N-CSRS 1 impncsrs20080403.htm N-CSRS: INTEGRITY MANAGED PORTFOLIOS (JANUARY 31, 2008)

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, 2008

Item 1—Reports to Shareholders

Dear Shareholder:

Enclosed is the semi-annual report of the Kansas Municipal Fund (the “Fund”) for the period ended January 31, 2008. The Fund’s portfolio and related financial statements are presented within for your review.

As we enter the New Year, financial markets remain under considerable stress and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in the labor markets. The housing downturn and sub prime credit crunch ravaged the financial service and home building industries. To help accelerate economic growth the Federal Reserve has lowered interest rates 225 basis points since September 2007, with 125 basis points of that from the period between January 22nd through January 30th, and central banks have aggressively injected liquidity into the global financial system. All this was designed to jump start global credit markets that seized up as a result of the sub prime meltdown.

Despite the woes of the financial and housing meltdown, a number of events remained positive for the period.

Even though we have experienced several years of high energy prices and this year’s housing debacle, consumer spending has held up with unemployment near 5%. That, along with a proactive Federal Reserve and a reasonably strong global economy, should help slowdown the depth of the slowing economy.

The bond market continues to worry about the sub prime mortgage sector, the financial banking system, secondary credit insurers and inflationary concerns. The benchmark 10-year treasury began 2007 at 4.80%, rose to 5.30% in mid June over inflationary concerns and ended the period at 3.64% after many banks and financial firms reported massive write downs of assets associated with sub prime lending.

On the municipal side of the markets, several AAA-rated municipal bond insurers are under review by all of the nationally recognized credit rating agencies. The agencies are trying to determine whether the municipal bond insurers deserve to maintain their AAA-credit rating despite recent losses in the mortgage related problems. While much has been written, we believe the long-term impact on the Fund should be minimal for several reasons.

The bonds owned by the Fund that are insured by these firms tend to be of very high quality. Insurance companies tend to insure municipal bonds that are mostly in the “A” category and above. Secondly, if an insured bond defaults, the insurance company is only liable for the interest and principal payments as they come due. They are not required to pay off the entire bond issue.

While we believe there could be some volatility in the price of insured municipal bonds while the current credit crunch runs its course, we encourage investors to take a long-term view and keep in mind the advantages of owning high quality municipal bonds and focus on the tax-free income they provide. In fact, the recent market concerns have made high quality municipal yields equal to, or in some cases, higher than U.S. Treasuries of similar maturity. This presents a very attractive buying opportunity for the Fund.

The Kansas Municipal Fund began the period at $10.54 and ended the period at $10.75 for a total return of 3.94%*. This compares to the Lehman Brothers Municipal Bond Index’s return of 3.72%. The Fund’s overall performance can be attributed to its defensive portfolio, with an average maturity of 15.9 years and an average maturity to the first call date of 3.6 years. That, along with an average portfolio coupon of 5.40% helps relative performance in volatile environments.

An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, double exempt issues. Some purchases throughout the year were: Reno County USD# 308, 4.50% coupon, due 2023; Junction City General Obligation, 5.00% coupon, due 2025; and Wichita General Obligation, 4.75% coupon, due 2027.

Portfolio quality for the period was as follows: AAA 76.2%, AA 10.2%, A 12.6% and NR 1.0%.

Income exempt from federal and Kansas state income taxes with preservation of capital remains the primary objective 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

Senior Portfolio Manager

The views expressed are those of Monte Avery, Senior Portfolio Manager with Integrity Money Management, Inc. 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, the markets generally, or any Integrity Mutual Fund.

*Performance does not include applicable front-end or contingent deferred sales charges (“CDSCs”), 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, 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, 2008 (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. The information is also available from the Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) database on the website of the Securities and Exchange Commission (“SEC”) at www.sec.gov.

QUARTERLY PORTFOLIO SCHEDULE

Within 60 days of the end of its second and fourth fiscal quarters, the Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports on the Form N-CSR(S). These reports are filed electronically with the SEC and are delivered to the shareholders of the Fund. 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. 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, 2008 (Unaudited)

Appreciation: Increase in the value of an asset

Average Annual Total Return: A standardized measurement of the return (yield and appreciation) earned by a fund on an annual basis assuming all distributions are reinvested

Coupon Rate or Face Rate: Rate of interest payable annually based on the face amount of the bond; expressed as a percentage

Depreciation: Decrease in the 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 marketplace

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: The value of all of a 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 creditworthiness; “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 a fund’s portfolio for the period, assuming the reinvestment of all dividends; represents the aggregate percentage or dollar value change over the period


January 31, 2008 (Unaudited)

COMPOSITION

PORTFOLIO QUALITY RATINGS

(Based on total long-term investments)

 

AAA

76.2%

 

AA

10.2%

 

A

12.6%

 

NR

1.0%

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

These percentages are subject to change.

