UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07322
The Integrity Funds
(Exact name of registrant as specified in charter)
Address of Registrant : 1 Main Street North
Minot, ND 58703
Name and address of agent for service : Brenda Sem
1 Main Street North
Minot, ND 58703
Registrant’s telephone number, including area code: (701)852-5292
Date of fiscal year end: December 31, 2003
Date of reporting period: December 31, 2003
Item 1. Reports to Stockholders.
Integrity Equity Fund
Dear Shareholder:
Enclosed is the annual report of the operations for the Integrity Equity Fund (the "Fund") for the year ended December 31, 2003. The Fund's portfolio and related financial statements are presented within for your review.
My positive perspective on the stock market through the last half of 2003 was validated in the third and fourth quarters. I am pleased to report that the Integrity Equity Fund was up over 20% for the year. This result tracked closely with the Large Cap Core Equity category of mutual funds as tracked by Lipper Analytical Services, which was up 24.8% in 2003.
Last year was marked by a return of investor confidence and growth in the U.S. economy. A steady stream of rate and tax cuts finally jolted the U.S. economy back to life last year. The third quarter’s 8.2% annualized jump in gross-domestic product growth was its strongest rise in 20 years. The 2003 earnings of companies in the S&P 500, using generally accepted accounting principles, jumped more than 60% from 2002, according to S&P estimates. Additionally, as evidenced by the oath required under the Sarbanes-Oxley Act of 2002, senior management of public companies can no longer disavow responsibility for accounting misdeeds. Very few accounting scandals surfaced this year and investor trust has returned, albeit slowly.
With few straws left to grasp, many bearish pundits have pointed to geopolitical concerns as a threat to long-term stability in the equity capital markets. Events in the Middle East and loss of American life in the region are truly sad; however, I do not believe that the conflict poses a long-term threat to the economy or the corporate financial recovery. In my view, stocks prices track corporate financial performance before all else. For the first time in several years, all economic indicators point to a strong recovery in corporate earnings.
Small capitalization stocks, which typically benefit more quickly and more visibly from an economic recovery, outperformed their larger brethren in the past year. I believe that trend may be set to change in 2004. In my view, investors will begin to recognize the relative safety and the attractive yields of larger capitalization stocks. Valuation differentials between large and small cap stocks have compressed and recent dividend tax cuts disproportionately favor investors in larger, more mature companies with strong cash flows and payouts, setting the stage for potential large cap outperformance in upcoming years. Your ownership in the Integrity Equity Fund positions you to take advantage of this prospective trend in 2004.
While all indicators appear positive going into 2004, I must qualify my optimism in one respect. The probability of an interest rate increase from the Federal Reserve has risen. The 10-year Treasury price has come under pressure recently through the second half of 2003. This data point tends to signal a market beginning to discount a Federal Reserve bias to tightening. An increase in interest rates would have a dampening effect on the equity markets and a disproportionate negative impact on highly valued growth stocks. I am positioning the Integrity Equity Fund to reflect this viewpoint and, first and foremost, protect your invested capital.
Another eventuality I foresee in the upcoming year is a trend toward “sector rotation” that will reward investors who are overweight in sectors that have underperformed in 2003. I have positioned your portfolio to take advantage of this trend by purchasing a number of securities in the energy and health care industries, each of which have strong long-term secular tailwinds.
As the manager of the Integrity Equity Fund, I am focused on investing in equity securities that have industry-leading characteristics and are undervalued relative to the market. My “bottoms up” approach to investing continues to yield attractive buying opportunities at current values, and I am dedicated to allocating your capital to the companies that I believe will show strength in the years ahead. Additionally, I will continue to examine the relative attractiveness of a number of industry sectors and selectively allocate capital to those industry groups that have underperformed the market in recent quarters. I believe our strategy of “bottoms up” securities analysis combined with selective sector rotation will optimize returns in the long-term.
Sincerely,
Richard Barone
Chief Executive Officer/Portfolio Manager
Ancora Advisors LLC, Subadvisor to Integrity Mutual
The views expressed are those of Richard Barone and Ancora Advisors, LLC, Sub-Advisor to the Integrity Equity and Income Funds. The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any Integrity Mutual Fund.
Terms & Definitions December 31, 2003 (Unaudited)
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.
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.
Multiple Classes of Shares
Although an individual mutual fund invests in only one portfolio of securities, it may offer investors several purchase options, which are “classes” of shares. Multiple classes permit shareholders to choose the fee structure that best meets their needs and goals. Generally, each class will differ in terms of how and when sales charges and certain fees are assessed.
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.
Offering Price
The price at which a mutual fund’s share can be purchased. The offering price per share is the current net asset value plus any sales charge.
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.
Average Annual Total Returns
Integrity Equity Fund | For periods ending December 31, 2003 | |||
Class N Shares |
|
|
| Since Inception |
| 1 year | 5 year | 10 year | (September 7, 1992) |
No-Load | 23.68% | (1.97%) | 6.61% | 6.61% |
Lipper Mlt-Cap Core Index | For periods ending December 31, 2003 | |||
|
|
|
| Since Inception |
| 1 year | year | 10 year | (September 7, 1992) |
| 31.31% | 1.37% | 9.73% | 10.58% |
Integrity Equity Fund | For periods ending December 31, 2003 | |||
Class A Shares |
|
|
| Since Inception |
| 1 year | 5 year | 10 year | (June 16, 2003) |
Without Sales Charge | N/A | N/A | N/A | N/A |
With Sales Charge (5.75%) | N/A | N/A | N/A | N/A |
Lipper Mlt-Cap Core Index | For periods ending December 31, 2003 | |||
|
|
|
| Since Inception |
| 1 year | 5 year | 10 year | (June 16, 2003) |
| N/A | N/A | N/A | N/A |
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a fund prospectus at no cost from your financial advisor and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemption of Fund shares.
Comparative Index Graph (insert here)
Comparison of change in value of a $10,000 investment in the Integrity Equity Fund and the Lipper Mlt-Cap Core Index
Class N Shares | ||
| Integrity Equity Fund Core Index | Lipper Mlt-Cap |
| ||
| ||
09/07/92 | $10,000 | $10,000 |
1992 | $10,290 | $10,971 |
1993 | $10,880 | $12,325 |
1994 | $10,930 | $12,211 |
1995 | $13,630 | $16,144 |
1996 | $16,670 | $19,449 |
1997 | $19,400 | $24,559 |
1998 | $22,800 | $29,149 |
1999 | $30,484 | $35,202 |
2000 | $32,049 | $34,027 |
2001 | $22,596 | $30,366 |
2002 | $16,692 | $23,764 |
2003 | $20,645 | $31,205 |
Class A Shares | |||
| Integrity Equity Fund w/o Sales Charge | Integrity Equity Fund w/Max Sales Charge | Lipper Mlt-Cap Core Index |
| |||
| |||
06/16/03 | $10,000 | $ 9,425 | $10,000 |
2003 | $10,927 | $10,298 | $11,255 |
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. All Fund and benchmark returns include reinvested dividends. The Fund’s share price, yields, and total returns will vary, so that shares, when redeemed, may be worth more or less than their original cost.
MANAGEMENT OF THE FUND
The Board of The Integrity Funds consists of four Trustees. These same individuals, unless otherwise noted, also serve as directors or trustees for all of the funds in the Integrity family of funds, the six series of Integrity Managed Portfolios (formerly known as Ranson Managed Portfolios), and the six series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “independent” Trustees. The remaining Trustees/Officers are “interested” by virtue of their affiliation with the Investment Adviser and its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
DISINTERESTED TRUSTEES
Name, Address and Age | Position(s) Held with Registrant | Term and Length Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen In The Fund Complex * | Other Directorships Held Outside The Fund Complex |
Lynn W. Aas | Trustee | Since Sept. 2003 | Retired; Attorney; Director, Montana Tax-Free Fund, Inc., ND Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., and Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003) and ND Insured Income Fund, Inc. (December 1994 to August 1999); Trustee, Integrity Managed Portfolios; Director, First Western Bank & Trust. | 16 | None |
Orlin W. Backes | Trustee | Since May 2003 | Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director (since April 1995), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Insured Income Fund, Inc. (March 1995 to August 1999) and Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003); Trustee, Integrity Managed Portfolios; Director, First Western Bank & Trust. | 16 | Director, First Western Bank & Trust |
R. James Maxson | Trustee | Since May 2003
| Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Attorney, Farhart, Lian and Maxson, P.C. (March 1976 to March 2000); Director (since January 1999), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., and Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); Trustee, Integrity Managed Portfolios (since January 1999). | 16 | None |
*The Fund Complex consists of the four funds in the Integrity family of funds listed above, six series of Integrity Managed Portfolios, and the six series in The Integrity Funds.
The SAI has additional information about the Fund’s directors and is available at 1(800) 601-5593 without charge upon request.
The Interested Trustee and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEE AND OFFICERS
Name, Address and Age | Position(s) Held with Registrant | Term and Length Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen In The Fund Complex * | Other Directorships Held Outside The Fund Complex |
**Peter A. Quist | Vice President | Since May 2003 | Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc. (formerly known as ND Money Management, Inc.), ND Capital, Inc., Integrity Fund Services, Inc., (formerly known as ND Resources, Inc), ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc. (November 1990 to August 1999), Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc. (since April 1995), Integrity Fund of Funds, Inc., Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Integrity Funds Distributor, Inc., (formerly known as Ranson Capital Corporation) (since January 1996); and Director, ARM Securities Corporation (since May 2000).
| 4 | None |
**Robert E. Walstad | Trustee, Chairman, President, and Treasurer | Since May 2003 | Director (since September 1987), President (September 1987 to October 2001 and September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., ND Capital, Inc., Integrity Fund Services, Inc., ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc. (November 1990 to August 1999), Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., and Integrity Small-Cap Fund of Funds Inc.; (September 1998 to June 2003); Trustee, Chairman, President, and Treasurer, Integrity Managed Portfolios; Director, President, CEO, and Treasurer, Integrity Funds Distributor, Inc., (January 1996 to August 2003); Director (October 1999 to June 2003), President (October 1999 - October 2001), Magic Internet Services, Inc.; Director (since May 2000), President (May 2000 to October 2001- Sept 2002 to present), ARM Securities Corporation; Director, CEO, Chairman, Capital Financial Services, Inc. (since January 2002).
| 16 | Director, Capital Financial Services, Inc. |
*The Fund Complex consists of the four funds in the Integrity family of funds listed above, six series of Integrity Managed Portfolios, and the six series in The Integrity Funds.
** Trustees and/or officers who are “interested persons” of the Funds as defined in the 1940 Act. Messrs. Quist and Walstad are interested persons by virtue of being officers and directors of the Funds’ investment adviser and principal underwriter.
The SAI has additional information about the Fund’s directors and is available at 1(800) 601-5593 without charge upon request.
Schedule of Investments December 31, 2003
Name of Issuer | Quantity |
| Market Value |
| ||||
COMMON STOCKS (99.2%) |
|
|
|
|
| |||
AUTOMATED PROCESSING (2.3%) |
|
|
|
|
| |||
Paychex Inc. | 8,000 |
| $ | 297,600 |
| |||
|
|
|
| 297,600 |
| |||
BANKS (10.1%) |
|
|
|
|
| |||
Bank of America | 4,000 |
|
| 321,720 |
| |||
Citigroup Inc | 5,000 |
|
| 242,700 |
| |||
Sky Financial Group | 10,000 |
|
| 259,400 |
| |||
Wells Fargo & Co. | 8,000 |
|
| 471,120 |
| |||
|
|
|
| 1,294,940 |
| |||
BROADCAST SATELLITE (2.0%) |
|
|
|
|
| |||
Clear Channel Communications | 5,500 |
|
| 257,565 |
| |||
|
|
|
| 257,565 |
| |||
BROADCASTING (1.9%) |
|
|
|
|
| |||
*Liberty Media A | 20,000 |
|
| 237,800 |
| |||
|
|
|
| 237,800 |
| |||
CHEMICALS (5.9%) |
|
|
|
|
| |||
DOW Chemical | 6,000 |
|
| 249,420 |
| |||
3M Co. | 6,000 |
|
| 510,180 |
| |||
|
|
|
| 759,600 |
| |||
COMPUTER HARDWARE (10.2%) |
|
|
|
|
| |||
Computer Associates International | 10,000 |
|
| 273,400 |
| |||
*Dell Inc. | 10,000 |
|
| 339,600 |
| |||
Hewlett-Packard | 10,000 |
|
| 229,700 |
| |||
IBM | 5,000 |
|
| 463,400 |
| |||
|
|
|
| 1,306,100 |
| |||
CONSUMER PRODUCTS (1.5%) |
|
|
|
|
| |||
Mattel, Inc | 10,000 |
|
| 192,700 |
| |||
|
|
|
| 192,700 |
| |||
DRUGS & PHARMACEUTICALS (7.3%) |
|
|
|
|
| |||
Johnson & Johnson | 10,000 |
|
| 516,600 |
| |||
Pfizer Inc. | 12,000 |
|
| 423,960 |
| |||
|
|
|
| 940,560 |
| |||
ENERGY (5.6%) |
|
|
|
|
| |||
Anandarko Petroleum | 8,000 |
|
| 408,080 |
| |||
General Electric | 10,000 |
|
| 309,800 |
| |||
|
|
|
| 717,880 |
| |||
ENGINEERING (2.6%) |
|
|
|
|
| |||
*Jacobs Engineering Group | 7,000 |
|
| 336,070 |
| |||
|
|
|
| 336,070 |
| |||
FINANCIAL (7.2%) |
|
|
|
|
| |||
American Express Company | 7,000 |
|
| 337,610 |
| |||
Goldman Sachs Group | 3,000 |
|
| 296,190 |
| |||
Schwab (Charles) Corp | 25,000 |
|
| 296,000 |
| |||
|
|
|
| 929,800 |
| |||
HEALTHCARE (5.5%) |
|
|
|
|
| |||
*Cardinal Health | 7,000 |
|
| 428,120 |
| |||
*Steris Corp. | 12,000 |
|
| 271,200 |
| |||
|
|
|
| 699,320 |
| |||
HOSPITALS (2.8%) |
|
|
|
|
| |||
Health Management Assoc. | 15,000 |
|
| 360,000 |
| |||
|
|
|
| 360,000 |
| |||
INDUSTRIAL GASES (1.9%) |
|
|
|
|
| |||
Teco Energy | 16,900 |
|
| 243,529 |
| |||
|
|
|
| 243,529 |
| |||
INSURANCE (3.7%) |
|
|
|
|
| |||
Marsh & McLennan | 10,000 |
|
| 478,900 |
| |||
|
|
|
| 478,900 |
| |||
MACHINERY & EQUIPMENT (2.5%) |
|
|
|
|
| |||
Pall Corp. | 12,000 |
|
| 321,960 |
| |||
|
|
|
| 321,960 |
| |||
MEDICAL EQUIPMENT (1.5%) |
|
|
|
|
| |||
Medtronic, Inc | 4,000 |
|
| 194,440 |
| |||
|
|
|
| 194,440 |
| |||
OIL & GAS OPERATIONS (9.4%) |
|
|
|
|
| |||
Apache Corp | 6,000 |
|
| 486,600 |
| |||
Burlington Resources | 7,000 |
|
| 387,660 |
| |||
ConocoPhillips | 5,000 |
|
| 327,850 |
| |||
|
|
|
| 1,202,110 |
| |||
RETAIL – FOOD (1.5%) |
|
|
|
|
| |||
ConAgra Foods | 7,000 |
|
| 184,730 |
| |||
|
|
|
| 184,730 |
| |||
RETAIL (8.4%) |
|
|
|
|
| |||
*AutoZone Inc | 5,000 |
|
| 426,050 |
| |||
*Costco Wholesale | 10,000 |
|
| 371,800 |
| |||
Lowe's Companies | 5,000 |
|
| 276,950 |
| |||
|
|
|
| 1,074,800 |
| |||
SOFTWARE & PROGRAMMING (3.2%) |
|
|
|
|
| |||
Microsoft Corp. | 15,000 |
|
| 413,100 |
| |||
|
|
|
| 413,100 |
| |||
TRANSPORTATION (2.2%) |
|
|
|
|
| |||
Harley-Davidson | 6,000 |
|
| 285,180 |
| |||
|
|
|
| 285,180 |
| |||
TOTAL STOCKS (COST: $10,923,864) | $ | 12,728,684 | ||||||
|
|
| ||||||
TOTAL INVESTMENTS IN SECURITIES (COST: $10,923,864) | $ | 12,728,684 | ||||||
|
|
| ||||||
OTHER ASSETS LESS LIABILITIES |
| 108,888 | ||||||
|
|
| ||||||
NET ASSETS | $ | 12,837,572 | ||||||
*Non-income producing
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 2003
Statement of Assets and Liabilities December 31, 2003
ASSETS |
|
| ||
| Investments in securities, at value (cost: $10,923,864) | $ | 12,728,684 | |
| Accrued dividends receivable |
| 13,080 | |
| Security sales receivable |
| 113,930 | |
| Prepaid expenses |
| 1,911 | |
| Receivable for fund shares sold |
| 74,673 | |
|
|
| ||
| Total Assets | $ | 12,932,278 | |
|
|
| ||
LIABILITIES |
|
| ||
| Disbursement in excess of demand deposit cash | $ | 75,414 | |
| Accrued expenses |
| 19,292 | |
|
|
| ||
| Total Liabilities | $ | 94,706 | |
|
|
| ||
|
|
| ||
NET ASSETS | $ | 12,837,572 | ||
|
|
| ||
|
|
| ||
Net assets are represented by: |
|
| ||
| Capital stock outstanding | $ | 21,992,765 | |
| Accumulated undistributed net realized gain (loss) on investments |
| (10,960,013) | |
| Unrealized appreciation on investments |
| 1,804,820 | |
| Total amount representing net assets applicable to |
|
| |
| 742,836 outstanding shares of no par common stock |
|
| |
| (unlimited shares authorized) | $ | 12,837,572 | |
|
|
| ||
Net asset value per share | $ | 17.28 | ||
|
|
| ||
Net Assets Consist of: |
|
| ||
| Class A | $ | 30,810 | |
| Class N | $ | 12,806,762 | |
| Total Net Assets | $ | 12,837,572 | |
|
|
| ||
Shares Outstanding: |
|
| ||
| Class A |
| 1,788 | |
| Class N |
| 741,048 | |
|
|
| ||
Net Asset Value per share: |
|
| ||
| Class A | $ | 17.23 | |
| Class A – offering price (based on sales charge of 5.75%) | $ | 18.28 | |
| Class N | $ | 17.28 | |
Statement of Operations For the year ended December 31, 2003
INVESTMENT INCOME |
|
| ||
| Interest | $ | 4,978 | |
| Dividends |
| 198,496 | |
| Total Investment Income | $ | 203,474 | |
|
|
| ||
EXPENSES |
|
| ||
| Investment advisory fees | $ | 129,356 | |
| 12b-1 fees |
| 36 | |
| Transfer agent fees |
| 28,375 | |
| Accounting service fees |
| 28,180 | |
| Administrative service fees |
| 28,660 | |
| Custodian fees |
| 4,779 | |
| Professional fees |
| 5,347 | |
| Trustees fees |
| 1,174 | |
| Transfer agent out-of-pockets |
| 462 | |
| Reports to shareholders |
| 3,632 | |
| Insurance expense |
| 9,805 | |
| License, fees, and registrations |
| 10,429 | |
| Total Expenses | $ | 250,235 | |
| Less expenses waived or absorbed by the Fund’s manager |
| (63,932) | |
| Total Net Expenses | $ | 186,303 | |
|
|
| ||
NET INVESTMENT INCOME | $ | 17,171 | ||
|
|
| ||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| ||
| Net realized gain (loss) from: |
|
| |
| Investment transactions | $ | (50,704) | |
| Net change in unrealized appreciation (depreciation) of: |
|
| |
| Investments |
| 2,760,052 | |
| Net Realized and Unrealized Gain (Loss) on Investments | $ | 2,709,348 | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 2,726,519 | ||
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 2003
Statement of Changes in Net Assets
For the year ended December 31, 2003, and the year ended December 31, 2002
|
| For The Year Ended December 31, 2003 |
| For The Year Ended December 31, 2002 | |||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| |||
| Net investment income | $ | 17,171 | $ | 35,851 | ||
| Net realized gain (loss) on investment transactions |
| (50,704) |
| (3,487,057) | ||
| Net change in unrealized appreciation (depreciation) on investments |
| 2,760,052 |
| (3,082,940) | ||
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 2,726,519 | $ | (6,534,146) | ||
|
|
|
|
| |||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| |||
| Dividends from net investment income: |
|
|
|
| ||
| Class A ($.02 and $.00, respectively) | $ | (41) | $ | 0 | ||
| Class N ($.02 and $.03, respectively) |
| (17,135) |
| (36,854) | ||
| Distributions from net realized gain on investment transactions: |
|
|
|
| ||
| Class A |
| 0 |
| 0 | ||
| Class N |
| 0 |
| 0 | ||
| Total Dividends and Distributions | $ | (17,176) | $ | (36,854) | ||
|
|
|
|
| |||
CAPITAL SHARE TRANSACTIONS |
|
|
|
| |||
| Proceeds from sale of shares: |
|
|
|
| ||
| Class A | $ | 28,777 | $ | 0 | ||
| Class N |
| 464,235 |
| 1,162,012 | ||
| Proceeds from reinvested dividends: |
|
|
|
| ||
| Class A |
| 27 |
| 0 | ||
| Class N |
| 17,132 |
| 36,854 | ||
| Cost of shares redeemed: |
|
|
|
| ||
| Class A |
| (3) |
| 0 | ||
| Class N |
| (3,992,692) |
| (7,864,899) | ||
| Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions |
$ |
(3,482,524) |
$ |
(6,666,033) | ||
|
|
|
|
| |||
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | (773,181) | $ | (13,237,033) | |||
|
|
|
|
| |||
NET ASSETS, BEGINNING OF PERIOD |
| 13,610,753 |
| 26,847,786 | |||
NET ASSETS, END OF PERIOD | $ | 12,837,572 | $ | 13,610,753 | |||
Undistributed Net Investment Income (Loss) | $ | (5) | $ | 0 | |||
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements December 31, 2003
Note 1. ORGANIZATION
The Integrity Equity Fund (the Fund) is an investment portfolio of The Integrity Funds (the “Trust") registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Fund seeks long term growth of asset value through capital appreciation and dividend income. From its inception September 7, 1992 until February 9, 1998, The Integrity Funds were organized by the investment advisor as a Collective Investment Trust under New York Law and the regulations of the U.S. Comptroller of the Currency, participation in which was limited to qualified individual accounts such as IRAs and retirement and pension trusts. On February 9, 1998, the Collective Investment Trust reorganized as a Delaware business trust. In connection with this reorganization, the name of the trust was changed from “Canandaigua National Collective Investment Fund for Qualified Trusts” to “The Canandaigua Funds.” On March 3, 2003, the trust was renamed “The Integrity Funds”.
All shares existing prior to June 16, 2003, the commencement date of Class A shares, were classified as Class N shares. Class N shares are sold without a sales charge. Class A shares are sold with an initial sales charge of 5.75% and a distribution fee of up to 0.50% on an annual basis. The two classes of shares represent interests in the same portfolio of investments, have the same rights and are generally identical in all respects except that each class bears its separate distribution and certain other class expenses, and have exclusive voting rights with respect to any matter on which a separate vote of any class is required.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation – Assets for which market quotations are available are valued as follows: (a) each listed security is valued at its closing price obtained from the respective primary exchange on which the security is listed, or, if there were no sales on that day, at its last reported current bid price; (b) each unlisted security is valued at the last current bid price obtained from the National Association of Securities Dealers Automated Quotation System. All of these prices are obtained by the Administrator from services, which collect and disseminate such market prices. Prices provided by an independent pricing service may be determined without exclusive reliance on quoted prices and may take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market dat a. In the absence of an ascertainable market value, assets are valued at their fair value as determined by the Adviser using methods and procedures reviewed and approved by the Trustees.
Redemption fees – In the case of investments of $1 million or more, a 1.00% redemption fee will be assessed on shares redeemed within 12 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).
Federal and state income taxes – It is the policy of the Fund to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code (the “Code”) and to make distributions of net investment income and net realized capital gains sufficient to relieve it from all, or substantially all, federal income taxes.
As of December 31, 2003 the components of accumulated earnings/(deficit) on a tax basis was as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/(Depreciation) | Total Accumulated Earnings/(Deficit) |
$ 0 | $ 0 | $ 0 | ($10,817,810) | $ 1,662,617 | ($9,155,193) |
As of December 31, 2003, the Fund had net capital loss carryforwards, which are available to offset future realized capital gains. The differences between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to: tax deferral of losses on wash sales.
Year | Unexpired Capital Losses |
2009 | 7,422,252 |
2010 | 3,393,883 |
2011 | 1,675 |
For the year ended December 31, 2003, the Fund did not make any permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to expiring capital loss carryforwards.
Net capital losses incurred after October 31, and within the tax year are deemed to arise on the first business day of the Funds’ next taxable year. For the year ended December 31, 2003, the Fund deferred to January 1, 2004, post October capital losses, post October currency losses and post October passive foreign investment company losses of $0.
Multiple class allocations – The Fund simultaneously uses the settled shares method to allocate income and fund wide expenses and uses the relative net assets method to allocate gains and losses. Class-specific expenses, distribution fees, and any other items that are specifically attributable to a particular class are charged directly to such class. For the year ended December 31, 2003, distribution fees were the only class-specific expenses.
Distributions to shareholders – Dividends from net investment income, declared yearly and paid yearly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed along with the net investment income dividend at the end of the calendar year.
