UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 |
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FORM N-CSRS |
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES |
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Item 1) | Reports to Stockholders. |
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Dear Shareholders:
Enclosed is the report of the operations of the Integrity Fund of Funds, Inc. (the “Fund”), for the six months ended June 30, 2006. The Fund's portfolio and related financial statements are presented within for your review.
As the first half of 2006 ends, the Federal Reserve under new chairman Ben Bernanke has raised the Federal Funds rate for the seventeenth time to 5.25%. Rising concerns over the U.S. core consumer index’s 3.8% annualized growth through May has the Fed officials talking tough. The Fed puts great emphasis in keeping inflation expectations under control. At the same time, it is important for central banks to be forward looking and not base their policy decisions on lagging economic indicators.
Recent stock market turbulence needs to be put in perspective. The stock market’s rally has, by historical standards, been quite advanced and the gradual rise in Fed Funds removed a tailwind behind stock prices. Meanwhile, a slowdown in earnings growth is inevitable; however we do not see conditions for a bear market. With a long list of investor worries such as high oil, housing bubble, Federal Reserve and geopolitics, we believe none of them, with the exception of geopolitical, should turn out to be overly troubling.
In summary, the markets are undergoing a fairly typical correction within an ongoing cyclical bull market. Long-term investors should remain patient, as these types of volatility can be difficult to time exit and entry points with precision.
The Integrity Fund of Funds’ total return for the period was 3.24%*, this compares to the S&P 500 Index’s 2.71% return for the period.
During the period, additions to the Fund included: American Funds Capital World Growth and Income Fund. Deletions during the period were: Franklin Gold and Precious Metal Fund, which had a gain of 115% since initial purchase.
The Fund continues to search and hold proven funds whose long-term performance of capital appreciation and growth of income are consistent with the Fund's objectives.
The current portfolio is represented as follows: Growth 38.9%, Growth and Income 22.8%, World Stock 18.7%, Equity Income 11%, Mid Cap Growth 6.9% and Natural Resources 1.7%.
If you would like more frequent updates, visit our website at www.integrityfunds.com for daily prices along with pertinent fund information.
Sincerely,
The Portfolio Management Team
The views expressed are those of Monte Avery, Chief Portfolio Strategist 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.
*Performance does not include applicable contingent deferred sales charges, which would have reduced the performance.
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 adviser and read it carefully before investing.
June 30, 2006 (Unaudited)
PROXY VOTING ON FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-276-1262. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Integrity's website at www.integrityfunds.com. This information is also available from the EDGAR database on the Securities and Exchange Commission’s (“SEC's”) website at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
The Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports within 60 days of the end of the Fund's second and fourth fiscal quarters on the Form N-CSR(S). The annual and semi-annual reports are filed electronically with the SEC and are delivered to the Fund shareholders. The Fund also files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q and N-CSR(S) are available on the SEC's website at www.sec.gov. The Fund's Forms N-Q and N-CSR(S) may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C., and the information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. You may also access this information from Integrity's website at www.integrityfunds.com.
Terms & Definitions June 30, 2006 (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.
Contingent Deferred Sales Charge (CDSC)
A charge applied at the time of the redemption, assuming redemption at the end of the period.
Depreciation
Decrease in the value of an asset.
Growth Fund
A type of diversified common stock fund that has capital appreciation as its primary goal. It invests in companies that reinvest most of their earnings for expansion, research, or development.
Growth & Income Fund
Fund that invests in common stocks for both current income and long-term growth of capital and income.
Load
A mutual fund whose shares are sold with a sales charge added to the net asset value.
Market Value
Actual price at which a fund trades in the market place.
Net Asset Value (NAV)
The value of all your fund’s assets, minus any liabilities, divided by the number of outstanding shares, not including any initial or contingent deferred sales charge.
No-Load
A mutual fund whose shares are sold without a sales charge added to the net asset value.
