is hereby
specifically authorized to make
<PAGE>
deposits. The term "Depository" shall further mean and include any other person
to be named in Written Instructions authorized to act as a depository under the
1940 Act, its successor or successors and its nominee or nominees.
(d) "Money Market Security" shall be deemed to include, without limitation,
debt obligations issued or guaranteed as to interest and principal by the
Government of the United States or agencies or instrumentalities thereof,
commercial paper, bank certificates of deposit, bankers' acceptances, and short-
term corporate obligations, where the purchase or sale of such securities
normally requires settlement in federal funds on the same day as such purchase
or sale, repurchase and reverse repurchase agreements with respect to any of the
foregoing types of securities, and any other instrument commonly included in the
term "Money Market Security" by commercial usage or custom.
(e) "Oral Instructions" shall mean verbal instructions actually received by the
Custodian from a person reasonably believed by the Custodian to be an Authorized
Person.
(f) "Prospectus" shall mean any current prospectus and statement of additional
information relating to the registration of the Fund's Shares under the
Securities Act of 1933, as amended, and the 1940 Act.
(g) "Security" or "Securities" shall be deemed to include bonds, debentures,
notes, stocks, shares, evidences of indebtedness, and other securities and
investments from tine to time owned by the Fund.
(h) "Shares" refers to the units into which the shareholders' proprietary
interests in the Fund are divided.
(i) "Transfer Agent" shall mean the person who performs the transfer agent,
dividend disbursing agent, and shareholder servicing agent functions for the
Fund.
(j) "Written Instructions" shall mean a written or electronic communication
actually received by the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized Person by telex or any
other such system whereby the receiver of such communication is able to verify
through codes or otherwise with a reasonable degree of certainty the
authenticity of the sender of such communication.
(k) The "1940 Act" refers to the Investment Company Act of 1940, and the Rules
and Regulations thereunder, all as amended from time to time.
2
<PAGE>
2. Appointment of Custodian.
(a) The Fund hereby constitutes and appoints the Custodian as custodian of
all the Securities and moneys at the time owned by or in the possession of the
Fund during the period of this Agreement,
(b) The Custodian hereby accepts appointment as such custodian for the
Fund and agrees to perform the duties thereof as hereinafter set forth.
3. Compensation.
(a) The Fund will compensate the Custodian for its services rendered under
this Agreement in accordance with the fees set forth in the Fee Schedule annexed
hereto as Schedule A and incorporated herein. Such Fee Schedule does not
include postage, for which the Custodian shall be entitled to bill separately.
(b) Any compensation agreed to hereunder may be adjusted from time to time
by attaching to Schedule A of this Agreement a revised Fee Schedule, dated and
signed by an Authorized Officer of each party hereto.
(c) The Custodian will bill the Fund as soon as practicable after the end
of each calendar month, and said billings will be detailed in accordance with
the Fee Schedule, The Fund will promptly pay to the Custodian the amount of such
billing.
4. Custody of Cash and Securities.
(a) Receipt and Holding of Assets. The Fund will deliver or cause to be
delivered to the Custodian all Securities and moneys owned by it at any time
during the period of this Agreement. The Custodian shall segregate, keep, and
maintain the assets of the Fund separate and apart, including separate
identification of Securities held in the Book-Entry System. The Custodian will
not be responsible for such Securities and moneys until actually received by it.
The Fund shall instruct the Custodian from time to time in its sole discretion,
by means of Written Instructions, or in connection with the purchase or sale of
Money Market Securities, by means of oral Instructions or Written Instructions,
as to the manner in which and in that amounts Securities and conveys of the Fund
are to be deposited on behalf of the Fund in the Book-Entry System or the
Depository; provided, however, that prior to the initial deposit of Securities
of the Fund in the Book-Entry System or the Depository, the Custodian shall
have received Written Instructions specifically approving such deposits by the
Custodian in the Book-Entry System or the Depository.
3
<PAGE>
(b) Accounts and Disbursements. The Custodian shall establish and maintain a
separate account for the Fund and shall credit to the separate account of the
Fund moneys received by it for the account Of the Fund and shall disburse the
same only:
(1) in payment for Securities purchased for the Fund as provided in
Section 5 hereof;
(2) in payment of dividends or distributions with respect to the Shares of
the Fund as provided in Section 7 hereof;
(3) in payment of original issue or other taxes with respect to the Shares
of the Fund, as provided in Section 8 hereof;
(4) in payment for Shares which have been redeemed by the Fund, as
provided in Section 8 hereof;
(5) pursuant to written Instructions, or with respect to Money Market
Securities, Oral Instructions or Written Instructions, setting forth the name
and address of the person to whom the payment is to be made, the amount to be
paid, and the purpose for which payment is to be made; or
(6) in payment of fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to the Fund as provided in Section
11(h) hereof.
(c) Confirmation and Statements. Promptly after the close of business on each
day, the Custodian shall furnish the Fund with confirmations and a summary of
all transfers to or from the account of the Fund during said day. where
securities purchased are in a fungible bulk of securities registered in the name
of the Custodian (or its nominee) or shown on the Custodian's account on the
books of the Depository or the Book-Entry System, the Custodian shall by book
entry or otherwise identify the quantity of those securities belonging to the
Fund. At least monthly, the Custodian shall furnish the Fund with a detailed
statement of the Securities and moneys held for the Fund under this Agreement.
(d) Registration of Securities and Physical Separation. All Securities held for
the Fund which are issued or issuable only in bearer form, except such
Securities as are held in the Book-Entry System, shall be held by the Custodian
in that form; all other Securities held for the Fund may be registered in the
name of the Fund, in the name of any duly appointed registered nominee of the
Custodian as the Custodian may from time to time determine, or in the name of
the Book-Entry System or the Depository or their successor or successors, or
their nominee or nominees. The
4
<PAGE>
Fund reserves the right to instruct the Custodian as to the method of
registration and safekeeping of the Securities. The Fund agrees to furnish to
the Custodian appropriate instruments to enable the Custodian to hold or deliver
in proper form for transfer, or to register in the name of its registered
nominee or in the name of the Book-Entry System or the Depository, any
Securities which it may hold for the account of the Fund and which may from time
to time be registered in the name of the Fund. The Custodian shall hold all
such Securities specifically allocated to the Fund which are not held in the
Book-Entry System or the Depository in a separate account for the Fund in the
name of the Fund physically segregated at all times from those of any other
person or persons.
(e) Collection of Income and Other Matters Affecting Securities. Unless
otherwise instructed to the contrary by Written Instructions, the Custodian by
itself, or through the use of the Book-Entry System or the Depository with
respect to Securities therein deposited, shall with respect to all Securities
held for the Fund in accordance with this Agreement:
(1) collect all income due or payable;
(2) present for payment and collect the amount payable upon all securities
which may mature or be called, redeemed, or retired, or otherwise become
payable. Notwithstanding the foregoing, the Custodian shall have no
responsibility to the Fund for monitoring or ascertaining of any call,
redemption, or retirement date with respect to put bonds which are owned by the
Fund and held by the custodian or its nominee. Nor shall the Custodian have any
responsibility or liability to the Fund for any loss by the Fund for any missed
payment or other default resulting therefrom unless the Custodian received
timely notification from the Fund specifying the time, place, and manner for the
presentment of such put bond owned by the Fund and held by the Custodian or its
nominee. The Custodian shall not be responsible and assumes no liability to the
Fund for the accuracy or completeness of any notification the Custodian shall
provide to the Fund with respect to put bonds;
(3) surrender Securities in temporary form for definitive securities;
(4) execute any necessary declarations or certificates of ownership under
the federal income tax laws or the laws or regulations of any other taxing
authority now or hereafter in effect; and
5
<PAGE>
(5) hold directly, or through the Book-Entry System or the Depository with
respect to Securities therein deposited, for the account of the Fund all rights
and other Securities issued with respect to any Securities held by the Custodian
hereunder for the Fund.
(f) Delivery of Securities and Evidence of Authority,. Upon receipt of Written
Instructions and not otherwise, except for Subparagraphs 5, 6, 7, and 8 which
may be effected by Oral or Written Instructions, the Custodian, directly or
through the use of the Book-Entry System or the Depository, shall;
(1) execute and deliver or cause to be executed and delivered to such
persons as may be designated in such written Instructions, proxies, consents,
authorizations, and any other instruments whereby the authority of the Fund as
owner of any securities may be exercised.
