<PAGE>
DEAR SHAREHOLDER:
We are pleased to enclose the annual report on the operations of Integrity Fund
of Funds, Inc. for the year ended December 31, 1996. The Fund's portfolio and
related financial statements are presented within for your review.
The stock market, as measured by many averages and indices, extended the gains
of last year at a more orderly pace during the period. Nominal growth in the
U.S. economy continued to encourage investors, as did nominal price inflation
figures.
Integrity Fund of Funds participated in the growth as the shares increased
during the year from $11.76 to $12.53 after a capital gain and income
distribution of approximately $0.85 per share. Management has invested in a
number of established growth, growth-income, and aggressive growth funds after
careful analysis and review. At times, during the second half of 1996, the Fund
utilized a partial hedge to protect asset value through the use of Standard &
Poor's 500 futures. The Fund was affected by less share price erosion during
periods of market dips and less appreciation in market advances. Long-term
capital appreciation and growth of income will continue as the primary
objectives, as management monitors the mutual fund industry for opportunities.
We invite your personal calls and visits.
Sincerely,
Robert E. Walstad
President
<PAGE>
SCHEDULE OF INVESTMENTS December 31,1996
NAME OF ISSUER
<TABLE>
<CAPTION>
Percentages represent the market value of each
investment category to total net assets 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.
<PAGE>
FINANCIAL STATEMENTS December 31, 1996
STATEMENT OF ASSETS AND LIABILITIES December 31, 1996
- ------------------------------------------------------
<TABLE>
<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>
STATEMENT OF OPERATIONS for the year ended December 31, 1996
- ------------------------------------------------------------
<TABLE>
<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>
<PAGE>
<TABLE>
<S> <C>
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES
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.
<PAGE>
FINANCIAL STATEMENTS December 31, 1996
STATEMENT OF CHANGES IN NET ASSETS for the years ended December 31, 1996 and
-----------------------------------------
1995
- ----
<TABLE>
<CAPTION>
For the Year For the Year
Ended 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
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.
<PAGE>
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
<PAGE>
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.
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 Year For The Year For The Year For The Year
Ended Ended Ended Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1996 Dec. 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 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
<PAGE>
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.
<PAGE>
FINANCIAL HIGHLIGHTS Selected per share data and ratios for the period indicated
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The Year For The Year
Ended 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 .98% 4.00%
Portfolio turnover rate 50.11% 15.30%
</TABLE>
(A) Excludes contingent deferred sales charge of 1.5%.
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.
<PAGE>
GRAPH APPEARS HERE
Comparison of change in value of $10,000 investment in Integrity Fund of Funds
and S & P 500 Index (Unaudited)
<TABLE>
<CAPTION>
Integrity Fund of Funds Integrity Fund of Funds
without CDSC with CDSC S & P 500 Index
--------------------------------------------------------------------
<S> <C> <C> <C>
1/3/1995 $10,000 $10,000 $10,000
1995 $12,520 $12,370 $13,411
1996 $14,252 $14,102 $16,129
</TABLE>
<PAGE>
EXHIBIT 23
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.
BRADY, MARTZ & ASSOCIATES, P.C.
February 10, 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> 488,224
<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>