Total Return
Measures both the net investment income and any realized and unrealized appreciation or depreciation of the underlying investments in the fund’s portfolio for the period, assuming the reinvestment of all dividends. It represents the aggregate percentage or dollar value change over the period.
June 30, 2006 (Unaudited)
PERFORMANCE AND COMPOSITION
Portfolio Load Types
The Load Structure reflects the type of sales load typically charged by each fund in the portfolio.
As of 06/30/06, the Fund has not paid a sales load to any fund.
These percentages are subject to change.
Portfolio Investment Style
G – Growth | 38.9% |
G&I – Growth & Income | 22.8% |
WS – World Stock | 18.7% |
EI – Equity Income | 11.0% |
MC – Mid-Cap Growth | 6.9% |
NR – Natural Resources | 1.7% |
The Portfolio Investment Style reflects the investment methodology and the size of the company in which each fund in the portfolio invests.
These percentages are subject to change.
June 30, 2006 (Unaudited)
DISCLOSURE OF FUND EXPENSES
The Example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads), redemption fees and exchange fees; and (2) ongoing costs, including management fees, distribution (12b-1) fees and other fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from December 30, 2005 to June 30, 2006.
The example illustrates the Fund’s costs in two ways:
Actual expenses
The section in the table under the heading “Actual” provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the appropriate column for your share class, in the column entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The section in the table under the heading “Hypothetical (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the section in the table under the heading “Hypothetical (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value 12/30/05 | Ending Account Value 06/30/06 | Expenses Paid During Period* |
Actual | | | |
Class B | $1,000.00 | $1,032.37 | $8.38 |
Hypothetical (5% return before expenses) | | | |
Class B | $1,000.00 | $1,016.75 | $8.32 |
*Expenses are equal to the annualized expense ratio of 1.65%, multiplied by the average account value over the period, multiplied by 180/360 days. The Fund’s ending account value on the first line in the table is based on its actual total return of 3.24% for the six-month period of December 30, 2005 to June 30, 2006.
June 30, 2006 (Unaudited)
AVERAGE ANNUAL TOTAL RETURNS
| For periods ending June 30, 2006 |
| | | | Since Inception |
Integrity Fund of Funds | 1 year | 5 year | 10 year | (January 3, 1995) |
Without CDSC | 11.81% | 1.94% | 3.39% | 5.80% |
With CDSC (1.50% Max) | 10.31% | 1.94% | 3.39% | 5.80% |
| | | | Since Inception |
S&P 500 Index | 1 year | 5 year | 10 year | (January 3, 1995) |
| 8.63% | 2.49% | 8.31% | 11.14% |
Putting Performance into Perspective
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 adviser 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.
June 30, 2006 (Unaudited)
COMPARATIVE INDEX GRAPH
Comparison of change in value of a $10,000 investment in Integrity Fund of Funds and the S&P 500 Index
| Integrity Fund of Funds | |
| w/o CDSC | S&P 500 Index |
12/31/1995 | $10,000 | $10,000 |
1996 | $11,383 | $12,296 |
1997 | $13,050 | $16,398 |
1998 | $14,639 | $21,085 |
1999 | $17,425 | $25,521 |
2000 | $15,858 | $23,198 |
2001 | $12,442 | $20,441 |
2002 | $ 9,807 | $15,923 |
2003 | $12,618 | $20,491 |
2004 | $13,803 | $22,720 |
2005 | $14,799 | $23,836 |
06/30/06 | $15,278 | $24,482 |
Putting Performance into Perspective
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 adviser and read it carefully before investing.
The graph does not reflect the deduction of the maximum contingent deferred sales charge (CDSC). Had CDSC been included, performance would have been lower.
The graph does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
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.
June 30, 2006 (Unaudited)
MANAGEMENT OF THE FUND
The Board of the Fund consists of five Directors. 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 and the seven series of The Integrity Funds. Three Directors (60% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “independent” Directors. Two of the remaining three Directors and/or Officers are “interested” by virtue of their affiliation with the Investment Adviser and its affiliates.