(2) deliver or cause to be delivered any securities held for the Fund in
exchange for other securities or cash issued or paid in connection with the
liquidation, reorganization, refinancing, merger, consolidation, or
recapitalization of any corporation, or the exercise of any conversion
privilege;
(3) deliver or cause to be delivered any Securities held for the Fund to
any protective committee, reorganization committee or other person in connection
with the reorganization, refinancing, merger, consolidation, recapitalization,
or sale of assets of any corporation, and receive and hold under the terms of
this Agreement in the separate account for the Fund such certificates of
deposit, interim receipts, or other instruments or documents as may be issued to
it to evidence such delivery;
(4) make or cause to be made such transfers or exchanges of the assets
specifically allocated to the separate account of the Fund and take such other
steps as shall be stated in said Written Instructions to be for the purpose of
effectuating any duly authorized plan of liquidation, reorganization, merger,
consolidation, or recapitalization of the Fund;
(5) deliver Securities owned by the Fund upon sale of such Securities for
the account of the Fund pursuant to Section 5;
(6) deliver Securities owned by the Fund upon the receipt of payment in
connection with any repurchase agreement related to such securities entered into
by the Fund;
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<PAGE>
(7) deliver Securities owned by the Fund to the issuer thereof or its agent
when such Securities are called, redeemed, retired, or otherwise become payable;
provided, however, that in any such case the cash or other consideration is to
be delivered to the Custodian. Notwithstanding the foregoing, the Custodian
shall have no responsibility to the Fund for monitoring or ascertaining of any
call, redemption, or retirement date with respect to put bonds which are owned
by the Fund and held by the Custodian or its nominee. Nor shall the Custodian
have any responsibility or liability to the Fund for any loss by the Fund for
any missed payment or other default resulting therefrom unless the Custodian
received timely notification from the Fund specifying the time, place, and
manner for the presentment of such put bond owned by the Fund and held by the
custodian or its nominee. The Custodian shall not be responsible and assumes no
liability to the Fund for the accuracy or completeness of any notification the
custodian may furnish to the Fund with respect to put bonds;
(8) deliver Securities owned by the Fund for delivery in connection with any
loans of securities made by the Fund but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian and the Fund which
may be in any form permitted under the 1940 Act or any interpretations thereof
issued by the Securities and Exchange commission or its staff;
(9) deliver Securities owned by the Fund for delivery as security in connection
with any borrowings by the Fund requiring a pledge of Fund assets, but only
against receipt of amounts borrowed;
(10) deliver Securities owned by the Fund upon receipt of instructions from the
Fund for delivery to the Transfer Agent or to the holders of Shares of the Fund
in connection with distributions in kind, as may be described from time to tine
in the Fund's Prospectus, in satisfaction of requests by holders of Shares for
repurchase or redemption; and
(11) deliver Securities owned by the Fund for any other proper business purpose,
but only upon receipt of, in addition to Written Instructions, a certified copy
of a resolution of the Board of Directors signed by an Authorized Person and
certified by the Secretary of the Fund, specifying the securities to be
delivered, setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper business purpose, and naming the person or
persons to whom delivery of such Securities shall be made.
7
<PAGE>
(g) Endorsement and Collection of Checks, Etc. The Custodian is hereby
authorized to endorse and collect all checks, drafts, or other orders for the
payment of money received by the Custodian for the account of the Fund.
5. Purchase and Sale of Investments of the Fund.
(a) Promptly after each purchase of Securities for the Fund, the Fund
shall deliver to the Custodian (i) with respect to each purchase of Securities
which are not Money Market Securities, Written Instructions, and (ii) with
respect to each purchase of Money Market Securities, either Written Instructions
or Oral Instructions, in either case specifying with respect to each purchase:
(1) the name of the issuer and the title of the Securities;
(2) the number of shares or the principal amount purchased and
accrued interest, if any;
(3) the date of purchase and settlement;
(4) the purchase price per unit;
(5) the total amount payable upon such purchase;
(6) the name of the person from whom or the broker through whom the
purchase was made, if any;
(7) whether or not such purchase is to be settled through the Book-
Entry System or the Depository; and
(8) whether the Securities purchased are to be deposited in the Book-
Entry System or the Depository.
The Custodian shall receive all Securities purchased by or for the Fund and
upon receipt of such Securities shall pay out of the moneys held for the account
of the Fund the total amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such Written or Oral
Instructions.
(b) Promptly after each sale of Securities of the Fund, the Fund shall
deliver to the Custodian (i) with respect to each sale of Securities which are
not Money Market Securities, Written Instructions, and (ii) with respect to each
sale of Money Market Securities, either Written or Oral Instructions, in either
case specifying with respect to such sale:
(1) the name of the issuer and the title of the Securities;
8
<PAGE>
(2) the number of shares or principal amount sold, and accrued interest,
if any;
(3) the date of sale;
(4) the sale price per unit;
(5) the total amount payable to the Fund upon such
sale;
(6) the name of the broker through whom or the person to whom the sale was
made; and
(7) whether or not such sale is to be settled through the Book-Entry
System or the Depository.
The Custodian shall deliver or cause to be delivered the Securities to the
broker or other person designated by the Fund upon receipt of the total amount
payable to the Fund upon such sale, provided that the same conforms to the total
amount payable to the Fund as set forth in such Written or such Oral
Instructions. Subject to the foregoing, the Custodian may accept payment in
such form as shall be satisfactory to it and may deliver Securities and arrange
for payment in accordance with the customs prevailing among dealers in
Securities.
6. Lending of Securities.
(a) If the Fund is permitted as disclosed in its current Prospectus to
lend Securities, within 24 hours after each loan of Securities, the Fund shall
deliver to the Custodian Written Instructions specifying with respect to each
such loan:
(1) the name of the issuer and the title of the Securities;
(2) the number of shares or the principal amount loaned;
(3) the date of loan and delivery;
(4) the total amount to be delivered to the Custodian, including the
amount of cash collateral and the premium, if any, separately identified;
(5) the name of the broker, dealer, or financial institution to which the
loan was made; and
(6) whether the Securities loaned are to be delivered through the Book-
Entry System or the Depository,
9
<PAGE>
(b) Promptly after each termination of a loan of Securities, the Fund
shall deliver to the Custodian Written Instructions specifying with respect to
each such loan termination and return of Securities:
(1) the name of the issuer and the title of the Securities to be returned;
(2) the number of shares or the principal amount to be returned;
(3) the date of termination;
(4) the total amount to be delivered by the Custodian (including the cash
collateral for such securities minus any offsetting credits as described in said
Written Instructions);
(5) the name of the broker, dealer, or financial institution from which
the Securities will be returned; and
(6) whether such return is to be effected through the Book-Entry System or
the Depository.
The Custodian shall receive all Securities returned from, the broker,
dealer, or financial institution to which such Securities were loaned and upon
receipt thereof shall pay the total amount payable upon such return of
Securities as set forth in the Written Instructions. Securities returned to the
Custodian shall be held as they were prior to such loan.
7. Payment of Dividends or Distributions.
-------------------------------------
(a) The Fund shall furnish to the Custodian the resolution of the Board of
Directors of the Fund certified by the Secretary (i) authorizing the declaration
of dividends or distributions on a specified periodic basis and authorizing the
Custodian to rely on Oral or Written Instructions specifying the date of the
declaration of such dividends or distributions, the date of payment thereof, the
record date as of which shareholders entitled to payment shall be determined,
the amount payable per share to the shareholders of record as of the record
date, and the total amount payable to the Transfer Agent on the payment date, or
(ii) setting forth the date of declaration of any dividends or distributions by
the Fund, the date of payment thereof, the record date as of which shareholders
entitled to payment shall be determined, the amount payable per share to the
shareholders of record as of the record date, and the total amount payable to
the Transfer Agent on the payment date.
10
<PAGE>
(b) Upon the payment date specified in such resolution, Oral Instructions,
or Written Instructions, AS the case may be, the Custodian shall pay out the
total amount payable to the Transfer Agent of the Fund.
8. Sale and Redemption of Shares.
(a) Whenever the Fund shall sell any Shares, the Fund shall deliver or
cause to be delivered to the Custodian Written Instructions duly specifying:
(1) the number of Shares sold, trade date, and price; and
(2) the amount of money to be received by the Custodian for the sale of
such Shares.
(b) Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the Fund,
(c) Upon issuance of any Shares in accordance with the foregoing
provisions of this Section 8, the Custodian shall pay all original issue or
other taxes required to be paid in connection with such issuance upon the
receipt of Written Instructions specifying the amount to be paid.
(d) Except as provided hereafter, whenever any Shares of the Fund are
redeemed, the Fund shall cause the Transfer Agent to promptly furnish to the
Custodian Written Instructions, specifying:
(1) the number of Shares redeemed; and
(2) the amount to be paid for the Shares redeemed.
The Custodian understands that the information contained in such Written
Instructions will be derived from the redemption of Shares as reported to the
Fund by the Transfer Agent.