PORTFOLIO MARKET SECTORS

(As a percentage of net assets)

 

HC - Health Care

24.6%

 

S - School

19.9%

 

H - Housing

14.6%

 

O - Other

10.8%

 

W - Water/Sewer

9.0%

 

T - Transportation

8.4%

 

G - Government

8.0%

 

U - Utilities

4.7%

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

These percentages are subject to change.


January 31, 2008 (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:

 

•

Transaction costs: including sales charges (loads), redemption fees, and exchange fees

 

•

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, 2007 to January 31, 2008.

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 account value of $8,600 divided by $1,000 equals 8.6), then multiply the result by the number 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
07/31/07

Ending Account Value
01/31/08

Expenses Paid During Period*

Actual

 

 

 

 

 

$1,000.00

$1,039.37

$5.46

Hypothetical (5% return before expenses)

 

 

 

 

 

$1,000.00

$1,019.79

$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 3.94% for the six-month period of July 31, 2007 to January 31, 2008.


January 31, 2008 (Unaudited)

AVERAGE ANNUAL TOTAL RETURNS

 

For periods ending January 31, 2008

Kansas Municipal Fund

1 year

3 year

5 year

10 year

Since Inception
(November 15, 1990)

 

Without sales charge

5.33%

3.77%

2.62%

3.06%

4.63%

 

With sales charge (4.25%)

0.86%

2.28%

1.73%

2.62%

4.37%

 

 

 

 

 

 

 

Lehman Brothers Municipal Bond Index

1 year

3 year

5 year

10 year

Since Inception
(November 15, 1990)

 

 

4.94%

4.02%

4.62%

5.20%

6.51%

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, 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, 2008 (Unaudited)

COMPARATIVE INDEX GRAPH

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

 

 

Fund without sales charge

Fund with maximum sales charge

Lehman Brothers Municipal Bond Index

7/31/1997

$10,000

$9,576

$10,000

1998

$10,276

$9,840

$10,599

1999

$10,630

$10,179

$10,904

2000

$10,809

$10,351

$11,374

2001

$11,688

$11,192

$12,522

2002

$12,095

$11,582

$13,362

2003

$12,004

$11,495

$13,842

2004

$12,210

$11,692

$14,643

2005

$12,236

$11,717

$15,575

2006

$12,773

$12,231

$15,973

2007

$13,163

$12,605

$16,654

1/31/2008

$13,681

$13,101

$17,274

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, 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 the Fund’s performance to a benchmark index provides you with a general sense of how the Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers Municipal Bond Index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Kansas municipal bonds. The 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. If the could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.


January 31, 2008 (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 the three funds in the Integrity family of funds, the six series of Integrity Managed Portfolios and the six series of The Integrity Funds.  Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates.  These are the “Independent” Trustees.  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

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Jerry M. Stai
2405 11th Ave. NW
Minot, ND 58703
55

Trustee

Indefinite

Since January 2006

15

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).

Marycrest Franciscan Development, Inc.

Orlin W. Backes
948 13th Ave. SW
Minot, ND 58701
72

Trustee

Indefinite

Since January 1996

15

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.

First Western Bank & Trust

R. James Maxson
1 N. Main St.
Minot, ND 58701
60

Trustee

Indefinite

Since January 1999

15

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

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 six 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.


The Interested Trustees and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.