Other – Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date for financial reporting purposes. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatment for market discount, capital loss carryforwards and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
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 are require d 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 accounting principles generally accepted in the United States of America 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.
Reclassifications – Certain prior year amounts have been reclassified to conform to the current year presentation.
Note 3. CAPITAL SHARE TRANSACTIONS
As of December 31, 2003, there were unlimited shares of no par authorized; 742,836 and 972,659 shares were outstanding at December 31, 2003, and December 31, 2002, respectively.
Transactions in capital shares were as follows:
| Class A Shares | Class N Shares | |||
| For The Period Since Inception (06/16/03) Thru December 31, 2003 |
| For The Year Ended December 31, 2003 | For The Year Ended December 31, 2002 | |
Shares sold | 1,786 |
| 30,926 | 68,400 | |
Shares issued on reinvestment of dividends | 2 |
| 990 | 2,634 | |
Shares redeemed | 0 |
| (263,527) | (511,790) | |
Net increase (decrease) | 1,788 |
| (231,611) | (440,756) | |
Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Integrity Money Management, Inc., the Fund’s investment adviser; Integrity Funds Distributor, Inc., the Fund’s underwriter; and Integrity Fund Services, Inc., the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc., the Fund’s sponsor.
The Fund has engaged Integrity 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 1.00% of the Fund’s average daily net assets. The Fund has recognized $93,179 of investment advisory fees after a partial waiver for the year ended December 31, 2003. The Fund has a payable to Integrity Money Management, Inc. of $3,136 at December 31, 2003, for investment advisory fees. Certain officers and trustees of the Fund are also officers and trustees of the investment adviser.
Integrity Funds Distributor, Inc. serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan for each class of shares as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called “Distribution Plan expenses.” Class N does not pay an annual distribution fee. Class A presently pays an annual distribution fee of up to 0.50% of the average daily net assets of the class. Distribution Plan expenses are calculated daily and paid monthly. Class A has recognized $36 of distribution plan expenses after a partial waiver for the year ended December 31, 2003. Class A has a payable to Integrity Funds Distributor, Inc. of $13 at December 31, 2003, for distribution plan expenses.
Integrity Fund Services, Inc. provides shareholder services for a monthly fee of 0.25% of average net assets with a minimum of $2,000 per month plus reimbursement of out-of-pocket expenses. An additional fee with a minimum of $500 per month will be charged for each additional share class. The Fund has recognized $28,375 of transfer agency fees for the year ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $3,357 at December 31, 2003, for transfer agency fees. Integrity Fund Services, 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, together with reimbursement of out-of-pocket expenses. Integrity Fun d Services, Inc. will charge an additional accounting services fee of $500 per month for each additional share class. The Fund has recognized $28,180 of accounting service fees for the year ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $3,231 at December 31, 2003, for accounting service fees. Integrity Fund Services, Inc. also acts as the Fund’s administrative services agent for a monthly fee equal to the rate of 0.20% of average daily net assets with a minimum of $2,000 per month plus out-of-pocket expenses. Each Fund will pay an additional minimum fee of $500 per month for each additional share class. The Fund has recognized $28,660 of administrative service fees for the year ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $2,793 at December 31, 2003, for administrative service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sale of investment securities (excluding short-term securities) aggregated $6,753,524 and $10,098,330, respectively, for the year ended December 31, 2003.
Note 6. INVESTMENT IN SECURITIES
At December 31, 2003, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $10,923,864. The net unrealized appreciation of investments based on the cost was $1,804,820, which is comprised of $2,087,251 aggregate gross unrealized appreciation and $282,431 aggregate gross unrealized depreciation.
Financial Highlights December 31, 2003
Selected per share data and ratios for the period indicated
Class A Shares
|
| For The Period Since Inception (06/16/03) to December 31, 2003 | ||
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 15.79 | ||
|
|
| ||
Income from Investment Operations: |
|
| ||
| Net investment income (loss) | $ | .02 | |
| Net realized and unrealized gain (loss) on investment transactions |
| 1.44 | |
| Total Income (Loss) From Investment Operations | $ | 1.46 | |
|
|
| ||
Less Distributions: |
|
| ||
| Dividends from net investment income | $ | (.02) | |
| Distributions from net realized gains |
| .00 | |
| Total Distributions | $ | (.02) | |
|
|
| ||
NET ASSET VALUE, END OF PERIOD | $ | 17.23 | ||
|
|
| ||
Total Return |
| 17.43%(A)(C) | ||
|
|
| ||
RATIOS/SUPPLEMENTAL DATA: |
|
| ||
| Net assets, end of period (in thousands) | $ | 31 | |
| Ratio of net expenses (after expense assumption) to average net assets |
| 2.06%(B)(C) | |
| Ratio of net investment income to average net assets |
| 0.59%(C) | |
| Portfolio turnover rate |
| 54.81% | |
|
|
| ||
(A) Excludes maximum sales charge of 5.75%.
(B) During the periods indicated above, Integrity Mutual Funds, Inc. assumed/waived expenses of $48. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets would have been 2.75%.
(C) Ratio is annualized.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
Financial Highlights December 31, 2003
Selected per share data and ratios for the period indicated
Class N Shares
|
| For The Year Ended December 31, 2003 |
| For The Year Ended December 31, 2002 |
| For The Year Ended December 31, 2001 |
| For The Year Ended December 31, 2000 |
| For The Year Ended December 31, 1999 | ||
NET ASSET VALUE, BEGINNING OF PERIOD |
$ |
13.99 |
$ |
18.99 |
$ |
27.01 |
$ |
26.71 |
$ |
22.80 | ||
|
|
|
|
|
|
|
|
|
|
| ||
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
| ||
| Net investment income (loss) | $ | .02 | $ | .03 | $ | (.06) | $ | (.20) | $ | (.20) | |
| Net realized and unrealized gain (loss) on investment transactions |
|
3.29 |
|
(5.00) |
|
(7.91) |
|
1.59 |
|
7.85 | |
| Total Income (Loss) From Investment Operations |
$ |
3.31 |
$ |
(4.97) |
$ |
(7.97) |
$ |
1.39 |
$ |
7.65 | |
|
|
|
|
|
|
|
|
|
|
| ||
Less Distributions: |
|
|
|
|
|
|
|
|
|
| ||
| Dividends from net investment income | $ | (.02) | $ | (.03) | $ | .00 | $ | .00 | $ | .00 | |
| Distributions from net realized gains |
| .00 |
| .00 |
| (.05) |
| (1.09) |
| (3.74) | |
| Total Distributions | $ | (.02) | $ | (.03) | $ | (.05) | $ | (1.09) | $ | (3.74) | |
|
|
|
|
|
|
|
|
|
|
|
| |
NET ASSET VALUE, END OF PERIOD |
$ |
17.28 |
$ |
13.99 |
$ |
18.99 |
$ |
27.01 |
$ |
26.71 | ||
|
|
|
|
|
|
|
|
|
|
| ||
Total Return |
| 23.68% |
| (26.13%) |
| (29.49%) |
| 5.12% |
| 33.70% | ||
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
RATIOS/SUPPLEMENTAL DATA: |
|
|
|
|
|
|
|
|
|
| ||
| Net assets, end of period (in thousands) | $ | 12,807 | $ | 13,611 | $ | 26,848 | $ | 40,208 | $ | 35,237 | |
| Ratio of net expenses (after expense assumption) to average net assets |
|
1.44%(A) |
|
1.35% |
|
1.35% |
|
1.32% |
|
1.37% | |
| Ratio of net investment income to average net assets |
|
0.13% |
|
0.18% |
|
(0.27%) |
|
(0.67%) |
|
(0.77%) | |
| Portfolio turnover rate |
| 54.81% |
| 46.99% |
| 122.91% |
| 144.68% |
| 224.59% | |
(A) During the period since 12/31/02 indicated above, Integrity Mutual Funds, Inc./Canandaigua Bank assumed/waived expenses of $63,884. In prior years starting with December 31, 2002, Canandaigua Bank assumed/waived certain administrative expenses of the Fund, other than primarily custodial and audit fees, resulting in per share savings to the Fund of $.04, $.01, $.02, and $.02, respectively. If the expenses had not been assumed/waived, the annualized ratios of total expenses to average net assets would have been 1.93%, 1.62%, 1.42%, 1.38%, and 1.45%, respectively.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
INDEPENDENT AUDITOR’S REPORT
To the Shareholders and Board of Trustees of the Integrity Equity Fund
We have audited the accompanying statement of assets and liabilities of the Integrity Equity Fund, (the Fund), including the schedule of investments, as of December 31, 2003, the related statement of operations, the statement of changes in net assets, and the financial highlights for the year 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 audit. The statement of changes in net assets for the year ended December 31, 2002, and the financial highlights for each of the four years in the period ended December 31, 2002, were audited by other auditors whose report dated February 11 , 2003, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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, 2003, 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 the Integrity Equity Fund, as of December 31, 2003, the results of its operations, the changes in its net assets, and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota USA
February 17, 2004
Integrity Income Fund
Dear Shareholder:
Enclosed is the annual report of the operations for the Integrity Income Fund, Inc. (the "Fund") for the year ended December 31, 2003. The Fund's portfolio and related financial statements are presented within for your review.
I am pleased to report that the Integrity Income Fund N shares was up over *3.00% for the year. This result tracked closely with the Lehman Brothers Aggregate Bond Index, which was up 4.28% in 2003.
Last year was marked by a return of investor confidence and growth in the U.S. economy. A steady stream of rate and tax cuts finally jolted the U.S. economy back to life last year. The third quarter’s 8.2% annualized jump in gross-domestic product growth was its strongest rise in 20 years. The 2003 earnings of companies in the S&P 500, using generally accepted accounting principles, jumped more than 60% from 2002, according to S&P estimates. Additionally, as evidenced by the oath required under the Sarbanes-Oxley Act of 2002, senior management of public companies can no longer disavow responsibility for accounting misdeeds. Very few accounting scandals surfaced this year and investor trust has returned, albeit slowly.
With all of these positive economic indicators, the probability of an interest rate increase from the Federal Reserve has risen. The 10-year Treasury price has come under pressure recently through the second half of 2003. This data point tends to signal a market beginning to discount a Federal Reserve bias to tightening.
The Integrity Income Fund continues to focus on selecting undervalued, very high quality bonds in the intermediate maturity range. This strategy has left your Fund well positioned in the current environment as yields on short term bonds continue to be low and increasing market risks raise concerns for bonds with longer-term maturities. I will continue to evaluate economic events in the upcoming months and make adjustments to the portfolio accordingly.
*Without Sale Charge
Sincerely,
Richard Barone
Chief Executive Officer/Portfolio Manager
Ancora Advisors LLC, Subadvisor to Integrity Mutual Funds
The views expressed are those of Richard Barone and Ancora Advisors, LLC, Sub-Advisor to the Integrity Equity and Income Funds. The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any Integrity Mutual Fund.
Terms & Definitions December 31, 2003 (Unaudited)
Appreciation
Increase in the value of an asset.
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned by the fund on an annual basis.
Depreciation
Decrease in the value of an asset.
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.
Multiple Classes of Shares
Although an individual mutual fund invests in only one portfolio of securities, it may offer investors several purchase options which are “classes” of shares. Multiple classes permit shareholders to choose the fee structure that best meets their needs and goals. Generally, each class will differ in terms of how and when sales charges and certain fees are assessed.
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.
Offering Price
The price at which a mutual fund’s share can be purchased. The offering price per share is the current net asset value plus any sales charge.
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.
Average Annual Total Returns
Integrity Income Fund | For periods ending December 31, 2003 | |||
Class N Shares |
|
|
| Since Inception |
| 1 year | 5 year | 10 year | (September 7, 1992) |
No-Load | 3.00% | 5.17% | 6.27% | 5.83% |
Lehman Intermediate Govt./ | For periods ending December 31, 2003 | |||
|
|
|
| Since Inception |
| 1 year | 5 year | 10 year | (September 7, 1992) |
| 4.30% | 6.65% | 6.62% | 6.68% |
Integrity Income Fund | For periods ending December 31, 2003 | |||
Class A Shares |
|
|
| Since Inception |
| 1 year | 5 year | 10 year | (June 16, 2003) |
Without Sales Charge | N/A | N/A | N/A | N/A |
With Sales Charge (4.25%) | N/A | N/A | N/A | N/A |
Lehman Intermediate Govt./Credit Index | For periods ending December 31, 2003 | |||
|
|
|
| Since Inception |
| 1 year | 5 year | 10 year | (June 16, 2003) |
| N/A | N/A | N/A | N/A |
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a fund prospectus at no cost from your financial advisor and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemption of Fund shares.
Comparative Index Graph (insert here)
Comparison of change in value of a $10,000 investment in the Integrity Income Fund and the Lehman Brothers Intermediate Govt./Corp. Bond Index
Class N Shares | Class A Shares | ||||||
| The Integrity Income Fund | Lehman Brothers Interm. Govt./Corp. Bond Index | The Integrity Income Fund w/o Sales Charge | The Integrity Income Fund w/Max Sales Charge | Lehman Brothers Interm. Govt./Corp. Bond Index | ||
| |||||||
| |||||||
09/07/92 | $10,000 | $10,000 | 06/16/03 | $10,000 | $ 9,575 | $10,000 | |
1992 | $10,060 | $10,068 | 2003 | $ 9,951 | $ 9,529 | $10,001 | |
1993 | $10,340 | $10,952 |
| ||||
1994 | $ 9,960 | $10,740 |
| ||||
1995 | $12,160 | $12,384 |
| ||||
1996 | $12,540 | $12,887 |
| ||||
1997 | $13,530 | $13,901 |
| ||||
1998 | $14,754 | $15,070 |
| ||||
1999 | $14,502 | $15,129 |
| ||||
2000 | $15,926 | $16,657 |
| ||||
2001 | $17,318 | $18,153 |
| ||||
2002 | $18,434 | $19,935 |
| ||||
2003 | $18,988 | $20,792 |
| ||||
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. All Fund and benchmark returns include reinvested dividends. The Fund’s share price, yields, and total returns will vary, so that s hares, when redeemed, may be worth more or less than their original cost.
Trustees information
INDEPENDENT TRUSTEES
[PHOTO] | [PHOTO] | [PHOTO] |
Lynn W. Aas | Orlin W. Backes | R. James Maxson |
INTERESTED TRUSTEES
[PHOTO] | [PHOTO] |
Peter A. Quist | Robert E. Walstad |
MANAGEMENT OF THE FUND
The Board of The Integrity Funds consists of four Trustees. These same individuals, unless otherwise noted, also serve as directors or trustees for all of the funds in the Integrity family of funds, the six series of Integrity Managed Portfolios (formerly known as Ranson Managed Portfolios), and the six series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “independent” Trustees. The remaining two Trustees/Officers are “interested” by virtue of their affiliation with the Investment Adviser and its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
Name, Address and Age | Position(s) Held with Registrant | Term and Length Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen In The Fund Complex * | Other Directorships Held Outside The Fund Complex |
Lynn W. Aas | Trustee | Since Sept. 2003 | Retired; Attorney; Director, Integrity Fund of Funds, Inc., Montana Tax-Free Fund, Inc., ND Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), and ND Insured Income Fund, Inc. (December 1994 to August 1999); Trustee, Integrity Managed Portfolios; Director, First Western Bank & Trust.
| 16 | None |
Orlin W. Backes | Trustee | Since May 2003 | Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director (since April 1995), ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc. (March 1995 to August 1999), Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., and Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003); Trustee, Integrity Managed Portfolios; Director, First Western Bank & Trust.
| 16 | Director, First Western Bank & Trust |
R. James Maxson | Trustee | Since May 2003
| Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Attorney, Farhart, Lian and Maxson, P.C. (March 1976 to March 2000); Director (since January 1999), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., and Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); Trustee, Integrity Managed Portfolios (since January 1999). | 16 | None |
__________________________
The Fund Complex consists of the four funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the six series of The Integrity Funds.
The SAI has additional information about the Fund’s directors and is available at 1(800)601-5593 without charge upon request.
The Interested Directors and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEES
Name, Address and Age | Position(s) Held with Registrant | Term and Length Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen In The Fund Complex * | Other Directorships Held Outside The Fund Complex |
**Peter A. Quist | Vice President | Since May 2003 | Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc. (formerly known as ND Money Management, Inc.,), ND Capital, Inc., Integrity Fund Services, Inc., (formerly known as ND Resources, Inc.), ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc. (November 1990 to August 1999), Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc. (since April 1995), Integrity Fund of Funds, Inc., Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Integrity Funds Distributor, Inc., (formerly known as Ranson Capital Corporation) (since January 1996); and Director, ARM Securities Corporation (since May 2000).
| 4 | None |
**Robert E. Walstad | Trustee, Chairman, President, and Treasurer | Since May 2003 | Director (since September 1987), President (September 1987 to October 2001 and September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., ND Capital, Inc., Integrity Fund Services, Inc., ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc. (November 1990 to August 1999), Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc. and Integrity Small-Cap Fund of Funds Inc.; (September 1998 to June 2003), Trustee, Chairman, President, and Treasurer, Integrity Managed Portfolios; Director, President, CEO, and Treasurer, Integrity Funds Distributor, Inc. (January 1996 to August 2003); Director (October 1999 to June 2003), President (October 1999 - October 2001), Magic Internet Services, Inc.; Director (since May 2000), President (May 2000 to October 2001- Sept 2002 to present), ARM Securities Corporation; Director, CEO, Chairman, Capital Financia l Services, Inc. (since January 2002). | 16 | Director, Capital Financial Services, Inc. |
__________________________
* The Fund Complex consists of the four funds in the Integrity family of funds, the four series of Integrity Managed Portfolios, and the two series of The Integrity Funds.
** Directors who are “interested persons” of the Funds as defined in the Investment Company Act of 1940. Messrs. Quist and Walstad are interested persons by virtue of being officers and directors of the Fund’s Investment Adviser and Principal Underwriter.
The SAI has additional information about the Fund’s directors and is available at 1(800) 601-5593 without charge upon request.
Schedule of Investments December 31, 2003
Name of Issuer | Coupon Rate | Principal Maturity | Amount | Market Value | ||||||||||
INVESTMENT SECURITIES: |
|
|
|
|
|
| ||||||||
U.S. Treasury Note | 6.125% | 08/15/07 | $ | 35,000 | $ | 39,171 | ||||||||
U.S. Treasury Note | 5.500 | 02/15/08 |
| 40,000 |
| 44,100 | ||||||||
U.S. Treasury Note | 5.625 | 05/15/08 |
| 50,000 |
| 55,387 | ||||||||
U.S. Treasury Note | 4.750 | 11/15/08 |
| 30,000 |
| 32,116 | ||||||||
U.S. Treasury Note | 5.875 | 02/15/04 |
| 25,000 |
| 25,145 | ||||||||
U.S. Treasury Note | 5.875 | 11/15/05 |
| 50,000 |
| 53,803 | ||||||||
U.S. Treasury Note | 5.625 | 02/15/06 |
| 25,000 |
| 26,942 | ||||||||
U.S. Treasury Note | 7.000 | 07/15/06 |
| 30,000 |
| 33,603 | ||||||||
| TOTAL U.S. GOVERNMENT NOTES (COST: $284,987) | $ | 310,267 | |||||||||||
CORPORATE BONDS (47.9%) |
|
|
|
|
| |||||||||
Consumer Goods (13.3%) |
|
|
|
|
| |||||||||
Multimedia |
|
|
|
|
| |||||||||
Walt Disney Company | 5.800 | 10/27/08 | 25,000 | $ | 26,929 | |||||||||
|
|
|
|
| 26,929 | |||||||||
Paper |
|
|
|
|
| |||||||||
International Paper Company | 7.625 | 08/01/04 | 25,000 |
| 25,802 | |||||||||
|
|
|
|
| 25,802 | |||||||||
Photography |
|
|
|
|
| |||||||||
Eastman Kodak | 7.250 | 06/15/05 | 30,000 |
| 31,457 | |||||||||
|
|
|
|
| 31,457 | |||||||||
Retail |
|
|
|
|
| |||||||||
Sears Roebuck & Company | 6.250 | 01/15/04 | 25,000 |
| 25,025 | |||||||||
|
|
|
|
| 25,025 | |||||||||
Specialty Chemicals |
|
|
|
|
| |||||||||
Eastman Chemical Company | 6.375 | 01/15/04 | 25,000 |
| 25,026 | |||||||||
|
|
|
|
| 25,026 | |||||||||
Finance (25.1%) |
|
|
|
|
| |||||||||
Banking |
|
|
|
|
| |||||||||
Citicorp | 6.750 | 08/15/05 | 30,000 |
| 32,361 | |||||||||
Morgan JP & Co. Inc. Series A | 6.000 | 01/15/09 | 25,000 |
| 27,301 | |||||||||
|
|
|
|
| 59,662 | |||||||||
Financial Services |
|
|
|
|
| |||||||||
CIT Group, Inc. | 3.250 | 02/15/05 | 25,000 |
| 25,295 | |||||||||
CIT Group, Inc. | 4.150 | 02/15/07 | 25,000 |
| 25,464 | |||||||||
General Electric Cap Corp | 2.850 | 01/30/06 | 25,000 |
| 25,358 | |||||||||
John Deere Capital Corp | 6.000 | 02/15/09 | 25,000 |
| 27,631 | |||||||||
Lehman Brothers Holdings, Inc. | 8.500 | 08/01/15 | 45,000 |
| 55,666 | |||||||||
Merrill Lynch & Company, Inc. | 6.250 | 10/15/08 | 30,000 |
| 33,156 | |||||||||
|
|
|
|
| 192,570 | |||||||||
Services (9.5%) |
|
|
|
|
| |||||||||
Industrial |
|
|
|
|
| |||||||||
General Motors Corporation | 6.250 | 05/01/05 | 25,000 |
| 26,133 | |||||||||
IBM | 5.375 | 02/01/09 | 25,000 |
| 26,960 | |||||||||
|
|
|
|
| 53,093 | |||||||||
Telecommunications |
|
|
|
|
| |||||||||
AT&T Capital Corp | 6.600 | 05/15/05 | 20,000 |
| 21,039 | |||||||||
Pacific Bell | 6.250 | 03/01/05 | 20,000 |
| 21,008 | |||||||||
|
|
|
|
| 42,047 | |||||||||
| TOTAL CORPORATE BONDS (COST: $455,057) |
|
| $ | 481,611 | |||||||||
MUTUAL FUNDS (9.9%) |
|
|
| |||||||||||
John Hancock Income Securities Trust | 2,000 | $ | 30,780 | |||||||||||
Morgan Stanley Government Income Trust | 4,000 |
| 36,120 | |||||||||||
Putnam Premier Income Trust | 5,000 |
| 32,950 | |||||||||||
| TOTAL MUTUAL FUNDS (COST: $96,844) |
| $ | 99,850 | ||||||||||
PREFERRED STOCK (2.5%) |
|
|
| |||||||||||
Keycorp Capital V | 1,000 | $ | 24,720 | |||||||||||
| TOTAL PREFERRED STOCK (COST: $22,585) |
| $ | 24,720 | ||||||||||
| TOTAL INVESTMENTS IN SECURITIES (COST: $859,473) | $ | 916,448 | |||||||||||
| OTHER ASSETS LESS LIABILITIES |
| 89,367 | |||||||||||
| NET ASSETS | $ | 1,005,815 | |||||||||||
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 2003
Statement of Assets and Liabilities December 31, 2003
ASSETS |
|
| ||
| Investments in securities, at value (cost: $859,473) | $ | 916,448 | |
| Cash |
| 78,102 | |
| Accrued dividends receivable |
| 735 | |
| Accrued interest receivable |
| 13,943 | |
| Receivable due from manager |
| 9,376 | |
| Receivable for fund shares sold |
| 37 | |
| Prepaid expenses |
| 4,761 | |
|
|
| ||
| Total Assets | $ | 1,023,402 | |
|
|
| ||
LIABILITIES |
|
| ||
| Dividends payable | $ | 3,977 | |
| Accrued expenses |
| 13,610 | |
|
|
| ||
| Total Liabilities | $ | 17,587 | |
|
|
| ||
|
|
| ||
NET ASSETS | $ | 1,005,815 | ||
|
|
| ||
|
|
| ||
Net assets are represented by: |
|
| ||
| Capital stock outstanding | $ | 968,863 | |
| Accumulated undistributed net realized gain (loss) on investments |
| (20,023) | |
| Unrealized appreciation on investments |
| 56,975 | |
| Total amount representing net assets applicable to |
|
| |
| 71,015 outstanding shares of no par common stock (unlimited |
|
| |
| shares authorized) | $ | 1,005,815 | |
|
|
| ||
Net asset value per share | $ | 14.16 | ||
|
|
| ||
Net Assets Consist of: |
|
| ||
| Class A | $ | 91,141 | |
| Class N | $ | 914,674 | |
| Total Net Assets | $ | 1,005,815 | |
|
|
| ||
Shares Outstanding: |
|
| ||
| Class A |
| 6,436 | |
| Class N |
| 64,579 | |
|
|
| ||
Net Asset Value per share: |
|
| ||
| Class A | $ | 14.16 | |
| Class A – offering price (based on sales charge of 4.25%) | $ | 14.79 | |
| Class N | $ | 14.16 | |
Statement of Operations For the year ended December 31, 2003
INVESTMENT INCOME |
|
| ||
| Interest | $ | 49,520 | |
| Dividends |
| 3,320 | |
| Total Investment Income | $ | 52,840 | |
|
|
| ||
EXPENSES |
|
| ||
| Investment advisory fees | $ | 11,149 | |
| 12b-1 fees |
| 20 | |
| Administrative service fees |
| 12,800 | |
| Transfer agent fees |
| 13,658 | |
| Accounting service fees |
| 17,242 | |
| Custodian fees |
| 5,569 | |
| Professional fees |
| 2,634 | |
| Trustees fees |
| 163 | |
| Transfer agent out-of-pockets |
| 499 | |
| Reports to shareholders |
| 529 | |
| Insurance expense |
| 667 | |
| License, fees, and registrations |
| 6,321 | |
| Total Expenses | $ | 71,251 | |
| Less expenses waived or absorbed by the Fund’s manager |
| (59,166) | |
| Total Net Expenses | $ | 12,085 | |
|
|
| ||
NET INVESTMENT INCOME | $ | 40,755 | ||
|
|
| ||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| ||
| Net realized gain (loss) from: |
|
| |
| Investment transactions | $ | 1,017 | |
| Net change in unrealized appreciation (depreciation) of: |
|
| |
| Investments |
| (9,095) | |
| Net Realized and Unrealized Gain (Loss) on Investments | $ | (8,078) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 32,677 | ||
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 2003
Statement of Changes in Net Assets
For the year ended December 31, 2003, and the year ended December 31, 2002
|
| For The Year Ended December 31, 2003 |
| For The Year Ended December 31, 2002 | |||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| |||
| Net investment income | $ | 40,755 | $ | 51,538 | ||
| Net realized gain (loss) on investment transactions |
| 1,017 |
| (17,675) | ||
| Net change in unrealized appreciation (depreciation) on investments | (9,095) | 33,531 | ||||
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 32,677 | $ | 67,394 | ||
|
|
|
|
| |||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| |||
| Dividends from net investment income: |
|
|
|
| ||
| Class A ($.24 and $.00, respectively) | $ | (327) | $ | 0 | ||
| Class N ($.51 and $.68, respectively) |
| (40,428) |
| (51,979) | ||
| Distributions from net realized gain on investment transactions: |
|
|
|
| ||
| Class A |
| 0 |
| 0 | ||
| Class N |
| 0 |
| 0 | ||
| Total Dividends and Distributions | $ | (40,755) | $ | (51,979) | ||
|
|
|
|
| |||
CAPITAL SHARE TRANSACTIONS |
|
|
|
| |||
| Proceeds from sale of shares: |
|
|
|
| ||
| Class A | $ | 91,000 | $ | 0 | ||
| Class N |
| 125,605 |
| 175,135 | ||
| Proceeds from reinvested dividends: |
|
|
|
| ||
| Class A |
| 13 |
| 0 | ||
| Class N |
| 36,730 |
| 51,959 | ||
| Cost of shares redeemed: |
|
|
|
| ||
| Class A |
| 0 |
| 0 | ||
| Class N |
| (403,962) |
| (133,239) | ||
| Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions |
$ |
(150,614) |
$ |
93,855 | ||
|
|
|
|
| |||
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | (158,692) | $ | 109,270 | |||
NET ASSETS, BEGINNING OF PERIOD |
| 1,164,507 |
| 1,055,237 | |||
NET ASSETS, END OF PERIOD | $ | 1,005,815 | $ | 1,164,507 | |||
Undistributed Net Investment Income (Loss) | $ | 0 | $ | 0 | |||
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements December 31, 2003
Note 1. ORGANIZATION
The Integrity Income Fund (the Fund) is an investment portfolio of The Integrity Funds (the “Trust") registered under the Investment Company Act of 1940 as a non-diversified, open-end management investment company. The Fund seeks to earn a high level of current income while permitting investors a degree of safety in principal. From its inception September 7, 1992 until February 9, 1998, The Integrity Funds were organized by the investment adviser as a Collective Investment Trust under New York Law and the regulations of the U.S. Comptroller of the Currency, participation in which was limited to qualified individual accounts such as IRAs and retirement and pension trusts. On February 9, 1998, the Collective Investment Trust reorganized as a Delaware business trust. In connection with this reorganization, the name of the trust was changed from “Canandaigua National Collective Investment Fund for Qualified Trusts& rdquo; to “The Canandaigua Funds.” On March 3, 2003, the trust was renamed “The Integrity Funds”.