The Independent Directors 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 Director, and other directorships, if any, held outside the Fund Complex, are shown below.
Effective January 6, 2006, Independent Director Lynn Aas retired from the Board of Directors and Jerry Stai was subsequently nominated and elected to the Board of Directors to fill the vacancy. Mr. Aas’ retirement also created a vacancy on the Audit committee and the Governance and Nominating Committee that Mr. Stai will also occupy.
INDEPENDENT DIRECTORS
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 Complex1 | Other Directorships Held Outside The Fund Complex |
Jerry M. Stai
1 N. Main St.
Minot, ND 58703
53 | Director | Since January 2006 | Faculty, Embry-Riddle University (August 2000 to September 2005); Faculty, Park University (August 2005 to December 2005); Non-Profit Specialist, Bremer Bank (since July 2005); Faculty, Minot State University (since August 2000); Director, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc. (since January 2006); Trustee, Integrity Managed Portfolios and The Integrity Funds (since January 2006). | 16 | Marycrest Franciscan Development, Inc. |
Orlin W. Backes
15 2nd Ave., SW
Suite 305
Minot, ND 58701
71 | Director | Since April 1995 | Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director, ND Tax-Free Fund, Inc. (since April 1995), Montana Tax-Free Fund, Inc. (since April 1995), South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), Integrity Fund of Funds, Inc. (since April 1995), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003); Trustee, Integrity Managed Portfolios (since January 1996) and The Integrity Funds (since May 2003); and Director, First Western Bank & Trust. | 16 | Director, First Western Bank & Trust |
R. James Maxson
Town & Country Center
1015 S. Broadway
Ste 15
Minot, ND 58701
58 | Director | Since January 1999 | Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Director, ND Tax-Free Fund, Inc. (since January 1999), Montana Tax-Free Fund, Inc. (since January 1999), South Dakota Tax-Free Fund, Inc. (January 1999 to June 2004), Integrity Fund of Funds, Inc. (since January 1999), Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); and Trustee, Integrity Managed Portfolios (since January 1999) and The Integrity Funds (since May 2003). | 16 | None |
1The Fund Complex consists of the three funds in the Integrity family of funds, the six series of Integrity Managed Portfolios and the seven series of The Integrity Funds.
Directors and officers of the Fund serve until their resignation, removal or retirement.
The Statement of Additional Information contains more information about the Fund’s Directors and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.
June 30, 2006 (Unaudited)
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 Director and other directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED DIRECTORS 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 Complex1 | Other Directorships Held Outside The Fund Complex |
Robert E. Walstad2
1 Main St. N.
Minot, ND 58703
61 | Director
Chairman
President | Since August 1994 | 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., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), 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 (since January 1996) and The Integrity Funds (since May 2003); Director, President (until August 2003), CEO, and Treasurer, Integrity Funds Distributor, Inc.; Director (October 1999 to June 2003), President (October 1999 to October 2001), Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (May 2000 to November 2001) (October 2002 to June 2003), ARM Securities Corporation; and Director, CEO, Chairman (since January 2002), President (since September 2002), Capital Financial Services, Inc. | 16 | None |
Peter A. Quist2
1 N. Main St.
Minot, ND 58703
71 | Director
Vice President
Secretary | Since August 1994 | 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., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), 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); Vice President and Secretary, Integrity Managed Portfolios (since January 1996) and The Integrity Funds (since May 2003); and Director, ARM Securities Corporation (May 2000 to June 2003). | 3 | None |
Brent M. Wheeler
1 N. Main St.
Minot, ND 58703
35 | Mutual Fund Chief Compliance Officer | Since October 2005 | Fund Accounting Manager (May 1998 through October 2005), Integrity Fund Services, Inc.; Treasurer (May 2004 to October 2005), Mutual Fund Compliance Officer (since October 2005) The Integrity Funds, Integrity Managed Portfolios and Integrity Mutual Fund. | N/A | Minot State University Alumni Association |
Laura K. Anderson
1 N. Main St.
Minot, ND 58703
32 | Treasurer | Since October 2005 | Fund Accountant (until May 2004), Fund Accounting Supervisor (May 2004 to October 2005), Fund Accounting Manager, Integrity Fund Services, Inc.; Treasurer (since October 2005), The Integrity Funds, Integrity Managed Portfolios and Integrity Mutual Funds. | N/A | None |
1The Fund Complex consists of the three funds in the Integrity family of funds, the six series of Integrity Managed Portfolios and the seven series of The Integrity Funds.
