<PAGE>
As filed with the Securities and Exchange Commission
May 1, 1997
File Nos. 33-85332 and 811-8824
_____________________________________________________________
UNITED STATES
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. 5 [X]
----
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 6
-----
(Check appropriate box or boses.)
INTEGRITY FUND OF FUNDS, 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
Integrity Fund of Funds, 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 60 pages
<PAGE>
INTEGRITY FUND OF FUNDS, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(A)
<TABLE>
<CAPTION>
PART A
ITEM
NUMBER PROSPECTUS CAPTION
<S> <C>
1. Cover Page...................................................... Cover Page
2. Synopsis........................................................ FEE AND EXPENSE TABLE
and SYNOPSIS
3. Condensed Financial Information................................. FINANCIAL HIGHLIGHTS
4. General Description of Registrant............................... GENERAL DESCRIPTION OF
THE FUND
5. Management of the Fund.......................................... MANAGEMENT
5A. Management's Discussion of Fund Performance..................... Inapplicable
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
<CAPTION>
PART B
ITEM STATEMENT OF ADDITIONAL
NUMBER INFORMATION CAPTION
<S> <C>
10. Cover Page...................................................... Cover Page
11. Table of Contents............................................... TABLE OF CONTENTS
12. General Information and History................................. Inapplicable
13. Investment Objectives and Policies.............................. INVESTMENT RESTRICTIONS
and TEMPORARY
INVESTMENTS
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-2
29. Principal Underwriters......................................... C-3
30. Location of Accounts and Records............................... C-3
31. Management Services............................................ C-3
32. Undertakings................................................... C-4
33. Signature Page................................................. C-4
</TABLE>
<PAGE>
[LOGO OF INTERGRITY FUND OF FUNDS, INC. APPEARS HERE]
PROSPECTUS MAY 1, 1997
Integrity Fund of Funds, Inc. (the "Fund"), is an open-end, diversified,
management investment company. 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 ("underlying funds") which, in turn, invest principally in equity
securities. Current income is a secondary objective of the Fund.
Shares of the Fund are offered for sale at net asset value without a sales
charge. A contingent deferred sales charge is assessed on certain redemptions,
however (See CONTINGENT DEFERRED SALES CHARGE.). See PURCHASE OF SHARES for
information about commissions and fees paid to dealers who sell shares and
provide personal services to shareholders. An investor in the Fund will not only
bear a proportionate share of the expenses of the Fund, but will also indirectly
bear a share of similar expenses of the underlying funds.
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 OF CONTENTS
--------------------------------
<TABLE>
<S> <C>
Fee and Expense Table............ 2
Synopsis......................... 3
Financial Highlights............. 4
General Description of the Fund.. 5
Risks and Other Considerations... 7
Management....................... 8
Shares........................... 10
Purchase of Shares............... 12
Redemption of Shares............. 15
Performance Data................. 16
Appendix......................... 17
</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.
1
<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 an investor in the Fund will
bear directly or indirectly. For more complete descriptions of these costs and
expenses, see MANAGEMENT, PURCHASE OF SHARES, and REDEMPTION OF SHARES.
________________________
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases....................................... None
Maximum Sales Load Imposed on Reinvested Dividends............................ None
Maximum Deferred Sales Load (as a percentage of redemption proceeds).......... 1.50%(1)
Redemption Fees............................................................... None
Exchange Fees................................................................. None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management Fees............................................................... 0.90% (2)
12b-1 Fees.................................................................... None
Other Expenses................................................................ 0.45% (3)
Service Fees............................................................... 0.25% (4)
Total Fund Operating Expenses................................................. 1.60%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE (5) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (i) 5% annual return and (ii) redemption at the end
of each time period: $31.00 $66.00 $102.00 $190.00
You would pay the following expenses on the same investment,
assuming no redemption: $16.00 $51.00 $87.00 $190.00
</TABLE>
____________________________
(1) As more fully explained under CONTINGENT DEFERRED SALES CHARGE, a
charge equal to 1.5% of the redemption proceeds is assessed, with certain
exceptions, against shares which are redeemed within the first five years of
their purchase.
(2) The management fees are higher than those paid by most other
investment companies. An investor will bear not only his or her proportionate
share of the Fund's transactional and operating expenses but also similar
expenses of the funds in which the Fund invests.
(3) "Other Expenses," which are estimated, include transfer agent,
custodian, legal, accounting, and similar fees paid by the Fund.
(4) The Fund pays dealers fees up to 0.25% of the Fund's net assets for
personal service to shareholders and/or the maintenance of shareholder
accounts.
(5) THE EXAMPLE IS BASED UPON PERCENTAGES IN THE TABLE ABOVE AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESSER THAN THOSE SHOWN. 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, diversified, management investment company. 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 underlying funds which, in turn, invest principally in equity
securities. Current income is a secondary objective of the Fund. There is no
assurance that the Fund's objective will be achieved. See INVESTMENT OBJECTIVE,
POLICIES, AND RESTRICTIONS.
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 0.90% of the Fund's average daily net assets.
See INVESTMENT ADVISER.
ND Capital, Inc. (the "Underwriter"), is the Fund's principal underwriter.
See PURCHASE OF SHARES.
PURCHASES AND REDEMPTIONS
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. The
minimum initial investment is $1,000 ($100 for the Monthomatic Investment Plan
and $250 for an Individual Retirement Account), and subsequent investments must
be at least $50. See PURCHASE OF SHARES. No sales charge is imposed when
shares are purchased. However, a contingent deferred sales charge is imposed if
certain shares are redeemed within five years after their purchase. See
CONTINGENT DEFERRED SALES CHARGE.
INVESTORS IN THE FUND
The Fund is designed for persons who are seeking long-term capital
appreciation and growth of income from a portfolio consisting of shares of
underlying funds which invest principally in equity securities. Current income
is a secondary objective of the Fund. Through an investment in shares of the
Fund, investors receive the benefits of diversification of investment,
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 distributes any net investment income and net realized capital
gains at least annually. Unless otherwise directed all dividends and
distributions generally will be reinvested automatically at net asset value in
additional shares of the Fund.
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 one billion shares, all of one
class and one series, with a par value of $.0001 per share. Shares are fully
paid and nonassessable when issued, are redeemable and freely transferable, and
have equal voting rights and preferences in all matters, including voting. There
are no subscription, preemptive, or conversion rights. Regular meetings of
shareholders will not be held unless required under the North Dakota Business
Corporation Act or the Investment Company Act of 1940 (the "1940 Act"). Special
3
<PAGE>
meetings of shareholders may be called for any purpose at any time in the manner
prescribed under the North Dakota Business Corporation Act.
RISK FACTORS
An investment in the Fund is subject to a number of different risks, some
of which are described under INVESTMENT OBJECTIVE, POLICIES, AND RESTRICTIONS
and RISKS AND OTHER CONSIDERATIONS, and in the APPENDIX. Investing in a
portfolio of underlying funds involves additional expenses and results in tax
consequences which would not occur in a direct investment in mutual funds. In
addition, federal law imposes restrictions on the purchase of underlying funds'
shares by the Fund. As with other mutual funds, there can be no assurance that
the Fund will achieve its objective. Finally, the Fund was organized recently
and has only a brief history of operations.
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 Brady, Martz &
Associates, P.C. ("Brady, Martz"), the Fund's independent public accountant. 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 1995 Annual
Report to shareholders. Copies of the Statement of Additional Information and
1995 Annual Report may be obtained from the Fund upon request and without
charge.
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1996 December 31, 1995
--------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $11.76 $10.00
--------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:.
Net investment income (loss)........................... $ .10 $ .22
Net realized and unrealized gain (loss) on investment
and futures transactions............................... 1.53 2.30
--------------------------------------------
Total From Investment Operations................... $ 1.63 $ 2.52
--------------------------------------------
LESS DISTRIBUTIONS:
From net investment income............................. $ (.10) $ (.22)
From net realized gain on investments.................. (.76) (.54)
--------------------------------------------
Total Distributions................................ $ (.86) $ (.76)
--------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.53 $11.76
Total Return 13.84%(A) 25.20%(A)
Ratios/Supplemental Data:..................................
Net assets, end of period (in thousands).............. $11,406 $4,362
Ratio of net expenses (after expense assumption) to
average net assets.................................... 1.63%(B) 1.59%(B)
Ratio of net investment income to average net assets.. 0.98% 4.00%
Portfolio turnover rate............................... 50.11% 15.30%
</TABLE>
(A) Excludes contingent deferred sales charge of 1.5%.
(B) During the years ended December 31, 1996 and 1995, ND Holdings, Inc.
assumed expenses of $39,760 and $40,714. If the expenses had not been
assumed, the annualized ratio of total expenses to average net assets would
have been 2.08% and 3.60%, respectively.
4
<PAGE>
GENERAL DESCRIPTION OF THE FUND
ORGANIZATION AND CLASSIFICATION
The Fund is an open-end, diversified, management 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 June 1, 1994.
INVESTMENT OBJECTIVE, POLICIES, AND RESTRICTIONS
The Fund's investment objective is long-term capital appreciation and
growth of income. The Fund seeks to achieve this objective by investing in a
diversified group of approximately fifteen to fifty underlying funds which
invest primarily in common stock or securities convertible into or exchangeable
for common stock (such as convertible preferred stock, convertible debentures,
or warrants) and which seek long-term capital appreciation with current income
of secondary importance. Under normal circumstances, the Fund will invest at
least 65% of its total assets in shares of underlying funds. For temporary
defensive purposes, the underlying funds may also invest in (or enter into
repurchase agreements with banks and broker-dealers with respect to) corporate
bonds, U.S. Government securities, commercial paper, certificates of deposit, or
other money market instruments.
The Fund may also invest in underlying funds which invest primarily in long
or short-term bonds and other fixed income securities (such as securities
issued, guaranteed, or insured by the U.S. Government, its agencies or
instrumentalities, commercial paper, preferred stock, convertible preferred
stock, or convertible debentures) whenever the Investment Adviser thinks that
such funds offer a potential for capital appreciation. The underlying funds may
invest in both investment-grade and non-investment grade bonds. See RISKS AND
OTHER CONSIDERATIONS and the APPENDIX to this Prospectus.
Although it invests primarily in shares of underlying funds, for temporary
defensive purposes or to accumulate cash for investments or redemptions, the
Fund may hold cash or invest in money market mutual funds or in a variety of
short-term debt securities, including U.S. Treasury bills and other U.S.
Government securities, commercial paper, certificates of deposit, and bankers'
acceptances. Cash held for investments or redemptions may not exceed 35% of the
Fund's total assets. See TEMPORARYINVESTMENTS in the Statement of Additional
Information.
The Fund may also purchase and sell stock index futures contracts and
options on stock index futures contracts. For a description of these securities
and the risks associated with them, see FUTURES CONTRACTS and OPTIONS ON FUTURES
CONTRACTS in the APPENDIX. See, also, REGULATORY RESTRICTIONS under
INVESTMENTRESTRICTIONS in the Statement of Additional Information concerning
regulations which restrict or limit the use of futures contracts and options
thereon.
The Fund has adopted certain fundamental investment policies which,
together with the investment objective of the Fund, cannot be changed without
approval by holders of a majority of the outstanding shares. As defined in the
1940 Act, 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. The Fund has also adopted a number of other investment
policies which are not fundamental and, therefore, may be changed by the Board
of Directors without shareholder approval.
