<PAGE>
Dear Shareholders:
We are pleased to enclose the semi-annual report on the operations of
Integrity Fund of Funds, Inc. for the six months ended June 30th. The Fund's
portfolio and related financial statements are presented within for your
review.
The stock market, as measured by many averages and indices, has extended the
record levels of last year. The economy's inflation threatening growth has
lost momentum, lessoning one of the biggest concerns in the financial markets.
In April job creation downshifted, retail sales fell, and wholesale prices
fell for the fourth cosecutive month.
However, beneath the surface the slowdown was inevitable from the first
quarter's robust six percent pace. The possibility of growth resurgence will
rise with the tight labor market, and a jobless rate hovering at a 24 year
low. Climbing wages and an upbeat household sector as indicated by high
levels of consumer confidence has the Federal Reserve on watch.
At times during the first half of 1997, the Fund utilized a partial hedge to
protect asset value through the use of Standard & Poor's 500 futures. By
using a partial hedge when deemed appropriate, we are allowing the potential
for share price appreciation, but at the same time we are protecting against
the possibility of major market corrections from our recent record high.
Integrity Fund of Funds share price began 1997 at $12.53 per share and closed
June 30th at $13.58 per share. This reflects the strong advance in the market.
Long-term capital appreciation and growth of income has and will continue as
the primary objectives as management monitors the mutual fund industry for
opportunities.
Sincerely,
Robert E. Walstad Monte Avery
President Chief Portfolio Strategist
SHAREHOLDER REPORTS REVISED
- ---------------------------
Your fund's annual report is your best source for tracking the progress of
your investment. This report includes several changes that have been made in
an effort to provide additional information to you. In addition, the cover
letter includes commentary from your fund's portfolio manager on what might be
expected in the coming months. Specifically, your report now includes:
* Terms you'd need to know related to your fund
* A look at your fund's portfolio composition
* A look at your fund's average annual total returns
Terms & Definitions
- -------------------
Appreciation
Increase in value of an asset.
<PAGE>
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned
by the fund on an annual basis.
Contingent Deferred Sales Charge (CDSC)
A charge applied at the time of the redemption which assumes redemption
at the end of the period.
Depreciation
Decrease in value of an asset.
Growth Fund
A type of diversified common stock fund that has capital appreciation as
its primary goal. It invests in companies that reinvest most of their
earnings for expansion, research or development.
Growth & Income Fund
Fund that invests in common stocks for both current income and long-term
growth of capital and income.
Load
A mutual fund whose shares are sold with a sales charge added to the net
asset value.
Market Value
Actual price at which a Fund trades in the market place.
Net Asset Value (NAV)
The value of all your fund's assets, minus any liabilities, divided by
the number of outstanding shares, not including any initial or contingent
deferred sales charge.
No-Load
A mutual fund whose shares are sold with a sales charge added to the net
asset value.
Total Return
Measures both the net investment income and any realized and unrealized
appreciation or depreciation of the underlying investments in the fund's
portfolio for the period, assuming the reinvestment of all dividends. It
represents the aggregate percentage or dollar value change over the
period.
PERFORMANCE AND COMPOSITION
- ---------------------------
Portfolio Load Types
- --------------------
[pie chart]
Load 86.5%
No-Load 13.5%
The Load Structure reflects the type of sales load typically charged by each
fund in the portfolio. As of 6-30-97, the fund has not paid a sales load to
any fund.
<PAGE>
Portfolio Investment Style
- --------------------------
[pie chart]
Growth 56.0%
Growth & Income 34.6%
Aggressive Growth 9.4%
The Portfolio Investment Style reflects the investment methodology and the
size of the company in which each fund in the portfolio invests.