2Directors who are “interested persons” of the Fund as defined in the Act of 1940. Mr. Quist and Mr. Walstad are interested persons by virtue of being officers and directors of the Funds’ Investment Adviser and the Fund’s Principal Distributor.
Directors and officers of the Fund serve until their resignation, removal or retirement.
The Statement of Additional Information contains more information about the Fund’s Directors and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.
Schedule of Investments June 30, 2006 (Unaudited)
Name of Issuer
Percentages represent the market value of each investment category to total net assets | Quantity | | Market Value |
| | | |
MUTUAL FUNDS (85.3%) | | | |
| | | |
American Capital World Growth & Income Fund Class A | 6,555 | $ | 252,425 |
American Growth Fund of America Class A | 21,212 | | 672,412 |
Dodge & Cox Stock Fund Class N | 5,466 | | 789,740 |
Fidelity Dividend Growth Fund Class N | 13,615 | | 396,742 |
*Legg Mason Value Trust Class N | 3,623 | | 236,294 |
Mairs and Power Growth Fund Class N | 5,132 | | 375,604 |
MFS Value Fund Class A | 11,100 | | 270,956 |
T. Rowe Price Equity Income Fund Class N | 11,533 | | 310,473 |
T. Rowe Price New Era Fund Class N | 1,997 | | 93,056 |
Templeton Growth Fund Class A | 11,496 | | 280,623 |
Templeton World Fund Class A | 24,231 | | 454,580 |
Thompson Plumb Growth Fund Class N | 8,516 | | 375,105 |
Vanguard Capital Opportunity Fund Class N | 10,663 | | 363,489 |
Washington Mutual Investors Class A | 13,039 | | 418,677 |
| | | |
TOTAL MUTUAL FUNDS (COST: $4,373,695) | | $ | 5,290,176 |
| | | |
SHORT-TERM SECURITIES (13.6%) | Shares | | |
Wells Fargo Advantage Investment Money Market (COST: $841,297) | 841,297 | $ | 841,297 |
| | | |
TOTAL INVESTMENTS IN SECURITIES (COST: $5,214,992) | | $ | 6,131,473 |
| | | |
OTHER ASSETS LESS LIABILITIES | | | 72,272 |
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NET ASSETS | | $ | 6,203,745 |
*Indicates mutual fund is non-income producing.
The accompanying notes are an integral part of these financial statements.
Financial Statements June 30, 2006
Statement of Assets and Liabilities June 30, 2006 (Unaudited)
ASSETS | | |
| | $ | 6,131,473 |
| Cash | | 15,380 |
| Receivable for fund shares sold | | 52,253 |
| Accrued interest receivable | | 2,165 |
| Accrued dividends receivable | | 4,950 |
| Prepaid expenses | | 6,508 |
| Receivable from manager | | 3 |
| | |
| Total Assets | $ | 6,212,732 |
| | |
| | |
LIABILITIES | | |
| Payable to affiliates | $ | 5,874 |
| Accrued expenses | | 3,113 |
| | | |
| Total Liabilities | $ | 8,987 |
| | |
| | |
NET ASSETS | $ | 6,203,745 |
| | |
Net assets are represented by: | | |
| Capital stock outstanding, at par | $ | 51 |
| Additional paid-in capital | | 9,502,328 |
| Accumulated undistributed net realized gain (loss) on investments | | (4,193,413) |
| | | (21,702) |
| | | 916,481 |
| Total amount representing net assets applicable to | | |
| | | |
| common stock (1,000,000,000 shares authorized) | $ | 6,203,745 |
| | |
Net asset value per share | $ | 12.12 |
| | | | |
The accompanying notes are an integral part of these financial statements.