Under its fundamental investment policies, the Fund will invest at least
25% of its total assets in shares of underlying funds. The Fund may not invest
more than 25% of its total assets in the securities of companies in the same
industry or in securities of underlying funds which concentrate (i.e., invest
25% or more of total assets) in any one industry. Neverthless, through its
investment in underlying funds, the Fund
5
<PAGE>
may invest more than 25% of its assets in one industry. The Fund may borrow
money from a bank for temporary or emergency purposes, but 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 the total assets.
Interest paid on borrowed funds will decrease the net earnings of the Fund. The
Fund may mortgage, pledge, or hypothecate its assets in an amount not exceeding
10% of its total assets to secure temporary or emergency borrowing.
Under its non-fundamental investment policies, the Fund may not make short
sales of securities or invest in interests in oil, gas, or other mineral
exploration or development programs, although it may invest in securities of
issuers which invest in or sponsor such programs.
For a more complete description of the Fund's investment policies and
restrictions, see INVESTMENTRESTRICTIONS in the Statement of Additional
Information.
SELECTION OF UNDERLYING FUNDS
The Investment Adviser exercises broad discretion in choosing which
underlying funds to include in the Fund's portfolio. The primary consideration
in the selection process is that a prospective fund advance the Fund's stated
investment objective of achieving long-term capital appreciation and growth of
income. Within that context, the Investment Adviser reviews and evaluates a
fund's investment objective, policies, and techniques, past performance, and
management. Other criteria considered in making a determination include fund
size, ability, reputation, and style of the investment adviser, transaction and
operating expenses and fees, portfolio composition and liquidity, and quality
and types of shareholder services provided.
Although the Investment Adviser is not required to adhere to any minimum
specifications or quality standards in selecting underlying funds, it is likely
that any funds included in the Fund's portfolio will be sizeable, established
funds. The Fund will not purchase shares of closed-end investment companies or
of investment companies which are not registered with the Securities and
Exchange Commission. In addition, the Fund intends to invest only in underlying
funds wihch qualify for treatment as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended. If a fund fails to qualify
as a RIC, it may be subject to federal income tax. No assurance can be given
that an underlying fund will qualify as a RIC. However, the fund will promptly
dispose of any shares in its portfolio which have been issued by a fund which
has failed to qualify as a RIC. Under normal circumstances, the Fund will invest
in approximately fifteen to fifty underlying funds and may invest up to 25% of
its total assets in any one underlying fund.
The Fund may acquire shares of underlying funds irrespective of whether
such funds impose sales loads of various kinds or have 12b-1 or other
distribution plans or expenses. However, whenever possible, the Fund will
purchase shares pursuant to arrangements which provide for (1) quantity
discounts under which lower front-end loads are available for substantial
minimum purchases; (2) letters of intent, permitting reduced front-end loads by
aggregating intended purchases over time; (3) rights of accumulation, permitting
reduced front-end loads for purchases of additional shares of the underlying
fund; and (4) rights to obtain reduced front-end sales loads by aggregating
purchases of several funds within a family of funds. Because of available
discounts such as the foregoing, it is likely that any sales related charges
paid by the Fund will not exceed 1% of the public offering price (1.01% of the
net amount invested) in most cases.
6
<PAGE>
RISKS AND OTHER CONSIDERATIONS
There are a number of risks and other considerations which a potential
investor in the Fund should consider. Some of these relate to an investment in a
security of any kind, others are peculiar to a fund which invests in other
funds, and still others concern certain legal requirements applicable to funds
which invest in other funds.
First, an investment in any security involves a certain amount of risk, and
this is true of an investment in the Fund, too. Although the Fund diversifies
its portfolio by investing in several underlying funds, which tends to minimize
risk somewhat, it does not eliminate risk altogether.
Second, the underlying funds have their own investment objectives,
policies, practices, and techniques, any one or all of which may subject their
assets to varying degrees of risk. For example, the underlying funds in which
the Fund invests may be authorized to invest up to 100% of their assets in
securities of foreign issuers and engage in foreign currency transactions with
respect to these investments; invest up to 15% of their assets in restricted or
illiquid securities; invest up to 5% of their assets in warrants; lend their
portfolio securities; sell securities short; borrow money in amounts up to 33
1/3% of their assets for leverage purposes; write or purchase call or put
options on securities or stock indexes; concentrate more than 25% of their
assets in one industry; invest up to 100% of their assets in master demand
notes; enter into futures contracts and options on futures contracts; trade
their portfolios aggressively, which results in higher brokerage commissions and
increased realization of capital gains; invest in start-up and unproven
companies; invest up to 100% of their assets in junk bonds; and engage in any
number of other investment practices and techniques that involve greater risks.
The risks involved in certain of these practices and techniques are described in
the APPENDIX to this Prospectus.
Furthermore, the Fund is independent from any of the underlying funds in
which it invests and has little voice in or control over the investment
practices, policies, or decisions of those funds. If the Fund disagrees with
those practices, policies, or decisions, it may have no choice other than to
liquidate its investment in that fund, which can entail further losses. Also,
the investment advisers of the underlying funds may simultaneously pursue
inconsistent or contradictory courses of action; for example, one fund may be
purchasing securities of the same issuer whose securities are being sold by
another underlying fund, with the result that the Fund would incur an indirect
expense without any corresponding investment or economic benefit.
Expenses and tax consequences are other areas in which the Fund differs
from most other funds. An investor who invests directly in a fund may pay
certain transactional expenses (for example, sales commissions or deferred sales
charges), as well as a pro rata share of the fund's operating expenses (such as
management fees, distribution fees, and other expenses). An investor in the
Fund, on the other hand, must not only pay transactional and operating expenses
related to the Fund, but must also pay a portion of similar expenses of the
underlying funds. So, an investor in the Fund will indirectly pay higher
expenses than if the underlying shares were owned directly. Furthermore, because
the Fund invests in other funds, an investor may receive taxable capital gains
distributions to a greater extent than if the underlying funds were owned
directly. See DIVIDENDS AND TAXES.
Rules adopted by the Securities and Exchange Commission allow funds to
elect to make redemptions either in part or wholly in securities from their
portfolios ("in kind" redemptions) instead of in cash under certain
circumstances. If the Fund acquires in kind securities from an underlying fund
which has exercised such an election, the Fund may hold the securities until the
Investment Adviser decides to sell them. Fund
7
<PAGE>
assets invested in an underlying fund in excess of Rule 18f-1 limitations are
illiquid. The Fund will likely incur additional expenses in connection with the
sale of any securities acquired as a result of an in kind redemption.
Third, the 1940 Act imposes certain conditions on funds which invest in
other funds. For example, a fund and its affiliated persons may not purchase or
otherwise acquire more than 3% of the total outstanding stock of another fund.
Consequently, the Fund may have to forgo what the Investment Adviser deems to be
an advantageous purchase because of this restriction. The 1940 Act also provides
that an underlying fund is not obligated to redeem any securities in an amount
exceeding 1% of its total outstanding securities during any period of less than
30 days. As a result of this provision, the Investment Adviser may be unable to
liquidate more than 1% of an underlying fund's securities should market or other
considerations indicate the advisability of doing so. Finally, the 1940 Act
requires that the Fund either seek instructions from its shareholders regarding
the voting of proxies with respect to securities of underlying funds it holds
and vote the proxies in accordance with such instructions or vote such shares in
the same proportion as the vote of all other holders of such securities.
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. ("Holdings"), a North Dakota
corporation. 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., ND Insured Income Fund, Inc., Montana Tax-Free Fund, Inc., and South
Dakota Tax-Free Fund, Inc. The address of the Investment Adviser is 1 North
Main, Minot, North Dakota 58703.
The Investment Adviser furnishes the Fund with investment advice and, in
general, supervises the management and investment program of the Fund. The
Investment Adviser furnishes at its own expense all necessary administrative
services, office space, equipment, and clerical personnel for managing the
investments and effecting the portfolio transactions of the Fund. In addition,
the Investment Adviser pays the salaries and fees of all officers and directors
of the Fund who are affiliated persons of the Investment Adviser. Under the
Investment Advisory Agreement, the Fund has agreed to pay the Investment Adviser
an annual fee, payable monthly, of 0.90% of the Fund's average daily net assets.
During the fiscal year ended December 31, 1995 and 1996, the Fund incurred
advisory fees of $18,129 or 0.90%, and $81,395 or 0.90% of the Fund's average
net assets for the fiscal year.
Monte Avery, 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. Avery has been portfolio manager since
January 1996. Mr. Walstad is also president of NDTax-Free Fund, Inc., NDInsured
Income Fund, Inc., Montana Tax-Free Fund, Inc., and South Dakota Tax-Free Fund,
Inc., and has supervised and directed the management of their portfolios since
they commenced operations.
8
<PAGE>
CUSTODIAN,TRANSFER AGENT, AND ACCOUNTING SERVICES AGENT
First Western Bank and Trust, 900 South Broadway, Minot, North Dakota
58701, serves as Custodian for the Fund's portfolio securities and cash.
NDResources, Inc. ("Resources"), a wholly-owned subsidiary of NDHoldings, 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; 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, 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
2.08% of the average net assets on an annualized basis. Net expenses (after
expense assumption by NDHoldings, Inc., the Fund's sponsor) for the same period
amounted to 1.63% of average net assets on an annualized basis. There can be no
assurance that the expense assumption will continue.
PORTFOLIO TRANSACTIONS
The Investment Adviser may consider a number of factors in determining
which brokers to use for the Fund's portfolio transactions. These factors
include, but are not limited to, research services, reasonableness of
commissions, quality of services and execution, and sales of Fund shares. Front-
end sales loads generally consist of a dealer reallowance (which typically
amounts to at least 80% of the charge) and an underwriter's retention. The
Underwriter will usually be designated as the dealer entitled to receive the
dealer reallowance portion of the sales charge on purchases of load fund shares
by the Fund. However, the Underwriter will not retain any dealer reallowance in
excess of 1% of the public offering price on any transaction, nor will it be
designated as the dealer entitled to receive the dealer reallowance portion of
the sales charge where such reallowance would exceed 1% of the public offering
price. In addition, the Underwriter may receive 12b-1 fees and/or service fees
from underlying funds when assisting the Fund in purchasing shares of underlying
funds. For further details, see PORTFOLIOTRANSACTIONS in the Statement of
Additional Information.
Although there are no restrictions on portfolio turnover, the portfolio
turnover rate of the Fund is not expected to exceed 100% annually. A 100% annual
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. To the extent that the Fund purchases
shares of load funds, a higher turnover rate would result in correspondingly
higher sales loads paid by the Fund. Trading also may result in the realization
of net short-term capital gains which would not otherwise be realized, and
shareholders are taxed on such gains when distributed by the Fund at ordinary
income tax rates. See DIVIDENDS AND TAXES. There is no limit on the portfolio
turnover rates of the underlying funds in which the Fund may invest.
9
<PAGE>
SHARES
SHARE ATTRIBUTES
The Fund is authorized to issue a total of one billion shares, all of one
class and one series, with a par value of $.0001 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 1940 Act; however, the Fund does
not intend to hold annual shareholder meetings. Shareholders have the right to
remove directors.
Pursuant to the 1940 Act, if an underlying fund submits a matter to its
shareholders for a vote, the Fund will vote the shares of the underlying fund
which it owns in the same proportion as the vote of all other holders of such
shares.