All shares existing prior to June 16, 2003, the commencement date of Class A shares, were classified as Class N shares. Class N shares are sold without a sales charge. Class A shares are sold with an initial sales charge of 4.25% and a distribution fee of up to 0.25% on an annual basis. The two classes of shares represent interests in the same portfolio of investments, have the same rights and are generally identical in all respects except that each class bears its separate distribution and certain other class expenses, and have exclusive voting rights with respect to any matter on which a separate vote of any class is required.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation – Assets for which market quotations are available are valued as follows: (a) each listed security is valued at its closing price obtained from the respective primary exchange on which the security is listed, or, if there were no sales on that day, at its last reported current bid price; (b) each unlisted security is valued at the last current bid price obtained from the National Association of Securities Dealers Automated Quotation System. All of these prices are obtained by the Administrator from services, which collect and disseminate such market prices. Prices provided by an independent pricing service may be determined without exclusive reliance on quoted prices and may take into account appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. In the absence of an ascertainable market value, assets are valued at their fair value as determined by the Adviser using methods and procedures reviewed and approved by the Trustees.
Federal and state income taxes – It is the policy of the Fund to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code (the “Code”) and to make distributions of net investment income and net realized capital gains sufficient to relieve it from all, or substantially all, federal income taxes.
As of December 31, 2003 the components of accumulated earnings/(deficit) on a tax basis was as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/(Depreciation) | Total Accumulated Earnings/(Deficit) |
$ 0 | $ 0 | $ 0 | $ (20,023) | $ 56,975 | $ 36,952 |
As of December 31, 2003, the Fund had net capital loss carryforwards, which are available to offset future realized. The differences between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to: tax deferral of losses on wash sales.
Year | Unexpired Capital Losses |
2008 | 1,213 |
2009 | 0 |
2010 | 18,665 |
2011 | 0 |
For the year ended December 31, 2003, the Fund did not make any permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to expiring capital loss carryforwards.
Net capital losses incurred after October 31, and within the tax year are deemed to arise on the first business day of the Funds’ next taxable year. For the year ended December 31, 2003, the Fund deferred to January 1, 2004, post October capital losses, post October currency losses and post October passive foreign investment company losses of $145.
Multiple class allocations - The Fund simultaneously uses the settled shares method to allocate income and fund wide expenses and uses the relative net assets method to allocate gains and losses. Class-specific expenses, distribution fees, and any other items that are specifically attributable to a particular class are charged directly to such class. For the year ended December 31, 2003, distribution fees were the only class-specific expenses.
Distributions to shareholders - Dividends from net investment income, declared daily and payable monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. Net investment income, other than distribution fees, are allocated daily to each class of shares based upon the relative value of the shares of each class.
Premiums and discounts - Premiums and discounts on debt securities are amortized for financial reporting purposes.
Other - Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatment for market discount, capital loss carryforwards and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
Futures contracts - The Fund may purchase and sell financial futures contracts to hedge against changes in the values of tax-exempt municipal 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 or a certain amount of U.S. Government or municipal securities 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 appreciatio n (depreciation) related to open futures contracts is required to be treated as realized gain (loss) for Federal income tax purposes.
Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Schedule of Investments. The Statement of Assets and Liabilities reflects a receivable or payable for the daily mark to market for variation margin.
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 accounting principles generally accepted in the United States of America 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.
Reclassifications – Certain prior year amounts have been reclassified to conform to the current year presentation.
Note 3. CAPITAL SHARE TRANSACTIONS
As of December 31, 2003, there were unlimited shares of no par authorized; 71,015 and 81,668 shares were outstanding at December 31, 2003, and December 31, 2002, respectively.
Transactions in capital shares were as follows:
| Class A Shares | Class N Shares | |||
| For The Period Since Inception (06/16/03) thru December 31, 2003 |
| For The Year Ended December 31, 2003 | For The Year Ended December 31, 2002 | |
Shares sold | 6,435 |
| 8,801 | 12,432 | |
Shares issued on reinvestment of dividends | 1 |
| 2,581 | 3,701 | |
Shares redeemed | 0 |
| (28,471) | (9,513) | |
Net increase (decrease) | 6,436 |
| (17,089) | 6,620 | |
Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Integrity Money Management, Inc., the Fund’s investment adviser; Integrity Funds Distributor, Inc., the Fund’s underwriter; and Integrity Fund Services, Inc., the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc., the Fund’s sponsor.
The Fund has engaged Integrity 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 1.00% of the Fund’s average daily net assets. The Fund has recognized $679 of investment advisory fees after a partial waiver for the year ended December 31, 2003. Certain officers and trustees of the Fund are also officers and trustees of the investment adviser.
Integrity Funds Distributor, Inc. serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan for each class of shares as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called “Distribution Plan expenses.” Class N does not pay an annual distribution fee. Class A presently pays an annual distribution fee of up to 0.25% of the average daily net assets of the class. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $20 of distribution fees after a partial waiver for the year ended December 31, 2003. The Fund has a payable to Integrity Funds Distributor, Inc. of $17 at December 31, 2003, for distribution fees.
Integrity Fund Services, Inc. provides shareholder services for a monthly fee of 0.25% of average net assets with a minimum of $2,000 per month plus reimbursement of out-of-pocket expenses. An additional fee with a minimum of $500 per month will be charged for each additional share class. The Fund has recognized $12,500 of transfer agency fees after a partial waiver for the year ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $2,667 at December 31, 2003, for transfer agency fees. Integrity Fund Services, 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, together with reimbursement of out-of-pocket expense s. An additional accounting services fee of $500 per month will be charged by Integrity Fund Services, Inc. for each additional share class. The Fund has recognized $12,755 of accounting service fees after partial waiver for the year ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $2,711 at December 31, 2003, for accounting service fees. Integrity Fund Services, Inc. also acts as the Fund’s administrative service agent for a monthly fee equal to the rate of 0.20% of average daily net assets with a minimum of $2,000 per month plus out-of-pocket expenses. The Fund will pay an additional minimum fee of $500 per month for each additional share class. The Fund has recognized $12,500 of administrative service fees for the year ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $2,667 at December 31, 2003, for administrative service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sale of investment securities (excluding short-term securities) aggregated $311,745 and $282,487, respectively, for the year ended December 31, 2003.
Note 6. INVESTMENT IN SECURITIES
At December 31, 2003, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $859,473. The net unrealized appreciation of investments based on the cost was $56,975, which is comprised of $56,975 aggregate gross unrealized appreciation and $0 aggregate gross unrealized depreciation.
Financial Highlights
Selected per share data and ratios for the period indicated
Class A Shares
|
| For the Period Since Inception (June 16, 2003) thru December 31, 2003 | ||
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 14.47 | ||
|
|
| ||
Income from Investment Operations: |
|
| ||
| Net investment income | $ | .24 | |
| Net realized and unrealized gain (loss) on investment transactions |
| (.31) | |
| Total Income (Loss) From Investment Operations | $ | (.07) | |
|
|
| ||
Less Distributions: |
|
| ||
| Dividends from net investment income | $ | (.24) | |
| Distributions from net realized gains |
| .00 | |
| Total Distributions | $ | (.24) | |
|
|
| ||
NET ASSET VALUE, END OF PERIOD | $ | 14.16 | ||
|
|
| ||
Total Return |
| (0.91)%(A)(C) | ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
RATIOS/SUPPLEMENTAL DATA: |
|
| ||
| Net assets, end of period (in thousands) | $ | 91 | |
| Ratio of net expenses (after expense assumption) to average net assets |
| 1.65%(B)(C) | |
| Ratio of net investment income to average net assets |
| 3.90%(C) | |
| Portfolio turnover rate |
| 30.03% | |
|
|
| ||
(A) Excludes maximum sales charge of 4.25%
(B) During the periods indicated above, Integrity Mutual Funds, Inc. assumed/waived expenses of $903. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets would have been 12.43%.
(C) Ratio is annualized.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
Financial Highlights
Selected per share data and ratios for the period indicated
Class N Shares
|
| For The Year Ended December 31, 2003 |
| For The Year Ended December 31, 2002 |
| For The Year Ended December 31, 2001 |
| For The Year Ended December 31, 2000 |
| For The Year Ended December 31, 1999 | ||
NET ASSET VALUE, BEGINNING OF PERIOD |
$ |
14.26 |
$ |
14.06 |
$ |
13.67 |
$ |
13.16 |
$ |
14.14 | ||
|
|
|
|
|
|
|
|
|
|
| ||
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
| ||
| Net investment income | $ | .51 | $ | .68 | $ | .76 | $ | .76 | $ | .74 | |
| Net realized and unrealized gain (loss) on investment transactions |
|
(.10) |
|
.20 |
|
.41 |
|
.49 |
|
(.98) | |
| Total Income (Loss) From Investment Operations |
$ |
.41 |
$ |
.88 |
$ |
1.17 |
$ |
1.25 |
$ |
(.24) | |
|
|
|
|
|
|
|
|
|
|
| ||
Less Distributions: |
|
|
|
|
|
|
|
|
|
| ||
| Dividends from net investment income | $ | (.51) | $ | (.68) | $ | (.78) | $ | (.74) | $ | (.74) | |
| Distributions from net realized gains |
| .00 |
| .00 |
| .00 |
| .00 |
| .00 | |
| Total Distributions | $ | (.51) | $ | (.68) | $ | (.78) | $ | (.74) | $ | (.74) | |
|
|
|
|
|
|
|
|
|
|
| ||
NET ASSET VALUE, END OF PERIOD |
$ |
14.16 |
$ |
14.26 |
$ |
14.06 |
$ |
13.67 |
$ |
13.16 | ||
|
|
|
|
|
|
|
|
|
|
| ||
Total Return |
| 3.00% |
| 6.45% |
| 8.71% |
| 9.82% |
| (1.71%) | ||
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
RATIOS/SUPPLEMENTAL DATA: |
|
|
|
|
|
|
|
|
|
| ||
| Net assets, end of period (in thousands) | $ | 915 | $ | 1,165 | $ | 1,055 | $ | 1,160 | $ | 1,093 | |
| Ratio of net expenses (after expense assumption) to average net assets |
|
1.08%(A) |
|
0.50% |
|
0.42% |
|
0.45% |
|
0.38% | |
| Ratio of net investment income to average net assets |
|
3.64% |
|
4.79% |
|
5.46% |
|
5.68% |
|
5.41% | |
| Portfolio turnover rate |
| 30.03% |
| 3.37% |
| 15.11% |
| 12.15% |
| 4.67% | |
(A) During the periods since 12/31/02 indicated above, Integrity Mutual Funds, Inc./Canandaigua Bank assumed/waived expenses of $58,263. In prior years starting with December 31, 2002, Canandaigua Bank assumed/waived certain administrative expenses of the Fund, other than primarily custodial and audit fees, resulting in per share savings to the Fund of $.80, $.56, $.65, and $.70, respectively. If the expenses had not been assumed/waived, the annualized ratios of total expenses to average net assets would have been 6.33%, 6.20%, 5.45%, 5.34%, and 5.51%, respectively.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
INDEPENDENT AUDITOR’S REPORT
To the Shareholders and Board of Trustees of The Integrity Income Fund
We have audited the accompanying statement of assets and liabilities of the Integrity Income Fund, (the Fund), including the schedule of investments, as of December 31, 2003, the related statement of operations, the statement of changes in net assets, and the financial highlights for the year 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 audit. The statement of changes in net assets for the year ended December 31, 2002, and the financial highlights for each of the four years in the period ended December 31, 2002, were audited by other auditors whose report dated February 11, 2003, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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, 2003, 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 the Integrity Income Fund, as of December 31, 2003, the results of its operations, the changes in its net assets, and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota USA
February 17, 2004
Integrity Value Fund
Dear Shareholder:
Enclosed is the annual report of the operations for the Integrity Value Fund (the "Fund") for the nine months ended December 31, 2003. The Fund's portfolio and related financial statements are presented within for your review.
As stated in our last report to you, we have long felt that an important stock market bottom was made in the last half of 2002, and that the future would bring a sharply upward moving market. We may get more tax cuts and interest rates are likely to remain low for some time, fueling demand from the baby boomers (and their children as a second wave) in the already strong demographic and cyclical economic picture. Such makes for continued growth in earnings and much higher stock prices. Barring a major catastrophe, the upward thrust is likely to continue for several years to come.
We manage the Fund using our quantitative intelligent expert system for stock selection. Our system analyzes over 8,000 stocks employing technical price momentum, fundamental valuation and earnings forecast information. We use a multifactor approach to find attractive “value oriented” issues; picking financially strong stocks from the bottom up that are likely to outperform, and weeding out those that are financially weak and likely to under perform.
Since taking over the management of the Fund in late September, we significantly restructured the portfolio, increasing exposure to mid-sized companies in favored industries and economic sectors while decreasing exposure to super large capitalization issues and out of favor industries and economic sectors. The portfolio is currently underweighted in utilities, energy and financials, while over weighted in the wireless telecom, technology and healthcare sectors.
The positions we eliminated had about average fundamental, technical and future earnings characteristics with an average forward P/E of 17 and a consensus future earnings growth rate of about 9%. The positions we added to the portfolio have much more favorable characteristics, including a lower average forward P/E of 13 and a significantly higher consensus earnings growth rate of over 25%.
We believe your Value Fund is well positioned with significant exposure to economy sensitive issues that will benefit from what we expect will be a vibrant economic expansion in the years ahead.
Sincerely,
F. Martin Koenig, CFA
The views expressed are those of F. Martin Koenig, Senior Portfolio Manager with Integrity Mutual Funds. The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any Integrity Mutual Fund.
Terms & Definitions December 31, 2003 (Unaudited)
American Depository Receipt
A negotiable certificate representing a given number of shares of stock in a foreign corporation. It is bought and sold in
the American securities markets, just as stock is traded.
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.
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.
Offering Price
The price at which a mutual fund’s share can be purchased. The offering price per share is the current net asset value plus any sales charge.
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.
Portfolio Market Sectors
(as a % of Net Assets)
F – Financial | 26.4% |
S – Services | 14.5% |
CG - Capital Goods | 13.7% |
HC – Healthcare | 8.3% |
T – Technology | 8.1% |
O – Other | 7.4% |
CN - Consumer Noncyclical | 6.2% |
E – Energy | 5.8% |
CC - Consumer Cyclical | 5.5% |
CL – Conglomerates | 4.1% |
Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.
These percentages are subject to change.
KEY STATISTICS
03-31-2003 NAV (share value) | $6.82 |
12-31-2003 NAV | $9.04 |
Total Net Assets | $10,730,335 |
|
|
Number of issues | 49 |
Average Annual Total Returns
Integrity Value Fund | For periods ending December 31, 2003 | |||
|
|
|
| Since Inception |
| 1 year | 5 year | 10 year | (May 26, 1998) |
Without Sales Charge | 22.49% | (1.20)% | N/A | (1.09)% |
With Sales Charge (5.75%) | 15.45% | (2.36)% | N/A | (2.13)% |
Lipper Large Cap Value Index | For periods ending December 31, 2003 | |||
|
|
|
| Since Inception |
| 1 year | 5 year | 10 year | (May 26, 1998) |
| 28.00% | 1.20% | N/A | 2.27% |
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a fund prospectus at no cost from your financial advisor and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
TOP TEN HOLDINGS
The Fund’s holdings are subject to change at any time
1. | CATERPILLAR INC. | 6.93% |
2. | J.P. MORGAN CHASE & CO. | 5.94% |
3. | GENERAL MOTORS CORP. | 5.54% |
4. | ALTRIA GROUP, INC. | 5.13% |
5. | HOVNANIAN ENTERPRISES | 4.06% |
6. | VIMPEL COMMUNICATIONS | 3.43% |
7. | ADVANCE AUTO PARTS INC. | 3.41% |
8. | AT&T CORP. | 2.97% |
9. | SELECTIVE INSURANCE GROUP | 2.93% |
10. | SUNCOR ENERGY | 2.57% |
Comparative Index Graph (insert here)
Comparison of change in value of a $10,000 investment in the Integrity Value Fund and the Lipper Large Cap Value Index
| Integrity Value Fund w/o Sales Charge | Integrity Value Fund w/Max Sales Charge | Lipper Large Cap Value Index |
| |||
| |||
05/29/98 | $10,000 | $9,425 | $10,000 |
12/31/98 | $9,990 | $9,416 | $10,682 |
12/31/99 | $10,468 | $9,866 | $11,833 |
12/29/00 | $10,237 | $9,648 | $12,065 |
12/31/01 | $9,165 | $8,638 | $11,030 |
12/31/02 | $7,677 | $7,236 | $ 8,860 |
12/31/03 | $9,404 | $8,864 | $11,340 |
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. All Fund and benchmark returns include reinvested dividends. The Fund’s share price, yields, and total returns will vary, so that shares, when redeemed, may be worth more or less than their original cost.
Trustees information
INDEPENDENT TRUSTEES
[PHOTO] | [PHOTO] | [PHOT] |
Lynn W. Aas | Orlin W. Backes | R. James Maxson |
INTERESTED TRUSTEES
[PHOTO] | [PHOTO] |
Peter A. Quist | Robert E. Walstad |
MANAGEMENT OF THE FUND
The Board of The Integrity Funds consists of four Trustees. These same individuals, unless otherwise noted, also serve as directors or trustees for all of the funds in the Integrity family of funds, the six series of Integrity Managed Portfolios (formerly known as Ranson Managed Portfolios), and the six series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “independent” Trustees. The remaining Trustee/Officers are “interested” by virtue of their affiliation with the Investment Adviser and its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
Name, Address and Age | Position(s) Held with Registrant | Term and Length Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen In The Fund Complex * | Other Directorships Held Outside The Fund Complex |
Lynn W. Aas | Trustee | Since Sept. 2003 | Retired; Attorney; Director, Integrity Fund of Funds, Inc., Montana Tax-Free Fund, Inc., ND Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003) and ND Insured Income Fund, Inc. (December 1994 to August 1999); Trustee, Integrity Managed Portfolios; Director, First Western Bank & Trust.
| 16 | None |
Orlin W. Backes Ste. 305 | Trustee | Since May 2003 | Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director (since April 1995), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Insured Income Fund, Inc. (March 1995 to August 1999) and Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003); Trustee, Integrity Managed Portfolios; Director, First Western Bank & Trust.
| 16 | Director, First Western Bank & Trust |
R. James Maxson | Trustee | Since May 2003
| Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Attorney, Farhart, Lian and Maxson, P.C. (March 1976 to March 2000); Director (since January 1999), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc. and Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); Trustee, Integrity Managed Portfolios (since January 1999). | 16 | None |
__________________________
*The Fund Complex consists of the four funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the six series of The Integrity Funds.
The SAI has additional information about the Fund’s directors and is available at 1(800)601-5593 without charge upon request.
The Interested Trustees and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEE AND OFFICERS
Name, Address and Age | Position(s) Held with Registrant | Term and Length Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen In The Fund Complex * | Other Directorships Held Outside The Fund Complex |
**Peter A. Quist | Vice President | Since May 2003 | Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc. (formerly known as ND Money Management, Inc.), ND Capital, Inc., Integrity Fund Services, Inc., (formerly known as ND Resources, Inc.), ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc. (November 1990 to August 1999), Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc. (since April 1995), Integrity Fund of Funds, Inc., Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Integrity Funds Distributor, Inc., (formerly known as Ranson Capital Corporation) (since January 1996); and Director, ARM Securities Corporation (since May 2000).
| 4 | None |
**Robert E. Walstad | Trustee, Chairman, President, and Treasurer | Since May 2003 | Director (since September 1987), President (September 1987 to October 2001 and September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., ND Capital, Inc., Integrity Fund Services, Inc., ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc. (November 1990 to August 1999), Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., and Integrity Small-Cap Fund of Funds Inc. (September 1998 to June 2003); Trustee, Chairman, President, and Treasurer, Integrity Managed Portfolios; Director, President, CEO, and Treasurer, Integrity Funds Distributor, Inc. (January 1996 to August 2003); Director (October 1999 to June 2003), President (October 1999 - October 2001), Magic Internet Services, Inc.; Director (since May 2000), President (May 2000 to October 2001- Sept 2002 to present), ARM Securities Corporation; Director, CEO, Chairman, Capital Financi al Services, Inc. (since January 2002). | 16 | Director, Capital Financial Services, Inc. |
__________________________
*The Fund Complex consists of the four funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the six series of The Integrity Funds.
** Directors who are “interested persons” of the Funds as defined in the Investment Company Act of 1940. Messrs. Quist and Walstad are interested persons by virtue of being officers and directors of the Fund’s Investment Adviser and Principal Underwriter.
The SAI has additional information about the Fund’s directors and is available at 1(800) 601-5593 without charge upon request.