Statement of Operations For the six months ended June 30, 2006 (Unaudited)
INVESTMENT INCOME | | |
| Interest | $ | 10,400 |
| Dividends | | 17,998 |
| Total Investment Income | $ | 28,398 |
| | |
EXPENSES | | |
| Investment advisory fees | $ | 27,327 |
| Service fees | | 7,591 |
| Transfer agent fees | | 12,000 |
| Accounting service fees | | 13,518 |
| Transfer agent out-of-pockets | | 780 |
| Professional fees | | 3,453 |
| Custodian fees | | 758 |
| Directors fees | | 913 |
| Reports to shareholders | | 1,304 |
| License, fees, and registrations | | 2,595 |
| Insurance expense | | 65 |
| Legal fees | | 2,334 |
| Audit fees | | 3,357 |
| Total Expenses | $ | 75,995 |
| Less expenses waived or absorbed by the Fund’s manager | | (25,895) |
| Total Net Expenses | $ | 50,100 |
| | |
NET INVESTMENT INCOME (LOSS) | $ | (21,702) |
| | |
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | | |
| Net realized gain (loss) from: | | |
| Investment transactions | $ | 217,998 |
| Capital gain distributions | | 2,102 |
| Net change in unrealized appreciation (depreciation) of investments | | 9,125 |
| Net Realized and Unrealized Gain (Loss) on Investments | $ | 229,225 |
| | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 207,523 |
| | | | |
The accompanying notes are an integral part of these financial statements.
Financial Statements June 30, 2006
Statement of Changes in Net Assets
For the six months ended June 30, 2006 and the year ended December 30, 2005
| | For The Six Months Ended June 30, 2006 (Unaudited) | | For The Year EndedDecember 30, 2005 |
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | | | | |
| Net investment income (loss) | $ | (21,702) | $ | (20,204) |
| Net realized gain (loss) on investments | | 220,100 | | 346,075 |
| Net change in unrealized appreciation (depreciation) on investments | | 9,125 | | 91,510 |
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 207,523 | $ | 417,381 |
| | | | |
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS | | | | |
| Dividends from net investment income ($.00 and $.00 per share, respectively) | $ | 0 | $ | 0 |
| Distributions from net realized gain on investments ($.00 and $.00 per share, respectively) | | 0 | | 0 |
| Total Dividends and Distributions | $ | 0 | $ | 0 |
| | | | |
CAPITAL SHARE TRANSACTIONS | | | | |
| Proceeds from sale of shares | $ | 698,565 | $ | 547,609 |
| Proceeds from reinvested dividends | | 0 | | 0 |
| Cost of shares redeemed | | (731,343) | | (1,453,282) |
| Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions | $ | (32,778) | $ | (905,673) |
| | | | |
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | 174,745 | $ | (488,292) |
| | | | |
NET ASSETS, BEGINNING OF PERIOD | | 6,029,000 | | 6,517,292 |
| | | | |
NET ASSETS, END OF PERIOD | $ | 6,203,745 | $ | 6,029,000 |
Undistributed Net Investment Income | $ | 0 | $ | 0 |
| | | | | | |
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements June 30, 2006 (Unaudited)
Note 1. ORGANIZATION
Integrity Fund of Funds, Inc. (the “Fund”) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Fund incorporated under the laws of the State of North Dakota on June 1, 1994 and commenced operations on January 1, 1995. The Fund’s objective is long-term capital appreciation and growth of income. The Fund seeks to achieve this objective by investing primarily in a diversified group of other open-end investment companies which, in turn, invest principally in equity securities.