DIVIDENDS AND TAXES
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). In
any year in which the Fund qualifies as a regulated investment company and
distributes substantially all of its investment company taxable income (which
includes, among other items, the excess of net short-term capital gains over net
long-term capital losses) and its net capital gains (the excess of net long-term
capital gains over net short-term capital losses), the Fund will not be subject
to federal income tax to the extent it distributes to shareholders such income
and capital gains in the manner required under the Code. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, the Fund must distribute for each calendar year an amount equal to
the sum of (1) at least 98% of its net ordinary income (excluding any capital
gains or losses) for the calendar year, (2) at least 98% of the excess of its
capital gains over capital losses (adjusted for certain ordinary losses)
realized during the one-year period ending October 31 of such year, and (3) all
ordinary
10
<PAGE>
income and capital gains for previous years that were not distributed during
such years. A distribution will be treated as paid on December 31 of the
calendar year if it is declared by the Fund in October, November, or December of
that year with a record date in such a month and paid by the Fund during January
of the following calendar year. Such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received. The Fund
intends to distribute its income in accordance with this requirement to prevent
application of the excise tax.
Income received by the Fund from an underlying fund (including dividends
and distributions of short-term capital gains), as well as interest received on
money market instruments and net short-term capital gains received by the Fund
on the sale of underlying funds' shares, will be distributed by the Fund (after
deductions for expenses) and will be taxable to shareholders as ordinary income.
Because the Fund is actively managed and can realize taxable net short-term
capital gains by selling shares of an underlying fund with unrealized portfolio
appreciation, investing in the Fund rather than directly in the underlying funds
may result in increased tax liability to the shareholder, because the Fund must
distribute its gain in accordance with the rules in the Code. The Fund's ability
to dispose of shares of underlying funds held less than three months may be
limited by requirements relating to the Fund's qualification as a regulated
investment company for federal income tax purposes.
Distributions of net capital gains (the excess of net long-term capital
gains over net short-term capital losses) received by the Fund from underlying
funds, as well as net long-term capital gains realized by the Fund from the
purchase and sale (or redemption) of underlying funds' shares or other
securities held (generally) by the Fund for more than one year, will be
distributed by the Fund and will be taxable to shareholders as long-term capital
gains (even if the shareholder has held the shares for less than one year).
However, if a shareholder who has received a capital gains distribution suffers
a loss on the sale of his shares not more than six months after purchase, the
loss will be treated as a long-term capital loss to the extent of the capital
gains distribution received. The long-term capital gains, including
distributions of net capital gains, are currently subject to a maximum federal
tax rate of 28% which is less than the maximum rate imposed on other types of
taxable income. Furthermore, capital gains may be advantageous, because, unlike
ordinary income, they may be offset by capital losses.
For purposes of determining the character of income received by the Fund
when an underlying fund distributes net capital gains to the Fund, the Fund will
treat the distribution as a long-term capital gain, even if it has held shares
of the underlying fund for less than one year. However, any loss incurred by the
Fund on the sale of that underlying fund's shares held for six months or less
will be treated as a long-term capital loss to the extent of the gain
distribution.
The tax treatment of distributions from the Fund is the same whether the
distributions are received in additional shares or in cash. Shareholders
receiving distributions in the form of additional shares will have a cost basis
for federal income tax purposes in each share received equal to the net asset
value of a share of the Fund on the reinvestment date.
The Fund may invest in underlying funds with capital loss carry-forwards.
If such an underlying fund realizes capital gains, it will be able to offset the
gains to the extent of its loss carry-forwards in determining the amount of
capital gains which must be distributed to its shareholders. To the extent that
gains are offset in this manner, distributions to the Fund (and its
shareholders) will not be characterized as capital gain dividends but may be
ordinary income.
11
<PAGE>
Depending on the residence of the shareholder for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes. Shareholders should consult their own tax advisers as to the
tax consequences of ownership of shares of the Fund in their particular
circumstances.
The Fund generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid to shareholders if (a)
the payee fails to furnish the Fund with and to certify the payee's correct
taxpayer identification number or social security number, (b) the Internal
Revenue Service (the "IRS") notifies the Fund that the payee has failed to
report properly certain interest and dividend income to the IRSand to respond to
notices to that effect or (c) the payee fails to certify that he is not subject
to backup withholding.
The Fund will distribute investment company taxable income and any net
realized capital gains at least annually. All dividends and distributions will
be reinvested automatically at net asset value in additional shares of the Fund
unless the shareholder has notified the Fund in writing of his election to
receive distributions in cash.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction. In addition, the statement will show
the details of prior transactions in the account during the calendar year.
Information for federal 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, deducting total liabilities, and dividing the result by
the number of shares outstanding. On each day the New York Stock Exchange is
open for trading, the net asset value is determined as of the close of the
Exchange (normally, 3:00 p.m. Minot, North Dakota, time).
The Fund's assets consist primarily of shares of the underlying funds,
which are valued at their respective net asset values under the 1940 Act. The
underlying funds value securities in their portfolios for which market
quotations are readily available at their current market value (generally the
last reported sale price) and all other securities and assets at fair value
pursuant to methods established in good faith by their boards of directors.
Money market funds with portfolio securities that mature in one year or less may
use the amortized cost or penny-rounding methods to value their securities.
Securities having 60 days or less remaining to maturity generally are valued at
their amortized cost, which approximates market value. Other assets are valued
at their current market value if market quotations are readily available and, if
not available, at fair value pursuant to methods established in good faith by
the Board of Directors.
PURCHASE OF SHARES
GENERAL INFORMATION
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. If you do not have a dealer, the Fund can refer you
to one. The minimum initial investment is $1,000 ($100 for the Monthomatic
Investment Plan and $250 for an Individual Retirement Account), and the minimum
subsequent investment is $50, but such minimum amounts may be changed at any
time in the Fund's discretion. 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
12
<PAGE>
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. The Fund receives the entire
public offering price of all shares sold.
Orders for the purchase of shares will be confirmed at a price based on the
net asset value next determined after receipt of the order by the Fund. However,
orders received by dealers prior to the determination of 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 on that day. Dealers are
obligated to transmit orders promptly.
No sales charge is imposed when shares are purchased. However, a contingent
deferred sales charge is imposed if certain shares are redeemed within five
years after their purchase. See CONTINGENT DEFERRED SALES CHARGE. The
Underwriter pays sales commissions to investment dealers and to its salesmen who
sell Fund shares. The Underwriter may also provide additional promotional
incentives to dealers who sell Fund shares. In some instances, these incentives
may be offered only to certain dealers who have sold or may sell significant
amounts of shares. In addition, the Fund pays dealers fees (in an amount not to
exceed 0.25% of net assets) for personal services to shareholders and/or the
maintenance of shareholder accounts.
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 on the back 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 wholly-
owned subsidiary of Holdings.
MONTHOMATIC INVESTMENT PLAN
A shareholder may purchase additional Fund shares through an automatic
investment program. With the Monthomatic Investment Plan (the "Plan"), monthly
investments (minimum $50) are made automatically from the shareholder's account
at a bank, savings and loan association, or credit union into the shareholder's
Fund account. By enrolling in the Plan, 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.
13
<PAGE>
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. The Fund may terminate or modify this privilege at any
time.
RETIREMENT PLANS
The Fund offers shares in connection with tax-deferred retirement plans.
Application forms and additional information about these plans, including
applicable fees, are available from the Fund or the Custodian upon request. The
federal income tax treatment of contributions to retirement plans has been
substantially affected by recently enacted federal tax legislation. Before
investing in the Fund through such a plan, an investor should consult a tax
adviser.
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS")
Fund shares may be used as a funding medium for an IRA. An Internal Revenue
Service-approved IRA plan is available from the Custodian. The minimum initial
investment for an IRA is $250; the minimum subsequent investment is $50. IRAs
are available to individuals who receive compensation or earned income and their
spouses whether or not they are active participants in a tax-qualified or
government-approved retirement plan. An IRA contribution by an individual or
spouse who participates in a tax-qualified or government-approved retirement
plan may not be deductible depending upon the individual's income. Individuals
also may establish an IRA to receive a rollover contribution of distributions
from another IRA or a qualified plan. Tax advice should be obtained before
planning a rollover.
DEFINED CONTRIBUTION PLAN
Investors who are self-employed may purchase Fund shares for retirement
plans for self-employed persons which are known as Defined Contribution Plans
(formerly Keogh or H.R. 10 Plans). The Custodian offers a prototype Defined
Contribution Plan for Money Purchase or Profit Sharing Plans.
SECTION 401(K) PLAN
The Fund may be used as a vehicle for a cash deferred arrangement designed
to qualify under Section 401(k) of the Code.
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, the charge 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
14
<PAGE>
days' written notice to shareholders and is available only to shareholders in
states where such exchanges may be legally made. A shareholder 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 exercise the exchange privilege, contact
the Transfer Agent.
REDEMPTION OF SHARES
REDEMPTIONS
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. Signatures must
be guaranteed by a commercial bank, trust company, savings and loan association,
or member firm of a national securities exchange. A notary public may not
provide a signature guarantee. If the amount of the redemption proceeds is less
than $50,000, a signature guarantee is not required from individual
shareholders. Further documentation may be requested and a signature guarantee
is always required from 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, less any
applicable contingent deferred sales charge, as described below. 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 letter of
instructions accompanied by any outstanding share certificates in proper form
for transfer. When the Fund is requested to redeem shares for which it may not
yet have received good payment (e.g., cash or certified check on a United States
bank), it may delay the mailing of a redemption check until such time as it has
assured itself that good payment has been collected for the purchase of such
shares (which will generally be within 15 calendar days).
Redemption proceeds may be more or less than the amount invested and,
therefore, result in a gain or loss for federal income tax purposes.
In order to eliminate excessive expenses, the Fund reserves the right to
redeem upon not less than 30 days' written notice all shares in an account
(other than an IRA) which has a value of less than $50. However, a shareholder
will be allowed to make additional investments prior to the date fixed for
redemption to avoid liquidation of the account.
CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge ("charge") equal to 1.5% of the
redemption proceeds is imposed if a shareholder redeems shares purchased within
the preceding five years, except that if the initial amount of purchase is $1
million or more, the charge is reduced to 1% and only applies during the first
year of purchase. Shares acquired by reinvestment of dividends may be redeemed
without charge even though acquired within five years. In addition, a number of
shares having a value equal to a net increase in the value of all shares
purchased by the shareholder during the preceding five years will be redeemed
without charge. All purchases are considered made on the last day of the month
of purchase. In determining whether a charge is payable on any redemption, the
Fund will first redeem shares not subject to a charge.
15
<PAGE>
The Fund may sell shares without a charge to directors, officers, and
employees (including retirees) of the Fund, Holdings, the Investment Adviser,
and the underwriter, for themselves or their spouses, children, or parents and
parents of spouse, or to any trust, pension, or profit-sharing, or other benefit
plan for only such persons at net asset value and in any amount. The Fund may
also sell shares without a contingent deferred sales charge 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.
The Underwriter receives the entire amount of any charges assessed.
REINSTATEMENT PRIVILEGE
You may reinvest up to the amount of your redemption proceeds free of all
sales charges. 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. You will
receive the net asset value per share the day your check arrives at the Fund. If
you were charged a contingent deferred sales charge on your redemption, the
amount you were charged will be reinstated as additional shares upon repurchase
in proportion to the reinvestment amount of your redemption proceeds. 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.