(e) Upon receipt from the Transfer Agent of advice setting forth the
number of Shares received by the Transfer Agent for redemption and that such
Shares are valid and in good form for redemption, the Custodian shall make
payment to the Transfer Agent of the total amount specified in Written
Instructions issued pursuant to Paragraph (d) of this Section 8.
9. Indebtedness.
(a) The Fund will cause to be delivered to the Custodian by any bank
(excluding the Custodian) from which the Fund borrows money for temporary
administrative or emergency
11
<PAGE>
purposes using Securities as collateral for such borrowings, a notice or
undertaking in the form currently employed by any such bank setting forth the
amount which such bank will loan to the Fund against delivery of a stated amount
of collateral. The Fund shall promptly deliver to the Custodian Written or Oral
Instructions stating with respect to each such borrowing:
(1) the name of the bank;
(2) the amount and terms of the borrowing, which may be set forth by
incorporating by reference an attached promissory note, duly endorsed by the
Fund, or other loan agreement;
(3) the tine and date, if known, on which the loan is to be entered into
(the "borrowing date");
(4) the date on which the loan becomes due and payable;
(5) the total amount payable to the Fund on the borrowing date;
(6) the market value of Securities to be delivered as collateral for such
loan, including the name of the issuer, the title and the number of shares, or
the principal amount of any particular Securities;
(7) whether the Custodian is to deliver such collateral through the Book-
Entry System or the Depository; and
(8) a statement that such loan is in conformance with the 1940 Act and the
Fund's Prospectus.
(b) Upon receipt of the Written or Oral Instructions referred to in
Subparagraph (a) above, the Custodian shall deliver on the borrowing date the
specified collateral and the executed promissory note, if any, against delivery
by the lending bank of the total amount of the loan payable, provided that the
same conforms to the total amount payable as set forth in the Written or Oral
Instructions. The Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement, The Custodian shall deliver as additional collateral in the manner
directed by the Fund from time to time such Securities as nay be specified in
Written or Oral Instructions to collateralize further any transaction described
in this Section 9. The Fund shall cause all Securities released from collateral
status to be returned directly to the Custodian, and the Custodian shall receive
from time to time such return of collateral as may he tendered to it. In the
event that the Fund fails to specify in Written or Oral Instructions all of the
information
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<PAGE>
required by this Section 9, the Custodian shall not be under any obligation to
deliver any Securities. Collateral returned to the Custodian shall be held
hereunder as it was prior to being used as collateral.
10. Persons Having Access to Assets of the Fund.
(a) No Director, Officer, Employee, or Agent of the Fund, and no officer,
director, employee, or agent of the Investment Adviser shall have physical
access to the assets of the Fund held by the Custodian or be authorized or
permitted to withdraw any investments of the Fund, nor shall the Custodian
deliver any assets of the Fund to any such person. No officer, director,
employee, or agent of the Custodian who holds any similar position with the
Fund, or the Investment Adviser, shall have access to the assets of the Fund.
(b) The individual employees of the Custodian duly authorized by the Board
of Directors of the Custodian to have access to the assets of the Fund are
listed in the certification annexed hereto as Appendix C. The Custodian shall
advise the Fund of any change in the individuals authorized to have access to
the assets of the Fund by written notice to the Fund accompanied by a certified
copy of the authorizing resolution of the Custodian's Board of Directors
approving such change.
(c) Nothing in this Section 10 shall prohibit any Officer, Employee, or
Agent of the Fund or any officer, director, employee, or agent of the Investment
Adviser from giving Oral Instructions or Written Instructions to the Custodian
so long as it does not result in delivery of or access to assets of the Fund
prohibited by Paragraph (a) of this Section 10.
11. Concerning the Custodian.
(a) Standard of Conduct. Except as otherwise provided herein, neither the
Custodian nor its nominee shall be liable for any loss or damage, including
reasonable counsel fees, resulting from its action or omission to act or
otherwise, except for any such loss or damage arising out of its negligence or
willful misconduct. The Custodian may, with respect to questions of law, apply
for and obtain the advice and opinion of counsel to the Fund at the expense of
the Fund, or of its own counsel, at the expense of the Fund, and shall be fully
protected with respect to anything done or omitted by it in good faith in
conformity with such advice or opinion; provided, however, that if such reliance
involves a potential material loss to the Fund, the Custodian will advise the
Fund of any such actions to be taken in accordance with advice of counsel to the
Custodian.
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<PAGE>
The Custodian shall be liable to the Fund for any loss or damage resulting from
the use of the Book-Entry System or the Depository arising by reason of any
negligence, misfeasance, or misconduct on the part of the Custodian or any of
its employees or agents.
(b) Limit of Duties. Without limiting the generality of the foregoing, the
Custodian shall be under no duty or obligation to inquire into, and shall not be
liable for:
(1) the validity of the issue of any Securities purchased by the Fund, the
legality of the purchase thereof, or the propriety of the amount paid therefor;
(2) the legality of the sale of any Securities by the Fund, or the
propriety of the amount for which the same are sold;
(3) the legality of the issue or sale of any Shares, or the sufficiency of
the amount to be received therefor;
(4) the legality of the redemption of any Shares, or the propriety of the
amount to be paid therefor;
(5) the legality of the declaration or payment of any dividend or other
distribution of the Fund; or
(6) the legality of any borrowing for temporary or emergency administrative
purposes
(c) No Liability Until Receipt. The Custodian shall not be liable for, or
--------------------------
considered to be the Custodian of, any money, whether or not represented by any
check, draft, or other instrument for the payment of money, received by it on
behalf of the Fund until the Custodian actually receives and collects such money
directly or by the final crediting of the account representing the Fund's
interest in the Book-Entry System or the Depository.
(d) Collection Where Payment Refused. The Custodian shall not be under any
duty or obligation to take action to effect collection of any amount, if the
Securities upon which such amount is payable are in default, or if payment is
refused after due demand or presentation, unless and until (i) it shall be
directed to take such action by Written Instructions and (ii) it shall be
assured to its satisfaction of reimbursement of its costs and expenses in
connection with any such action.
(e) Appointment of Agents and Sub-Custodians. The Custodian may appoint one or
more banking institutions, including but not limited to banking institutions
located in foreign countries, to act as Depository or Depositories or as Sub-
Custodian or as Sub-Custodians of Securities and moneys at any time owned by the
Fund, upon terms and
14
<PAGE>
conditions specified in Written Instructions. The Custodian shall use
reasonable care in selecting a Depository and/or Sub-Custodian located in a
country other than the United States ("Foreign Sub-Custodian") and shall oversee
the maintenance of any Securities or moneys of the Fund by any Foreign Sub-
Custodian.
Any agreement between the Custodian and any Depository or Sub-Custodian
shall impose on such Depository or Sub-Custodian responsibilities and
liabilities similar in nature and scope to those imposed by this Agreement
relating to the function to be performed by such Depository or Sub-Custodian.
(f) No Duty to Ascertain Authority. The Custodian shall not be under any duty
or obligation to ascertain whether any Securities at any time delivered to or
held by it for the Fund are such as may properly be held by the Fund under the
provisions of the Fund's Prospectus.
(g) Compensation of the Custodians. The Custodian shall be entitled to
receive, and the Fund agrees to pay to the Custodian, such compensation as may
be agreed upon from time to time between the Custodian and the Fund. The
Custodian may charge against any money specifically allocated to the Fund such
compensation and any expenses incurred by the Custodian in the performance of
its duties pursuant to such agreement with respect to the Fund. The Custodian
shall also be entitled to charge against any money held by it and specifically
allocated to the Fund the amount of any loss, damage, liability, or expense
incurred with respect to the Fund including counsel fees, for which it shall be
entitled to reimbursement under the provisions of this Agreement.
The expenses which the Custodian may charge against such account include,
but are not limited to, the expenses of Sub-Custodians and foreign branches of
the Custodian incurred in settling transactions involving the purchase and sale
of Securities of the Fund.
(h) Reliance on Certificates and Instructions. The Custodian shall be entitled
to rely upon any Written Instructions or Oral Instructions actually received by
the Custodian pursuant to the applicable Sections of this Agreement and
reasonably believed by the Custodian to be genuine and to be given by an
Authorized Person. The Fund agrees to forward to the Custodian Written
Instructions from an Authorized Person confirming such oral Instructions in such
manner so that such Written Instructions are received by the Custodian, whether
by hand delivery, telex, or otherwise, by the close of business on the same day
that such Oral Instructions are given to the Custodian. The Fund agrees that the
fact that such confirming instructions are not received by the Custodian shall
in no way affect the validity of the transactions or enforceability of the
15
<PAGE>
transactions hereby authorized by the Fund. The Fund agrees that the Custodian
shall incur no liability to the Fund in acting upon Oral Instructions given to
the Custodian hereunder concerning such transactions, provided that such
instructions reasonably appear to have been received from a duly Authorized
Person.
