Dear Shareholder:
We are pleased to enclose the annual report of the operations of Integrity Fund
of Funds, Inc. for the year ended December 31, 1998. The Fund's portfolio and
related financial statements are presented within for your review.
As we ended 1998, the U.S. economy exhibited more strength than expected.
Corporate profits remain strong as the Federal Reserve supplied the economy
with three interest rate cuts over the course of the year. While there has
been some weakening in factory orders reflective of foreign competition, the
housing market and domestic consumer sales have been strong. Much of this
strength can be contributed to the way computer technology has allowed
productivity to increase in the U.S.
In addition to new efficient technology, the U.S. is poised to benefit from
free international trade. The recent trade deficit has restrained U.S. growth,
but at the same time has kept inflation low. However, with the U.S. dollar
declining relative to Asian currencies, and Europe improving, international
trade should become less of a drag on the U.S. economy. This, along with an
already robust domestic economy, should help the U.S. prosper.
Integrity Fund of Funds Inc. began the year at $13.27 per share and closed
December 31st at $14.22 per share for a 12.17% return for 1998 after long-term
capital gains of $.66 per share. Since inception, Integrity Fund of Funds,
Inc. has returned 16.38% annually. However, past performance is no guarantee
of future results. As the stock market rallied in the latter part of the
year, Integrity Fund of Funds, Inc. utilitzed a defensive position in S&P 500
Index futures to minimize the effects of a market correction. Share price was
tempered somewhat as the market strengthened through year-end.
As we look forward, is it reasonable to expect the market returns we've seen
in the past? Probably not. Historical returns over the past forty years
indicate the returns we've been used to over the past probably will not
continue at the same level in the future.
However, one thing history does tell us is regular long-term investing over
time reduces the risk of market volatility and helps achieve one's investment
goals. Integrity Fund of Funds, Inc. diversification of proven long-term
funds reduces the risk of market volatility while at the same time increases
investors' participation in the strongest markets.
Long-term capital appreciation and growth of income continue to be the primary
objectives of the Fund.
Sincerely,
Monte L. Avery Robert E.Walstad
Chief Portfolio Strategist President
Terms & Definitions
- -------------------
Appreciation
Increase in value of an asset.
Average Annual Total Return
A standardized measurement of the return (appreciation) earned by a fund on an
annual basis.
Consumer Price Index
A commonly used measure of inflation: it does not represent an investment
return.
Contingent Deferred Sales Charge (CDSC)
A charge applied at the time of the redemption which assumes redemption at the
end of the period.
Depreciation
Decrease in value of an asset.
Growth Fund
A type of diversified common stock fund that has capital appreciation as its
primary goal. It invests in companies that reinvest most of their earnings
for expansion, research or development.
Growth & Income Fund
Fund that invests in common stocks for both current income and long-term growth
of capital and income.
Load
A mutual fund whose shares are sold with a sales charge added to the net asset
value.
Market Value
Actual price at which a Fund trades in the market place.
Net Asset Value (NAV)
The value of all your fund's assets, minus any liabilities, divided by the
number of outstanding shares, not including any initial or contingent deferred
sales charge.
No-Load
A mutual fund whose shares are sold without a sales charge added to the net
asset value.
Total Return
Measures both the net investment income and any realized and unrealized
appreciation or depreciation of the underlying investments in the fund's
portfolio for the period, assuming the reinvestment of all dividends. It
represents the aggregate percentage or dollar value change over the period.
PERFORMANCE AND COMPOSITION
- ----------------------
[pie chart]
Portfolio Load Types
Load 100.00
No-Load 0.00
The Load Structure, reflects, the type of sales load typically charged by each
fund in the portfolio. As of 12-31-98, the fund has not paid a sales load to
any fund.
Portfolio Investment Style
- --------------------------
[pie chart]
Growth 43.2
Growth & Income 41.2
Aggressive Growth 9.4
Balanced 6.2
The Portfolio Investment Style reflects the investment methodology and the
Size of the company in which each fund in the portfolio invests.