Schedule of Investments December 31, 2003
Name of Issuer |
| Quantity |
| Market Value |
COMMON STOCKS (94.8%)
AEROSPACE & MILITARY TECHNOLOGY (1.9%) |
|
|
|
| |||
United Technologies Corp. |
| 2,200 | $ | 208,494 | |||
|
|
|
| 208,494 | |||
AUTOMOTIVE (5.5%) |
|
|
|
| |||
General Motors |
| 11,123 |
| 593,968 | |||
|
|
|
| 593,968 | |||
BANKS (12.6%) |
|
|
|
| |||
Bank Of America |
| 1,000 |
| 80,430 | |||
Citigroup Inc. |
| 3,750 |
| 182,025 | |||
Fleetboston Financial |
| 6,000 |
| 261,900 | |||
J.P. Morgan Chase & Co. |
| 17,352 |
| 637,339 | |||
Pnc Bank Corp. |
| 3,400 |
| 186,082 | |||
|
|
|
| 1,347,776 | |||
BUILDING MATERIALS (1.2%) |
|
|
|
| |||
Florida Rock Industries |
| 2,250 |
| 123,413 | |||
|
|
|
| 123,413 | |||
CHEMICALS (0.8%) |
|
|
|
| |||
3m Co. |
| 1,000 |
| 85,030 | |||
|
|
|
| 85,030 | |||
COMPUTER HARDWARE (2.7%) |
|
|
|
| |||
Intel Corp. |
| 4,750 |
| 152,950 | |||
IBM |
| 1,500 |
| 139,020 | |||
|
|
|
| 291,970 | |||
CONGLOMERATES (1.4%) |
|
|
|
| |||
Dover Corp. |
| 3,750 |
| 149,062 | |||
|
|
|
| 149,062 | |||
CONSUMER PRODUCTS (1.1%) |
|
|
|
| |||
Unilever ADR |
| 3,000 |
| 112,800 | |||
|
|
|
| 112,800 | |||
DIVERSIFIED ELECTRONIC (2.1%) |
|
|
|
| |||
*Agilent Technologies |
| 2,000 |
| 58,480 | |||
Eaton Corp. |
| 1,500 |
| 161,970 | |||
|
|
|
| 220,450 | |||
DRUGS AND PHARMACEUTICALS (7.6%) |
|
|
|
| |||
Bristol-Myers Squibb |
| 5,000 |
| 143,000 | |||
Johnson & Johnson |
| 2,000 |
| 103,320 | |||
Merck & Co. |
| 3,000 |
| 138,600 | |||
*Nbty Inc. |
| 9,000 |
| 241,740 | |||
Pfizer Inc. |
| 2,400 |
| 84,792 | |||
Wyeth |
| 2,500 |
| 106,125 | |||
|
|
|
| 817,577 | |||
ENERGY (0.4%) |
|
|
|
| |||
*Nabors Industries |
| 1,100 |
| 45,650 | |||
|
|
|
| 45,650 | |||
ENGINEERING (4.1%) |
|
|
|
| |||
*Hovnanian Enterprises |
| 5,000 |
| 435,300 | |||
|
|
|
| 435,300 | |||
FINANCIAL (1.6%) |
|
|
|
| |||
Chittenden Corp. |
| 2,000 |
| 67,280 | |||
Diamonds Trust Series I |
| 280 |
| 29,260 | |||
Wachovia Corp. |
| 1,600 |
| 74,544 | |||
|
|
|
| 171,084 | |||
HEALTHCARE (0.7%) |
|
|
|
| |||
*Zimmer Holdings |
| 1,100 |
| 77,440 | |||
|
|
|
| 77,440 | |||
INSURANCE (12.5%) |
|
|
|
| |||
Aflac Inc. |
| 4,500 |
| 162,810 | |||
Allstate Financial |
| 4,250 |
| 182,835 | |||
Berkley (W.R.) |
| 6,000 |
| 209,700 | |||
St. Paul Companies |
| 5,500 |
| 218,075 | |||
Selective Insurance Group |
| 9,700 |
| 313,892 | |||
Everest Reinsurance Group Ltd. |
| 3,000 |
| 253,800 | |||
|
|
|
| 1,341,112 | |||
MACHINERY & EQUIPMENT (6.9%) |
|
|
|
| |||
Caterpillar Inc. |
| 8,968 |
| 744,523 | |||
|
|
|
| 744,523 | |||
OIL AND GAS OPERATIONS (5.4%) |
|
|
|
| |||
Conocophillips |
| 3,000 |
| 196,710 | |||
Royal Dutch Petroleum - Ny |
| 2,000 |
| 104,780 | |||
Suncor Energy |
| 11,000 |
| 275,660 | |||
|
|
|
| 577,150 | |||
RETAIL (5.6%) |
|
|
|
| |||
*Advance Auto Parts |
| 4,500 |
| 366,300 | |||
*Costco Wholesale |
| 4,000 |
| 148,720 | |||
Tiffany & Co. |
| 2,000 |
| 90,400 | |||
|
|
|
| 605,420 | |||
SEMICONDUCTOR (1.9%) |
|
|
|
| |||
Texas Instruments |
| 7,000 |
| 205,660 | |||
|
|
|
| 205,660 | |||
SOFTWARE AND PROGRAMMING (1.5%) |
|
|
|
| |||
Microsoft Corp. |
| 6,000 |
| 165,240 | |||
|
|
|
| 165,240 | |||
TELECOMMUNICATIONS (10.2%) |
|
|
|
| |||
AT&T Corp. |
| 15,703 |
| 318,771 | |||
Nokia Corp ADR |
| 9,000 |
| 153,000 | |||
*Vimpel Communications ADR |
| 5,000 |
| 367,500 | |||
*Utstarcom Inc. |
| 7,000 |
| 259,490 | |||
|
|
|
| 1,098,761 | |||
TOBACCO (5.1%) |
|
|
|
| |||
Altria Group |
| 10,116 |
| 550,513 | |||
|
|
|
| 550,513 | |||
TRANSPORTATION (1.9%) |
|
|
|
| |||
Cp Ships Ltd. |
| 7,000 |
| 145,390 | |||
Union Pacific Corp. |
| 900 |
| 62,532 | |||
|
|
|
| 207,922 | |||
TOTAL COMMON STOCKS (COST: $9,114,883) | $ | 10,176,315 | |||||
| SHORT-TERM SECURITIES (5.3%) |
|
| ||||
| Wells Fargo Cash Investment Money Market Fund Service Class | $ | 329,000 | ||||
| Wells Fargo Treasury Plus Money Market Fund |
| 240,916 | ||||
| TOTAL SHORT-TERM SECURITIES (COST: $569,916) | $ | 569,916 | ||||
|
|
|
| ||||
| TOTAL INVESTMENTS IN SECURITIES (COST: $9,684,799) | $ | 10,746,231 | ||||
| OTHER ASSETS LESS LIABILITIES |
| (15,896) | ||||
| NET ASSETS | $ | 10,730,335 | ||||
ADR – American Depository Receipt
*Non-income producing
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 2003
Statement of Assets and Liabilities December 31, 2003
ASSETS |
|
| ||
| Investments in securities, at value (cost: $9,684,799) | $ | 10,746,231 | |
| Cash, custodian bank |
| 203 | |
| Accrued dividends receivable |
| 19,227 | |
| Accrued interest receivable |
| 231 | |
| Prepaid expenses |
| 10,548 | |
| Receivable for fund shares sold |
| 244 | |
|
|
| ||
| Total Assets | $ | 10,776,684 | |
|
|
| ||
LIABILITIES |
|
| ||
| Accrued expenses | $ | 34,569 | |
| Payable for fund shares redeemed |
| 11,780 | |
|
|
| ||
| Total Liabilities | $ | 46,349 | |
|
|
| ||
|
|
| ||
NET ASSETS | $ | 10,730,335 | ||
|
|
| ||
|
|
| ||
Net assets are represented by: |
|
| ||
| Paid-in capital | $ | 12,329,446 | |
| Accumulated undistributed net realized gain (loss) on investments |
| (2,660,543) | |
| Unrealized appreciation on investments |
| 1,061,432 | |
| Total amount representing net assets applicable to |
|
| |
| 1,186,342 outstanding shares of no par common stock |
|
| |
| (unlimited shares authorized) | $ | 10,730,335 | |
|
|
| ||
Net asset value per share | $ | 9.04 | ||
Statement of Operations For the nine months ended December 31, 2003
INVESTMENT INCOME |
|
| |||
| Interest | $ | 732 | ||
| Dividends |
| 198,695 | ||
| Total Investment Income | $ | 199,427 | ||
|
|
| |||
EXPENSES |
|
| |||
| Investment advisory fees | $ | 73,450 | ||
| 12b-1 fees |
| 36,725 | ||
| Transfer agent fees |
| 48,168 | ||
| Accounting service fees |
| 25,071 | ||
| Administrative service fees |
| 15,744 | ||
| Custodian fees |
| 2,095 | ||
| Professional fees |
| 22,065 | ||
| Trustees fees |
| 2,571 | ||
| Transfer agent out-of-pockets |
| 4,401 | ||
| Reports to shareholders |
| 80,215 | ||
| Insurance expense |
| 5,930 | ||
| License, fees, and registrations |
| 34,583 | ||
| Bisys service fees |
| 3,715 | ||
| Organizational costs |
| 976 | ||
| Total Expenses | $ | 355,709 | ||
| Less expenses waived or absorbed by the Fund’s manager |
| (14,133) | ||
| Total Net Expenses | $ | 341,576 | ||
|
|
| |||
NET INVESTMENT INCOME (LOSS) | $ | (142,149) | |||
|
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| |||
| Net realized gain (loss) from: |
|
| ||
| Investment transactions | $ | (658,692) | ||
| Net change in unrealized appreciation (depreciation) of: |
|
| ||
| Investments |
| 3,524,189 | ||
| Net Realized and Unrealized Gain (Loss) on Investments | $ | 2,865,497 | ||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 2,723,348 | |||
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 2003
Statement of Changes in Net Assets
For the period April 1, 2003 thru December 31, 2003, and the year ended March 31, 2003
|
| For The Period April 1, 2003 Thru December 31, 2003 |
| For The Year Ended March 31, 2003 | ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| ||
| Net investment income (loss) | $ | (142,149) | $ | (65,597) | |
| Net realized gain (loss) on investment transactions |
| (658,692) |
| (752,825) | |
| Net change in unrealized appreciation (depreciation) on investments |
| 3,524,189 |
| (2,615,936) | |
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 2,723,348 | $ | (3,434,358) | |
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| ||
| Dividends from net investment income | $ | 0 | $ | 0 | |
| Distributions from net realized gain on investment transactions |
| 0 |
| 0 | |
| Total Dividends and Distributions | $ | 0 | $ | 0 | |
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS |
|
|
|
| ||
| Proceeds from sale of shares | $ | 447,288 | $ | 2,802,847 | |
| Proceeds from reinvested dividends |
| 0 |
| 0 | |
| Cost of shares redeemed |
| (1,001,846) |
| (2,632,597) | |
| Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions |
$ |
(554,558) |
$ |
170,250 | |
|
|
|
|
| ||
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | 2,168,790 | $ | (3,264,108) | ||
|
|
|
|
| ||
NET ASSETS, BEGINNING OF PERIOD |
| 8,561,545 |
| 11,825,653 | ||
NET ASSETS, END OF PERIOD | $ | 10,730,335 | $ | 8,561,545 | ||
Undistributed Net Investment Income (Loss) | $ | 0 | $ | 0 | ||
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements December 31, 2003
Note 1. ORGANIZATION
The Integrity Value Fund (the “Fund”) is an investment portfolio of The Integrity Funds (the “Trust”) registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. On September 19, 2003, the Integrity Value Fund became a series of The Integrity Funds Trust. Prior to this the Fund was part of the Willamette Funds Group. The Willamette Funds which were organized as a Delaware statutory trust on January 17, 2001 and were registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. Each of the Funds is also the successor to a fund of the same name that was a series of another registered investment company, The Coventry Group. On March 16, 2001, the shareholders of each of the pred ecessor funds approved their reorganization into The Willamette Funds, effective April 1, 2001. The Willamette Funds offered four managed investment portfolios and were authorized to issue an unlimited number of shares. The accompanying financial statements and financial highlights are those of the Integrity Value Fund. The Fund seeks above average total return through a combination of capital appreciation and dividend income.
Shares of the Fund are offered at net asset value plus a maximum sales charge of 5.75% and a distribution fee of up to 0.50% on an annual basis.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation – Assets for which market quotations are available are valued as follows: (a) each listed security is valued at its closing price obtained from the respective primary exchange on which the security is listed, or, if there were no sales on that day, at its last reported current bid price; (b) each unlisted security is valued at the last current bid price obtained from the National Association of Securities Dealers Automated Quotation System. All of these prices are obtained by the Administrator from services, which collect and disseminate such market prices. Prices provided by an independent pricing service may be determined without exclusive reliance on quoted prices and may take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market dat a. In the absence of an ascertainable market value, assets are valued at their fair value as determined by the Adviser using methods and procedures reviewed and approved by the Trustees.
Redemption fees – In the case of investments of $1 million or more, a 1.00% redemption fee will be assessed on shares redeemed within 12 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).
Federal and state income taxes – It is the policy of the Fund to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code (the “Code”) and to make distributions of net investment income and net realized capital gains sufficient to relieve it from all, or substantially all, federal income taxes.
During the fiscal year ended December 31, 2003, there were no distributions paid.
As of December 31, 2003 the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/(Depreciation) | Total Accumulated Earnings/(Deficit) |
$ 0 | $ 0 | $ 0 | $ (2,604,049) | $ 1,004,938 | $ (1,599,111) |
As of December 31, 2003, the Fund had net capital loss carryforwards, which are available to offset future realized gains. The differences between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to: tax deferral of losses on wash sales.
Year | Unexpired Capital Losses |
2008 | 725,307 |
2009 | 199,826 |
2010 | 477,159 |
2011 | 1,201,757 |
For the year ended December 31, 2003, the fund did not make any permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to expiring capital loss carryforwards.
Net capital losses incurred after October 31, and within the tax year are deemed to arise on the first business day of the Funds’ next taxable year. For the year ended December 31, 2003, the Fund deferred to January 1, 2004 post October capital losses, post October currency losses and post October passive foreign investment company losses of $0.
Distributions to shareholders – Dividends from net investment income, declared yearly and paid yearly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed along with the net investment income dividend at the end of the calendar year.
Other - Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date for financial reporting purposes. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatment for market discount, capital loss carryforwards and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
In 2003, the Fund has elected to change its financial reporting and tax year ends to December 31 from March 31.
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 accounting principles generally accepted in the United States of America 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.
Reclassifications – Certain prior year amounts have been reclassified to conform to the current year presentation.
Note 3. CAPITAL SHARE TRANSACTIONS
As of December 31, 2003, there were unlimited shares of no par authorized; 1,186,342 and 1,256,235 shares were outstanding at December 31, 2003, and March 31, 2003, respectively.
Transactions in capital shares were as follows:
|
| Shares | |||
| For The Period April 1, 2003 Thru December 31, 2003 | For The Year Ended March 31, 2003 |
| ||
Shares sold | 54,728 | 319,926 |
| ||
Shares issued on reinvestment of dividends | 0 | 0 |
| ||
Shares redeemed | (124,621) | (338,458) |
| ||
Net increase (decrease) | (69,893) | (18,532) |
| ||
Note 4. ACQUISITION OF FUND
The Willamette Funds held a special meeting of shareholders of the Value Fund, Small Cap Growth Fund, Global Health Sciences Fund and Technology Fund (the “Funds”), at [the office of the Funds, 3435 Stelzer Road, Columbus, Ohio 43219], on August 29, 2003 at 11:00 a.m., Eastern Time, as adjourned from time to time (the “Meeting”), for the purposes listed: to approve a new investment advisory agreement with Integrity Money Management, Inc.; and to consider and act upon any other business as may properly come before the Meeting. After careful consideration, the Trustees of the Willamette Funds unanimously approved each of the proposals and recommended that shareholders vote “FOR” the proposals. The Willamette Funds Board of Trustees fixed the close of business on June 20, 2003 as the record date for determining shareholders entitled to notice of and to vote at the Meeting. Each share of a Fund was entitled to one vote for each dollar invested with respect to each proposal. The Investment Advisory Agreement of the Value Fund, Small Cap Growth Fund, Technology Fund and Global Health Sciences Fund were approved by the shareholders on August 29, 2003. The reorganization was accomplished by a tax-free exchange of 1,191,096 shares of Integrity Value Fund for the 1,191,096 shares of Willamette Value Fund on September 19, 2003. Willamette Value Funds net assets of $9,833,187 on September 19, 2003, including $586,118 of unrealized depreciation, were reorganized into the Integrity Value Fund.
Note 5. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Integrity Money Management, Inc., the Fund’s investment adviser; Integrity Funds Distributor, Inc., the Fund’s underwriter; and Integrity Fund Services, Inc., the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc., the Fund’s sponsor.
The Fund has engaged Integrity 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 1.00% of the Fund’s average daily net assets. The Fund has recognized $59,317 of investment advisory fees after a partial waiver for the nine months ended December 31, 2003. The Fund has a payable to Integrity Money Management, Inc. of $3,160 at December 31, 2003, for investment advisory fees. Certain officers and trustees of the Fund are also officers and trustees of the investment adviser.
Integrity Funds Distributor, Inc. serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan for each class of shares as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called “Distribution Plan expenses.” The Fund presently pays an annual distribution fee of up to 0.50% of the average daily net assets of the class. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $36,725 of distribution fees for the nine months ended December 31, 2003. The Fund has a payable to Integrity Funds Distributor, Inc. of $4,640 at December 31, 2 003, for distribution fees.
Integrity Fund Services, Inc. (the transfer agent) provides shareholder services for an annual fee of 0.25% of average net assets with a minimum of $2,000 per month plus reimbursement of out-of-pocket expenses. An additional fee with a minimum of $500 per month will be charged for each additional share class. The Fund has recognized $48,168 of transfer agency fees for the nine months ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $2,320 at December 31, 2003, for transfer agency fees. Integrity Fund Services, 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, together with reimbursement of out-of-pocket e xpenses. An additional accounting services fee of $500 per month will be charged by Integrity Fund Services, Inc. for each additional share class. The Fund has recognized $25,071 of accounting service fees for the nine months ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $2,597 at December 31, 2003, for accounting service fees. Integrity Fund Services, Inc. also acts as the Fund’s administrative services agent for an annual fee equal to the rate of 0.20% of average daily net assets with a minimum of $2,000 per month plus out-of-pocket expenses. Each Fund will pay an additional minimum fee of $500 per month for each additional share class. The Fund has recognized $15,744 of administrative service fees for the nine months ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $2,133 at December 31, 2003, for administrative service fees.
Note 6. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sale of investment securities (excluding short-term securities) aggregated $3,219,317 and $4,381,707, respectively, for the nine months ended December 31, 2003.
Note 7. INVESTMENT IN SECURITIES
At December 31, 2003, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $9,684,799. The net unrealized depreciation of investments based on the cost was $1,061,432, which is comprised of $1,681,081 aggregate gross unrealized appreciation and $619,649 aggregate gross unrealized depreciation.
Financial HighlightsDecember 31, 2003
Selected per share data and ratios for the period indicated
|
| For The Period April 1, 2003 Thru December 31, 2003 |
| For The Year Ended March 31, 2003 |
| For The Year Ended March 31, 2002 |
| For The Year Ended March 31, 2001 |
| For The Year Ended March 31, 2000 |
| For The Period Since Inception Thru March 31, 1999 | ||
NET ASSET VALUE, BEGINNING OF PERIOD |
$ |
6.82 |
$ |
9.28 |
$ |
9.12 |
$ |
9.65 |
$ |
10.11 |
$ |
10.00 | ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Net investment income (loss) | $ | (.12) | $ | (.05) | $ | (.07) | $ | (.02) | $ | .01 | $ | .00 | |
| Net realized and unrealized gain (loss) on investment transactions |
|
2.34 |
|
(2.41) |
|
.23 |
|
(.49) |
|
(.10) |
|
.11 | |
| Total Income (Loss) From Investment Operations |
$ |
2.22 |
$ |
(2.46) |
$ |
.16 |
$ |
(.51) |
$ |
(.09) |
$ |
.11 | |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Less Distributions: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Dividends from net investment income | $ | .00 | $ | .00 | $ | .00 | $ | .00 | $ | (.01) | $ | .00 | |
| Return of capital |
| .00 |
| .00 |
| .00 |
| (.01) |
| .00 |
| .00 | |
| Distributions from net realized gains |
| .00 |
| .00 |
| .00 |
| (.01) |
| (.36) |
| .00 | |
| Total Distributions | $ | .00 | $ | .00 | $ | .00 | $ | (.02) | $ | (.37) | $ | .00 | |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
NET ASSET VALUE, END OF PERIOD |
$ |
9.04 |
$ |
6.82 |
$ |
9.28 |
$ |
9.12 |
$ |
9.65 |
$ |
10.11 | ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Total Return |
| 32.55%(B)(D) |
| (26.51%)(D) |
| 1.75%(D) |
| (5.23%)(D) |
| (0.98%)(D) |
| 1.11%(B)(D) | ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
RATIOS/SUPPLEMENTAL DATA: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Net assets, end of period (in thousands) | $ | 10,730 | $ | 8,562 | $ | 11,826 | $ | 12,879 | $ | 15,872 | $ | 14,965 | |
| Ratio of net expenses (after expense assumption) to average net assets |
|
4.66%(A)(C) |
|
3.64%(A) |
|
3.13%(A) |
|
2.90%(A) |
|
2.75%(A) |
|
2.90%(A)(C) | |
| Ratio of net investment income to average net assets |
|
(1.94%)(C) |
|
(0.63%) |
|
(0.71%) |
|
(0.22%) |
|
0.03% |
|
0.02%(C) | |
| Portfolio turnover rate |
| 34.08% |
| 45.09% |
| 30.41% |
| 66.29% |
| 79.63% |
| 0.39% | |
(A) During the period since March 31, 2003, Integrity Mutual Funds, Inc. and Willamette Asset Managers assumed/waived expenses of $14,133. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets would have been 4.85%. During the periods prior to March 31, 2003, Willamette Asset Managers and The Coventry Group assumed/waived expenses of $0, $0, $0, $47,091, and $27,590, respectively. If the expenses had not been assumed/waived, the annualized ratios of total expenses to average net assets would have been 3.64%, 3.13%, 2.90%, 3.02%, and 3.20% respectively.
(B) Ratio is not annualized.
(C) Ratio is annualized.
(D) Excludes maximum sales charge of 5.75%.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
INDEPENDENT AUDITOR’S REPORT
To the Shareholders and Board of Trustees of The Integrity Value Fund
We have audited the accompanying statement of assets and liabilities of the Integrity Value Fund, (the Fund), including the schedule of investments, as of December 31, 2003, the related statement of operations, the statement of changes in net assets, and the financial highlights for the nine month 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 audit. The statement of changes in net assets for the year ended March 31, 2003, and the financial highlights for each of the four years in the period ended March 31, 2003 and the period since inception (May 26, 1998) thru march 1999, were audited by other auditors whose report dated May 22, 2003, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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, 2003, 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 the Integrity Value Fund, as of December 31, 2003, the results of its operations, the changes in its net assets, and the financial highlights for the nine month period then ended, in conformity with accounting principles generally accepted in the United States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota USA
February 17, 2004
Integrity Small Cap Growth Fund
Dear Shareholder:
Enclosed is the annual report of the operations for the Integrity Small Cap Growth Fund (the "Fund") for the nine months ended December 31, 2003. The Fund's portfolio and related financial statements are presented within for your review.
As stated in our last report to you, we have long felt that an important stock market bottom was made in the last half of 2002, and that the future would bring a sharply upward moving market. We may get more tax cuts and interest rates are likely to remain low for some time, fueling demand from the baby boomers (and their children as a second wave) in the already strong demographic and cyclical economic picture. Such makes for continued growth in earnings and much higher stock prices. Barring a major catastrophe, the upward thrust is likely to continue for several years to come.
We manage the Fund using our quantitative intelligent expert system for stock selection. Our system analyzes over 8,000 stocks employing technical price momentum, fundamental valuation and earnings forecast information. We use a multifactor approach to find attractive “growth oriented” issues; picking financially strong stocks from the bottom up, that are likely to outperform, and weeding out those that are financially weak and likely to under perform.
Since taking over the management of the Fund in late September, we significantly restructured the portfolio. We reduced our exposure to low quality, slower growing companies with negative earnings and increased our exposure to high quality, rapidly growing companies that were selling at reasonable P/E ratios.
The positions we eliminated had an average forward P/E ratio of approximately 17 and a consensus future earnings growth rate of 17%. The positions we added to the portfolio have an average forward P/E of 19 with a consensus earnings growth rate of over 27%.
Small to mid-cap stocks have led the market rally over the last several quarters, and for a very good reason. Smaller companies generally have much higher growth prospects than their larger competitors. We believe our portfolio is well positioned in financially strong companies, with significant exposure to economy sensitive issues (such as technology and wireless telecom) that will benefit from what we expect will be a vibrant economic expansion in the years ahead.
Sincerely,
F. Martin Koenig, CFA
The views expressed are those of F. Martin Koenig, Senior Portfolio Manager with Integrity Mutual Funds. The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any Integrity Mutual Fund.
Terms & Definitions December 31, 2003 (Unaudited)
American Depository Receipt (ADR)
A negotiable certificate representing a given number of shares of stock in a foreign corporation. It is bought and sold in the American securities markets, just as stock is traded.
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.
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.
Offering Price
The price at which a mutual fund’s share can be purchased. The offering price per share is the current net asset value plus any sales charge.
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.
Portfolio Market Sectors
(as a % of Net Assets)
S-Services | 21.1% |
T-Technology | 19.7% |
HC-Healthcare | 19.0% |
F-Financial | 12.0% |
TR-Transportation | 6.8% |
E-Energy | 6.3% |
CC-Consumer Cyclical | 5.6% |
CG-Capital Goods | 3.3% |
BM-Basic Materials | 3.2% |
CN-Consumer Noncyclical | 2.3% |
O-Other | 0.7% |
Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.
These percentages are subject to change.