Inspection of Books and Records. The Custodian shall create and maintain
all records relating to its activities and obligations under this Agreement in
such manner as will meet the obligations of the Fund under the 1940 Act, with
particular attention to Section 31 thereof and Rule 3la-1 and 3la-2 thereunder,
applicable federal and state tax laws, and any other law or administrative rules
or procedures which may be applicable to the Fund. All such records shall be
the property of the Fund, and it shall at all times during the regular business
hours of the Custodian be open for inspection by duly authorized Officers,
Employees, or Agents of the Fund and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at the Fund's request, supply the
Fund with a tabulation of Securities owned by the Fund and held by the
Custodian.
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain favorable opinions from the Fund's independent
accountants with respect to its activities hereunder in connection with the
preparation of the Fund's Form N-lA and Form N-SAR or other reports to or
requirements of the Securities and Exchange Commission.
12. Term and Termination.
(a) This agreement shall become effective on the date first set forth
above (the "Effective Date") and shall continue in effect thereafter as the
parties may mutually agree.
(b) Either of the parties hereto may terminate this Agreement by giving to
the other party a notice in writing specifying the date of such termination,
which shall be not less than 60 days after the date of receipt of such notice.
In the event such notice is given by the Fund, it shall be accompanied by a
certified resolution of the Board of Directors of the Fund, electing to
terminate this Agreement and designating a successor custodian or custodians,
which shall be a person qualified to so act under the 1940 Act. In the event
such notice is given by the Custodian, the Fund shall, on or before the
termination date, deliver to the Custodian a certified resolution of the Board
of Directors of the Fund, designating a successor custodian or custodians. In
the absence of such designation by the Fund, the Custodian may designate a
successor custodian, which shall be a person qualified to so act under the 1940
Act. If the Fund fails to designate a successor custodian, the
16
<PAGE>
Fund shall upon the date specified in the notice of termination of this
Agreement and upon the delivery by the Custodian of all Securities (other than
securities held in the Book-Entry System which cannot be delivered to the Fund)
and moneys then owned by the Fund, be deemed to be its own custodian; and the
Custodian shall thereby be relieved of all duties and responsibilities pursuant
to this Agreement, other than the duty with respect to Securities held in the
Book-Entry System which cannot be delivered to the Fund.
(c) Upon the date set forth in such notice under Paragraph
(b) of this Section 12, this Agreement shall terminate to the extent
specified in such notice, and the Custodian shall upon receipt of a notice of
acceptance by the successor custodian on that date deliver directly to the
successor custodian all Securities and moneys then held by the Custodian, after
deducting all fees, expenses, and other amounts for the payment or reimbursement
of which it shall then be entitled with respect to the Fund.
13. Miscellaneous.
(a) Annexed hereto as Appendix A is a certification signed by two of the
present Directors of the Fund setting forth the names and the signatures of the
present Authorized Persons. The Fund agrees to furnish to the Custodian a new
certification in similar form in the event that any such present Authorized
Person ceases to be such an Authorized Person or in the event that other or
additional Authorized Persons are elected or appointed. Until such new
certification shall be received, the Custodian shall be fully protected in
acting under the provisions of this Agreement upon Oral Instructions or
signatures of the present Authorized Persons as set forth in the last delivered
certification.
(b) Annexed hereto as Appendix B is a certification signed by two of the
present Directors of the Fund setting forth the names of the present Directors
of the Fund who are authorized to give Oral and Written Instructions to the
Custodian. The Fund agrees to furnish to the Custodian a new certification in
similar form in the event any such present Director ceases to be a Director of
the Fund, ceases to have authority to provide Oral or Written Instructions to
the Custodian, or in the event that other or additional Directors are elected or
appointed who may be authorized to provide Oral or Written Instructions to the
Custodian. Until such new certification shall be received, the Custodian shall
be fully protected in acting under the provisions of this Agreement upon the
signature of the Directors as set forth in the last delivered certification.
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<PAGE>
(c) Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at 20
First Street SW, Minot, North Dakota 58701, or at such other place as the
Custodian may from tine to time designate in writing.
(d) Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund, shall be sufficiently given if addressed
to the Fund and Mailed or delivered to it at its offices at 201 South Broadway,
Minot, North Dakota 58701, or at such other place as the Fund may from time to
time designate in writing.
(e) This Agreement may not be amended or modified in any manner, except by
a written agreement executed by both parties with the same formality as this
Agreement, and as may be permitted or required by the 1940 Act.
(f) This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund
authorized or approved by a resolution of the Board of Directors of the Fund,
and any attempted assignment without such written consent shall be null and
void.
(g) This Agreement shall be construed in accordance with the laws of the
State of North Dakota.
(h) It is expressly agreed to that the obligations of the Fund hereunder
shall not be binding upon any of the Directors, Shareholders, Nominees,
officers, Agents, or Employees of the Fund, personally, but bind only the
corporate property of the Fund. The execution and delivery of this Agreement
have been authorized by the Directors of the Fund and signed by an authorized
officer of the Fund, acting as such, and neither such authorization by such
Directors nor such execution and delivery by such Officer shall be deemed to
have been made by any of them, individually or to impose any liability on any of
then, personally, but shall bind only the corporate property of the Fund.
(i) The captions of the Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.
(j) This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunder duly authorized as of the day
and year first above written.
ND INSURED INCOME FUND, INC.
By /Robert E. Walstad/
Date January 8, 1991
Attest: /Peter A. Quist/
Agreed and Accepted by:
FIRST AMERICAN BANK WEST
By signature
Date 1-8-91
Attest:
signature
19
<PAGE>
APPENDIX A
We, Robert E. Walstad and Peter A. Quist, Directors of ND Insured Income
Fund, Inc. (the "Fund"), a corporation organized under the laws of the State of
North Dakota, do hereby certify that the following individuals have been duly
authorized as Authorized Persons to give Oral Instructions and Written
Instructions on behalf of the Fund, and the signatures set forth opposite their
respective names are their true and correct signatures;
Name Signature
- ---- ---------
Robert E. Walstad /Robert E. Walstad/
Walter Daniel Korgel /Walter Daniel Korgel/
/Robert E. Walstad/
Robert E. Walstad
Director
/Peter A. Quist/
Peter A. Quist
Director
20
<PAGE>
APPENDIX B
We, Robert E. Walstad and Peter A. Quist, Directors of ND Insured Income
Fund, Inc. (the "Fund"), a corporation organized under the laws of the State of
North Dakota, do hereby certify that the following individuals serve in the
following positions with the Fund, each individual has been duly elected or
appointed to each such position and qualified therefor in conformity with the
Fund's Bylaws, and the signatures set forth opposite their respective names are
their true and correct signatures:
Name Position Signature
Robert E. Walstad President and /Robert E. Walstad/
Director
Walter Daniel Korgel Portfolio /Walter Daniel Krogel/
Manager
/Robert E. Walstad/
Robert E. Walstad
Director
/Peter A. Quist/
Peter A. Quist
Director
21
<PAGE>
APPENDIX C
I, Duaine E. Espegard, President of First American Bank West (the
"Custodian"), hereby certify pursuant to Section 10(b) of the Custodian
Agreement, that the following employees have been duly authorized by the
Custodian's Board of Directors to have access to the assets of ND Insured Income
Fund, Inc.:
James F. Searcy, Senior Vice President and Trust Officer Armend
Lynner, Vice President and Trust Officer Daniel Langemo, Assistant Vice
President and Trust Officer Mary Jane Gullingsrud, Trust Operations Officer
Signed and dated this 8th day of January, 1991.
/Duaine E. Espegard/
Duaine E. Espeegard
President
First American Bank West
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<PAGE>
SCHEDULE A*
FEE SCHEDULE
CUSTODIAN AND TRANSFER AGENT CHARGES
FIRST AMERICAN BANK WEST
PERCENTAGE
FUND SIZE (NET ASSET VALUE) OF 1%
$ 0 TO 10,000,000 (See note below.) .25
10,000,001 TO 20,000,000 .20
20,000,001 TO 40,000,000 .15
40,000,001 TO 75,000,000 .12
75,000,001 TO 100,000,000 .11
100,000,001 AND LARGER .10
Note-. Subject to monthly minimum of $800.00
*Schedule A is annexed to and incorporated into both the Custodian Agreement and
the Transfer Agency Agreement, because First American Bank West ("First
American") serves ND Insured Income Fund, Inc. (the "Fund"), both in the
capacity of Custodian and in the capacity of Transfer Agent. Although annexed
to and incorporated into both the aforementioned Agreements, First American is
entitled to only one fee for all services provided to the Fund in both
capacities. In other words, the fact that Schedule A forms a part of both
Agreements does not entitle First American to charge a fee based upon Schedule A
for its services as Custodian and to charge another fee based upon Schedule A
for its services as Transfer Agent.