COMPARATIVE INDEX GRAPH
- -----------------------
[line graph]
Comparison of change in value of a $10,000 investment in the
Integrity Fund of Funds and the S & P 500 Index
Integrity Fund of Integrity Fund of Funds
Funds w/o CDSC w/ CDSC S & P 500 Index
---------------------------------------------------------------
1/3/1995 $10,000 $10,000 $10,000
1995 $12,520 $12,370 $13,411
1996 $14,252 $14,102 $16,129
6/30/1997 $15,447 $15,297 $19,273
Putting Performance into Perspective
The graph comparing your Fund's performance to a benchmark index provides you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities
index measures the performance of a theoretical portfolio. Unlike a fund, the
index is unmanaged; there are no expenses that affect the results. In
addition, few investors could purchase all of the securities necessary to
match the index. And, if they could, they would incur transaction costs and
other expenses.
KEY STATISTICS
- --------------
12-31-96 NAV(share value) $12.53
06-30-97 NAV $13.58
Number of Issues 19
Total Net Assets $15,862,692
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------
For periods ending June 30, 1997
- ---------------------------------------------------
1 year 5 year Since Inception
- ---------------------------------------------------
12.73% * NA 19.08%*
*The 1 year and Since Inception returns do not include the effect of the
Contingent Deferred Sales Charges (1.50%). It would have been 11.23% and
18.61% respectively, if it had. Returns are historical and are not a
guarantee of future results. The Fund's share price, yields and total returns
will vary, so that shares, when redeemed, may be worth more or less than their
<PAGE>
original cost.
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investments June 30, 1997 (Unaudited)
Name of Issuer
Percentages represent the market value of each investment category Market
to total net assets (Unaudited) Quantity Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS (97.2%)
AIM Aggressive Growth Fund A 2,366 $ 105,843
AIM Constellation Fund A 36,845 1,005,511
AIM Value Fund A 43,700 1,479,251
American Fundamental Investors Fund 28,908 810,863
American Washington Mutual Investors 31,597 905,253
Brandywine Fund 8,010 295,648
Dodge & Cox Stock Fund 8,352 777,909
MFS Research A 77,073 1,613,916
MFS Value A 30,865 424,704
Massachusetts Inv A 69,121 1,181,976
Neuberger & Berman Focus Fund 6,096 221,271
Neuberger & Berman Guardian Fund 10,154 293,639
New York Venture Fund A 68,489 1,425,933
Putnam Growth & Income Fund A 53,799 1,109,331
Putnam Vista Fund A 68,955 796,428
Putnam Voyager Fund A 19,245 345,454
T. Rowe Price Equity-Income 9,991 250,875
T. Rowe Price New America Growth 5,883 245,022
Templeton Growth Fund 94,929 2,127,360
-----------
TOTAL MUTUAL FUNDS (COST: $13,045,966) $15,416,187
SHORT-TERM SECURITIES (1.4%)
Federated Money Market Trust #092 (COST: $219,683) 219,683
-----------
TOTAL INVESTMENTS IN SECURITIES (COST: $13,265,649) $15,635,870
OTHER ASSETS LESS LIABILITIES 226,822
-----------
NET ASSETS $15,862,692
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Financial Statements June 30, 1997(Unaudited)
Statement of Assets and Liabilities June 30, 1997
- -------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities, at value (cost:$13,265,649) $ 15,635,870
Receivable for fund shares sold 13,544
Accrued dividends receivable 8,837
Variation margin on futures 234,000
--------------
Total Assets $ 15,892,251
--------------
LIABILITIES
Bank overdraft $ 5,815
Payable for fund shares redeemed 2,442
Accrued expenses 21,302
--------------
Total Liabilities $ 29,559
--------------
NET ASSETS $ 15,862,692
==============
Net asset value per share, 1,168,268 shares outstanding $ 13.58
==============
Statement of Operations for the six months ended June 30, 1997(Unaudited)
INVESTMENT INCOME
Dividends $ 53,746
--------------
Total Investment Income $ 53,746
--------------
EXPENSES
Investment advisory fees $ 62,654
Custodian fees 696
Transfer agent fees 10,733
Accounting service fees 15,492
Audit and legal fees 4,012
Directors fees 1,125
Service fees 17,404
Insurance 497
Printing and postage 6,041
License, fees, and registrations 10,876
--------------
Total expenses $ 129,530
Less expenses waived or absorbed
by the Fund's manager 18,145
--------------
Total Net Expenses $ 111,385
--------------
NET INVESTMENT INCOME (LOSS) $ (57,639)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES
Net realized gain (loss) from:
Investment transactions $ 53,039
Futures transactions (256,222)
Net change in unrealized appreciation (depreciation) of:
Investments 1,881,977
Futures (443,402)
--------------
Net realized and unrealized gain
(loss) on investments and futures $ 1,235,392
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 1,177,753
