N-CSRS 1 ncsrs20070131.htm N-CSRS: INTEGRITY MANAGED PORTFOLIOS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549

 

FORM N-CSRS

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number

811-06153

 

Integrity Managed Portfolios

 

(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

Brent Wheeler, Mutual Fund Chief Compliance Officer
Kevin Flagstad, Investment Adviser Chief Compliance Officer

 

1 Main Street North

 

Minot, ND 58703

 

 

Registrant’s telephone number, including area code

(701) 852-5292

 

Date of fiscal year end

July 31

Date of reporting period

January 31, 2007

 

Item 1)

Reports to Stockholders.

 

Dear Shareholder:

Enclosed is the semi-annual report of the Kansas Municipal Fund (the “Fund”) for the period ended January 31, 2007. The Fund’s portfolio and related financial statements are presented within for your review.

In the last part of 2006 investors pushed back when they thought the Federal Reserve would cut interest rates.

Fed Fund futures expectations of where rates are going now give less than even odds that the Fed will cut its key target rate by a quarter point by September. In November the view was that the Fed would almost certainly cut rates from the current 5.25% once and possibly twice.

The mood has shifted as economic reports suggest the economy is in better shape than investors had thought. One reason investors remain so upbeat is that the economy appears to be catching its footing and inflation looks more subdued.

Federal Reserve chairman Ben Bernanke has said repeatedly he hopes the core inflation rate will continue to moderate, falling back below 2%. But he continues to worry, at least in public, about the risk of more persistent inflation, which would force him to raise rates again.

The bond market right now is worried about a different threat, a recession. That fear helped push the yield on the 10-year Treasury bond to 4.81% at the end of the period, higher than the 4.39% at which it began 2006, but well below the 5.25% it hit in late June 2006.

Long-term government bonds now yield less than short-term bonds. That makes investors nervous because, at times, it has historically been a sign of a coming recession. Lower long-term yields suggest investors expect rates to fall when the economy is weakening.

Some tend to downplay the recession risk. Heavy foreign demand for longer-term U.S. Treasury bonds, together with exceptionally low worldwide inflation rates, have kept U.S. bonds lower than normal.

Low yields hold down other market interest rates such as fixed mortgage rates. They encourage consumers and businesses alike to borrow, spend and invest which supports corporate profits and stock prices.

The Kansas Municipal Fund began the period at $10.62 per share and ended the period at $10.60 per share for a total return of 1.69%*. This compares to the Lehman Brothers Municipal Bond Index return of 3.06% for the period.

The Funds favorable overall performance can be attributed to its defensive portfolio, with an average maturity of 16 years and a low average maturity to the first call date of 4 years. That, along with an average portfolio coupon of 5.39%, helps relative performance in a rising rate environment.

Issues contributing to this defensive portfolio include: Olathe Multifamily Housing, 5.70% coupon, due 11/1/2027; Wichita Multifamily Housing, 5.70% coupon, due 7/1/2022; and Wichita Via Christi Health 6.25% coupon, due 11/15/2024.

An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Portfolio quality for the year was as follows: AAA 74.9%, AA 10.8%, A 12.5% and BBB 1.8%.

Income exempt from federal and Kansas state income taxes with preservation of capital remain the primary objectives of the Fund.

If you would like more frequent updates, visit our website at www.integrityfunds.com for daily prices along with pertinent Fund information.

Sincerely,

Monte Avery

Portfolio Manager

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 front-end or 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.

Bond prices and, therefore, the value of bond funds decline as interest rates rise.  Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities more so than a municipal bond fund that does not concentrate its securities in a single state.

January 31, 2007 (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 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 January 31, 2007 (Unaudited)

Appreciation

The increase in 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, assuming all distributions are reinvested.

Coupon Rate or Face Rate

The rate of interest payable annually, based on the face amount of the bond; expressed as a percentage.

Depreciation

The decrease in value of an asset.

Lehman Brothers Municipal Bond Index

An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market.  The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund.

Market Value

The actual (or estimated) price at which a bond trades in the market place.

Maturity

A measure of the term or life of a bond in years.  When a bond “matures,” the issuer repays the principal.

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 sales charge.

Quality Ratings

A designation assigned by independent rating companies to give a relative indication of a bond’s credit worthiness.  “AAA,” “AA,” “A,” and “BBB” indicate investment grade securities.  Ratings can range from a high of “AAA” to a low of “D”.

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.

January 31, 2007 (Unaudited)

COMPOSITION

PORTFOLIO QUALITY RATINGS

(Based on Total Long-Term Investments)

AAA

74.9%

AA

10.8%

A

12.5%

BBB

1.8%

Quality ratings reflect the financial strength of the issuer.  They are assigned by independent rating services such as Moody’s Investors Services and Standard & Poor’s. Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. (“Integrity Money Management” or “Adviser”), the Fund’s investment adviser.

These percentages are subject to change.

PORTFOLIO MARKET SECTORS

(As a % of Net Assets)

HC – Health Care

25.3%

S – School

19.3%

H – Housing

13.7%

W – Water/Sewer

11.0%

G – Government

10.3%

O - Other

9.2%

T – Transportation

6.9%

U – Utilities

4.3%

Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.

These percentages are subject to change.

January 31, 2007 (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 July 31, 2006 to January 31, 2007.

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 07/31/06

Ending Account Value 01/31/07

Expenses Paid During Period*

Actual

 

 

 

Class A

$1,000.00

$1,016.90

$5.40

Hypothetical (5% return before expenses)

 

 

 

Class A

$1,000.00

$1,019.86

$5.40

* Expenses are equal to the annualized expense ratio of 1.07%, 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 1.69% for the six-month period of July 31, 2006 to January 31, 2007.

January 31, 2007 (Unaudited)

AVERAGE ANNUAL TOTAL RETURNS

 

 For periods ending January 31, 2007

 

 

 

 

 

Since Inception (November 15, 1990)

Kansas Municipal Fund

1 year

3 year

5 year

10 year

Without sales charge

3.34%

2.27%

1.47%

3.01%

4.59%

With sales charge (4.25%)

(1.03)%

0.81%

0.60%

2.56%

4.31%

 

 

 

 

 

 

Since Inception (November 15, 1990)

Lehman Brothers Municipal Bond Index

1 year

3 year

5 year

10 year

 

4.30%

4.00%

5.12%

5.71%

6.61%

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.

January 31, 2007 (Unaudited)

COMPARATIVE INDEX GRAPH

Comparison of change in value of a $10,000 investment in the Kansas Municipal Fund and the Lehman Brothers Municipal Bond Index

 

Kansas Municipal Fund w/o Sales Charge

Kansas Municipal Fund w/ Max Sales Charge

Lehman Brothers Municipal Bond Index

 

7/31/1996

$10,000

$9,574

$10,000

1997

$10,756

$10,298

$11,027

1998

$11,052

$10,581

$11,687

1999

$11,433

$10,946

$12,024

2000

$11,626

$11,131

$12,542

2001

$12,571

$12,036

$13,808

2002

$13,009

$12,455

$14,735

2003

$12,911

$12,362

$15,264

2004

$13,132

$12,573

$16,147

2005

$13,161

$12,600

$17,174

2006

$13,738

$13,153

$17,613

1/31/2007

$13,970

$13,375

$18,151

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 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.  The Lehman Brothers index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Kansas municipal bonds.  Your Fund’s total return for the periods 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.

January 31, 2007 (Unaudited)

MANAGEMENT OF THE FUND

The Board of Integrity Managed Portfolios 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 and the seven 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.  Two of the remaining three Trustees and/or 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 COMPLEX1

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Jerry M. Stai
2405 11th Ave NW
Minot, ND 58703
54

Trustee

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., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006).

16

Marycrest Franciscan Development, Inc.

Orlin W. Backes
948 13th Ave. SW
Minot, ND  58701
71

Trustee

Since January 1996

Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director, South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., (Since April 2005); Trustee, The Integrity Funds (since May 2003); and Director, First Western Bank & Trust.

16

First Western Bank & Trust

R. James Maxson
1 Main Street North
Minot, ND  58701
59

Trustee

Since January 1999

Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Director, Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc. and Montana Tax-Free Fund, Inc. (since January 1999), South Dakota Tax-Free Fund, Inc. (January 1999 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); and Trustee, The Integrity Funds (since May 2003).

16

Vincent United Methodist Foundation

 

Minot Area Development Corporation

1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.

Trustees and officers of the Fund serve until their resignation, removal or retirement.

The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.

January 31, 2007 (Unaudited)

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 TRUSTEES 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 Street North
Minot, ND  58703
62

Trustee, Chairman, President

Since January 1996

Director (since September 1987), President (September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., Integrity Fund Services, Inc.; Director, President (since inception) and Treasurer (May 1989 to May 2004), ND Capital, Inc. (August 1988 to September 2004), South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc.; Trustee, Chairman and President (since May 2003) and Treasurer (May 2003 to May 2004), The Integrity Funds; Director, President and Treasurer (May 2003 to August 2003), Integrity Funds Distributor, Inc.; Director (October 1999 to June 2003), Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (October 2002 to June 2003), ARM Securities Corporation; and Director, CEO, Chairman (since January 2002), President (September 2002 to December 2004), Capital Financial Services, Inc.

16

Capital Financial Services, Inc., and Minot Park Board

Peter A. Quist
1 Main Street North
Minot, ND  58703
72

Vice President, Secretary

Since January 1996

Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc., ND Capital, Inc. (August 1988 to September 2004), Integrity Fund Services, Inc., South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax Free Fund, Inc., Integrity Funds Distributor, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003); and Director, ARM Securities Corporation (May 2000 to June 2003).

3

None

Laura K. Anderson
1 Main Street North
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, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.

N/A

None

Brent M. Wheeler
1 Main Street North
Minot, ND 58703
36

Mutual Fund Chief Compliance Officer

Since October 2005

Fund Accounting Manager (May 1998 to October 2005), Integrity Fund Services, Inc.; Treasurer (May 2004 to October 2005), Mutual Fund Compliance Officer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.

N/A

None

1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.

2Mr. Walstad qualifies as an interested person of the Trust, as defined in the 1940 Act, by virtue of being an officer and director of the Investment Adviser and Distributor.

Trustees and officers of the Fund serve until their resignation, removal or retirement.

The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.

January 31, 2007 (Unaudited)

Board Approval of Investment Advisory Agreement

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”), the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“the Company”), the Fund’s sponsor.

The approval and the continuation of a fund’s investment advisory agreement must be specifically approved at least annually (1) by a vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “Interested Persons” of any party (“Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval.  In preparation for the meeting, the Board requests and reviews a wide variety of materials provided by the Fund’s adviser.  The Independent Trustees also received advice from their independent counsel on the issues to focus on during contract renewals.  At a meeting held on October 25, 2006, the Board of Trustees, including a majority of the Independent Trustees of the Fund, approved the Management and Investment Advisory Agreement (“Advisory Agreement”) between the Fundand Integrity Money Management. 

The Trustees, including a majority of Trustees who are neither party to the Advisory Agreements nor “interested persons” of any such party (as such term is defined for regulatory purposes), unanimously approved the Advisory Agreement.  In determining whether it was appropriate to approve the Advisory Agreement, the Trustees requested information, provided by the Investment Adviser, that it believed to be reasonably necessary to reach its conclusion.  In connection with the approval of the Advisory Agreements, the Board reviewed factors set out in judicial decisions and Securities Exchange Commission directives relating to the approval of advisory contracts, which include but are not limited to, the following:

(a)

the nature and quality of services to be provided by the adviser to the fund;

(b)

the various personnel furnishing such services and their duties and qualifications;

(c)

the relevant fund’s investment performance as compared to standardized industry performance data;

(d)

the adviser’s costs and profitability of furnishing the investment management services to the fund;

(e)

the extent to which the adviser realizes economies of scale as the fund grows larger and the sharing thereof with the fund;

(f)

an analysis of the rates charged by other investment advisers of similar funds;

(g)

the expense ratios of the applicable fund as compared to data for comparable funds; and

(h)

information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds.

In evaluating the Adviser’s services and its fees, the Trustees reviewed information concerning the performance of the Fund, the recent financial statements of the Adviser and its parent, and the proposed advisory fee and other Fund expenses compared to the level of advisory fees and expenses paid by other similar funds.  In reviewing the Advisory Agreement with the foregoing Fund, the Trustees considered, among other things, the fees, the Fund’s past performance, the nature and quality of the services provided, the profitability of the Adviser and its parent (estimated costs and estimated profits from furnishing the proposed services to the Fund), and the expense waivers by the Adviser.  The Trustees also considered any ancillary benefits to the Adviser and its affiliates for services provided to the Fund.  In this regard, the Trustees noted that there were no soft dollar arrangements involving the Adviser and the only benefits to affiliates were the fees earned for services provided.  The Trustees did not identify any single factor discussed above as all-important or controlling.  The Trustees also considered the Adviser’s commitment to voluntarily limit Fund expenses and the skills and capabilities of the Adviser. 

The following paragraphs summarize the material information and factors considered by the Board, including the Independent Trustees, as well as their conclusions relative to such factors in considering the approval of the Advisory Agreement:

Nature, Extent and Quality of Services:  The Investment Adviser currently provides services to sixteen funds in the Integrity family of funds with investment strategies ranging from non-diversified sector funds to broad-based equity funds.  The experience and expertise of the Investment Adviser is attributable to the long-term focus on managing investment companies and has the potential to enhance the Fund’s future performance. They have a strong culture of compliance and provide quality services. The overall nature and quality of the services provided by the Investment Adviser had historically been, and continues to be, adequate and appropriate to the Board. 

Various personnel furnishing such services and their duties and qualifications:  The Portfolio Manager of the Fund has over 25 years experience in the advisory and money management area adding significant expertise to the Adviser of the Fund. A detailed biography of the portfolio manager was presented to the Trustees.  This information is disclosed in the prospectus and/or SAI of the Fund.

Investment Performance:  The Adviser has assured through subsidization that its Fund has had consistent performance relative to comparable and competing funds.  Although the Fund has outperformed its relative benchmark for the 1-year period, it has underperformed its relative benchmark for the YTD, 5-year, 10-year and since inception periods as of September 29, 2006. The Fund has positive returns for all the periods indicated above as of September 29, 2006.  In addition, the Fund has been meeting its investment objective for providing as high a level of current income exempt from federal and Kansas state income taxes as is consistent with preservation of capital. 

Profitability:  The Board has reviewed a year to date and a 12-month profit analysis spreadsheet completed by the controller of the investment adviser.  Based on the relatively small size of each fund under management with the Adviser, the Adviser has shown no profit for the period.  The Board determined that the profitability of the Adviser was not excessive based on the services it will provide for the Fund and the profit analysis spreadsheet presented by the Adviser.

Economies of Scale:  The Board briefly discussed the benefits for the Fund as the Adviser could realize economies of scale as the Fund grows larger, but the size of the Fund has not reached an asset level to benefit from economies of scale.  The advisory fees are structured appropriately based on the size of the Fund.  The Adviser has indicated that a new advisory fee structure may be looked at if the Fund reaches an asset level where the Fund could benefit from economies of scale.

Analysis of the rates charged by other investment advisers of similar funds:  The Adviser is voluntarily waiving advisory fees due to the small size of the Fund.  The Board considered the compensation payable under the Advisory Agreement fair and reasonable in light of the services to be provided.

Expense ratios of the applicable fund as compared to data for comparable funds:  The Fund’s net expense ratio of 1.07% for the Class A shares was comparable to other funds of similar objective and size.

Information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds:  The Board noted that the Adviser does not realize material direct benefits from its relationship with the Fund.  The Adviser does not participate in any soft dollar arrangements from securities trading in the Fund.

In voting unanimously to approve the Advisory Agreement, the Trustees did not identify any single factor as being of paramount importance.  The Trustees noted that their discussion in this regard was premised on numerous factors including the nature, quality and resources of Integrity Money Management, the strategic plan involving the Fund and the potential for increased distribution and growth of the Fund.  They determined that, after considering all relevant factors, the adoption of the Advisory Agreement would be in the best interest of the Fund and its shareholders.

Potential Conflicts of Interest – Investment Adviser

Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account.  More specifically, portfolio managers who manage multiple funds are presented with the following potential conflicts:

The management of multiple funds may result in a portfolio manager devoting unequal time and attention to the management of each fund.  The Investment Adviser seeks to manage such competing interests for the time and attention of portfolio managers by having them focus on a particular investment discipline.  Most other accounts managed by a portfolio manager are managed using the same investment models that are used in connection with the management of the Funds.  The management of multiple funds and accounts also may give rise to potential conflicts of interest if the funds and accounts have different objectives, benchmarks, time horizons, and fees as the portfolio manager must allocate his time and investment ideas across multiple funds and accounts.

•

With respect to securities transactions for the Funds, the Investment Adviser determines which broker to use to execute each order, consistent with the duty to seek best execution of the transaction.  The portfolio manager may execute transactions for another fund or account that may adversely impact the value of securities held by the Funds. Securities selected for funds or accounts other than the Funds may outperform the securities selected for the Funds.

•

The appearance of a conflict of interest may arise where the Investment Adviser has an incentive, such as a performance-based management fee, which relates to the management of one fund but not all funds with respect to which a portfolio manager has day-to-day management responsibilities.  The management of personal accounts may give rise to potential conflicts of interest; there is no assurance that the Funds' code of ethics will adequately address such conflicts.  One of the portfolio manager's numerous responsibilities is to assist in the sale of Fund shares.  Mr. Avery's compensation is based on salary paid every other week.  He is not compensated for client retention.  In addition, Integrity Mutual Funds, Inc., sponsors a 401(k) plan for all its employees. This plan is funded by employee elective deferrals and, to an extent, matching contributions by the Company. After one year of employment the employee is eligible to participate in the Company matching program.  The Company matches 100% of contribution up to 3% and ½% for each additional percent contributed up to 5%.  The Company has established a program in which it will grant interests in Integrity Mutual Funds Inc., shares to current employees that meet certain eligibility requirements, as a form of long-term incentive.  The program is designed to allow all employees to participate in the long-term growth of the value of the firm.

•

Although the Portfolio Managers generally do not trade securities in their own personal account, each of the Funds has adopted a code of ethics that, among other things, permits personal trading by employees under conditions where it has been determined that such trades would not adversely impact client accounts.  Nevertheless, the management of personal accounts may give rise to potential conflicts of interest, and there is no assurance that these codes of ethics will adequately address such conflicts.

The Investment Adviser and the Funds have adopted certain compliance procedures, which are designed to address these types of conflicts.  However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.

Schedule of Investments  January 31, 2007 (Unaudited)

Name of Issuer

Rating Moody's/S&P

Coupon Rate

Maturity

 

Principal Amount

 

Market Value

Percentages represent the market value of each investment category to total net assets

 

 

 

 

 

 

 

 

KANSAS MUNICIPAL BONDS (98.6%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Burlington, KS PCR (Gas & Elec.)  MBIA

Aaa/AAA

5.300%

06/01/2031

$

1,000,000

$

1,066,800

Burlington, KS PCR (Gas & Elec.)  MBIA

Aaa/AAA

4.850

06/01/2031

 

500,000

 

513,440

Butler Cty., KS Public Bldg.  MBIA

Aaa/NR

5.550

10/01/2021

 

300,000

 

318,852

Coffeyville, KS Pub. Bldg. (Coffeyville Medl. Center) Rev. AMBAC

Aaa/AAA

5.000

08/01/2022

 

250,000

 

259,295

Cowley Cty, KS USD #465 (Winfield)  MBIA

Aaa/AAA

5.250

10/01/2014

 

390,000

 

417,316

Dodge, KS School District #443  FGIC

Aaa/NR

5.000

09/01/2011

 

1,000,000

 

1,054,060

Douglas Cty., KS Sales Tax Ref.  AMBAC

Aaa/NR

5.000

08/01/2019

 

1,000,000

 

1,051,770

Hutchinson, KS Community College 

NR/A-

5.000

10/01/2025

 

350,000

 

361,295

Hutchinson, KS Community College 

NR/A-

5.250

10/01/2030

 

300,000

 

315,888

Hutchinson, KS Community College 

NR/A-

5.250

10/01/2033

 

450,000

 

472,640

#Johnson Cty., KS USD #229 (Blue  Valley) G.O.

Aa-1/AA

5.000

10/01/2018

 

2,600,000

 

2,701,712

Johnson Cty., KS USD #231 Gardner-Edgerton FGIC

Aaa/AAA

5.000

10/01/2024

 

1,135,000

 

1,196,211

Johnson Cty., KS USD #232 (Desoto)

Aaa/NR

5.250

09/01/2023

 

500,000

 

541,480

Kansas City, KS Mrtge. Rev. GNMA

Aaa/NR

5.900

11/01/2027

 

290,000

 

294,585

*Kansas City, KS Util. Syst. Ref. & Impvt. AMBAC

Aaa/AAA

6.300

09/01/2016

 

580,000

 

582,598

*KS Devl. Finance Auth. (Dept. Admin. 7th & Harrison PJ) AMBAC

Aaa/AAA

5.750

12/01/2027

 

2,250,000

 

2,377,305

KS Devl. Finance Auth. (Dept. of Admin. Capital Restoration) Lease Rev. FSA

Aaa/AAA

5.375

10/01/2020

 

370,000

 

392,614

KS Devl. Finance Auth. (Juvenile Justice) Rev. MBIA

Aaa/AAA

5.250

05/01/2013

 

570,000

 

598,865

KS Devl. Finance Auth. (Sec. 8) Rev. Ref. MBIA

Aaa/AAA

6.400

01/01/2024

 

255,000

 

255,000

*KS Devl. Finance Auth. (Water Pollution Control) Rev.

Aaa/AAA

5.250

05/01/2011

 

1,370,000

 

1,401,948

*KS Devl. Finance Auth. (Water Pollution Control) Rev.

Aaa/AAA

5.250

05/01/2011

 

630,000

 

642,443

KS Devl. Finance Auth. (KS St. Projects) Rev. MBIA

Aaa/AAA

5.000

10/01/2017

 

250,000

 

261,435

KS Devl. Finance Auth. (Water Pollution Control) Rev.

Aaa/AAA

5.250

11/01/2022

 

1,000,000

 

1,071,930

KS Devl. Finance Auth. (Water Pollution Control)

Aaa/AAA

5.000

11/01/2023

 

1,000,000

 

1,055,980

*KS Devl. Finance Auth. 

Aaa/AAA

5.000

05/01/2026

 

1,335,000

 

1,408,719

KS Devl. Finance Auth. (Dept. Admin.)  FGIG

Aaa/AAA

5.000

11/01/2025

 

250,000

 

265,025

KS Devl. Fin. Auth. Univ. KS Research Cent. XLCA

Aaa/AAA

5.000

02/01/2026

 

500,000

 

525,510

*KS Devl. Finance Auth. (Park Apts.) Multifamily Hsg. Rev.

NR/AAA

6.000

12/01/2021

 

1,975,000

 

1,975,000

KS Devl. Finance Auth. (Stormont Vail) Hlth. Care Rev. MBIA

Aaa/AAA

5.800

11/15/2021

 

430,000

 

430,322

KS Devl. Finance Auth. (Sisters of Charity) Hlth. Rev.

Aa/AA

6.125

12/01/2020

 

1,000,000

 

1,067,500

KS Devl. Finance Auth. (Stormont Vail) Hlth. Care Rev. MBIA

Aaa/AAA

5.375

11/15/2024

 

1,500,000

 

1,585,110

KS Devl. Finance Auth. (Hays Medical Center)

A/NR

5.000

11/15/2022

 

500,000

 

517,890

KS Turnpike Auth. Rev.  FSA

Aaa/AAA

5.250

09/01/2021

 

500,000

 

540,000

KS Turnpike Auth. Rev.  FSA

Aaa/AAA

5.000

09/01/2024

 

530,000

 

554,714

KS Turnpike Auth. Rev.  FSA

Aaa/AAA

5.000

09/01/2025

 

750,000

 

782,685

Lawrence, KS (Unlimited Tax) Refunding G.O.

Aa/NR

5.375

09/01/2020

 

500,000

 

528,265

Lawrence, KS (Memorial Hospital) Rev.  ASGUA

Aa-3/AA

5.750

07/01/2024

 

1,000,000

 

1,046,170

Lawrence, KS (Memorial Hospital) Rev. 

A-3/NR

5.125

07/01/2026

 

500,000

 

518,275

Lawrence, KS (Memorial Hospital) Rev. 

A-3/NR

5.125

07/01/2036

 

500,000

 

515,960

Neosho County, KS (Sales Tax Rev.)  MBIA

Aaa/AAA

5.000

08/15/2008

 

405,000

 

409,937

Newton, KS (Newton) Hosp. Rev.

NR/BBB-

5.700

11/15/2018

 

1,000,000

 

1,022,310

Newton, KS (Newton) Hosp. Rev. ACA

NR/A

5.750

11/15/2024

 

500,000

 

510,510

Olathe, KS (Medl. Ctr.) Hlth. Facs. Rev.

Aaa/AAA

5.500

09/01/2025

 

235,000

 

247,213

Olathe, KS (Medl. Ctr.) Hlth. Facs. Rev. AMBAC

Aaa/AAA

5.500

09/01/2030

 

500,000

 

524,960

#Olathe, KS Multifamily Hsg. (Bristol Pointe) Rev. Ref. FNMA

NR/AAA

5.700

11/01/2027

 

2,210,000

 

2,236,719

Reno Cty., KS USD #308 Hutchinson  MBIA

Aaa/NR

4.500

09/01/2023

 

500,000

 

501,930

Scott Cty, KS USD #466  FGIC

Aaa/AAA

5.250

09/01/2017

 

900,000

 

964,242

Sedgwick Cty., KS (Catholic Care Center, Inc.) Hlth. Care Rev.

NR/A

5.800

11/15/2026

 

1,000,000

 

1,041,900

Shawnee Cty., KS G.O.  FSA

Aaa/NR

5.000

09/01/2016

 

655,000

 

697,588

Topeka, KS G.O.  XLCA

Aaa/NR

5.000

08/15/2021

 

400,000

 

419,112

Topeka Public Bldg. Comm. (10th & Jackson Prj.) MBIA

Aaa/AAA

5.625

06/01/2026

 

1,435,000

 

1,494,380

Topeka Public Bldg. Comm. (10th & Jackson Prj.) MBIA

Aaa/AAA

5.625

06/01/2031

 

1,200,000

 

1,255,680

University of Kansas Hosp. Auth. AMBAC

Aaa/AAA

5.700

09/01/2020

 

830,000

 

868,927

University of Kansas Hosp. Auth. AMBAC

Aaa/AAA

5.550

09/01/2026

 

1,355,000

 

1,410,203

Wamego, KS PCR (Kansas Gas & Electric Project) MBIA

Aaa/AAA

5.300

06/01/2031

 

750,000

 

798,637

Washburn Univ. (Living Learning Ctr.) Bldg. Rev. AMBAC

Aaa/NR

5.000

07/01/2019

 

955,000

 

1,004,306

Wichita, KS G.O. (Series 772)

Aa/AA

4.500

09/01/2017

 

565,000

 

577,786

*Wichita, KS G.O. (Series 772)

Aa/AA

4.500

09/01/2018

 

125,000

 

127,535

Wichita, KS (Via Christi Health System) Rev. 

NR/A+

6.250

11/15/2024

 

1,500,000

 

1,592,580

Wichita, KS (Via Christi Health System) Rev. 

NR/A+

5.625

11/15/2031

 

1,100,000

 

1,167,155

Wichita, KS Multifamily Hsg. (Broadmoor Chelsea) Rev. FNMA

NR/AAA

5.650

07/01/2016

 

990,000

 

1,002,266

#Wichita, KS Multifamily Hsg. (Broadmoor Chelsea) Rev. FNMA

NR/AAA

5.700

07/01/2022

 

2,000,000

 

2,025,360

Wichita, KS Public Building Commission (State Office Prj.) Rev. AMBAC

Aaa/AAA

4.000

10/01/2014

 

500,000

 

499,530

Wichita, KS Water & Sewer Util. Rev.  FGIC

Aaa/AAA

5.250

10/01/2018

 

1,465,000

 

1,566,729

Wichita, KS Water & Sewer Util. Rev.  FGIC

Aaa/AAA

5.000

10/01/2028

 

500,000

 

524,205

 

TOTAL KANSAS MUNICIPAL BONDS (COST: $54,301,701)

 

 

 

 

$

55,958,307

 

 

 

 

 

 

 

 

SHORT-TERM SECURITIES (0.8%)

 

 

 

 

Shares

 

 

Wells Fargo Advantage National Tax-Free Money Market (Cost: $449,096)

 

 

449,096

$

449,096

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS IN SECURITIES (COST: $54,750,797)

 

 

 

 

$

56,407,403

OTHER ASSETS LESS LIABILITIES

 

 

 

 

 

 

330,929

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

$

56,738,332

 

 

 

 

 

 

 

 

* Indicates bonds are segregated by the custodian to cover when-issued or delayed-delivery purchases.

 

 

# Indicates bonds are segregated by the custodian to cover initial margin requirements.

 

 

 

 

 

 

 

 

 

 

 

 

Non-rated (NR) securities in the Fund were investment grade when purchased.

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

 

 

 

Financial Statements January 31, 2007

Statement of Assets and Liabilities  January 31, 2007 (Unaudited)

 

ASSETS

 

 

 

Investment in securities, at value (cost: $54,750,797)

$

56,407,403

 

Accrued interest receivable

 

743,346

 

Accrued dividends receivable

 

2,184

 

Prepaid expenses

 

9,115

 

Total Assets

$

57,162,048

 

 

 

 

 

LIABILITIES

 

 

 

Disbursements in excess of demand deposit cash

$

13,591

 

Dividends payable

 

186,045

 

Payable for fund shares redeemed

 

166,636

 

Payable to affiliates

 

48,000

 

Accrued expenses

 

9,444

 

Total Liabilities

$

423,716

 

 

 

 

NET ASSETS

$

56,738,332

 

 

 

 

 

 

 

Net assets are represented by:

 

 

 

Paid-in capital

$

64,387,150

 

Accumulated undistributed net realized gain (loss) on investments and futures

 

(9,305,638)

 

Accumulated undistributed net investment income

 

214

 

Unrealized appreciation (depreciation) on investments

 

1,656,606

 

Total amount representing net assets applicable to 5,354,023 outstanding shares of no par common stock (unlimited shares authorized)

$

56,738,332

 

 

 

 

Net asset value per share

$

10.60

 

 

 

 

 

Public offering price (based on sales charge of 4.25%)

$

11.07

The accompanying notes are an integral part of these financial statements.