23
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EXHIBIT 99.9
FORM OF TRANSFER AGENCY AGREEMENT
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TRANSFER AGENCY AGREEMENT
AGREEMENT dated as of January 8, 1991, between ND Insured Income Fund, Inc.
(the "Fund"), a corporation organized under the laws of the State of North
Dakota, having its principal office and place of business at 201 South Broadway,
Minot, North Dakota 58701, and First American Bank West (the "Transfer Agent"),
a bank organized under the laws of the State of North Dakota with its principal
place of business at 20 First Street SW, Minot, North Dakota 58701.
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set forth,
the Fund and the Transfer Agent agree as follows:
1. Definitions.
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Authorized Person" shall be deemed to include the President, the Vice
President, the Secretary, and the Treasurer of the Fund, the persons listed in
Appendix A hereto, and any other person, whether or not such person is an
officer of the Fund, duly authorized to give Oral Instructions or Written
Instructions on behalf of the Fund as indicated in a certificate furnished to
the Transfer Agent pursuant to Section 5(d) or 5(e) hereof as may be received by
the Transfer Agent from time to time.
(b) "Commission" shall have the meaning given it in the 1940 Act.
(c) "Custodian" refers to the custodian and any sub- custodian of all
securities and other property which the Fund may from time to time deposit or
cause to be deposited or held under the name or account of such custodian.
(d) "Articles of Incorporation" shall mean the Fund's Articles of
Incorporation as now in effect and as the same may be amended from time to time.
(e) "Officer" shall mean the President, Vice President, Secretary, and
Treasurer of the parties hereto.
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(f) "Oral Instructions" shall mean instructions, other than written
instructions, actually received by the Transfer Agent from a person reasonably
believed by the Transfer Agent to be an Authorized Person.
(g) "Prospectus" shall mean any current prospectus and statement of
additional information relating to the registration of the Fund's shares under
the Securities Act of 1933, as amended, and the 1940 Act.
(h) "Shares" refers to the units into which the shareholders' proprietary
interests in the Fund are divided.
(i) "Shareholder" means a record owner of Shares;
(j) "Directors" or "Board of Directors" refers to the duly elected
Directors of the Fund.
(k) "Written Instructions" shall mean a written or electronic
communication actually received by the Transfer Agent from an Authorized Person
or from a person reasonably believed by the Custodian to be an Authorized Person
by telex or any other such system whereby the receiver of such communication is
able to verify through codes or otherwise with a reasonable degree of certainty
the authenticity of the sender of such communications.
(l) The "1940 Act" refers to the Investment Company Act of 1940, and the
Rules and Regulations promulgated thereunder, all as amended from time to time.
2 Appointment of the Transfer Agent.
The Fund hereby appoints and constitutes the Transfer Agent as transfer
agent for its Shares and as shareholder servicing agent, and the Transfer Agent
accepts such appointment and agrees to perform the duties hereinafter set forth.
3. Compensation.
(a) The Fund will compensate the Transfer Agent for the performance of its
obligations hereunder in accordance with the fees set forth in the written
schedule of fees annexed hereto as Schedule A and incorporated herein.
The Transfer Agent will bill the Fund as soon as practicable after the
end of each calendar month, and said billings will be detailed in accordance
with the Schedule A*. The Fund will promptly pay to the Transfer Agent the
amount of such billing.
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(b) Any compensation agreed to hereunder may be adjusted from time to time
upon mutual agreement by both parties hereto by attaching to Schedule A of this
Agreement a revised Fee Schedule, dated and signed by an Officer of each party
hereto.
4. Documents.
In connection with the appointment of the Transfer Agent, the Fund
shall, on or before the date this Agreement goes into effect, but in any case,
within a reasonable period of time for the Transfer Agent to prepare to perform
its duties hereunder, furnish the Transfer Agent with the following documents:
(a) A certified copy of the Fund's Articles of Incorporation, as amended.
(b) A certified copy of the Fund's Bylaws, as amended.
(c) A copy of the resolution of the Directors authorizing the execution
and delivery of this Agreement.
(d) If applicable, a specimen of the certificate for Shares of the Fund in
the form approved by the Directors, with a certificate of the Secretary of the
Fund as to such approval.
(e) All account application forms and other documents relating to
Shareholder accounts or to any plan, program, or service offered by the Fund.
5. Further Documentation.
The Fund will also furnish from time to time the following documents:
(a) The Fund's Registration Statement and each subsequent amendment to the
Fund's Registration Statement that is filed with the Commission.
(b) Certificates as to any change in any Officer, Director, or Investment
Adviser of the Fund.
(c) Such other certificates, documents, or opinions as the Transfer Agent
deems to be appropriate or necessary for the proper performance of its duties
hereunder.
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6. Representations of the Fund.
The Fund represents to the Transfer Agent that Shares will be issued
in accordance with the terms of the Articles of Incorporation and the Prospectus
and that such Shares shall be validly issued, fully paid, and non-assessable by
the Fund.
In the event that the Directors shall declare a distribution payable
in Shares, the Fund shall deliver to the Transfer Agent written notice of such
declaration signed on behalf of the Fund by an Officer of the Fund, upon which
the Transfer Agent shall be entitled to rely for all purposes, certifying (i)
the number OF Shares involved, (ii) that all appropriate action has been taken,
and (iii) that any amendment to the Articles of Incorporation which may be
required has been filed and is effective. Such notice shall be accompanied by
an opinion of counsel for the Fund relating to the legal adequacy and effect of
the transaction. This provision shall not apply to Shares to be issued in the
normal course of reinvestment of any distributions or dividends in accordance
with the Fund's Prospectus.
7. Duties of the Transfer Agent.
The Transfer Agent shall be responsible for administering and/or
performing transfer agent functions; for acting as service agent in connection
with dividend and distribution function; and for performing shareholder account
and administrative agent functions in connection with the issuance, transfer,
and redemption or repurchase (including coordination with the Custodian) of
Shares. The operating standards and procedures to be followed shall be
determined from time to time by agreement between the Transfer Agent and the
Fund and shall be expressed in a written schedule of duties of the Transfer
Agent annexed hereto as Schedule B and incorporated herein.
8. Recordkeeping and other Information.
The Transfer Agent shall create and maintain all necessary records in
accordance with all applicable laws, rules and regulations, including, but not
limited to, records required by Section 31(a) of the 1940 Act and those records
pertaining to the various functions performed by it hereunder which are set
forth in Schedule B hereto. All records shall be available during regular
business hours for inspection and use by the Fund. Where applicable, such
records shall be maintained by the Transfer Agent for the periods and in the
places required by Rule 31a-2 under the 1940 Act.
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Upon reasonable notice by the Fund, the Transfer Agent shall make
available during regular business hours its facilities and premises employed in
connection with the performance of its duties under this Agreement for
reasonable visitation by the Fund, or any person retained by the Fund.
To the extent required by said Section 31 and the rules and
regulations thereunder, the Transfer Agent agrees that all such records prepared
and maintained by the Transfer Agent relating to the services to be performed by
the Transfer Agent hereunder are the property of the Fund.
The Transfer Agent and the Fund agree that all books, records,
information, and data pertaining to the business of the other party which are
exchanged or received in connection with this Agreement shall remain
confidential and shall not be voluntarily disclosed to any person, except as may
be required by law. In the case of any requests or demands for any inspection
of the shareholder records of the Fund, the Transfer Agent will endeavor to
notify the Fund and to secure instructions from an authorized officer of the
Fund as to such inspection.
9. Other Duties.
In addition to the duties expressly set forth in Schedule B to this
Agreement, the Transfer Agent shall perform such other duties and functions, and
shall be paid such amounts therefor, as may from time to time be agreed upon in
writing between the Fund and the Transfer Agent. Such other duties and
functions shall be reflected in a written amendment to Schedule B, dated and
signed by an Officer of each party hereto.
10. Reliance by Transfer Agent; Instructions.
(a) The Transfer Agent will be protected in acting upon Written or Oral
Instructions, as appropriate, believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice of
any change of authority of any person until receipt of a Written Instruction
thereof from the Fund. The Transfer Agent will also be protected in processing
Share certificates which it reasonably believes to bear the proper manual or
facsimile signatures of the officers of the Fund and the proper countersignature
of the Transfer Agent.
