ND INSURED INCOME FUND INC, 485BPOS, 1997-04-30

ND INSURED INCOME FUND INC
485BPOS, 1997-04-30

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<PAGE>

As filed with the Securities and Exchange Commission
May 1, 1997

File Nos. 33-38559 and 811-6238
_______________________________________________________

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. 10 [X]

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 11

ND INSURED INCOME FUND, INC.
--------------------------
(Exact Name of Registrant as Specified in Charter)

1 North Main, Minot, North Dakota 58703
---------------------------------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code:
---------------------------------------------------
(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)
-----
_____ on (date) pursuant to paragraph (b)

_____ 60 days after filing pursuant to paragraph (a)

_____ on (date) pursuant to paragraph (a) of Rule 485.

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 February 21, 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> <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 ND INSURED INCOME FUND APPEARS HERE]

ND INSURED INCOME FUND, INC.
1 North Main . Minot, North Dakota 58703
(701) 852-5292

PROSPECTUS MAY 1, 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, 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>
<CAPTION>
=======================================
TABLE OF CONTENTS
=======================================
<S> <C>
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
</TABLE>

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)
-----
Total Fund Operating Expenses (After Expense Assumption)........................... 1.00% (4)

EXAMPLE (5)
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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
annualized basis for fiscal year 1996.
(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 or 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 need not be held unless required under the North Dakota
Business Corporation Act or the Investment Company Act of 1940. The Fund does
not intend to hold regular meetings of shareholders. 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 RISK 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
----------------------------------------------------------------------
<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.

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: (1) 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 issued by 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

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 hypothe-

12
<PAGE>

cate 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.

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>

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.

. 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 II.
. 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

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
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29
<PAGE>

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30
<PAGE>

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31
<PAGE>

INTEGRITY
FUND OF FUNDS, INC.

1 NORTH MAIN ND INSURED
MINOT, ND58703 INCOME FUND,
(701) 852-5292 INC.

INVESTMENT ADVISER A mutual fund for investors
ND MONEY MANAGEMENT, INC. seeking long-term capital
1 NORTH MAIN appreciation and growth
MINOT, ND 58703 of income

===========================
PRINCIPAL UNDERWRITER
ND CAPITAL, INC.
1 NORTH MAIN
MINOT, ND 58703 Prospectus

May 1, 1997
CUSTODIAN
FIRST WESTERN BANK & TRUST
900 SOUTH BROADWAY [LOGO OF ND INSURED INCOME FUND
MINOT, ND 58701 APPEARS HERE]

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, ND58702
<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____________________
Custodian's name Minor's name

_______________ under the_______
State
Uniform Gifts/Transfers to Minors Act

____TRUST*

______________________________________as trustee(s) of__________________________
Trustee's name Name of trust agreement
_______________________________
Date of trust 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, PLEASEsignature
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 (In UGMA/UTMA Minor's SSN) Employer Identification
Number
I am a citizen of: ____U.S. ____ My country of residence for 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______________________________

Social Security Number (In UGMA/UTMA Minor's SSN)
<PAGE>

PART B
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 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, 1997. The Prospectus may be obtained without charge from
the Fund.

TABLE OF CONTENTS
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PAGE
<S> <C>
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
</TABLE>

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>
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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 April 11, 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, 8.39% Record
P.O. Box 1090, Minot, ND 58702

Oakes Community Hospital, 7.63% 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) 6.68% Record
P.O. Box 1090, Minot, ND 58702
</TABLE>

As of April 11, 1997, directors and officers (including family members) of the
Registrant as a group owned 3,312.79 shares, or 1.18% 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. It 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. NDResources,
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.

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:

a-b /6/
YIELD =2[(--- + 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>

[LETTER HEAD OF BRADY, MARTZ & ASSSOCIATES]

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

STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
- -----------------------------------------------------

<TABLE>
<CAPTION>
<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
----------
</TABLE>

STATEMENT OF OPERATIONS
For the year ended December 31, 1996
- -----------------------------------------------------

<TABLE>
<CAPTION>
<S> <C>
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 ANDFUTURES
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, 1995 December 31, 1996
------------------------------------------
<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

FINANCIAL HIGHLIGHTS Selected per share data and ratios for the period indicated
- --------------------------------------------------------------------------------

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>

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: NDTax-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-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. NDResources, Inc. ("Resources"), serves as transfer agent,
dividend disbursing, administrative, and accounting services agent of Registrant
and maintains all records related to those functions. NDCapital, Inc.
("Capital"), serves as the principal underwriter of Registrant and maintains all
records related to that function. NDMoney 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. 10 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. 10
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Minot, State of North Dakota, on the 25th day of April, 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. 10 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.

__________________________________________________ April 25, 1997
Lynn W. Aas
Director

__________________________________________________ April 25, 1997
Orlin W. Backes
Director

__________________________________________________ April 25, 1997
Arthur A. Link
Director

__________________________________________________ April 25, 1997
Peter A. Quist
Director, Vice President, and Secretary

__________________________________________________ April 25, 1997
Robert E. Walstad
Director, President, and Treasurer

C-5

<PAGE>

EXHIBIT (11)

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
<PAGE>

[LETTERHEAD OF BRADY, MARTZ & ASSOCIATES]

We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-effective Amendment No. 10 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.

/s/ Brandy, Martz
BRANDY, MARTZ & ASSOCIATES, P.C.

April 25, 1997

<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>