KEY STATISTICS
03-31-2003 NAV (share value) | $ 8.94 |
12-31-2003 NAV | $12.20 |
Total Net Assets | $23,484,582 |
Number of Issues | 92 |
Average Annual Total Returns
Integrity Small Cap Growth Fund | For periods ending December 31, 2003 | |||
|
|
|
| Since Inception |
| 1 year | 5 year | 10 year | (April 5, 1999) |
Without Sales Charge | 30.34% | N/A | N/A | 8.82% |
With Sales Charge (5.75%) | 22.85% | N/A | N/A | 7.48% |
Lipper Small Cap Growth Index | For periods ending December 31, 2003 | |||
|
|
|
| Since Inception |
| 1 year | 5 year | 10 year | (April 5, 1999) |
| 44.78% | N/A | N/A | 7.06% |
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a fund prospectus at no cost from your financial advisor and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
TOP TEN HOLDINGS
1. | Hovanian Enterprises Inc | 2.41% |
2. | New York Community Bancorp Inc | 2.29% |
3. | Advance Auto Parts Inc | 2.25% |
4. | Precision Drilling Corp | 2.23% |
5. | Celgene Corp | 2.22% |
6. | Photon Dynamics Inc | 1.92% |
7. | Doral Financial Corp | 1.86% |
8. | Diebold Inc | 1.72% |
9. | Respironics Inc | 1.67% |
10. | Wilmington Trust Corp | 1.64% |
The Fund’s holdings are subject to change at any time.
Comparative Index Graph (insert here)
Comparison of change in value of a $10,000 investment in the Integrity Small Cap Growth Fund and the Lipper Small Cap Growth Index
| Integrity Small Cap Growth Fund w/Max Sales Charge | Integrity Small Cap Growth Fund w/o Sales Charge | Lipper Small Cap Growth Index |
| |||
| |||
04/05/99 | $10,000 | $ 9,425 | $10,000 |
12/31/99 | $17,892 | $16,863 | $16,519 |
12/29/00 | $17,327 | $16,331 | $15,155 |
12/31/01 | $15,191 | $14,318 | $13,190 |
12/31/02 | $11,467 | $10,808 | $ 9,546 |
12/31/03 | $14,946 | $14,087 | $13,820 |
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. All Fund and benchmark returns include reinvested dividends. The Fund’s share price, yields, and total returns will vary, s o that shares, when redeemed, may be worth more or less than their original cost.
MANAGEMENT OF THE FUND
The Board of The Integrity Funds consists of four Trustees. These same individuals, unless otherwise noted, also serve as directors or trustees for all of the funds in the Integrity family of funds, the six series of Integrity Managed Portfolios (formerly known as Ranson Managed Portfolios), and the six series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “independent” Trustees.The remaining Trustee and executive officers are “interested” by virtue of their affiliation with the Investment Adviser and its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
Name, Address and Age | Position(s) Held with Registrant | Term and Length Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen In The Fund Complex * | Other Directorships Held Outside The Fund Complex |
Lynn W. Aas | Trustee | Since Sept. 2003 | Retired; Attorney; Director, Integrity Fund of Funds, Inc., Montana Tax-Free Fund, Inc., ND Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., and Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003); and ND Insured Income Fund, Inc. (December 1994 to August 1999); Trustee, Integrity Managed Portfolios; Director, First Western Bank & Trust.
| 16 | None |
Orlin W. Backes Ste. 305 | Trustee | Since May2003 | Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director (since April 1995), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Insured Income Fund, Inc. (March 1995 to August 1999) and Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003); Trustee, Integrity Managed Portfolios; Director, First Western Bank & Trust.
| 16 | Director, First Western Bank & Trust |
R. James Maxson | Trustee | Since May 2003
| Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Attorney, Farhart, Lian and Maxson, P.C. (March 1976 to March 2000); Director (since January 1999), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., and Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); Trustee, Integrity Managed Portfolios (since January 1999). | 16 | None |
*The Fund Complex consists of the four funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the six series of The Integrity Funds.
The SAI has additional information about the Fund’s trustees and is available at 1(800) 601-5593 without charge upon request.
The Interested Trustees and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEE AND OFFICERS
Name, Address and Age | Position(s) Held with Registrant | Term and Length Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen In The Fund Complex * | Other Directorships Held Outside The Fund Complex |
**Peter A. Quist | Vice President | Since May 2003 | Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc. (formerly known as ND Money Management, Inc.), ND Capital, Inc., Integrity Fund Services, Inc., (formerly known as ND Resources, Inc.), ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc. (November 1990 to August 1999), Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc. (since April 1995), Integrity Fund of Funds, Inc., Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Integrity Funds Distributor, Inc., (formerly known as Ranson Capital Corporation) (since January 1996); Director, ARM Securities Corporation (since May 2000).
| 4 | None |
**Robert E. Walstad | Trustee, Chairman, President, and Treasurer | Since May 2003 | Director (since September 1987), President (September 1987 to October 2001 and September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., ND Capital, Inc., Integrity Fund Services, Inc., ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc. (November 1990 to August 1999), Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., and Integrity Small-Cap Fund of Funds Inc.; (September 1998 to June 2003); Trustee, Chairman, President, and Treasurer, Integrity Managed Portfolios; Director, President, CEO, and Treasurer, Integrity Funds Distributor, Inc., (January 1996 to August 2003); Director (October 1999 to June 2003), President (October 1999 - October 2001), Magic Internet Services, Inc.; Director (since May 2000), President (May 2000 to October 2001- Sept 2002 to present), ARM Securities Corporation; Director, CEO, Chairman, Capital Fina ncial Services, Inc. (since January 2002).
| 16 | Director, Capital Financial Services, Inc. |
*The Fund Complex consists of the four funds in the Integrity family of funds listed above, six series of Integrity Managed Portfolios, and the six series in The Integrity Funds.
** Trustees and/or officers who are “interested persons” of the Funds as defined in the 1940 Act. Messrs. Quist and Walstad are interested persons by virtue of being officers and directors of the Funds’ investment adviser and principal underwriter.
The SAI has additional information about the Fund’s trustees and is available at 1(800) 601-5593 without charge upon request.
Schedule of Investments December 31, 2003
Name of Issuer |
| Quantity |
| Market Value |
| ||
COMMON STOCKS (97.1%) |
|
|
|
|
| ||
BANKS ( 4.7%) |
|
|
|
|
| ||
Banknorth Group |
| 9,500 | $ | 309,035 |
| ||
*Commercial Capital Bancorp |
| 9,900 |
| 211,959 |
| ||
Community Banks |
| 181 |
| 7,115 |
| ||
Doral Financial Corp |
| 13,500 |
| 435,780 |
| ||
Southern Financial Bancorp |
| 3,377 |
| 145,447 |
| ||
|
|
|
| 1,109,336 |
| ||
|
|
|
|
|
| ||
BROADCAST (1.3%) |
|
|
|
|
| ||
Harman Intl |
| 4,000 |
| 295,920 |
| ||
|
|
|
| 295,920 |
| ||
|
|
|
|
|
| ||
CHEMICALS (2.4%) |
|
|
|
|
| ||
Agrium |
| 14,500 |
| 238,670 |
| ||
Airgas Inc |
| 15,300 |
| 328,644 |
| ||
|
|
|
| 567,314 |
| ||
|
|
|
|
|
| ||
COMMERICAL SERVICES (1.6%) |
|
|
|
|
| ||
*Iron Mountain |
| 9,500 |
| 375,630 |
| ||
|
|
|
| 375,630 |
| ||
|
|
|
|
|
| ||
COMPUTER HARDWARE (5.7%) |
|
|
|
|
| ||
ATI Technologies Inc |
| 15,000 |
| 226,800 |
| ||
*Avid Technology |
| 3,900 |
| 187,200 |
| ||
*ManTech International |
| 13,800 |
| 344,310 |
| ||
*SanDisk Corp |
| 2,700 |
| 165,078 |
| ||
*SeaChange Intl |
| 12,950 |
| 199,430 |
| ||
*Cerner Corp |
| 5,500 |
| 208,175 |
| ||
|
|
|
| 1,330,993 |
| ||
|
|
|
|
|
| ||
COMPUTER SERVICES (2.3%) |
|
|
|
|
| ||
*CACI Intl |
| 4,500 |
| 218,790 |
| ||
FactSet Research Systems |
| 4,600 |
| 175,766 |
| ||
*United Online |
| 8,550 |
| 143,554 |
| ||
|
|
|
| 538,110 |
| ||
|
|
|
|
|
| ||
CONSUMER PRODUCTS (3.5%) |
|
|
|
|
| ||
Church & Dwight |
| 7,100 |
| 281,160 |
| ||
Lexar Media |
| 10,000 |
| 174,300 |
| ||
*Scotts Co 'A' |
| 3,305 |
| 195,524 |
| ||
*Select Comfort |
| 7,000 |
| 173,320 |
| ||
|
|
|
| 824,304 |
| ||
|
|
|
|
|
| ||
DIVERSIFIED ELECTRONIC (4.7%) |
|
|
|
|
| ||
*Aeroflex Inc |
| 23,200 |
| 271,208 |
| ||
Avnet Inc |
| 10,259 |
| 222,210 |
| ||
Diebold Inc |
| 7,500 |
| 404,025 |
| ||
*Jabil Circuit |
| 7,100 |
| 200,930 |
| ||
|
|
|
| 1,098,373 |
| ||
|
|
|
|
|
| ||
DRUGS AND PHARMACEUTICALS (6.4%) |
|
|
|
|
| ||
*Barr Labs |
| 3,000 |
| 230,850 |
| ||
*Celgene Corp |
| 11,575 |
| 521,106 |
| ||
*Cephalon Inc |
| 4,300 |
| 208,163 |
| ||
*NBTY Inc |
| 9,000 |
| 241,740 |
| ||
*Neurocrine Bioscience |
| 5,400 |
| 294,516 |
| ||
|
|
|
| 1,496,375 |
| ||
|
|
|
|
|
| ||
EDUCATION (1.4%) |
|
|
|
|
| ||
*ITT Educational Svcs |
| 6,810 |
| 319,866 |
| ||
|
|
|
| 319,866 |
| ||
|
|
|
|
|
| ||
ENERGY (2.5%) |
|
|
|
|
| ||
Arch Coal Inc |
| 9,800 |
| 305,466 |
| ||
Peabody Energy |
| 3,800 |
| 158,498 |
| ||
*Premcor Inc |
| 4,750 |
| 123,500 |
| ||
|
|
|
| 587,464 |
| ||
|
|
|
|
|
| ||
ENGINEERING (2.4%) |
|
|
|
|
| ||
*Hovnanian Enterprises |
| 6,500 |
| 565,890 |
| ||
|
|
|
| 565,890 |
| ||
|
|
|
|
|
| ||
ENTERTAINMENT (2.2%) |
|
|
|
|
| ||
*Alliance Gaming |
| 8,500 |
| 209,525 |
| ||
*Scientific Game Corp |
| 18,000 |
| 306,180 |
| ||
|
|
|
| 515,705 |
| ||
|
|
|
|
|
| ||
FINANCIAL (6.1%) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Legg Mason Inc |
| 3,505 |
| 270,516 |
| ||
New York Community Bancorp |
| 14,113 |
| 537,000 |
| ||
PFF Bancorp |
| 2,100 |
| 76,188 |
| ||
Wilmington Trust Corp |
| 10,700 |
| 385,200 |
| ||
Fair Isaac |
| 3,300 |
| 162,228 |
| ||
|
|
|
| 1,431,132 |
| ||
|
|
|
|
|
| ||
HEALTHCARE (10.1%) |
|
|
|
|
| ||
*American Healthways |
| 9,000 |
| 214,830 |
| ||
*Amsurg Corporation |
| 9,500 |
| 359,955 |
| ||
*Express Scripts |
| 3,500 |
| 232,505 |
| ||
*INAMED Corp |
| 3,150 |
| 151,389 |
| ||
*Renal Care Group |
| 9,300 |
| 383,160 |
| ||
*Respironics Inc |
| 8,700 |
| 392,283 |
| ||
Universal Health Svcs |
| 5,200 |
| 279,344 |
| ||
*Waters Corp |
| 10,880 |
| 360,781 |
| ||
|
|
|
| 2,374,247 |
| ||
|
|
|
|
|
| ||
HOSPITALS (2.2%) |
|
|
|
|
| ||
*Community Health Systems |
| 12,300 |
| 326,934 |
| ||
*Lifepoint Hospitals Inc |
| 7,000 |
| 206,150 |
| ||
|
|
|
| 533,084 |
| ||
|
|
|
|
|
| ||
INSURANCE (1.9%) |
|
|
|
|
| ||
Berkley (W.R.) |
| 6,000 |
| 209,700 |
| ||
Everest Reinsurance Group Ltd. |
| 2,800 |
| 236,880 |
| ||
|
|
|
| 446,580 |
| ||
|
|
|
|
|
| ||
MEDICAL EQUIPMENT (1.7%) |
|
|
|
|
| ||
PolyMedica Corp |
| 8,000 |
| 210,480 |
| ||
*Synovis Life Tech |
| 10,000 |
| 203,400 |
| ||
|
|
|
| 413,880 |
| ||
|
|
|
|
|
| ||
OIL AND GAS OPERATIONS (4.7%) |
|
|
|
|
| ||
*Maverick Tube |
| 5,800 |
| 111,650 |
| ||
*National-Oilwell Inc |
| 4,500 |
| 100,620 |
| ||
*Newfield Exploration |
| 4,900 |
| 218,246 |
| ||
*Precision Drilling |
| 12,000 |
| 524,160 |
| ||
*Varco Intl |
| 4,975 |
| 102,634 |
| ||
*Core Laboratories NV |
| 3,500 |
| 58,415 |
| ||
|
|
|
| 1,115,725 |
| ||
|
|
|
|
|
| ||
PUBLISHING (1.2%) |
|
|
|
|
| ||
Pulitzer Inc |
| 5,205 |
| 281,070 |
| ||
|
|
|
| 281,070 |
| ||
|
|
|
|
|
| ||
RETAIL (13.3%) |
|
|
|
|
| ||
*Performance Food Group |
| 7,300 |
| 264,041 |
| ||
*Advance Auto Parts |
| 6,500 |
| 529,100 |
| ||
*Ann Taylor Stores Corp |
| 4,200 |
| 163,800 |
| ||
*Barnes & Noble |
| 10,300 |
| 338,355 |
| ||
*Coach Inc |
| 3,000 |
| 113,250 |
| ||
*Columbia Sportsware |
| 6,450 |
| 351,525 |
| ||
*Dicks Sporting Goods |
| 7,100 |
| 345,486 |
| ||
*Electronics Boutique |
| 12,500 |
| 286,125 |
| ||
*Jos.A. Bank Clothiers |
| 4,500 |
| 156,105 |
| ||
Reebok Intl |
| 5,000 |
| 196,600 |
| ||
*Tuesday Morning |
| 7,000 |
| 211,750 |
| ||
*Williams-Sonoma |
| 5,200 |
| 180,804 |
| ||
|
|
|
| 3,136,941 |
| ||
|
|
|
|
|
| ||
SEMICONDUCTOR (3.5%) |
|
|
|
|
| ||
*Asyst Technologies |
| 10,400 |
| 180,440 |
| ||
*Fairchild Semiconductor |
| 7,300 |
| 182,281 |
| ||
*Photon Dynamics |
| 11,200 |
| 450,688 |
| ||
|
|
|
| 813,409 |
| ||
|
|
|
|
|
| ||
SOFTWARE AND PROGRAMMING (2.1%) |
|
|
|
|
| ||
*FileNet Corp |
| 6,910 |
| 187,123 |
| ||
*Per-Se Technologies |
| 20,000 |
| 305,200 |
| ||
|
|
|
| 492,323 |
| ||
|
|
|
|
|
| ||
TELECOMMUNICAIONS (4.0%) |
|
|
|
|
| ||
*J2 Global Communications |
| 5,500 |
| 136,235 |
| ||
*Vimpel Communications ADR |
| 3,300 |
| 242,550 |
| ||
*Turkcell ADR |
| 12,000 |
| 318,600 |
| ||
*UTStarcom Inc |
| 6,300 |
| 233,541 |
| ||
|
|
|
| 930,926 |
| ||
|
|
|
|
|
| ||
TRANSPORTATION (5.2%) |
|
|
|
|
| ||
Arkansas Best |
| 10,500 |
| 329,595 |
| ||
Hunt (JB) Transport |
| 7,500 |
| 202,575 |
| ||
*Old Dominion |
| 6,500 |
| 221,520 |
| ||
*Swift Transportation |
| 14,000 |
| 294,280 |
| ||
Werner Enterprises |
| 8,457 |
| 164,827 |
| ||
|
|
|
| 1,212,797 |
| ||
|
|
|
|
|
| ||
RIGHTS/WARRANTS (0.0%) |
|
|
|
|
| ||
|
|
|
|
|
| ||
FINANCIAL ( 0.0%) |
|
|
|
|
| ||
*Bank United Corp - CPR Trust |
| 2,700 |
| 324 |
| ||
*Dime Bancorp Warrants |
| 20,400 |
| 3,468 |
| ||
|
|
|
| 3,792 |
| ||
|
|
|
|
|
| ||
TOTAL STOCKS (COST: $18,653,576) | $ | 22,811,186 | |||||
|
|
| |||||
SHORT-TERM SECURITIES (3.1%) |
|
| |||||
Wells Fargo Cash Investment Money Market Fund Service Class | $ | 719,449 | |||||
TOTAL SHORT-TERM SECURITIES (COST: $719,449) | $ | 719,449 | |||||
|
|
| |||||
TOTAL INVESTMENTS IN SECURITIES (COST: $19,373,025) | $ | 23,530,635 | |||||
OTHER ASSETS LESS LIABILITIES |
| (46,053) | |||||
|
|
| |||||
NET ASSETS | $ | 23,484,582 | |||||
* Non-income producing
CPR – Contingent Payments Trust
ADR – American Depository Receipt
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 2003
Statement of Assets and LiabilitiesDecember 31, 2003
ASSETS |
|
| ||
| Investments in securities, at value (cost: $19,373,025) | $ | 23,530,635 | |
| Cash |
| 201 | |
| Accrued dividends receivable |
| 2,391 | |
| Accrued interest receivable |
| 262 | |
| Prepaid expenses |
| 23,691 | |
| Receivable for fund shares sold |
| 6,293 | |
|
|
| ||
| Total Assets | $ | 23,563,473 | |
|
|
| ||
LIABILITIES |
|
| ||
| Accrued expenses | $ | 53,760 | |
| Payable for fund shares redeemed |
| 25,131 | |
|
|
| ||
| Total Liabilities | $ | 78,891 | |
|
|
| ||
|
|
| ||
NET ASSETS | $ | 23,484,582 | ||
|
|
| ||
|
|
| ||
Net assets are represented by: |
|
| ||
| Paid-in capital | $ | 22,176,236 | |
| Accumulated undistributed net realized gain (loss) on investments |
| (2,849,264) | |
| Unrealized appreciation on investments |
| 4,157,610 | |
| Total amount representing net assets applicable to |
|
| |
| 1,924,670 outstanding shares of no par common stock |
|
| |
| (unlimited shares authorized) | $ | 23,484,582 | |
|
|
| ||
Net asset value per share | $ | 12.20 | ||
Statement of Operations For the nine months ended December 31, 2003
INVESTMENT INCOME |
|
| ||
| Interest | $ | 1,647 | |
| Dividends |
| 79,912 | |
| Total Investment Income | $ | 81,559 | |
|
|
| ||
EXPENSES |
|
| ||
| Investment advisory fees | $ | 180,008 | |
| 12b-1 fees |
| 83,480 | |
| Transfer agent fees |
| 93,217 | |
| Accounting service fees |
| 28,244 | |
| Administrative service fees |
| 33,392 | |
| Custodian fees |
| 3,969 | |
| Professional fees |
| 46,453 | |
| Trustees fees |
| 5,320 | |
| Transfer agent out-of-pockets |
| 4,314 | |
| Reports to shareholders |
| 190,416 | |
| Insurance expense |
| 13,835 | |
| BISYS service fees |
| 505 | |
| License, fees, and registrations |
| 62,578 | |
| Total Expenses | $ | 745,731 | |
| Less expenses waived or absorbed by the Fund’s manager |
| (4,713) | |
| Total Net Expenses | $ | 741,018 | |
|
|
| ||
NET INVESTMENT INCOME (LOSS) | $ | (659,459) | ||
|
|
| ||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| ||
| Net realized gain (loss) from: |
|
| |
| Investment transactions | $ | 117,622 | |
| Net change in unrealized appreciation (depreciation) of: |
|
| |
| Investments |
| 7,241,024 | |
| Net Realized and Unrealized Gain (Loss) on Investments | $ | 7,358,646 | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 6,699,187 | ||
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 2003
Statement of Changes in Net Assets
For the period April 1, 2003, thru December 31, 2003, and the year ended March 31, 2003
|
| For The Period April 1, 2003 Thru December 31, 2003 |
| For The Year Ended March 31, 2003 | ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| ||
| Net investment income (loss) | $ | (659,459) | $ | (618,905) | |
| Net realized gain (loss) on investment transactions |
| 117,622 |
| (1,136,657) | |
| Net change in unrealized appreciation (depreciation) on investments |
| 7,241,024 |
| (6,844,836) | |
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 6,699,187 | $ | (8,600,398) | |
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| ||
| Dividends from net investment income | $ | 0 | $ | 0 | |
| Distributions from net realized gain on investment transactions |
| 0 |
| 0 | |
| Total Dividends and Distributions | $ | 0 | $ | 0 | |
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS |
|
|
|
| ||
| Proceeds from sale of shares | $ | 275,826 | $ | 2,170,670 | |
| Proceeds from reinvested dividends |
| 0 |
| 0 | |
| Cost of shares redeemed |
| (2,589,506) |
| (5,999,242) | |
| Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions | $ | (2,313,680) | $ | (3,828,572) | |
|
|
|
|
| ||
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | 4,385,507 | $ | (12,428,970) | ||
|
|
|
|
| ||
NET ASSETS, BEGINNING OF PERIOD |
| 19,099,075 |
| 31,528,045 | ||
NET ASSETS, END OF PERIOD | $ | 23,484,582 | $ | 19,099,075 | ||
Undistributed Net Investment Income (Loss) | $ | 0 | $ | 0 | ||
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements December 31, 2003
Note 1. ORGANIZATION
The Integrity Small Cap Growth Fund (the Fund) is an investment portfolio of The Integrity Funds (the “Trust”) registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. On September 19, 2003, the Integrity Small Cap Growth Fund became a series of The Integrity Funds Trust. Prior to this the Fund was a part of the Willamette Funds Group. The Willamette Funds were organized as a Delaware statutory trust on January 17, 2001 and were registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. Each of the Funds is also the successor to a fund of the same name that was a series of another registered investment company, The Coventry Group. On March 16, 2001, the shareholders of each of the predecessor funds approved their reorganization into The Willamette Funds, effective April 1, 2001. The Willamette Funds offered four managed investment portfolios and were authorized to issue an unlimited number of shares. The accompanying financial statements and financial highlights are those of the Integrity Small Cap Growth Fund. The Fund seeks to provide long-term growth of capital appreciation.
Shares are offered at net asset value plus a maximum sales charge of 5.75% and a distribution fee of up to 0.50% on an annual basis.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation – Assets for which market quotations are available are valued as follows: (a) each listed security is valued at its closing price obtained from the respective primary exchange on which the security is listed, or, if there were no sales on that day, at its last reported current bid price; (b) each unlisted security is valued at the last current bid price obtained from the National Association of Securities Dealers Automated Quotation System. All of these prices are obtained by the Administrator from services, which collect and disseminate such market prices. Prices provided by an independent pricing service may be determined without exclusive reliance on quoted prices and may take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market da ta. In the absence of an ascertainable market value, assets are valued at their fair value as determined by the Adviser using methods and procedures reviewed and approved by the Trustees.
Redemption fees – In the case of investments of $1 million or more, a 1.00% redemption fee will be assessed on shares redeemed within 12 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).
Federal and state income taxes – It is the policy of the Fund to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code (the “Code”) and to make distributions of net investment income and net realized capital gains sufficient to relieve it from all, or substantially all, federal income taxes.
During the fiscal year ended December 31, 2003, there were no distributions paid
As of December 31, 2003 the components of accumulated earnings/(deficit) on a tax basis was as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/(Depreciation) | Total Accumulated Earnings/(Deficit) |
$ 0 | $ 0 | $ 0 | $ (2,816,157) | $ 4,124,503 | $ 1,308,346 |
As of December 31, 2003, the Fund had net capital loss carryforwards, which are available to offset future realized capital gains. The differences between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to: tax deferral of losses on wash sales.
Year | Unexpired Capital Losses |
2009 | 1,576,080 |
2010 | 1,012,310 |
For the year ended December 31, 2003, the fund did not make any permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to expiring capital loss carryforwards.
Net capital losses incurred after October 31, and within the tax year are deemed to arise on the first business day of the Funds’ next taxable year. For the year ended December 31, 2003, the Fund deferred to January 1, 2004 post October capital losses, post October currency losses and post October passive foreign investment company losses of $227,767.
Distributions to shareholders – Dividends from net investment income, declared yearly and paid yearly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed along with the net investment income dividend at the end of the calendar year.
Other - Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date for financial reporting purposes. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatment for market discount, capital loss carryforwards and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
In 2003, the Fund has elected to change its financial reporting and tax year ends to December 31 from March 31.
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 require d 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 accounting principles generally accepted in the United States of America 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.
Reclassifications – Certain prior year amounts have been reclassified to conform to the current year presentation.
Note 3. CAPITAL SHARE TRANSACTIONS
As of December 31, 2003, there were unlimited shares of no par authorized; 1,924,670 and 2,137,191 shares were outstanding at December 31, 2003, and March 31, 2003, respectively.