INTERESTED TRUSTEE

NAME, ADDRESS AND AGE

POSITION(S) HELD WITH REGISTRANT

TERM AND LENGTH SERVED

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Robert E. Walstad2,3
1 N. Main St.
Minot, ND 58703
63

Trustee and Chairman

Indefinite

Since January 1996

15

Director (Sept. 1987 to Feb. 2007), President (Sept. 2002 to April 2003), CEO (Sept. 2001 to Feb. 2007), Integrity Mutual Funds, Inc.; Director, President and Treasurer, (Aug. 1988 to Feb. 2007), Integrity Money Management, Inc.; Director, President and Treasurer (Aug. 1988 to Sept. 2004), ND Capital, Inc.; Director, President and Treasurer (May 1989 to Feb. 2007), Integrity Fund Services, Inc.; Director, President, CEO, and Treasurer, (Jan. 1996 to Aug. 2003), Integrity Funds Distributor, Inc.; Director (Oct. 1999 to June 2003) Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (Oct. 2002 to June 2003), ARM Securities Corporation; Director, CEO, Chairman, (Jan. 2002 to Feb. 2007) and President (Sept. 2002 to Dec. 2004), Capital Financial Services, Inc.; Director and President, (April 1994 to June 2004) South Dakota Tax-Free Fund, Inc., (Sept. 1998 to June 2003) Integrity Small-Cap Fund of Funds Inc.; President (Jan. 1996 to July 2007) Integrity Managed Portfolios, (May 2003 to July 2007) The Integrity Funds, (Jan. 1995 to July 2007) Integrity Fund of Funds, Inc., (Jan. 1989 to July 2007) ND Tax-Free Fund, Inc., (Aug. 1993 to July 2007) Montana Tax-Free Fund, Inc.; Director and Chairman (since Jan. 1995) Integrity Fund of Funds, Inc., (since Jan. 1989) ND Tax-Free Fund, Inc., and (since Aug. 1993) Montana Tax-Free Fund, Inc.; Trustee, Chairman, (since January 1996) and Treasurer (January 1996 to May 2004), Integrity Managed Portfolios; Trustee and Chairman (since May 2003), The Integrity Funds.

Minot Park Board

OFFICERS

NAME, ADDRESS AND AGE

POSITION(S) HELD WITH REGISTRANT

TERM AND LENGTH SERVED

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Mark R.Anderson3
1 N. Main St.
Minot, ND 58703
43

President

Indefinite

Since July 2007

N/A

Personal Trust Officer (May 1999 to April 2003) Wells Fargo Bank; President (since April 2003), COO (April 2003 to Feb. 2007), Director and CEO (since Feb. 2007) Integrity Mutual Funds, Inc.; President and Director (since Feb. 2007) Integrity Money Management, Inc., and Integrity Fund Services, Inc.; President and Director (since August 2003) Integrity Funds Distributor, Inc.; President (since July 2007) Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc., Integrity Managed Portfolios and The Integrity Funds; President and Treasurer (since July 2005) BAC Properties, LLC.

None

Peter A. Quist2
1 N. Main St.
Minot, ND 58703
72

Vice President, Secretary

Indefinite

Since January 1996

3

Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, ND Capital, Inc. (August 1988 to August 2006), Integrity Fund Services, Inc., and Integrity Funds Distributor, Inc.; Director, ARM Securities Corporation (May 2000 to June 2003); Director, 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., and ND Tax Free Fund, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003).

None

Laura K. Anderson
1 N. Main St.
Minot, ND 58703
33

Treasurer

Indefinite

Since October 2005

N/A

Fund Accountant (Jan. 1999 to May 2004), Fund Accounting Supervisor (May 2004 to October 2005), Fund Accounting Manager (since October 2005), Manager of Mutual Fund Operations (since October 2006), 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.

None

Brent M. Wheeler
1 N. Main St.
Minot, ND 58703
37

Mutual Fund Chief Compliance Officer

Indefinite

Since October 2005

N/A

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.

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 six series of The Integrity Funds.

2Trustees and/or officers who are “interested persons” of the Funds as defined in the Investment Company Act of 1940. Messr. Quist is an interested person by virtue of being an officer and Director of the Fund’s Investment Adviser and Principal Underwriter. Messr. Walstad is an interested person by virtue of being an officer of the Funds and a shareholder of Integrity Mutual Funds, Inc. As indicated above, effective February 1, 2007, Mr. Walstad retired from his roles as, among other things, Director and CEO of Integrity Mutual Funds, Inc., and Director, President and Treasurer of Integrity Money Management. However, a member of his immediate family is a director of Integrity Mutual Funds, Inc.