Comparative Index Graph
- -----------------------
[line graph]
Comparison of change in value of a $10,000
investment in Integrity Fund of Funds
and the S & P 500 Index
Integrity Integrity
Fund of Funds Fund of Funds S & P 500
w/o CDSC w/ CDSC Index
------------------------------------------------------------
1/3/1995 $10,000 $10,000 $10,000
1995 $12,520 $12,370 $13,411
1996 $14,252 $14,102 $16,129
1997 $16,340 $16,190 $21,130
1998 $18,328 $18,178 $26,765
Average Annual Total Returns
For periods ending December 31, 1998
------------------------------------
Since Inception
1 year 5 year 01/03/95
---------------------------------------------
Without CDSC 12.17% N/A 16.38%
With CDSC 10.67% N/A 16.14%
Putting Performance into Perspective
The graph comparing your Fund's performance to a benchmark index provides you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities
index measures the performance of a theoretical portfolio. Unlike a fund, the
index is unmanaged; there are no expenses that affect the results. In addition,
few investors could purchase all of the securities necessary to match the
index. And, if they could, they would incur transaction costs and other
expenses.
Key Statistics
- --------------
12-31-97 NAV (share value) $13.27
12-31-98 NAV $14.22
Number of Issues 16
Total Net Assets $20,058,137
<TABLE>
<CAPTION>
Schedule of Investments December 31,1998
Name of Issuer
Percentages represent the market value Of each investment
category to total net assets Quantity Market Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS (103.3%)
AIM Charter Fund A 99,951 $1,490,267
*AIM Constellation Fund A 22,824 696,594
*AIM Aggressive Growth Fund A 17,037 819,320
*AIM Value Fund A 47,065 1,891,534
American Balanced Fund 81,801 1,289,178
*American Washington Mutual Investors 54,208 1,783,995
Hudson Capital Appreciation Fund 68,621 969,618
MFS Research A 81,718 2,055,209
MFS Capital Opportunities Fund 85,522 1,426,507
Massachusetts Inv A 117,231 2,373,929
Mutual Qualified Fund Cl 1 63,522 1,043,031
Mutual Beacon Cl 1 56,225 735,990
*New York Venture Fund A 68,489 1,712,901
*Putnam Fund for Growth & Income A 53,799 1,102,337
*Putnam Vista Fund 68,955 901,239
*Putnam Voyager Fund 19,245 421,859
-----------
TOTAL MUTUAL FUNDS (COST: $18,143,887) $20,713,507
SHORT-TERM SECURITIES (1.2%)
Federated Money Market Trust #092 (COST: $246,657) 246,657
------------
TOTAL INVESTMENTS IN SECURITIES (COST: $18,390,544) $20,960,164
OTHER ASSETS LESS LIABILITIES (902,027)
------------
NET ASSETS $20,058,137
===========
</TABLE>
*Indicates securitites are segregated by the custodian to cover initial margin
requirements. (AIM Value Fund A only 35,884 shares segregated)
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 1998
Statement of Assets and Liabilities December 31, 1998
- -----------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities, at value (cost:$18,390,544) $20,960,164
Accrued dividends receivable 102,752
-----------
Total Assets $21,062,916
LIABILITIES
Bank overdraft $948,917
Accrued expenses 55,862
----------
Total Liabilities $1,004,779
----------
NET ASSETS $20,058,137
===========
Net assets are represented by:
Capital stock outstanding, at par $141
Additional paid-in capital 17,488,376
Unrealized appreciation on investments 2,569,620
-----------
Total amount representing net assets applicable to
1,410,128 outstanding shares of $.0001 par value
common stock (1,000,000,000 shares authorized) $20,058,137
===========
Net asset value per share $14.22
===========
Statement of Operations for the year ended December 31, 1998
- ------------------------------------------------------------
INVESTMENT INCOME
Dividends $252,761
--------
Total Investment Income $252,761
--------
EXPENSES
Investment advisory fees $183,452
Custodian fees 3,001
Transfer agent fees 29,452
Transfer agent out of pockets 5,902
Accounting service fees 34,098
Professional fees 5,282
Directors fees 2,426
Service fees 43,942
Reports to shareholders 2,086
License, fees, and registrations 15,877
--------
Total expenses $325,518
--------
NET INVESTMENT INCOME (LOSS) $(72,757)
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES
Net realized gain (loss) from:
Investment transactions $274,589
Capital gain distributions 1,021,415
Futures transactions (358,294)
Net change in unrealized appreciation (depreciation) of:
Investments 1,453,939
---------
Net realized and unrealized gain
(loss) on investments $2,391,649
----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $2,318,892
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 1998
Statement of Changes in Net Assets
for the year ended December, 1998 and December 31, 1997
- --------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997
------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss) $(72,757) $268,232
Net realized gain (loss) on investment and futures transactions 937,710 1,172,065
Net change in unrealized appreciation (depreciation)
on investments and futures 1,453,939 685,708