Shares of the Fund are offered for sale at net asset value without a sales charge. Shares may be subject to a contingent deferred sales charge if redeemed within five years of purchase.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation – Investments in mutual funds are valued at the net asset value (NAV) per share most recently determined and reported by the respective mutual fund. Such quotations are obtained from a pricing service. If the pricing service fails to receive the NAV from the underlying mutual fund, a daily news source from the internet will be used as the pricing source, along with a telephone call to the underlying mutual fund. If the NAV is unreportable by the underlying fund group on the current day, our pricing group will wait until the next business morning to obtain the price from the underlying fund group and then price and verify the NAV for the Fund.
Federal and state income taxes – The Fund’s policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its net investment income, including any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required.
The tax character of distributions paid was as follows:
| | December 30, 2005 | | December 31, 2004 |
Tax-exempt Income | $ | 0 | $ | 0 |
Ordinary Income | | 0 | | 0 |
Long-term Capital Gains | | 0 | | 0 |
Total | $ | 0 | $ | 0 |
During the years ended December 30, 2005, and December 31, 2004, there were no distributions paid.
As of December 30, 2005, 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 | ($4,413,513) | $907,356 | ($3,506,157) |
The Fund has available at December 30, 2005, a net capital loss carryforward totaling $4,413,513, which may be used to offset capital gains. The capital loss carryforward amounts will expire in each of the years ended December 31 as shown in the table below.
Year | Unexpired Capital Losses |
2009 | $2,190,600 |
2010 | $1,709,000 |
2011 | $513,913 |
For the year ended December 30, 2005, the Fund did not make any permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to expiring capital loss carryforwards.
Distributions to shareholders – The Fund will distribute dividends from net investment income and any net realized capital gains at least annually. Dividends and distributions are reinvested in additional shares of the Fund at net asset value or paid in cash. Distributions are recorded on the ex-dividend date.
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. 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 treatments for non-taxable dividends, and losses deferred due to wash sales.
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.
Dividend income – Dividend income is recognized on the ex-dividend date.
Futures contracts – The Fund may purchase and sell financial futures contracts to hedge against changes in the values of equity securities the Fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of a particular index at a set price on a future date. Upon entering into a futures contract, the Fund is required to deposit with a broker an amount of cash or securities equal to the minimum “initial margin” requirement of the futures exchange on which the contract is traded. Subsequent payments (“variation margin”) are made or received by the Fund, dependent on the fluctuations in the value of the underlying index. Daily fluctuations in value are recorded for financial reporting purposes as unrealized gains or losses by the fund. When entering into a closing transaction, the Fund will realize, for book purposes, a gain or loss equal to the difference between the value of the futures contracts sold and the futures contracts to buy. Unrealized appreciation (depreciation), related to open futures contracts, is required to be treated as realized gain (loss) for Federal income tax purposes.
Certain risks may arise upon entering into futures contracts. These risks may include changes in the value of the futures contracts that may not directly correlate with changes in the value of the underlying securities.
Use of estimates – The preparation of financial statements in conformity with 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.
Note 3. CAPITAL SHARE TRANSACTIONS
As of June 30, 2006, there were 1,000,000,000 shares of $.0001 par value authorized; 511,990 and 513,505 shares were outstanding atJune 30, 2006 and December 30, 2005, respectively.
Transactions in capital shares were as follows:
| Shares |
| For The Six Months Ended June 30, 2006 (Unaudited) | For The Year Ended December 30, 2005 |
Shares sold | 58,185 | 50,218 |
Shares issued on reinvestment of dividends | 0 | 0 |
Shares redeemed | (59,700) | (131,717) |
Net increase (decrease) | (1,515) | (81,499) |
Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Integrity Money Management, Inc. (“Integrity Money Management” or “Adviser”), the Fund's investment adviser; Integrity Funds Distributor, Inc. (“Integrity Funds Distributor”), the Fund's underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”), the Fund's transfer and accounting services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“Integrity Mutual Funds”), the Fund's sponsor.