Transactions in capital shares were as follows:
| Shares | |||
|
| For The Period From April 1, 2003 Thru December 31, 2003 | For The Year Ended March 31, 2003 | |
| Shares sold | 25,580 | 210,294 | |
| Shares issued on reinvestment of dividends | 0 | 0 | |
| Shares redeemed | (238,101) | (587,279) | |
| Net increase (decrease) | (212,521) | (376,985) | |
Note 4. ACQUSITION OF FUND
The Willamette Funds held a special meeting of shareholders of the Value Fund, Small Cap Growth Fund, Global Health Sciences Fund and Technology Fund (the “Funds”), at [the office of the Funds, 3435 Stelzer Road, Columbus, Ohio 43219], on August 29, 2003 at 11:00 a.m., Eastern Time, as adjourned from time to time (the “Meeting”), for the purposes listed: to approve a new investment advisory agreement with Integrity Money Management, Inc.; and to consider and act upon any other business as may properly come before the Meeting. After careful consideration, the Trustees of the Willamette Funds unanimously approved each of the proposals and recommended that shareholders vote “FOR” the proposals. The Willamette Funds Board of Trustees fixed the close of business on June 20, 2003 as the record date for determining shareholders entitled to notice of and to vote at the Meeting. Each sha re of a Fund was entitled to one vote for each dollar invested with respect to each proposal. The Investment Advisory Agreements of the Value Fund, Small Cap Growth Fund, Technology Fund and Global Health Sciences Fund was approved by the shareholders on August 29, 2003. The reorganization was accomplished by a tax-free exchange of 1,996,317 shares of Integrity Small Cap Growth Fund for the 1,996,317 shares of Willamette Small Cap Growth Fund on September 19, 2003. Willamette Small Cap Growth Fund’s net assets of $23,470,567 on September 19, 2003, including $2,219,468 of unrealized appreciation, were reorganized into the Integrity Small Cap Growth Fund.
Note 5. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Integrity Money Management, Inc., the Fund’s investment adviser; Integrity Funds Distributor, Inc., the Fund’s underwriter; and Integrity Fund Services, Inc., the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc., the Fund’s sponsor.
The Fund has engaged Integrity 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 1.20% of the Fund’s average daily net assets. The Fund has recognized $175,295 of investment advisory fees after a partial waiver for the nine months ended December 31, 2003. The Fund has a payable to Integrity Money Management, Inc. of $20,640 at December 31, 2003, for investment advisory fees. Certain officers and trustees of the Fund are also officers and trustees of the investment adviser.
Integrity Funds Distributor, Inc. serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan for each class of shares as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called “Distribution Plan expenses.” The Fund presently pays an annual distribution fee of up to 0.50% of the average daily net assets of the class. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $83,480 of distribution fees for the nine months ended December 31, 2003. The Fund has a payable to Integrity Funds Distributor, Inc. of $10,388 at December, 20 03, for service fees.
Integrity Fund Services, Inc. (the transfer agent) provides shareholder services for a fee of 0.25% of average net assets with a minimum of $2,000 per month plus reimbursement of out-of-pocket expenses. An additional fee with a minimum of $500 per month will be charged for each additional share class. The Fund has recognized $93,217 of transfer agency fees for the nine months ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $4,957 at December 31, 2003, for transfer agency fees. Integrity Fund Services, 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, together with reimbursement of out-of-pocket expenses . An additional accounting services fee of $500 per month will be charged by Integrity Fund Services, Inc. for each additional share class. The Fund has recognized $28,244 of accounting service fees for the nine months ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $3,082 at December 31, 2003, for accounting service fees. Integrity Fund Services, Inc. also acts as the Fund’s administrative services agent for a fee equal to the rate of 0.20% of average daily net assets with a minimum of $2,000 per month plus out-of-pocket expenses. Each Fund will pay an additional minimum fee of $500 per month for each additional share class. The Fund has recognized $33,392 of administrative service fees for the nine months ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $4,155 at December 31, 2003, for administrative service fees.
Note 6. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sale of investment securities (excluding short-term securities) aggregated $12,929,021 and $16,509,209, respectively, for the nine months ended December 31, 2003.
Note 7. INVESTMENT IN SECURITIES
At December 31, 2003, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $18,665,015. The net unrealized appreciation of investments based on the cost was $4,157,610, which is comprised of $4,966,344 aggregate gross unrealized appreciation and $808,734 aggregate gross unrealized depreciation.
Financial Highlights December 31, 2003
Selected per share data and ratios for the period indicated
|
| For The Period April 1, 2003 Thru December 31, 2003 |
| For The Year Ended March 31, 2003 |
| For The Year Ended March 31, 2002 |
| For The Year Ended March 31, 2001 |
| For The Period Since Inception Thru March 31, 2000 | ||
NET ASSET VALUE, BEGINNING OF PERIOD |
$ |
8.94 |
$ |
12.54 |
$ |
12.93 |
$ |
19.94 |
$ |
10.00 | ||
|
|
|
|
|
|
|
|
|
|
| ||
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
| ||
| Net investment income (loss) | $ | (.34) | $ | (.29) | $ | (.26) | $ | (.28) | $ | (.25) | |
| Net realized and unrealized gain (loss) on investment transactions |
|
3.60 |
|
(3.31) |
|
.73 |
|
(4.82) |
|
10.38 | |
| Total Income (Loss) From Investment Operations |
$ |
3.26 |
$ |
(3.60) |
$ |
.47 |
$ |
(5.10) |
$ |
10.13 | |
|
|
|
|
|
|
|
|
|
|
| ||
Less Distributions: |
|
|
|
|
|
|
|
|
|
| ||
| Dividends from net investment income | $ | .00 | $ | .00 | $ | .00 | $ | .00 | $ | .00 | |
| Distributions from net realized gains |
| .00 |
| .00 |
| (.86) |
| (1.91) |
| (.19) | |
| Total Distributions | $ | .00 | $ | .00 | $ | (.86) | $ | (1.91) | $ | (.19) | |
|
|
|
|
|
|
|
|
|
|
| ||
NET ASSET VALUE, END OF PERIOD |
$ |
12.20 |
$ |
8.94 |
$ |
12.54 |
$ |
12.93 |
$ |
19.94 | ||
|
|
|
|
|
|
|
|
|
|
| ||
Total Return |
| 36.47%(A)(D) |
| (28.71%)(A) |
| 4.02%(A) |
| (26.77%)(A) |
| 101.67%(A)(D) | ||
|
|
|
|
|
|
|
|
|
|
| ||
RATIOS/SUPPLEMENTAL DATA: |
|
|
|
|
|
|
|
|
|
| ||
| Net assets, end of period (in thousands) | $ | 23,485 | $ | 19,099 | $ | 31,528 | $ | 30,011 | $ | 38,634 | |
| Ratio of net expenses (after expense assumption) to average net assets |
|
4.45%(B)(C) |
|
3.13%(B) |
|
2.64%(B) |
|
2.58%(B) |
|
2.82%(B)(C) | |
| Ratio of net investment income to average net assets |
|
(3.89)%(C) |
|
(2.67%) |
|
(2.09%) |
|
(1.85%) |
|
(2.26%)(C) | |
| Portfolio turnover rate |
| 59.04% |
| 27.74% |
| 52.13% |
| 45.13% |
| 55.15% | |
(A) Excludes maximum sales charge of 5.75%.
(B)During the period since March 31, 2003, Integrity Mutual Funds, Inc. and Willamette Asset Managers assumed/waived expenses of $4,713. If the expenses had not been assumed/waived, the annualized ratios of total expenses to average net assets would have been 4.47%. During the periods prior to March 31, 2003, Willamette Asset Managers and The Coventry Group waived expenses of $46,274, $62,878, $0, and $23,161, respectively. If the expenses had not been assumed/waived, the annualized ratios of total expenses to average net assets would have been 3.33%, 2.84%, 2.58%, and 2.93%, respectively.
(C) Ratio is annualized.
(D) Ratio is not annualized.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
INDEPENDENT AUDITOR’S REPORT
To the Shareholders and Board of Trustees of The Integrity Small Cap Growth Fund
We have audited the accompanying statement of assets and liabilities of The Integrity Small Cap Growth Fund, (the Fund), including the schedule of investments, as of December 31, 2003, the related statement of operations, the statement of changes in net assets, and the financial highlights for the nine month 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 audit. The statement of changes in net assets for the year ended March 31, 2003, and the financial highlights for each of the three years in the period ended March 31, 2003 and the period since inception (April 5, 1999) thru March 3, 2000, were audited by other auditors whose report dated May 22, 2003, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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, 2003, 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 The Integrity Small Cap Growth Fund, as of December 31, 2003, the results of its operations, the changes in its net assets, and the financial highlights for the nine month period then ended, in conformity with accounting principles generally accepted in the United States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota USA
February 17, 2004
Integrity Health Sciences Fund
Dear Shareholder:
Enclosed is the annual report of the operations for the Integrity Health Sciences Fund (the "Fund") for the nine months ended December 31, 2003. The Fund's portfolio and related financial statements are presented within for your review.
As stated in our last report to you, we have long felt that an important stock market bottom was made in the last half of 2002, and that the future would bring a sharply upward moving market. We may get more tax cuts and interest rates are likely to remain low for some time, fueling demand from the baby boomers (and their children as a second wave) in the already strong demographic and cyclical economic picture. Such makes for continued growth in earnings and much higher stock prices. Barring a major catastrophe, the upward thrust is likely to continue for several years to come.
We manage the Fund using our quantitative intelligent expert system for stock selection. Our system analyzes over 8,000 stocks employing technical price momentum, fundamental valuation and earnings forecast information. We use a multifactor approach to find attractive “growth oriented” issues; picking financially strong stocks from the bottom up that are likely to outperform, and weeding out those that are financially weak and likely to under perform.
We have made several adjustments to the portfolio since taking over management of the Fund in late September. We will continue to evaluate the portfolio and make adjustments as market conditions warrant, focusing on higher growth companies selling at reasonable valuations. The portfolio is currently underweighted in traditional, large pharmaceuticals and over weighted in the biotechnology sector.
The portfolio has an average forward P/E ratio of approximately 21, a consensus future earnings growth rate of 19% and an average ROE of over 27%. We are largely focused on profitable companies, typically avoiding exposure to speculative, money losing biotechnology stocks.
We believe the healthcare sector shows extraordinary potential for superior performance. With recent advances in gene mapping and healthcare technology, a significant expansion of new solutions to health issues is unfolding. Participants in your Health Sciences Fund should continue to benefit from these trends.
Sincerely,
F. Martin Koenig, CFA
The views expressed are those of F. Martin Koenig, Senior Portfolio Manager with Integrity Mutual Funds. The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any Integrity Mutual Fund.
Terms & Definitions December 31, 2003 (Unaudited)
American Depository Receipt
A negotiable certificate representing a given number of shares of stock in a foreign corporation. It is bought and sold in the American securities markets, just as stock is traded.
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.
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.
Offering Price
The price at which a mutual fund’s share can be purchased. The offering price per share is the current net asset value plus any sales charge.
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.
Portfolio Market Sectors
(as a % of Net Assets)
HC-Healthcare | 86.4% |
O-Other | 4.0% |
S-Services | 3.9% |
F-Financial | 3.4% |
T-Technology | 2.3% |
Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.
These percentages are subject to change.
KEY STATISTICS
03-31-2003 NAV (share value) | $7.29 |
12-31-2003 NAV | $9.22 |
Total Net Assets | $16,357,543 |
|
|
Number of Issues | 36 |
Average Annual Total Returns
Integrity Health Sciences Fund | For periods ending December 31, 2003 | |||
|
|
|
| Since Inception |
| 1 year | 5 year | 10 year | (June 19, 2000) |
Without Sales Charge | 30.78% | N/A | N/A | (1.81%) |
With Sales Charge (5.75%) | 23.26% | N/A | N/A | (3.44%) |
Lipper Health/Biotechnology Index | For periods ending December 31, 2003 | |||
|
|
|
| Since Inception |
| 1 year | 5 year | 10 year | (June 19, 2000) |
Without Sales Charge | 30.53% | N/A | N/A | (0.40%) |
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a fund prospectus at no cost from your financial advisor and read it carefully before investing.
Past performance is no guarantee of future results. Investment return and net asset value (NAV) will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than the original cost.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemption of Fund shares.
TOP TEN HOLDINGS
1.PFIZER, INC. | 6.68% |
2.SICOR, INC. | 5.63% |
3.BOSTON SCIENTIFIC CORP. | 4.21% |
4.MYLAN LABS | 4.16% |
5.GENENTECH INC. | 3.81% |
6.MEDTRONIC, INC. | 3.71% |
7.ANDRX GROUP | 3.67% |
8.ANTHEM, INC. | 3.53% |
9.QUEST DIAGNOSTICS, INC. | 3.49% |
10. HEALTH MANAGEMENT ASSOC. | 3.36% |
The Fund’s holdings are subject to change at any time.
Comparative Index Graph (insert here)
Comparison of change in value of a $10,000 investment in the Integrity Health Sciences Fund and the Lipper Health/Biotechnology Index
| Integrity Health Sciences Fund w/o Sales Charge | Integrity Health Sciences Fund w/Max Sales Charge | Lipper Health/ Biotechnology Index |
| |||
| |||
06/19/00 | $10,000 | $9,425 | $10,000 |
12/29/00 | $11,683 | $11,012 | $11,431 |
12/31/01 | $10,657 | $10,044 | $10,235 |
12/31/02 | $ 7,169 | $ 6,757 | $ 7,553 |
12/31/03 | $ 9,376 | $ 8,837 | $ 9,859 |
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. All Fund and benchmark returns include reinvested dividends. The Fund’s share price, yields, and total returns will vary, so that shares, when redeemed, may be worth more or less than their original cost.
Trustees information
INDEPENDENT TRUSTEES
[PHOTO] | [PHOTO] | [PHONE] |
Lynn W. Ass | Orlin W. Backes | R. James Maxson |
INTERESTED TRUSTEES
[PHOTO] | [PHOTO] |
Peter A. Quist | Robert E. Walstad |
MANAGEMENT OF THE FUND
The Board of The Integrity Funds consists of four Trustees. These same individuals, unless otherwise noted, also serve as directors or trustees for all of the funds in the Integrity family of funds, the six series of Integrity Managed Portfolios (formerly known as Ranson Managed Portfolios), and the six series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “independent” Trustees. The remaining Trustee and executive officers are “interested” by virtue of their affiliation with the Investment Adviser and its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
Name, Address and Age | Position(s) Held with Registrant | Term and Length Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen In The Fund Complex * | Other Directorships Held Outside The Fund Complex |
Lynn W. Aas | Trustee | Since Sept. 2003 | Retired; Attorney; Director, Integrity Fund of Funds, Inc., Montana Tax-Free Fund, Inc., ND Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003) and ND Insured Income Fund, Inc. (December 1994 to August 1999); Trustee, Integrity Managed Portfolios; Director, First Western Bank & Trust. | 16 | None |
Orlin W. Backes Ste. 305 | Trustee | Since May2003 | Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director (since April 1995), ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc. (March 1995 to August 1999), Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., and Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003); Trustee, Integrity Managed Portfolios; Director, First Western Bank & Trust. | 16 | Director, First Western Bank & Trust |
R. James Maxson | Trustee | Since May 2003
| Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Attorney, Farhart, Lian and Maxson, P.C. (March 1976 to March 2000); Director (since January 1999), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., and Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); Trustee, Integrity Managed Portfolios (since January 1999). | 16 | None |
*The Fund Complex consists of the four funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the six series of The Integrity Funds.
The SAI has additional information about the Fund’s trustees and is available at 1(800) 601-5593 without charge upon request.
The Interested Trustee and executive officers of the Fund, their term of office and length of time served, their principal trustee(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEE AND EXECUTIVE OFFICERS
Name, Address and Age | Position(s) Held with Registrant | Term and Length Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen In The Fund Complex * | Other Directorships Held Outside The Fund Complex |
**Peter A. Quist | Vice President | Since May 2003 | Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc. (formerly known as ND Money Management, Inc.), ND Capital, Inc., Integrity Fund Services, Inc., (formerly known as ND Resources, Inc..), ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc. (November 1990 to August 1999), Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc. (since April 1995), Integrity Fund of Funds, Inc., Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Integrity Funds Distributor, Inc., (formerly known as Ranson Capital Corporation) (since January 1996); Director, ARM Securities Corporation (since May 2000).
| 4 | None |
**Robert E. Walstad | Trustee, Chairman, President, and Treasurer | Since May 2003 | Director (since September 1987), President (September 1987 to October 2001 and September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., ND Capital, Inc., Integrity Fund Services, Inc., ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc. (November 1990 to August 1999), Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., Integrity Small-Cap Fund of Funds Inc.; (September 1998 to June 2003); Trustee, Chairman, President, and Treasurer, Integrity Managed Portfolios; Director, President, CEO, and Treasurer, Integrity Funds Distributor, Inc., (January 1996 to August 2003); Director (October 1999 to June 2003), President (October 1999 - October 2001), Magic Internet Services, Inc.; Director (since May 2000), President (May 2000 to October 2001- Sept 2002 to present), ARM Securities Corporation; Director, CEO, Chairman, Capital Fin ancial Services, Inc. (since January 2002). | 16 | Director, Capital Financial Services, Inc. |
*The Fund Complex consists of the four funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the six series in The Integrity Funds.
**Trustees and/or officers who are “interested persons” of the Funds as defined in the 1940 Act. Messrs. Quist and Walstad are interested persons by virtue of being officers and directors of the Funds’ investment adviser and principal underwriter.
The SAI has additional information about the Fund’s trustees and is available at 1(800) 601-5593 without charge upon request.
Schedule of Investments December 31, 2003
Name of Issuer | Quantity |
| Market Value |
COMMON STOCKS (96.1%)
DRUGS AND PHARMACEUTICALS (51.2%)
| *AdvancePCS | 6,000 | $ | 315,960 | |
| AmerisourceBergen Corp | 8,500 |
| 477,275 | |
| *Amgen, Inc | 7,900 |
| 488,220 | |
| *Andrx Group | 24,000 |
| 576,960 | |
| *Caremark RX, Inc | 9,400 |
| 238,102 | |
| *Collagenex Pharm K | 15,600 |
| 174,876 | |
| Galen Holdings ADR | 7,300 |
| 379,593 | |
| *Genentech Inc | 6,400 |
| 598,848 | |
| *Invitrogen Corp | 5,000 |
| 350,000 | |
| *King Pharmaceutical, Inc | 29,100 |
| 444,066 | |
| *Kos Pharmaceuticals, Inc. | 8,000 |
| 344,320 | |
| Mylan Labs | 25,875 |
| 653,602 | |
| Omnicare, Inc | 10,000 |
| 403,900 | |
| Pfizer Inc. | 29,685 |
| 1,048,771 | |
| *Shire Pharmaceutical | 13,800 |
| 400,890 | |
| *Sicor Inc | 32,500 |
| 884,000 | |
| Teva Pharmaceutical ADR | 4,400 |
| 249,524 | |
| *Watson Pharmaceutical Inc | 2,900 |
| 133,400 | |
| Wyeth | 4,800 |
| 203,760 | |
|
|
|
| 8,366,067 | |
|
|
|
|
| |
|
|
|
|
| |
| HEALTHCARE (19.8%) |
|
|
| |
| *Accredo Health | 10,900 |
| 344,549 | |
| *Express Scripts | 6,400 |
| 425,152 | |
| *Fisher Scientific Intl | 9,100 |
| 376,467 | |
| *Laboratory Corp Amer Hldgs | 5,657 |
| 209,026 | |
| *Lincare Holdings | 12,000 |
| 360,360 | |
| Quest Diagnostics Inc | 7,500 |
| 548,325 | |
| *Respironics Inc | 11,500 |
| 518,535 | |
| *Therasense Inc | 22,800 |
| 462,840 | |
|
|
|
| 3,245,254 | |
|
|
|
|
| |
|
|
|
|
| |
| HOSPITALS (10.9%) |
|
|
| |
| *Community Health Systems | 10,000 |
| 265,800 | |
| HCA Inc | 3,200 |
| 137,472 | |
| Health Management Assoc | 22,000 |
| 528,000 | |
| *Lifepoint Hospitals Inc | 12,300 |
| 362,235 | |
| Select Medical Corp | 30,000 |
| 488,400 | |
|
|
|
| 1,781,907 | |
|
|
|
|
| |
|
|
|
|
| |
| INSURANCE (3.4%) |
|
|
| |
| *Anthem, Inc | 7,400 |
| 555,000 | |
|
|
|
| 555,000 | |
|
|
|
|
| |
|
|
|
|
| |
| MEDICAL EQUIPMENT (10.8%) |
|
|
| |
| *Boston Scientific Corp. | 18,000 |
| 661,680 | |
| Medtronic, Inc | 12,000 |
| 583,320 | |
| *Varian Medical Systems, Inc. | 7,500 |
| 518,250 | |
|
|
|
| 1,763,250 | |
TOTAL COMMON STOCKS (COST: $12,415,933) | $ | 15,711,478 | |||
|
|
| |||
SHORT-TERM SECURITIES (4.2%) |
|
| |||
Wells Fargo Cash Investment Money Market | $ | 525,000 | |||
Wells Fargo Treasury Plus Money Market |
| 165,537 | |||
TOTAL SHORT-TERM SECURITIES (COST: $690,537) | $ | 690,537 | |||
|
|
| |||
| TOTAL INVESTMENTS IN SECURITIES (COST: $13,106,470) | $ | 16,402,015 | ||
| OTHER ASSETS LESS LIABILITIES |
| (44,472) | ||
|
|
|
| ||
| NET ASSETS | $ | 16,357,543 | ||
ADR – American Depository Receipt
* Non-income producing
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 2003
Statement of Assets and LiabilitiesDecember 31, 2003
ASSETS |
|
| ||
| Investments in securities, at value (cost: $13,106,470) | $ | 16,402,015 | |
| Accrued dividends receivable |
| 1,646 | |
| Accrued interest receivable |
| 347 | |
| Cash, custodian bank |
| 201 | |
| Prepaid expenses |
| 16,891 | |
| Foreign tax reclaim receivable |
| 504 | |
| Receivable for fund shares sold |
| 150 | |
|
|
| ||
| Total Assets | $ | 16,421,754 | |
|
|
| ||
LIABILITIES |
|
| ||
| Payable for fund shares redeemed | $ | 19,796 | |
| Accrued expenses |
| 44,415 | |
|
|
| ||
| Total Liabilities | $ | 64,211 | |
|
|
| ||
|
|
| ||
NET ASSETS | $ | 16,357,543 | ||
|
|
| ||
|
|
| ||
Net assets are represented by: |
|
| ||
| Paid-in capital | $ | 18,250,051 | |
| Accumulated undistributed net realized gain (loss) on investments |
| (5,188,053) | |
| Unrealized appreciation on investments |
| 3,295,545 | |
| Total amount representing net assets applicable to |
|
| |
| 1,773,517 outstanding shares of no par common stock |
|
| |
| (unlimited shares authorized) | $ | 16,357,543 | |
|
|
| ||
Net asset value per share | $ | 9.22 | ||
Statement of Operations For the nine months ended December 31, 2003
INVESTMENT INCOME |
|
| ||
| Interest | $ | 2,721 | |
| Dividends |
| 36,356 | |
| Total Investment Income | $ | 39,077 | |
|
|
| ||
EXPENSES |
|
| ||
| Investment advisory fees | $ | 141,665 | |
| 12b-1 fees |
| 58,992 | |
| Transfer agent fees |
| 78,876 | |
| Accounting service fees |
| 25,683 | |
| Administrative service fees |
| 23,597 | |
| Custodian fees |
| 2,918 | |
| Professional fees |
| 34,469 | |
| Trustees fees |
| 3,329 | |
| Transfer agent out-of-pockets |
| 4,549 | |
| Reports to shareholders |
| 134,781 | |
| Insurance expense |
| 9,625 | |
| License, fees, and registrations |
| 45,199 | |
| Bisys service fees |
| 6,230 | |
| Total Expenses | $ | 569,913 | |
| Less expenses waived or absorbed by the Fund’s manager |
| (28,935) | |
| Total Net Expenses | $ | 540,978 | |
|
|
| ||
NET INVESTMENT INCOME (LOSS) | $ | (501,901) | ||
|
|
| ||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| ||
| Net realized gain (loss) from: |
|
| |
| Investment transactions | $ | (1,442,532) | |
| Net change in unrealized appreciation (depreciation) of: |
|
| |
| Investments |
| 5,586,228 | |
| Net Realized and Unrealized Gain (Loss) on Investments | $ | 4,143,696 | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 3,641,795 | ||
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 2003
Statement of Changes in Net Assets
For the period April 1, 2003, Thru December 31, 2003, and the year ended March 31, 2003
|
| For The Period April 1, 2003 Thru December 31, 2003 |
| For The Year Ended March 31, 2003 | ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| ||
| Net investment income (loss) | $ | (501,901) | $ | (507,280) | |
| Net realized gain (loss) on investment transactions |
| (1,442,532) |
| (3,321,565) | |
| Net change in unrealized appreciation (depreciation) on investments |
| 5,586,228 |
| (794,117) | |
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 3,641,795 | $ | (4,622,962) | |
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| ||
| Dividends from net investment income ($.00 and $.00 per share, respectively) | $ | 0 | $ | 0 | |
| Distributions from net realized gain on investment transactions ($.00 and |
|
|
|
| |
| $.00 per share, respectively) |
| 0 |
| 0 | |
| Total Dividends and Distributions | $ | 0 | $ | 0 | |
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS |
|
|
|
| ||
| Proceeds from sale of shares | $ | 261,167 | $ | 911,930 | |
| Proceeds from reinvested dividends |
| 0 |
| 0 | |
| Cost of shares redeemed |
| (1,888,581) |
| (4,200,440) | |
| Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions | $ | (1,627,414) | $ | (3,288,510) | |
|
|
|
|
| ||
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | 2,014,381 | $ | (7,911,472) | ||
|
|
|
|
| ||
NET ASSETS, BEGINNING OF PERIOD |
| 14,343,162 |
| 22,254,634 | ||
NET ASSETS, END OF PERIOD | $ | 16,357,543 | $ | 14,343,162 | ||
Undistributed Net Investment Income (Loss) | $ | 0 | $ | 0 | ||
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements December 31, 2003
Note 1. ORGANIZATION
The Integrity Health Sciences Fund (the “Fund”) is an investment portfolio of The Integrity Funds (the “Trust”) registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. On September 19, 2003,the Integrity Health Sciences Fund became a series of The Integrity Funds Trust. Prior to this the Fund was part of the Willamette Funds Group. The Willamette Funds which were organized as a Delaware statutory trust on January 17, 2001, and were registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. Each of the Funds is also the successor to a fund of the same name that was a series of another registered inv estment company, The Coventry Group. On March 16, 2001, the shareholders of each of the predecessor funds approved their reorganization into The Willamette Funds, effective April 1, 2001. The Willamette Funds offered four managed investment portfolios and were authorized to issue an unlimited number of shares. The accompanying financial statements and financial highlights are those of the Integrity Health Sciences Fund. The Fund seeks long term growth of capital appreciation.