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Financial Statements June 30, 1997
Statement of Changes in Net Assets
For the six months ended June 30, 1997 and year ended December 31, 1996
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months For the Year
Ended June 30, Ended
1997 (Unaudited) December 31, 1996
---------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
<S> <C> <C>
Net investment income (loss) $ (57,639) $ 86,965
Net realized gain (loss) on investment and futures transactions (203,183) 692,756
Net unrealized appreciation (depreciation) on investments and futures 1,438,575 334,848
---------------------------------------------
Net Increase (Decrease) in Net Assets Resulting From Operations $ 1,177,753 $ 1,114,569
---------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income $ 0 $ (86,965)
Distributions from net realized gain on investment and
futures transactions 0 (692,756)
---------------------------------------------
Total Dividends and Distributions $ 0 $ (779,721)
---------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares $ 3,194,181 $ 7,365,405
Proceeds from reinvested dividends 725,283 249,907
Cost of shares redeemed (640,085) (906,427)
---------------------------------------------
Net Increase (Decrease) in Net Assets Resulting From
Capital Share Transactions $ 3,279,379 $ 6,708,885
---------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 4,457,132 $ 7,043,733
NET ASSETS, BEGINNING OF PERIOD 11,405,560 4,361,827
---------------------------------------------
NET ASSETS, END OF PERIOD $ 15,862,692 $ 11,405,560
=============================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Notes to Financial Statements June 30, 1997 (Unaudited)
Note 1. ORGANIZATION
Integrity Fund of Funds, Inc. (the Fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company. The Fund incorporated under the laws of the State of North
Dakota on June 1, 1994 and commenced operations on January 1, 1995. The
Fund's objective is long-term capital appreciation and growth of income. The
Fund seeks to achieve this objective by investing primarily in a diversified
group of other open-end investment companies which in turn, invest principally
in equity securities.
Shares of the Fund are offered for sale at net asset value without a sales
charge. Shares may be subject to a contingent deferred sales charge, if those
shares are redeemed within five years of purchase.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation -- Investments in securities for which
market quotations are readily available are valued at the last reported sales
price or net asset value 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 -- The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to regulated
investment companies, and to distribute all of its net investment income,
including any net realized gain on investments, to its shareholders.
Therefore, no provision for income taxes is required.
Distributions to shareholders -- The Fund will distribute dividends from net
investment income and any net realized capital gains at least annually.
Dividends and distributions are reinvested in additional shares of the Fund at
net asset value or paid in cash.
Dividend income -- Dividend income is recognized on the ex-dividend date.
Futures contracts -- The Fund may purchase and sell financial futures
contracts to hedge against changes in the values of equity 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 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. Daily fluctuations in value
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.
<PAGE>
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.
Note 3. CAPITAL SHARE TRANSACTIONS
As of June 30, 1997, there were 1,000,000,000 shares of $.0001 par value
authorized; 1,168,268 and 910,358 shares were outstanding at June 30, 1997 and
December 31, 1996, respectively. Transactions in capital shares were as
follows:
Shares
----------------------------------------
For The Six Months For The Year
Ended Ended
June 30, 1997 Dec. 31, 1996
----------------------------------------
Shares sold 250,583 589,294
Shares issued on reinvestment
of dividends 57,884 21,251
Shares redeemed (50,557) (70,936)
----------------------------------------
Net increase 257,910 539,609
========================================
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 0.90% of the Fund's
average daily net assets. The Fund has recognized $62,654 of investment
advisory fees for the six months ended June 30, 1997. The Fund has a payable
to ND Money Management, Inc. of $11,658 at June 30, 1997 for investment
advisory fees. Certain officers and directors of the Fund are also officers
and directors of the investment adviser.