The Advisory Agreement provides for fees to be computed at an annual rate of 0.90% of the Fund's average daily net assets. The Fund has recognized $1,551of investment advisory fees after waiver for the six months ended June 30, 2006. The Fund has a payable to Integrity Money Management of $134 at June 30, 2006 for investment advisors fees. Certain officers and directors of the Fund are also officers and directors of the investment adviser.
The Investment Adviser has contractually agreed to maintain expense levels of the Fund at 1.65% through December 31, 2006. In addition, the Investment Adviser may voluntarily waive fees or reimburse expenses not required under the advisory contract from time to time. Accordingly, after fee waivers and expense reimbursements, the Fund’s actual total annual operating expenses were 1.65% for the six months ended June 30, 2006.
Principal Underwriter and Shareholder Services
Integrity Funds Distributor is the Fund’s principal underwriter. The Fund pays Integrity Funds Distributor service fees computed at an annual rate of 0.25% of the Fund’s average daily net assets. Integrity Funds Distributor, in turn, pays dealers service fees for personal service to shareholders and/or the maintenance of shareholder accounts. The Fund has recognized $7,591 of service fees for the six months ended June 30, 2006. The Fund has a payable to Integrity Funds Distributor of $1,218 at June 30, 2006 for service fees. Certain officers and directors of the Fund are also officers and directors of the underwriter.
Integrity Fund Services provides shareholder services for a fee computed at an annual rate of 0.25% of the Fund’s average daily net assets with a minimum of $2,000 per month, plus out-of-pocket expenses. An additional fee with a minimum of $500 per month is charged for each additional share class. The Fund has recognized $12,000 of transfer agency fees for the six months ended June 30, 2006. The Fund has a payable to Integrity Fund Services of $2,000 at June 30, 2006 for transfer agency fees. Integrity Fund Services 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. An additional fee with a minimum of $500 per month is charged for each additional share class. The Fund has recognized $13,518of accounting service fees for the six months ended June 30, 2006. The Fund has a payable to Integrity Fund Services of $2,244 at June 30, 2006 for accounting service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment securities (excluding short-term securities) aggregated $250,000 and $840,827, respectively, for the six months ended June 30, 2006.
Note 6. INVESTMENT IN SECURITIES
At June 30, 2006, the aggregate cost of securities for federal income tax purposes was $5,214,992 and the net unrealized appreciation of investments based on the cost was $916,481, which is comprised of $917,334 aggregate gross unrealized appreciation and $853 aggregate gross unrealized depreciation.
Financial Highlights June 30, 2006
Selected per share data and ratios for the period indicated
| | For The Six Months Ended June 30, 2006 (Unaudited) | | For The Year Ended December 30, 2005 | | For The Year Ended December 31, 2004 | | For The Year Ended December 31, 2003 | | For The Year Ended December 31, 2002 | | For The Year Ended December 31, 2001 |
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 11.74 | $ | 10.95 | $ | 10.01 | $ | 7.78 | $ | 9.87 | $ | 12.58 |
| | | | | | | | | | | | |
Income from Investment Operations: | | | | | | | | | | | | |
| Net investment income (loss) | $ | (.04) | $ | (.04) | $ | (.04) | $ | (.07) | $ | (.10) | $ | (.12) |
| Net realized and unrealized gain (loss) on investments | | ..42 | | ..83 | | ..98 | | 2.30 | | (1.99) | | (2.59) |
| Total Income (Loss) From Investment Operations | $ | ..38 | $ | ..79 | $ | ..94 | $ | 2.23 | $ | (2.09) | $ | (2.71) |
| | | | | | | | | | | | |
Less Distributions: | | | | | | | | | | | | |
| From net investment income | $ | ..00 | $ | ..00 | $ | ..00 | $ | ..00 | $ | ..00 | $ | ..00 |
| Distributions from net realized gains | | ..00 | | ..00 | | ..00 | | ..00 | | ..00 | | ..00 |
| Total Distributions | $ | ..00 | $ | ..00 | $ | ..00 | $ | ..00 | $ | ..00 | $ | ..00 |
| | | | | | | | | | | | |