3At a Fund Board meeting held on July 26, 2007, Interested Director/Trustee, Chairman and Officer Robert E. Walstad resigned as President of the Funds. Subsequently, the Board nominated and appointed Mark R. Anderson as President of the Funds, effective July 26, 2007. Mr. Walstad will remain as Director/Trustee and Chairman of the 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, 2008 (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 26, 2007, 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 fifteen 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. As of August 31, 2007, the Fund performance for the 1-year and 3-year periods was below its index but above the median for its peer group, its 5-year and 10-year performance was below both its index and the median for its peer group. The Fund has positive returns for the YTD, 1-year, 5-year, 10-year and since inception periods as of August 31, 2007. 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 a small 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% was comparable to the average expense ratio of other funds of similar objective and size but slightly higher than the median of other funds of similar objective and size. The median expense ratio for state municipal bond funds is reported to be 0.97% for the year 2006 according to the Investment Company Institute.

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 an employee stock option 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 Manager generally does not trade securities in his own personal account, the Fund 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 Fund 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, 2008 (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 (97.0%)

 

 

 

 

 

 

 

Burlington, KS PCR (Gas & Elec.)  MBIA

Aaa/AAA

5.300%

06/01/2031

$

1,000,000

$

1,075,880

Burlington, KS PCR (Gas & Elec.)  MBIA

Aaa/AAA

4.850

06/01/2031

 

500,000

 

516,925

Butler Cty., KS Public Bldg.  MBIA

Aaa/NR

5.550

10/01/2021

 

300,000

 

324,903

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

Aaa/AAA

5.000

08/01/2022

 

250,000

 

266,233

Cowley Cty., KS USD #465 (Winfield)  MBIA

Aaa/AAA

5.250

10/01/2014

 

250,000

 

277,768

Dodge, KS School District #443 FGIC

Aaa/NR

5.000

09/01/2011

 

1,000,000

 

1,086,040

Douglas Cty., KS Sales Tax Ref.  AMBAC

Aaa/NR

5.000

08/01/2019

 

1,000,000

 

1,094,060

Hutchinson, KS Community College

NR/A-

5.000

10/01/2025

 

350,000

 

363,836

Hutchinson, KS Community College

NR/A-

5.250

10/01/2030

 

300,000

 

311,583

Hutchinson, KS Community College

NR/A-

5.250

10/01/2033

 

450,000

 

465,287

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

Aa-1/AA

5.000

10/01/2018

 

2,100,000

 

2,187,885

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

Aaa/AAA

5.000

10/01/2024

 

1,135,000

 

1,230,692

Johnson Cty., KS USD #232 (Desoto)

Aaa/NR

5.250

09/01/2023

 

500,000

 

560,935

Junction City, K.S G.O.  AMBAC

Aaa/AAA

5.000

09/01/2025

 

250,000

 

272,723

Kansas City, KS Mrtge. Rev. GNMA

Aaa/NR

5.900

11/01/2027

 

255,000

 

257,917

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

Aaa/AAA

6.300

09/01/2016

 

535,000

 

535,803

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

Aaa/AAA

5.750

12/01/2027

 

1,250,000

 

1,326,925

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

Aaa/AAA

5.375

10/01/2020

 

370,000

 

398,453

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

Aaa/AAA

5.250

05/01/2013

 

570,000

 

615,731

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

Aaa/AAA

5.250

05/01/2011

 

250,000

 

255,425

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

Aaa/AAA

5.000

10/01/2017

 

250,000

 

269,932

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

Aaa/AAA

5.250

11/01/2022

 

1,000,000

 

1,103,280

KS Devl. Finance Auth. (Water Pollution Control)

Aaa/AAA

5.000

11/01/2023

 

1,000,000

 

1,087,170

KS Devl. Finance Auth. 

Aaa/AAA

5.000

05/01/2026

 

1,335,000

 

1,441,279

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

Aaa/AAA

5.000

11/01/2025

 

250,000

 

267,520

KS Devl. Finance Auth. (Univ. KS Research Cent.) XLCA

Aaa/AAA

5.000

02/01/2026

 

500,000

 

538,185

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

NR/AAA

6.000

12/01/2021

 

1,975,000

 

1,980,372

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

Aa/AA

6.125

12/01/2020

 

1,000,000

 

1,084,470

KS Devl. Finance Auth. (Hays Medical Center)

A/NR

5.000

11/15/2022

 

500,000

 

523,980

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

Aaa/AAA

5.375

11/15/2024

 

1,365,000

 

1,464,904

KS Turnpike Auth. Rev. FSA

Aaa/AAA

5.250

09/01/2021

 

500,000

 

555,700

KS Turnpike Auth. Rev. FSA

Aaa/AAA

5.000

09/01/2024

 

530,000

 

570,460

KS Turnpike Auth. Rev. FSA

Aaa/AAA

5.000

09/01/2025

 

750,000

 

805,267

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

Aa/NR

5.375

09/01/2020

 

500,000

 

538,605

Lawrence, KS (Memorial Hospital) Rev. ASGUA

Aa-3/AA

5.750

07/01/2024

 

1,000,000

 

1,051,120

Lawrence, KS (Memorial Hospital) Rev.