ND Capital, Inc. is the Fund's principal underwriter. The Fund pays ND
Capital service fees computed at an annual rate of 0.25% of the Fund's average
daily net assets. Capital, in turn, pays dealers service fees for personal
service to shareholders and/or the maintenance of shareholder accounts. The
Fund has recognized $17,404 of service fees for the six months ended June 30,
1997. The Fund has a payable to Capital of $3,238 at June 30, 1997 for
1998. service fees. Certain officers and directors of the Fund are
also officers and directors of the underwriter. In addition, the Fund has
engaged Capital as agent for the purchase of certain investment securities.
For the six months ended June 30, 1997 commissions earned by Capital,
totaled $800 and are included in the cost basis of the securities acquired.
<PAGE>
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 $10,733 of transfer agency fees
for the six months ended June 30, 1997. 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 $15,492 of accounting service fees for the six months
ended June 30, 1997.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment securities
(excluding short-term securities) aggregated $2,475,000 and $440,453,
respectively, for the six months ended June 30, 1997.
Note 6. INVESTMENT IN SECURITIES
At June 30, 1997, the aggregate cost of securities for federal income tax
purposes was $13,265,649, and the net unrealized appreciation of investments
based on the cost was $2,370,221, which is comprised of $2,370,221 aggregate
gross unrealized appreciation and $0 aggregate gross unrealized depreciation.
<PAGE>
Financial Highlights Selected per share data and ratios for the period indicated
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six For The Year For The Year
Months Ended Ended Ended
June 30, 1997 December 31, 1996 December 31, 1995
(Unaudited)
-----------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.53 $ 11.76 $ 10.00
-----------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) $ (.05) $ .10 $ .22
Net realized and unrealized gain (loss) on investment
and futures transactions 1.10 1.53 2.30
-----------------------------------------------------------
Total From Investment Operations $ 1.05 $ 1.63 $ 2.52
-----------------------------------------------------------
Less Distributions:
From net investment income $ .00 $ (.10) $ (.22)
From net realized gain on investments .00 (.76) (.54)
-----------------------------------------------------------
Total Distributions $ .00 $ (.86) $ (.76)
-----------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.58 $ 12.53 $ 11.76
===========================================================
Total Return 16.76%(A)(B) 13.84%(A) 25.20%(A)
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 15,863 $ 11,406 $ 4,362
Ratio of net expenses (after expense assumption) to
average net assets 1.62%(B)(C) 1.63%(C) 1.59%(C)
Ratio of net investment income to average net assets (.84)%(B) .98% 4.00%
Portfolio turnover rate 3.24% 50.11% 15.30%
</TABLE>
(A) Excludes contingent deferred sales charge of 1.5%.
(B) Ratio was annualized.
(C) During periods indicated above, ND Holdings, Inc. assumed expenses of
$18,145, $39,760 and $40,714, respectively. If the expenses had not been
assumed, the annualized ratio of total expenses to average net assets
would have been 1.88%, 2.08% and 3.60%, respectively.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 13,265,649
<INVESTMENTS-AT-VALUE> 15,635,870
<RECEIVABLES> 22,381
<ASSETS-OTHER> 234,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,892,251
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29,559
<TOTAL-LIABILITIES> 29,559
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,168,268
<SHARES-COMMON-PRIOR> 910,358
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (203,183)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,370,221
<NET-ASSETS> 15,862,692
<DIVIDEND-INCOME> 53,746
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (111,385)
<NET-INVESTMENT-INCOME> (57,693)
<REALIZED-GAINS-CURRENT> (203,183)
<APPREC-INCREASE-CURRENT> 1,438,575
<NET-CHANGE-FROM-OPS> 1,177,753
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 250,583
<NUMBER-OF-SHARES-REDEEMED> 50,557
<SHARES-REINVESTED> 57,884
<NET-CHANGE-IN-ASSETS> 4,457,132
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 62,654
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 129,530
<AVERAGE-NET-ASSETS> 13,804,698
<PER-SHARE-NAV-BEGIN> 12.53
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> 1.10
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.58
<EXPENSE-RATIO> 1.62<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Ratio of net expenses to average net assets, annualized.
</FN>
</TABLE>