Financial Statements  January 31, 2007

Statement of Operations  For the six months ended January 31, 2007 (Unaudited)

INVESTMENT INCOME

 

 

 

Interest

$

1,381,306

 

Dividends

 

19,766

 

Total Investment Income

$

1,401,072

 

 

 

EXPENSES

 

 

 

Investment advisory fees

$

145,766

 

Distribution (12b-1) fees

 

72,883

 

Administrative service fees

 

33,355

 

Transfer agent fees

 

49,432

 

Accounting service fees

 

26,161

 

Custodian fees

 

3,829

 

Professional fees

 

15,127

 

Trustees fees

 

2,198

 

Insurance expense

 

1,004

 

Reports to shareholders

 

2,575

 

Audit fees

 

3,568

 

Legal fees

 

1,387

 

Transfer agent out of pocket

 

1,298

 

Registration and filing fees

 

709

 

Total Expenses

$

359,292

 

Less expenses waived or absorbed by the Fund’s manager

 

(47,352)

 

Total Net Expenses

$

311,940

 

 

 

NET INVESTMENT INCOME

$

1,089,132

 

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

 

 

 

Net realized gain (loss) from investment transactions

$

2,788

 

Net change in unrealized appreciation (depreciation) of investments

 

(97,455)

 

Net Realized And Unrealized Gain (Loss) On Investments

$

(94,667)

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$

994,465

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of Changes in Net Assets

For the six months ended January 31, 2007 and the year ended July 31, 2006

 

 

For The Six Months Ended January 31, 2007 (Unaudited)

 

For The Year Ended July 31, 2006

 

 

 

 

 

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

 

 

 

 

 

Net investment income

$

1,089,132

$

2,397,547

 

Net realized gain (loss) on investment and futures transactions

 

2,788

 

883,835

 

Net change in unrealized appreciation (depreciation) on investments and futures

 

(97,455)

 

(620,199)

 

Net Increase (Decrease) in Net Assets Resulting From Operations

$

994,465

$

2,661,183

 

 

 

 

 

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS

 

 

 

 

 

Dividends from net investment income ($.20 and $.41 per share, respectively)

$

(1,089,080)

$

(2,397,386)

 

Distributions from net realized gain on investment and futures transactions ($.00 and $.00 per share, respectively)

 

0

 

0

 

Total Dividends and Distributions

$

(1,089,080)

$

(2,397,386)

 

 

 

 

 

CAPITAL SHARE TRANSACTIONS

 

 

 

 

 

Proceeds from sale of shares

$

876,437

$

1,495,672

 

Proceeds from reinvested dividends

 

691,795

 

1,509,351

 

Cost of shares redeemed

 

(3,828,564)

 

(11,645,304)

 

Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions

$

(2,260,332)

$

(8,640,281)

 

 

 

 

 

TOTAL INCREASE (DECREASE) IN NET ASSETS

$

(2,354,947)

$

(8,376,484)

 

 

 

 

 

NET ASSETS, BEGINNING OF PERIOD

 

59,093,279

 

67,469,763

 

 

 

 

 

NET ASSETS, END OF PERIOD

$

56,738,332

$

59,093,279

Undistributed Net Investment Income

$

214

$

161

The accompanying notes are an integral part of these financial statements.

Notes to Financial Statements  January 31, 2007 (Unaudited)

Note 1.  ORGANIZATION

Business operations - The Kansas Municipal Fund (the “Fund”) is an investment portfolio of Integrity Managed Portfolios (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.  Integrity Managed Portfolios is an unincorporated business trust organized under Massachusetts law on August 10, 1990.  The Fund had no operations from that date to November 15, 1990, other than matters relating to organization and registration.  On November 15, 1990, the Fund commenced its Public Offering of capital shares.  The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal and Kansas state income tax as is consistent with preservation of capital.  The Fund will seek to achieve this objective by investing primarily in a portfolio of Kansas municipal securities. 

Shares of the Fund are offered at net asset value plus a maximum sales charge of 4.25% of the offering price.

Note 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment security valuation - Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management.  The matrix system has been developed based on procedures approved by the Board of Trustees which include consideration of the following:  yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, and indications as to value from dealers and general market conditions.  Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed.  The Fund follows industry practice and records security transactions on the trade date.

The Fund concentrates its investments in a single state.  This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.

When-issued securities - The Fund may purchase securities on a when-issued basis.  Payment and delivery may take place after the customary settlement period for that security.  The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated.  The value of the securities purchased on a when-issued basis are identified as such in the Fund’s Schedule of Investments.  With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment.  Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic, or other factors.

Contingent Deferred Sales Charge (“CDSC”) – In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 12 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).

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 and any net realized gain on investments to its shareholders.  Therefore, no provision for income taxes is required.  Distributions during year ended July 31, 2006, were characterized as tax-exempt for tax purposes.

 

 

July 31, 2006

 

July 29, 2005

Tax-exempt Income

$

2,397,386

$

2,594,731

Ordinary Income

 

0

 

0

Long-term Capital Gains

 

0

 

0

Total

$

2,397,386

$

2,594,731

As of July 31, 2006, 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

($8,982,250)

$1,754,222

($7,228,028)

The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2006, totaling $8,982,250 which may be used to offset capital gains.  The capital loss carryforward amounts will expire in each of the years ended July 31 as shown in the table below.

Year

 

Unexpired Capital Losses

2008

$

531,392

2009

$

568,023

2010

$

1,444,860

2011

$

1,970,032

2012

$

1,398,834

2013

$

2,680,174

2014

$

388,935

For the year ended July 31, 2006, the Fund made $1,671,432 in 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 Fund’s next taxable year.  For the year ended July 31, 2006, the Fund deferred to August 1, 2006, post October capital losses, post October currency losses and post October passive foreign investment company losses of $326,177.

Distributions to shareholders - Dividends from net investment income, declared daily and paid monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash.  Capital gains, when available, are distributed at least annually.

Premiums and discounts - Premiums and discounts on municipal 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 appreciation (depreciation) related to open futures contracts is required to be treated as a 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.

Note 3.  CAPITAL SHARE TRANSACTIONS

As of January 31, 2007, there were unlimited shares of no par authorized; 5,354,023 and 5,565,714 shares were outstanding at January 31, 2007, and July 31, 2006, respectively.

Transactions in capital shares were as follows:

 

Shares

 

For The Six Months Ended January 31, 2007 (Unaudited)

For The Year Ended July 31, 2006

 

 

Shares sold

81,996

140,843

Shares issued on reinvestment of dividends

64,706

142,220

Shares redeemed

(358,393)

(1,097,898)

Net increase (decrease)

(211,691)

(814,835)

Note 4.  INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, 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 to provide investment advisory and management services to the Fund.  The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund’s average daily net assets.  The Fund has recognized $98,414 of investment advisory fees after partial waiver for the six months ended January 31, 2007.  The Fund has a payable to Integrity Money Management of $13,810 at January 31, 2007, for investment advisory fees.  Certain officers and trustees of the Fund are also officers and directors of the investment adviser. 

Under the terms of the advisory agreement, the investment adviser has agreed to pay all the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 1.25% of the Fund’s average daily net assets on an annual basis up to the amount of the investment adviser and management fee.  The investment adviser and underwriter may also voluntarily waive fees or reimburse expenses not required under the advisory or other contracts from time to time.  Accordingly, after fee waivers and expense reimbursements, the Fund’s actual total annual operating expenses were 1.07% for the six months ended January 31, 2007.

Principal Underwriter and Shareholder Services

Integrity Funds Distributor 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 currently 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 $72,883 of distribution fees for the six months ended January 31, 2007.  The Fund has a payable to Integrity Funds Distributor of $12,339 at January 31, 2007 for distribution fees.

Integrity Fund Services, the transfer agent, provides shareholder services for a variable fee equal to 0.20% 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, with a minimum of $2,000 per month plus reimbursement of out-of-pocket expenses.  An additional fee with a minimum $500 per month is charged for each additional share class.  The Fund has recognized $49,432 of transfer agency fees and expenses for the six months ended January 31, 2007.  The Fund has a payable to Integrity Fund Services of $9,556 at January 31, 2007 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, together with reimbursement of out-of-pocket expenses.  An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class.  The Fund has recognized $26,161 of accounting service fees for the six months ended January 31, 2007.  The Fund has a payable to Integrity Fund Services of $4,471 at January 31, 2007 for accounting service fees.  Integrity Fund Services also acts as the Fund’s administrative services agent for a variable fee equal to 0.125% 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, with a minimum of $2,000 per month plus out-of-pocket expenses.  An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class.  The Fund has recognized $33,355 of administrative service fees for the six months ended January 31, 2007.  The Fund has a payable to Integrity Fund Services of $6,012 at January 31, 2007 for administrative service fees.

Note 5.  INVESTMENT SECURITY TRANSACTIONS

The cost of purchases and proceeds from sales of investment securities (excluding short-term securities) aggregated $1,252,574 and $2,203,457, respectively, for the six months ended January 31, 2007.

Note 6.  INVESTMENT IN SECURITIES

At January 31, 2007, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $54,750,797.  The net unrealized appreciation of investments for financial reporting purposes based on the cost was $1,656,606, which is comprised of $1,728,526 aggregate gross unrealized appreciation and $71,920 aggregate gross unrealized depreciation.  Differences between financial reporting-basis and tax-basis unrealized appreciation/depreciation are due to differing treatment of market discount.

Note 7.  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements.  This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted  accounting principles and expands disclosures about fair value measurements.  SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  The Fund is presently evaluating the impact of adopting SFAS 157.

Financial Highlights  January 31, 2007

Selected per share data and ratios for the periods indicated

 

 

For The Six Months Ended January 31, 2007 (Unaudited)

 

For The Year Ended July 31, 2006

 

For The Year Ended July 29, 2005

 

For The Year Ended July 30, 2004

 

For The Year Ended July 31, 2003

 

For The Year Ended July 31, 2002

NET ASSET VALUE, BEGINNING OF PERIOD

$

10.62

$

10.57

$

10.93

$

11.19

$

11.78

$

11.92

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Investment Operations:

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

$

.20

$

.41

$

.38

$

.45

$

.51

$

.55

Net realized and unrealized gain (loss) on investment and futures transactions

 

(.02)

 

.05

 

(.36)

 

(.26)

 

(.59)

 

(.14)

Total Income (Loss) From Investment Operations

$

0.18

$

.46

$

.02

$

.19

$

(.08)

$

.41

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from net investment income

$

(.20)

$

(.41)

$

(.38)

$

(.45)

$

(.51)

$

(.55)

Distributions from net capital gains

 

.00

 

.00

 

.00

 

.00

 

.00

 

.00

Total Distributions

$

(.20)

$

(.41)

$

(.38)

$

(.45)

$

(.51)

$

(.55)

 

 

 

 

 

 

 

 

 

 

 

 

 

NET ASSET VALUE, END OF PERIOD

$

10.60

$

10.62

$

10.57

$

10.93

$

11.19

$

11.78

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return

 

3.38%(A)(C)

 

4.39%(A)

 

0.22%(A)

 

1.71%(A)

 

(0.75%)(A)

 

3.48%(A)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RATIOS/SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

Net assets, end of period (in thousands)

$

56,738

$

59,093

$

67,470

$

78,478

$

88,850

$

98,992

Ratio of net expenses (after expense assumption) to average net assets

 

1.07%(B)(C)

 

1.03%(B)

 

0.97%(B)

 

0.95%(B)

 

0.95%(B)

 

0.95%(B)

Ratio of net investment income to average net assets

 

3.74%(C)

 

3.82%

 

3.56%

 

4.05%

 

4.39%

 

4.61%

Portfolio turnover rate

 

2.21%

 

12.31%

 

44.85%

 

17.29%

 

23.78%

 

5.74%

(A) Excludes maximum sales charge of 4.25%.

(B) During the periods indicated above, Integrity Mutual Funds, Inc. or Integrity Money Management assumed/waived expenses of $47,352, $79,585, $130,764, $127,695, $52,479, and $22,656, respectively.  If the expenses had not been assumed/waived, the annualized ratios of total expenses to average net assets would have been 1.23%, 1.15%, 1.15%, 1.10%, 1.01%, and 0.97%, 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.

Dear Shareholder:

Enclosed is the semi-annual report of the Kansas Insured Intermediate Fund (the “Fund”) for the period ended January 31, 2007. The Fund’s portfolio and related financial statements are presented within for your review.

In the last part of 2006 investors pushed back when they thought the Federal Reserve would cut interest rates.

Fed Fund futures expectations of where rates are going now give less than even odds that the Fed will cut its key target rate by a quarter point by September. In November the view was that the Fed would almost certainly cut rates from the current 5.25% once and possibly twice.

The mood has shifted as economic reports suggest the economy is in better shape than investors had thought. One reason investors remain so upbeat is that the economy appears to be catching its footing and inflation looks more subdued.

Federal Reserve chairman Ben Bernanke has said repeatedly he hopes the core inflation rate will continue to moderate, falling back below 2%. But he continues to worry, at least in public, about the risk of more persistent inflation, which would force him to raise rates again.

The bond market right now is worried about a different threat, a recession. That fear helped push the yield on the 10-year Treasury bond to 4.81% at the end of the period, higher than the 4.39% at which it began 2006, but well below the 5.25% it hit in late June 2006.

Long-term government bonds now yield less than short-term bonds. That makes investors nervous because, at times, it has historically been a sign of a coming recession. Lower long-term yields suggest investors expect rates to fall when the economy is weakening.

Some tend to downplay the recession risk. Heavy foreign demand for longer-term U.S. Treasury bonds, together with exceptionally low worldwide inflation rates, have kept U.S. bonds lower than normal.

Low yields hold down other market interest rates such as fixed mortgage rates. They encourage consumers and businesses alike to borrow, spend and invest which supports corporate profits and stock prices.

The Kansas Insured Intermediate Fund began the period at $10.95 per share and ended the period at $10.92 per share for a total return of 1.73%*. This compares to the Lehman Brothers Municipal Seven-Year Maturity Bond Index return of 2.33% for the period.

The Funds favorable overall performance can be attributed to its defensive portfolio, with an average maturity of 7 years and a low average maturity to the first call date of 3 years. That, along with an average portfolio coupon of 5.25%, helps relative performance in a rising rate environment.

Issues contributing to this defensive portfolio include: University of Kansas Hospital, 5.50% coupon, due 9/01/2015; Saline County Schools, 5.50% coupon, due 9/1/2015; and Stormont Vail Healthcare, 5.70% coupon, due 11/15/2008.

An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Portfolio quality for the year was as follows: AAA 100%.

Income exempt from federal and Kansas state income taxes with preservation of capital remain the primary objectives of the Fund.

If you would like more frequent updates, visit our website at www.integrityfunds.com for daily prices along with pertinent Fund information.

Sincerely,

Monte Avery
Portfolio Manager

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 front-end or 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.

Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities more so than a municipal bond fund that does not concentrate its securities in a single state.

January 31, 2007 (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 January 31, 2007 (Unaudited)

Appreciation

The increase in 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, assuming all distributions are reinvested.

Coupon Rate or Face Rate

The rate of interest payable annually, based on the face amount of the bond; expressed as a percentage.

Depreciation

The decrease in value of an asset.

Lehman Brothers Municipal Bond Index

An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund.

Market Value

The actual (or estimated) price at which a bond trades in the market place.

Maturity

A measure of the term or life of a bond in years. When a bond “matures,” the issuer repays the principal.

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 sales charge.

Quality Ratings

A designation assigned by independent rating companies to give a relative indication of a bond’s credit worthiness. “AAA,” “AA,” “A,” and “BBB” indicate investment grade securities. Ratings can range from a high of “AAA” to a low of “D”.

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.

January 31, 2007 (Unaudited)

COMPOSITION

PORTFOLIO QUALITY RATINGS

(Based on Total Long-Term Investments)

AAA

100%

Quality ratings reflect the financial strength of the issuer. They are assigned by independent rating services such as Moody’s Investors Services and Standard & Poor’s. Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. (“Integrity Money Management” or “Adviser”), the investment adviser.

These percentages are subject to change.

PORTFOLIO MARKET SECTORS

(As a % of Net Assets)

HC-Health Care

26.5%

S-School

24.5%

H-Housing

23.2%

W/S-Water/Sewer

9.6%

U-Utilities

6.3%

G-Government

4.3%

T-Transportation

4.1%

O-Other

1.5%

Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.

These percentages are subject to change.

January 31, 2007 (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 July 31, 2006, to January 31, 2007.

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 07/31/06

Ending Account Value 01/31/07

Expenses Paid During Period*

Actual

 

 

 

Class A

$1,000.00

$1,017.29

$3.78

Hypothetical (5% return before expenses)

 

 

 

Class A

$1,000.00

$1,021.46

$3.78

* Expenses are equal to the annualized expense ratio of 0.75%, 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 1.73% for the six month period of July 31, 2006, to January 31, 2007.

January 31, 2007 (Unaudited)

AVERAGE ANNUAL TOTAL RETURNS

 

 For periods ending January 31, 2007

 

 

 

 

 

Since Inception (November 23, 1992)

Kansas Insured Intermediate Fund

1 year

3 Year

5 year

10 year

Without sales charge

4.41%

1.76%

1.95%

3.01%

3.89%

With sales charge (2.75%)

1.52%

0.82%

1.38%

2.72%

3.68%

Lehman Brothers Municipal Seven-Year Maturity Bond Index

1 year

3 Year

5 year

10 year

Since Inception (November 23, 1992)

 

3.38%

2.64%

4.30%

2.13%

5.46%

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.

January 31, 2007 (Unaudited)

COMPARATIVE INDEX GRAPH

Comparison of change in value of a $10,000 investment in the Kansas Insured Intermediate Fund and the Lehman Brothers Municipal Seven-Year Maturity Bond Index

 

Kansas Insured Intermediate Fund w/o Sales Charge

Kansas Insured Intermediate Fund w/ Max Sales Charge

Lehman Brothers Municipal Seven-Year Maturity Bond Index

7/31/1996

$10,000

$9,729

$10,000

1997

$10,476

$10,191

$10,864

1998

$10,807

$10,514

$11,435

1999

$11,208

$10,903

$11,810

2000

$11,449

$11,138

$12,353

2001

$12,220

$11,888

$13,486

2002

$12,723

$12,377

$14,448

2003

$12,883

$12,534

$15,005

2004

$13,181

$12,823

$15,687

2005

$13,083

$12,728

$16,308

2006

$13,614

$13,245

$16,642

1/31/2007

$13,850

$13,474

$17,094

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 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. The Lehman Brothers index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Kansas municipal bonds. 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.

January 31, 2007 (Unaudited)

MANAGEMENT OF THE FUND

The Board of Integrity Managed Portfolios 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 and the seven 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. Two of the remaining three Trustees and/or 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 COMPLEX1

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Jerry M. Stai
2405 11th Ave NW
Minot, ND 58703
54

Trustee

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., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006).

16

Marycrest Franciscan Development, Inc.

Orlin W. Backes
948 13th Ave. SW
Minot, ND 58701
71

Trustee

Since January 1996

Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director, South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., (Since April 2005); Trustee, The Integrity Funds (since May 2003); and Director, First Western Bank & Trust.

16

First Western Bank & Trust

R. James Maxson
1 Main Street North
Minot, ND 58701
59

Trustee

Since January 1999

Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Director, Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc. and Montana Tax-Free Fund, Inc. (since January 1999), South Dakota Tax-Free Fund, Inc. (January 1999 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); and Trustee, The Integrity Funds (since May 2003).

16

Vincent United Methodist Foundation

 

Minot Area Development Corporation

1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.

Trustees and officers of the Fund serve until their resignation, removal or retirement.

The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.

January 31, 2007 (Unaudited)

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 TRUSTEES 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 Street North
Minot, ND 58703
62

Trustee, Chairman, President

Since January 1996

Director (since September 1987), President (September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., Integrity Fund Services, Inc.; Director, President (since inception) and Treasurer (May 1989 to May 2004), ND Capital, Inc. (August 1988 to September 2004), South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc.; Trustee, Chairman and President (since May 2003) and Treasurer (May 2003 to May 2004), The Integrity Funds; Director, President and Treasurer (May 2003 to August 2003), Integrity Funds Distributor, Inc.; Director (October 1999 to June 2003), Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (October 2002 to June 2003), ARM Securities Corporation; and Director, CEO, Chairman (since January 2002), President (September 2002 to December 2004), Capital Financial Services, Inc.

16

Capital Financial Services, Inc., and Minot Park Board

Peter A. Quist
1 Main Street North
Minot, ND 58703
72

Vice President, Secretary

Since January 1996

Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc., ND Capital, Inc. (August 1988 to September 2004), Integrity Fund Services, Inc., South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax Free Fund, Inc., Integrity Funds Distributor, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003); and Director, ARM Securities Corporation (May 2000 to June 2003).

3

None

Laura K. Anderson
1 Main Street North
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, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.

N/A

None

Brent M. Wheeler
1 Main Street North
Minot, ND 58703
36

Mutual Fund Chief Compliance Officer

Since October 2005

Fund Accounting Manager (May 1998 to October 2005), Integrity Fund Services, Inc.; Treasurer (May 2004 to October 2005), Mutual Fund Compliance Officer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.

N/A

None

1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.

2Mr. Walstad qualifies as an interested person of the Trust, as defined in the 1940 Act, by virtue of being an officer and director of the Investment Adviser and Distributor.

Trustees and officers of the Fund serve until their resignation, removal or retirement.

The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800)

January 31, 2007 (Unaudited)

Board Approval of Investment Advisory Agreement

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”), the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“the Company”), the Fund’s sponsor.

The approval and the continuation of a fund’s investment advisory agreement must be specifically approved at least annually (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “Interested Persons” of any party (“Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In preparation for the meeting, the Board requests and reviews a wide variety of materials provided by the Fund’s adviser. The Independent Trustees also received advice from their independent counsel on the issues to focus on during contract renewals. At a meeting held on October 25, 2006, the Board of Trustees, including a majority of the Independent Trustees of the Fund, approved the Management and Investment Advisory Agreement (“Advisory Agreement”), between the Fundand Integrity Money Management.

The Trustees, including a majority of Trustees who are neither party to the Advisory Agreements nor “interested persons” of any such party (as such term is defined for regulatory purposes), unanimously approved the Advisory Agreement. In determining whether it was appropriate to approve the Advisory Agreement, the Trustees requested information, provided by the Investment Adviser that it believed to be reasonably necessary to reach its conclusion. In connection with the approval of the Advisory Agreements, the Board reviewed factors set out in judicial decisions and Securities Exchange Commission directives relating to the approval of advisory contracts, which include but are not limited to, the following:

(a)

the nature and quality of services to be provided by the adviser to the fund;

(b)

the various personnel furnishing such services and their duties and qualifications;

(c)

the relevant fund’s investment performance as compared to standardized industry performance data;

(d)

the adviser’s costs and profitability of furnishing the investment management services to the fund;

(e)

the extent to which the adviser realizes economies of scale as the fund grows larger and the sharing thereof with the fund;

(f)

an analysis of the rates charged by other investment advisers of similar funds;

(g)

the expense ratios of the applicable fund as compared to data for comparable funds; and

(h)

information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds.

In evaluating the Adviser’s services and its fees, the Trustees reviewed information concerning the performance of the Fund, the recent financial statements of the Adviser and its parent, and the proposed advisory fee and other fund expenses compared to the level of advisory fees and expenses paid by other similar funds. In reviewing the Advisory Agreement with the foregoing Fund, the Trustees considered, among other things, the fees, the Fund’s past performance, the nature and quality of the services provided, the profitability of the Adviser and its parent (estimated costs and estimated profits from furnishing the proposed services to the Fund), and the expense waivers by the Adviser. The Trustees also considered any ancillary benefits to the Adviser and its affiliates for services provided to the Fund. In this regard, the Trustees noted that there were no soft dollar arrangements involving the Adviser and the only benefits to affiliates were the fees earned for services provided. The Trustees did not identify any single factor discussed above as all-important or controlling. The Trustees also considered the Adviser’s commitment to voluntarily limit Fund expenses and the skills and capabilities of the Adviser.

The following paragraphs summarize the material information and factors considered by the Board, including the Independent Trustees, as well as their conclusions relative to such factors in considering the approval of the Advisory Agreement:

Nature, Extent and Quality of Services: The Investment Adviser currently provides services to sixteen funds in the Integrity family of funds with investment strategies ranging from non-diversified sector funds to broad-based equity funds. The experience and expertise of the Investment Adviser is attributable to the long-term focus on managing investment companies and has the potential to enhance the Fund’s future performance. They have a strong culture of compliance and provide quality services. The overall nature and quality of the services provided by the Investment Adviser had historically been, and continues to be, adequate and appropriate to the Board.

Various personnel furnishing such services and their duties and qualifications: The Portfolio Manager of the Fund has over 25 years experience in the advisory and money management area adding significant expertise to the Adviser of the Fund. A detailed biography of the portfolio manager was presented to the Trustees. This information is disclosed in the prospectus and/or SAI of the Fund.

Investment Performance: The Adviser has assured through subsidization that its Fund has had consistent performance relative to comparable and competing funds. Although the Fund has outperformed its relative benchmark for the YTD, 1-year and 10-year periods, it has underperformed its relative benchmark for the 5-year and since inception periods as of September 29, 2006. The Fund has positive returns for all the periods indicated above as of September 29, 2006. In addition, the Fund has been meeting its investment objective for providing as high a level of current income exempt from federal and Kansas state income taxes as is consistent with preservation of capital.

Profitability: The Board has reviewed a year to date and a 12-month profit analysis spreadsheet completed by the controller of the investment adviser. Based on the relatively small size of each fund under management with the Adviser, the Adviser has shown no profit for the period. The Board determined that the profitability of the Adviser was not excessive based on the services it will provide for the Fund and the profit analysis spreadsheet presented by the Adviser.

Economies of Scale: The Board briefly discussed the benefits for the Fund as the Adviser could realize economies of scale as the Fund grows larger, but the size of the Fund has not reached an asset level to benefit from economies of scale.The advisory fees are structured appropriately based on the size of the Fund. The Adviser has indicated that a new advisory fee structure may be looked at if the Fund reaches an asset level where the Fund could benefit from economies of scale.

Analysis of the rates charged by other investment advisers of similar funds: The Adviser is voluntarily waiving advisory fees due to the small size of the Fund. At times the Adviser is reimbursing the Fund for expenses paid above the voluntary expense cap. The Board considered the compensation payable under the Advisory Agreement fair and reasonable in light of the services to be provided.

Expense ratios of the applicable fund as compared to data for comparable funds: The Fund’s net expense ratio of 0.75% for the Class A shares was comparable to other funds of similar objective and size.

Information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds: The Board noted that the Adviser does not realize material direct benefits from its relationship with the Fund. The Adviser does not participate in any soft dollar arrangements from securities trading in the Fund.

In voting unanimously to approve the Advisory Agreement, the Trustees did not identify any single factor as being of paramount importance. The Trustees noted that their discussion in this regard was premised on numerous factors including the nature, quality and resources of Integrity Money Management, the strategic plan involving the Fund and the potential for increased distribution and growth of the Fund. They determined that, after considering all relevant factors, the adoption of the Advisory Agreement would be in the best interest of the Fund and its shareholders.

Potential Conflicts of Interest – Investment Adviser

Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account. More specifically, portfolio managers who manage multiple funds are presented with the following potential conflicts:

The management of multiple funds may result in a portfolio manager devoting unequal time and attention to the management of each fund. The Investment Adviser seeks to manage such competing interests for the time and attention of portfolio managers by having them focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment models that are used in connection with the management of the Funds. The management of multiple funds and accounts also may give rise to potential conflicts of interest if the funds and accounts have different objectives, benchmarks, time horizons, and fees as the portfolio manager must allocate his time and investment ideas across multiple funds and accounts.

•

With respect to securities transactions for the Funds, the Investment Adviser determines which broker to use to execute each order, consistent with the duty to seek best execution of the transaction. The portfolio manager may execute transactions for another fund or account that may adversely impact the value of securities held by the Funds. Securities selected for funds or accounts other than the Funds may outperform the securities selected for the Funds.

•

With respect to securities transactions for the Funds, the Investment Adviser determines which broker to use to execute each order, consistent with the duty to seek best execution of the transaction. The portfolio manager may execute transactions for another fund or account that may adversely impact the value of securities held by the Funds. Securities selected for funds or accounts other than the Funds may outperform the securities selected for the Funds.

•

The appearance of a conflict of interest may arise where the Investment Adviser has an incentive, such as a performance-based management fee, which relates to the management of one fund but not all funds with respect to which a portfolio manager has day-to-day management responsibilities. The management of personal accounts may give rise to potential conflicts of interest; there is no assurance that the Funds' code of ethics will adequately address such conflicts. One of the portfolio manager's numerous responsibilities is to assist in the sale of Fund shares. Mr. Avery's compensation is based on salary paid every other week. He is not compensated for client retention. In addition, Integrity Mutual Funds, Inc., sponsors a 401(k) plan for all its employees. This plan is funded by employee elective deferrals and, to an extent, matching contributions by the Company. After one year of employment the employee is eligible to participate in the Company matching program. The Company matches 100% of contribution up to 3% and ½% for each additional percent contributed up to 5%. The Company has established a program in which it will grant interests in Integrity Mutual Funds Inc., shares to current employees that meet certain eligibility requirements, as a form of long-term incentive. The program is designed to allow all employees to participate in the long-term growth of the value of the firm.

