Dear Shareholder:
Enclosed is the annual report of the operations of the Integrity Fund of Funds,
Inc., the "Fund", for the year ended December 31, 1999. The Fund's
portfolio and related financial statements are presented within for your
review.
As we end 1999, most market indexes closed at record levels for the year.
Most notably, the Dow Jones Industrial Average up 25%, Standard and Poors
500 Stock Index up 19%, and the NASDAQ Composite Index up an incredible 85%.
Technology, telecommunications, and Internet related stocks contributed a
majority of the markets record advance. Investor confidence in Wall Street
and stronger corporate profits continue to be the forces driving the markets.
On the other hand, the bond market has seen one of the worst years ever.
The value of the benchmark 30-year Treasury bond has seen a value loss of
approximately 27%, as yields have risen from 5.07% to 6.48%.
Stabilizing global economies and a U.S. economy, growing at what many
economists believe is an unsustainable pace, has led the Federal Reserve to
raise short-term interest rates three times in 1999 for a total increase of
three quarters of one percent.
The Fund began the year at $14.22 per share and closed at $15.80* on December
31, 1999, for a total return of 18.98% for the year. At times during the
first half of the year, the Fund utilized a defensive position in S & P 500
futures to minimize the effects of market volatility. Share price was
stabilized as market concerns of rising interest rates slowed the stock market
and share price was tempered as stronger corporate profits strengthened the
markets.
As we start the new millennium, the fast paced march of the bull market has
now reached five years of double digit gains.
While most markets are at record highs, some analysts have questions about the
new year. Chiefly, they wonder whether the Federal Reserve will continue to
raise short-term interest rates to cool off the surging economy. While
inflation remains in check, the Federal Reserve is keeping a vigilant eye on
the economy and further rate hikes are not out of the question.
While these questions remain, the Fund continues to search for proven funds
whose long-term performance have weathered many concerns over the years.
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
* excluding dividends and capital gains paid
Terms & Definitions
- -------------------
Appreciation
Increase in the 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, assuming redemption at the end
of the period.
Depreciation
Decrease in the 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
- ---------------------------
Portfolio Load Types
[pie chart]
Load 96.1%
No-Load 3.9%
The Load Structure reflects the type of sales load typically charged by each
fund in the portfolio. As of 12-31-99, the fund has not paid a sales load to
any fund.
Portfolio Investment Style
- --------------------------
[pie chart]
Growth 45.2%
Growth & Income 45.2%
Aggressive Growth 9.6%
The Portfolio Investment Style reflects the investment methodology and the
size of the company in which each fund in the portfolio invests.
These percentages are subject to change.
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
w/o CDSC w/ CDSC S&P 500 Index
- ---------------------------------------------------------------------------
1/3/1995 $10,000 $10,000 $10,000
1995 $12,520 $12,370 $13,411
1996 $14,252 $14,102 $16,129
1997 $16,340 $16,190 $21,130
1998 $18,328 $18,178 $26,765
1999 $21,807 $21,657 $31,991
Average Annual Total Returns
For periods ending December 31, 1999
------------------------------------
Since Inception
1 year 5 year 10 year (01/03/95)
--------------------------------------------------
Without CDSC 18.98% N/A N/A 16.89%
With CDSC (1.50% Max) 17.48% N/A N/A 16.73%
Putting Performance into Perspective
Returns are historical and are not a guarantee of future results. 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
- --------------
12-31-98 NAV (share value) $14.22
12-31-99 NAV $15.80
Number of Issues 17
Total Net Assets $22,132,845
<TABLE>
<CAPTION>
Schedule of Investments December 31, 1999
Name of Issuer
Percentages represent the market value
of each investment category to total net assets Quantity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS (93.9%)
AIM Charter Fund A 99,951 $ 1,847,091
*AIM Constellation Fund A 22,824 924,608
*AIM Aggressive Growth Fund A 17,037 1,066,190
AIM Blue Chip Fund A 46,502 2,423,675
*AIM Value Fund A 47,065 2,298,174
Dodge & Cox Stock Fund 2,308 231,955
American Growth Fund of America 41,119 1,198,204
MFS Research Fund A 44,593 1,286,966
MFS Capital Opportunities Fund 54,657 1,148,342
Massachusetts Investors Trust A 58,335 1,222,110
Mutual Beacon Fund Cl 1 56,225 776,472
*New York Venture Fund A 68,489 1,969,733
*Putnam Fund for Growth & Income A 53,799 1,008,727
*Putnam Vista Fund 68,955 1,203,951
Vanguard Index Trust 500 Portfolio 2,051 277,497
Vanguard Index Trust Growth Portfolio 7,508 296,021
*American Washington Mutual Investors Fund 54,208 1,602,398
-------------
TOTAL MUTUAL FUNDS (COST: $15,983,461) $ 20,782,114
SHORT-TERM SECURITIES (6.4%)
Federated Money Market Trust #092 (COST: $1,416,380) 1,416,380
-------------
TOTAL INVESTMENTS IN SECURITIES (COST: $17,399,841) $ 22,198,494
OTHER ASSETS LESS LIABILITIES (65,649)
-------------
NET ASSETS $ 22,132,845
=============
</TABLE>
*Indicates securitites are segregated by the custodian to cover initial margin
requirements.