SYSTEMATIC WITHDRAWAL PLAN
Subject to any applicable contingent deferred sales charge (See CONTINGENT
DEFERRED SALES CHARGE above.), a shareholder who owns shares with an aggregate
value of $5,000 or more may establish a Systematic Withdrawal Plan (the "Plan").
Under the Plan, a shareholder may redeem at net asset value the number of full
and fractional shares that will produce whatever monthly, quarterly, semi-
annual, or annual payments (minimum $100 per payment) are selected. No
additional charge is made for this service.
A shareholder who participates in the Monthomatic Investment Plan is
ineligible to participate in the Plan. If payments exceed reinvested dividends
and distributions, a shareholder's shares will be reduced and eventually
depleted. The Plan may be terminated at any time by a shareholder or the Fund.
PERFORMANCE DATA
The Fund may publish certain performance figures in advertisements from
time to time. These performance figures may include yield and total return
figures.
Yield reflects the income per share deemed earned by the Fund's portfolio
investments. Yield is determined by dividing the net investment income per share
deemed earned during the preceding 30-day period by the offering price per share
on the last day of the period and annualizing the result. Yields are calculated
according to accounting methods that are standardized for all stock and bond
funds. Because yield calculation methods differ from the methods used for other
accounting purposes, the Fund's yield may not equal its distribution rate, the
income paid to an investor's account, or the income reported in the Fund's
financial statements.
16
<PAGE>
Total return is the percentage change in the value of a hypothetical
investment that has occurred in the indicated time period, taking into account
the imposition of various fees, except the contingent deferred sales charge, and
assuming the reinvestment of all dividends and distributions. Cumulative total
return reflects the Fund's performance over a stated period of time. Average
annual total return reflects the hypothetical annually compounded return that
would have produced the same cumulative total return if the Fund's performance
had been constant over the entire period.
The Fund may also include in advertisements quarterly performance rankings
compiled by independent organizations such as Lipper Analytical Services and
publications which monitor the performance of mutual funds. Performance
information may be quoted numerically or may be represented in a table, graph,
or other illustration.
All performance figures are based on historical results and are not
intended to indicate future performance. A more detailed description of the
foregoing performance figures and their methods of computation is contained in
the Fund's Statement of Additional Information under CALCULATION OF PERFORMANCE
DATA.
APPENDIX
INVESTMENT POLICIES AND PRACTICES OF UNDERLYING FUNDS
CONVERTIBLE SECURITIES
Certain preferred stocks and debt securities that may be held by an
underlying fund have conversion features allowing the holder to convert
securities into another specified security (usually common stock) of the same
issuer at a specified conversion ratio (e.g., two shares of preferred for one
share of common stock) at some specified future date or period. The market value
of convertible securities generally includes a premium that reflects the
conversion right. That premium may be negligible or substantial. To the extent
that any preferred stock or debt security remains unconverted after the
expiration of the conversion period, the market value will fall to the extent
represented by that premium.
FOREIGN INVESTMENTS
The Fund will invest in certain underlying funds which invest all or a
portion of their assets in foreign securities. Investing in securities of non-
U.S. companies, which are generally denominated in foreign currencies, and
utilization of forward foreign currency exchange contracts and other currency
hedging techniques involve certain considerations comprising both opportunity
and risk not typically associated with investing in U.S. dollar-denominated
securities. Risks unique to international investing include: (1) restrictions on
foreign investment and on repatriation of capital; (2) fluctuations in currency
exchange rates; (3) costs of converting foreign currency into U.S. dollars; (4)
price volatility and less liquidity; (5) settlement practices, including delays,
which may differ from those customary in U.S. markets; (6) exposure to political
and economic risks, including the risk of nationalization, expropriation of
assets, and war; (7) possible imposition of foreign taxes and exchange control
and currency restrictions; (8) lack of uniform accounting, auditing, and
financial reporting standards; (9) less governmental supervision of securities
markets, brokers, and issuers of securities; (10) less financial information
available to investors; (11) difficulty in enforcing legal rights outside the
U.S.; and (12) higher costs, including custodial fees. These risks are often
heightened for investments in emerging or developing countries.
17
<PAGE>
FOREIGN CURRENCY TRANSACTIONS
Foreign securities in which the underlying funds invest are subject to
currency risk, i.e., the risk that the U.S. dollar value of these securities may
be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations. To manage this risk and facilitate the
purchase and sale of foreign securities, these underlying funds may engage in
foreign currency transactions involving the purchase and sale of forward foreign
currency exchange contracts. Although foreign currency transactions will be used
primarily to protect the underlying funds from adverse currency movements, they
also involve the risk that anticipated currency movements will not be accurately
predicted and the underlying funds' total return could be adversely affected.
FUTURES CONTRACTS
An underlying fund may enter into futures contracts for the purchase or
sale of debt securities and stock indexes. A futures contract is an agreement
between two parties to buy and sell a security or an index for a set price on a
future date. Futures contracts are traded on designated "contract markets"
which, through their clearing corporations, guarantee performance of the
contracts.
Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Entering into a futures contract for the
sale of securities has an effect similar to the actual sale of securities,
although sale of the futures contract might be accomplished more easily and
quickly. For example, if a fund holds long-term U.S. Government securities and
it anticipates a rise in long-term interest rates, it could, in lieu of
disposing of its portfolio securities, enter into futures contracts for the sale
of similar long-term securities. If rates increased and the value of the fund's
portfolio securities declined, the value of the fund's futures contracts would
increase, thereby protecting the fund by preventing the net asset value from
declining as much as it otherwise would have. Similarly, entering into futures
contracts for the purchase of securities has an effect similar to the actual
purchase of the underlying securities but permits the continued holding of
securities other than the underlying securities. For example, if the fund
expects long-term interest rates to decline, it might enter into futures
contracts for the purchase of long-term securities so that it could gain rapid
market exposure that may offset anticipated increases in the cost of securities
it intends to purchase while continuing to hold higher-yield short-term
securities or waiting for the long-term market to stabilize.
A stock index futures contract may be used to hedge an underlying fund's
portfolio with regard to market risk as distinguished from risk relating to a
specific security. A stock index futures contract does not require the physical
delivery of securities but merely provides for profits and losses resulting from
changes in the market value of the contract to be credited or debited at the
close of each trading day to the respective accounts of the parties to the
contract. On the contract's expiration date, a final cash settlement occurs.
Changes in the market value of a particular stock index futures contract reflect
changes in the specified index of equity securities on which the future is
based.
There are several risks in connection with the use of futures contracts. In
the event of an imperfect correlation between the futures contract and the
portfolio position which is intended to be protected, the desired protection may
not be obtained, and the fund may be exposed to risk of loss. Further,
unanticipated changes in interest rates or stock price movements may result in a
poorer overall performance for the fund than if it had not entered into futures
contracts on debt securities or stock indexes.
18
<PAGE>
In addition, the market prices of futures contracts may be affected by
certain factors. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
securities and futures markets. Second, from the point of view of speculators,
the deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price distortions.
Finally, positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
There is no assurance that a liquid secondary market on an exchange or board of
trade will exist for any particular contract or at any particular time.
OPTIONS ON FUTURES CONTRACTS
A fund also may purchase and sell listed put and call options on 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 (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option period. When an option
on a futures contract is exercised, delivery of the futures position is
accompanied by cash representing the difference between the current market price
of the futures contract and the exercise price of the option. The fund may
purchase put options on futures contracts in lieu of, and for the same purpose
as, a sale of a futures contract. it also may purchase such put options in order
to hedge a long position in the underlying futures contract in the same manner
as it purchases "protective puts" on securities.
As with options on securities, the holder of an option may terminate a
position by selling an option of the same series. There is no guarantee that
such closing transactions can be effected. The fund is required to deposit
initial margin and maintenance margin with respect to put and call options on
futures contracts written by it pursuant to brokers' requirements similar to
those applicable to futures contracts described above, and, in addition, net
option premiums received will be included as initial margin deposits.
In addition to the risks which apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop. Compared to the use of futures contracts, the purchase
of options on futures contracts involves less potential risk to the fund,
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the use of an
option on a futures contract would result in a loss to the fund when the use of
futures contract would not, such as when there is no movement in the prices of
the underlying securities. Writing an option on a futures contract involves
risks similar to those arising in the sale of futures contracts as described
above.
OPTIONS ACTIVITIES
An underlying fund may write (i.e., sell) listed call options ("calls") if
the calls are "covered" throughout the life of the option. A call is "covered"
if the fund owns the optioned securities. When a fund writes a call, it receives
a premium and gives the purchaser the right to buy the underlying security at
any time during the call period (usually not more than nine months in the case
of common stock) at a fixed exercise price regardless of market price changes
during the call period. If the call is exercised, the fund will forgo any gain
from an increase in the market price of the underlying security over the
exercise price.
19
<PAGE>
A fund may purchase a call on securities only to effect a "closing purchase
transaction" which is the purchase of a call covering the same underlying
security and having the same exercise price and expiration date as a call
previously written by the fund on which it wishes to terminate its obligation.
If the fund is unable to effect a closing purchase transaction, it will not be
able to sell the underlying security until the call previously written by the
fund expires (or until the call is exercised and the fund delivers the
underlying security).
An underlying fund also may write and purchase put options ("puts"). When a
fund writes a put, it receives a premium and gives the purchaser of the put the
right to sell the underlying security to the fund at the exercise price at any
time during the option period. When a fund purchases a put, it pays a premium in
return for the right to sell the underlying security at the exercise price at
any time during the option period. An underlying fund also may purchase stock
index puts which differ from puts on individual securities in that they are
settled in cash based on the values of the securities in the underlying index
rather than by delivery of the underlying securities. Purchase of a stock index
put is designed to protect against a decline in the value of the portfolio
generally rather than an individual security in the portfolio. If any put is not
exercised or sold, it will become worthless on its expiration date.
A fund's option positions may be closed out only on an exchange which
provides a secondary market for options of the same series, but there can be no
assurance that a liquid secondary market will exist at a given time for any
particular option. In this regard, trading in options on certain securities
(such as U.S. Government securities) is relatively new so that it is impossible
to predict to what extent liquid markets will develop or continue.
The underlying fund's custodian, or a securities depository acting for it,
generally acts as escrow agent for the securities on which the fund has written
puts or calls or for other securities acceptable for such escrow, so that no
margin deposit is required of the fund. Until the underlying securities are
released from escrow, they cannot be sold by the fund.
In the event of a shortage of the underlying securities deliverable on
exercise of an option, the Options Clearing Corporation has the authority to
permit other, generally comparable securities to be delivered in fulfillment of
option exercise obligations. if the options clearing corporation exercises its
discretionary authority to allow such other securities to be delivered, it may
also adjust the exercise prices of the affected options by setting different
prices at which otherwise ineligible securities may be delivered. As an
alternative to permitting such substitute deliveries, the Options Clearing
Corporation may impose special exercise settlement procedures.
HEDGING
An underlying fund may employ many of the investment techniques described
in this APPENDIX not only for investment purposes, but also for hedging
purposes. For example, an underlying fund may purchase or sell put and call
options on common stocks to hedge against movements in individual common stock
prices or purchase and sell stock index futures and related options to hedge
against marketwide movements in common stock prices. Although such hedging
techniques generally tend to minimize the risk of loss that is hedged against,
they also may limit commensurately the potential gain that might have resulted
had the hedging transaction not occurred. Also, the desired protection generally
resulting from hedging transactions may not always be achieved.