•

Although the Portfolio Managers generally do not trade securities in their own personal account, each of the Funds has adopted a code of ethics that, among other things, permits personal trading by employees under conditions where it has been determined that such trades would not adversely impact client accounts. Nevertheless, the management of personal accounts may give rise to potential conflicts of interest, and there is no assurance that these codes of ethics will adequately address such conflicts.

The Investment Adviser and the Funds have adopted certain compliance procedures, which are designed to address these types of conflicts. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.

Schedule of Investments January 31, 2007 (Unaudited)

Name of Issuer

Percentages represent the market value of each investment category to total net assets

Rating Moody's/S&P

Coupon Rate

Maturity

 

Principal Amount

 

Market Value

 

 

 

 

 

 

 

 

KANSAS MUNICIPAL BONDS (98.4%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Butler Cty., KS (Circle) USD #375 FSA

Aaa/NR

5.000%

09/01/2013

$

250,000

$

259,580

#Chisholm Creek Util. Auth. (Bel Aire & Park City, KS Pj.) MBIA

Aaa/NR

5.250

09/01/2016

 

770,000

 

826,564

Dodge, KS USD #443 Unltd. General Obligation FSA

Aaa/AAA

5.750

09/01/2013

 

100,000

 

105,064

Johnson Cty., KS Community College Student Commons & Parking AMBAC

Aaa/AAA

5.000

11/15/2019

 

235,000

 

247,845

Johnson Cty., KS USD #232 (Desoto) FSA

Aaa/NR

5.000

09/01/2015

 

100,000

 

107,627

Johnson Cty., KS USD #232 (Desoto) MBIA

Aaa/NR

5.000

03/01/2015

 

250,000

 

267,766

Kingman Cty., KS USD #331 FGIC

Aaa/AAA

5.500

10/01/2012

 

250,000

 

264,933

KS Devl. Finance Auth. (Dept. Admin. 7th & Harrison PJ) AMBAC

Aaa/AAA

5.500

12/01/2013

 

375,000

 

392,482

KS Devl. Finance Auth. (Hays Medl. Ctr.) Rev. MBIA

Aaa/NR

5.200

11/15/2008

 

375,000

 

381,375

KS Devl. Finance Auth. (Hays Medl. Ctr.) Rev. MBIA

Aaa/NR

5.300

11/15/2009

 

375,000

 

381,251

KS Devl. Finance Auth. (Hays Medl. Ctr.) Rev. MBIA

Aaa/NR

5.500

11/15/2017

 

100,000

 

101,987

KS Devl. Finance Auth. (KS St. Projects) Rev. MBIA

Aaa/AAA

5.000

10/01/2017

 

250,000

 

261,435

KS Devl. Finance Auth. (Park Apts.) Multifamily Hsg. Rev. FNMA

NR/AAA

5.700

12/01/2009

 

325,000

 

327,997

KS Devl. Finance Auth. (State of KS Projects) MBIA

Aaa/AAA

4.100

05/01/2019

 

250,000

 

246,315

#KS Devl. Finance Auth. (Stormont Vail) Hlth. Care Rev. MBIA

Aaa/AAA

5.700

11/15/2008

 

450,000

 

450,337

*KS Devl. Finance Auth. (Stormont Vail) Hlth. Care Rev. MBIA

Aaa/AAA

5.750

11/15/2012

 

845,000

 

901,302

KS Devl. Finance Auth. (Wichita Univ.) AMBAC

Aaa/AAA

5.900

04/01/2015

 

305,000

 

320,851

*Mission, KS Multifamily Hsg. (Lamar Place) Rev. FNMA

NR/AAA

5.000

10/01/2014

 

605,000

 

614,970

Mission, KS Multifamily Hsg. (Lamar Place) Rev. FNMA

NR/AAA

5.180

10/01/2023

 

445,000

 

452,084

Morton Cty., KS USD# 217 FSA

Aaa/AAA

4.000

09/01/2010

 

100,000

 

101,044

Olathe, KS Multifamily Hsg. (Bristol Pointe) Rev. Ref. FNMA

NR/AAA

5.250

11/01/2012

 

485,000

 

490,869

Reno Cty., KS USD #308 Hutchinson MBIA

Aaa/NR

4.500

09/01/2022

 

250,000

 

251,385

Saline Cty., KS USD #305 (Salina) G.O. Ref. FSA

Aaa/NR

5.500

09/01/2015

 

190,000

 

201,854

Shawnee Cty., KS USD #437 (Auburn-Washburn) G.O. Ref. FSA

Aaa/NR

5.000

09/01/2014

 

485,000

 

507,262

Shawnee, KS Multifamily Hsg. (Thomasbrooks Apts.) Rev. FNMA COL.

NR/AAA

5.250

10/01/2014

 

215,000

 

217,988

*University of Kansas Hosp. Auth. AMBAC

Aaa/AAA

5.500

09/01/2015

 

1,000,000

 

1,034,800

Washburn Univ. (Living Learning Ctr.) Bldg. Rev. AMBAC

Aaa/AAA

5.350

07/01/2011

 

105,000

 

108,416

Wellington, KS Utility Rev. AMBAC

Aaa/AAA

5.000

05/01/2012

 

250,000

 

253,385

Wichita, KS G.O. (Series 772) FGIC

Aaa/AAA

4.100

09/01/2014

 

130,000

 

130,736

#Wichita, KS Multifamily Hsg. (Broadmoor Chelsea) Rev. FNMA

NR/AAA

5.375

07/01/2010

 

330,000

 

333,950

*Wichita, KS Multifamily Hsg. (Cimarron Apartments) FNMA

NR/AAA

5.250

10/01/2012

 

405,000

 

409,722

Wichita, KS Water & Sewer Util. Rev. FGIC

Aaa/AAA

5.250

10/01/2014

 

325,000

 

347,763

#Wyandotte Cty., Kansas City, KS Gov't. Util. Syst. Rev. MBIA

Aaa/AAA

5.125

09/01/2013

 

500,000

 

517,340

Wyandotte Cty., KS USD #500 G.O. FSA

Aaa/AAA

5.250

09/01/2013

 

250,000

 

269,910

TOTAL KANSAS MUNICIPAL BONDS (COST: $11,835,699)

 

 

 

 

$

12,088,189

 

 

 

 

 

 

 

 

SHORT-TERM SECURITIES (0.6%)

 

 

 

 

Shares

 

 

Wells Fargo Advantage National Tax-Free Money Market (COST: $70,464)

 

 

70,464

$

70,464

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS IN SECURITIES (COST: $11,906,163)

 

 

 

 

$

12,158,653

OTHER ASSETS LESS LIABILITIES

 

 

 

 

 

 

130,239

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

$

12,288,892

* Indicates bonds are segregated by the custodian to cover when-issued or delayed-delivery purchases.

# Indicates bonds are segregated by the custodian to cover initial margin requirements.

Non-rated (NR) securities in the Fund were investment grade when purchased.

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of Assets and Liabilities January 31, 2007 (Unaudited)

 

 

 

ASSETS

 

 

 

Investment in securities, at value (cost: $11,906,163)

$

12,158,653

 

Cash

 

3,900

 

Accrued interest receivable

 

186,851

 

Accrued dividends receivable

 

706

 

Prepaid expenses

 

2,736

 

Receivable from manager

 

1,601

 

 

 

 

Total Assets

$

12,354,447

 

 

 

LIABILITIES

 

 

 

Dividends payable

$

42,420

 

Payable for fund shares redeemed

 

12,259

 

Payable to affiliates

 

7,056

 

Accrued expenses

 

3,820

 

 

 

 

Total Liabilities

$

65,555

 

 

 

 

 

 

NET ASSETS

$

12,288,892

 

 

 

 

 

 

Net assets are represented by:

 

 

 

Paid-in capital

$

13,430,051

 

Accumulated undistributed net realized gain (loss) on investments and futures

 

(1,393,674)

 

Accumulated undistributed net investment income

 

25

 

Unrealized appreciation (depreciation) on investments

 

252,490

 

Total amount representing net assets applicable to 1,125,370 outstanding shares of no par common stock (unlimited shares authorized)

$

12,288,892

 

 

 

Net asset value per share

$

10.92

Public offering price (based on sales charge of 2.75%)

$

11.23

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of Operations For the six months ended January 31, 2007 (Unaudited)

 

 

 

INVESTMENT INCOME

 

 

 

Interest

$

288,549

 

Dividends

 

6,587

 

Total Investment Income

$

295,136

 

 

 

EXPENSES

 

 

 

Investment advisory fees

$

31,187

 

Administrative service fees

 

11,017

 

Transfer agent fees

 

11,536

 

Accounting service fees

 

15,119

 

Custodian fees

 

1,206

 

Transfer agent out-of-pockets

 

364

 

Professional fees

 

4,509

 

Trustees fees

 

1,062

 

Reports to shareholders

 

1,253

 

Registration and filing fees

 

736

 

Audit expense

 

4,927

 

Other expenses

 

184

 

Total Expenses

$

83,100

 

Less expenses waived or absorbed by the Fund’s manager

 

(36,319)

 

Total Net Expenses

$

46,781

 

 

 

NET INVESTMENT INCOME

$

248,355

 

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

 

 

 

Net realized gain (loss) from investment transactions

$

(1,751)

 

Net change in unrealized appreciation (depreciation) of investments

 

(29,325)

 

Net Realized and Unrealized Gain (Loss) On Investments

$

(31,076)

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$

217,279

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of Changes in Net Assets

For the six months ended January 31, 2007, and the year ended July 31, 2006

 

 

For The Six Months Ended January 31, 2007 (Unaudited)

 

For The Year Ended July 31, 2006

 

 

 

 

 

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

 

 

 

 

 

Net investment income

$

248,355

$

506,642

 

Net realized gain (loss) on investment and futures transactions

 

(1,751)

 

387,021

 

Net change in unrealized appreciation (depreciation) on investments and futures

 

(29,325)

 

(385,763)

 

Net Increase (Decrease) in Net Assets Resulting From Operations

$

217,279

$

507,900

 

 

 

 

 

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS

 

 

 

 

 

Dividends from net investment income ($.22 and $.43 per share, respectively)

$

(248,330)

$

(506,639)

 

Distributions from net realized gain on investment and futures transactions ($.00 and $.00 per share, respectively)

 

0

 

0

 

Total Dividends and Distributions

$

(248,330)

$

(506,639)

 

 

 

 

 

CAPITAL SHARE TRANSACTIONS

 

 

 

 

 

Proceeds from sale of shares

$

419,053

$

680,818

 

Proceeds from reinvested dividends

 

153,729

 

305,774

 

Cost of shares redeemed

 

(671,533)

 

(3,049,064)

 

Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions

$

(98,751)

$

(2,062,472)

 

 

 

 

 

TOTAL INCREASE (DECREASE) IN NET ASSETS

$

(129,802)

$

(2,061,211)

 

 

 

 

 

NET ASSETS, BEGINNING OF PERIOD

 

12,418,694

 

14,479,905

 

 

 

 

 

NET ASSETS, END OF PERIOD

$

12,288,892

$

12,418,694

Undistributed Net Investment Income

$

25

$

0

The accompanying notes are an integral part of these financial statements.

Notes to Financial Statements January 31, 2007 (Unaudited)

Note 1. ORGANIZATION

Business operations - Kansas Insured Intermediate Fund (the “Fund”) is an investment portfolio of Integrity Managed Portfolios (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. Integrity Managed Portfolios is an unincorporated business trust organized under Massachusetts law on August 10, 1990. The Fund had no operations from that date to November 23, 1992, other than matters relating to organization and registration. On November 23, 1992, the Fund commenced its Public Offering of capital shares. The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal and Kansas state income tax as is consistent with preservation of capital. The Fund will seek to achieve this objective by investing primarily in a portfolio of Kansas insured securities.

Shares of the Fund are offered at net asset value plus a maximum sales charge of 2.75% of the offering price.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment security valuation - Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees which include consideration of the following: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, and indications as to value from dealers and general market conditions. Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on the trade date.

The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.

When-issued securities – The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities purchased on a when-issued basis are identified as such in the Fund’s Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic, or other factors.

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 and any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required. Distributions during the year ended July 31, 2006, were characterized as tax-exempt for tax purposes.

The tax character of distributions paid was as follows:

 

 

July 31, 2006

 

July 29, 2005

Tax-exempt Income

$

506,639

$

599,718

Ordinary Income

 

0

 

0

Long-term Capital Gains

 

0

 

0

 

Total

$

506,639

$

599,718

As of July 31, 2006, 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

($1,391,923)

$281,815

($1,110,108)

The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2006, totaling $1,391,923, which may be used to offset capital gains. The capital loss carryforward amounts will expire in each of the years ended July 31 as shown in the table below.

Year

 

Unexpired Capital Losses

2007

$

27,100

2008

$

49,698

2009

$

78,788

2010

$

178,976

2011

$

209,757

2012

$

303,542

2013

$

544,062

For the year ended July 31, 2006, the Fund made $36,266 in 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 Fund’s next taxable year. For the year ended July 31, 2006, the Fund deferred to August 1, 2006 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 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 at least annually.

Premiums and discounts - Premiums and discounts on municipal 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 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 appreciation (depreciation) related to open futures contracts is required to be treated as a 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.

Note 3. CAPITAL SHARE TRANSACTIONS

As of January 31, 2007, there were unlimited shares of no par authorized; 1,125,370 and 1,134,356 shares were outstanding at January 31, 2007, and July 31, 2006, respectively.

Transactions in capital shares were as follows:

 
Shares

 

For The Six Months Ended January 31, 2007 (Unaudited)

 

For The Year Ended July 31, 2006

 

 

Shares sold

38,152

62,142

Shares issued on reinvestment of dividends

13,994

27,989

Shares redeemed

(61,132)

(279,142)

Net increase (decrease)

(8,986)

(189,011)

Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, 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 to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund’s average daily net assets. All investment advisory fees were waived for the six months ended January 31, 2007. The Fund has a payable to Integrity Money Management of $0 at January 31, 2007 for investment advisory fees. Certain officers and trustees of the Fund are also officers and directors of the investment adviser.

Under the terms of the advisory agreement, the investment adviser has agreed to pay the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 0.75% of the Fund’s average daily net assets on an annual basis. The investment adviser may also 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 0.75% for the six months ended January 31, 2007.

Integrity Fund Services, the transfer agent, provides shareholder services for a variable fee equal to 0.20% 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, 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 is charged for each additional share class. The Fund has recognized $11,536 of transfer agency fees and expenses for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,120 at January 31, 2007 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, together with reimbursement of out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $15,119 of accounting service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,597 at January 31, 2007 for accounting service fees. Integrity Fund Services also acts as the Fund’s administrative services agent for a variable fee equal to 0.125% 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, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $11,017 of administrative service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,067 at January 31, 2007 for administrative service fees.

Note 5. INVESTMENT SECURITY TRANSACTIONS

The cost of purchases and proceeds from the sales of investment securities (excluding short-term securities) aggregated $635,903 and $388,214, respectively, for the six months ended January 31, 2007.

Note 6. INVESTMENT IN SECURITIES

At January 31, 2007, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $11,906,163. The net unrealized appreciation of investments for financial reporting purposes based on the cost was $252,490, which is comprised of $266,426 aggregate gross unrealized appreciation and $13,936 aggregate gross unrealized depreciation. Differences between financial reporting-basis and tax-basis unrealized appreciation/depreciation are due to differing treatment of market discount.

Note 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund is presently evaluating the impact of adopting SFAS 157.

Financial Highlights

Selected per share data and ratios for the period indicated

 

 

For The Six Months Ended January 31, 2007 (Unaudited)

 

For The Year Ended July 31, 2006

 

For The Year Ended July 29, 2005

 

For The Year Ended July 30, 2004

 

For The Year Ended July 31, 2003

 

For The Year Ended July 31, 2002

NET ASSET VALUE, BEGINNING OF PERIOD

$

10.95

$

10.94

$

11.44

$

11.60

$

11.91

$

11.93

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Investment Operations:

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

$

.22

$

.43

$

.42

$

.43

$

.46

$

.50

Net realized and unrealized gain (loss) on investment and futures transactions

 

(.03)

 

.01

 

(.50)

 

(.16)

 

(.31)

 

(.02)

Total Income (Loss) From Investment Operations

$

.19

$

.44

$

(.08)

$

.27

$

.15

$

.48

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from net investment income

$

(.22)

$

(.43)

$

(.42)

$

(.43)

$

(.46)

$

(.50)

Distributions from net capital gains

 

.00

 

.00

 

.00

 

.00

 

.00

 

.00

Total Distributions

$

(.22)

$

(.43)

$

(.42)

$

(.43)

$

(.46)

$

(.50)

 

 

 

 

 

 

 

 

 

 

 

 

 

NET ASSET VALUE, END OF PERIOD

$

10.92

$

10.95

$

10.94

$

11.44

$

11.60

$

11.91

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return

 

3.46%(A)(C)

 

4.06%(A)

 

(0.75%)(A)

 

2.31%(A)

 

1.26%(A)

 

4.12%(A)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RATIOS/SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

Net assets, end of period (in thousands)

$

12,289

$

12,419

$

14,480

$

16,982

$

18,477

$

18,633

Ratio of net expenses (after expense assumption) to average net assets

 

0.75%(B)(C)

 

0.75%(B)

 

0.75%(B)

 

0.75%(B)

 

0.75%(B)

 

0.75%(B)

Ratio of net investment income to average net assets

 

3.97%(C)

 

3.89%

 

3.71%

 

3.67%

 

3.89%

 

4.20%

Portfolio turnover rate

 

3.23%

 

4.15%

 

1.81%

 

4.39%

 

26.23%

 

9.04%

(A) Excludes maximum sales charge of 2.75%.

(B) During the periods indicated above, Integrity Mutual Funds, Inc. or Integrity Money Management assumed/waived expenses of $36,319, $62,295, $57,567, $58,289, $36,281, and $30,501, respectively. If the expenses had not been assumed/waived, the annualized ratios of total expenses to average net assets would have been 1.33%, 1.23%, 1.10%, 1.08%, 0.94%, and 0.91%, 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.

Dear Shareholder:

Enclosed is the semi-annual report of the Maine Municipal Fund (the “Fund”) for the period ended January 31, 2007. The Fund’s portfolio and related financial statements are presented within for your review.

In the last part of 2006 investors pushed back when they thought the Federal Reserve would cut interest rates.

Fed Fund futures expectations of where rates are going now give less than even odds that the Fed will cut its key target rate by a quarter point by September. In November the view was that the Fed would almost certainly cut rates from the current 5.25% once and possibly twice.

The mood has shifted as economic reports suggest the economy is in better shape than investors had thought. One reason investors remain so upbeat is that the economy appears to be catching its footing and inflation looks more subdued.

Federal Reserve chairman Ben Bernanke has said repeatedly he hopes the core inflation rate will continue to moderate, falling back below 2%. But he continues to worry, at least in public, about the risk of more persistent inflation, which would force him to raise rates again.

The bond market right now is worried about a different threat, a recession. That fear helped push the yield on the 10-year Treasury bond to 4.81% at the end of the period, higher than the 4.39% at which it began 2006, but well below the 5.25% it hit in late June 2006.

Long-term government bonds now yield less than short-term bonds. That makes investors nervous because, at times, it has historically been a sign of a coming recession. Lower long-term yields suggest investors expect rates to fall when the economy is weakening.

Some tend to downplay the recession risk. Heavy foreign demand for longer-term U.S. Treasury bonds, together with exceptionally low worldwide inflation rates, have kept U.S. bonds lower than normal.

Low yields hold down other market interest rates such as fixed mortgage rates. They encourage consumers and businesses alike to borrow, spend and invest which supports corporate profits and stock prices.

The Maine Municipal Fund began the period $10.52 per share and ended the six month period at $10.52 per share for a total return of 1.70%*. This compares to the Lehman Brothers Municipal Bond Index return of 3.06% for the period.

The Funds favorable overall performance can be attributed to its defensive portfolio, with an average maturity of 12 years and a low average maturity to the first call date of 4 years. That, along with an average portfolio coupon of 5.25%, helps relative performance in a rising rate environment.

Issues contributing to this defensive portfolio include: Maine Turnpike Authority, 5.75% coupon, due 7/1/2028; Portland GO, 5.30% coupon, due 6/1/2013; and Yarmouth GO, 5.25% coupon, due 11/15/2009.

An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Portfolio quality for the year was as follows: AAA 77.7%, AA 19.4%, A 2.4% and BBB 0.5%.

Income exempt from federal and Maine state income taxes with preservation of capital remain the primary objectives of the Fund.

If you would like more frequent updates, visit our website at www.integrityfunds.com for daily prices along with pertinent Fund information.

Sincerely,

Monte Avery

Portfolio Manager

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 front-end or 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.

Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities than a municipal bond fund that does not concentrate its securities in a single state.

January 31, 2007 (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 & DefinitionsJanuary 31, 2007 (Unaudited)

Appreciation

Increase in 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, assuming all distributions are reinvested.

Coupon Rate or Face Rate

The rate of interest payable annually, based on the face amount of the bond; expressed as a percentage.

Depreciation

Decrease in value of an asset.

Lehman Brothers Municipal Bond Index

An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund.

Market Value

Actual (or estimated) price at which a bond trades in the market place.

Maturity

A measure of the term or life of a bond in years. When a bond “matures,” the issuer repays the principal.

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 sales charge.

Quality Ratings

A designation assigned by independent rating companies to give a relative indication of a bond’s credit worthiness. “AAA,” “AA,” “A,” and “BBB” indicate investment grade securities. Ratings can range from a high of “AAA” to a low of “D”.

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.

January 31, 2007 (Unaudited)

COMPOSITION

PORTFOLIO QUALITY RATINGS

(Based on Total Long-Term Investments)

AAA

77.7%

AA

19.4%

A

2.4%

BBB

0.5%

Quality ratings reflect the financial strength of the issuer. They are assigned by independent rating services such as Moody’s Investors Services and Standard & Poor’s. Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. (“Integrity Money Management” or “Adviser”), the investment adviser.

These percentages are subject to change.

PORTFOLIO MARKET SECTORS

(As a % of Net Assets)

T-Transportation

34.2%

G-Government

19.9%

I-Industrial

18.8%

HC-Health Care

8.3%

S-School

7.8%

U-Utilities

4.1%

W/S-Water/Sewer

3.5%

O-Other

3.4%

Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.

These percentages are subject to change.

January 31, 2007 (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 July 31, 2006 to January 31, 2007.

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 07/31/06

Ending Account Value 01/31/07

Expenses Paid During Period*

Actual

 

 

 

Class A

$1,000.00

$1,017.00

$5.40

Hypothetical (5% return before expenses)

 

 

 

Class A

$1,000.00

$1,019.86

$5.40

* Expenses are equal to the annualized expense ratio 1.07%, 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 1.70% for the six-month period of July 31, 2006 to January 31, 2007.

January 31, 2007 (Unaudited)

AVERAGE ANNUAL TOTAL RETURNS

 

For periods ending January 31, 2007

 

 

 

 

 

Since Inception (December 5, 1991)

Maine Municipal Fund

1 year

3 year

5 year

10 year

Without sales charge

5.23%

1.68%

2.95%

4.00%

4.97%

With sales charge (4.25%)

0.75%

0.22%

2.06%

3.55%

4.67%

 

 

 

 

 

Since Inception (December 5, 1991)

Lehman Brothers Municipal Bond Index

1 year

3 year

5 year

10 year

 

4.30%

4.00%

5.12%

5.71%

6.32%

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.

The Fund's performance prior to December 19, 2003, was achieved while the Fund was managed by another investment adviser, who used different investment strategies and techniques, which may produce different investment results than those achieved by the current investment adviser. Forum Investment Advisors, LLC, served as investment adviser to the Fund until December 19, 2003.

January 31, 2007 (Unaudited)

COMPARATIVE INDEX GRAPH

Comparison of change in value of a $10,000 investment in the Maine Municipal Fund and the Lehman Brothers Municipal Bond Index

 

Maine Municipal Fund w/o Sales Charge

Maine Municipal Fund w/ Max Sales Charge

Lehman Brothers Municipal Bond Index

 

7/31/1996

$10,000

 $9,571

$10,000

1997

$10,798

$10,335

$11,027

1998

$11,321

$10,835

$11,687

1999

$11,623

$11,125

$12,024

2000

$12,067

$11,549

$12,542

2001

$13,024

$12,465

$13,808

2002

$13,697

$13,110

$14,735

2003

$14,002

$13,402

$15,264

2004

$14,555

$13,932

$16,147

2005

$14,448

$13,829

$17,174

2006

$15,043

$14,398

$17,613

1/31/2007

$15,309

$14,653

$18,151

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 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. The Lehman Brothers index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Maine municipal bonds. 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.

January 31, 2007 (Unaudited)

MANAGEMENT OF THE FUND

The Board of Integrity Managed Portfolios 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 and the seven 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. Two of the remaining three Trustees and/or executive officers are “interested” by virtue of their affiliation with the Investment Adviser and it

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 COMPLEX1

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Jerry M. Stai
2405 11th Ave NW
Minot, ND 58703
54

Trustee

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., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006).

16

Marycrest Franciscan Development, Inc.

Orlin W. Backes
948 13th Ave. SW
Minot, ND 58701
71

Trustee

Since January 1996

Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director, South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., (Since April 2005); Trustee, The Integrity Funds (since May 2003); and Director, First Western Bank & Trust.

16

First Western Bank & Trust

R. James Maxson
1 Main Street North
Minot, ND 58701
59

Trustee

Since January 1999

Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Director, Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc. and Montana Tax-Free Fund, Inc. (since January 1999), South Dakota Tax-Free Fund, Inc. (January 1999 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); and Trustee, The Integrity Funds (since May 2003).

16

Vincent United Methodist Foundation

 

Minot Area Development Corporation

1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.

Trustees and officers of the Fund serve until their resignation, removal or retirement.

The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.

January 31, 2007 (Unaudited)

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 TRUSTEES 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 Street North
Minot, ND 58703
62

Trustee, Chairman, President

Since January 1996

Director (since September 1987), President (September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., Integrity Fund Services, Inc.; Director, President (since inception) and Treasurer (May 1989 to May 2004), ND Capital, Inc. (August 1988 to September 2004), South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc.; Trustee, Chairman and President (since May 2003) and Treasurer (May 2003 to May 2004), The Integrity Funds; Director, President and Treasurer (May 2003 to August 2003), Integrity Funds Distributor, Inc.; Director (October 1999 to June 2003), Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (October 2002 to June 2003), ARM Securities Corporation; and Director, CEO, Chairman (since January 2002), President (September 2002 to December 2004), Capital Financial Services, Inc.

16

Capital Financial Services, Inc., and Minot Park Board

Peter A. Quist
1 Main Street North
Minot, ND 58703
72

Vice President, Secretary

Since January 1996

Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc., ND Capital, Inc. (August 1988 to September 2004), Integrity Fund Services, Inc., South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax Free Fund, Inc., Integrity Funds Distributor, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003); and Director, ARM Securities Corporation (May 2000 to June 2003).

3

None

Laura K. Anderson
1 Main Street North
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, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.

N/A

None

Brent M. Wheeler
1 Main Street North
Minot, ND 58703
36

Mutual Fund Chief Compliance Officer

Since October 2005

Fund Accounting Manager (May 1998 to October 2005), Integrity Fund Services, Inc.; Treasurer (May 2004 to October 2005), Mutual Fund Compliance Officer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.

N/A

None

1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.

2Mr. Walstad qualifies as an interested person of the Trust, as defined in the 1940 Act, by virtue of being an officer and director of the Investment Adviser and Distributor.

Trustees and officers of the Fund serve until their resignation, removal or retirement.

The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.

January 31, 2007 (Unaudited)

Board Approval of Investment Advisory Agreement

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”), the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“the Company”), the Fund’s sponsor.

The approval and the continuation of a fund’s investment advisory agreement must be specifically approved at least annually (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “Interested Persons” of any party (“Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In preparation for the meeting, the Board requests and reviews a wide variety of materials provided by the Fund’s adviser. The Independent Trustees also received advice from their independent counsel on the issues to focus on during contract renewals. At a meeting held on October 25, 2006, the Board of Trustees, including a majority of the Independent Trustees of the Fund, approved the Management and Investment Advisory Agreement (“Advisory Agreement”), between the Fundand Integrity Money Management.

The Trustees, including a majority of Trustees who are neither party to the Advisory Agreements nor “interested persons” of any such party (as such term is defined for regulatory purposes), unanimously approved the Advisory Agreement. In determining whether it was appropriate to approve the Advisory Agreement, the Trustees requested information, provided by the Investment Adviser that it believed to be reasonably necessary to reach its conclusion. In connection with the approval of the Advisory Agreements, the Board reviewed factors set out in judicial decisions and Securities Exchange Commission directives relating to the approval of advisory contracts, which include but are not limited to, the following:

(a)

the nature and quality of services to be provided by the adviser to the fund;

(b)

the various personnel furnishing such services and their duties and qualifications;

(c)

the relevant fund’s investment performance as compared to standardized industry performance data;

(d)

the adviser’s costs and profitability of furnishing the investment management services to the fund;

(e)

the extent to which the adviser realizes economies of scale as the fund grows larger and the sharing thereof with the fund;

(f)

an analysis of the rates charged by other investment advisers of similar funds;

(g)

the expense ratios of the applicable fund as compared to data for comparable funds; and

(h)

information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds.

In evaluating the Adviser’s services and its fees, the Trustees reviewed information concerning the performance of the Fund, the recent financial statements of the Adviser and its parent, and the proposed advisory fee and other fund expenses compared to the level of advisory fees and expenses paid by other similar funds. In reviewing the Advisory Agreement with the foregoing Fund, the Trustees considered, among other things, the fees, the Fund’s past performance, the nature and quality of the services provided, the profitability of the Adviser and its parent (estimated costs and estimated profits from furnishing the proposed services to the Fund), and the expense waivers by the Adviser. The Trustees also considered any ancillary benefits to the Adviser and its affiliates for services provided to the Fund. In this regard, the Trustees noted that there were no soft dollar arrangements involving the Adviser and the only benefits to affiliates were the fees earned for services provided. The Trustees did not identify any single factor discussed above as all-important or controlling. The Trustees also considered the Adviser’s commitment to voluntarily limit Fund expenses and the skills and capabilities of the Adviser.