------------------------------------------
Net Increase (Decrease) in Net Assets Resulting From Operations $2,318,892 $2,126,005
------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ($.00 and $.21, respectively) $0 $(268,232)
Distributions from net realized gain on investment and
futures transactions ($.66 and $.89, respectively) (937,710) (1,172,065)
------------------------------------------
Total Dividends and Distributions $(937,710) $(1,440,297)
------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares $4,418,795 $6,594,170
Proceeds from reinvested dividends 1,345,191 725,283
Cost of shares redeemed (4,531,485) (1,966,267)
------------------------------------------
Net Increase (Decrease) in Net Assets Resulting From
Capital Share Transactions $1,232,501 $5,353,186
------------------------------------------
TOTAL INCREASE IN NET ASSETS $2,613,683 $6,038,894
NET ASSETS, BEGINNING OF PERIOD 17,444,454 11,405,560
------------------------------------------
NET ASSETS, END OF PERIOD $20,058,137 $17,444,454
==========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements December 31, 1998
Note 1. ORGANIZATION
Integrity Fund of Funds, Inc. (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund incorporated under the laws of the State of North Dakota on June 1,
1994 and commenced operations on January 1, 1995. The Fund's objective is
long-term capital appreciation and growth of income. The Fund seeks to achieve
this objective by investing primarily in a diversified group of other open-end
investment companies which in turn, invest principally in equity securities.
Shares of the Fund are offered for sale at net asset value without a sales
charge. Shares may be subject to a contingent deferred sales charge, if those
shares are redeemed within five years of purchase.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation -- Investments in securities for which market
quotations are readily available are valued at the last reported sales price
or net asset value at the close of each business day. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by the portfolio management team. The Fund follows
industry practice and records security transactions on the trade date.
Federal and State income taxes - The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to regulated
investment companies, and to distribute all of its net investment income,
including any net realized gain on investments, to its shareholders. Therefore,
no provision for income taxes is required.
Distributions to shareholders -- The Fund will distribute dividends from net
investment income and any net realized capital gains at least annually.
Dividends and distributions are reinvested in additional shares of the Fund at
net asset value or paid in cash.
Dividend income -- Dividend income is recognized on the ex-dividend date.
Futures contracts -- The Fund may purchase and sell financial futures contracts
to hedge against changes in the values of equity securities the Fund owns or
expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of
a particular index at a set price on a future date. Upon entering into a
futures contract, the Fund is required to deposit with a broker an amount of
cash or securities equal to the minimum "initial margin" requirement of the
futures exchange on which the contract is traded. Subsequent payments
("variation margin") are made or received by the Fund, dependent on the
fluctuations in the value of the underlying index. Daily fluctuations in value
are recorded for financial reporting purposes as unrealized gains or losses by
the fund. When entering into a closing transaction, the Fund will realize, for
book purposes, a gain or loss equal to the difference between the value of the
futures contracts sold and the futures contracts to buy. Unrealized
appreciation (depreciation) related to open futures contracts is required to be
treated as realized gain (loss) for Federal income tax purposes.
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, 1998, there were 1,000,000,000 shares of $.0001 par value
authorized; 1,410,128 and 1,315,072 shares were outstanding at December 31,
1998 and December 31, 1997, respectively. Transactions in capital shares were
as follows:
Shares
------------------------------------------------------
For The Year Ended For The Year Ended
December 31, 1998 December 31, 1997
------------------------------------------------------
Shares sold 317,592 491,026
Shares issued on
reinvestment of dividends 101,370 57,884
Shares redeemed (323,906) (144,196)
------------------------------------------------------
Net increase 95,056 404,714
======================================================
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 $183,452 of investment advisory fees for
the year ended December 31, 1998. The Fund has a payable to ND Money Management,
Inc. of $15,416 at December 31, 1998 for investment advisory fees. Certain
officers and directors of the Fund are also officers and directors of the
investment adviser.