20
<PAGE>
JUNK BONDS
Bonds which are rated BB and below by Standard and Poor's and Ba and below
by Moody's (See APPENDIX - DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS in
Statement of Additional Information for a more detailed explanation of bond
ratings.) are commonly known as "junk bonds." Investing in junk bonds involves
special risks in addition to the risks associated with investments in higher
rated debt securities. Junk bonds may be regarded as predominately speculative
with respect to the issuer's continuing ability to meet principal and interest
payments.
Junk bonds may be more susceptible to real or perceived adverse economic
and competitive industry conditions than higher grade securities. The prices of
junk bonds have been found to be less sensitive to interest rate changes than
more highly rated investments but more sensitive to adverse economic downturns
or individual corporate developments. A projection of an economic downturn or of
a period of rising interest rates, for example, could cause a decline in junk
bond prices, because the advent of a recession could lessen the ability of a
highly leveraged company to make principal and interest payments on its debt
securities. if the issuer of junk bonds defaults, a fund may incur additional
expenses to seek recovery. In the case of junk bonds structured as zero coupon
or payment-in-kind securities, the market prices of such securities are affected
to a greater extent by interest rate changes and, therefore, tend to be more
volatile than securities which pay interest periodically and in cash.
The secondary markets on which junk bonds are traded may be less liquid
than the market for higher grade securities. Less liquidity in the secondary
trading markets could adversely affect and cause large fluctuations in the daily
net asset value of a fund's shares. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the values and
liquidity of junk bonds, especially in a thinly traded market.
There may be special tax considerations associated with investing in junk
bonds structured as zero coupon or payment-in-kind securities. A fund records
the interest on these securities as income even though it receives no cash
interest until the security's maturity or payment date. A fund will be required
to distribute all or substantially all such amounts annually and may have to
obtain the cash to do so by selling securities which otherwise would continue to
be held. Shareholders will be taxed on these distributions.
The use of credit ratings as the sole method of evaluating junk bonds can
involve certain risks. For example, credit ratings evaluate the safety of
principal and interest payments, not the market value risk of junk bonds. Also,
credit rating agencies may fail to change credit ratings in a timely fashion to
reflect events since the security was last rated.
ILLIQUID AND RESTRICTED SECURITIES
An underlying fund may invest not more than 15% of its net assets in
securities for which there is no readily available market ("illiquid
securities") including securities the disposition of which would be subject to
legal restrictions (so-called "restricted securities") and repurchase agreements
having more than seven days to maturity. A considerable period of time may
elapse between an underlying fund's decision to dispose of such securities and
the time when the fund is able to dispose of them, during which time the value
of the securities (and therefore the value of the underlying fund's shares held
by the Fund) could decline.
21
<PAGE>
INDUSTRY CONCENTRATION
An underlying fund may concentrate its investments within one industry.
Because the scope of investment alternatives within an industry is limited, the
value of the shares of such an underlying fund may be subject to greater market
fluctuation than an investment in a fund which invests in a broader range of
securities.
LEVERAGE THROUGH BORROWING
An underlying fund may borrow up to 25% of the value of its net assets on
an unsecured basis from banks to increase its holdings of portfolio securities.
Under the 1940 Act, a fund is required to maintain continuous asset coverage of
300% with respect to such borrowings and to sell (within three days) sufficient
portfolio holdings to restore such coverage if it should decline to less than
300% due to market fluctuations or otherwise, even if disadvantageous from an
investment standpoint. Leveraging will exaggerate the effect of any increase or
decrease in the value of portfolio securities on a fund's net asset value, and
money borrowed will be subject to interest costs (which may include commitment
fees and/or the cost of maintaining minimum average balances) which may or may
not exceed the interest and option premiums received from the securities
purchased with borrowed funds.
LOANS OF PORTFOLIO SECURITIES
An underlying fund may lend its portfolio securities provided that: (1) the
loan is secured continuously by collateral consisting of U.S. Government
securities or cash or cash equivalents maintained on a daily mark-to-market
basis in an amount at least equal to the current market value of the securities
loaned; (2) the fund may at any time call the loan and obtain the return of the
securities loaned; (3) the fund will receive any interest or dividends paid on
the loaned securities; and (4) the aggregate market value of securities loaned
will not at any time exceed one-third of the total assets of the fund. Loans of
securities involve a risk that the borrower may fail to return the securities or
may fail to provide additional collateral.
MASTER DEMAND NOTES
Although the Fund itself will not do so, underlying funds (particularly
money market mutual funds) may invest up to 100% of their assets in master
demand notes. Master demand notes are unsecured obligations of U.S. corporations
redeemable upon notice that permit investment by a fund of fluctuating amounts
at varying rates of interest pursuant to direct arrangements between the fund
and the issuing corporation. Because they are direct arrangements between the
fund and the issuing corporation, there is no secondary market for the notes.
However, they are redeemable at face value plus accrued interest at any time.
REPURCHASE AGREEMENTS
Underlying funds, particularly money market funds, may enter into
repurchase agreements with banks and broker-dealers under which they acquire
securities subject to an agreement with the seller to repurchase the securities
at an agreed upon time and price. These agreements are considered under the 1940
Act to be loans by the purchaser collateralized by the underlying securities. If
the seller should default on its obligation to repurchase the securities, the
underlying fund may experience delay or difficulties in exercising its rights to
realize upon the securities held as collateral and might incur a loss if the
value of the securities should decline.
22
<PAGE>
SHORT SALES
An underlying fund may sell securities short. in a short sale, a fund sells
stock which it does not own, making delivery with securities "borrowed" from a
broker. The fund is then obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement. This price may or
may not be less than the price at which the security was sold by the fund. Until
the security is replaced, the fund is required to pay to the lender any
dividends or interest which accrue during the period of the loan. In order to
borrow the security, the fund may also have to pay a premium which would
increase the cost of the security sold. The proceeds of the short sale will be
retained by the broker to the extent necessary to meet margin requirements until
the short position is closed out.
The fund also must deposit in a segregated account an amount of cash or
U.S. Government securities equal to the difference between (a) the market value
of the securities sold short at the time they were sold short and (b) the value
of the collateral deposited with the broker in connection with the short sale
(not including the proceeds from the short sale). While the short position is
open, the fund must maintain daily the segregated account at such a level that
(1) the amount deposited in it plus the amount deposited with the broker as
collateral equals the current market value of the securities sold short and (2)
the amount deposited in it plus the amount deposited with the broker as
collateral is not less than the market value of the securities at the time they
were sold short. Depending upon market conditions, up to 80% of the value of a
fund's net assets may be deposited as collateral for the obligation to replace
securities borrowed to effect short sales and allocated to a segregated account
in connection with short sales.
The fund will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the fund replaces the borrowed security. The fund will realize a gain if the
security declines in price between those dates. The amount of any gain will be
decreased and the amount of any loss increased by the amount of any premium,
dividends, or interest the fund may be required to pay in connection with a
short sale.
A short sale is "against the box" if at all times when the short position
is open the fund owns an equal amount of the securities or securities
convertible into, or exchangeable without further consideration for, securities
of the same issue as the securities sold short. Such a transaction serves to
defer a gain or loss for federal income tax purposes.
WARRANTS
An underlying fund may invest in warrants, which are options to purchase
equity securities at specific prices valid for a specific period of time. The
prices do not necessarily move parallel to the prices of the underlying
securities. Warrants have no voting rights, receive no dividends, and have no
rights with respect to the assets of the issuer. If a warrant is not exercised
within the specified time period, it will become worthless and the fund will
lose the purchase price and the right to purchase the underlying security.
23
<PAGE>
INTEGRITY
FUND OF FUNDS, INC.
1 NORTH MAIN INTEGRITY
MINOT, ND58703 FUNDS OF FUNDS,
(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 INTEGRITY FUNDS OF FUNDS
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 INTEGRITY FUND OF FUNDS, INC.
Mail To: INTEGRITY FUND OF FUNDS, INC.
P.O. BOX 759, MINOT, ND 58702-0759
If you have any questions on this form or any shareholder services questions,
phone 1-800-601-5593.
_______________________________________________________________________________
1. ACCOUNT REGISTRATION (PLEASE PRINT.) - FIRST NAME, MIDDLE INITIAL, AND LAST
NAME
____ INDIVIDUAL ____JOINT* *JOINT TENANTS WITH RIGHTS OF SURVIVORSHIP,
UNLESS YOU SPECIFY OTHERWISE
_________________________________ ___________________________________________
Name Joint Owner's Name
____GIFT OR TRANSFER TO A MINOR (UGMA/UTMA)
______________________as custodian for__________________________under the_______
Custodian's name Minor's name State
Uniform Gifts/Transfers to Minors Act
____TRUST*
______________________as trustee(s) of___________________ _____________________
Trustee's name Name of trust Date of trust
agreement agreement
*Please include copy of first and last page of trust agreement.
____CORPORATION/OTHER ENTITY*
_______________________________________________________________________________
Name of corporation or other entity Type of organization (i.e.,
corporation, partnership, etc.)
*Please attach a certified copy of the corporate resolution showing the
person(s) authorized to act on this account.
____IRA* *IRA INFORMATION AVAILABLE UPON REQUEST.
____TOD (TRANSFER ON DEATH)* *TRANSFER ON DEATH FORM AVAILABLE UPON REQUEST
ADDRESS________________________________ CITY, STATE, ZIP_______________________
TELEPHONE NUMBER__________________
________________________________________________________________________________
2. INITIAL INVESTMENT
Check enclosed for $__________________ . Minimum initial investment is $1,000
($100 in Monthomatic Plan); subsequent $50.
Make check payable to: INTEGRITY FUND OF FUNDS, 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. 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: BEGINNING 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 INTEGRITY FUND OF FUNDS, INC.,
AND PAYABLE TO THE ORDER OF THE FUND, AND (II) AUTOMATED CLEARING HOUSE ("ACH")
DEBIT ENTRIES INITIATED BY ANY OF US THROUGH INTEGRITY FUND OF FUNDS, 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.
================================================================================
<PAGE>
5. 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 FIRST OF
___________________________ (INDICATE MONTH.)
IF SYSTEMATIC WITHDRAWAL CHECKS ARE PAYABLE TO PERSON OR ADDRESS OTHER THAN AS
REGISTERED ABOVE, MAKE CHECK PAYABLE TO:
NAME____________________________________________________________________________
ADDRESS_________________________ CITY, STATE, ZIP______________________________
ACCOUNT NUMBER (IF APPLICABLE)_________________ ATTACH VOIDED CHECK IF PAYABLE
TO YOUR BANK ACCOUNT (SIGNATURE GUARANTEE NOT REQUIRED)
IF PAYABLE TO PERSON OR ADDRESS OTHER THAN REGISTRATION, PLEASE SIGNATURE
GUARANTEE HERE:
________________________________________________________________________________
6. 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 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
7. BROKER/DEALER USE ONLY (PLEASE PRINT.)
WE HEREBY SUBMIT THIS APPLICATION FOR THE PURCHASE OF SHARES OF INTEGRITY FUND
OF FUNDS, INC., INDICATED WITHIN THE TERMS OF OUR SELLING AGREEMENT WITH ND
HOLDINGS, INC., AND WITH THE PROSPECTUS FOR INTEGRITY FUND OF FUNDS, 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___________
________________________________________________________________________________
8. ADDITIONAL INFORMATION
EACH TIME THERE IS A TRANSACTION IN A SHAREHOLDER ACCOUNT, THE SHAREHOLDER AND
REPRESENTATIVE WILL RECEIVE A CONFIRMATION STATEMENT SHOWING THE CURRENT
TRANSACTION.