The following paragraphs summarize the material information and factors considered by the Board, including the Independent Trustees, as well as their conclusions relative to such factors in considering the approval of the Advisory Agreement:

Nature, Extent and Quality of Services: The Investment Adviser currently provides services to sixteen funds in the Integrity family of funds with investment strategies ranging from non-diversified sector funds to broad-based equity funds. The experience and expertise of the Investment Adviser is attributable to the long-term focus on managing investment companies and has the potential to enhance the Fund’s future performance. They have a strong culture of compliance and provide quality services. The overall nature and quality of the services provided by the Investment Adviser had historically been, and continues to be, adequate and appropriate to the Board.

Various personnel furnishing such services and their duties and qualifications: The Portfolio Manager of the Fund has over 25 years experience in the advisory and money management area adding significant expertise to the Adviser of the Fund. A detailed biography of the portfolio manager was presented to the Trustees. This information is disclosed in the prospectus and/or SAI of the Fund.

Investment Performance: The Adviser has assured through subsidization that its Fund has had consistent performance relative to comparable and competing funds. Although the Fund has outperformed its relative benchmark for the YTD and 1-year periods, it has underperformed its relative benchmark for the 5-year, 10-year and since inception periods as of September 29, 2006. The Fund has positive returns for all the periods indicated above as of September 29, 2006. In addition, the Fund has been meeting its investment objective for providing as high a level of current income exempt from federal and Maine state income taxes as is consistent with preservation of capital.

Profitability: The Board has reviewed a year to date and a 12-month profit analysis spreadsheet completed by the controller of the investment adviser. Based on the relatively small size of each fund under management with the Adviser, the Adviser has shown no profit for the period. The Board determined that the profitability of the Adviser was not excessive based on the services it will provide for the Fund and the profit analysis spreadsheet presented by the Adviser.

Economies of Scale: The Board briefly discussed the benefits for the Fund as the Adviser could realize economies of scale as the Fund grows larger, but the size of the Fund has not reached an asset level to benefit from economies of scale.The advisory fees are structured appropriately based on the size of the Fund. The Adviser has indicated that a new advisory fee structure may be looked at if the Fund reaches an asset level where the Fund could benefit from economies of scale.

Analysis of the rates charged by other investment advisers of similar funds: The Adviser is voluntarily waiving advisory fees due to the small size of the Fund. The Board considered the compensation payable under the Advisory Agreement fair and reasonable in light of the services to be provided.

Expense ratios of the applicable fund as compared to data for comparable funds: The Fund’s net expense ratio of 1.07% for the Class A shares was comparable to other funds of similar objective and size.

Information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds: The Board noted that the Adviser does not realize material direct benefits from its relationship with the Fund. The Adviser does not participate in any soft dollar arrangements from securities trading in the Fund.

In voting unanimously to approve the Advisory Agreement, the Trustees did not identify any single factor as being of paramount importance. The Trustees noted that their discussion in this regard was premised on numerous factors including the nature, quality and resources of Integrity Money Management, the strategic plan involving the Fund and the potential for increased distribution and growth of the Fund. They determined that, after considering all relevant factors, the adoption of the Advisory Agreement would be in the best interest of the Fund and its shareholders.

Potential Conflicts of Interest – Investment Adviser

Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account. More specifically, portfolio managers who manage multiple funds are presented with the following potential conflicts:

The management of multiple funds may result in a portfolio manager devoting unequal time and attention to the management of each fund. The Investment Adviser seeks to manage such competing interests for the time and attention of portfolio managers by having them focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment models that are used in connection with the management of the Funds. The management of multiple funds and accounts also may give rise to potential conflicts of interest if the funds and accounts have different objectives, benchmarks, time horizons, and fees as the portfolio manager must allocate his time and investment ideas across multiple funds and accounts.

•

With respect to securities transactions for the Funds, the Investment Adviser determines which broker to use to execute each order, consistent with the duty to seek best execution of the transaction. The portfolio manager may execute transactions for another fund or account that may adversely impact the value of securities held by the Funds. Securities selected for funds or accounts other than the Funds may outperform the securities selected for the Funds.

•

The appearance of a conflict of interest may arise where the Investment Adviser has an incentive, such as a performance-based management fee, which relates to the management of one fund but not all funds with respect to which a portfolio manager has day-to-day management responsibilities. The management of personal accounts may give rise to potential conflicts of interest; there is no assurance that the Funds' code of ethics will adequately address such conflicts. One of the portfolio manager's numerous responsibilities is to assist in the sale of Fund shares. Mr. Avery's compensation is based on salary paid every other week. He is not compensated for client retention. In addition, Integrity Mutual Funds, Inc., sponsors a 401(k) plan for all its employees. This plan is funded by employee elective deferrals and, to an extent, matching contributions by the Company. After one year of employment the employee is eligible to participate in the Company matching program. The Company matches 100% of contribution up to 3% and ½% for each additional percent contributed up to 5%. The Company has established a program in which it will grant interests in Integrity Mutual Funds Inc., shares to current employees that meet certain eligibility requirements, as a form of long-term incentive. The program is designed to allow all employees to participate in the long-term growth of the value of the firm.

•

Although the Portfolio Managers generally do not trade securities in their own personal account, each of the Funds has adopted a code of ethics that, among other things, permits personal trading by employees under conditions where it has been determined that such trades would not adversely impact client accounts. Nevertheless, the management of personal accounts may give rise to potential conflicts of interest, and there is no assurance that these codes of ethics will adequately address such conflicts.

The Investment Adviser and the Funds have adopted certain compliance procedures, which are designed to address these types of conflicts. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.

Schedule of Investments January 31, 2007 (Unaudited)

Name of Issuer

 

 

 

 

 

 

 

Percentages represent the market value of each investment category to total net assets

Rating  Moody's/S&P

Coupon Rate

Maturity

 

Principal Amount

 

Market Value

 

 

 

 

 

 

 

 

MAINE MUNICIPAL BONDS (72.4%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bar Harbor, ME

A-1/NR

6.450%

06/01/2009

$

75,000

$

79,553

Bath, ME

A-3/NR

7.450

12/01/2007

 

30,000

 

31,076

Bath, ME

A-3/NR

7.500

12/01/2008

 

20,000

 

21,347

Brewer, ME

A/A

4.600

11/01/2017

 

210,000

 

218,564

Bucksport, ME

NR/A-

7.150

04/01/2007

 

25,000

 

25,258

Ellsworth, ME

A/NR

7.200

07/01/2008

 

25,000

 

26,163

Freeport, ME

Aa-3/AA

7.250

09/01/2010

 

20,000

 

22,293

Gorham, ME Unlimited Tax G.O. MBIA

Aaa/NR

4.200

02/01/2022

 

155,000

 

154,998

Gorham, ME Unlimited Tax G.O. MBIA

Aaa/NR

4.300

02/01/2023

 

155,000

 

156,057

Gorham, ME Unlimited Tax G.O. MBIA

Aaa/NR

4.350

02/01/2024

 

155,000

 

156,614

Houlton, ME Water District MBIA

Aaa/NR

4.600

05/01/2014

 

100,000

 

102,184

Kennebec, ME Regl. Dev.

Baa-1/NR

5.500

08/01/2014

 

75,000

 

79,243

#Kennebec, ME Water District FSA

Aaa/NR

5.125

12/01/2021

 

500,000

 

515,000

Kittery, ME

A-1/AA

5.200

01/01/2009

 

25,000

 

25,500

Lewiston, ME G.O. FSA

Aaa/NR

5.000

04/01/2022

 

500,000

 

523,400

Lewiston, ME G.O. FSA

Aaa/NR

5.000

04/01/2024

 

250,000

 

263,915

Maine Governmental Facs. Lease Rev FSA

Aaa/AAA

5.750

10/01/2007

 

250,000

 

255,435

Maine Governmental Facs. Auth Lease MBIA

Aaa/AAA

5.375

10/01/2016

 

250,000

 

266,825

Maine Health & Higher Educ. Facs. Auth. (Bates College) FSA

 

Aaa/AAA

 

5.250

 

07/01/2011

 

 

25,000

 

 

25,591

*Maine Health & Higher Educ. Facs. Auth. (Blue Hill Mem. Hosp) FSA

 

Aaa/AAA

 

5.250

 

07/01/2010

 

 

550,000

 

 

562,760

Maine Health & Higher Educ. Facs. Auth. FSA

Aaa/AAA

5.600

07/01/2007

 

175,000

 

175,002

Maine Health & Higher Educ. Facs. Auth.

Aaa/NR

6.000

10/01/2013

 

195,000

 

215,331

#Maine Health & Higher Educ. Facs. Auth. Rev. FSA

Aaa/AAA

5.300

07/01/2007

 

130,000

 

130,000

Maine Health & Higher Educ. Facs. Auth. Rev. AMBAC

Aaa/AAA

7.300

05/01/2014

 

5,000

 

5,000

Maine Health & Higher Educ. Auth. (Maine Maritime Academy) MBIA

 

Aaa/NR

 

5.000

 

07/01/2025

 

 

340,000

 

 

354,909

Maine Finance Auth. Rev. (Electric Rate Stabilization) FSA

 

Aaa/AAA

 

4.500

 

07/01/2008

 

 

25,000

 

 

25,271

*Maine Municipal Bond Bank MBIA

Aaa/AAA

5.625

11/01/2016

 

1,000,000

 

1,067,500

Maine Municipal Bond Bank (Sewer & Water) Rev.

Aaa/AAA

4.900

11/01/2024

 

100,000

 

104,654

Maine State (Highway)

Aa-3/AA-

5.000

06/15/2011

 

200,000

 

209,350

Maine State Turnpike Auth. MBIA

Aaa/AAA

4.625

07/01/2010

 

100,000

 

101,705

Maine State Turnpike Auth. Rev. FGIC

Aaa/AAA

5.300

07/01/2012

 

100,000

 

103,389

Maine State Turnpike Auth. MBIA

Aaa/AAA

5.250

07/01/2010

 

75,000

 

77,875

*Maine State Turnpike Auth. Rev. FGIC

Aaa/AAA

5.750

07/01/2028

 

750,000

 

804,510

Portland, ME

Aa-1/AA

5.000

09/01/2013

 

60,000

 

62,963

#Portland, ME

Aa-1/AA

5.300

06/01/2013

 

790,000

 

797,813

Portland, ME Airport Rev. FSA

Aaa/AAA

5.000

07/01/2032

 

500,000

 

515,395

Scarborough, ME G.O. MBIA

Aaa/AAA

4.400

11/01/2031

 

250,000

 

248,957

Scarborough, ME G.O. MBIA

Aaa/AAA

4.400

11/01/2032

 

480,000

 

477,955

#Skowhegan, ME Pollution Ctl. Rev. (Scott Paper Co. Prj.)

Aa-3/AA-

5.900

11/01/2013

 

1,465,000

 

1,465,000

South Portland, ME

Aa-1/NR

5.800

09/01/2008

 

150,000

 

154,991

South Portland, ME

Aa-1/NR

5.800

09/01/2011

 

40,000

 

43,542

University of Maine System Rev. AMBAC

Aaa/AAA

4.500

03/01/2007

 

50,000

 

50,171

University of Maine System Rev. AMBAC

Aaa/AAA

5.000

03/01/2024

 

100,000

 

102,898

University of Maine System Rev. MBIA

Aaa/AAA

4.250

03/01/2025

 

200,000

 

197,712

Westbrook, ME MBIA

Aaa/AAA

4.600

06/01/2007

 

240,000

 

242,731

Westbrook, ME G.O. FGIC

Aaa/AAA

4.250

10/15/2020

 

180,000

 

180,916

Windham, ME General Obligation AMBAC

Aaa/AAA

4.000

11/01/2014

 

415,000

 

416,623

Winslow, ME (Crowe Rope Inds.) MBIA

Aaa/AAA

5.500

03/01/2007

 

130,000

 

130,537

Winthrop, ME

A-3/NR

5.400

08/01/2007

 

25,000

 

25,442

Yarmouth, ME AMBAC

Aaa/NR

5.250

11/15/2009

 

250,000

 

259,572

Yarmouth, ME

Aa-3/AA-

5.000

11/15/2019

 

500,000

 

529,190

York, ME G.O.

NR/AA

4.000

09/01/2010

 

75,000

 

75,959

TOTAL MAINE MUNICIPAL BONDS

 

 

 

 

 

$

12,864,639

 

 

 

 

 

 

 

 

GUAM MUNICIPAL BONDS (0.1%)

 

 

 

 

 

 

 

Guam Hsg. Corp. Single Family Mtg.

NR/AAA

5.750

09/01/2031

 

10,000

$

10,752

 

 

 

 

 

 

 

 

PUERTO RICO MUNICIPAL BONDS (22.7%)

 

 

 

 

 

 

 

Puerto Rico Commonwealth Highway and Trans. Rev. MBIA

Aaa/AAA

5.500

07/01/2036

 

750,000

 

832,133

Puerto Rico Public Finance Corp. Commonwealth Appropriations AMBAC

Aaa/AAA

5.375

06/01/2018

 

1,960,000

 

2,190,241

*University of Puerto Rico Univ. Revs. MBIA

Aaa/AAA

5.500

06/01/2015

 

1,000,000

 

1,007,500

TOTAL PUERTO RICO MUNICIPAL BONDS

 

 

 

 

 

$

4,029,874

 

 

 

 

 

 

 

 

VIRGIN ISLANDS MUNICIPAL BONDS (3.1%)

 

 

 

 

 

 

 

Virgin Islands Hsg. Finance Auth. Single Family Rev. GNMA COLL

NR/AAA

6.000

03/01/2007

 

35,000

 

35,000

Virgin Islands Water & Power Auth. Elec. Syst. Rev. ACA/MBIA

Aaa/AAA

5.300

07/01/2021

 

500,000

 

516,200

TOTAL VIRGIN ISLANDS MUNICIPAL BONDS

 

 

 

 

 

$

551,200

 

 

 

 

 

 

 

 

TOTAL MUNICIPAL BONDS (COST: $16,967,875)

 

 

 

 

 

$

17,456,465

 

 

 

 

 

 

 

 

SHORT-TERM SECURITIES (1.1%)

 

 

 

 

Shares

 

 

Wells Fargo Advantage National Tax-Free Money Market (COST: $199,461)

 

 

199,461

$

199,461

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS IN SECURITIES (COST: $17,167,336)

 

 

 

 

$

17,655,926

OTHER ASSETS LESS LIABILITIES

 

 

 

 

 

 

109,992

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

$

17,765,918

*Indicates bonds are segregated by the custodian to cover when-issued or delayed-delivery purchases.

#Indicates bonds are segregated by the custodian to cover initial margin requirements.

Non-rated (NR) securities in the Fund were investment grade when purchased.

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of Assets and LiabilitiesJanuary 31, 2007 (Unaudited)

ASSETS

 

 

 

Investment in securities, at value (cost: $17,167,336)

$

17,655,926

 

Cash

 

65

 

Accrued interest receivable

 

181,023

 

Accrued dividends receivable

 

1,032

 

Prepaid expenses

 

4,977

 

 

 

 

Total Assets

$

17,843,023

 

 

 

LIABILITIES

 

 

 

Dividends payable

$

55,402

 

Payable to affiliates

 

14,820

 

Accrued expenses

 

6,883

 

 

 

 

Total Liabilities

$

77,105

 

 

 

NET ASSETS

$

17,765,918

 

 

 

 

 

 

Net assets are represented by:

 

 

 

Paid-in capital

$

17,989,346

 

Accumulated undistributed net realized gain (loss) on investments and futures

 

(729,130)

 

Accumulated undistributed net investment income

 

17,112

 

Unrealized appreciation (depreciation) on investments

 

488,590

 

Total amount representing net assets applicable to 1,688,363 outstanding shares of no par common stock (unlimited shares authorized)

$

17,765,918

 

 

 

Net asset value per share

$

10.52

 

 

 

Public offering price (based on sales charge of 4.25%)

$

10.99

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of OperationsFor the six months ended January 31, 2007 (Unaudited)

INVESTMENT INCOME

 

 

 

Interest

$

416,316

 

Dividends

 

8,626

 

Total Investment Income

$

424,942

 

 

 

EXPENSES

 

 

 

Investment advisory fees

$

46,039

 

Distribution (12b-1) fees

 

23,020

 

Administrative service fees

 

11,132

 

Transfer agent fees

 

16,762

 

Accounting service fees

 

16,604

 

Reports to shareholders

 

1,037

 

Custodian fees

 

1,422

 

Professional fees

 

5,161

 

Trustees fees

 

1,211

 

Registration and filing fees

 

1,392

 

Audit fees

 

3,449

 

Other fees

 

307

 

Total Expenses

$

127,536

 

Less expenses waived or absorbed by the Fund’s manager

 

(29,012)

 

Total Net Expenses

$

98,524

 

 

 

NET INVESTMENT INCOME

$

326,418

 

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

 

 

 

Net realized gain (loss) from investment transactions

$

273

 

Net change in unrealized appreciation (depreciation) of investments

 

13,205

 

Net Realized and Unrealized Gain (Loss) On Investments

$

13,478

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$

339,896

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of Changes in Net Assets

For the six months ended January 31, 2007, and the year ended July 31, 2006

 

 

For The Six Months Ended January 31, 2007

(Unaudited)

 

For The Year Ended July 31, 2006

 

 

 

 

 

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

 

 

 

 

 

Net investment income

$

326,418

$

718,442

 

Net realized gain (loss) on investment and futures transactions

 

273

 

633,405

 

Net change in unrealized appreciation (depreciation) on investments and futures

 

13,205

 

(547,466)

 

Net Increase (Decrease) in Net Assets Resulting From Operations

$

339,896

$

804,381

 

 

 

 

 

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS

 

 

 

 

 

Dividends from net investment income ($.19 and $.35 per share, respectively)

$

(323,493)

$

(712,764)

 

Distributions from net realized gain on investment and futures transactions ($.00 and $.00 per share, respectively)

 

0

 

0

 

Total Dividends and Distributions

$

(323,493)

$

(712,764)

 

 

 

 

 

CAPITAL SHARE TRANSACTIONS

 

 

 

 

 

Proceeds from sale of shares

$

290,406

$

783,051

 

Proceeds from reinvested dividends

 

186,539

 

407,076

 

Cost of shares redeemed

 

(1,455,600)

 

(7,528,806)

 

Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions

$

(978,655)

$

(6,338,679)

 

 

 

 

 

TOTAL INCREASE (DECREASE) IN NET ASSETS

$

(962,252)

$

(6,247,062)

 

 

 

 

 

NET ASSETS, BEGINNING OF PERIOD

 

18,728,170

 

24,975,232

 

 

 

 

 

NET ASSETS, END OF PERIOD

$

17,765,918

$

18,728,170

Undistributed Net Investment Income

$

17,112

$

14,187

The accompanying notes are an integral part of these financial statements.

Notes to Financial Statements January 31, 2007 (Unaudited)

Note 1. ORGANIZATION

Business operations - The Maine Municipal Fund (the “Fund”) is an investment portfolio of Integrity Managed Portfolios (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. Integrity Managed Portfolios is an unincorporated business trust organized under Massachusetts law on August 10, 1990. The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal and Maine state income tax as is consistent with preservation of capital. The Fund will seek to achieve this objective by investing primarily in a portfolio of Maine municipal securities.

On December 19, 2003, the Maine Municipal Fund became a series of Integrity Managed Portfolios. Prior to this the Fund was part of the Forum Funds and was named the Maine TaxSaver Bond Fund. The Maine TaxSaver Bond Fund commenced operations on December 5, 1991. The Forum Funds is a Delaware business trust that is registered as an open-end management investment company under the Investment Company Act of 1940, as amended.

Shares of the Fund are offered at net asset value plus a maximum sales charge of 4.25% of the offering price.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment security valuation - Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees which include consideration of the following: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, and indications as to value from dealers and general market conditions. Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on the trade date.

The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.

When-issued securities – The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities purchased on a when-issued basis are identified as such in the Fund’s Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic, or other factors.

Contingent Deferred Sales Charge (“CDSC”) – In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 12 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).

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 and 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:

 

 

July 31, 2006

 

July 29, 2005

Tax-exempt Income

$

712,764

$

931,874

Ordinary Income

 

0

 

166,154

Long-term Capital Gains

 

0

 

437,394

 

Total

$

712,764

$

1,535,422

As of July 31, 2006, 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

($729,402)

$489,572

($239,830)

The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2006, totaling $729,402 which may be used to offset capital gains. The capital loss carryforward amounts will expire in each of the years ended July 31 as shown in the table below.

Year

 

Unexpired Capital Losses

2013

$

729,402

For the year ended July 31, 2006, the Fund made no 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 Fund’s next taxable year. For the year ended July 31, 2006, the Fund deferred to August 1, 2006, 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 daily and paid monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed at least annually.

Premiums and discounts - Premiums and discounts on municipal 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 appreciation (depreciation) related to open futures contracts is required to be treated as a 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.

Note 3. CAPITAL SHARE TRANSACTIONS

As of January 31, 2007, there were unlimited shares of no par authorized; 1,688,363 and 1,780,772 shares were outstanding at January 31, 2007, and July 31, 2006, respectively.

Transactions in capital shares were as follows:

 

Shares

 

For The Six Months Ended January 31, 2007

(Unaudited)

For The Year Ended July 31, 2006

 

 

Shares sold

27,361

75,280

Shares issued on reinvestment of dividends

17,601

39,039

Shares redeemed

(137,371)

(723,762)

Net increase (decrease)

(92,409)

(609,443)

Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, the Fund’s transfer, accounting and administrative services agent, are subsidiaries of Integrity Mutual Funds, Inc.

The Fund has engaged Integrity Money Management to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund’s average daily net assets. The Fund has recognized $17,027 of investment advisory fees after partial waiver for the six months ended January 31, 2007. The Fund has a payable to Integrity Money Management of $2,459 at January 31, 2007 investment advisory fees. Certain officers and trustees of the Fund are also officers and directors of the investment adviser.

Under the terms of the advisory agreement, the investment adviser has agreed to pay all the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 1.25% of the Fund’s average daily net assets on an annual basis up to the amount of the management and investment advisory fee payable by the Fund to the adviser. Accordingly, after fee waivers and expense reimbursements, the Fund’s actual total annual operating expenses were 1.07% for the six months ended January 31, 2007.

Principal Underwriter and Shareholder Services

Integrity Funds Distributor 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 currently 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 $23,020 of distribution fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Funds Distributor of $3,872 at January 31, 2007 for distribution fees.

Integrity Fund Services, the transfer agent, provides shareholder services for a variable fee equal to 0.20% 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, with a minimum of $2,000 per month plus reimbursement of out-of-pocket expenses. An additional fee with a minimum $500 per month is charged for each additional share class. The Fund has recognized $16,762 of transfer agency fees and expenses for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $3,097 at January 31, 2007 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, together with reimbursement of out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $16,604 of accounting service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,841 at January 31, 2007 for accounting service fees. Integrity Fund Services also acts as the Fund’s administrative services agent for a variable fee equal to 0.125% 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, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $11,132 of administrative service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,067 at January 31, 2007 for administrative service fees.

Note 5. INVESTMENT SECURITY TRANSACTIONS

The cost of purchases and proceeds from sales of investment securities (excluding short-term securities) aggregated $0 and $475,500, respectively, for the six months ended January 31, 2007.

Note 6. INVESTMENT IN SECURITIES

At January 31, 2007, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $17,167,336. The net unrealized appreciation of investments for financial reporting purposes based on the cost was $488,590, which is comprised of $534,418 aggregate gross unrealized appreciation and $45,828 aggregate gross unrealized depreciation. Differences between financial reporting-basis and tax-basis unrealized appreciation/depreciation are due to differing treatment of market discount.

Note 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund is presently evaluating the impact of adopting SFAS 157.

Selected per share data and ratios for the period indicated

 

 

For The Six Months Ended January 31, 2007 (Unaudited)

 

For The Year Ended July 31, 2006

 

For The Year Ended July 29, 2005

 

For The Four Month Period Ended July 30, 2004

 

For The Year Ended March 31, 2004

 

For The Year Ended March 31, 2003

 

For The Year Ended March 31, 2002

NET ASSET VALUE, BEGINNING OF PERIOD

$

10.52

$

10.45

$

11.10

$

11.19

$

11.35

$

10.97

$

11.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Investment Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

$

.19

$

.35

$

.35

$

.13

$

.39

$

.39

$

.42

 

Net realized and unrealized gain (loss) on investment and futures transactions

 

.00

 

.07

 

(.43)

 

(.09)

 

(.10)

 

.38

 

(.09)

 

Total Income (Loss) From Investment Operations

$

.19

$

.42

$

(.08)

$

.04

$

.29

$

.77

$

.33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from net investment income

$

(.19)

$

(.35)

$

(.35)

$

(.13)

$

(.39)

$

(.39)

$

(.42)

 

Distributions from net capital gains

 

.00

 

.00

 

(.22)

 

.00

 

(.06)

 

.00

 

.00

 

Total Distributions

$

(.19)

$

(.35)

$

(.57)

$

(.13)

$

(.45)

$

(.39)

$

(.42)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET ASSET VALUE, END OF PERIOD

$

10.52

$

10.52

$

10.45

$

11.10

$

11.19

$

11.35

$

10.97

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return

 

3.40%(A)(C)

 

4.12%(A)

 

(0.74%)(A)

 

1.23%(A)(C)

 

2.56%(A)

 

7.16%(A)

 

3.06%(A)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RATIOS/SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets, end of period (in thousands)

$

17,766

$

18,728

$

24,975

$

31,683

$

33,270

$

37,847

$

38,033

 

Ratio of net expenses (after expense assumption) to average net assets

 

1.07%(B)(C)

 

1.02%(B)

 

0.97%(B)

 

0.95%(B)(C)

 

0.95%(B)

 

0.95%(B)

 

0.95%(B)

 

Ratio of net investment income to average net assets

 

3.51%(C)

 

3.35%

 

3.24%

 

3.49%(C)

 

3.44%

 

3.49%

 

3.82%

 

Portfolio turnover rate

 

0.00%

 

1.60%

 

4.87%

 

1.92%

 

34.40%

 

26.00%

 

13.00%

(A) Excludes maximum sales charge of 4.25%.

(B) During the periods since March 31, 2004, Integrity Mutual Funds, Inc. assumed/waived expenses of $29,012, $58,447, $86,089 and $29,051. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets would have been 1.39%, 1.30%, 1.27% and 1.22%. For the period 4/1/2003 through 12/19/2003, Forum Administrative Services assumed/waived expenses of $64,658. For the period from 12/20/2003 through 3/31/2004, Integrity Money Management assumed/waived expenses of $22,736. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets for the year would have been 1.20%. In prior years, Forum Administrative Services, Forum Investment Advisors, Forum Shareholder Services, and Forum Accounting Services assumed/waived expenses of $104,969 (2003) and $133,718 (2002). If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets would have been 1.22% and 1.32%, 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.

Dear Shareholder:

Enclosed is the semi-annual report of the Nebraska Municipal Fund (the “Fund”) for the period ended January 31, 2007. The Fund’s portfolio and related financial statements are presented within for your review.

In the last part of 2006 investors pushed back when they thought the Federal Reserve would cut interest rates.

Fed Fund futures expectations of where rates are going now give less than even odds that the Fed will cut its key target rate by a quarter point by September. In November the view was that the Fed would almost certainly cut rates from the current 5.25% once and possibly twice.

The mood has shifted as economic reports suggest the economy is in better shape than investors had thought. One reason investors remain so upbeat is that the economy appears to be catching its footing and inflation looks more subdued.

Federal Reserve chairman Ben Bernanke has said repeatedly he hopes the core inflation rate will continue to moderate, falling back below 2%. But he continues to worry, at least in public, about the risk of more persistent inflation, which would force him to raise rates again.

The bond market right now is worried about a different threat, a recession. That fear helped push the yield on the 10-year Treasury bond to 4.81% at the end of the period, higher than the 4.39% at which it began 2006, but well below the 5.25% it hit in late June 2006.

Long-term government bonds now yield less than short-term bonds. That makes investors nervous because, at times, it has historically been a sign of a coming recession. Lower long-term yields suggest investors expect rates to fall when the economy is weakening.

Some tend to downplay the recession risk. Heavy foreign demand for longer-term U.S. Treasury bonds, together with exceptionally low worldwide inflation rates, have kept U.S. bonds lower than normal.

Low yields hold down other market interest rates such as fixed mortgage rates. They encourage consumers and businesses alike to borrow, spend and invest which supports corporate profits and stock prices.

The Nebraska Municipal Fund began the period at $10.20 per share and ended the period at $10.20 per share for a total return of 1.92%*. This compares to the Lehman Brothers Municipal Bond Index return of 3.06% for the period.

The Funds favorable overall performance can be attributed to its defensive portfolio, with an average maturity of 15 years and a low average maturity to the first call date of 4 years. That, along with an average portfolio coupon of 5.29%, helps relative performance in a rising rate environment.

Issues contributing to this defensive portfolio include: Omaha Public Power, 6.20% coupon, due 1/1/2017; Fremont Schools, 5.50% coupon, due 12/15/2010; and Lincoln Schools, 5.25% coupon, due 1/15/2022.

An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Portfolio quality for the year was as follows: AAA 56.0%, AA 31.9%, A 5.1%, BBB 2.5% and NR 4.5%.

Income exempt from federal and Nebraska state income taxes with preservation of capital remain the primary objectives of the Fund.

If you would like more frequent updates, visit our website at www.integrityfunds.com for daily prices along with pertinent Fund information.

Sincerely,

Monte Avery

Portfolio Manager

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 front-end or 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.

Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities than a municipal bond fund that does not concentrate its securities in a single state.