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 1999
Statement of Assets and Liabilities December 31, 1999
- -------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities, at value (cost: $17,399,841) $ 22,198,494
Due from broker receivable 745
Accrued dividends receivable 183,017
Prepaid expenses 1,138
-------------
Total Assets $ 22,383,394
-------------
LIABILITIES
Bank overdraft $ 218,952
Accrued expenses 31,597
-------------
Total Liabilities $ 250,549
-------------
NET ASSETS $ 22,132,845
=============
Net assets are represented by:
Capital stock outstanding, at par $ 140
Additional paid-in capital 17,334,052
Unrealized appreciation on investments 4,798,653
-------------
Total amount representing net assets applicable to
1,400,763 outstanding shares of $.0001 par value
common stock (1,000,000,000 shares authorized) $ 22,132,845
=============
Net asset value per share $ 15.80
=============
Statement of Operations For the year ended December 31, 1999
- ------------------------------------------------------------
INVESTMENT INCOME
Interest $ 46,923
Dividends 393,040
-------------
Total Investment Income $ 439,963
-------------
EXPENSES
Investment advisory fees $ 191,153
Transfer agent fees 30,448
Accounting service fees 34,635
Service fees 53,098
Custodian fees 3,167
Transfer agent out-of-pockets 4,886
Professional fees 5,949
Directors fees 2,548
Reports to shareholders 2,888
Insurance expense 1,505
License, fees, and registrations 8,909
-------------
Total Expenses $ 339,186
Less expenses waived or absorbed
by the Fund's manager (3,025)
-------------
Total Net Expenses $ 336,161
-------------
NET INVESTMENT INCOME (LOSS) $ 103,802
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES
Net realized gain (loss) from:
Investment transactions $ 272,484
Capital gain distributions 1,208,705
Futures transactions (117,311)
Net change in unrealized appreciation (depreciation) of:
Investments 2,229,033
-------------
Net Realized And Unrealized Gain
(Loss) On Investments And Futures $ 3,592,911
-------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 3,696,713
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 1999
Statement of Changes in Net Assets For the year ended December 31, 1999, and
the year ended December 31, 1998
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss) $ 103,802 $ (72,757)
Net realized gain (loss) on investment and futures transactions 1,363,878 937,710
Net change in unrealized appreciation (depreciation) on investments
and futures 2,229,033 1,453,939
------------------------------------
Net Increase (Decrease) in Net Assets Resulting From
Operations $ 3,696,713 $ 2,318,892
------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ($.08 and $.00 per share, respectively) $ (103,802) $ 0
Distributions from net realized gain on investment and futures
transactions ($1.04 and $.66 per share, respectively) (1,363,878) (937,710)
------------------------------------
Total Dividends and Distributions $(1,467,680) $ (937,710)
------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares $ 2,431,447 $ 4,418,795
Proceeds from reinvested dividends 2,283,807 1,345,191
Cost of shares redeemed (4,869,579) (4,531,485)
------------------------------------
Net Increase (Decrease) in Net Assets Resulting From
Capital Share Transactions $ (154,325) $ 1,232,501
------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS $ 2,074,708 $ 2,613,683
NET ASSETS, BEGINNING OF PERIOD 20,058,137 17,444,454
-----------------------------------
NET ASSETS, END OF PERIOD $22,132,845 $20,058,137
===================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements December 31, 1999
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 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, 1999, there were 1,000,000,000 shares of $.0001 par
value authorized; 1,400,763 and 1,410,128 shares were outstanding at
December 31, 1999, and December 31, 1998, respectively. Transactions
in capital shares were as follows:
Shares
----------------------------------------------
For The Year Ended For The Year Ended
December 31, 1999 December 31, 1998
----------------------------------------------
Shares sold 162,092 317,592
Shares issued on reinvestment of
Dividends 151,506 101,370
Shares redeemed (322,963) (323,906)
----------------------------------------------
Net increase (decrease) (9,365) 95,056
==============================================
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 .90% of
the Fund's average daily net assets. The Fund has recognized $191,153 of
investment advisory fees for the year ended December 31, 1999. The Fund
has a payable to ND Money Management, Inc. of $16,193 at December 31,
1999 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 .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 $50,073 of service fees,
after partial waiver, for the year ended December 31, 1999. The Fund
has a payable to Capital of $4,162 at December 31, 1999 for service
fees. Certain officers and directors of the Fund are also officers and
directors of the underwriter.