ALL CORRESPONDENCE REGARDING SHAREHOLDER ACCOUNTS SHOULD BE ADDRESSED TO ND
RESOURCES, INC., P.O. BOX 759, MINOT, ND 58702.
IF YOU HAVE ANY QUESTIONS, CALL 1-800-601-5593.
FUND EXCHANGES ARE ACCEPTABLE WITHIN INTEGRITY MUTUAL FUNDS. THE EXCHANGE MUST
BE SAME ACCOUNT REGISTRATION OR OTHERWISE A
SIGNATURE GUARANTEE WILL BE NEEDED FOR ANY EXCHANGE AMOUNT. A "LETTER OF
INSTRUCTION" INDICATING THE FUNDS INVOLVED IS NEEDED TO DO ANY EXCHANGE AND MUST
BE SIGNED BY ALL REGISTERED OWNERS.
PHONE ORDERS: PAYMENT FOR SHARE PURCHASES BY TELEPHONE SHOULD BE RECEIVED WITHIN
THREE BUSINESS DAYS. PAYMENT MUST BE RECEIVED WITHIN 7 DAYS OF THE ORDER OR THE
TRADE MAY BE CANCELED, AND THE DEALER OR BROKER PLACING THE TRADE WILL BE LIABLE
FOR ANY LOSSES. IT IS A DEALER'S OR BROKER'S RESPONSIBILITY TO PROMPTLY FORWARD
PAYMENT AND REGISTRATION INSTRUCTIONS (OR COMPLETED APPLICATIONS) TO THE
TRANSFER AGENT FOR SHARES BEING PURCHASED.
REGISTRATION CHANGES REQUIRE THAT ALL REGISTERED OWNERS SIGN AND ALSO REQUIRE A
SIGNATURE GUARANTEE. EXAMPLE: SINGLE TO JOINT, JOINT TO SINGLE, JOINT TO TRUST,
ETC...
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
INTEGRITY FUND OF FUNDS, 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 Integrity Fund of Funds,
Inc. (the "Fund"), dated May 1, 1997. The Prospectus may be obtained without
charge from the Fund.
_______________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Restrictions................................................... B-2
Temporary Investments..................................................... B-3
Management of the Fund.................................................... B-5
Control Persons and Principal Holders of Securities....................... B-7
Investment Advisory and Other Services.................................... B-7
Portfolio Transactions.................................................... B-9
Purchase and Redemption of Shares......................................... B-10
Underwriter............................................................... B-10
Calculation of Performance Data........................................... B-11
Appendix--Description of Commercial Paper and Bond Ratings................ B-12
Financial Statements...................................................... F-1
</TABLE>
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which,
together with the Fund's investment objective, cannot be changed without
approval by holders of a majority of its outstanding voting shares. As defined
in the Investment Company Act of 1940 (the "1940 Act"), 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) Purchase securities of any one issuer if as a result more than 5% of the
Fund's total assets would be invested in such issuer or the Fund would own or
hold more than 10% of the outstanding voting securities of that issuer;
provided, however, that up to 25% of the Fund's total assets may be invested
without regard to this limitation and provided further that this limitation
does not apply to securities issued by the U.S. Government, its agencies or
instrumentalities, nor to securities issued by other open-end investment
companies.
(2) Make loans, except in accordance with its investment objective and
policies.
(3) Purchase or sell commodities or commodity contracts, except that the Fund
may purchase and sell stock index futures contracts and options thereon for
hedging purposes.
(4) 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.
(5) Issue senior securities as defined in the 1940 Act, except as appropriate
to evidence indebtedness which the Fund is permitted to incur, provided that the
Fund's use of stock index futures contracts and options thereon will not be
deemed to constitute senior securities for this purpose.
(6) Borrow money except from a bank and then only for temporary or emergency
purposes and 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 the total assets. The Fund may mortgage, pledge, or hypothecate its assets
in an amount not exceeding 10% of its total assets to secure temporary or
emergency borrowing.
(7) Invest in real estate or real estate mortgage loans, although it may
invest in securities which are secured by real estate and securities of issuers
which invest or deal in real estate.
The following investment restrictions are nonfundamental and may be
changed by the vote of the Fund's Board of Directors without shareholder
approval. The Fund may not:
B-2
<PAGE>
(1) 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.
(2) Invest more than 15% of its net assets in illiquid securities, including
securities which at the time of such investment are not readily marketable and
securities restricted as to disposition under the federal securities laws.
(3) Invest for the purpose of exercising control or management of another
issuer.
With the exception of the Fund's policy with respect to borrowing, 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.
REGULATORY RESTRICTIONS
To the extent required to comply with Securities and Exchange Commission
Release No. 10666, when purchasing a futures contract or writing a put option,
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.
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 theron 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.
TEMPORARY INVESTMENTS
Although it invests primarily in shares of underlying funds, for
temporary defensive purposes or to accumulate cash for investments or
redemptions, the Fund may hold cash or invest in money market mutual funds or in
a variety of short-term debt securities, including U.S. Treasury bills and other
U.S. Government securities, commercial paper, certificates of deposit, and
bankers' acceptances. When the Fund invests for temporary defensive purposes, it
may do so without any percentage limitations. The following information
supplements that in the Prospectus under INVESTMENT OBJECTIVE, POLICIES, AND
RESTRICTIONS.
B-3
<PAGE>
U.S. GOVERNMENT SECURITIES
The Fund may invest in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities which have remaining maturities
not exceeding one year. Agencies and instrumentalities which issue or guarantee
debt securities and which have been established or sponsored by the U.S.
Government include the Bank for Cooperatives, the Export-Import Bank, the
Federal Farm Credit System, the Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation, the Federal Intermediate Credit Banks, the Federal Land
Banks, the Federal National Mortgage Association, and the Student Loan Marketing
Association.
BANK OBLIGATIONS
The Fund may invest in obligations of U.S. banks (including certificates
of deposit and bankers' acceptances) having total assets at the time of purchase
in excess of $100 million. Such banks must be members of the Federal Deposit
Insurance Corporation.
A certificate of deposit is an interest-bearing negotiable certificate
issued by a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by bank holding companies, corporations, and finance companies.
The commercial paper purchased by the Fund consists of direct obligations of
domestic issuers which, at the time of investment, are (i) rated "P-1" by
Moody's Investors Service, Inc. ("Moody's"), or "A-1" or better by Standard &
Poor's Corporation ("Standard & Poor's"), (ii) issued or guaranteed as to
principal and interest by issuers or guarantors having an existing debt security
rating of "Aa" or better by Moody's or "AA" or better by Standard & Poor's, or
(iii) securities which, if not rated, are, in the opinion of the Fund's
Investment Adviser, of an investment quality comparable to rated commercial
paper in which the Fund may invest.
The rating "P-1" is the highest commercial paper rating assigned by
Moody's, and the ratings "A-1" and "A-1+" are the highest commercial paper
ratings assigned by Standard & Poor's. Debt rated "Aa" or better by Moody's or
"AA" or better by Standard & Poor's is generally regarded as high-grade, and
such ratings indicate that the ability to pay principal and interest is very
strong.
B-4
<PAGE>
MANAGEMENT OF THE FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND AGE WITH FUND DURING PAST 5 YEARS /(1)/
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lynn W. Aas /(2)/ Director Retired; Attorney; Director, ND Holdings, Inc.;
904 NW 27th Director, ND Tax-Free Fund, Inc., ND Insured Income
Minot, North Dakota 58701 Fund, Inc., Montana Tax-Free Fund, Inc., and
75 South Dakota Tax-Free Fund, 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 ND Insured Income Fund, Inc., Montana
Minot, North Dakota 58701 Tax-Free Fund, Inc., and South Dakota Tax-Free Fund,
61 Inc.; Trustee, Ranson Managed Portfolios; Director,
First Western Bank & Trust
Arthur A. Link /(4)/ Director Director, ND Tax-Free Fund, Inc., ND Insured
2001 Grimsrud Drive Income Fund, Inc., Montana Tax-Free Fund, Inc.,
Bismarck, North Dakota 58501 and South Dakota Tax-Free Fund, 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, Inc.,
62 ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc.,
Montana Tax-Free Fund, Inc., and South Dakota Tax-Free
Fund, 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, Inc.,
Minot, North Dakota 58703 Treasurer ND Capital, Inc., ND Resources, Inc., ND Tax-Free
52 Fund, Inc., ND Insured Income Fund, Inc.,
Montana Tax-Free Fund, Inc., and South Dakota
Tax-Free Fund, 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., ND
Insured Income Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-
Free Fund, Inc.
B-5
<PAGE>
(3) Mr. Backes was elected to the boards of directors of ND Tax-Free Fund,
Inc., ND Insured Income Fund, Inc., Montana Tax-Free Fund, Inc., South
Dakota Tax-Free Fund, Inc., and the Fund in 1995.
(4) Mr. Link has served on the boards of directors of ND Tax-Free Fund, Inc.,
ND Insured Income Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota
Tax-Free Fund, Inc., and the Fund since their inceptions.
(5) Mr. Quist has served on the boards of directors of ND Tax-Free Fund, Inc.,
ND Insured Income Fund, Inc., Montana Tax-Free Fund, 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., ND Insured Income Fund, Inc., Montana Tax-Free
Fund, Inc., South Dakota Tax-Free Fund, 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 -0- -0- -0- $10,000.00
Director
Orlin W. Backes -0- -0- -0- $ 7,500.00
Director
Arthur A. Link -0- -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 -0- -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-6
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 11, 1997, no person controlled Registrant, no person owned of
record or was known by Registrant to own of record or beneficially 5 percent or
more of Registrant's outstanding shares.
As of April 11, 1997, directors and officers (including family members)
of the Registrant as a group owned less than 1% 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 corporation organized under the
laws of the State of North Dakota on September 22, 1987, which is also the
Fund's promoter. 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., ND Insured Income Fund, Inc., Montana Tax-Free Fund, Inc., and South
Dakota Tax-Free Fund, 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 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 0.90% of the Fund's
average daily net assets. The Fund incurred $18,129 and $81,395 in advisory fees
for fiscal year 1995 and 1996, respectively.
Certain of the states in which shares of the Fund are expected to be
qualified for sale impose limitations on the expenses of the Fund. If, in any
fiscal year, the total expenses of the Fund (excluding taxes, interest, service
fees, brokerage commissions and other portfolio transaction expenses, other
expenditures which are capitalized in accordance with generally accepted
accounting principles, and extraordinary expenses, but including advisory fees)
exceed the expense limitations applicable to the Fund imposed by the securities
regulations of any state, the Investment Adviser will reimburse the Fund for the
excess. The effective limitation on an annual basis with respect to the Fund is
expected to be 2.5% on the first $30 million of the Fund's net assets, 2.0% on
the next $70 million of such assets, and 1.5% on any excess above $100 million.