January 31, 2007 (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 January 31, 2007 (Unaudited)

Appreciation

The increase in 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, assuming all distributions are reinvested.

Coupon Rate or Face Rate

The rate of interest annually payable based on the face amount of the bond; expressed as a percentage.

Depreciation

The decrease in value of an asset.

Lehman Brothers Municipal Bond Index

An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund.

Market Value

The actual (or estimated) price at which a bond trades in the market place.

Maturity

A measure of the term or life of a bond in years. When a bond “matures”, the issuer repays the principal.

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 sales charge.

Quality Ratings

A designation assigned by independent rating companies to give a relative indication of a bond’s credit worthiness. “AAA”, “AA”, “A” and “BBB” indicate investment grade securities. Ratings can range from a high of “AAA” to a low of “D”.

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.

January 31, 2007 (Unaudited)

COMPOSITION

PORTFOLIO QUALITY RATINGS

(Based on Total Long-Term Investments)

AAA

56.0%

AA

31.9%

A

5.1%

BBB

2.5%

NR

4.5%

Quality ratings reflect the financial strength of the issuer. They are assigned by independent rating services such as Moody’s Investors Services and Standard & Poor’s. Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. (“Integrity Money Management” or “Adviser”), the investment adviser.

These percentages are subject to change.

PORTFOLIO MARKET SECTORS

(As a % of Net Assets)

S – School

32.2%

HC – Health Care

24.9%

U – Utilities

14.3%

I – Industrial

7.9%

O – Other

7.3%

T – Transportation

6.3%

W/S – Water/Sewer

4.4%

H – Housing

2.7%

Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.

These percentages are subject to change.

January 31, 2007 (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 July 31, 2006 to January 31, 2007.

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 07/31/06

Ending Account Value 01/31/07

Expenses Paid During Period*

Actual

 

 

 

Class A

$1,000.00

$1,019.18

$5.40

Hypothetical (5% return before expenses)

 

 

 

Class A

$1,000.00

$1,019.86

$5.40

* Expenses are equal to the annualized expense ratio of 1.07%, 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 1.92% for the six-month period of July 31, 2006 to January 31, 2007.

January 31, 2007 (Unaudited)

AVERAGE ANNUAL TOTAL RETURNS

 

For periods ending January 31, 2007

 

 

 

 

 

Since Inception (November 17, 1993)

Nebraska Municipal Fund

1 year

3 year

5 year

10 year

Without sales charge

4.94%

2.55%

2.03%

3.69%

3.86%

With sales charge (4.25%)

0.47%

1.09%

1.15%

3.25%

3.52%

 

 

 

 

 

 

Since Inception (November 17, 1993)

Lehman Brothers Municipal Bond Index

1 year

3 year

5 year

10 year

 

4.30%

4.00%

5.12%

5.71%

5.64%

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 redemptions of Fund shares.

January 31, 2007 (Unaudited)

COMPARATIVE INDEX GRAPH

Comparison of change in value of a $10,000 investment in the Nebraska Municipal Fund and the Lehman Brothers Municipal Bond Index

 

Nebraska Municipal Fund w/o Sales Charge

Nebraska Municipal Fund w/ Max Sales Charge

Lehman Brothers Municipal Bond Index

 

 

 

7/31/1996

$10,000

$9,574

$10,000

1997

$10,757

$10,298

$11,027

1998

$11,182

$10,705

$11,687

1999

$11,609

$11,114

$12,024

2000

$11,875

$11,368

$12,542

2001

$13,064

$12,507

$13,808

2002

$13,595

$13,015

$14,735

2003

$13,485

$12,910

$15,264

2004

$13,969

$13,373

$16,147

2005

$13,943

$13,348

$17,174

2006

$14,626

$14,002

$17,613

01/31/07

$14,907

$14,271

$18,151

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 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. The Lehman Brothers index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Nebraska municipal bonds. 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.

January 31, 2007 (Unaudited)

MANAGEMENT OF THE FUND

The Board of Integrity Managed Portfolios 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 and the seven 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. Two of the remaining three Trustees and/or 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 COMPLEX1

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Jerry M. Stai
2405 11th Ave NW
Minot, ND 58703
54

Trustee

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., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006).

16

Marycrest Franciscan Development, Inc.

Orlin W. Backes
948 13th Ave. SW
Minot, ND 58701
71

Trustee

Since January 1996

Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director, South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., (Since April 2005); Trustee, The Integrity Funds (since May 2003); and Director, First Western Bank & Trust.

16

First Western Bank & Trust

R. James Maxson
1 Main Street North
Minot, ND 58701
59

Trustee

Since January 1999

Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Director, Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc. and Montana Tax-Free Fund, Inc. (since January 1999), South Dakota Tax-Free Fund, Inc. (January 1999 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); and Trustee, The Integrity Funds (since May 2003).

16

Vincent United Methodist Foundation

 

Minot Area Development Corporation

1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.

Trustees and officers of the Fund serve until their resignation, removal or retirement.

The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.

January 31, 2007 (Unaudited)

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 TRUSTEES 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 Street North
Minot, ND 58703
62

Trustee, Chairman, President

Since January 1996

Director (since September 1987), President (September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., Integrity Fund Services, Inc.; Director, President (since inception) and Treasurer (May 1989 to May 2004), ND Capital, Inc. (August 1988 to September 2004), South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc.; Trustee, Chairman and President (since May 2003) and Treasurer (May 2003 to May 2004), The Integrity Funds; Director, President and Treasurer (May 2003 to August 2003), Integrity Funds Distributor, Inc.; Director (October 1999 to June 2003), Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (October 2002 to June 2003), ARM Securities Corporation; and Director, CEO, Chairman (since January 2002), President (September 2002 to December 2004), Capital Financial Services, Inc.

16

Capital Financial Services, Inc., and Minot Park Board

Peter A. Quist
1 Main Street North
Minot, ND 58703
72

Vice President, Secretary

Since January 1996

Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc., ND Capital, Inc. (August 1988 to September 2004), Integrity Fund Services, Inc., South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax Free Fund, Inc., Integrity Funds Distributor, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003); and Director, ARM Securities Corporation (May 2000 to June 2003).

3

None

Laura K. Anderson
1 Main Street North
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, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.

N/A

None

Brent M. Wheeler
1 Main Street North
Minot, ND 58703
36

Mutual Fund Chief Compliance Officer

Since October 2005

Fund Accounting Manager (May 1998 to October 2005), Integrity Fund Services, Inc.; Treasurer (May 2004 to October 2005), Mutual Fund Compliance Officer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.

N/A

None

1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.

2Mr. Walstad qualifies as an interested person of the Trust, as defined in the 1940 Act, by virtue of being an officer and director of the Investment Adviser and Distributor.

Trustees and officers of the Fund serve until their resignation, removal or retirement.

The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.

January 31, 2007 (Unaudited)

Board Approval of Investment Advisory Agreement

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”), the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“the Company”), the Fund’s sponsor.

The approval and the continuation of a fund’s investment advisory agreement must be specifically approved at least annually (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “Interested Persons” of any party (“Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In preparation for the meeting, the Board requests and reviews a wide variety of materials provided by the Fund’s adviser. The Independent Trustees also received advice from their independent counsel on the issues to focus on during contract renewals. At a meeting held on October 25, 2006, the Board of Trustees, including a majority of the Independent Trustees of the Fund, approved the Management and Investment Advisory Agreement (“Advisory Agreement”), between the Fundand Integrity Money Management.

The Trustees, including a majority of Trustees who are neither party to the Advisory Agreements nor “Interested Persons” of any such party (as such term is defined for regulatory purposes), unanimously approved the Advisory Agreement. In determining whether it was appropriate to approve the Advisory Agreement, the Trustees requested information, provided by the Investment Adviser that it believed to be reasonably necessary to reach its conclusion. In connection with the approval of the Advisory Agreements, the Board reviewed factors set out in judicial decisions and Securities Exchange Commission directives relating to the approval of advisory contracts, which include but are not limited to, the following:

(a)

the nature and quality of services to be provided by the adviser to the fund;

(b)

the various personnel furnishing such services and their duties and qualifications;

(c)

the relevant fund’s investment performance as compared to standardized industry performance data;

(d)

the adviser’s costs and profitability of furnishing the investment management services to the fund;

(e)

the extent to which the adviser realizes economies of scale as the fund grows larger and the sharing thereof with the fund;

(f)

an analysis of the rates charged by other investment advisers of similar funds;

(g)

the expense ratios of the applicable fund as compared to data for comparable funds; and

(h)

information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds.

In evaluating the Adviser’s services and its fees, the Trustees reviewed information concerning the performance of the Fund, the recent financial statements of the Adviser and its parent, and the proposed advisory fee and other fund expenses compared to the level of advisory fees and expenses paid by other similar funds. In reviewing the Advisory Agreement with the foregoing Fund, the Trustees considered, among other things, the fees, the Fund’s past performance, the nature and quality of the services provided, the profitability of the Adviser and its parent (estimated costs and estimated profits from furnishing the proposed services to the Fund), and the expense waivers by the Adviser. The Trustees also considered any ancillary benefits to the Adviser and its affiliates for services provided to the Fund. In this regard, the Trustees noted that there were no soft dollar arrangements involving the Adviser and the only benefits to affiliates were the fees earned for services provided. The Trustees did not identify any single factor discussed above as all-important or controlling. The Trustees also considered the Adviser’s commitment to voluntarily limit Fund expenses and the skills and capabilities of the Adviser.

The following paragraphs summarize the material information and factors considered by the Board, including the Independent Trustees, as well as their conclusions relative to such factors in considering the approval of the Advisory Agreement:

Nature, Extent and Quality of Services: The Investment Adviser currently provides services to sixteen funds in the Integrity family of funds with investment strategies ranging from non-diversified sector funds to broad-based equity funds. The experience and expertise of the Investment Adviser is attributable to the long-term focus on managing investment companies and has the potential to enhance the Fund’s future performance. They have a strong culture of compliance and provide quality services. The overall nature and quality of the services provided by the Investment Adviser had historically been, and continues to be, adequate and appropriate to the Board.

Various personnel furnishing such services and their duties and qualifications: The Portfolio Manager of the Fund has over 25 years experience in the advisory and money management area adding significant expertise to the Adviser of the Fund. A detailed biography of the portfolio manager was presented to the Trustees. This information is disclosed in the prospectus and/or SAI of the Fund.

Investment Performance: The Adviser has assured through subsidization that its Fund has had consistent performance relative to comparable and competing funds. Although the Fund has outperformed its relative benchmark for the YTD and 1-year periods, it has underperformed its relative benchmark for the 5-year, 10-year and since inception periods as of September 29, 2006. The Fund has positive returns for all the periods indicated above as of September 29, 2006. In addition, the Fund has been meeting its investment objective for providing as high a level of current income exempt from federal and Nebraska state income taxes as is consistent with preservation of capital.

Profitability: The Board has reviewed a year to date and a 12-month profit analysis spreadsheet completed by the controller of the investment adviser. Based on the relatively small size of each fund under management with the Adviser, the Adviser has shown no profit for the period. The Board determined that the profitability of the Adviser was not excessive based on the services it will provide for the Fund and the profit analysis spreadsheet presented by the Adviser.

Economies of Scale: The Board briefly discussed the benefits for the Fund as the Adviser could realize economies of scale as the Fund grows larger, but the size of the Fund has not reached an asset level to benefit from economies of scale.The advisory fees are structured appropriately based on the size of the Fund. The Adviser has indicated that a new advisory fee structure may be looked at if the Fund reaches an asset level where the Fund could benefit from economies of scale.

Analysis of the rates charged by other investment advisers of similar funds: The Adviser is voluntarily waiving advisory fees due to the small size of the Fund. The Board considered the compensation payable under the Advisory Agreement fair and reasonable in light of the services to be provided.

Expense ratios of the applicable fund as compared to data for comparable funds: The Fund’s net expense ratio of 1.07% for the Class A shares was comparable to other funds of similar objective and size.

Information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds: The Board noted that the Adviser does not realize material direct benefits from its relationship with the Fund. The Adviser does not participate in any soft dollar arrangements from securities trading in the Fund.

In voting unanimously to approve the Advisory Agreement, the Trustees did not identify any single factor as being of paramount importance. The Trustees noted that their discussion in this regard was premised on numerous factors including the nature, quality and resources of Integrity Money Management, the strategic plan involving the Fund and the potential for increased distribution and growth of the Fund. They determined that, after considering all relevant factors, the adoption of the Advisory Agreement would be in the best interest of the Fund and its shareholders.

Potential Conflicts of Interest – Investment Adviser

Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account. More specifically, portfolio managers who manage multiple funds are presented with the following potential conflicts:

The management of multiple funds may result in a portfolio manager devoting unequal time and attention to the management of each fund. The Investment Adviser seeks to manage such competing interests for the time and attention of portfolio managers by having them focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment models that are used in connection with the management of the Funds. The management of multiple funds and accounts also may give rise to potential conflicts of interest if the funds and accounts have different objectives, benchmarks, time horizons, and fees as the portfolio manager must allocate his time and investment ideas across multiple funds and accounts.

•

With respect to securities transactions for the Funds, the Investment Adviser determines which broker to use to execute each order, consistent with the duty to seek best execution of the transaction. The portfolio manager may execute transactions for another fund or account that may adversely impact the value of securities held by the Funds. Securities selected for funds or accounts other than the Funds may outperform the securities selected for the Funds.

•

The appearance of a conflict of interest may arise where the Investment Adviser has an incentive, such as a performance-based management fee, which relates to the management of one fund but not all funds with respect to which a portfolio manager has day-to-day management responsibilities. The management of personal accounts may give rise to potential conflicts of interest; there is no assurance that the Funds' code of ethics will adequately address such conflicts. One of the portfolio manager's numerous responsibilities is to assist in the sale of Fund shares. Mr. Avery's compensation is based on salary paid every other week. He is not compensated for client retention. In addition, Integrity Mutual Funds, Inc., sponsors a 401(k) plan for all its employees. This plan is funded by employee elective deferrals and, to an extent, matching contributions by the Company. After one year of employment the employee is eligible to participate in the Company matching program. The Company matches 100% of contribution up to 3% and ½% for each additional percent contributed up to 5%. The Company has established a program in which it will grant interests in Integrity Mutual Funds Inc., shares to current employees that meet certain eligibility requirements, as a form of long-term incentive. The program is designed to allow all employees to participate in the long-term growth of the value of the firm.

•

Although the Portfolio Managers generally do not trade securities in their own personal account, each of the Funds has adopted a code of ethics that, among other things, permits personal trading by employees under conditions where it has been determined that such trades would not adversely impact client accounts. Nevertheless, the management of personal accounts may give rise to potential conflicts of interest, and there is no assurance that these codes of ethics will adequately address such conflicts.

The Investment Adviser and the Funds have adopted certain compliance procedures, which are designed to address these types of conflicts. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.

Schedule of Investments January 31, 2007 (Unaudited)

Name of Issuer

Percentages represent the market value of each investment category to total net assets

Rating Moody’s/S&P

Coupon Rate

Maturity

 

Principal Amount

 

Market Value

 

 

 

 

 

 

 

 

NEBRASKA MUNICIPAL BONDS (94.5%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adams Cty., NE Hosp. Auth. #001 (Mary Lanning Memorial Hosp.) ASGUA

NR/AA

5.300%

12/15/2018

$

250,000

$

255,890

Dawson Cty., NE School Dist. #20 (Gothenburg) G.O. FSA

Aaa/AAA

4.500

12/15/2025

 

405,000

 

408,787

Dawson Cty., NE SID #001 (IBP, Inc. Proj.) Ref. G.O.

Baa/BBB-

5.650

02/01/2022

 

700,000

 

700,000

*Dodge Cty., NE SD #001 (Fremont Public Schools) FSA

Aaa/NR

5.500

12/15/2020

 

1,000,000

 

1,067,690

Douglas Cty., NE (Catholic Health Corp.) Rev. MBIA

Aaa/AAA

5.500

11/15/2021

 

340,000

 

343,383

Douglas Cty., NE (Catholic Health Corp.) Rev. MBIA

Aaa/AAA

5.375

11/15/2015

 

45,000

 

45,563

Douglas Cty., NE (Catholic Health Corp.) Rev. MBIA

Aaa/AAA

5.375

11/15/2015

 

225,000

 

227,250

Douglas Cty., NE G.O.

Aa/AA+

4.750

12/01/2025

 

250,000

 

255,708

Douglas Cty., NE Hosp. Auth. #001 (Alegent Hlth - Immanuel Med. Ctr.) Rev. AMBAC

Aaa/AAA

5.250

09/01/2021

 

250,000

 

258,678

Douglas Cty., NE Hosp. Auth. #002 (Nebraska Medical Center)

A-1/NR

5.000

11/15/2016

 

250,000

 

262,630

Douglas Cty., NE SD #010 (Elkhorn Pub. Schools) G.O. FSA Insured

NR/AAA

4.500

12/15/2023

 

250,000

 

250,103

Douglas Cty., NE SD #010 (Elkhorn Public Schools)

NR/A+

5.050

12/15/2022

 

150,000

 

152,576

Douglas Cty., NE SID #392 (Cinnamon Creek) G.O.

NR/NR

5.750

08/15/2017

 

200,000

 

200,000

Douglas Cty., NE SID #397 (Linden Estates II)

NR/NR

5.600

07/15/2018

 

265,000

 

265,000

Douglas Cty., NE SID #397 (Linden Estates II)

NR/NR

5.600

07/15/2019

 

280,000

 

280,000

Douglas Cty., NE SID #397 (Linden Estates II)

NR/NR

5.600

04/01/2023

 

500,000

 

500,000

Fremont, NE Combined Utilities Rev. MBIA

Aaa/AAA

5.000

10/15/2021

 

500,000

 

521,505

Hall Cty., NE School Dist. #2 Grand Island FSA

Aaa/AAA

5.000

12/15/2023

 

500,000

 

528,780

Kearney Cty., NE Highway Allocation Fund AMBAC

Aaa/NR

5.350

06/15/2021

 

100,000

 

100,001

Lancaster Cty, NE School District #0160 (Norris Schools) G.O. FSA

Aaa/NR

5.000

12/15/2025

 

250,000

 

256,058

#Lancaster Cty., NE (Bryan Memorial Hospital) Rev. MBIA

Aaa/AAA

5.375

06/01/2019

 

1,400,000

 

1,443,260

Lancaster Cty., NE Hosp. #001 (Bryant Mem. LGH)

A-1/NR

4.750

06/01/2021

 

1,000,000

 

1,019,070

Lancaster Cty., NE School Dist. #1 (Lincoln Public Schools)

Aa-1/AAA

5.250

01/15/2021

 

500,000

 

526,950

Lancaster Cty., NE School Dist. #1 (Lincoln Public Schools) G.O.

Aa-1/AAA

5.250

01/15/2022

 

500,000

 

532,780

Lincoln Cty., NE School Dist. #55 (Sutherland Public Schools) FSA

Aaa/NR

5.000

12/15/2020

 

225,000

 

228,141

Lincoln, NE Elec. Syst. Rev.

Aa/AA

5.000

09/01/2021

 

1,000,000

 

1,043,580

Lincoln, NE Water Rev.

Aa/AA-

5.000

08/15/2022

 

575,000

 

602,543

Madison Cty., NE Hosp. Auth. #001 (Faith Regl. Hlth. Svcs.) Rev. ASGUA

NR/AA

5.350

07/01/2018

 

250,000

 

258,453

Metropolitan Community College South Omaha Bldg. Proj. AMBAC

Aaa/AAA

4.500

03/01/2026

 

1,000,000

 

1,007,050

NE Educ. Finance Auth. (Wesleyan Univ.) Rev. Radian Insured

NR/AA

5.500

04/01/2027

 

1,000,000

 

1,055,240

NE Hgr. Educ. Loan Program B Rev. MBIA

Aaa/AAA

6.000

06/01/2028

 

100,000

 

100,984

NE Hgr. Educ. Loan Program Junior Subord. Rev. MBIA

Aaa/AAA

6.400

06/01/2013

 

200,000

 

207,874

NE Hgr. Educ. Loan Program Junior Subord. Term MBIA

Aaa/AAA

6.450

06/01/2018

 

400,000

 

418,288

NE Hgr. Educ. Loan Program Senior Subord. Term MBIA

Aaa/AAA

6.250

06/01/2018

 

800,000

 

838,328

*NE Hgr. Educ. Loan Program Student Loan MBIA

Aaa/AAA

5.875

06/01/2014

 

935,000

 

944,200

NE Invmt. Finance Auth. (Catholic Hlth. Initiatives) Rev.

Aa/AA

5.125

12/01/2017

 

200,000

 

204,744

NE Invmt. Finance Auth. (Childrens Healthcare Svcs.) Facs. Rev.

Aaa/AAA

5.500

08/15/2017

 

410,000

 

425,244

#NE Invmt. Finance Auth. (Childrens Healthcare Svcs.) Rev. AMBAC

Aaa/AAA

5.500

08/15/2027

 

1,000,000

 

1,038,020

NE Invmt. Finance Auth. (Great Plains Regional Medical Center) ASGUA

NR/AA

5.450

11/15/2017

 

400,000

 

410,680

NE Invmt. Finance Auth. (Great Plains Regional Medical Center) Rev. Asset Guaranty

NR/AA

5.450

11/15/2022

 

750,000

 

798,435

NE Invmt. Finance Auth. (Waterbrook) Multifamily Rev.

Aaa/AAA

5.600

04/01/2007

 

165,000

 

165,936

NE Invmt. Finance Auth. Multifamily Hsg. Rev. FNMA

NR/AAA

6.200

06/01/2028

 

275,000

 

277,802

*NE Invmt. Finance Auth. Single Family Hsg. Rev.

NR/AAA

6.300

09/01/2028

 

215,000

 

218,715

NE Invmt. Finance Auth. Single Family Hsg. Rev. FHA/GNMA

NR/AAA

6.500

09/01/2018

 

10,000

 

10,003

NE Invmt. Finance Auth. Single Family Hsg. Rev. FNMA/GNMA

NR/AAA

6.400

09/01/2026

 

15,000

 

15,006

NE Invmt. Finance Auth. Single Family Hsg. Rev. GNMA

NR/AAA

6.200

09/01/2017

 

45,000

 

45,783

NE Invmt. Finance Auth. Single Family Hsg. Rev. GNMA

NR/AAA

6.250

03/01/2021

 

50,000

 

50,946

NE Invmt. Finance Auth. Single Family Hsg. Rev. GNMA/FNMA

NR/AAA

6.250

09/01/2028

 

15,000

 

15,267

Omaha, NE (Riverfront Project) Special Obligation

Aa-1/AA

5.500

02/01/2029

 

1,000,000

 

1,077,450

Omaha, NE Public Power Dist. (Electric Rev) AMBAC

Aaa/AAA

4.750

02/01/2025

 

250,000

 

258,958

Omaha, NE Public Power Dist. (Electric Rev) AMBAC

Aaa/AAA

4.300

02/01/2031

 

100,000

 

96,513

Omaha, NE Public Power Dist. Elec. Syst. Rev.

Aa/AA

5.200

02/01/2022

 

500,000

 

522,845

Omaha, NE Public Power Dist. Elec. Syst. Rev.

Aa/NR

6.200

02/01/2017

 

650,000

 

744,393

Omaha, NE Public Power Electric Rev.

Aa/AA

5.000

02/01/2034

 

1,000,000

 

1,040,080

Omaha, NE Various Purpose

Aaa/AAA

5.000

05/01/2022

 

250,000

 

262,595

Omaha, NE Various Purpose

Aaa/AAA

4.250

10/15/2026

 

500,000

 

490,535

Platte Cty., NE G.O. FSA

Aaa/AAA

4.750

12/15/2014

 

500,000

 

504,935

Platte Cty., NE Hosp. Auth. No. 1 (Columbus Community Hospital Proj.) Hosp. Rev. Asset Guaranty

NR/AA

5.650

05/01/2012

 

100,000

 

104,631

Platte Cty., NE Hosp. Auth. No. 1 (Columbus Community Hospital Proj.) Hosp. Rev. Asset Guaranty

NR/AA

6.150

05/01/2030

 

250,000

 

266,890

Sarpy Cty., NE School Dist. #046 FSA

Aaa/AAA

5.000

12/15/2022

 

200,000

 

202,860

Saunders Cty., NE G.O. FSA

Aaa/AAA

5.000

11/01/2030

 

250,000

 

256,858

Saunders Cty., NE G.O. MBIA

NR/AAA

4.250

12/15/2021

 

515,000

 

507,301

Univ. of NE (U. of NE - Lincoln Student Fees) Rev.

Aa/AA-

5.125

07/01/2032

 

250,000

 

259,505

University of NE Fac. Corp. Deferred Maintenance AMBAC

Aaa/AAA

5.000

07/15/2020

 

500,000

 

528,605

 

 

 

 

 

 

 

 

TOTAL NEBRASKA MUNICIPAL BONDS (COST: $27,098,980)

 

$

27,907,872

 

 

 

 

SHORT-TERM SECURITIES (4.8%)

Shares

 

 

Wells Fargo Advantage National Tax-Free Money Market (COST: $1,410,424)

1,410,424

$

1,410,424

 

 

 

 

TOTAL INVESTMENTS IN SECURITIES (COST: $28,509,404)

 

$

29,318,296

OTHER ASSETS LESS LIABILITIES

 

 

202,160

 

 

 

 

NET ASSETS

 

$

29,520,456

* Indicates bonds are segregated by the custodian to cover when-issued or delayed-delivery purchases.

# Indicates bonds are segregated by the custodian to cover initial margin requirements.

Non-rated (NR) securities in the Fund were investment grade when purchased.

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of Assets and Liabilities January 31, 2007 (Unaudited)

ASSETS

 

 

 

Investment in securities, at value (cost: $ 28,509,404)

$

29,318,296

 

Accrued interest receivable

 

382,739

 

Accrued dividends receivable

 

4,190

 

Prepaid expenses

 

5,687

 

 

 

 

Total Assets

$

29,710,912

 

 

 

LIABILITIES

 

 

 

Dividends payable

$

97,568

 

Disbursements in excess of demand deposit cash

 

17,841

 

Payable for fund shares redeemed

 

46,263

 

Payable to affiliates

 

23,311

 

Accrued expenses

 

5,473

 

 

 

 

Total Liabilities

$

190,456

 

 

 

 

 

 

NET ASSETS

$

29,520,456

 

 

 

Net assets are represented by:

 

 

 

Paid-in capital

$

31,926,450

 

Accumulated undistributed net realized gain (loss) on investments and futures

 

(3,244,682)

 

Accumulated undistributed net investment income

 

29,796

 

Unrealized appreciation (depreciation) on investments

 

808,892

 

Total amount representing net assets applicable to 2,893,314 outstanding shares of no par common stock (unlimited shares authorized)

$

29,520,456

 

 

 

Net asset value per share

$

10.20

Public offering price (based on sales charge of 4.25%)

$

10.65

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of Operations For the six months ended January 31, 2007 (Unaudited)

INVESTMENT INCOME

 

 

 

Interest

$

707,630

 

Dividends

 

36,607

 

Total Investment Income

$

744,237

 

 

 

EXPENSES

 

 

 

Investment advisory fees

$

76,067

 

Distribution (12b-1) fees

 

38,033

 

Administrative service fees

 

17,756

 

Transfer agent fees

 

27,199

 

Accounting service fees

 

19,607

 

Transfer agent out-of-pockets

 

775

 

Reports to shareholders

 

1,603

 

Custodian fees

 

2,581

 

Professional fees

 

8,544

 

Trustees fees

 

1,508

 

Registration and filing fees

 

812

 

Insurance expense

 

516

 

Legal fees

 

403

 

Audit fees

 

4,209

 

Total Expenses

$

199,613

 

Less expenses waived or absorbed by the Fund’s manager

 

(36,831)

 

Total Net Expenses

$

162,782

 

 

 

NET INVESTMENT INCOME

$

581,455

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

 

 

 

Net realized gain (loss) from investment transactions

$

67,265

 

Net change in unrealized appreciation (depreciation) of investments

 

(53,748)

 

Net Realized And Unrealized Gain (Loss) On Investments

$

13,517

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$

594,972

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of Changes in Net Assets

For the six months ended January 31, 2007 and the year ended July 31, 2006

 

 

For The Six Months Ended January 31, 2007 (Unaudited)

 

For The Year Ended July 31, 2006

 

 

 

 

 

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

 

 

 

 

 

Net investment income

$

581,455

$

1,242,166

 

Net realized gain (loss) on investment and futures transactions

 

67,265

 

887,612

 

Net change in unrealized appreciation (depreciation) on investments and futures

 

(53,748)

 

(609,436)

 

Net Increase (Decrease) in Net Assets Resulting From Operations

$

594,972

$

1,520,342

 

 

 

 

 

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS

 

 

 

 

 

Dividends from net investment income ($.20 and $.40 per share, respectively)

$

(579,445)

$

(1,238,147)

 

Distributions from net realized gain on investment and futures transactions ($.00 and $.00 per share, respectively)

 

0

 

0

 

Total Dividends and Distributions

$

(579,445)

$

(1,238,147)

 

 

 

 

 

CAPITAL SHARE TRANSACTIONS

 

 

 

 

 

Proceeds from sale of shares

$

144,896

$

1,505,567

 

Proceeds from reinvested dividends

 

385,117

 

826,643

 

Cost of shares redeemed

 

(1,767,393)

 

(4,359,905)

 

Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions

$

(1,237,380)

$

(2,027,695)

 

 

 

 

 

TOTAL INCREASE (DECREASE) IN NET ASSETS

$

(1,221,853)

$

(1,745,500)

 

 

 

 

 

NET ASSETS, BEGINNING OF PERIOD

 

30,742,309

 

32,487,809

 

 

 

 

 

NET ASSETS, END OF PERIOD

$

29,520,456

$

30,742,309

Undistributed Net Investment Income

$

29,796

$

27,787

The accompanying notes are an integral part of these financial statements.