(b) At any time the Transfer Agent may apply to any Authorized Person of
the Fund for Written Instructions and may seek advice from legal counsel for the
Fund, or its own legal counsel, with respect to any matter arising in connection
with this Agreement, and it shall not be liable
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for any action taken or not taken or suffered by it in good faith in accordance
with such Written Instructions or in accordance with the opinion of counsel for
the Fund or for the Transfer Agent provided, however, that if such reliance
involves a potential material loss to the Fund, the Transfer Agent will advise
the Fund of any such action(s) to be taken in accordance with the opinion of
counsel to the Transfer Agent. Written Instructions requested by the Transfer
Agent will be provided by the Fund within a reasonable period of time. In
addition, the Transfer Agent, its officers, agents, or employees, shall accept
Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Fund only if said representative is
known by the Transfer Agent, or its officers, agents, or employees, to be an
Authorized Person. The Transfer Agent shall have no duty or obligation to
inquire into, nor shall the Transfer Agent be responsible for, the legality of
any act done by it upon the request or direction of an Authorized Person.
(c) Notwithstanding any of the foregoing provisions of this Agreement, the
Transfer Agent shall be under no duty or obligation to inquire into, and shall
not be liable for;
(1) the legality of the issuance or sale of any Shares or the sufficiency
of the amount to be received therefor;
(2) the legality of the redemption of any Shares, or the propriety of the
amount to be paid therefor;
(3) the legality of the declaration of any dividend by the Directors, or
the legality of the issuance of any Shares in payment of any dividend; or
(4) the legality of any recapitalization or readjustment of the Shares.
11. Acts of God, Etc.
Neither the Transfer Agent nor the Fund will be liable or responsible
for delays or errors by reason of circumstances beyond its reasonable control,
including acts of civil or military authority, national emergencies, fire,
mechanical breakdown beyond its control, flood or catastrophe, acts of God,
insurrection, war, riots or failure beyond its control of transportation,
communication, or power supply.
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12. Duty Of Care and Indemnification.
The Fund and the Transfer Agent will indemnify each other against and
hold the other party harmless from any and all losses, claims, damages,
liabilities, or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action, or suit not resulting from the bad
faith or negligence of the other party, and arising but of, or in connection
with, the duties and responsibilities described hereunder, In addition, the Fund
will indemnify the Transfer Agent against and hold it harmless from any and all
losses, claims, damages, liabilities, or expenses (including reasonable counsel
fees and expenses) resulting from any claim demand, action, or suit as a result
of:
(1) any action taken in accordance with Written or Oral Instructions,
or any other instructions, or Share certificates reasonably believed by the
Transfer Agent to be genuine and to be signed, countersigned or executed, or
orally communicated by an Authorized Person;
(2) any action taken in accordance with written or oral advice
reasonably believed by the Transfer Agent to have been given by counsel for the
Fund or its own counsel; or
(3) any action taken as a result of any error or omission in any
record (including but not limited to magnetic tapes, computer printouts, hard
copies, and microfilm copies) delivered or caused to be delivered by the Fund to
the Transfer Agent in connection with this Agreement.
In any case in which the Fund or the Transfer Agent may be asked to
indemnify or hold the other party harmless, the requesting party will provide
the other party with all pertinent facts concerning the situation in question
and will use reasonable care to identify and provide notice of any situation
which presents or appears likely to present a claim for indemnification. Each
party shall have the option to defend the other party against any claim which
may be the subject of this indemnification, and, in the event that a party so
elects, such defense shall be conducted by counsel chosen by the party making
such election and such counsel shall be satisfactory to the other party, and
thereupon such electing party shall take over complete defense of the claim and
the requesting party shall sustain no further legal or other expenses in such
situation for which it seeks indemnification under this Section 12. Neither
party will confess any claim or make any compromise in any case in which the
other party will be asked to provide indemnification, except with the other
party's prior written consent. The obligations of the parties hereto under this
Section shall survive the termination of this Agreement.
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13. Term and Termination.
This Agreement shall become effective on the date first set forth
above (the "Effective Date") and shall continue in effect from year to year
thereafter as the parties may mutually agree; provided, that either party hereto
may terminate this Agreement by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than 60 days
after the date of receipt of such notice. In the event such notice is given by
the Fund, it shall be accompanied by a resolution of the Board of Directors of
the Fund, certified by the Secretary, electing to terminate this Agreement and
designating a successor transfer agent or transfer agents. Upon such
termination and at the expense of the Fund, the Transfer Agent will deliver to
such successor a certified list of shareholders of the Fund (with names,
addresses, and taxpayer identification or Social Security numbers), an
historical record of the account of each shareholder and the status thereof, and
all other relevant books, records, correspondence, and other data established or
maintained by the Transfer Agent under this Agreement in the form reasonably
acceptable to the Fund, and will cooperate in the transfer of such duties and
responsibilities, including provisions for assistance from the Transfer Agent's
personnel in the establishment of books, records, and other data by such
successor or successors.
14. Amendment.
This Agreement may not be amended or modified in any manner except by
a written agreement executed by both parties.
15. Subcontracting.
Except as otherwise provided below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without the
express written consent of the other party. The Transfer Agent may, in its sole
discretion and without further approval from the Fund, subcontract, in whole or
in part, for the performance of its obligations and duties hereunder with any
person or entity, including but not limited to, any affiliate or subsidiary;
provided, however, that (a) the Transfer Agent shall remain fully responsible to
the Fund for the acts and omissions of any agent or subcontractor as it is for
its own acts and omissions, and (b) to the extent that the Transfer Agent
subcontracts any functions or activities required or performed by a registered
transfer agent, the subcontracting party shall be a duly registered transfer
agent with the appropriate regulatory agency as required under Section 17A
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of the Securities Exchange Act of 1934 and the rules and regulations thereunder,
as amended.
16. Use of Transfer Agent's Name.
The Fund shall not use the name of the Transfer Agent in any
Prospectus, Statement of Additional Information, shareholders' report, sales
literature, or other material relating to the Fund for other than internal use,
in a manner not approved prior thereto; provided, that the Transfer Agent shall
approve all reasonable uses of its name which merely refer in accurate terms to
its appointment hereunder or which are required by the Commission or a state
securities commission.
17. Use of the Fund's Name.
The Transfer Agent shall not use the name of the Fund or material
relating to the Fund on any documents or forms for other than internal use in a
manner not approved prior thereto in writing; provided, that the Fund shall
approve all reasonable uses of its name which merely refer in accurate terms to
the appointment of the Transfer Agent or which are required by the Commission or
a state securities commission.
18. Security.
The Transfer Agent represents and warrants that, to the best of its
knowledge, the various procedures and systems which the Transfer Agent has
implemented or will implement with regard to safeguarding from loss or damage
attributable to fire, theft, or any other cause (including provision for 24
hours-a-day restricted access) of the Fund's records and other data and the
Transfer Agent's records, data, equipment, facilities, and other property used
in the performance of its obligations hereunder are adequate and that it will
make such changes therein from time to time as in its judgment are required for
the secure performance of its obligations hereunder. The parties shall review
such systems and procedures on a periodic basis.
19. Miscellaneous.
(a) Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or the Transfer Agent shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
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To the Fund:
ND Insured Income Fund, Inc.
201 South Broadway
Minot, ND 58701
To the Transfer Agent:
First American Bank West
20 First Street SW
Minot, ND 58701
(b) This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the other party.
(c) This Agreement shall be construed in accordance with the laws of the
State of North Dakota.
(d) This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
20. Liability of Directors, Officers, and Shareholders.
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The execution and delivery of this Agreement have been authorized by
the Directors of the Fund and signed by an authorized Officer of the Fund,
acting as such, and neither such authorization by such Directors nor such
execution and delivery by such Officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, and
the obligations of this Agreement are not binding upon any of the Directors or
Shareholders of the Fund, but bind only the property of the Fund.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officers thereunder duly authorized as of
the day and year first above written.
ND INSURED INCOME FUND, INC.
By /Robert E. Walstad/
Date 1-8-91
Agreed and Accepted by:
FIRST AMERICAN BANK WEST
By signature
Date 1-8-91
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SCHEDULE B
DUTIES OF THE TRANSFER AGENT
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(See Exhibit 1 for Summary of Services)
1. Shareholder Information.
The Transfer Agent shall maintain a record of the number of Shares
held by each holder of record which shall include their addresses and taxpayer
identification numbers and which shall indicate whether such Shares are held in
certificated or uncertificated form.
2. Shareholder Services.
The Transfer Agent will investigate all Shareholder inquiries relating
to Shareholder accounts and will answer all correspondence from Shareholders and
others relating to its duties hereunder and such other correspondence as may
from time to time be mutually agreed upon between the Transfer Agent and the
Fund. The Transfer Agent shall keep records of Shareholder correspondence and
replies thereto and of the lapse of time between the receipt of such
correspondence and the mailing of such replies.