ND Capital, Inc. ("Capital") is the Fund's principal underwriter. The Fund
pays 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 $43,942 of service fees for the year ended
December 31, 1998. The Fund has a payable to Capital of $3,671 at December 31,
1998 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 $29,452 of transfer agency fees for the year
ended December 31, 1998. The Fund has a payable to ND Resources, Inc of
$2,474 at December 31,1998 for Transfer agency fees. 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 $34,098 of accounting service fees for the year ended
December 31, 1998. The Fund has a payable to ND Resources, Inc. of $2,844 at
December 31, 1998 for accounting services fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment securities
(excluding short-term securities) aggregated $7,458,895 and $6,401,496,
respectively, for the year ended December 31, 1998.
Note 6. INVESTMENT IN SECURITIES
At December 31, 1998, the aggregate cost of securities for federal income tax
purposes was $18,390,544, and the net unrealized appreciation of investments
based on the cost was $2,569,620, which is comprised of $3,190,445 aggregate
gross unrealized appreciation and $620,825 aggregate gross unrealized
depreciation.
Financial Highlights Selected per share data and ratios for the period indicated
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The Year Ended For The Year Ended For The Year Ended For The Year Ended
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.27 $ 12.53 $ 11.76 $ 10.00
------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) $ (.03) $ .21 $ .10 $ .22
Net realized and unrealized
gain (loss) on investment
and futures transactions 1.64 1.63 1.53 2.30
------------------------------------------------------------------------------------------
Total From Investment
Operations $ 1.61 $ 1.84 $ 1.63 $ 2.52
------------------------------------------------------------------------------------------
Less Distributions:
From net investment income $ .00 $ (.21) $ (.10) $ (.22)
Distributions from net realized gain (.66) (.89) (.76) (.54)
------------------------------------------------------------------------------------------
Total Distributions $ (.66) $ (1.10) $ (.86) $ (.76)
------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.22 $ 13.27 $ 12.53 $ 11.76
==========================================================================================
Total Return 12.17%(A) 14.65%(A) 13.84%(A) 25.20%(A)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $20,058 $17,444 $ 11,406 $ 4,362
Ratio of net expenses
(after expense assumption) to
average net assets 1.62% 1.62%(B) 1.63%(B) 1.59%(B)
Ratio of net investment income
to average net assets (.36)% 1.73% .98% 4.00%
Portfolio turnover rate 32.28% 31.99% 50.11% 15.30%
</TABLE>
(A) Excludes contingent deferred sales charge of 1.5%.
(B) During the periods indicated above, ND Holdings, Inc. assumed expenses of
$24,114, $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
1.78%, 2.08% and 3.60%, respectively.
The accompanying notes are an integral part of these financial statements.
Tax Information For The Year Ended December 31, 1998
We are required to advise you within 60 days of the Fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
Fund were earned from the following sources:
Dividends and Distributions Per Share
<TABLE>
<CAPTION>
To Shareholders Payment From Net From Net Realized From Net Realized
of Record Date Investment Income Short-Term Gains Long-Term Gains
- ----------------------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C>
December 30, 1998 December 31, 1998 - - .6650
Shareholders should consult their tax advisors.
</TABLE>
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, 1998, the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the four 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, 1998, 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, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights each of
the respective periods stated in the first paragraph, in conformity with
generally accepted accounting principles.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota
February 03, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 18390544
<INVESTMENTS-AT-VALUE> 20960164
<RECEIVABLES> 102752
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21062916
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1004779
<TOTAL-LIABILITIES> 1004779
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17488517
<SHARES-COMMON-STOCK> 1410128
<SHARES-COMMON-PRIOR> 1315072
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2569620
<NET-ASSETS> 20058137
<DIVIDEND-INCOME> 252761
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 325518
<NET-INVESTMENT-INCOME> (72757)
<REALIZED-GAINS-CURRENT> 937710
<APPREC-INCREASE-CURRENT> 1453939
<NET-CHANGE-FROM-OPS> 2318892
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (937710)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 317592
<NUMBER-OF-SHARES-REDEEMED> 323906
<SHARES-REINVESTED> 101370
<NET-CHANGE-IN-ASSETS> 2613683
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 183452
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 325518
<AVERAGE-NET-ASSETS> 20087644
<PER-SHARE-NAV-BEGIN> 13.27
<PER-SHARE-NII> (.03)
<PER-SHARE-GAIN-APPREC> 1.64
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.66)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.22
<EXPENSE-RATIO> 1.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