Notes to Financial Statements January 31, 2007 (Unaudited)

Note 1. ORGANIZATION

Business operations - The Nebraska Municipal Fund (the “Fund”) is an investment portfolio of Integrity Managed Portfolios (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. IntegrityManaged Portfolios is an unincorporated business trust organized under Massachusetts law on August 10, 1990. The Fund had no operations from that date to November 17, 1993, other than matters relating to organization and registration. On November 17, 1993, the Fund commenced its Public Offering of capital shares. The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal and Nebraska state income taxes as is consistent with preservation of capital. The Fund will seek to achieve this objective by investing primarily in a portfolio of Nebraska municipal securities.

Shares of the Fund are offered at net asset value plus a maximum sales charge of 4.25% of the offering price.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment security valuation - Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees which include consideration of the following: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, and indications as to value from dealers and general market conditions. Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on the trade date.

The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.

When-issued securities – The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The values of the securities purchased on a when-issued basis are identified as such in the Fund’s Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic, or other factors.

Contingent Deferred Sales Charge (“CDSC”) – In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 12 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).

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 and any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required. Distributions during the year ended July 31, 2006, were characterized as tax-exempt for tax purposes.

The tax character of distributions paid was as follows:

 

 

July 31, 2006

 

July 29, 2005

Tax-exempt Income

$

1,238,147

$

1,382,244

Ordinary Income

 

0

 

0

Long-term Capital Gains

 

0

 

0

Total

$

1,238,147

$

1,382,244

As of July 31, 2006, 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

($3,311,947)

$890,427

($2,421,520)

The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2006, totaling $3,311,947, which may be used to offset capital gains. The capital loss carryforward amounts will expire in each of the years ended July 31 as shown in the table below.

Year

 

Unexpired Capital Losses

2008

$

144,610

2009

$

158,911

2010

$

591,993

2011

$

713,949

2012

$

579,276

2013

$

1,123,208

For the year ended July 31, 2006, the Fund made no 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 Fund’s next taxable year. For the year ended July 31, 2006, the Fund deferred to August 1, 2006, 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 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 at least annually.

Premiums and discounts - Premiums and discounts on municipal 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 appreciation (depreciation) related to open futures contracts is required to be treated as a 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.

Note 3. CAPITAL SHARE TRANSACTIONS

As of January 31, 2007, there were unlimited shares of no par authorized; 2,893,314 and 3,013,698 shares were outstanding at January 31, 2007, and July 31, 2006, respectively.

Transactions in capital shares were as follows:

 

Shares

 

For The Six Months Ended January 31, 2007 (Unaudited)

For The Year Ended July 31, 2006

Shares sold

14,096

148,688

Shares issued on reinvestment of dividends

37,452

81,633

Shares redeemed

(171,932)

(430,272)

Net increase (decrease)

(120,384)

(199,951)

Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, 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 to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund’s average daily net assets. The Fund has recognized $39,236 of investment advisory fees after partial waiver for the six months ended January 31, 2007. The Fund has a payable to Integrity Money Management of $4,982 at January 31, 2007 for investment advisory fees. Certain officers and trustees of the Fund are also officers and directors of the investment adviser.

Under the terms of the advisory contract, the investment adviser has agreed to pay the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 1.25% of the Fund’s average daily net assets on an annual basis up to the amount of the investment advisory and management fee. The investment adviser and underwriter may also voluntarily waive fees or reimburse expenses not required by the advisory or other agreements from time to time. Accordingly, after fee waivers and expense reimbursements, the Fund’s actual total annual operating expenses were 1.07% for the six months ended January 31, 2007.

Principal Underwriter and Shareholder Services

Integrity Funds Distributor 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 currently 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 $38,033 of distribution fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Funds Distributor of $6,401 at January 31, 2007 for distribution fees.

Integrity Fund Services, the transfer agent, provides shareholder services for a variable fee equal to 0.20% 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, 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 is charged for each additional share class. The Fund has recognized $27,199 of transfer agency fees and expenses for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $5,121 at January 31, 2007 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, together with reimbursement of out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $19,607 of accounting service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $3,347 at January 31, 2007 for accounting service fees. Integrity Fund Services also acts as the Fund’s administrative services agent for a variable fee equal to 0.125% 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, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $17,756 of administrative service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $3,200 at January 31, 2007 for administrative service fees.

Note 5. INVESTMENT SECURITY TRANSACTIONS

The cost of purchases and proceeds from the sales of investment securities (excluding short-term securities) aggregated $2,920,943 and $3,848,312, respectively, for the six months ended January 31, 2007.

Note 6. INVESTMENT IN SECURITIES

At January 31, 2007, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $28,509,404. The net unrealized appreciation of investments for financial reporting purposes based on the cost was $808,892, which is comprised of $841,091 aggregate gross unrealized appreciation and $32,199 aggregate gross unrealized depreciation. Differences between financial reporting-basis and tax-basis unrealized appreciation/depreciation are due to differing treatment of market discount.

Note 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund is presently evaluating the impact of adopting SFAS 157.

Financial Highlights January 31, 2007

Selected per share data and ratios for the period indicated

 

 

For The Six Months Ended January 31, 2007 (Unaudited)

 

For The Year Ended July 31, 2006

 

For The Year Ended July 29, 2005

 

For The Year Ended July 30, 2004

 

For The Year Ended July 31, 2003

 

For The Year Ended July 31, 2002

NET ASSET VALUE, BEGINNING OF PERIOD

$

10.20

$

10.11

$

10.55

$

10.62

$

11.17

$

11.23

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Investment Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

$

.20

$

.40

$

.42

$

.45

$

.47

$

.51

 

Net realized and unrealized gain (loss) on investment and futures transactions

 

.00

 

.09

 

(.44)

 

(.07)

 

(.55)

 

(.06)

 

Total Income (Loss) From Investment Operations

$

.20

$

.49

$

(.02)

$

.38

$

(.08)

$

.45

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from net investment income

$

(.20)

$

(.40)

$

(.42)

$

(.45)

$

(.47)

$

(.51)

 

Distributions from net capital gains

 

.00

 

.00

 

.00

 

.00

 

.00

 

.00

 

Total Distributions

$

(.20)

$

(.40)

$

(.42)

$

(.45)

$

(.47)

$

(.51)

 

 

 

 

 

 

 

 

 

 

 

 

 

NET ASSET VALUE, END OF PERIOD

$

10.20

$

10.20

$

10.11

$

10.55

$

10.62

$

11.17

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return

 

3.84%(A)(C)

 

4.90%(A)

 

(0.18)%(A)

 

3.59%(A)

 

(0.81)%(A)

 

4.06%(A)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RATIOS/SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets, end of period (in thousands)

$

29,520

$

30,742

$

32,488

$

34,682

$

36,718

$

37,273

 

Ratio of net expenses (after expense assumption) to average net assets

 

1.07%(B)(C)

 

1.03%(B)

 

0.98%(B)

 

0.95%(B)

 

0.92%(B)

 

0.82%(B)

 

Ratio of net investment income to average net assets

 

3.81%(C)

 

3.89%

 

4.07%

 

4.18%

 

4.24%

 

4.52%

 

Portfolio turnover rate

 

10.35%

 

14.63%

 

4.36%

 

8.95%

 

9.48%

 

13.08%

(A) Excludes maximum sales charge of 4.25%.

(B) During the periods indicated above, Integrity Mutual Funds, Inc. or Integrity Money Management assumed/waived expenses of $36,831, $66,312, $84,449, $93,640, $62,679, and $99,292, respectively. If the expenses had not been assumed/waived, the annualized ratios of total expenses to average net assets would have been 1.31%, 1.24%, 1.22%, 1.21%, 1.08%, and 1.08%, 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.

Dear Shareholder:

Enclosed is the semi-annual report of the New Hampshire Municipal Fund (the “Fund”) for the period ended January 31, 2007. The Fund’s portfolio and related financial statements are presented within for your review.

In the last part of 2006 investors pushed back when they thought the Federal Reserve would cut interest rates.

Fed Fund futures expectations of where rates are going now give less than even odds that the Fed will cut its key target rate by a quarter point by September. In November the view was that the Fed would almost certainly cut rates from the current 5.25% once and possibly twice.

The mood has shifted as economic reports suggest the economy is in better shape than investors had thought. One reason investors remain so upbeat is that the economy appears to be catching its footing and inflation looks more subdued.

Federal Reserve chairman Ben Bernanke has said repeatedly he hopes the core inflation rate will continue to moderate, falling back below 2%. But he continues to worry, at least in public, about the risk of more persistent inflation, which would force him to raise rates again.

The bond market right now is worried about a different threat, a recession. That fear helped push the yield on the 10-year Treasury bond to 4.81% at the end of the period, higher than the 4.39% at which it began 2006, but well below the 5.25% it hit in late June 2006.

Long-term government bonds now yield less than short-term bonds. That makes investors nervous because, at times, it has historically been a sign of a coming recession. Lower long-term yields suggest investors expect rates to fall when the economy is weakening.

Some tend to downplay the recession risk. Heavy foreign demand for longer-term U.S. Treasury bonds, together with exceptionally low worldwide inflation rates, have kept U.S. bonds lower than normal.

Low yields hold down other market interest rates such as fixed mortgage rates. They encourage consumers and businesses alike to borrow, spend and invest which supports corporate profits and stock prices.

The New Hampshire Municipal Fund began the period at $10.25 per share and ended the period at $10.28 per share for a total return of 1.88%*. This compares to the Lehman Brothers Municipal Bond Index return of 3.06% for the period.

The Funds favorable overall performance can be attributed to its defensive portfolio, with an average maturity of 9 years and a low average maturity to the first call date of 4 years. That, along with an average portfolio coupon of 4.96%, helps relative performance in a rising rate environment.

Issues contributing to this defensive portfolio include: Dartmouth College, 5.70% coupon, due 6/1/2027; Manchester GO, 5.50% coupon, due 6/1/2019; and New Hampshire University Systems, 5.50% coupon, due 7/1/2013.

An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, federally tax-exempt issues. Portfolio quality for the year was as follows: AAA 68.0%, AA 23.1% and A 8.9%.

Income exempt from federal income taxes and New Hampshire state interest and dividend taxes with preservation of capital remain the primary objectives of the Fund.

If you would like more frequent updates, visit our website at www.integrityfunds.com for daily prices along with pertinent Fund information.

Sincerely,

Monte Avery

Portfolio Manager

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 front-end or 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.

Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities than a municipal bond fund that does not concentrate its securities in a single state.

January 31, 2007 (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 January 31, 2007 (Unaudited)

Appreciation

Increase in 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, assuming all distributions are reinvested.

Coupon Rate or Face Rate

The rate of interest payable annually, based on the face amount of the bond; expressed as a percentage.

Depreciation

Decrease in value of an asset.

Lehman Brothers Municipal Bond Index

An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund.

Market Value

Actual (or estimated) price at which a bond trades in the market place.

Maturity

A measure of the term or life of a bond in years. When a bond “matures,” the issuer repays the principal.

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 sales charge.

Quality Ratings

A designation assigned by independent rating companies to give a relative indication of a bond’s credit worthiness. “AAA,” “AA,” “A,” and “BBB” indicate investment grade securities. Ratings can range from a high of “AAA” to a low of “D”.

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.

January 31, 2007 (Unaudited)

COMPOSITION

PORTFOLIO QUALITY RATINGS

(Based on Total Long-Term Investments)

AAA

68.0%

AA

23.1%

A

8.9%

Quality ratings reflect the financial strength of the issuer. They are assigned by independent rating services such as Moody’s Investors Services and Standard & Poor’s. Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. (“Integrity Money Management” or “Adviser”), the investment adviser.

These percentages are subject to change.

PORTFOLIO MARKET SECTORS

(As a % of Net Assets)

T - Transportation

28.5%

S - School

20.2%

O - Other

14.3%

I - Industrial

13.1%

HC - Health Care

12.7%

GO - General Obligation

11.2%

Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.

These percentages are subject to change.

January 31, 2007 (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 July 31, 2006, to January 31, 2007.

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 07/31/06

Ending Account Value 01/31/07

Expenses Paid During Period*

Actual

 

 

 

Class A

$1,000.00

$1,018.76

$5.40

Hypothetical (5% return before expenses)

 

 

 

Class A

$1,000.00

$1,019.86

$5.40

* Expenses are equal to the annualized expense ratio of 1.07%, 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 1.88% for the six-month period of July 31, 2006, to January 31, 2007.

January 31, 2007 (Unaudited)

AVERAGE ANNUAL TOTAL RETURNS

 

For periods ending January 31, 2007

 

 

 

 

 

Since Inception (December 31, 1992)

New Hampshire Municipal Fund

1 year

3 year

5 year

10 year

Without sales charge

4.41%

1.81%

2.77%

3.95%

4.56%

With sales charge (4.25%)

(0.02%)

0.35%

1.88%

3.50%

4.24%
 

 

 

 

 

 

Since Inception (December 31, 1992)

Lehman Brothers Municipal Bond Index

1 year

3 year

5 year

10 year

 

4.30%

4.00%

5.12%

5.71%

6.02%

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.

The Fund's performance prior to December 19, 2003, was achieved while the Fund was managed by another investment adviser, who used different investment strategies and techniques, which may produce different investment results than those achieved by the current investment adviser. Forum Investment Advisors, LLC, served as investment adviser to the Fund until December 19, 2003.

January 31, 2007 (Unaudited)

COMPARATIVE INDEX GRAPH

Comparison of change in value of a $10,000 investment in the New Hampshire Municipal Fund and the Lehman Brothers Municipal Bond Index

 

New Hampshire Municipal Fund w/o Sales Charge

New Hampshire Municipal Fund w/ Max Sales Charge

Lehman Brothers Municipal Bond Index

7/31/1996

$10,000

$9,573

$10,000

1997

$10,847

$10,384

$11,027

1998

$11,421

$10,933

$11,687

1999

$11,726

$11,226

$12,024

2000

$12,142

$11,623

$12,542

2001

$13,035

$12,478

$13,808

2002

$13,715

$13,129

$14,735

2003

$14,036

$13,437

$15,264

2004

$14,701

$14,073

$16,147

2005

$14,436

$13,819

$17,174

2006

$14,978

$14,338

$17,613

01/31/07

$15,259

$14,607

$18,151

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 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. The Lehman Brothers index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in New Hampshire municipal bonds. 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.

January 31, 2007 (Unaudited)

MANAGEMENT OF THE FUND

The Board of Integrity Managed Portfolios 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 and the seven 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. Two of the remaining three Trustees and/or 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 COMPLEX1

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Jerry M. Stai
2405 11th Ave NW
Minot, ND 58703
54

Trustee

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., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006).

16

Marycrest Franciscan Development, Inc.

Orlin W. Backes
948 13th Ave. SW

Minot, ND 58701
71

Trustee

Since January 1996

Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director, South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., (Since April 2005); Trustee, The Integrity Funds (since May 2003); and Director, First Western Bank & Trust.

16

First Western Bank & Trust

R. James Maxson
1 Main Street North
 Minot, ND 58701
59

Trustee

Since January 1999

Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Director, Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc. and Montana Tax-Free Fund, Inc. (since January 1999), South Dakota Tax-Free Fund, Inc. (January 1999 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); and Trustee, The Integrity Funds (since May 2003).

16

Vincent United Methodist Foundation

 

Minot Area Development Corporation

1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.

Trustees and officers of the Fund serve until their resignation, removal or retirement.

The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.

January 31, 2007 (Unaudited)

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 TRUSTEES 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 Street North
Minot, ND 58703
62

Trustee, Chairman, President

Since January 1996

Director (since September 1987), President (September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., Integrity Fund Services, Inc.; Director, President (since inception) and Treasurer (May 1989 to May 2004), ND Capital, Inc. (August 1988 to September 2004), South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc.; Trustee, Chairman and President (since May 2003) and Treasurer (May 2003 to May 2004), The Integrity Funds; Director, President and Treasurer (May 2003 to August 2003), Integrity Funds Distributor, Inc.; Director (October 1999 to June 2003), Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (October 2002 to June 2003), ARM Securities Corporation; and Director, CEO, Chairman (since January 2002), President (September 2002 to December 2004), Capital Financial Services, Inc.

16

Capital Financial Services, Inc., and Minot Park Board

Peter A. Quist
1 Main Street North
Minot, ND 58703
72

Vice President, Secretary

Since January 1996

Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc., ND Capital, Inc. (August 1988 to September 2004), Integrity Fund Services, Inc., South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax Free Fund, Inc., Integrity Funds Distributor, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003); and Director, ARM Securities Corporation (May 2000 to June 2003).

3

None

Laura K. Anderson
1 Main Street North
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, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.

N/A

None

Brent M. Wheeler
1 Main Street North
Minot, ND 58703
36

Mutual Fund Chief Compliance Officer

Since October 2005

Fund Accounting Manager (May 1998 to October 2005), Integrity Fund Services, Inc.; Treasurer (May 2004 to October 2005), Mutual Fund Compliance Officer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.

N/A

None

1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.

2Mr. Walstad qualifies as an interested person of the Trust, as defined in the 1940 Act, by virtue of being an officer and director of the Investment Adviser and Distributor.

Trustees and officers of the Fund serve until their resignation, removal or retirement.

The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.

January 31, 2007 (Unaudited)

Board Approval of Investment Advisory Agreement

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”), the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“the Company”), the Fund’s sponsor.

The approval and the continuation of a fund’s investment advisory agreement must be specifically approved at least annually (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “Interested Persons” of any party (“Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In preparation for the meeting, the Board requests and reviews a wide variety of materials provided by the Fund’s adviser. The Independent Trustees also received advice from their independent counsel on the issues to focus on during contract renewals. At a meeting held on October 25, 2006, the Board of Trustees, including a majority of the Independent Trustees of the Fund, approved the Management and Investment Advisory Agreement (“Advisory Agreement”), between the Fund and Integrity Money Management.

The Trustees, including a majority of Trustees who are neither party to the Advisory Agreement nor “interested persons” of any such party (as such term is defined for regulatory purposes), unanimously approved the Advisory Agreement. In determining whether it was appropriate to approve the Advisory Agreement, the Trustees requested information, provided by the Investment Adviser that it believed to be reasonably necessary to reach its conclusion. In connection with the approval of the Advisory Agreements, the Board reviewed factors set out in judicial decisions and Securities Exchange Commission directives relating to the approval of advisory contracts, which include but are not limited to, the following:

(a)

the nature and quality of services to be provided by the adviser to the fund;

(b)

the various personnel furnishing such services and their duties and qualifications;

(c)

the relevant fund’s investment performance as compared to standardized industry performance data;

(d)

the adviser’s costs and profitability of furnishing the investment management services to the fund;

(e)

the extent to which the adviser realizes economies of scale as the fund grows larger and the sharing thereof with the fund;

(f)

an analysis of the rates charged by other investment advisers of similar funds;

(g)

the expense ratios of the applicable fund as compared to data for comparable funds; and

(h)

information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds.

In evaluating the Adviser’s services and its fees, the Trustees reviewed information concerning the performance of the Fund, the recent financial statements of the Adviser and its parent, and the proposed advisory fee and other fund expenses compared to the level of advisory fees and expenses paid by other similar funds. In reviewing the Advisory Agreement with the foregoing Fund, the Trustees considered, among other things, the fees, the Fund’s past performance, the nature and quality of the services provided, the profitability of the Adviser and its parent (estimated costs and estimated profits from furnishing the proposed services to the Fund), and the expense waivers by the Adviser. The Trustees also considered any ancillary benefits to the Adviser and its affiliates for services provided to the Fund. In this regard, the Trustees noted that there were no soft dollar arrangements involving the Adviser and the only benefits to affiliates were the fees earned for services provided. The Trustees did not identify any single factor discussed above as all-important or controlling. The Trustees also considered the Adviser’s commitment to voluntarily limit Fund expenses and the skills and capabilities of the Adviser.

The following paragraphs summarize the material information and factors considered by the Board, including the Independent Trustees, as well as their conclusions relative to such factors in considering the approval of the Advisory Agreement:

Nature, Extent and Quality of Services: The Investment Adviser currently provides services to sixteen funds in the Integrity family of funds with investment strategies ranging from non-diversified sector funds to broad-based equity funds. The experience and expertise of the Investment Adviser is attributable to the long-term focus on managing investment companies and has the potential to enhance the Fund’s future performance. They have a strong culture of compliance and provide quality services. The overall nature and quality of the services provided by the Investment Adviser had historically been, and continues to be, adequate and appropriate to the Board.

Various personnel furnishing such services and their duties and qualifications: The Portfolio Manager of the Fund has over 25 years experience in the advisory and money management area adding significant expertise to the Adviser of the Fund. A detailed biography of the portfolio manager was presented to the Trustees. This information is disclosed in the prospectus and/or SAI of the Fund.

Investment Performance: The Adviser has assured through subsidization that its Fund has had consistent performance relative to comparable and competing funds. Although the Fund has outperformed its relative benchmark for the YTD and 1-year periods, it has underperformed its relative benchmark for the 5-year, 10-year and since inception periods as of September 29, 2006. The Fund has positive returns for all the periods indicated above as of September 29, 2006. In addition, the Fund has been meeting its investment objective for providing as high a level of current income exempt from federal and New Hampshire state interest and dividend taxes as is consistent with preservation of capital.

Profitability: The Board has reviewed a year to date and a 12-month profit analysis spreadsheet completed by the controller of the investment adviser. Based on the relatively small size of each fund under management with the Adviser, the Adviser has shown no profit for the period. The Board determined that the profitability of the Adviser was not excessive based on the services it will provide for the Fund and the profit analysis spreadsheet presented by the Adviser.

Economies of Scale: The Board briefly discussed the benefits for the Fund as the Adviser could realize economies of scale as the Fund grows larger, but the size of the Fund has not reached an asset level to benefit from economies of scale.The advisory fees are structured appropriately based on the size of the Fund. The Adviser has indicated that a new advisory fee structure may be looked at if the Fund reaches an asset level where the Fund could benefit from economies of scale.

Analysis of the rates charged by other investment advisers of similar funds: The Adviser is voluntarily waiving advisory fees due to the small size of the Fund. At times the Adviser is reimbursing the Fund for expenses paid above the voluntary expense cap. The Board considered the compensation payable under the Advisory Agreement fair and reasonable in light of the services to be provided.

Expense ratios of the applicable fund as compared to data for comparable funds: The Fund’s net expense ratio of 1.07% for the Class A shares was comparable to other funds of similar objective and size.

Information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds: The Board noted that the Adviser does not realize material direct benefits from its relationship with the Fund. The Adviser does not participate in any soft dollar arrangements from securities trading in the Fund.

In voting unanimously to approve the Advisory Agreement, the Trustees did not identify any single factor as being of paramount importance. The Trustees noted that their discussion in this regard was premised on numerous factors including the nature, quality and resources of Integrity Money Management, the strategic plan involving the Fund and the potential for increased distribution and growth of the Fund. They determined that, after considering all relevant factors, the adoption of the Advisory Agreement would be in the best interest of the Fund and its shareholders.

Potential Conflicts of Interest – Investment Adviser

Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account. More specifically, portfolio managers who manage multiple funds are presented with the following potential conflicts:

The management of multiple funds may result in a portfolio manager devoting unequal time and attention to the management of each fund. The Investment Adviser seeks to manage such competing interests for the time and attention of portfolio managers by having them focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment models that are used in connection with the management of the Funds. The management of multiple funds and accounts also may give rise to potential conflicts of interest if the funds and accounts have different objectives, benchmarks, time horizons, and fees as the portfolio manager must allocate his time and investment ideas across multiple funds and accounts.

•

With respect to securities transactions for the Funds, the Investment Adviser determines which broker to use to execute each order, consistent with the duty to seek best execution of the transaction. The portfolio manager may execute transactions for another fund or account that may adversely impact the value of securities held by the Funds. Securities selected for funds or accounts other than the Funds may outperform the securities selected for the Funds.

•

The appearance of a conflict of interest may arise where the Investment Adviser has an incentive, such as a performance-based management fee, which relates to the management of one fund but not all funds with respect to which a portfolio manager has day-to-day management responsibilities. The management of personal accounts may give rise to potential conflicts of interest; there is no assurance that the Funds' code of ethics will adequately address such conflicts. One of the portfolio manager's numerous responsibilities is to assist in the sale of Fund shares. Mr. Avery's compensation is based on salary paid every other week. He is not compensated for client retention. In addition, Integrity Mutual Funds, Inc., sponsors a 401(k) plan for all its employees. This plan is funded by employee elective deferrals and, to an extent, matching contributions by the Company. After one year of employment the employee is eligible to participate in the Company matching program. The Company matches 100% of contribution up to 3% and ½% for each additional percent contributed up to 5%. The Company has established a program in which it will grant interests in Integrity Mutual Funds Inc., shares to current employees that meet certain eligibility requirements, as a form of long-term incentive. The program is designed to allow all employees to participate in the long-term growth of the value of the firm.

•

Although the Portfolio Managers generally do not trade securities in their own personal account, each of the Funds has adopted a code of ethics that, among other things, permits personal trading by employees under conditions where it has been determined that such trades would not adversely impact client accounts. Nevertheless, the management of personal accounts may give rise to potential conflicts of interest, and there is no assurance that these codes of ethics will adequately address such conflicts.

The Investment Adviser and the Funds have adopted certain compliance procedures, which are designed to address these types of conflicts. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.

Schedule of Investments January 31, 2007 (Unaudited)

Name of Issuer

Percentages represent the market value of each investment category to total net assets

Rating Moody’s/S&P

Coupon Rate

Maturity

 

Principal Amount

 

Market Value

 

 

 

 

 

 

 

 

NEW HAMPSHIRE MUNICIPAL BONDS (88.4%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

#Belknap Cty., NH G.O. MBIA

Aaa/AAA

5.200%

06/15/2013

$

225,000

$

232,535

Colebrook, NH School District MBIA

Aaa/NR

4.000

07/15/2008

 

60,000

 

60,280

Concord, NH G.O.

Aa/AA

4.600

10/15/2014

 

100,000

 

103,919

Derry, NH FSA

Aaa/NR

4.800

02/01/2018

 

115,000

 

120,028

Exeter, NH G.O.

A-1/NR

5.300

06/15/2008

 

25,000

 

25,493

Franlin, NH G.O. MBIA

Aaa/AAA

5.200

10/01/2007

 

50,000

 

50,000

Gorham, NH G.O. FSA

Aaa/NR

4.850

04/01/2014

 

65,000

 

67,000

#Hampton, NH G.O. XLCA

Aaa/NR

4.000

12/15/2020

 

200,000

 

196,696

Hillsborough, NH G.O. XLCA

Aaa/AAA

4.000

11/01/2020

 

100,000

 

98,280

Hillsborough, NH G.O. XLCA

Aaa/AAA

4.000

11/01/2021

 

100,000

 

98,298

Hudson, NH G.O.

Aa-3/NR

5.250

03/15/2028

 

110,000

 

112,627

Hudson, NH School District Lot B

Aa-3/NR

7.300

12/15/2008

 

20,000

 

21,278

Keene, NH G.O.

A-1/NR

5.150

10/15/2011

 

45,000

 

46,612

#Manchester, NH Airport Rev. MBIA

Aaa/AAA

5.000

01/01/2009

 

225,000

 

228,375

*Manchester, NH Public Improvement

Aa/NR

5.500

06/01/2019

 

200,000

 

213,564

*Manchester, NH School Facs. Rev. MBIA

Aaa/AAA

5.250

06/01/2009

 

250,000

 

259,065

Nashua, NH G.O.

Aa/AA+

5.250

09/15/2017

 

100,000

 

106,444

Nashua, NH G.O. MBIA

Aaa/AAA

4.000

03/15/2017

 

100,000

 

99,543

New Hampshire Hgr. Educ. & Hlth. Facs. (Dartmouth College) Rev.

Aaa/AAA

5.700

06/01/2027

 

100,000

 

103,367

*New Hampshire Hgr. Educ. & Hlth. Facs. (Dartmouth College) Rev.

Aaa/AAA

5.125

06/01/2028

 

285,000

 

291,139

New Hampshire Hlth. & Educ. Facs. Auth. (Exeter)

A/A+

5.100

10/01/2010

 

100,000

 

102,977

New Hampshire Hlth. & Educ. Facs. Auth. (Exeter)

A/A+

5.200

10/01/2011

 

60,000

 

62,275

New Hampshire Hlth. & Educ. Facs. Auth. (Exeter)

A/A+

5.500

10/01/2015

 

120,000

 

127,302

New Hampshire Hlth. & Educ. Facs. Auth. (Exeter)

A/A+

5.625

10/01/2016

 

20,000

 

21,436

#New Hampshire Hlth. & Educ. Facs. Auth. (Univ. Sys. of NH) AMBAC

Aaa/AAA

5.500

07/01/2013

 

190,000

 

204,508

New Hampshire Hlth. & Educ. Facs. Auth. (Univ. Sys. of NH) AMBAC

Aaa/AAA

5.500

07/01/2013

 

95,000

 

101,614

New Hampshire Muni Bond Bank FSA

Aaa/AAA

4.400

08/15/2016

 

100,000

 

101,441

New Hampshire Muni Bond Bank (Pinkerton Academy) AMBAC

Aaa/AAA

5.250

06/01/2007

 

5,000

 

5,000

*New Hampshire State Capital Improvement G.O.

Aa/AA

5.000

04/15/2013

 

250,000

 

264,220

New Hampshire State Hsg. Finance Auth.

Aa/NR

6.000

07/01/2008

 

25,000

 

25,378

Oyster River, NH Coop School District Lot A

Aa/NR

5.750

06/15/2007

 

50,000

 

50,068

Oyster River, NH Coop School District Lot A

Aa/NR

5.850

06/15/2008

 

100,000

 

100,135

Portsmouth, NH G.O. MBIA

Aaa/AAA

4.000

08/01/2017

 

100,000

 

99,490

Portsmouth, NH G.O. MBIA

Aaa/AAA

4.000

08/01/2019

 

100,000

 

98,836

*Rochester, NH G.O. MBIA

Aaa/NR

4.750

07/15/2020

 

300,000

 

313,965

#Stratham, NH School District AMBAC

Aaa/AAA

5.100

01/15/2008

 

100,000

 

101,245

TOTAL NEW HAMPSHIRE MUNICIPAL BONDS

 

 

 

 

 

$

4,314,432

 

 

 

 

 

 

 

 

GUAM MUNICIPAL BONDS (0.2%)

 

 

 

 

 

 

 

Guam Hsg. Corp. Single Family Mtg.