3. State Registration Reports.
The Transfer Agent shall furnish on a state-by-state basis sales
reports and such periodic and special reports as the Fund may reasonably request
and such other information, including Shareholder lists and statistical
information concerning accounts, as may be agreed upon from time to time between
the Fund and the Transfer Agent.
4. Mailing Communications to Shareholders; Proxy Materials.
The Transfer Agent will address and mail to Shareholders of the Fund
all reports to Shareholders, dividend and distribution notices, and proxy
material for the Fund's meetings of Shareholders. In connection with meetings of
Shareholders, the Transfer Agent will report on proxies voted prior to meetings,
act as inspector of election at meetings, if so requested by the Fund, and
certify Shares voted at meetings.
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5. Sales of Shares.
(a) Processing of Investment Checks or Other Investments. Upon receipt of
any check or other instrument drawn or endorsed to it as agent for, or
identified as being for the account of the Fund for the purchase of Shares, the
Transfer Agent shall stamp the check with the date of receipt, shall forthwith
process the same for collection, and shall record the number of Shares sold, the
trade date and price per Share, and the amount of money to be delivered to the
Custodian of the Fund for the sale of such Shares.
(b) Issuance of Shares. Upon receipt of notification that the Custodian
has received the amount of money specified in the immediately preceding
paragraph, the Transfer Agent shall issue to and hold in the account of the
purchaser/Shareholder, or if no account is specified therein, in a new account
established in the name of the purchaser, the number of Shares such purchaser is
entitled to receive, as determined in accordance with applicable federal law or
regulation.
(c) Statements. On a quarterly basis, the Transfer Agent shall send to
the purchaser/Shareholder a statement of purchases which will show the new Share
balance, the Shares held under a particular plan, if any, for withdrawing
investments, the amount invested and the price paid for the newly purchased
Shares, or will be in such other form as the Fund and the Transfer Agent may
agree from time to time.
(d) Suspension of Sale of Shares. The Transfer Agent shall not be
required to issue any Shares where it has received a Written Instruction from
the Fund or written notice from any appropriate federal or state authority that
the sale of the Shares of the Fund has been suspended or discontinued, and the
Transfer Agent shall be entitled to rely upon such Written Instructions or
written notification.
(e) Taxes in Connection with Issuance of Shares. Upon the issuance of any
Shares in accordance with the foregoing provisions of this Section, the Transfer
Agent shall not be responsible for the payment of any original issue or other
taxes required to be paid in connection with such issuance.
(f) Returned Checks. In the event that any check or other order for the
payment of money is returned unpaid for any reason, the Transfer Agent will:
(1) give prompt notice of such return to the Fund for its designee;
(2) place a stop transfer order against all Shares issued as a result
of such check or order; and
(3) take such actions as the Transfer Agent may from time to time deem
appropriate.
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6. Redemptions.
(a) Requirements for Transfer or Redemption of Shares. The Transfer Agent
shall process all requests from Shareholders to transfer or redeem Shares in
accordance with the procedures set forth in the Prospectus and all
determinations of the number of Shares required to be redeemed to fund
designated monthly payments, automatic payments, or any other such distribution
or withdrawal plan.
The Transfer Agent will transfer or redeem Shares upon receipt of Written
Instructions and Share certificates, if any, properly endorsed for transfer or
redemption, accompanied by such documents as the Transfer Agent reasonably may
deem necessary to evidence the authority of the person making such transfer or
redemption, and bearing satisfactory evidence of the payment of stock transfer
taxes, if any.
Except to the extent inconsistent with the procedures set forth in the
Prospectus, the Transfer Agent reserves the right to refuse to transfer or
redeem Shares until it is satisfied that the endorsement on the instructions is
valid and genuine, and for that purpose it will require a guarantee of signature
by a member firm of a national securities exchange, by any national bank or
trust company, or by any member bank of the Federal Reserve system. The Transfer
Agent also reserves the right to refuse to transfer or redeem Shares until it is
satisfied that the requested transfer or redemption is legally authorized, and
it shall incur no liability for the refusal, in good faith, to make transfers or
redemptions which the Transfer Agent, in its good judgment, deems improper or
unauthorized, or until it is reasonably satisfied that there is no basis to any
claims adverse to such transfer or redemption.
The Transfer Agent may, in effecting transactions, rely upon the provisions
of the Uniform Act for the Simplification of Fiduciary Security Transfers or the
provisions of Article 8 of the Uniform Commercial Code, as the same may be
amended from time to time in the State of North Dakota, which in the opinion of
legal counsel for the Fund or of its own legal counsel protect it in not
requiring certain documents in connection with the transfer or redemption of
Shares. The Fund may authorize the Transfer Agent to waive the signature
guarantee in certain cases by Written Instructions.
For the purpose of the redemption of Shares which have been purchased
within 15 days of a redemption request, the Transfer Agent may refuse to redeem
such Shares until the Transfer Agent has received fed funds for the purchase of
such Shares.
(b) Notice to Custodian and Fund. When Shares are redeemed, the Transfer
Agent shall, upon receipt of the instructions and documents in proper form,
deliver to the Custodian and the Fund a notification setting forth the number of
Shares to be redeemed. Such redemptions shall be reflected on appropriate
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accounts maintained by the Transfer Agent reflecting outstanding Shares and
Shares attributed to individual accounts and, if applicable, any individual
withdrawal or distribution plan.
(c) Payment of Redemption Proceeds. The Transfer Agent shall, upon
receipt of the moneys paid to it by the Custodian for the redemption of Shares,
pay to the Shareholder, or his authorized agent or legal representative, such
moneys AS are received from the Custodian, all in accordance with the redemption
procedures described in the Prospectus; provided, however, that the Transfer
Agent shall pay the proceeds of any redemption of Shares purchased within 15
days of a redemption request to the Transfer Agent upon a determination that
good funds have been collected for the purchase of such Shares. The Fund shall
indemnify the Transfer Agent for any payment of redemption proceeds or refusal
to make such payment if the payment or refusal to pay is in accordance with this
Section.
The Transfer Agent shall not process or effect any redemptions
pursuant to a plan of distribution or redemption or in accordance with any other
Shareholder request upon the receipt by the Transfer Agent of notification of
the suspension of the determination of the Fund net asset value.
7. Dividends.
(a) Notice to Transfer Agent and Custodian. Upon the declaration of each
dividend and each capital gains distribution by the Board of Directors of the
Fund with respect to Shares, the Fund shall furnish to the Transfer Agent a copy
of a resolution of its Board of Directors certified by the Secretary setting
forth with respect to the Shares, the date of the declaration of such dividend
or distribution, the ex-dividend date, the date of payment thereof, the record
date as of which Shareholders entitled to payment shall be determined, the
amount payable per Share to the Shareholders of record as of that date, the
total amount payable to the Transfer Agent on the payment date, and whether such
dividend or distribution is to be paid in Shares at net asset value.
On or before the payment date specified in such resolution of the
Board of Directors, the Fund will cause the Custodian of the Fund to pay to the
Transfer Agent sufficient cash to make payment to the Shareholders of record as
of such payment date.
(b) Payment of Dividends by the Transfer Agent. The Transfer Agent will,
on the designated monthly payment date, automatically reinvest all dividends in
additional Shares at net asset value (determined on such date) and mail to each
Shareholder on a quarterly basis at his address of record, or such other address
as the Shareholder may have designated, a statement showing the number of full
and fractional Shares (rounded to three decimal places) then currently owned by
the Shareholder and the net asset value of the Shares so credited to
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the Shareholder's account, provided, however, that if the Transfer Agent has on
file a direction by the Shareholder to pay income dividends or capital gains
dividends, or both, in cash, such dividends shall be paid in accordance with
such instructions; and provided further that in the event of the return of two
consecutive dividend checks as undeliverable, the Transfer Agent shall change
such Shareholder account to a reinvestment account if so provided in the
Prospectus.
(c) Insufficient Funds for Payments. If the Transfer Agent does not receive
sufficient cash from the Custodian to make total dividend and/or distribution
payments to all Shareholders of the Fund as of the record date, the Transfer
Agent will, upon notifying the Fund, withhold payment to all Shareholders of
record as of the record date until such sufficient cash is provided to the
Transfer Agent.
(d) Information Returns. It is understood that the Transfer Agent shall file
such appropriate information returns concerning the payment of dividends, return
of capital, and capital gain distributions with the proper federal, state, and
local authorities as are required by law to be filed and shall be responsible
for the withholding of taxes, if any, due on such dividends or distributions to
Shareholders when required to withhold taxes under applicable law.