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
B-7
<PAGE>
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 AND TRANSFER AGENT
First Western Bank & Trust, 900 South Broadway, 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.
ACCOUNTANT 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
Subject to policies established by the Fund's Board of Directors, ND
Money Management, Inc. (the "Investment Adviser"), is responsible for the
execution of the Fund's portfolio transactions. In executing portfolio
transactions, the Investment Adviser seeks to obtain the best net results for
the Fund. With respect to purchases of shares of underlying funds subject to a
front-end sales load at the time of purchase ("load fund shares"), the
Investment Adviser anticipates directing, to the extent possible, substantially
all of the Fund's orders to ND Capital, Inc. (the "Underwriter"). Where the
Underwriter acts as the dealer with respect to purchases of load fund shares, it
retains dealer reallowances on those purchases up to a maximum of 1% of the
public offering price of the shares. The Underwriter is not designated as the
dealer on any sales where such reallowance exceeds 1% of the public offering
price. In the event the Underwriter is unable to execute a particular
transaction, the Investment Adviser will direct such order to another broker-
dealer.
The Underwriter may assist in the execution of Fund portfolio
transactions to purchase underlying fund shares or provide personal service to
and/or maintenance of accounts for shareholders of underlying
B-8
<PAGE>
funds for which it may receive Rule 12b-1 (in an amount not to exceed 0.25% of
net assets) or service fees from the underlying funds or their underwriters or
sponsors in accordance with the normal arrangements of those funds. Rule 12b-1
fees and dealer reallowances as described in the preceeding paragraph will be
aggregated for determining compliance with Section 17(e)(2) of the 1940 Act.
The Underwriter may retain brokerage commissions on portfolio
transactions of underlying funds held in the Fund's portfolio, including funds
which have a policy of considering sales of their shares in selecting broker-
dealers for the execution of their portfolio transactions. The payment of
brokerage commissions and Rule 12b-1 to the Underwriter on such transactions is
not a factor considered by the Investment Adviser in selecting or retaining an
underlying fund for investment.
Under the 1940 Act, a mutual fund must sell its shares at the price
(including sales load, if any) described in its prospectus, and current rules
under the 1940 Act do not permit negotiations of sales loads. The Investment
Adviser takes into account the amount of the applicable sales load, if any, when
it is considering whether or not to purchase shares of an underlying fund. The
Investment Adviser anticipates investing most of the assets of the Fund in funds
that impose no front-end sales load or impose a front-end sales load on the Fund
of no more than 1% of the public offering price. The Investment Adviser, to the
extent possible, seeks to reduce the sales load imposed by purchasing shares
pursuant to (i) letters of intent, permitting purchases over time; (ii) rights
of accumulation, permitting it to obtain reduced sales charges as it purchases
additional shares of an underlying fund; and (iii) rights to obtain reduced
sales charges by aggregating its purchases of several funds within a "family" of
mutual funds. The Investment Adviser also takes advantage of exchange or
conversion privileges offered by any "family" of mutual funds.
A factor in the selection of brokers is the receipt of research,
analysis, advice, and similar services. The extent to which commissions reflect
an element of value for research services cannot be presently determined. To the
extent that research services of value are provided by broker-dealers with or
through whom the Investment Adviser places the Fund's portfolio transactions,
the Investment Adviser may be relieved of expenses that it might otherwise bear.
Any research and other services provided by brokers to the Investment Adviser or
the Fund are considered to be in addition to, and not in lieu of, services
required to be performed by the Investment Adviser under the Investment Advisory
Agreement.
Another important factor in the selection of brokers is the sale of Fund
shares. Where all major factors are equal, the fact that a broker has sold Fund
shares may be considered in placing portfolio transactions.
The Fund expects that purchases and sales of money market instruments
will usually be principal transactions and purchases and sales of other debt
securities may be principal transactions. Thus, the Fund will normally not pay
brokerage commissions in connection with those transactions. Money market
instruments are generally purchased directly from the issuer or from an
underwriter or market maker for the securities, and other debt securities may be
purchased in a similar manner. Purchases from underwriters include an
underwriting commission or concession, and purchases from dealers serving as
market makers include the spread between the bid and asked price. Where
transactions are made in the over-the-counter market, the Fund will deal with
the primary market makers unless more favorable prices are obtainable elsewhere.
B-9
<PAGE>
Because of the possibility of further regulatory developments affecting
the securities exchanges and brokerage practices generally, the foregoing
practices may be modified.
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. The minimum initial investment is $1,000 ($100 for the Monthomatic
Investment Plan and $250 for an Individual Retirement Account), and the minimum
subsequent investment is $50, but such minimum amounts may be changed at any
time.
Upon receipt of a request for redemption, shares will be redeemed by the
Fund at the net asset value next determined following receipt of a properly
executed request with any required documents, less any applicable contingent
deferred sales charge as described in the Prospectus.
The elimination of the contingent deferred sales charge for redemptions
by certain classes of persons 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.
When the Fund is requested to redeem shares for which it may not have yet
received good payment (e.g., cash or certified check on a United States bank),
it may delay the mailing of a redemption check until such time as it has assured
itself that good payment has been collected for the purchase of such shares
(which will be within 15 calendar days of the purchase date).
UNDERWRITER
ND Capital, Inc. (the "Underwriter"), a subsidiary of ND Holdings, Inc.,
the Fund's promoter, 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. In
consideration of those services, the Fund had agreed to pay the Underwriter the
proceeds from any contingent deferred sales charges imposed on the redemption of
shares. The Fund paid the underwriter $1,740 and $9,854 in contingent deferred
sales charges for the fiscal year ended December 31, 1995 and 1996,
respectively.
The Underwriter also may receive dealer reallowances (up to a maximum of
1% of the public offering price) and/or distribution payments and/or service
fees on purchases by the Fund of shares of underlying funds sold with a sales
load and/or which have a distribution plan and/or service fee.
B-10
<PAGE>
The Underwriter, in turn, pays a sales commission currently equal to
4 1/2% of the amount invested (1% on sales of $1 million or more) to dealers who
sell shares (excluding sales to investors exempt from the contingent deferred
sales charge). As a further inducement to the sale of Fund shares and in
recognition of services provided to shareholders, the Underwriter may also pay
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 Distribution Agreement (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.
CALCULATION OF PERFORMANCE DATA
The Fund may publish certain performance figures in advertisements from
time to time. These performance figures may include yield and total return
figures.
YIELD
Yield reflects the income per share deemed earned by the Fund's portfolio
investments. Yield is determined by dividing the net investment income per share
deemed earned during the preceding 30-day period by the maximum offering price
per share on the last day of the period and annualizing the result 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
TOTAL RETURN
Total return is the percentage change in the value of a hypothetical
investment that has occurred in the indicated time period, taking into account
the imposition of various fees, except the contingent deferred sales charge, and
assuming the reinvestment of all dividends and distributions. Cumulative total
return reflects the Fund's performance over a stated period of time and is
computed as follows:
ERV - P = Total Return
-------
P
B-11
<PAGE>
Where:
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the base period, assuming reinvestment of all
dividends and distributions
P = a hypothetical initial payment of $1,000
Average annual total return reflects the hypothetical annually compounded
return that would have produced the same cumulative total return if the Fund's
performance had been constant over the entire period and is computed according
to the following formula:
P( 1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the base period, assuming reinvestment of all
dividends and distributions
All performance figures are based on historical results and are not
intended to indicate future performance.
APPENDIX--DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S"), SHORT-TERM DEBT
RATINGS
Prime-1. Issuers (or supporting institutions) rated Prime-1 ("P-1") have
a superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; well-
established access to a range of financial markets and assured sources of
alternate liquidity. Prime-2. Issuers (or supporting institutions) rated Prime-2
("P-2") have a strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("STANDARD & POOR'S") COMMERCIAL
PAPER RATINGS
A. Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2, and 3 to indicate the relative degree of
B-12
<PAGE>
safety. A-1. This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation. A-2.
Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
DESCRIPTION OF MOODY'S LONG-TERM DEBT RATINGS
Aaa. Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." 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; Aa.
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 make
the long-term risk appear somewhat larger than the Aaa securities; A. Bonds
which are rated A possess many favorable investment attributes and are
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future; Baa. 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; Ba. Bonds which are rated Ba are judged to
have speculative elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B. Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small; Caa. Bonds which are rated Caa are of
poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest; Ca. Bonds which are rated Ca
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings; C. Bonds which are rated C
are the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the company ranks in the lower
end of its generic rating category.
DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS
AAA. Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong; AA.
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the higher rated issues only in small degree; A. 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; BBB. 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
B-13
<PAGE>
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; BB, B, CCC,
CC, C. Debt rated BB, B, CCC, CC, and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions;
BB. Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure of
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating; B. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating; CCC. Debt rated CCC
has a currently identifiable vulnerability to default and is dependent upon
favorable business, financial, and economic conditions to meet timely payment of
interest and repayment of principal. In the event of adverse business,
financial, or economic conditions, it is not likely to have the capacity to pay
interest and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or B-rating;
CC. The rating CC is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating; C. The rating C is typically
applied to debt subordinated to senior debt which is assigned an actual or
implied CCC- debt rating. The C rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are continued; CI.
The rating CI is reserved for income bonds on which no interest is being paid;
D. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
B-14
<PAGE>
[LETTERHEAD OF BRADY MARTZ]
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors of
Integrity Fund of Funds, Inc.
We have audited the accompanying statement of assets and liabilities of
Integrity Fund of Funds, 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, and the financial highlights for
each of the two 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
Integrity Fund of Funds, Inc. as of December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets, and financial
highlights for each of the two 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>
INTEGRITY FUND OF FUNDS, INC.
SCHEDULE OF INVESTMENTS December 31, 1996
NAME OF ISSUER
PRECENTAGES REPRESENT MARKET VALUE
OF EACH INVESTMENT CATEGORY TO TOTAL NET ASSETS
<TABLE>
<CAPTION>
QUANTITY MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS (103.1%)
AIM Constellation Fund A............................. 32,891 $ 830,833
AIM Value Fund A..................................... 43,700 1,273,860
American Fundamental Investors Fund.................. 28,908 709,397
American Washington Mutual Investors................. 24,034 589,805
Brandywine Fund...................................... 7,291 245,633
Clipper Fund......................................... 3,620 244,611
Dodge & Cox Stock Fund............................... 7,143 570,106
MFS Research A....................................... 37,125 687,548
MFS Value A.......................................... 30,865 379,641
Massachusetts Inv A.................................. 69,121 999,495
Neuberger & Berman Focus Fund........................ 6,096 187,867
Neuberger & Berman Guardian Fund..................... 10,153 260,234
New York Venture Fund A.............................. 68,489 1,198,551
Putnam Growth & Income Fund A........................ 48,571 875,256
Putnam Vista Fund A................................. 59,539 622,178
Putnam Voyager Fund A................................ 19,245 310,235
T. Rowe Price Equity-Income.......................... 9,991 225,198
T. Rowe Price New America Growth..................... 5,883 225,726
Templeton Growth Fund................................ 67,709 1,323,037
----------
TOTAL MUTUAL FUNDS (COST: $11,270,967)....................... $11,759,211
SHORT-TERM SECURITIES (3.2%)
Federated Money Market Trust #092 (COST: $364,888).......... 364,888
----------
TOTAL INVESTMENTS IN SECURITIES (COST: $11,635,855).......... $12,124,099
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
INTEGRITY FUND OF FUNDS, INC.