NR/AAA

5.750

09/01/2031

 

10,000

$

10,752

 

 

 

 

 

 

 

TOTAL MUNICIPAL BONDS (COST: $4,316,843)

 

 

 

 

$

4,325,184

 

 

 

 

 

 

 

SHORT-TERM SECURITIES (12.0%)

 

 

 

Shares

 

 

Wells Fargo Advantage National Tax-Free Money Market (Cost: $585,199)

 

 

 

585,199

$

585,199

 

 

 

 

 

 

 

TOTAL INVESTMENTS IN SECURITIES (COST: $4,902,042)

 

 

 

 

$

4,910,383

OTHER ASSETS LESS LIABILITIES

 

 

 

 

 

(28,331)

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

$

4,882,052

* Indicates bonds are segregated by the custodian to cover when-issued or delayed-delivery purchases.

# Indicates bonds are segregated by the custodian to cover initial margin requirements.

Non-rated (NR) securities in the Fund were investment grade when purchased.

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of Assets and Liabilities January 31, 2007 (Unaudited)

ASSETS

 

 

Investment in securities, at value (cost: $4,902,042)

$

4,910,383

Accrued interest receivable

 

44,427

Accrued dividends receivable

 

1,323

Receivable from manager

 

4,937

Prepaid expenses

 

1,650

 

 

 

Total Assets

$

4,962,720

 

 

 

LIABILITIES

 

 

Dividends payable

$

12,936

Payable for fund shares redeemed

 

55,997

Payable to affiliates

 

7,836

Accrued expenses

 

3,899

 

 

 

Total Liabilities

$

80,668

 

 

 

 

 

 

NET ASSETS

$

4,882,052

 

 

 

 

 

 

Net assets are represented by:

 

 

Paid-in capital

$

5,028,146

Accumulated undistributed net realized gain (loss) on investments and futures

 

(156,035)

Accumulated undistributed net investment income

 

1,600

Unrealized appreciation (depreciation) on investments

 

8,341

Total amount representing net assets applicable to 474,717 outstanding shares of no par common stock (unlimited shares authorized)

$

4,882,052

 

 

 

Net asset value per share

$

10.28

 

 

 

Public offering price (based on sales charge of 4.25%)

$

10.74

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of Operations For the six months ended January 31, 2007 (Unaudited)

INVESTMENT INCOME

 

 

 

Interest

$

104,668

 

Dividends

 

4,184

 

Total Investment Income

$

108,852

 

 

 

 

EXPENSES

 

 

 

Investment advisory fees

$

12,910

 

Distribution (12b-1) fees

 

6,455

 

Transfer agent fees

 

11,017

 

Administrative service fees

 

11,017

 

Accounting service fees

 

13,291

 

Custodian fees

 

892

 

Professional fees

 

2,867

 

Trustees fees

 

882

 

Reports to shareholders

 

1,050

 

License, fees, and registrations

 

535

 

Audit fees

 

4,614

 

Other fees

 

20

 

Total Expenses

$

65,550

 

Less expenses waived or absorbed by the Fund’s manager

 

(37,923)

 

Total Net Expenses

$

27,627

 

 

 

NET INVESTMENT INCOME

$

81,225

 

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

 

 

 

Net realized gain (loss) from investment transactions

$

(1,870)

 

Net change in unrealized appreciation (depreciation) of investments

 

22,299

 

Net Realized and Unrealized Gain (Loss) On Investments

$

20,429

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$

101,654

 

 

 

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of Changes in Net Assets

For the six months ended January 31, 2007 and the year ended July 31, 2006

 

 

For The Six Months Ended January 31, 2007

(Unaudited)

 

For The Year Ended July 31, 2006

 

 

 

 

 

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

 

 

 

 

 

Net investment income

$

81,225

$

185,220

 

Net realized gain (loss) on investment and futures transactions

 

(1,870)

 

195,409

 

Net change in unrealized appreciation (depreciation) on investments and futures

 

22,299

 

(172,988)

 

Net Increase (Decrease) in Net Assets Resulting From Operations

$

101,654

$

207,641

 

 

 

 

 

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS

 

 

 

 

 

Dividends from net investment income ($.16 and $.33 per share, respectively)

$

(81,049)

$

(184,875)

 

Distributions from net realized gain on investment and futures transactions ($.00 and $.00 per share)

 

0

 

0

 

Total Dividends and Distributions

$

(81,049)

$

(184,875)

 

 

 

 

 

CAPITAL SHARE TRANSACTIONS

 

 

 

 

 

Proceeds from sale of shares

$

19,574

$

298,121

 

Proceeds from reinvested dividends

 

44,600

 

105,044

 

Cost of shares redeemed

 

(519,370)

 

(1,472,571)

 

Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions

$

(455,196)

$

(1,069,406)

 

 

 

 

 

TOTAL INCREASE (DECREASE) IN NET ASSETS

$

(434,591)

$

(1,046,640)

 

 

 

 

 

NET ASSETS, BEGINNING OF PERIOD

 

5,316,643

 

6,363,283

 

 

 

 

 

NET ASSETS, END OF PERIOD

$

4,882,052

$

5,316,643

Undistributed Net Investment Income

$

1,600

$

1,424

The accompanying notes are an integral part of these financial statements.

Notes to Financial StatementsJanuary 31, 2007 (Unaudited)

Note 1. ORGANIZATION

Business operations – The New Hampshire Municipal Fund (the “Fund”) is an investment portfolio of Integrity Managed Portfolios (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. Integrity Managed Portfolios is an unincorporated business trust organized under Massachusetts law on August 10, 1990. The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal and New Hampshire state interest and dividend tax as is consistent with preservation of capital. The Fund will seek to achieve this objective by investing primarily in a portfolio of New Hampshire municipal securities.

On December 19, 2003, the New Hampshire Municipal Fund became a series of the Integrity Managed Portfolios. Prior to this the Fund was part of the Forum Funds and was named the New Hampshire TaxSaver Bond Fund. The New Hampshire TaxSaver Bond Fund commenced operations on December 31, 1992. The Forum Funds is a Delaware business trust that is registered as an open-end management investment company under the Investment Company Act of 1940, as amended.

Shares of the Fund are offered at net asset value plus a maximum sales charge of 4.25% of the offering price.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment security valuation – Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees which include consideration of the following: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, and indications as to value from dealers and general market conditions. Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on the trade date.

The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.

When-issued securities – The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities purchased on a when-issued basis are identified as such in the Fund’s Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic, or other factors.

Contingent Deferred Sales Charge (“CDSC”) – In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 12 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).

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 and 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:

 

 

July 31, 2006

 

July 29, 2005

Tax-exempt Income

$

184,875

$

244,007

Ordinary Income

 

0

 

0

Long-term Capital Gains

 

0

 

72,597

Total

$

184,875

$

316,604

As of July 31, 2006, 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

($154,165)

($12,534)

($166,699)

The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2006, totaling $154,165, which may be used to offset capital gains. The capital loss carryforward amounts will expire in each of the years ended July 31 as shown in the table below.

Year

Unexpired Capital Losses

2013

$154,165

For the year ended July 31, 2006, the Fund made no 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 Fund’s next taxable year. For the year ended July 31, 2006, the Fund deferred to August 1, 2006 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 daily and paid monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed at least annually.

Premiums and discounts - Premiums and discounts on municipal 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 appreciation (depreciation) related to open futures contracts is required to be treated as a 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.

Note 3. CAPITAL SHARE TRANSACTIONS

As of January 31, 2007, there were unlimited shares of no par authorized; 474,717 and 518,796 shares were outstanding at January 31, 2007, and July 31, 2006, respectively.

Transactions in capital shares were as follows:

 

Shares

 

For The Six Months Ended January 31, 2007 (Unaudited)

For The Year Ended July 31, 2006

 

Shares sold

1,894

29,452

Shares issued on reinvestment of dividends

4,317

10,337

Shares redeemed

(50,290)

(144,925)

Net increase (decrease)

(44,079)

(105,136)

Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, the Fund’s transfer, accounting, and administrative services agent, are subsidiaries of Integrity Mutual Funds, Inc.

The Fund has engaged Integrity Money Management to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund’s average daily net assets. All investment advisory fees were waived for the six months ended January 31, 2007. The Fund has a payable to Integrity Money Management of $0 at January 31, 2007 for investment advisory fees. Certain officers and trustees of the Fund are also officers and directors of the investment adviser.

Under the terms of the advisory agreement, the investment adviser has agreed to pay all the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 1.25% of the Fund’s average daily net assets on an annual basis up to the amount of the management and investment advisory fee payable by the Fund to the adviser. Accordingly, after fee waivers and expense reimbursements, the Fund’s total annual operating expenses were 1.07% for the six months ended January 31, 2007.

Principal Underwriter and Shareholder Services

Integrity Funds Distributor 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 currently 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 $6,455 of distribution fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Funds Distributor of $1,073 at January 31, 2007 for distribution fees.

Integrity Fund Services, the transfer agent, provides shareholder services for a variable fee equal to 0.20% 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, 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 is charged for each additional share class. The Fund has recognized $11,017 of transfer agent fees and expenses for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,067 at January 31, 2007 for transfer agent 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, together with reimbursement of out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $13,291 of accounting service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,281 at January 31, 2007 for accounting service fees. Integrity Fund Services also acts as the Fund’s administrative services agent for a variable fee equal to 0.125% 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, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $11,017 of administrative service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,067 at January 31, 2007 for administrative service fees.

Note 5. INVESTMENT SECURITY TRANSACTIONS

The cost of purchases and proceeds from sales of investment securities (excluding short-term securities) aggregated $0 and $767,205, respectively, for the six months ended January 31, 2007.

Note 6. INVESTMENT IN SECURITIES

At January 31, 2007, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $4,902,042. The net unrealized appreciation of investments for financial reporting purposes based on the cost was $8,341, which is comprised of $46,496 aggregate gross unrealized appreciation and $38,155 aggregate gross unrealized depreciation. Differences between financial reporting-basis and tax-basis unrealized appreciation/depreciation are due to differing treatment of market discount.

Note 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund is presently evaluating the impact of adopting SFAS 157.

Financial Highlights January 31, 2007

Selected per share data and ratios for the period indicated

 

 

For The Six Months Ended January 31, 2007

(Unaudited)

 

For The Year Ended July 31, 2006

 

For The Year Ended July 29, 2005

 

For The Four Month Period Ended July 30, 2004

 

For The Year Ended March 31, 2004

 

For The Year Ended March 31, 2003

 

For The Year Ended March 31, 2002

NET ASSET VALUE, BEGINNING OF PERIOD

$

10.25

$

10.20

$

10.82

$

10.73

$

10.88

$

10.65

$

10.74

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Investment Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

$

.16

$

.33

$

.33

$

.11

$

.37

$

.40

$

.42

 

Net realized and unrealized gain (loss) on investment and futures transactions

 

.03

 

.05

 

(.52)

 

.09

 

(.15)

 

.30

 

(.09)

 

Total Income (Loss) From Investment Operations

$

.19

$

.38

$

(.19)

$

.20

$

.22

$

.70

$

.33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from net investment income

$

(.16)

$

(.33)

$

(.33)

$

(.11)

$

(.37)

$

(.40)

$

(.42)

 

Distributions from net capital gains

 

.00

 

.00

 

(.10)

 

.00

 

.00

 

(.07)

 

.00

 

Total Distributions

$

(.16)

$

(.33)

$

(.43)

$

(.11)

$

(.37)

$

(.47)

$

(.42)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET ASSET VALUE, END OF PERIOD

$

10.28

$

10.25

$

10.20

$

10.82

$

10.73

$

10.88

$

10.65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return

 

3.75%(A)(C)

 

3.76%(A)

 

(1.81%)(A)

 

5.69%(A)(C)

 

2.06%(A)

 

6.65%(A)

 

3.11%(A)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RATIOS/SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets, end of period (in thousands)

$

4,882

$

5,317

$

6,363

$

7,962

$

8,175

$

10,198

$

11,843

 

Ratio of net expenses (after expense assumption) to average net assets

 

1.07%(B)(C)

 

1.03%(B)

 

0.98%(B)

 

0.95%(B)(C)

 

0.95%(B)

 

0.95%(B)

 

0.95%(B)

 

Ratio of net investment income to average net assets

 

3.14%(C)

 

3.19%

 

3.14%

 

3.12%(C)

 

3.44%

 

3.71%

 

3.88%

 

Portfolio turnover rate

 

0.00%

 

8.10%

 

17.94%

 

10.02%

 

41.53%

 

20.00%

 

21.00%

(A) Excludes maximum sales charge of 4.25%.

(B) During the periods since March 31, 2004, Integrity Money Management assumed/waived expenses of $37,923, $69,311, $64,102, and $23,856, respectively. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets would have been 2.54%, 2.22%, 1.80%, and 1.84%, respectively. For the period 4/1/03 through 12/19/03, Forum Administrative Services and Forum Investment Advisors assumed/waived expenses of $62,210. For the period from 12/20/03 through 3/31/04, Integrity Money Management assumed/waived expenses of $21,859. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets for the year would have been 1.86%. In prior years, Forum Administrative Services, Forum Investment Advisors, Forum Shareholder Services, and Forum Accounting Services assumed/waived expenses of $106,577 (2003) and $112,886 (2002). If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets would have been 2.03% and 1.86%, 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.

Dear Shareholder:

Enclosed is the semi-annual report of the Oklahoma Municipal Fund (the “Fund”) for the period ended January 31, 2007. The Fund’s portfolio and related financial statements are presented within for your review.

In the last part of 2006 investors pushed back when they thought the Federal Reserve would cut interest rates.

Fed Fund futures expectations of where rates are going now give less than even odds that the Fed will cut its key target rate by a quarter point by September. In November the view was that the Fed would almost certainly cut rates from the current 5.25% once and possibly twice.

The mood has shifted as economic reports suggest the economy is in better shape than investors had thought. One reason investors remain so upbeat is that the economy appears to be catching its footing and inflation looks more subdued.

Federal Reserve chairman Ben Bernanke has said repeatedly he hopes the core inflation rate will continue to moderate, falling back below 2%. But he continues to worry, at least in public, about the risk of more persistent inflation, which would force him to raise rates again.

The bond market right now is worried about a different threat, a recession. That fear helped push the yield on the 10-year Treasury bond to 4.81% at the end of the period, higher than the 4.39% at which it began 2006, but well below the 5.25% it hit in late June 2006.

Long-term government bonds now yield less than short-term bonds. That makes investors nervous because, at times, it has historically been a sign of a coming recession. Lower long-term yields suggest investors expect rates to fall when the economy is weakening.

Some tend to downplay the recession risk. Heavy foreign demand for longer-term U.S. Treasury bonds, together with exceptionally low worldwide inflation rates, have kept U.S. bonds lower than normal.

Low yields hold down other market interest rates such as fixed mortgage rates. They encourage consumers and businesses alike to borrow, spend and invest which supports corporate profits and stock prices.

The Oklahoma Municipal Fund began the period at $11.08 per share and ended the period at $11.12 per share for a total return of 2.13%*. This compares to the Lehman Brothers Municipal Bond Index return of 3.06% for the period.

The Funds favorable overall performance can be attributed to its defensive portfolio, with an average maturity of 17 years and a low average maturity to the first call date of 6 years. That, along with an average portfolio coupon of 5.14%, helps relative performance in a rising rate environment.

Issues contributing to this defensive portfolio include: Grand River Dam, 5.50% coupon, due 6/1/2013; Oklahoma Municipal Power, 5.75% coupon, due 1/1/2024; and Southern Nazarene University, 6.00% coupon, due 3/1/2008.

An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Portfolio quality for the year was as follows, AAA 76.9%, AA 10.0%, A 6.7%, BBB 4.0% and NR 2.4%.

Income exempt from federal and Oklahoma state income taxes with preservation of capital remain the primary objectives of the Fund.

If you would like more frequent updates, visit our website at www.integrityfunds.com for daily prices along with pertinent Fund information.

Sincerely,

Monte Avery

Portfolio Manager

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 front-end or 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.

Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities more so than a municipal bond fund that does not concentrate its securities in a single state.

January 31, 2007 (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 January 31, 2007 (Unaudited)

Appreciation

The increase in 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, assuming all distributions are reinvested.

Coupon Rate or Face Rate

The rate of interest payable annually, based on the face amount of the bond; expressed as a percentage.

Depreciation

The decrease in value of an asset.

Lehman Brothers Municipal Bond Index

An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund.

Market Value

The actual (or estimated) price at which a bond trades in the market place.

Maturity

A measure of the term or life of a bond in years. When a bond “matures,” the issuer repays the principal.

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 sales charge.

Quality Ratings

A designation assigned by independent rating companies to give a relative indication of a bond’s credit worthiness. “AAA,” “AA,” “A,” and “BBB” indicate investment grade securities. Ratings can range from a high of “AAA” to a low of “D”.

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.

January 31, 2007 (Unaudited)

COMPOSITION

PORTFOLIO QUALITY RATINGS

(Based on Total Long-Term Investments)

AAA

76.9%

AA

10.0%

A

6.7%

BBB

4.0%

NR

2.4%

Quality ratings reflect the financial strength of the issuer. They are assigned by independent rating services such as Moody’s Investors Services and Standard & Poor’s. Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. (“Integrity Money Management” or “Adviser”), the investment adviser.

These percentages are subject to change.

PORTFOLIO MARKET SECTORS

(As a % of Net Assets)

S-School

37.7%

U-Utilities

17.6%

T-Transportation

16.8%

O-Other

10.3%

W/S-Water/Sewer

6.2%

HC-Health Care

6.1%

G-Government

5.3%

Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.

These percentages are subject to change.

January 31, 2007 (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 July 31, 2006 to January 31, 2007.

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 07/31/06

Ending Account Value 01/31/07

Expenses Paid During Period*

Actual

 

 

 

Class A

$1,000.00

$1,021.33

$5.41

Hypothetical (5% return before expenses)

 

 

 

Class A

$1,000.00

$1,019.86

$5.40

* Expenses are equal to the annualized expense ratio of 1.07%, 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 2.13% for the six-month period of July 31, 2006 to January 31, 2007.

January 31, 2007 (Unaudited)

AVERAGE ANNUAL TOTAL RETURNS

 

For periods ending January 31, 2007

 

 

 

 

 

Since Inception (September 25, 1996)

Oklahoma Municipal Fund

1 year

3 year

5 year

10 year

Without sales charge

5.18%

3.29%

3.03%

4.17%

4.25%

With sales charge (4.25%)

0.67%

1.81%

2.13%

3.72%

3.82%
 

 

 

 

 

 

Since Inception (September 25, 1996)

Lehman Brothers Municipal Bond Index

1 year

3 year

5 year

10 year

 

4.30%

4.00%

5.12%

5.71%

5.93%

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.

January 31, 2007 (Unaudited)

COMPARATIVE INDEX GRAPH

Comparison of change in value of a $10,000 investment in the Oklahoma Municipal Fund and the Lehman Brothers Municipal Bond Index

 

Oklahoma Municipal Fund w/o Sales Charge

Oklahoma Municipal Fund w/ Max Sales Charge

Lehman Brothers Municipal Bond Index

 

 

 

 

09/25/1996

$10,000

$ 9,575

$10,000

1997

$10,779

$10,321

$11,029

1998

$11,186

$10,711

$11,689

1999

$11,662

$11,166

$12,026

2000

$11,647

$11,153

$12,545

2001

$12,786

$12,243

$13,811

2002

$13,484

$12,911

$14,737

2003

$13,522

$12,947

$15,267

2004

$14,017

$13,422

$16,150

2005

$14,440

$13,827

$17,178

2006

$15,074

$14,434

$17,617

01/31/07

$15,396

$14,742

$18,155

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 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. The Lehman Brothers index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Oklahoma municipal bonds. 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.

January 31, 2007 (Unaudited)

MANAGEMENT OF THE FUND

The Board of Integrity Managed Portfolios 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 and the seven 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. Two of the remaining three Trustees and/or 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 COMPLEX1

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Jerry M. Stai
2405 11th Ave NW
Minot, ND 58703
54

Trustee

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., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006).

16

Marycrest Franciscan Development, Inc.

Orlin W. Backes
948 13th Ave. SW
Minot, ND 58701
71

Trustee

Since January 1996

Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director, South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., (Since April 2005); Trustee, The Integrity Funds (since May 2003); and Director, First Western Bank & Trust.

16

First Western Bank & Trust

R. James Maxson
1 Main Street North
Minot, ND 58701
59

Trustee

Since January 1999

Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Director, Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc. and Montana Tax-Free Fund, Inc. (since January 1999), South Dakota Tax-Free Fund, Inc. (January 1999 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); and Trustee, The Integrity Funds (since May 2003).

16

Vincent United Methodist Foundation

 

Minot Area Development Corporation

1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.

Trustees and officers of the Fund serve until their resignation, removal or retirement.

The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.

January 31, 2007 (Unaudited)

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 TRUSTEES 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 Street North
Minot, ND 58703
62

Trustee, Chairman, President

Since January 1996

Director (since September 1987), President (September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., Integrity Fund Services, Inc.; Director, President (since inception) and Treasurer (May 1989 to May 2004), ND Capital, Inc. (August 1988 to September 2004), South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc.; Trustee, Chairman and President (since May 2003) and Treasurer (May 2003 to May 2004), The Integrity Funds; Director, President and Treasurer (May 2003 to August 2003), Integrity Funds Distributor, Inc.; Director (October 1999 to June 2003), Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (October 2002 to June 2003), ARM Securities Corporation; and Director, CEO, Chairman (since January 2002), President (September 2002 to December 2004), Capital Financial Services, Inc.

16

Capital Financial Services, Inc., and Minot Park Board

Peter A. Quist
1 Main Street North
Minot, ND 58703
72

Vice President, Secretary

Since January 1996

Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc., ND Capital, Inc. (August 1988 to September 2004), Integrity Fund Services, Inc., South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax Free Fund, Inc., Integrity Funds Distributor, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003); and Director, ARM Securities Corporation (May 2000 to June 2003).

3

None

Laura K. Anderson
1 Main Street North
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, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.

N/A

None

Brent M. Wheeler
1 Main Street North
Minot, ND 58703
36

Mutual Fund Chief Compliance Officer

Since October 2005

Fund Accounting Manager (May 1998 to October 2005), Integrity Fund Services, Inc.; Treasurer (May 2004 to October 2005), Mutual Fund Compliance Officer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc.

N/A

None

1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.

2Mr. Walstad qualifies as an interested person of the Trust, as defined in the 1940 Act, by virtue of being an officer and director of the Investment Adviser and Distributor.

Trustees and officers of the Fund serve until their resignation, removal or retirement.

The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.

January 31, 2007 (Unaudited)

Board Approval of Investment Advisory Agreement

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”), the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“the Company”), the Fund’s sponsor.

The approval and the continuation of a fund’s investment advisory agreement must be specifically approved at least annually (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “Interested Persons” of any party (“Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In preparation for the meeting, the Board requests and reviews a wide variety of materials provided by the Fund’s adviser. The Independent Trustees also received advice from their independent counsel on the issues to focus on during contract renewals. At a meeting held on October 25, 2006, the Board of Trustees, including a majority of the Independent Trustees of the Fund, approved the Management and Investment Advisory Agreement (“Advisory Agreement”), between the Fund and Integrity Money Management.

The Trustees, including a majority of Trustees who are neither party to the Advisory Agreements nor “interested persons” of any such party (as such term is defined for regulatory purposes), unanimously approved the Advisory Agreement. In determining whether it was appropriate to approve the Advisory Agreement, the Trustees requested information, provided by the Investment Adviser that it believed to be reasonably necessary to reach its conclusion. In connection with the approval of the Advisory Agreements, the Board reviewed factors set out in judicial decisions and Securities Exchange Commission directives relating to the approval of advisory contracts, which include but are not limited to, the following:

(a)

the nature and quality of services to be provided by the adviser to the fund;

(b)

the various personnel furnishing such services and their duties and qualifications;

(c)

the relevant fund’s investment performance as compared to standardized industry performance data;

(d)

the adviser’s costs and profitability of furnishing the investment management services to the fund;

(e)

the extent to which the adviser realizes economies of scale as the fund grows larger and the sharing thereof with the fund;

(f)

an analysis of the rates charged by other investment advisers of similar funds;

(g)

the expense ratios of the applicable fund as compared to data for comparable funds; and

(h)

information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds.

In evaluating the Adviser’s services and its fees, the Trustees reviewed information concerning the performance of the Fund, the recent financial statements of the Adviser and its parent, and the proposed advisory fee and other fund expenses compared to the level of advisory fees and expenses paid by other similar funds. In reviewing the Advisory Agreement with the foregoing Fund, the Trustees considered, among other things, the fees, the Fund’s past performance, the nature and quality of the services provided, the profitability of the Adviser and its parent (estimated costs and estimated profits from furnishing the proposed services to the Fund), and the expense waivers by the Adviser. The Trustees also considered any ancillary benefits to the Adviser and its affiliates for services provided to the Fund. In this regard, the Trustees noted that there were no soft dollar arrangements involving the Adviser and the only benefits to affiliates were the fees earned for services provided The Trustees did not identify any single factor discussed above as all-important or controlling. The Trustees also considered the Adviser’s commitment to voluntarily limit Fund expenses and the skills and capabilities of the Adviser.

The following paragraphs summarize the material information and factors considered by the Board, including the Independent Trustees, as well as their conclusions relative to such factors in considering the approval of the Advisory Agreement:

Nature, Extent and Quality of Services: The Investment Adviser currently provides services to sixteen funds in the Integrity family of funds with investment strategies ranging from non-diversified sector funds to broad-based equity funds. The experience and expertise of the Investment Adviser is attributable to the long-term focus on managing investment companies and has the potential to enhance the Fund’s future performance. They have a strong culture of compliance and provide quality services. The overall nature and quality of the services provided by the Investment Adviser had historically been, and continues to be, adequate and appropriate to the Board.

Various personnel furnishing such services and their duties and qualifications: The Portfolio Manager of the Fund has over 25 years experience in the advisory and money management area adding significant expertise to the Adviser of the Fund. A detailed biography of the portfolio manager was presented to the Trustees. This information is disclosed in the prospectus and/or SAI of the Fund.

Investment Performance: The Adviser has assured through subsidization that its Fund has had consistent performance relative to comparable and competing funds. Although the Fund has outperformed its relative benchmark for the YTD and 1-year periods, it has underperformed its relative benchmark for the 5-year, 10-year and since inception periods as of September 29, 2006. The Fund has positive returns for all the periods indicated above as of September 29, 2006. In addition, the Fund has been meeting its investment objective for providing as high a level of current income exempt from federal and Oklahoma state income taxes as is consistent with preservation of capital.

Profitability: The Board has reviewed a year to date and a 12-month profit analysis spreadsheet completed by the controller of the investment adviser. Based on the relatively small size of each fund under management with the Adviser, the Adviser has shown no profit for the period. The Board determined that the profitability of the Adviser was not excessive based on the services it will provide for the Fund and the profit analysis spreadsheet presented by the Adviser.

Economies of Scale: The Board briefly discussed the benefits for the Fund as the Adviser could realize economies of scale as the Fund grows larger, but the size of the Fund has not reached an asset level to benefit from economies of scale.The advisory fees are structured appropriately based on the size of the Fund. The Adviser has indicated that a new advisory fee structure may be looked at if the Fund reaches an asset level where the Fund could benefit from economies of scale.

Analysis of the rates charged by other investment advisers of similar funds: The Adviser is voluntarily waiving advisory fees due to the small size of the Fund. The Board considered the compensation payable under the Advisory Agreement fair and reasonable in light of the services to be provided.

Expense ratios of the applicable fund as compared to data for comparable funds: The Fund’s net expense ratio of 1.07% for the Class A shares was comparable to other funds of similar objective and size.

Information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds: The Board noted that the Adviser does not realize material direct benefits from its relationship with the Fund. The Adviser does not participate in any soft dollar arrangements from securities trading in the Fund.

In voting unanimously to approve the Advisory Agreement, the Trustees did not identify any single factor as being of paramount importance. The Trustees noted that their discussion in this regard was premised on numerous factors including the nature, quality and resources of Integrity Money Management, the strategic plan involving the Fund and the potential for increased distribution and growth of the Fund. They determined that, after considering all relevant factors, the adoption of the Advisory Agreement would be in the best interest of the Fund and its shareholders.

Potential Conflicts of Interest – Investment Adviser

Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account. More specifically, portfolio managers who manage multiple funds are presented with the following potential conflicts:

The management of multiple funds may result in a portfolio manager devoting unequal time and attention to the management of each fund. The Investment Adviser seeks to manage such competing interests for the time and attention of portfolio managers by having them focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment models that are used in connection with the management of the Funds. The management of multiple funds and accounts also may give rise to potential conflicts of interest if the funds and accounts have different objectives, benchmarks, time horizons, and fees as the portfolio manager must allocate his time and investment ideas across multiple funds and accounts.

•

With respect to securities transactions for the Funds, the Investment Adviser determines which broker to use to execute each order, consistent with the duty to seek best execution of the transaction. The portfolio manager may execute transactions for another fund or account that may adversely impact the value of securities held by the Funds. Securities selected for funds or accounts other than the Funds may outperform the securities selected for the Funds.