The Fund has engaged ND Capital, Inc. as agent for the purchase of
certain investment securities. For the year ended December 31, 1999,
no commissions were earned by ND Capital, Inc.
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 $30,448 of transfer agency fees for the year ended December
31, 1999. The Fund has a payable to ND Resources, Inc. of $2,553 at
December 31, 1999 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 $34,635 of
accounting service fees for the year ended December 31, 1999. The Fund
has a payable to ND Resources, Inc. of $2,896 at December 31, 1999 for
accounting service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment
securities (excluding short-term securities) aggregated $3,904,207 and
$6,337,117, respectively, for the year ended December 31, 1999.
Note 6. INVESTMENT IN SECURITIES
At December 31, 1999, the aggregate cost of securities for federal
income tax purposes was $17,399,841, and the net unrealized
appreciation of investments based on the cost was $4,798,653, which is
comprised of $4,940,206 aggregate gross unrealized appreciation and
$141,553 aggregate gross unrealized depreciation.
Financial Highlights Selected per share data and ratios for the period
- ----------------------------------------------------------------------
indicated
- ----------
<TABLE>
<CAPTION>
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 14.22 $ 13.27 $ 12.53 $ 11.76 $ 10.00
-----------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) $ .08 $ (.03) $ .21 $ .10 $ .22
Net realized and unrealized
gain (loss) on investment
and futures transactions 2.62 1.64 1.63 1.53 2.30
-----------------------------------------------------------------------------------
Total Income (Loss) From
Investment Operations $ 2.70 $ 1.61 $ 1.84 $ 1.63 $ 2.52
-----------------------------------------------------------------------------------
Less Distributions:
From net investment income $ (.08) $ .00 $ (.21) $ (.10) $ (.22)
Distributions from net
realized gains (1.04) (.66) (.89) (.76) (.54)
-----------------------------------------------------------------------------------
Total Distributions $ (1.12) $ (.66) $ (1.10) $ (.86) $ (.76)
-----------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 15.80 $ 14.22 $ 13.27 $ 12.53 $ 11.76
===================================================================================
Total Return 18.98%(A) 12.17%(A) 14.65%(A) 13.84%(A) 25.20%(A)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
Thousands) $ 22,133 $ 20,058 $ 17,444 $ 11,406 $ 4,362
Ratio of net expenses
(after expense
Assumption) to average
net assets 1.58%(B) 1.60%(B) 1.62%(B) 1.63%(B) 1.59%(B)
Ratio of net investment
income to
Average net assets .49% (.36)% 1.73% .98% 4.00%
Portfolio turnover rate 19.49% 32.28% 31.99% 50.11% 15.30%
</TABLE>
[FN]
(A)Excludes contingent deferred sales charge of 1.5%.
(B)During the periods indicated above, ND Holdings, Inc. assumed/waived
expenses of $3,205, $2,151, $7,031, $24,114, and $39,760. If the expenses
had not been assumed/waived, the annualized ratio of total expenses to average
net assets would have been 1.60%, 1.62%, 1.64%, 1.78%, and 2.08%, respectively.
</FN>
The accompanying notes are an integral part of these financial statements.
Tax Information For The Year Ended December 31, 1999
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 29, 1999 December 30, 1999 .0791 0.0000 1.0395
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, 1999, 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 five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1999, 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, 1999, 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 for 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, 2000