FINANCIAL STATEMENTS December 31, 1996
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
-------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value
(cost:$11,635,855)................... $12,124,099
Accrued dividends receivable......... 274,446
Variation margin on futures.......... 126,350
-----------
Total Assets...................... $12,524,895
-----------
LIABILITIES
Distributions payable................ $ 779,722
Bank overdraft....................... 321,849
Accrued expenses..................... 17,764
-----------
Total Liabilities................. $ 1,119,335
-----------
NET ASSETS................................ $11,405,560
===========
Net asset value per share, 910,358
shares outstanding.................... $ 12.53
===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
-------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends............................. $ 231,437
Interest.............................. 231
-----------
Total Investment Income.......... $ 231,668
-----------
EXPENSES
Investment advisory fees.............. $ 81,395
Custodian fees........................ 1,587
Transfer agent fees................... 14,674
Accounting service fees............... 28,528
Audit and legal fees.................. 3,850
Directors fees........................ 1,035
Service fees.......................... 22,610
Insurance............................. 2,957
Printing and postage.................. 8,574
License, fees, and registrations...... 17,447
Amortization of organization costs.... 1,806
-----------
Total expenses.................... $ 184,463
Less expenses waived or absorbed......
by the Fund's manager................. 39,760
-----------
Total Net Expenses................ $ 144,703
-----------
NET INVESTMENT INCOME
(LOSS).................................... $ 86,965
-----------
</TABLE>
F-3
<PAGE>
INTEGRITY FUND OF FUNDS, INC.
FINANCIAL STATEMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FUTURES
<S> <C>
Net realized gain (loss) from:.........
Investment transactions................ $ 753,983
Futures transactions................... (61,227)
Net change in unrealized appreciation
(depreciation) of:
Investments............................ 393,119
Futures................................ (58,271)
-----------
Net realized and unrealized gain
(loss) on investments and futures.... $1,027,604
-----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS.......................... $1,114,569
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
INTEGRITY FUND OF FUNDS, INC.
FINANCIAL STATEMENTS DECEMBER, 1996
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1996 December 31, 1995
-----------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss).............................................. $ 86,965 $ 81,145
Net realized gain (loss) on investment and futures transactions.......... 692,756 200,660
Net unrealized appreciation (depreciation) on investments and futures..... 334,848 95,125
-----------------------------------------
Net Increase (Decrease) in Net Assets Resulting From Operations...... $ 1,114,569 $ 376,930
-----------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income..................................... $ (86,965) $ (81,145)
Distributions from net realized gain on investment and
futures transactions..................................................... (692,756) (200,660)
-----------------------------------------
Total Dividends and Distributions................................... $ (779,721) $ (281,805)
-----------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares.............................................. 7,365,405 $ 4,439,852
Proceeds from reinvested dividends........................................ 249,907 0
Cost of shares redeemed................................................... (906,427) (173,150)
-----------------------------------------
Net Increase (Decrease) in Net Assets Resulting From
Capital Share Transactions........................................... $ 6,708,885 $ 4,266,702
-----------------------------------------
TOTAL INCREASE IN NET ASSETS.................................................. $ 7,043,733 $ 4,361,827
NET ASSETS, BEGINNING OF PERIOD............................................... 4,361,827 0
-----------------------------------------
NET ASSETS, END OF PERIOD..................................................... $ 11,405,560 $ 4,361,827
=========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
INTEGRITY FUND OF FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS December 31, 1996
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 payable 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. 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-6
<PAGE>
NOTE 3. CAPITAL SHARE TRANSACTIONS
As of December 31, 1996, there were 1,000,000,000 shares of $.0001 par
value authorized; 910,358 and 370,749 shares 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........................ 589,294 385,088 $ 7,365,405 $ 4,439,852
Shares issued on reinvestment of
dividends......................... 21,251 0 249,907 0
Shares redeemed.................... (70,936) (14,339) (906,427) (173,150)
--------------------------------------------------------------------------------
Net increase (decrease)............ 539,609 370,749 $ 6,708,885 $ 4,266,702
================================================================================
</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 0.90%
of the Fund's average daily net assets. The Fund has recognized $81,395
of investment advisory fees for the year ended December 31, 1996. The
Fund has a payable to ND Money Management, Inc. of $9,299 at December
31, 1996 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 $22,610 of service fees
for the year ended December 31, 1996. The Fund has a payable to ND
Capital, Inc. of $2,583 at December 31, 1996 for service fees. Certain
officers and directors of the Fund are also officers and directors of
the underwriter.
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
$14,674 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 $28,528 of accounting service fees for the year ended
December 31, 1996.
NOTE 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment
securities (excluding short-term securities) aggregated $10,289,063 and
$4,166,780, respectively, for the year ended December 31, 1996.
NOTE 6. INVESTMENT IN SECURITIES
At December 31, 1996, the aggregate cost of securities for federal
income tax purposes was $11,635,855, and the net unrealized
appreciation of investments based on the cost was $488,244, which is
comprised of $622,199 aggregate gross unrealized appreciation and
$133,955 aggregate gross unrealized depreciation.
F-7
<PAGE>
INTEGRITY FUND OF FUNDS, INC.
FINANCIAL STATEMENTS DECEMBER 31, 1996
FINANCIAL HIGHLIGHTS Selected per share data and ratios for the period indicated
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1996 December 31, 1995
----------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 11.76 $ 10.00
----------------------------------------
INCOME FROM INVESTMENT OPERATIONS:.
Net investment income (loss)........................... $ .10 $ .22
Net realized and unrealized gain (loss) on investment
and futures transactions............................... 1.53 2.30
----------------------------------------
Total From Investment Operations................... $ 1.63 $ 2.52
LESS DISTRIBUTIONS:
From net investment income............................. $ (.10) $ (.22)
From net realized gain on investments.................. (.76) (.54)
----------------------------------------
Total Distributions................................ $ (.86) $ (.76)
----------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $ 12.53 11.76
========================================
Total Return 13.84%(A) 25.20%(A)
Ratios/Supplemental Data:..................................
Net assets, end of period (in thousands).............. $ 11,406 $ 4,362
Ratio of net expenses (after expense assumption) to
average net assets.................................... 1.63%(B) 1.59%(B)
Ratio of net investment income to average net assets.. 0.98% 4.00%
Portfolio turnover rate............................... 50.11% 15.30%
</TABLE>
(A) Excludes contingent deferred sales charge of 1.5%.
(B) During the years ended December 31, 1996 and 1995, ND Holdings, Inc.
assumed expenses of $39,760 and $40,714. If the expenses had not been
assumed, the annualized ratio of total expenses to average net assets would
have been 2.08% and 3.60%, respectively.
F-8
<PAGE>
INTEGRITY FUND OF FUNDS, INC.
PARTC
OTHERINFORMATION
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
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 Year Ended December
31, 1996 and for the Year Ended December 31 1995
Notes to Financial Statements
Financial Highlights
Schedule of Investments
Schedules II through VII are omitted 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) (a) Consent of Independent Accountant *
(11) (b) Consent of Independent Accountant *
(11) (c) Consent of Independent Accountant
(13) Form of Purchase Agreement *
__________________
* Previously filed as an exhibit to Registrant's Registration Statement on
Form N-1A filed with the Securities and Exchange Commission on October 14,
1994, 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 May 1, 1995, and incorporated by reference
herein.
*** Previously filed as an exhibit to Post-effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A filed with the Securities
and Exchange Commission on May 1, 1996, and incorporated by reference
herein.
C-1
<PAGE>
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
Item 26. NUMBER OF HOLDERS OF SECURITIES
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares, par value 1155
$.0001 per share (As of February 18, 1997)
Item 27. INDEMNIFICATION
Section 4 of the Distribution Agreement [ Exhibit (6) (a) ] provides
for the indemnification of NDCapital, Inc., Registrant's principal underwriter,
against certain losses. Section 12 of the Transfer Agency Agreement [ Exhibit 9
] provides for the indemnification of NDResources, 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 question 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 NDHoldings, 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
C-2
<PAGE>
Tax-Free Fund, Inc. ("NDTFF"), NDInsured Income Fund, Inc. ("NDIIF"), Montana
Tax-Free Fund, Inc. ("MTFF"), and South Dakota Tax-Free Fund, Inc. ("SDTFF").
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, NDCapital, Inc. ("Capital"), Registrant's principal
underwriter and initial shareholder, NDResources, Inc. ("Resources"),
Registrant's transfer agent, NDTFF, NDIIF, MTFF, SDTFF, and Registrant.
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 Investment Adviser, Registrant, Holdings, Capital, Resources,
NDTFF, NDIIF, MTFF, and SDTFF have their principal address at 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., ND Insured Income Fund, Inc., Montana Tax-Free
Fund, Inc., and South Dakota Tax-Free Fund, 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) Not applicable
Item 30. LOCATION OF ACCOUNTS AND RECORDS
First Western Bank & Trust, 900 South Broadway, 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
Not applicable
C-3
<PAGE>
Item 32. UNDERTAKINGS
If requested to do so by the holders of at least 10% of Registrant's
outstanding shares, Registrant undertakes to call a meeting of shareholders for
the purpose of voting upon the question of removal of a director or directors
and to assist in communications with other shareholders in the manner described
in Section 16(c) of the Investment Company Act of 1940.
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. 5 to
Registrant's Registration Statement on Form N-1A filed with the Securities and
Exchange Commission on October 14, 1994, pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-effective Amendment No. 5
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.
INTEGRITY FUND OF FUNDS, INC.
By ____________________________
Robert E. Walstad
President
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Post-effective Amendment No. 5 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.
<TABLE>
<S> <C>
____________________________________ 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
</TABLE>
C-4
<PAGE>
EXHIBIT (11)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
<PAGE>
[LETTERHEAD OF BRADY MARTZ]
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-effective Amendment No. 5 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 Integrity Funds of Funds, 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/ Brady, Martz
BRADY, MARTZ & ASSOCIATES, P.C.
April 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 11,635,855
<INVESTMENTS-AT-VALUE> 12,124,099
<RECEIVABLES> 274,446
<ASSETS-OTHER> 126,350
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,524,895
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,119,335
<TOTAL-LIABILITIES> 1,119,335
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 910,358
<SHARES-COMMON-PRIOR> 370,749
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 488,244
<NET-ASSETS> 11,405,560
<DIVIDEND-INCOME> 231,437
<INTEREST-INCOME> 231
<OTHER-INCOME> 0
<EXPENSES-NET> 144,703
<NET-INVESTMENT-INCOME> 86,965
<REALIZED-GAINS-CURRENT> 692,756
<APPREC-INCREASE-CURRENT> 334,848
<NET-CHANGE-FROM-OPS> 1,114,569
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 86,965
<DISTRIBUTIONS-OF-GAINS> 692,756
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 589,294
<NUMBER-OF-SHARES-REDEEMED> 70,936
<SHARES-REINVESTED> 21,251
<NET-CHANGE-IN-ASSETS> 7,043,733
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 81,395
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 184,463
<AVERAGE-NET-ASSETS> 8,872,768
<PER-SHARE-NAV-BEGIN> 11.76
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> 1.53
<PER-SHARE-DIVIDEND> .10
<PER-SHARE-DISTRIBUTIONS> .76
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.53
<EXPENSE-RATIO> 1.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