•

The appearance of a conflict of interest may arise where the Investment Adviser has an incentive, such as a performance-based management fee, which relates to the management of one fund but not all funds with respect to which a portfolio manager has day-to-day management responsibilities. The management of personal accounts may give rise to potential conflicts of interest; there is no assurance that the Funds' code of ethics will adequately address such conflicts. One of the portfolio manager's numerous responsibilities is to assist in the sale of Fund shares. Mr. Avery's compensation is based on salary paid every other week. He is not compensated for client retention. In addition, Integrity Mutual Funds, Inc., sponsors a 401(k) plan for all its employees. This plan is funded by employee elective deferrals and, to an extent, matching contributions by the Company. After one year of employment the employee is eligible to participate in the Company matching program. The Company matches 100% of contribution up to 3% and ½% for each additional percent contributed up to 5%. The Company has established a program in which it will grant interests in Integrity Mutual Funds Inc., shares to current employees that meet certain eligibility requirements, as a form of long-term incentive. The program is designed to allow all employees to participate in the long-term growth of the value of the firm.

•

Although the Portfolio Managers generally do not trade securities in their own personal account, each of the Funds has adopted a code of ethics that, among other things, permits personal trading by employees under conditions where it has been determined that such trades would not adversely impact client accounts. Nevertheless, the management of personal accounts may give rise to potential conflicts of interest, and there is no assurance that these codes of ethics will adequately address such conflicts.

The Investment Adviser and the Funds have adopted certain compliance procedures, which are designed to address these types of conflicts. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.

Schedule of Investments January 31, 2007 (Unaudited)

Name of Issuer

 

 

 

 

 

 

 

Percentages represent the market value of each investment category to total net assets

Rating Moody's/S&P

Coupon Rate

Maturity

 

Principal Amount

 

Market Value

 

 

 

 

 

 

 

 

OKLAHOMA MUNICIPAL BONDS (96.2%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alva, OK Hosp. Auth. (Sales Tax Rev) Radian (Xcel)

Aa-3/AA

5.250%

06/01/2025

$

250,000

$

263,010

Claremore, OK Student Hsg. Rev. (Rogers University) ACA

NR/A

5.750

09/01/2034

 

500,000

 

524,650

Claremore Public Works Auth. Capital Improvement Rev. FSA

Aaa/AAA

5.250

06/01/2027

 

750,000

 

811,163

Drumright, OK Utility Sys. Rev. Assured Guaranty Ins.

NR/AAA

4.750

02/01/2036

 

950,000

 

979,744

Durant, OK Community Fac. Auth. Sales Tax Rev. XLCA

Aaa/AAA

5.500

11/01/2019

 

500,000

 

545,605

Edmond Economic Dev. Auth., OK Student Housing Rev.

Baa-3/NR

5.375

12/01/2019

 

200,000

 

200,906

#Edmond Economic Dev. Auth., OK Student Housing Rev.

Baa-3/NR

5.500

12/01/2028

 

865,000

 

868,970

Edmond Public Works Auth. AMBAC

Aaa/AAA

4.850

01/01/2024

 

155,000

 

160,540

Edmond Public Works Auth. AMBAC

Aaa/AAA

4.750

07/01/2024

 

250,000

 

255,970

Edmond Public Works Sales Tax & Utility Rev. AMBAC

Aaa/AAA

4.750

07/01/2023

 

200,000

 

205,756

Garfield Cty., Criminal Justice Auth. (Enid, OK) Rev. MBIA

Aaa/NR

4.500

04/01/2018

 

250,000

 

255,207

*Grand River Dam Auth., OK Rev. AMBAC

Aaa/AAA

6.250

06/01/2011

 

210,000

 

228,934

Grand River Dam Auth., OK Rev. Ref. AMBAC

Aaa/AAA

5.500

06/01/2013

 

700,000

 

763,917

Grand River Dam Auth., OK Rev. MBIA

Aaa/AAA

5.875

06/01/2007

 

160,000

 

161,744

Grand River Dam Auth., OK FSA

Aaa/AAA

5.000

06/01/2012

 

500,000

 

527,705

Jackson Cty., OK Sales Tax Rev. AMBAC

Aaa/AAA

5.000

10/01/2022

 

500,000

 

513,565

Jenks, OK General Obligation FSA

Aaa/AAA

4.200

02/01/2014

 

400,000

 

408,024

Jenks, OK General Obligation FSA

Aaa/AAA

5.000

02/01/2025

 

250,000

 

277,768

Jenks Aquarium Auth. Rev. MBIA

Aaa/AAA

5.250

07/01/2029

 

500,000

 

536,730

Mannford Public Works Auth.

NR/BBB+

6.000

04/01/2027

 

300,000

 

323,142

Mannford Public Works Auth.

NR/BBB+

5.900

04/01/2032

 

250,000

 

264,827

McAlester, OK Public Works Auth. FSA

Aaa/NR

5.100

02/01/2030

 

100,000

 

105,832

McClain Cty., OK Econ. Dev. Auth. Ed. Lease Rev. (Purcell Schools) Assured GTY

Aa-1/AAA

4.250

09/01/2020

 

585,000

 

583,087

Midwest City, OK Capital Impvt. MBIA

Aaa/AAA

5.375

09/01/2024

 

500,000

 

532,555

Norman, OK (Regl. Hospital) Auth. Asset Guaranty

Aa-3/AA

5.250

09/01/2016

 

180,000

 

189,293

Norman, OK Utilities Auth. Utility Rev. FGIC

Aaa/NR

4.000

11/01/2022

 

265,000

 

255,810

OK Agric. & Mech. Colleges (OK St. Univ.) Athletic Facs. AMBAC

Aaa/NR

5.000

08/01/2024

 

300,000

 

304,806

OK Agric. & Mech. Colleges Utility Rev. Sys. FGIC

Aaa/AAA

4.000

07/01/2008

 

185,000

 

185,588

Oklahoma City, OK MBIA

Aaa/AAA

4.250

03/01/2022

 

110,000

 

109,612

*OK Board of Regents (Oklahoma City Community College) Student Rev. AMBAC

Aaa/AAA

5.550

07/01/2022

 

750,000

 

797,092

Oklahoma City, OK Public Auth. (OKC Fairgrounds Fac.) FGIC

Aaa/AAA

5.500

10/01/2019

 

250,000

 

274,785

Oklahoma City, OK Water Utility Trust (Water & Sewer) Rev. FGIC

Aaa/AAA

5.000

07/01/2029

 

425,000

 

443,908

OK Colleges Board of Regents (NE State Univ. Ctr.) Rev. FSA

Aaa/AAA

5.100

03/01/2016

 

140,000

 

141,407

OK Colleges Board of Regents (NE State Univ. Ctr.) Rev. FSA

Aaa/AAA

5.150

03/01/2021

 

100,000

 

101,047

OK Board of Regents (Univ. of Central OK) AMBAC

Aaa/AAA

5.600

08/01/2020

 

150,000

 

161,143

OK Board of Regents (Univ. of Central OK) AMBAC

Aaa/AAA

5.700

08/01/2025

 

390,000

 

419,176

OK Devl. Finance Auth. (DHS Lease Rev.) Series 2000A MBIA

Aaa/NR

5.600

03/01/2015

 

280,000

 

286,681

OK Devl. Finance Auth. (Lease Rev.) Law Enforcement MBIA

Aaa/AAA

5.100

06/01/2027

 

120,000

 

125,164

OK Devl. Finance Auth. (OK State Syst. Higher Ed.) AMBAC

Aaa/AAA

4.900

12/01/2022

 

200,000

 

207,636

OK Devl. Finance Auth. OK Dept. of Corrections (McLoud Fac.) FGIC

Aaa/AAA

4.600

04/01/2022

 

250,000

 

253,402

OK Devl. Finance Auth. OK Dept. of Corrections (McLoud Fac.) FGIC

Aaa/AAA

4.650

04/01/2023

 

250,000

 

254,207

OK Devl. Finance Auth. OK State Higher Ed (Master Lease) FSA

Aaa/AAA

4.500

06/01/2026

 

250,000

 

251,057

OK Housing Finance Agency Single Family Homeownership

Aaa/NR

5.250

09/01/2021

 

140,000

 

142,085

*OK Housing Finance Agency Single Family Homeownership GNMA

Aaa/NR

5.375

03/01/2020

 

75,000

 

75,356

OK Housing Finance Agency Single Family Homeownership GNMA/FNMA

Aaa/NR

5.850

09/01/2020

 

50,000

 

50,824

OK Devl. Finance Auth. (Southern Nazarene Univ.) Rev.

NR/NR

5.750

03/01/2013

 

400,000

 

414,540

#OK Devl. Finance Auth. (Southern Nazarene Univ.) Rev.

NR/NR

6.000

03/01/2018

 

600,000

 

623,448

OK Devl. Finance Auth. (St. Ann's Retirement Village) Rev. MBIA

Aaa/NR

5.000

12/01/2028

 

500,000

 

514,250

OK Devl. Finance Auth. (St. John Health Syst.) Rev. Ref.

Aa-3/AA

5.750

02/15/2025

 

500,000

 

523,765

OK Devl. Finance Auth. (St. John Health Syst.) Rev. Ref.

Aa-3/AA

6.000

02/15/2029

 

400,000

 

420,956

OK Devl. Finance Auth. (St. John Health Syst.) MBIA

Aaa/AAA

5.750

02/15/2025

 

200,000

 

209,430

OK Devl. Finance Auth. (Comanche County Hosp.)

NR/BBB-

5.625

07/01/2009

 

105,000

 

107,511

OK Devl. Finance Auth. (Seminole State College)

NR/AA

5.125

12/01/2027

 

150,000

 

158,080

OK Devl. Finance Auth. (Langston Univ. Stadium)

NR/AA

5.000

07/01/2027

 

250,000

 

261,935

*OK Devl. Finance Auth. (Oklahoma City Univ.) Rev. Ref. AMBAC

Aaa/AAA

5.125

06/01/2017

 

555,000

 

572,055

#OK State G.O. (OK Building Commission) FGIC

Aaa/AAA

5.000

07/15/2018

 

1,600,000

 

1,694,752

OK Capital Impvt. Auth. (State Highway) Rev. MBIA

Aaa/AAA

5.000

06/01/2014

 

250,000

 

265,188

OK Capital Impvt. Auth. (Higher Ed. Project) Rev. AMBAC

Aaa/AAA

5.000

07/01/2022

 

500,000

 

527,850

OK Capital Impvt. Auth. (Higher Ed. Project) AMBAC

Aaa/AAA

5.000

07/01/2024

 

250,000

 

263,020

OK Capital Impvt. Auth. (Higher Ed. Project) Rev. AMBAC

Aaa/AAA

5.000

07/01/2030

 

2,000,000

 

2,098,380

OK Capital Impvt. Auth. (Supreme Court Proj.) CIFG

Aaa/AAA

4.500

07/01/2024

 

500,000

 

500,485

OK Capital Impvt. Auth. (Supreme Court Proj.) CIFG

Aaa/AAA

4.500

07/01/2026

 

500,000

 

500,105

OK Capital Impvt. Auth. (OK St. Bureau of Investigation) FSA

Aaa/AAA

4.375

07/01/2022

 

100,000

 

99,959

OK Capital Impvt. Auth. (OK St. Bureau of Investigation) FSA

Aaa/AAA

4.375

07/01/2023

 

100,000

 

99,957

OK Capital Impvt. Auth. (OK St. Bureau of Investigation) FSA

Aaa/AAA

4.500

07/01/2024

 

200,000

 

200,958

*OK State Indl. Finance Auth. G.O.

Aa-3/NR

6.050

02/01/2015

 

285,000

 

285,000

OK Devl. Finance Auth. (Integris Baptist Medical Center) AMBAC

Aaa/AAA

5.600

06/01/2020

 

250,000

 

267,970

OK State Municipal Power Auth. Rev. MBIA

Aaa/AAA

5.750

01/01/2024

 

2,230,000

 

2,504,290

OK State Student Loan Auth.

A/NR

6.350

09/01/2025

 

280,000

 

306,034

*OK State Student Loan Auth.

Aaa/AAA

5.625

06/01/2031

 

685,000

 

721,195

OK State Student Loan Auth. MBIA

Aaa/AAA

5.300

12/01/2032

 

450,000

 

464,414

OK State Turnpike Auth. FGIC

Aaa/AAA

5.000

01/01/2023

 

165,000

 

169,406

OK State Turnpike Auth. Rev. FGIC

Aaa/AAA

5.250

01/01/2028

 

430,000

 

445,557

OK State Turnpike Auth. FGIC

Aaa/AAA

5.250

01/01/2012

 

225,000

 

229,986

OK State Turnpike Auth. Rev. FGIC

Aaa/AAA

5.000

01/01/2028

 

120,000

 

123,451

OK State Turnpike Auth. Rev. MBIA-IBC

Aaa/AAA

4.750

01/01/2024

 

140,000

 

143,697

OK Water Resources Board Rev. AMBAC

Aaa/AAA

4.750

04/01/2024

 

100,000

 

102,870

OK State Water (Loan Program) Rev.

NR/AAA

5.400

09/01/2015

 

105,000

 

106,623

*OK State Water (Loan Program) Rev.

NR/AAA

5.100

09/01/2016

 

415,000

 

430,907

OK State Water Resources Board Rev.

NR/AAA

5.050

10/01/2022

 

200,000

 

212,372

OK State Water Resources Board Rev.

NR/AAA

5.125

10/01/2027

 

500,000

 

534,385

OK State Water Resources Loan Rev.

NR/AAA

5.100

10/01/2027

 

500,000

 

534,020

OK State Water Resources Board Rev.

NR/AAA

4.625

10/01/2018

 

435,000

 

444,357

OK Board of Regents (University of Oklahoma) Athletic Fac. Rev. MBIA

Aaa/NR

5.250

06/01/2026

 

550,000

 

576,108

OK Transportation Auth. Turnpike Sys. Rev. AMBAC

Aaa/AAA

5.000

01/01/2021

 

100,000

 

104,651

#Okmulgee Public Works Auth. Capital Improvement Rev. MBIA

Aaa/AAA

5.125

08/01/2030

 

750,000

 

785,498

Okmulgee Public Works Auth. Capital Improvement Rev. MBIA

Aaa/AAA

4.800

10/01/2027

 

500,000

 

515,680

Rural Enterprises, OK Inc. OK Govt. Fin. (Cleveland Cty. Hlth.) MBIA

Aaa/NR

5.000

11/01/2021

 

250,000

 

260,773

Rural Enterprises, OK Inc. Okmulgee Student Housing Proj. Series A ALA

NR/A

5.625

12/01/2020

 

140,000

 

147,595

Rural Enterprises, OK Inc. Okmulgee Student Housing Proj. Series A ACA

NR/A

5.700

12/01/2025

 

220,000

 

232,030

Rural Enterprises, OK Inc. Okmulgee Student Housing Proj. ACA

NR/A

5.750

12/01/2030

 

250,000

 

264,105

Rural Enterprises, OK Inc. Student Hsg. (Connors College) ACA

NR/A

5.550

11/01/2021

 

250,000

 

264,233

Rural Enterprises, OK Inc. Student Hsg. (Connors College) ACA

NR/A

5.650

11/01/2031

 

375,000

 

396,776

Rural Enterprises, OK Inc. USAOF Student Housing ACA

NR/A

5.550

11/01/2021

 

250,000

 

264,343

Rural Enterprises, OK Inc. USAOF Student Housing ACA

NR/A

5.650

11/01/2031

 

250,000

 

264,628

Sapulpa Municipal Authority Utility Rev. FSA

Aaa/AAA

5.125

01/01/2032

 

250,000

 

262,100

Texas Cty., OK Dev. Auth. (OPSU Student Hsg.) ACA

NR/A

5.250

11/01/2023

 

250,000

 

259,735

Tulsa Cty, OK Indl. Auth. Recreation Facs.

NR/AA-

4.700

09/01/2024

 

500,000

 

510,350

Tulsa, OK General Obligation

Aa/AA

4.500

03/01/2023

 

700,000

 

707,091

Tulsa, OK General Obligation

Aa/AA

4.500

03/01/2026

 

1,035,000

 

1,045,485

Tulsa, OK Ind. Auth Rev University of Tulsa

Aaa/NR

4.500

10/01/2026

 

500,000

 

499,755

University of OK Board of Regents (Research Fac.) Rev.

Aaa/NR

4.800

03/01/2028

 

670,000

 

687,648

University of OK Board of Regents (Multi Facs.) Rev. MBIA

Aaa/NR

4.750

06/01/2029

 

250,000

 

254,948

University of OK (Board of Regents) Rev. FGIC

Aaa/AAA

4.000

07/01/2016

 

250,000

 

250,835

OK Board of Regents Univ. of OK FGIC

NR/AAA

4.125

07/01/2026

 

500,000

 

489,295

University of OK Board of Regents Student Hsg. Rev. FGIC

Aaa/NR

5.000

11/01/2027

 

1,000,000

 

1,044,970

University of OK Student Hsg. (Cameron Univ.) Rev. AMBAC

Aaa/AAA

5.500

07/01/2023

 

250,000

 

272,470

 

 

 

 

 

 

 

 

TOTAL OKLAHOMA MUNICIPAL BONDS (COST: $42,645,164)

 

 

 

 

 

$

43,773,690

 

 

 

 

 

 

 

 

SHORT-TERM SECURITIES (5.1%)

 

 

 

 

Shares

 

 

Wells Fargo Advantage National Tax-Free Money Market (COST: $2,313,612)

 

 

 

2,313,612

$

2,313,612

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS IN SECURITIES (COST: $44,958,776)

 

 

 

 

 

$

46,087,302

OTHER ASSETS LESS LIABILITIES

 

 

 

 

 

 

(585,989)

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

$

45,501,313

* Indicates bonds are segregated by the custodian to cover when-issued or delayed delivery purchases.

As of January 31, 2007, the Fund had one when-issued purchase:

500,000 of OK Board of Regents (University of Oklahoma); 4.125%; 07/01/26

# Indicates bonds are segregated by the custodian to cover initial margin requirements.

Non-rated (NR) securities in the Fund were investment grade when purchased.

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of Assets and Liabilities January 31, 2007 (Unaudited)

ASSETS

 

 

 

Investment in securities, at value (cost: $44,958,776)

$

46,087,302

 

Receivable for fund shares sold

 

45,829

 

Accrued interest receivable

 

542,190

 

Accrued dividends receivable

 

4,832

 

Prepaid expenses

 

8,317

 

 

 

 

 

Total Assets

$

46,688,470

 

 

 

LIABILITIES

 

 

 

Security purchases payable

$

998,397

 

Dividends payable

 

136,174

 

Disbursements in excess of demand deposit cash

 

11,386

 

Payable to affiliates

 

36,688

 

Accrued expenses

 

4,512

 

 

 

 

 

Total Liabilities

$

1,187,157

 

 

 

NET ASSETS

$

45,501,313

 

 

 

 

 

 

Net assets are represented by:

 

 

 

Paid-in capital

$

46,846,545

 

Accumulated undistributed net realized gain (loss) on investments and futures

 

(2,476,654)

 

Accumulated undistributed net investment income

 

2,896

 

Unrealized appreciation (depreciation) on investments

 

1,128,526

 

Total amount representing net assets applicable to 4,092,121 outstanding shares of no par common stock (unlimited shares authorized)

$

45,501,313

 

 

 

Net asset value per share

$

11.12

 

 

 

Public offering price (based on sales charge of 4.25%)

$

11.61

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of Operations For the six months ended January 31, 2007 (Unaudited)

INVESTMENT INCOME

 

 

 

Interest

$

1,006,451

 

Dividends

 

16,155

 

Total Investment Income

$

1,022,606

 

 

 

EXPENSES

 

 

 

Investment advisory fees

$

111,727

 

Distribution (12b-1) fees

 

55,864

 

Administrative service fees

 

26,114

 

Transfer agent fees

 

39,457

 

Transfer agent out-of-pocket expense

 

284

 

Accounting service fees

 

23,172

 

Custodian fees

 

3,079

 

Registration and filing fees

 

831

 

Trustees fees

 

1,853

 

Reports to shareholders

 

1,463

 

Professional fees

 

10,877

 

Insurance expense

 

664

 

Audit fees

 

3,706

 

Legal fees

 

341

 

Total Expenses

$

279,432

 

Less expenses waived or absorbed by the Fund’s manager

 

(40,336)

 

Total Net Expenses

$

239,096

 

 

 

NET INVESTMENT INCOME

$

783,510

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

 

 

 

Net realized gain (loss) from investment transactions

$

5,994

 

Net change in unrealized appreciation (depreciation) of investments

 

150,663

 

Net Realized And Unrealized Gain (Loss) On Investments

$

156,657

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$

940,167

The accompanying notes are an integral part of these financial statements.

Financial Statements January 31, 2007

Statement of Changes in Net Assets

For the six months ended January 31, 2007 and the year ended July 31, 2006

 

 

For The Six Months Ended January 31, 2007 (Unaudited)

 

For The Year Ended July 31, 2006

 

 

 

 

 

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

 

 

 

 

 

Net investment income

$

783,510

$

1,355,659

 

Net realized gain (loss) on investment and futures transactions

 

5,994

 

789,653

 

Net change in unrealized appreciation (depreciation) on investments and futures

 

150,663

 

(476,388)

 

Net Increase (Decrease) in Net Assets Resulting From Operations

$

940,167

$

1,668,924

 

 

 

 

 

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS

 

 

 

 

 

Dividends from net investment income ($.20 and $.39 per share, respectively)

$

(783,099)

$

(1,354,904)

 

Distributions from net realized gain on investment and futures transactions ($.00 and $.00 per share, respectively)

 

0

 

0

 

Total Dividends and Distributions

$

(783,099)

$

(1,354,904)

 

 

 

 

 

CAPITAL SHARE TRANSACTIONS

 

 

 

 

 

Proceeds from sale of shares

$

3,704,608

$

15,763,169

 

Proceeds from reinvested dividends

 

321,319

 

576,842

 

Cost of shares redeemed

 

(2,244,712)

 

(7,978,446)

 

Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions

$

1,781,215

$

8,361,565

 

 

 

 

 

TOTAL INCREASE (DECREASE) IN NET ASSETS

$

1,938,283

$

8,675,585

 

 

 

 

 

NET ASSETS, BEGINNING OF PERIOD

 

43,563,030

 

34,887,445

 

 

 

 

 

NET ASSETS, END OF PERIOD

$

45,501,313

$

43,563,030

Undistributed Net Investment Income

$

2,896

$

2,484

The accompanying notes are an integral part of these financial statements.

Notes to Financial Statements January 31, 2007 (Unaudited)

Note 1. ORGANIZATION

Business operations - Oklahoma Municipal Fund (the “Fund”) is an investment portfolio of Integrity Managed Portfolios (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. Integrity Managed Portfolios is an unincorporated business trust organized under Massachusetts law on August 10, 1990. The Fund had no operations from that date to September 25, 1996, other than matters relating to organization and registration. On September 25, 1996, the Fund commenced its Public Offering of capital shares. The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal income tax and, to a certain extent, Oklahoma state income tax, as is consistent with preservation of capital. Up to 20% of the Fund’s total assets may be invested in Oklahoma municipal securities which are subject to Oklahoma state income taxes. The Fund will seek to achieve this objective by investing primarily in a portfolio of Oklahoma municipal securities.

Shares of the Fund are offered at net asset value plus a maximum sales charge of 4.25% of the offering price.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment security valuation - Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees which include consideration of the following: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, and indications as to value from dealers and general market conditions. Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on the trade date.

The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.

Repurchase agreements – In connection with transactions in repurchase agreements, it is the Fund’s policy that its custodian take possession of the underlying collateral securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. If the seller defaults, and the fair value of the collateral declines, realization of the collateral by the Fund may be delayed or limited.

When-issued securities – The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities purchased on a when-issued basis are identified as such in the Fund’s Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic, or other factors.

Contingent Deferred Sales Charge (“CDSC”) – In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 12 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).

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 and any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required. Distributions during the year ended July 31, 2006, were characterized as tax-exempt for tax purposes.

The tax character of distributions paid was as follows:

 

 

July 31, 2006

 

July 29, 2005

Tax-exempt Income

$

1,354,904

$

1,295,062

Ordinary Income

 

0

 

0

Long-term Capital Gains

 

0

 

0

 

Total

$

1,354,904

$

1,295,062

As of July 31, 2006, 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

($2,482,648)

$980,347

($1,502,301)

The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2006, totaling $2,482,648, which may be used to offset capital gains. The capital loss carryforward amounts will expire in each of the years ended July 31 as shown in the table below.

Year

 

Unexpired Capital Losses

2010

$

375,368

2011

$

412,304

2012

$

547,833

2013

$

1,147,143

For the year ended July 31, 2006, the Fund made no 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 July 31, 2006, the Fund deferred to August 1, 2006 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 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 at least annually.

Premiums and discounts - Premiums and discounts on municipal 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 appreciation (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.

Note 3. CAPITAL SHARE TRANSACTIONS

As of January 31, 2007, there were unlimited shares of no par authorized; 4,092,121 and 3,932,533 shares were outstanding at January 31, 2007, and July 31, 2006, respectively.

Transactions in capital shares were as follows:

 

Shares

 

For The Six Months Ended January 31, 2007 (Unaudited)

For The Year Ended July 31, 2006

Shares sold

331,283

1,433,102

Shares issued on reinvestment of dividends

28,666

52,488

Shares redeemed

(200,361)

(725,822)

Net increase (decrease)

159,588

759,768

Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, 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 to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund’s average daily net assets. The Fund has recognized $71,391 of investment advisory fees after partial waiver for the six months ended January 31, 2007. The Fund has a payable to Integrity Money Management of $9,913 at January 31, 2007 for investment advisory fees. Certain officers and trustees of the Fund are also officers and directors of the investment adviser.

Under the terms of the advisory agreement, the investment adviser has agreed to pay all expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 1.25% of the Fund’s average daily net assets on an annual basis up to the amount of the investment advisory and management fee. The investment adviser and underwriter may also voluntarily waive fees or reimburse expenses not required under the advisory or other contracts from time to time. Accordingly, after fee waivers and expense reimbursements, the Fund’s total annual operating expenses were 1.07% for the six months ended January 31, 2007.

Principal Underwriter and Shareholder Services

Integrity Funds Distributor 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 currently 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 $55,864 of distribution fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Funds Distributor of $9,722 at January 31, 2007 for distribution fees.

Integrity Fund Services, the transfer agent, provides shareholder services for a variable fee equal to 0.20% 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, 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 is charged for each additional share class. The Fund has recognized $39,457 of transfer agent fees and expenses for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $7,778 at January 31, 2007 for transfer agent 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, together with reimbursement of out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $23,172 of accounting service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $4,011 at January 31, 2007 for accounting service fees. Integrity Fund Services also acts as the Fund’s administrative services agent for a variable fee equal to 0.125% 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, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $26,114 of administrative service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $4,861 at January 31, 2007 for administrative service fees.

Note 5. INVESTMENT SECURITY TRANSACTIONS

The cost of purchases and proceeds from the sales of investment securities (excluding short-term securities) aggregated $2,462,652 and $810,910, respectively, for the six months ended January 31, 2007.

Note 6. INVESTMENT IN SECURITIES

At January 31, 2007, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $44,958,776. The net unrealized appreciation of investments for financial reporting purposes based on the cost was $1,128,526, which is comprised of $1,242,360 aggregate gross unrealized appreciation and $113,834 aggregate gross unrealized depreciation. Differences between financial reporting-basis and tax-basis unrealized appreciation/depreciation are due to differing treatment of market discount.

Note 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund is presently evaluating the impact of adopting SFAS 157.

Financial Highlights January 31, 2007

Selected per share data and ratios for the period indicated

 

 

 

For The Six Months Ended January 31, 2007 (Unaudited)

 

For The Year Ended July 31, 2006

 

For The Year Ended July 29, 2005

 

For The Year Ended July 30, 2004

 

For The Year Ended July 31, 2003

 

For The Year Ended July 31, 2002

 

NET ASSET VALUE, BEGINNING OF PERIOD

$

11.08

$

11.00

$

11.07

$

11.09

$

11.54

$

11.47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Investment Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

$

.20

$

.39

$

.40

$

.42

$

.49

$

.55

 

Net realized and unrealized gain (loss) on investment and futures transactions

 

.04

 

.08

 

(.07)

 

(.02)

 

(.45)

 

.07

 

Total Income (Loss) From Investment Operations

$

.24

$

.47

$

.33

$

.40

$

.04

$

.62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from net investment income

$

(.20)

$

(.39)

$

(.40)

$

(.42)

$

(.49)

$

(.55)

 

Distributions from net capital gains

 

.00

 

.00

 

.00

 

.00

 

.00

 

.00

 

Total Distributions

$

(.20)

$

(.39)

$

(.40)

$

(.42)

$

(.49)

$

(.55)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET ASSET VALUE, END OF PERIOD

$

11.12

$

11.08

$

11.00

$

11.07

$

11.09

$

11.54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return

 

4.27%(A)(C)

 

4.39%(A)

 

3.02%(A)

 

3.67%(A)

 

0.28%(A)

 

5.46%(A)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RATIOS/SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets, end of period (in thousands)

$

45,501

$

43,563

$

34,887

$

35,472

$

31,799

$

21,995

 

Ratio of net expenses (after expense assumption) to average net assets

 

1.07%(B)(C)

 

1.03%(B)

 

0.98%(B)

 

0.93%(B)

 

0.65%(B)

 

0.51%(B)

 

Ratio of net investment income to average net assets

 

3.51%(C)

 

3.55%

 

3.60%

 

3.77%

 

4.21%

 

4.69%

 

Portfolio turnover rate

 

1.87%

 

4.65%

 

8.69%

 

10.70%

 

9.39%

 

15.77%

(A) Excludes maximum sales charge of 4.25%.

(B) During the periods indicated above, Integrity Mutual Funds, Inc. or Integrity Money Management assumed/waived expenses of $40,336, $60,854, $81,636, $87,525, $124,432, and $137,514, respectively. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets would have been 1.25%, 1.19%, 1.20%, 1.19%, 1.11%, and 1.19%, 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.

 

By:

/s/Robert E. Walstad

Robert E. Walstad

President, Integrity Managed Portfolios

Date:

March 30, 2007

 

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.

 

By:

/s/Laura K. Anderson

Laura K. Anderson

Treasurer, Integrity Managed Portfolios

Date:

March 30, 2007