Shares of the Fund are offered at net asset value plus a maximum sales charge of 5.75% and a distribution fee of up to 0.50% on an annual basis.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation – Assets for which market quotations are available are valued as follows: (a) each listed security is valued at its closing price obtained from the respective primary exchange on which the security is listed, or, if there were no sales on that day, at its last reported current bid price; (b) each unlisted security is valued at the last current bid price obtained from the National Association of Securities Dealers Automated Quotation System. All of these prices are obtained by the Administrator from services, which collect and disseminate such market prices. Prices provided by an independent pricing service may be determined without exclusive reliance on quoted prices and may take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market d ata. In the absence of an ascertainable market value, assets are valued at their fair value as determined by the Adviser using methods and procedures reviewed and approved by the Trustees.
Redemption fees – In the case of investments of $1 million or more, a 1.00% redemption fee will be assessed on shares redeemed within 12 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).
Federal and state income taxes – It is the policy of the Fund to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code (the “Code”) and to make distributions of net investment income and net realized capital gains sufficient to relieve it from all, or substantially all, federal income taxes.
During the fiscal year ended December 31, 2003, there were no distributions paid.
As of December 31, 2003 the components of accumulated earnings/(deficit) on a tax basis was as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/(Depreciation) | Total Accumulated Earnings/(Deficit) |
$ 0 | $ 0 | $ 0 | $ (5,188,054) | $ 3,295,545 | $ (1,892,509) |
As of December 31, 2003, the Fund had net capital loss carryforwards, which are available to offset future realized capital gains. The differences between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to: tax deferral of losses on wash sales.
Year | Unexpired Capital Losses |
2009 | 423,956 |
2010 | 3,030,993 |
2011 | 1,389,043 |
For the year ended December 31, 2003, the fund did not make any permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to expiring capital loss carryforwards.
Net capital losses incurred after October 31, and within the tax year are deemed to arise on the first business day of the Funds’ next taxable year. For the year ended December 31, 2003, the Fund deferred to January 1, 2004 post October capital losses, post October currency losses and post October passive foreign investment company losses of $344,062.
Distributions to shareholders – Dividends from net investment income, declared yearly and paid yearly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed along with the net investment income dividend at the end of the calendar year.
Other – Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date for financial reporting purposes. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatment for market discount, capital loss carryforwards and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
In 2003, the Fund has elected to change its financial reporting and tax year ends to December 31 from March 31.
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 requir ed 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 accounting principles generally accepted in the United States of America 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.
Reclassifications – Certain prior year amounts have been reclassified to conform to the current year presentation.
Note 3. CAPITAL SHARE TRANSACTIONS
As of December 31, 2003, there were unlimited shares of no par authorized; 1,773,517 and 1,968,354 shares were outstanding at December 31, 2003, and March 31, 2003, respectively.
Transactions in capital shares were as follows:
|
| Shares | ||
| For The Period April 1, 2003 Thru December 31, 2003 | For The Year Ended March 31, 2003 | ||
Shares sold | 30,813 | 121,052 | ||
Shares issued on reinvestment of dividends | 0 | 0 | ||
Shares redeemed | (225,650) | (551,389) | ||
Net increase (decrease) | (194,837) | (430,337) | ||
Note 4. ACQUISITION OF FUND
The Willamette Funds held a special meeting of shareholders of the Value Fund, Small Cap Growth Fund, Global Health Sciences Fund and Technology Fund (the “Funds”), at [the office of the Funds, 3435 Stelzer Road, Columbus, Ohio 43219], on August 29, 2003, at 11:00 a.m., Eastern Time, as adjourned from time to time (the “Meeting”), for the purposes listed: to approve a new investment advisory agreement with Integrity Money Management, Inc.; and to consider and act upon any other business as may properly come before the Meeting. After careful consideration, the Trustees of the Willamette Funds unanimously approved each of the proposals and recommended that shareholders vote “FOR” the proposals. The Willamette Funds Board of Trustees fixed the close of business on June 20, 2003, as the record date for determining shareholders entitled to notice of and to vote at the Meeting. Each share of a F und was entitled to one vote for each dollar invested with respect to each proposal. The Investment Advisory Agreement of the Value Fund, Small Cap Growth Fund, Technology Fund and Global Health Sciences Fund were approved by the shareholders on August 29, 2003. The reorganization was accomplished by a tax-free exchange of 1,850,833 shares of Integrity Health Sciences Fund for the 1,850,833 shares of Willamette Global Health Sciences Fund on September 19, 2003. Willamette Global Health Sciences Funds net assets of $16,449,842 on September 19, 2003, including $2,073,535 of unrealized appreciation, were reorganized into the Integrity Health Sciences Fund.
Note 5. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Integrity Money Management, Inc., the Fund’s investment adviser; Integrity Funds Distributor, Inc., the Fund’s underwriter; and Integrity Fund Services, Inc., the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc., the Fund’s sponsor.
The Fund has engaged Integrity 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 1.20% of the Fund’s average daily net assets. The Fund has recognized $112,730 of investment advisory fees after a partial waiver for the nine months ended December 31, 2003. The Fund has a payable to Integrity Money Management, Inc. of $11,781 at December 31, 2003, for investment advisory fees. Certain officers and trustees of the Fund are also officers and trustees of the investment adviser.
Integrity Funds Distributor, Inc. serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan for each class of shares as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called “Distribution Plan expenses.” The Fund presently pays an annual distribution fee of up to 0.50% of the average daily net assets of the Fund. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $58,992 of service fee expenses for the nine months ended December 31, 2003. The Fund has a payable to Integrity Funds Distributor, Inc. of $7,175 at December 3 1, 2003, for service fees.
Integrity Fund Services, Inc. (the transfer agent) provides shareholder services for a monthly fee of 0.25% of average net assets with a minimum of $2,000 per month plus reimbursement of out-of-pocket expenses. An additional fee with a minimum of $500 per month will be charged for each additional share class. The Fund has recognized $78,875 of transfer agency fees for the nine months ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $3,587 at December 31, 2003, for transfer agency fees. Integrity Fund Services, 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, together with reimbursement of out-of-pocket expenses. An additional accounting services fee of $500 per month will be charged by Integrity Fund Services, Inc. for each additional share class. The Fund has recognized $25,683 of accounting service fees for the nine months ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $2,851 at December 31, 2003, for accounting service fees. Integrity Fund Services, Inc. also acts as the Fund’s administrative services agent for a monthly fee equal to the rate of 0.20% of average daily net assets with a minimum of $2,000 per month plus out-of-pocket expenses. The Fund will pay an additional minimum fee of $500 per month for each additional share class. The Fund has recognized $23,597 of administrative service fees for the nine months ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $2,870 at December 31, 2003, for administrative service fees.
Note 6. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sale of investment securities (excluding short-term securities) aggregated $3,065,370 and $5,146,172, respectively, for the nine months ended December 31, 2003.
Note 7. INVESTMENT IN SECURITIES
At December 31, 2003, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $13,106,470. The net unrealized appreciation of investments based on the cost was $3,295,545, which is comprised of $3,815,768 aggregate gross unrealized appreciation and $520,223 aggregate gross unrealized depreciation.
Note 8. INVESTMENT RISKS
Risks of Health Sciences Companies –- Because the Integrity Health Sciences Fund invests primarily in stocks of health sciences companies, it is particularly susceptible to risks associated with these companies. The Integrity Health Sciences Fund’s performance will depend on the performance of securities of issuers in health sciences-related industries, which may differ from general stock market performance. The products and services of health sciences companies may become rapidly obsolete due to technological and scientific advances. In addition, governmental regulation may have a material effect on the demand for products and services of these companies, and new or amended regulations can adversely affect these issuers or the market value of their securities. Finally, lawsuits or legal proceedings against these companies can adversely affect the value of their securities.
Financial Highlights December 31, 2003
Selected per share data and ratios for the period indicated
|
| For The Period April 1, 2003 Thru December 31, 2003 |
| For The Year Ended March 31, 2003 |
| For The Year Ended March 31, 2002 |
| For the Period Since Inception (June 19, 2000) thru March 31, 2001 | ||
NET ASSET VALUE, BEGINNING OF PERIOD |
$ |
7.29 |
$ |
9.28 |
$ |
8.71 |
$ |
10.00 | ||
|
|
|
|
|
|
|
|
| ||
Income from Investment Operations: |
|
|
|
|
|
|
|
| ||
| Net investment income (loss) | $ | (.28) | $ | (0.26) | $ | (0.24) | $ | (0.18) | |
| Net realized and unrealized gain (loss) on investment transactions |
|
2.21 |
|
(1.73) |
|
0.94 |
|
(1.07) | |
| Total Income (Loss) From Investment Operations |
$ |
1.93 |
$ |
(1.99) |
$ |
0.70 |
$ |
(1.25) | |
|
|
|
|
|
|
|
|
| ||
Less Distributions: |
|
|
|
|
|
|
|
| ||
| Dividends from net investment income | $ | .00 | $ | .00 | $ | .00 | $ | .00 | |
| Distributions from net realized gains |
| .00 |
| .00 |
| (0.13) |
| (0.04) | |
| Total Distributions | $ | .00 | $ | .00 | $ | (0.13) | $ | (0.04) | |
|
|
|
|
|
|
|
|
| ||
NET ASSET VALUE, END OF PERIOD |
$ |
9.22 |
$ |
7.29 |
$ |
9.28 |
$ |
8.71 | ||
|
|
|
|
|
|
|
|
| ||
Total Return |
| 26.47%(A)(D) |
| (21.44%)(A) |
| 7.94%(A) |
| (12.58%)(A)(D) | ||
|
|
|
|
|
|
|
|
| ||
RATIOS/SUPPLEMENTAL DATA: |
|
|
|
|
|
|
|
| ||
| Net assets, end of period (in thousands) | $ | 16,358 | $ | 14,343 | $ | 22,255 | $ | 20,712 | |
| Ratio of net expenses (after expense assumption) to average net assets |
|
4.59%(B)(C) |
|
3.46%(B) |
|
2.85%(B) |
|
2.90%(B)(C) | |
| Ratio of net investment income to average net assets |
|
(4.26%)(C) |
|
(3.17%) |
|
(2.46%) |
|
(2.30%)(C) | |
| Portfolio turnover rate |
| 20.40% |
| 34.28% |
| 68.38% |
| 52.37% | |
(A) Excludes maximum sales charge of 5.75%.
(B) During the period since March 31, 2003, Integrity Mutual Funds, Inc. and Willamette Asset Managers assumed/waived expenses of $28,935. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets would have been 4.84%. During the periods prior to March 31, 2003, Willamette Asset Managers and The Coventry Group assumed/waived expenses of $32,026, $47,186, and $6,355, respectively. If the expenses had not been assumed/waived, the annualized ratios of total expenses to average net assets would have been 3.66%, 3.05%, and 2.93%, respectively.
(C) Ratio is annualized.
(D) Ratio is not annualized.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
INDEPENDENT AUDITOR’S REPORT
To the Shareholders and Board of Trustees of The Integrity Health Sciences Fund
We have audited the accompanying statement of assets and liabilities of The Integrity Health Sciences Fund, (the Fund), including the schedule of investments, as of December 31, 2003, the related statement of operations, the statement of changes in net assets, and the financial highlights for the nine month 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 audit. The statement of changes in net assets for the year ended March 31, 2003, and the financial highlights for each of the two years in the period ended March 31, 2003 and for the period since inception June 19, 2000 thru march 31, 2000, were audited by other auditors whose report dated May 22, 2003, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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, 2003, 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 The Integrity Health Sciences Fund, as of December 31, 2003, the results of its operations, the changes in its net assets, and the financial highlights for the nine month period then ended, in conformity with accounting principles generally accepted in the United States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota USA
February 17, 2004
Integrity Technology Fund
Dear Shareholder:
Enclosed is the annual report of the operations for the Integrity Technology Fund (the "Fund") for the nine months ended December 31, 2003. The Fund's portfolio and related financial statements are presented within for your review.
As stated in our last report to you, we have long felt that an important stock market bottom was made in the last half of 2002, and that the future would bring a sharply upward moving market. We may get more tax cuts and interest rates are likely to remain low for some time, fueling demand from the baby boomers (and their children as a second wave) in the already strong demographic and cyclical economic picture. Such makes for continued growth in earnings and much higher stock prices. Barring a major catastrophe, the upward thrust is likely to continue for several years to come.
We manage the Fund using our quantitative intelligent expert system for stock selection. Our system analyzes over 8,000 stocks employing technical price momentum, fundamental valuation and earnings forecast information. We use a multifactor approach to find attractive “growth oriented” issues; picking financially strong stocks from the bottom up that are likely to outperform, and weeding out those that are financially weak and likely to under perform.
Since taking over the management of the Fund in late September, we significantly restructured the portfolio. We reduced our exposure to overvalued companies with below average earnings growth and increased our exposure to rapidly growing companies with good price momentum selling at reasonable P/E ratios. The portfolio is currently underweighted in diversified telecom, software, computers and peripherals, while over weighted in the wireless telecom, internet, electronics and healthcare sectors.
The positions we eliminated had an average forward P/E ratio of approximately 44 and a consensus future earnings growth rate of 18%. The positions we added to the portfolio have an average forward P/E of 19 with a consensus earnings growth rate of over 26%.
Technology stocks have led the market rally over the last several quarters. Despite the bloodbath in the “dot com” stocks over the last three years, technology stocks are not dead. In fact, they are very much alive. Your Technology Fund is positioned in financially strong companies showing well above average growth potential with reasonable P/E ratios that are likely to benefit from what we expect will be a vibrant economic expansion in the years ahead.
Sincerely,
F. Martin Koenig, CFA
The views expressed are those of F. Martin Koenig, Senior Portfolio Manager with Integrity Mutual Funds. The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any Integrity Mutual Fund.
Terms & Definitions December 31, 2003 (Unaudited)
American Depository Receipt
A negotiable certificate representing a given number of shares of stock in a foreign corporation. It is bought and sold in the American securities markets, just as stock is traded.
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.
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.
Offering Price
The price at which a mutual fund’s share can be purchased. The offering price per share is the current net asset value plus any sales charge.
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.
Portfolio Market Sectors
(as a % of Net Assets)
T – Technology | 63.6% |
S – Services | 21.8% |
HC – Healthcare | 5.6% |
O – Other | 5.5% |
CC – Consumer Cyclical | 3.5% |
Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.
These percentages are subject to change.
KEY STATISTICS
03-31-2003 NAV (share value) | $4.71 |
12-31-2003 NAV | $7.34 |
Total Net Assets | $13,456,086 |
|
|
Number of Issues | 67 |
Average Annual Total Returns
Integrity Technology Fund | For periods ending December 31, 2003 | |||
|
|
|
| Since Inception |
| 1 year | 5 year | 10 year | (March 2, 2000) |
Without Sales Charge | 46.51% | N/A | N/A | (39.37%) |
With Sales Charge (5.75%) | 38.08% | N/A | N/A | (40.30%) |
Lipper Science & Technology Index | For periods ending December 31, 2003 | |||
|
|
|
| Since Inception |
| 1 year | 5 year | 10 year | (March 2, 2000) |
| 51.32% | N/A | N/A | (25.82%) |
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a fund prospectus at no cost from your financial advisor and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
TOP TEN HOLDINGS
1. | Turkcell ADR | 2.59% |
2. | Labor Ready Inc. | 2.43% |
3. | Affiliated Computer Services | 2.43% |
4. | Nextel Communications Inc. | 2.40% |
5. | Benchmark Electronic | 2.33% |
6. | Altris Inc. | 2.30% |
7. | Per-Se Technologies | 2.22% |
8. | Jabil Circuit | 2.22% |
9. | Harman International Industries | 2.20% |
10. | Vimpel Communications ADR | 2.19% |
The Fund’s holdings are subject to change at any time
Comparative Index Graph (insert here)
Comparison of change in value of a $10,000 investment in the Integrity Technology Fund and the Lipper Science & Technology Index
| Integrity Technology Fund w/o Sales Charge | Integrity Technology Fund w/Max Sales Charge | Lipper Science & Technology Index |
| |||
| |||
03/02/00 | $10,000 | $9,425 | $10,000 |
12/29/00 | $3,953 | $3,725 | $5,497 |
12/31/01 | $1,757 | $1,656 | $3,588 |
12/31/02 | $1,003 | $945 | $2,103 |
12/31/03 | $1,469 | $1,385 | $3,183 |
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. All Fund and benchmark returns include reinvested dividends. The Fund’s share price, yields, and total returns will vary, so that shares, when redeemed, may be worth more or less than their original cost.
Trustees information
INDEPENDENT TRUSTEES
[PHOTO] | [PHOTO] | [PHOTO] |
Lynn W. Aas | Orlin W. Backes | R. James Maxson |
INTERESTED TRUSTEES
[PHOTO] | [PHOTO] |
Peter A. Quist | Robert E. Walstad |
MANAGEMENT OF THE FUND
The Board of The Integrity Funds consists of four Trustees. These same individuals, unless otherwise noted, also serve as directors or trustees for all of the funds in the Integrity family of funds, the six series of Integrity Managed Portfolios (formerly known as Ranson Managed Portfolios), and the six series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “independent” Trustees. The remaining Trustee and executive officers are “interested” by virtue of their affiliation with the Investment Adviser and its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
Name, Address and Age | Position(s) Held with Registrant | Term and Length Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen In The Fund Complex * | Other Directorships Held Outside The Fund Complex |
Lynn W. Aas | Trustee | Since May 2003 | Retired; Attorney; Director, Integrity Fund of Funds, Inc., Montana Tax-Free Fund, Inc., ND Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003) and ND Insured Income Fund, Inc. (December 1994 to August 1999); Trustee, Integrity Managed Portfolios; Director, First Western Bank & Trust. | 16 | None |
Orlin W. Backes Ste. 305 | Trustee | Since May 2003 | Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director (since April 1995), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Insured Income Fund, Inc. (March 1995 to August 1999) and Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003); Trustee, Integrity Managed Portfolios; Director, First Western Bank & Trust. | 16 | Director, First Western Bank & Trust |
R. James Maxson | Trustee | Since May 2003
| Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Attorney, Farhart, Lian and Maxson, P.C. (March 1976 to March 2000); Director (since January 1999), ND Tax-Free Fund, Inc. , Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., and Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); Trustee, Integrity Managed Portfolios (since January 1999). | 16 | None |
*The Fund Complex consists of the four funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the six series of The Integrity Funds.
The SAI has additional information about the Fund’s trustees and is available at 1(800) 601-5593 without charge upon request.
The Interested Trustees and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEE AND EXECUTIVE OFFICERS
Name, Address and Age | Position(s) Held with Registrant | Term and Length Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen In The Fund Complex * | Other Directorships Held Outside The Fund Complex |
**Peter A. Quist | Vice President | Since May 2003 | Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc. (formerly known as ND Money Management Inc.), ND Capital, Inc., Integrity Fund Services, Inc. (formerly known as ND Resources, Inc.), ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc. (November 1990 to August 1999), Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc. (since April 1995), Integrity Fund of Funds, Inc., Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Integrity Funds Distributor, Inc., (formerly known as Ranson Capital Corporation) (since January 1996); Director, ARM Securities Corporation (since May 2000).
| 4 | None |
**Robert E. Walstad | Trustee, Chairman, President, and Treasurer | Since May 2003 | Director (since September 1987), President (September 1987 to October 2001 and September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., ND Capital, Inc., Integrity Fund Services, Inc., ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc. (November 1990 to August 1999), Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., and Integrity Small-Cap Fund of Funds Inc.; (September 1998 to June 2003); Trustee, Chairman, President, and Treasurer, Integrity Managed Portfolios; Director, President, CEO, and Treasurer, Integrity Funds Distributor, Inc. (January 1996 to August 2003); Director (October 1999 to June 2003), President (October 1999 - October 2001), Magic Internet Services, Inc.; Director (since May 2000), President (May 2000 to October 2001- Sept 2002 to present), ARM Securities Corporation; Director, CEO, Chairman, Capit al Financial Services, Inc. (since January 2002). | 16 | Director, Capital Financial Services, Inc. |
*The Fund Complex consists of the four funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the six series in The Integrity Funds.
**Trustees and/or officers who are “interested persons” of the Funds as defined in the 1940 Act. Messrs. Quist and Walstad are interested persons by virtue of being officers and directors of the Funds’ investment adviser and principal underwriter.
The SAI has additional information about the Fund’s trustees and is available at 1(800)601-5593 without charge upon request.