NET ASSET VALUE, END OF PERIOD | $ | 12.12 | $ | 11.74 | $ | 10.95 | $ | 10.01 | $ | 7.78 | $ | 9.87 |
| | | | | | | | | | | | |
Total Return | | 6.47%(A)(C) | | 7.21%(A) | | 9.39%(A) | | 28.66%(A) | | (21.18)%(A) | | (21.54)%(A) |
| | | | | | | | | | | | |
RATIOS/SUPPLEMENTAL DATA: | | | | | | | | | | | | |
| Net assets, end of period (in thousands) | $ | 6,204 | $ | 6,029 | $ | 6,517 | $ | 7,142 | $ | 8,496 | $ | 14,418 |
| Ratio of net expenses (after expense assumption) to average net assets | | 1.65%(B)(C) | | 1.65%(B) | | 1.60%(B) | | 1.60%(B) | | 1.60%(B) | | 1.60%(B) |
| Ratio of net investment income to average net assets | | (0.71)%(C) | | (0.33)% | | (0.39)% | | (0.69)% | | (0.89)% | | (1.13)% |
| Portfolio turnover rate | | 4.49% | | 1.65% | | 24.84% | | 0.00% | | 27.71% | | 51.46% |
| | | | | | | | | | | | | | |
(A) Excludes contingent deferred sales charge of 1.50%.
(B) During the periods indicated above, Integrity Mutual Funds assumed/waived expenses of $25,895, $61,165, $57,412, $25,525, $21,883, and $10,797, respectively. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets would have been 2.50%, 2.63%, 2.47%, 1.97%, 1.79%, and 1.67%, respectively.
(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.
| | |
Item 2) | Code of Ethics. |
| A code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions is filed as an exhibit to the registrant's annual Form N-CSR. The Code has been amended to remove references to the functions of the corporation and apply specifically to the Funds during the registrant's most recent fiscal half-year. The registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PFO and PEO during the period covered by this report. |
Item 3) | Audit Committee Financial Expert. |
| The information required by this Item is only required in an annual report on Form N-CSR. |
Item 4) | Principal Accountant Fees and Services. |
| The information required by this Item is only required in an annual report on Form N-CSR. |
Item 5) | Audit Committee of Listed Registrants. |
| Not applicable. |
Item 6) | Schedule of Investments. |
| The Schedule of Investments is included in Item 1 of this Form N-CSRS. |
Item 7) | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
| Not applicable. |
Item 8) | Portfolio Managers of Closed-End Management Investment Companies. |
| Not Applicable. |
Item 9) | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
| Not Applicable. |
Item 10) | Submissions of Matters to a Vote of Security Holders. |
| There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of directors in the last fiscal half-year. |
Item 11) | Controls and Procedures. |
| (a) | Based on their evaluation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of this Form N-CSRS (the “Report”), the registrant’s principal executive officer and principal financial officer believe that the disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effectively designed to ensure that information required to be disclosed by the registrant in the Report is recorded, processed, summarized and reported by the filing date, including ensuring that information required to be disclosed in the Report is accumulated and communicated to the registrant’s principal executive officer and principal financial officer who are making certifications in the Report, as appropriate, to allow timely decisions regarding required disclosure. |
| (b) | There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant's most recent fiscal half-year that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. |
Item 12) | Exhibits. |
| (a) | (1) | The registrant’s code of ethics filed pursuant to Item 2 of the N-CSR is filed with the registrant’s annual N-CSR. |
| (2) | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is filed and attached hereto. |
| (b) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is filed and attached hereto. |
|
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. |
|
| /s/Robert E. Walstad |
|
President, | Integrity Fund of Funds, Inc. |
|
| |
|
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. |
|
| /s/Laura K. Anderson |
Laura K. Anderson |
Treasurer, | Integrity Fund of Funds, Inc. |
|
Date: | August 30, 2006 |
| | | | | | | | |