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Exhibit 1
to
Schedule B
SUMMARY OF SERVICES
The services to be performed by the Transfer Agent shall be as follows:
A. DAILY RECORDS
Maintain daily on disc the following information with respect to each
Shareholder account as received:
Name and Address (Zip Code)
Balance of Shares held by Transfer Agent
State of residence code
Beneficial owner code: i.e., male, female, joint tenant, etc.
Dividend code (reinvestment)
Number of Shares held in certificate form
B. OTHER DAILY ACTIVITY
Answer written inquiries relating to Shareholder accounts (Matters
relating to portfolio management, distribution of Shares, and other management
policy questions will be referred to the Fund.)
Furnish a Statement of Additional Information to any Shareholder who
requests (in writing or by telephone) such statement from the Transfer Agent.
Examine and process Share purchase applications in accordance with the
Prospectus.
Furnish Forms W-9 to all Shareholders whose initial subscriptions for
Shares did not include taxpayer identification numbers.
Process additional payments into established Shareholder accounts in
accordance with the Prospectus.
Upon receipt of proper instructions and all required documentation,
process requests for redemption of Shares.
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Identify redemption requests made with respect to accounts in which
Shares have been purchased within an agreed-upon period of time for determining
whether good funds have been collected with respect to such purchase and process
as agreed by the Transfer Agent and the Fund in accordance with written
procedures set forth in the Fund's Prospectus.
Examine and process all transfers of Shares, ensuring that all
transfer requirements and legal documents have been supplied.
Issue and mail replacement checks.
C. REPORTS PROVIDED TO THE FUND
Furnish the following reports to the Fund:
Daily financial totals
Blue sky reports
Monthly Form N-SAR information (sales/redemptions)
Monthly report of outstanding Shares
Monthly analysis of accounts by beneficial owner code
Monthly analysis of accounts by Share range
Analysis of sales by state; provide a "Warning system" that informs
the Fund when sales of Shares in certain states are within a specified
percentage of the Shares registered in the state.
D. DIVIDEND ACTIVITY
Calculate and process Share dividends and distributions as instructed
by the Fund.
compute, prepare, and mail all necessary reports to Shareholders,
federal, and/or state authorities as requested by the Fund.
E. MEETINGS OF SHAREHOLDERS
Cause to be mailed proxy and related material for all meetings of
Shareholders. Tabulate returned proxies (Proxies must be adaptable to
mechanical equipment of the Transfer Agent or its agents.) and supply daily
reports when sufficient proxies have been received.
18
<PAGE>
Costs incurred in providing this service will be an out-of-pocket
expense of the Transfer Agent.
Prepare and submit to the Fund an Affidavit of Mailing.
At the time of the meeting, furnish a certified list of Shareholders,
hard copy, microfilm, or microfiche and, if requested by the Fund, Inspectors of
Election.
F. PERIODIC ACTIVITIES
Cause to be mailed reports, Prospectuses, and any other enclosures
requested by the Fund. (Material must be adaptable to mechanical equipment of
Transfer Agent or its agents.)
19
<PAGE>
SCHEDULE A*
FEE SCHEDULE
CUSTODIAN AND TRANSFER AGENT CHARGES
FIRST AMERICAN BANK WEST
PERCENTAGE
FUND SIZE (NET ASSET VALUE) OF 1%
- --------------------------- -----
$ 0 TO 10,000,000 (See note below.) .25
10,000,001 TO 20,000,000 .20
20,000,001 TO 40,000,000 .15
40,000,001 TO 75,000,000 .12
75,000,001 TO 100,000,000 .11
100,000,001 AND LARGER .10
Note: Subject to monthly minimum of $800.00
*Schedule A is annexed to and incorporated into both the Custodian Agreement and
the Transfer Agency Agreement, because First American Bank West ("First
American") serves ND Insured Income Fund, Inc. (the "Fund"), both in the
capacity of Custodian and in the capacity of Transfer Agent. Although annexed to
and incorporated into both the aforementioned Agreements, First American is
entitled to only one fee for all services provided to the Fund in both
capacities. In other words, the fact that Schedule A forms a part of both
Agreements does not entitle First American to charge a fee based upon Schedule A
for its services as Custodian and to charge another fee based upon Schedule A
for its services as Transfer Agent.
20
<PAGE>
EXHIBIT 99.10
OPINION OF PRINGLE & HERIGSTAD, P. C.
<PAGE>
LOGO
LAW OFFICES OF
PRINGLE & HERIGSTAD, P.C.
ROGER 0 HERIGSTAD FIRST AMERICAN BANK WEST BUILDING JOHN J PETRIK
MITCHELL H MAHONEY 20 SW 1ST STREET LEE J SALERUD
MARK F PURDY POST OFFICE BOX 1000 CAROL K LARSON
THOMAS A WENTZ MINOT, NORTH DAKOTA 58702 DAVID J HOGUE
JAN M SEBBY (701)852-0381 1-800-735-4064 REED A SODERSTROM
DONALD A NEGAARD FAX (701) 857-1361
JAMES E NOSTDAHL KENNETH G PRINGLE
(1914-1983)
January 4, 1991
ND INSURED INCOME FUND, INC.
201 South Broadway
Minot, ND 58701
We have acted as special counsel to the ND Insured Income Fund, Inc. (the
"Company"), a corporation organized under the laws of the State of North Dakota,
in connection with the preparation and filing of a Registration Statement on
Form N-lA and a Notification of Registration on form N-8A covering the offer and
sale of an unlimited number of shares of said company (all of said shares being
of one class and having a par value of one mill ($.001)).
We have examined copies of the Articles of Incorporation, the Certificate
of Incorporation, the Bylaws, the Registration Statement, all votes of the
Company's Board of Directors (the "Board") at its initial meeting held on
December 3, 1990, consents of the Board and other records and documents that we
have deemed necessary for the purpose of rendering this opinion. We have also
examined such other documents, papers, statutes, and authorities as we have
deemed necessary to form a basis for the opinion hereinafter expressed.
In our examination of said material, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us. As to various questions of fact material to our opinion, we have relied
upon statements and certificates of officers and representatives of the Company
and others.
Based upon the foregoing, we are of the opinion that the shares, when duly
sold, issued and paid for in accordance with the terms of the Prospectus and the
Statement of Additional Information included as a part of the Registration
Statement will be validly and legally issued and will be fully paid and non-
assessable shares of ND Insured Income Fund, Inc.
<PAGE>
ND INSURED INCOME FUND, INC.
January 4, 1991
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to us in the Statement of Additional
Information included as a part of the Registration Statement and to the filing
of this opinion as an exhibit to any application made by or on behalf of the
Company or any distributor or dealer in connection with the registration or
qualification of the Company or the shares under the securities laws of any
state or other jurisdiction.
/Thomas A. Wentz
Thomas A. Wentz
ir
<PAGE>
EXHIBIT 99.11
CONSENT OF INDEPENDENT ACCOUNTANTS
<PAGE>
[LETTERHEAD OF BRADY MARTZ]
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-effective Amendment No. 9 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 10, 1997, relating to the financial statements and selected per share
data and ratios of ND Insured Income Fund, Inc., which appears in such Statement
of Additional Information and to the incorporation by reference of our report
into the Prospectus which constitutes part of the Registration Statement. We
also consent to the reference to us under the heading "Accountant and Reports to
Shareholders" in such Statement of Additional Information and to the reference
to us under the heading "Financial Highlights" in the Prospectus and on the back
cover of the Prospectus.
Brady, Martz
BRADY, MARTZ & ASSOCIATES, P.C.
February 21, 1997
<PAGE>
EXHIBIT 99.13
FORM OF SUBSCRIPTION AGREEMENT
<PAGE>
SUBSCRIPTION AGREEMENT
ND Insured Income Fund, Inc. (the "Fund"), an open-end, non-diversified,
management investment company, and
(the "Investor"), intending to be legally bound, hereby agree as
follows:
1. To provide its initial capital, the Fund hereby sells to the
Investor, and the Investor hereby purchases, shares,
$.001 par value, of the Fund (the "Shares") at a price of $10.00 per share. The
Fund hereby acknowledges receipt from the Investor of $ in full payment for
the Shares.
2. The Investor represents and warrants to the Fund that the Shares are being
acquired for investment purposes and not with the present intention of redeeming
or selling the Shares when additional funds have been provided from the public
sale of the Shares.
3. The amount paid will be refunded to the Investor on demand in full if the
net proceeds received by the Fund do not result in the Fund having a net worth
of at least $100,000 within 90 days after the Fund's registration statement
becomes effective.
IN WITNESS WHEREOF, the parties have executed this Agreement this day of
1991.
ND INSURED INCOME FUND, INC. INVESTOR
By