A-3/NR

5.125

07/01/2026

 

500,000

 

509,375

Lawrence, KS (Memorial Hospital) Rev.

A-3/NR

5.125

07/01/2036

 

300,000

 

305,418

Leavenworth Cty., KS USD# 458 FSA

NR/AAA

4.500

09/01/2028

 

250,000

 

251,870

Newton, KS (Newton) Hosp. Rev. ACA

NR/NR

5.750

11/15/2024

 

500,000

 

484,100

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

Aaa/AAA

5.500

09/01/2025

 

235,000

 

252,294

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

Aaa/AAA

5.500

09/01/2030

 

500,000

 

536,015

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

NR/AAA

5.700

11/01/2027

 

2,210,000

 

2,214,486

Reno Cty., KS USD #308 Hutchinson  MBIA

Aaa/NR

4.500

09/01/2023

 

500,000

 

523,940

Salina, KS (General Obligation)

Aa-3/NR

4.625%

10/01/2027

$

200,000

$

205,932

Scott Cty, KS USD #466 FGIC

Aaa/AAA

5.250

09/01/2017

 

400,000

 

441,952

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

NR/A

5.800

11/15/2026

 

1,000,000

 

1,044,360

Shawnee Cty., KS G.O.  FSA

Aaa/NR

5.000

09/01/2016

 

655,000

 

729,054

Topeka, KS G.O.  XLCA

Aaa/NR

5.000

08/15/2021

 

400,000

 

429,112

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

Aaa/AAA

5.625

06/01/2026

 

1,435,000

 

1,501,498

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

Aaa/AAA

5.625

06/01/2031

 

1,200,000

 

1,255,608

University of Kansas Hosp. Auth. AMBAC

Aaa/AAA

5.700

09/01/2020

 

830,000

 

875,268

*University of Kansas Hosp. Auth. AMBAC

Aaa/AAA

5.550

09/01/2026

 

1,355,000

 

1,423,577

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

Aaa/AAA

5.300

06/01/2031

 

750,000

 

806,910

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

Aaa/NR

5.000

07/01/2019

 

955,000

 

1,049,640

Wichita, KS GO AMBAC

Aaa/AAA

4.750

09/01/2027

 

180,000

 

188,276

#Wichita, KS (Via Christi Health System) Rev.

NR/A+

6.250

11/15/2024

 

1,500,000

 

1,595,865

Wichita, KS (Via Christi Health System) Rev.

NR/A+

5.625

11/15/2031

 

1,100,000

 

1,162,810

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

NR/AAA

5.650

07/01/2016

 

990,000

 

991,673

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

NR/AAA

5.700

07/01/2022

 

2,000,000

 

2,003,380

Wichita, KS Water & Sewer Util. Rev. FGIC

Aaa/AAA

5.250

10/01/2018

 

1,465,000

 

1,626,912

Wichita, KS Water & Sewer Util. Rev. FGIC

Aaa/AAA

5.000

10/01/2028

 

500,000

 

533,010

 

 

 

 

 

 

 

 

TOTAL KANSAS MUNICIPAL BONDS (COST:  $47,415,193)

$

49,649,583

 

 

 

 

 

 

 

 

SHORT-TERM SECURITIES (2.1%)

 

 

 

 

Shares

 

 

Wells Fargo Advantage National Tax-Free Money Market (COST: $1,095,245)

 

1,095,245

$

1,095,245

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS IN SECURITIES (COST:  $48,510,438)

 

 

$

50,744,828

OTHER ASSETS LESS LIABILITIES

 

 

 

442,700

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

$

51,187,528

 

 

 

 

 

 

 

 

* 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.

 

 

 

 

Footnote: Non-rated (NR) securities have been determined to be of investment grade quality by the Fund's Manager.