Schedule of Investments December 31, 2003
Name of Issuer |
| Quantity |
| Market Value |
COMMON STOCKS (96.1%)
| BROADCAST SATELLITE (2.2%) |
|
|
|
| |
| Harman International Industries | 4,000 |
| $ | 295,920 | |
|
|
|
|
| 295,920 | |
|
|
|
|
|
| |
| BUSINESS SERVICE (2.4%) |
|
|
|
| |
| *Labor Ready Inc | 25,000 |
|
| 327,500 | |
|
|
|
|
| 327,500 | |
| COMMUNICATIONS EQUIPMENT (1.3%) |
|
|
|
| |
| *L-3 Communications | 2,100 |
|
| 107,856 | |
| *NetScreen Technologies | 2,840 |
|
| 70,290 | |
|
|
|
|
| 178,146 | |
|
|
|
|
|
| |
| COMPUTER HARDWARE (20.9%) |
|
|
|
| |
| Adobe Systems Inc | 3,600 |
|
| 141,480 | |
| *Altris Inc | 8,470 |
|
| 308,986 | |
| ATI Technologies Inc | 15,000 |
|
| 226,800 | |
| Auto Desk | 9,190 |
|
| 225,890 | |
| *Avid Technology | 5,000 |
|
| 240,000 | |
| Computer Associates International | 5,380 |
|
| 147,089 | |
| *Dell Inc | 3,490 |
|
| 118,520 | |
| Hewlett-Packard | 8,501 |
|
| 195,268 | |
| *Hyperion Solutions | 2,830 |
|
| 85,296 | |
| Infosys Technologies ADR | 2,870 |
|
| 274,659 | |
| Intel Corp | 6,840 |
|
| 220,248 | |
| *Intuit Inc | 2,210 |
|
| 116,931 | |
| *Moldflow Corp | 15,020 |
|
| 170,477 | |
| *SanDisk Corp | 2,700 |
|
| 165,078 | |
| *Symantec Corp | 5,140 |
|
| 178,101 | |
|
|
|
|
| 2,814,823 | |
|
|
|
|
|
| |
| COMPUTER NETWORKING (1.0%) |
|
|
|
| |
| *Kroll Inc | 5,250 |
|
| 136,500 | |
|
|
|
|
| 136,500 | |
|
|
|
|
|
| |
| COMPUTER SERVICES (9.1%) |
|
|
|
| |
| *Accenture Ltd | 6,810 |
|
| 179,239 | |
| *Affiliated Computer Services | 6,000 |
|
| 326,760 | |
| *Ascential Software Corp | 7,622 |
|
| 197,638 | |
| *CACI Intl | 4,800 |
|
| 233,376 | |
| FactSet Research Systems | 2,200 |
|
| 84,062 | |
| *United Online | 12,000 |
|
| 201,480 | |
|
|
|
|
| 1,222,555 | |
|
|
|
|
|
| |
| CONSUMER PRODUCTS (1.3%) |
|
|
|
| |
| *Lexar Media | 10,000 |
|
| 174,300 | |
|
|
|
|
| 174,300 | |
|
|
|
|
|
| |
| DIVERSIFIED ELECTRONIC (9.0%) |
|
|
|
| |
| *Aeroflex Inc | 19,930 |
|
| 232,982 | |
| *Applied Films Corp | 4,960 |
|
| 163,779 | |
| *Benchmark Electronic | 9,015 |
|
| 313,812 | |
| *Flextronics International | 13,670 |
|
| 202,863 | |
| *Jabil Circuit | 10,540 |
|
| 298,282 | |
|
|
|
|
| 1,211,718 | |
|
|
|
|
|
| |
| ENTERTAINMENT (2.6%) |
|
|
|
| |
| *Champion Auto Racing | 18,890 |
|
| 1,795 | |
| *Given Imaging Ltd | 10,780 |
|
| 193,070 | |
| *Scientific Game Corp | 9,000 |
|
| 153,090 | |
|
|
|
|
| 347,955 | |
|
|
|
|
|
| |
| FINANCIAL (1.0%) |
|
|
|
| |
| *Fiserv Inc | 3,540 |
|
| 139,865 | |
|
|
|
|
| 139,865 | |
|
|
|
|
|
| |
| HEALTHCARE (5.9%) |
|
|
|
| |
| Beckman Coulter | 2,680 |
|
| 136,224 | |
| *Fisher Scientific Intl | 2,500 |
|
| 103,425 | |
| *Steris Corp | 12,000 |
|
| 271,200 | |
| *United Surgical Partners | 8,500 |
|
| 284,580 | |
|
|
|
|
| 795,429 | |
|
|
|
|
|
| |
| SEMICONDUCTOR (11.3%) |
|
|
|
| |
| *Amkor Technology | 8,090 |
|
| 147,319 | |
| *ASML Holding NV | 10,040 |
|
| 201,302 | |
| *LeCroy Corp | 12,070 |
|
| 217,381 | |
| Marvell Technology | 3,490 |
|
| 132,376 | |
| Maxim Integrated Products | 3,170 |
|
| 157,866 | |
| *Microtune Inc | 25,400 |
|
| 62,230 | |
| *Taiwan Semiconductor ADR | 24,479 |
|
| 250,665 | |
| Texas Instruments | 5,344 |
|
| 157,007 | |
| *United Microelectronics | 39,344 |
|
| 194,753 | |
|
|
|
|
| 1,520,899 | |
|
|
|
|
|
| |
| SOFTWARE AND PROGRAMMING (5.0%) |
|
|
|
| |
| *Per-Se Technologies | 19,600 |
|
| 299,096 | |
| *Radware Ltd | 7,110 |
|
| 193,748 | |
| *Take-Two Interactive Software | 6,000 |
|
| 172,860 | |
|
|
|
|
| 665,704 | |
|
|
|
|
|
| |
| SPECIALTY FINANCE (2.5%) |
|
|
|
| |
| Fair Isaac | 3,800 |
|
| 186,808 | |
| *SunGard Data Systems | 5,170 |
|
| 143,261 | |
|
|
|
|
| 330,069 | |
|
|
|
|
|
| |
| TELECOMMUNICATIONS (20.6%) |
|
|
|
| |
| America Movil SA | 4,500 |
|
| 123,030 | |
| *Avaya Inc | 12,490 |
|
| 161,621 | |
| Harris Corp | 6,900 |
|
| 261,855 | |
| *J2 Global Communications | 8,200 |
|
| 203,114 | |
| Mobile TeleSystems OJSC | 3,300 |
|
| 273,240 | |
| *Nextel Communications Inc | 11,500 |
|
| 322,690 | |
| Nokia Corp ADR | 6,680 |
|
| 113,560 | |
| NTT DoCoMo | 4,000 |
|
| 91,600 | |
| QUALCOMM Inc | 2,850 |
|
| 153,700 | |
| *Trimble Navigation | 3,730 |
|
| 138,905 | |
| *Turkcell ADR | 13,100 |
|
| 347,805 | |
| *UTStarcom Inc | 7,800 |
|
| 289,146 | |
| *Vimpel Communications ADR | 4,000 |
|
| 294,000 | |
|
|
|
|
| 2,774,266 | |
TOTAL COMMON STOCKS (COST: $10,451,944) | $ | 12,935,649 | ||||
|
|
|
| |||
| SHORT-TERM SECURITIES(4.0%) |
|
| |||
| Wells Fargo Treasury Plus Money Market | $ | 124,089 | |||
| Wells Fargo Cash Investment Money Market |
| 420,000 | |||
| TOTAL SHORT-TERM SECURITIES (COST: $544,089) | $ | 544,089 | |||
|
|
|
| |||
| TOTAL INVESTMENTS IN SECURITIES (COST: $10,996,033) | $ | 13,479,738 | |||
| OTHER ASSETS LESS LIABILITIES |
| (23,652) | |||
|
|
|
| |||
| NET ASSETS | $ | 13,456,086 | |||
|
|
|
| |||
ADR – American Depository Receipt
*Non-income producing
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 2003
Statement of Assets and Liabilities December 31, 2003
ASSETS |
|
| ||
| Investments in securities, at value (cost: $10,996,033) | $ | 13,479,738 | |
| Cash |
| 201 | |
| Accrued dividends receivable |
| 1,296 | |
| Accrued interest receivable |
| 178 | |
| Prepaid expenses |
| 14,556 | |
| Receivable for fund shares sold |
| 150 | |
|
|
| ||
| Total Assets | $ | 13,496,119 | |
|
|
| ||
LIABILITIES |
|
| ||
| Accrued expenses | $ | 29,978 | |
| Payable for fund shares redeemed |
| 10,055 | |
|
|
| ||
| Total Liabilities | $ | 40,033 | |
|
|
| ||
|
|
| ||
NET ASSETS | $ | 13,456,086 | ||
|
|
| ||
|
|
| ||
Net assets are represented by: |
|
| ||
| Paid in capital | $ | 54,759,055 | |
| Accumulated undistributed net realized gain (loss) on investments |
| (43,786,674) | |
| Unrealized appreciation on investments |
| 2,483,705 | |
| Total amount representing net assets applicable to |
|
| |
| 1,833,735 outstanding shares of no par common stock |
|
| |
| (unlimited shares authorized) | $ | 13,456,086 | |
|
|
| ||
Net asset value per share | $ | 7.34 | ||
Statement of Operations For the nine months ended December 31, 2003
INVESTMENT INCOME |
|
| ||
| Interest | $ | 1,649 | |
| Dividends |
| 17,209 | |
| Total Investment Income | $ | 18,858 | |
|
|
| ||
EXPENSES |
|
| ||
| Investment advisory fees | $ | 109,567 | |
| 12b-1 fees |
| 45,575 | |
| Transfer agent fees |
| 87,849 | |
| Accounting service fees |
| 26,326 | |
| Administrative service fees |
| 18,230 | |
| Custodian fees |
| 2,174 | |
| Professional fees |
| 25,972 | |
| Trustees fees |
| 3,085 | |
| Transfer agent out-of-pockets |
| 4,475 | |
| Reports to shareholders |
| 108,751 | |
| Insurance expense |
| 7,187 | |
| License, fees, and registrations |
| 43,356 | |
| Bisys service fees |
| 3,283 | |
| Total Expenses | $ | 485,830 | |
| Less expenses waived or absorbed by the Fund’s manager |
| (44,352) | |
| Total Net Expenses | $ | 441,478 | |
|
|
| ||
NET INVESTMENT INCOME (LOSS) | $ | (422,620) | ||
|
|
| ||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| ||
| Net realized gain (loss) from: |
|
| |
| Investment transactions | $ | 314,348 | |
| Net change in unrealized appreciation (depreciation) of: |
|
| |
| Investments |
| 5,192,327 | |
| Net Realized and Unrealized Gain (Loss) on Investments | $ | 5,506,675 | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 5,084,055 | ||
The accompanying notes are an integral part of these financial statements.
Financial Statements December 31, 2003
Statement of Changes in Net Assets
For the period April 1, 2003, thru December 31, 2003, and the year ended March 31, 2003
|
| For The Period April 1, 2003 Thru December 31, 2003 |
| For The Year Ended March 31, 2003 | ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| ||
| Net investment income (loss) | $ | (422,620) | $ | (425,224) | |
| Net realized gain (loss) on investment transactions |
| 314,348 |
| (2,881,784) | |
| Net change in unrealized appreciation (depreciation) on investments |
| 5,192,327 |
| (3,441,711) | |
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 5,084,055 | $ | (6,748,719) | |
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| ||
| Dividends from net investment income | $ | 0 | $ | 0 | |
| Distributions from net realized gain on investment transactions |
| 0 |
| 0 | |
| Total Dividends and Distributions | $ | 0 | $ | 0 | |
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS |
|
|
|
| ||
| Proceeds from sale of shares | $ | 191,283 | $ | 1,998,223 | |
| Proceeds from reinvested dividends |
| 0 |
| 0 | |
| Cost of shares redeemed |
| (1,266,663) |
| (2,564,792) | |
| Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions |
$ |
(1,075,380) |
$ |
(566,569) | |
|
|
|
|
| ||
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | 4,008,675 | $ | (7,315,288) | ||
|
|
|
|
| ||
NET ASSETS, BEGINNING OF PERIOD |
| 9,447,411 |
| 16,762,699 | ||
NET ASSETS, END OF PERIOD | $ | 13,456,086 | $ | 9,447,411 | ||
Undistributed Net Investment Income (Loss) | $ | 0 | $ | 0 | ||
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements December 31, 2003
Note 1. ORGANIZATION
The Integrity Technology Fund (the “Fund”) is an investment portfolio of The Integrity Funds (the “Trust”) registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. On September 19, 2003,the Integrity Technology Fund became a series of The Integrity Funds Trust. Prior to this the Fund was a part of the Willamette Funds Group. The Willamette Funds were organized as a Delaware statutory trust on January 17, 2001 and were registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. Each of the Funds is also the successor to a fund of the same name that was a series of another registered investment compan y, The Coventry Group. On March 16, 2001, the shareholders of each of the predecessor funds approved their reorganization into The Willamette Funds, effective April 1, 2001. The Willamette Funds offered four managed investment portfolios and were authorized to issue an unlimited number of shares. The accompanying financial statements and financial highlights are those of the Integrity Technology Fund. The Fund seeks long-term growth of capital appreciation.
Shares of the Fund are offered at net asset value plus a maximum sales charge of 5.75% and a distribution fee of up to 0.50% on an annual basis.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation – Assets for which market quotations are available are valued as follows: (a) each listed security is valued at its closing price obtained from the respective primary exchange on which the security is listed, or, if there were no sales on that day, at its last reported current bid price; (b) each unlisted security is valued at the last current bid price obtained from the National Association of Securities Dealers Automated Quotation System. All of these prices are obtained by the Administrator from services, which collect and disseminate such market prices. Prices provided by an independent pricing service may be determined without exclusive reliance on quoted prices and may take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. In the absence of an ascertainable market value, assets are valued at their fair value as determined by the Adviser using methods and procedures reviewed and approved by the Trustees.
Redemption fees – In the case of investments of $1 million or more, a 1.00% redemption fee will be assessed on shares redeemed within 12 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).
Federal and state income taxes – It is the policy of the Fund to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code (the “Code”) and to make distributions of net investment income and net realized capital gains sufficient to relieve it from all, or substantially all, federal income taxes.
During the fiscal year ended December 31, 2003, there were no distributions paid.
As of December 31, 2003 the components of accumulated earnings/(deficit) on a tax basis was as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/(Depreciation) | Total Accumulated Earnings/(Deficit) |
$ 0 | $ 0 | $ 0 | $ (43,782,821) | $ 2,479,852 | $ (41,302,969) |
As of December 31, 2003, the Fund had net capital loss carryforwards, which are available to offset future realized capital gains. The differences between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to: tax deferral of losses on wash sales.
Year | Unexpired Capital Losses |
2008 | 11,939,222 |
2009 | 24,860,489 |
2010 | 6,063,295 |
2011 | 919,815 |
For the year ended December 31, 2003, the fund did not make any permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to expiring capital loss carryforwards.
Net capital losses incurred after October 31, and within the tax year are deemed to arise on the first business day of the Funds’ next taxable year. For the year ended December 31, 2003, the Fund deferred to January 1, 2004 post October capital losses, post October currency losses and post October passive foreign investment company losses of $0.
Distributions to shareholders – Dividends from net investment income, declared yearly and paid yearly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed along with the net investment income dividend at the end of the calendar year.
Other – Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date for financial reporting purposes. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatment for market discount, capital loss carryforwards and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
In 2003, the Fund has elected to change its financial reporting and tax year ends to December 31 from March 31.
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 requi red 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 accounting principles generally accepted in the United States of America 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.
Reclassifications – Certain prior year amounts have been reclassified to conform to the current year presentation.
Note 3. CAPITAL SHARE TRANSACTIONS
As of December 31, 2003, there were unlimited shares of no par authorized; 1,833,735 and 2,007,250 shares were outstanding at December 31, 2003, and March 31, 2003, respectively.
Transactions in capital shares were as follows:
|
| Shares | ||
| For The Period From April 1, 2003 Thru December 31, 2003 | For The Year Ended March 31, 2003 | ||
Shares sold | 29,097 | 379,912 | ||
Shares issued on reinvestment of dividends | 0 | 0 | ||
Shares redeemed | (202,612) | (468,132) | ||
Net increase (decrease) | (173,515) | (88,220) | ||
Note 4. ACQUISITION OF FUND
The Willamette Funds held a special meeting of shareholders of the Value Fund, Small Cap Growth Fund, Global Health Sciences Fund and Technology Fund (the “Funds”), at [the office of the Funds, 3435 Stelzer Road, Columbus, Ohio 43219], on August 29, 2003, at 11:00 a.m., Eastern Time, as adjourned from time to time (the “Meeting”), for the purposes listed: to approve a new investment advisory agreement with Integrity Money Management, Inc.; and to consider and act upon any other business as may properly come before the Meeting. After careful consideration, the Trustees of the Willamette Funds unanimously approved each of the proposals and recommended that shareholders vote “FOR” the proposals. The Willamette Funds Board of Trustees fixed the close of business on June 20, 2003, as the record date for determining shareholders entitled to notice of and to vote at the Meeting. Each share of a Fund was entitled to one vote for each dollar invested with respect to each proposal. The Investment Advisory Agreement of the Value Fund, Small Cap Growth Fund, Technology Fund and Global Health Sciences Fund were approved by the shareholders on August 29, 2003. The reorganization was accomplished by a tax-free exchange of 1,881,281 shares of Integrity Technology Fund for the 1,881,281 shares of Willamette Technology Fund on September 19, 2003. Willamette Technology Funds net assets of $13,230,730 on September 19, 2003, including $2,222,780 of unrealized appreciation, were reorganized into the Integrity Technology Fund.
Note 5. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Integrity Money Management, Inc., the Fund’s investment adviser; Integrity Funds Distributor, Inc., the Fund’s underwriter; and Integrity Fund Services, Inc., the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc., the Fund’s sponsor.
The Fund has engaged Integrity 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 1.20% of the Fund’s average daily net assets. The Fund has recognized $65,215 of investment advisory fees after a partial waiver for the nine months ended December 31, 2003. The Fund has a payable to Integrity Money Management, Inc. of $5,330 at December 31, 2003, for investment advisory fees. Certain officers and trustees of the Fund are also officers and trustees of the investment adviser.
Integrity Funds Distributor, Inc. serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan for each class of shares as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called “Distribution Plan expenses.” The Fund presently pays an annual distribution fee of up to 0.50% of the average daily net assets of the class. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $45,575 of distribution fees for the nine months ended December 31, 2003. The Fund has a payable to Integrity Funds Distributor, In c. of $5,841 at December 31, 2003.
Integrity Fund Services, Inc. (the transfer agent) provides shareholder services for a fee of 0.25% of average net assets with a minimum of $2,000 per month plus reimbursement of out-of-pocket expenses. An additional fee with a minimum of $500 per month will be charged for each additional share class. The Fund has recognized $87,849 of transfer agency fees for the nine months ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $2,921 at December 31, 2003, for transfer agency fees. Integrity Fund Services, Inc. also acts as the Fund’s accounting services agent for a 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, together with reimbursement of o ut-of-pocket expenses. An additional accounting services fee of $500 per month will be charged by Integrity Fund Services, Inc. for each additional share class. The Fund has recognized $26,326 of accounting service fees for the nine months ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $2,717 at December 31, 2003, for accounting service fees. Integrity Fund Services, Inc. also acts as the Fund’s administrative services agent for a fee equal to the rate of 0.20% of average daily net assets with a minimum of $2,000 per month plus out-of-pocket expenses. The Fund will pay an additional minimum fee of $500 per month for each additional share class. The Fund has recognized $18,230 of administrative service fees for the nine months ended December 31, 2003. The Fund has a payable to Integrity Fund Services, Inc. of $2,337 at December 31, 2003, for administrative service fees.
Note 6. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sale of investment securities (excluding short-term securities) aggregated $9,066,612 and $11,058,242, respectively, for the nine months ended December 31, 2003.
Note 7. INVESTMENT IN SECURITIES
At December 31, 2003, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $10,996,033. The net unrealized appreciation of investments based on the cost was $2,483,705, which is comprised of $3,119,904 aggregate gross unrealized appreciation and $636,199 aggregate gross unrealized depreciation.
Note 8. INVESTMENT RISKS
Risks of Technology Related Companies – Because the Technology Fund invests primarily in stocks of technology-related companies, it is particularly susceptible to risks associated with these companies. The Technology Fund’s performance will depend on the performance of securities of issuers in technology-related industries, which may differ from general stock market performance. The products and services of technology-related companies may become rapidly obsolete due to technological advances, competing technologies or price competition. In addition, government regulation may have a material effect on the demand for products and services of these companies, and new or amended regulations can adversely affect these companies or the market value of their securities. Finally, lawsuits or legal proceedings against these companies can adversely affect the value of their securities.
Financial Highlights December 31, 2003
Selected per share data and ratios for the period indicated
|
| For The Period April 1, 2003 Thru December 31, 2003 |
|
For The Year Ended March 31, 2003 |
|
For The Year Ended March 31, 2002* |
|
For The Year Ended March 31, 2001* |
| For The Period Since Inception (March 2, 2000) Thru March 31, 2000* | ||
NET ASSET VALUE, BEGINNING OF PERIOD |
$ |
4.71 |
$ |
8.00 |
$ |
10.22 |
$ |
44.75 |
$ |
50.00 | ||
|
|
|
|
|
|
|
|
|
|
| ||
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
| ||
| Net investment income (loss) | $ | (.23) | $ | (0.21) | $ | (0.22) | $ | (0.56) | $ | (0.05) | |
| Net realized and unrealized gain (loss) on investment transactions |
|
2.86 |
|
(3.08) |
|
(2.00) |
|
(33.95) |
|
(5.20) | |
| Total Income (Loss) From Investment Operations |
$ |
2.63 |
$ |
(3.29) |
$ |
(2.22) |
$ |
(34.51) |
$ |
(5.25) | |
|
|
|
|
|
|
|
|
|
|
| ||
Less Distributions: |
|
|
|
|
|
|
|
|
|
| ||
| Dividends from net investment income | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | |
| Distributions from net realized gains |
| 0.00 |
| 0.00 |
| 0.00 |
| (0.02) |
| 0.00 | |
| Total Distributions | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | (0.02) | $ | 0.00 | |
|
|
|
|
|
|
|
|
|
|
| ||
NET ASSET VALUE, END OF PERIOD |
$ |
7.34 |
$ |
4.71 |
$ |
8.00 |
$ |
10.22 |
$ |
44.75 | ||
|
|
|
|
|
|
|
|
|
|
| ||
Total Returns |
| 55.84%(A)(D) |
| (41.13%)(A) |
| (21.72%)(A) |
| (77.19%)(A) |
| (10.50%)(A)(D) | ||
|
|
|
|
|
|
|
|
|
|
| ||
RATIOS/SUPPLEMENTAL DATA: |
|
|
|
|
|
|
|
|
|
| ||
| Net assets, end of period (in thousands) | $ | 13,456 | $ | 9,447 | $ | 16,763 | $ | 12,671 | $ | 32,719 | |
| Ratio of net expenses (after expense assumption) to average net assets |
|
4.85%(B)(C) |
|
4.12%(B) |
|
3.26%(B) |
|
2.84%(B) |
|
2.77%(B)(C) | |
| Ratio of net investment income to average net assets |
|
(4.64%)(C) |
|
(3.93%) |
|
(3.01%) |
|
(2.48%) |
|
(1.51%)(C) | |
| Portfolio turnover rate |
| 77.40% |
| 116.42% |
| 360.05% |
| 199.34% |
| 11.14% | |
* Adjusted for a 1:5 reverse split on April 13, 2001
(A) Excludes maximum sales charges of 5.75%.
(B) During the period since March 31, 2003, Integrity Mutual Funds, Inc. and Willamette Asset Managers assumed/waived expenses of $44,352. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets would have been 5.34%. During the periods prior to March 31, 2003, Willamette Asset Managers and The Coventry Group assumed/waived expenses of $54,037, $63,109, $0, and $5,633, respectively. If the expenses had not been assumed/waived, the annualized ratios of total expenses to average net assets would have been 4.62%, 3.68%, 2.84%, and 2.97%, respectively.
(C) Ratio is annualized.
(D) Ratio is not annualized.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
INDEPENDENT AUDITOR’S REPORT
To the Shareholders and Board of Trustees of The Integrity Technology Fund
We have audited the accompanying statement of assets and liabilities of The Integrity Technology Fund, (the Fund), including the schedule of investments, as of December 31, 2003, the related statement of operations, the statement of changes in net assets, and the financial highlights for the nine month 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 audit. The statement of changes in net assets for the year ended March 31, 2003, and the financial highlights for each of the three years in the period ended March 31, 2003 and the period since inception (March 2, 2000) thru March 31, 2000, were audited by other auditors whose report dated May 22, 2003, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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, 2003, 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 The Integrity Technology Fund, as of December 31, 2003, the results of its operations, the changes in its net assets, and the financial highlights for the nine month period then ended, in conformity with accounting principles generally accepted in the United States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota USA
February 17, 2004
Item 2. Code of Ethics.
(a) The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
(b) For purposes of this Item, the term “code of ethics” means written standards that are reasonably designed to deter wrongdoing and to promote:
(1) Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
(2) Full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, the Commission and in other public communications made by the registrant;
(3) Compliance with applicable governmental laws, rules, and regulations;
(4) The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and
(5) Accountability for adherence to the code.
(c) The registrant must briefly describe the nature of any amendment, during the period covered by the report, to a provision of its code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics definition enumerated in paragraph (b) of this Item. The registrant must file a copy of any such amendment as an exhibit pursuant to Item 10(a), unless the registrant has elected to satisfy paragraph (f) of this Item by posting its code of ethics on its website pursuant to paragraph (f)(2) of this Item, or by undertaking to provide its code of ethics to any person without charge, upon request, pursuant to paragraph (f)(3) of this Item.
NOT APPLICABLE
(d) If the registrant has, during the period covered by the report, granted a waiver, including an implicit waiver, from a provision of the code of ethics to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this Item, the registrant must briefly describe the nature of the waiver, the name of the person to whom the waiver was granted, and the date of the waiver.
NOT APPLICABLE.
(e) If the registrant intends to satisfy the disclosure requirement under paragraph (c) or (d) of this Item regarding an amendment to, or a waiver from, a provision of its code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and that relates to any element of the code of ethics definition enumerated in paragraph (b) of this Item by posting such information on its Internet website, disclose the registrant’s Internet address and such intention.
NOT APPLICABLE.
See item 10(a) regarding the filing of the Code of Ethics for Principal Executive and Principal Financial Officers of The Integrity Funds and Integrity Mutual Funds, Inc.
Item 3. Audit Committee Financial Expert.
(a) (1) Integrity Mutual Fund’s board of directors has determined that there is one audit committee financial expert serving on its audit committee.
(2) Lynn Aas is the audit committee financial expert and is considered “independent.” In order to be considered “independent”, a member of an audit committee may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee:
(i) Accept directly or indirectly any consulting, advisory, or other compensatory fee from the issuer; or
(ii) Be an “interested person” of the investment company as defined in Section 2(a)(19) of the Act (15 U.S.C. 80a-2(a)(19)).
(3) If the registrant provides the disclosure required by paragraph (a)(1)(ii) of this Item, it must explain why it does not have an audit committee financial expert.
NOT APPLICABLE.
Item 4. Principal Accountant Fees and Services.
(a) Disclose, under the caption Audit Fees, the aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years.
Audit Fees
2002 Not Applicable (do to Reorganization of the Funds in 2003)
2003 $31,400.00
(b) Disclose, under the caption Audit-Related Fees, the aggregate fees billed fin each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category.
Audit-Related Fees
2002 Not Applicable (do to Reorganization of the Funds in 2003)
2003 $3,900.00
(c) Disclose, under the caption Tax Fees, the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. Registrants shall describe the nature of the services comprising the fees disclosed under this category.
Tax Fees
2002 Not Applicable (do to Reorganization of the Funds in 2003)
2003 $4,800.00
(d) Disclose, under the caption All Other Fees, the aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than services reported in paragraphs (a) through (c) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category.
None
(e) (1) Disclose the audit committee’s pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Before the accountant is engaged by the registered investment company or its affiliates to render audit or non-audit services, the engagement is approved by the investment company’s audit committees.
(2) Disclose the percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
All of the services described in paragraphs (b) through (d) of item 4 were approved by the audit committee.
(f) If greater than 50 percent, disclose the percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.
All services performed on the engagement to audit the registrant’s financial statements for the most recent fiscal year end were performed by the principal accountant’s full-time, permanent employee.
(g) Disclose the aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant.
None
(h) Disclose whether the registrant’s audit committee of the board of directors has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any subadviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Not applicable
Items 5. Not applicable
Items 6. Reserved
Item 7. Not applicable
Item 8. Reserved
Item 9. Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Controls. There were no significant changes in Registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 10. Exhibits.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
The Integrity Funds
BY: Robert E. Walstad
ROBERT E. WALSTAD
CHIEF EXECUTIVE OFFICER
Date: February 23, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
The Integrity Funds
BY: Robert E. Walstad
ROBERT E. WALSTAD
CHIEF EXECUTIVE OFFICER
Date: February 23, 2004