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


Financial Statements January 31, 2008

Statement of Assets and Liabilities January 31, 2008 (Unaudited)

ASSETS

 

 

 

Investments in securities, at value (cost: $48,510,438)

$

50,744,828

 

Cash

 

2,165

 

Accrued interest receivable

 

685,666

 

Accrued dividends receivable

 

1,786

 

Prepaid expenses

 

1,292

 

 

Total Assets

$

51,435,737

 

 

 

 

 

LIABILITIES

 

 

 

Dividends payable

$

160,927

 

Payable for fund shares redeemed

 

36,997

 

Payable to affiliates

 

41,218

 

Accrued expenses

 

9,067

 

 

Total Liabilities

$

248,209

 

 

 

 

 

NET ASSETS

$

51,187,528

 

 

 

 

 

Net assets are represented by:

 

 

 

Paid-in capital

$

58,131,692

 

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

 

(9,178,875)

 

Accumulated undistributed net investment income (loss)

 

321

 

Unrealized appreciation (depreciation) on investments

 

2,234,390

 

 

Total amount representing net assets applicable to 4,763,395 outstanding shares of no par common stock (unlimited shares authorized)

$

51,187,528

 

 

 

 

 

Net asset value per share

$

10.75

 

 

 

 

 

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

$

11.23

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


Financial Statements January 31, 2008

Statement of Operations For the six months ended January 31, 2008 (Unaudited)

INVESTMENT INCOME

 

 

 

Interest

$

1,252,606

 

Dividends

 

14,252

 

 

Total Investment Income

$

1,266,858

 

 

 

 

 

EXPENSES

 

 

 

Investment advisory fees

$

130,369

 

Distribution (12b-1) fees

 

65,185

 

Administrative service fees

 

32,324

 

Transfer agent fees

 

51,611

 

Accounting service fees

 

24,929

 

Custodian fees

 

3,453

 

Transfer agent out-of-pockets

 

2,216

 

Professional fees

 

11,491

 

Trustees fees

 

2,234

 

Insurance expense

 

695

 

Reports to shareholders

 

3,373

 

Audit fees

 

3,382

 

Legal fees

 

5,232

 

License, fees, and registrations

 

1,217

 

 

Total Expenses

$

337,711

 

Less expenses waived or absorbed by the Fund’s manager

 

(58,720)

 

 

Total Net Expenses

$

278,991

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

$

987,867

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

 

 

 

Net realized gain (loss) from investment transactions

$

44,986

 

Net change in unrealized appreciation (depreciation) of investments

 

966,507

 

 

Net Realized and Unrealized Gain (Loss) on Investments

$

1,011,493

 

 

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$

1,999,360

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


Financial Statements January 31, 2008

Statement of Changes in Net Assets

For the six months ended January 31, 2008 and the year ended July 31, 2007

 

 

 

For The Six Months Ended January 31, 2008 (Unaudited)

For The Year Ended July 31, 2007

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

 

 

 

 

 

Net investment income (loss)

$

987,867

$

2,140,169

 

Net realized gain (loss) on investment transactions

 

44,986

 

85,328

 

Net change in unrealized appreciation (depreciation) on investments

 

966,507

 

(486,178)

 

 

Net Increase (Decrease) in Net Assets Resulting From Operations

$

1,999,360

$

1,739,319

 

 

 

 

 

 

 

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS

 

 

 

 

 

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

$

(987,813)

$

(2,140,064)

 

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

 

0

 

0

 

 

Total Dividends and Distributions

$

(987,813)

$

(2,140,064)

 

 

 

 

 

 

 

CAPITAL SHARE TRANSACTIONS

 

 

 

 

 

Proceeds from sale of shares

$

429,702

$

1,094,761

 

Proceeds from reinvested dividends

 

657,704

 

1,368,745

 

Cost of shares redeemed

 

(3,906,954)

 

(8,160,511)

 

 

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

$

(2,819,548)

$

(5,697,005)

 

 

 

 

 

 

 

TOTAL INCREASE (DECREASE) IN NET ASSETS

$

(1,808,001)

$

(6,097,750)

NET ASSETS, BEGINNING OF PERIOD

 

52,995,529

 

59,093,279

NET ASSETS, END OF PERIOD

$

51,187,528

$

52,995,529

 

 

 

 

 

 

 

Undistributed Net Investment Income

$

321

$

267

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


Notes to Financial Statements January 31, 2008 (Unaudited)

Note 1: ORGANIZATION

The Fund is an investment portfolio of Integrity Managed Portfolios (the “Trust”) and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”) as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. The Trust is an unincorporated business trust organized under Massachusetts’s 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 and includes consideration of the following: yields or prices of municipal bonds of comparable quality; type of issue, coupon, maturity, and rating; 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—In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 24 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. 

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.” FIN 48 establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax-return positions in financial statements. Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended July 31, 2004 through July 31, 2007) for purposes of implementing FIN 48, and has concluded that no provision for income tax is required in the Fund’s financial statements. Interest and penalties related to uncertain tax positions, if any, are classified in the Fund’s financial statements as other expense.

The tax character of distributions paid was as follows:

 

 

 

July 31, 2007

 

July 31, 2006

 

 

Tax-exempt Income

$

2,140,064

$

2,397,386

 

 

Ordinary Income

 

0

 

0

 

 

Long-term Capital Gains

 

0

 

0

 

 

 

Total

$

2,140,064

$

2,397,386

 

As of July 31, 2007, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed Ordinary Income

Undistributed Long-Term Capital Gains

Undistributed

Accumulated Earnings

Accumulated Capital and Other Losses

Unrealized Appreciation/ (Depreciation)

Total Accumulated Earnings/(Deficit)

 

 

$0

$0

$0

($9,223,861)

$1,268,150

($7,955,711)

 

The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2007 totaling $9,223,861, 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

$1,399,598

 

2013

$2,680,173

 

2014

$388,935

 

2015

$240,848

For the year ended July 31, 2007, the Fund did not make any permanent reclassifications to reflect tax character.

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, 2007, the Fund deferred to August 1, 2007, 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 treatments 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, 2008, there were unlimited shares of no par authorized; 4,763,395 and 5,029,080 shares were outstanding at January 31, 2008 and July 31, 2007, respectively.

Transactions in capital shares were as follows:

 

Shares

 

For The Six Months Ended January 31, 2008 (Unaudited)

For The Year Ended July 31, 2007

Shares sold

40,582

102,578

Shares issued on reinvestment of dividends

62,169

128,616

Shares redeemed

(368,436)

(767,828)

Net increase (decrease)

(265,685)

(536,634)

Note 4: INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, Inc. (“Integrity Funds Distributor”), the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”) the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“Integrity Mutual Funds”), 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 $71,650 of investment advisory fees after waivers for the six months ended January 31, 2008. The Fund has a payable to Integrity Money Management of $11,567 at January 31, 2008 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, 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 Integrity Funds Distributor 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, 2008.

Principal Underwriter and Shareholder Services

Integrity Funds Distributor serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan 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 Fund. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $65,185 of distribution fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Funds Distributor of $10,669 at January 31, 2008 for distribution fees.

Integrity Fund Services provides transfer agent 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 of $500 per month is charged for each additional share class. The Fund has recognized $51,611 of transfer agency fees and expenses for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $8,485 at January 31, 2008 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 $24,929 of accounting service fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $4,124 at January 31, 2008 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 fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $32,324 of administrative service fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $5,309 at January 31, 2008 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 $246,668 and $3,378,504, respectively, for the six months ended January 31, 2008.

Note 6: INVESTMENT IN SECURITIES

At January 31, 2008, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $48,510,438. The net unrealized appreciation of investments based on the cost was $2,234,390, which is comprised of $2,252,742 aggregate gross unrealized appreciation and $18,352 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, 2008

Selected per share data and ratios for the periods indicated

 

 

For The Six Months Ended January 31, 2008 (Unaudited)

 

For The Year Ended July 31, 2007

 

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

NET ASSET VALUE, BEGINNING OF PERIOD

$

10.54

$

10.62

$

10.57

$

10.93

$

11.19

 

11.78

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Investment Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

$

.20

$

.40

$

.41

$

.38

$

.45

$

.51

 

Net realized and unrealized gain (loss) on investment transactions

 

.21

 

(.08)

 

.05

 

(.36)

 

(.26)

 

(.59)

 

 

Total Income (Loss) From Investment Operations

$

.41

$

.32

$

.46

$

.02

$

.19

$

(.08)

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from net investment income

$

(.20)

$

(.40)

$

(.41)

$

(.38)

$

(.45)

$

(.51)

 

Distributions from net realized gains

 

.00

 

.00

 

.00

 

.00

 

.00

 

.00

 

 

Total Distributions

$

(.20)

$

(.40)

$

(.41)

$

(.38)

$

(.45)

$

(.51)

 

 

 

 

 

 

 

 

 

 

 

 

 

NET ASSET VALUE, END OF PERIOD

$

10.75

$

10.54

$

10.62

$

10.57

$

10.93

$

11.19

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return

 

7.87%A,C

 

3.06%A

 

4.39%A

 

0.22%A

 

1.71%A

 

(0.75%)A

 

 

 

 

 

 

 

 

 

 

 

 

 

RATIOS/SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets, end of period (in thousands)

$

51,188

$

52,996

$

59,093

$

67,470

$

78,478

$

88,850

 

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

 

1.07%B,C

 

1.07%B

 

1.03%B

 

0.97%B

 

0.95%B

 

0.95%B

 

Ratio of net investment income to average net assets

 

3.79%C

 

3.77%

 

3.82%

 

3.56%

 

4.05%

 

4.39%

 

Portfolio turnover rate

 

0.49%

 

4.77%

 

12.31%

 

44.85%

 

17.29%

 

23.78%

A Excludes maximum sales charge of 4.25%.

B During the periods indicated above, Integrity Money Management assumed and/or waived expenses of $58,720, $106,719, $79,585, $130,764, $127,695, and $52,479, respectively. If the expenses had not been assumed and/or waived, the annualized ratio of total expenses to average net assets would have been 1.30%, 1.26%, 1.15%, 1.15%, 1.10%, and 1.01%, 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 report of the operations for the Kansas Insured Intermediate Fund (the “Fund”) for the six months ended January 31, 2008. The Fund’s portfolio and related financial statements are presented within for your review.

As we enter the New Year, financial markets remain under considerable stress and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in the labor markets. The housing downturn and sub prime credit crunch ravaged the financial service and home building industries. To help accelerate economic growth the Federal Reserve has lowered interest rates 225 basis points since September 2007, with 125 basis points of that from the period between January 22nd through January 30th, and central banks have aggressively injected liquidity into the global financial system. All this was designed to jump start global credit markets that seized up as a result of the sub prime meltdown.

Despite the woes of the financial and housing meltdown, a number of events remained positive for the period.

Even though we have experienced several years of high energy prices and this year’s housing debacle, consumer spending has held up with unemployment near 5%. That, along with a proactive Federal Reserve and a reasonably strong global economy, should help slowdown the depth of the slowing economy.

The bond market continues to worry about the sub prime mortgage sector, the financial banking system, secondary credit insurers and inflationary concerns. The benchmark 10-year treasury began 2007 at 4.80%, rose to 5.30% in mid June over inflationary concerns and ended the period at 3.64% after many banks and financial firms reported massive write downs of assets associated with sub prime lending.

On the municipal side of the markets, several AAA-rated municipal bond insurers are under review by all of the nationally recognized credit rating agencies. The agencies are trying to determine whether the municipal bond insurers deserve to maintain their AAA-credit rating despite recent losses in the mortgage related problems. While much has been written, we believe the long-term impact on the Fund should be minimal for several reasons.

The bonds owned by the Fund that are insured by these firms tend to be of very high quality. Insurance companies tend to insure municipal bonds that are mostly in the “A” category and above. Secondly, if an insured bond defaults, the insurance company is only liable for the interest and principal payments as they come due. They are not required to pay off the entire bond issue.

While we believe there could be some volatility in the price of insured municipal bonds while the current credit crunch runs its course, we encourage investors to take a long-term view and keep in mind the advantages of owning high quality municipal bonds and focus on the tax-free income they provide. In fact, the recent market concerns have made high quality municipal yields equal to, or in some cases, higher than U.S. Treasuries of similar maturity. This presents a very attractive buying opportunity for the Fund.

The Kansas Insured Intermediate Fund began the period at $10.87 and ended the period at $11.08 for a total return of 3.96%*. This compares to the Lehman Brothers Municipal Seven-Year Maturity Bond Index’s return of 6.40%. The Fund’s overall performance can be attributed to its defensive portfolio, with an average maturity of 7.1 years and an average maturity to the first call date of 2.5 years. That, along with an average portfolio coupon of 5.24% helps relative performance in volatile environments.

An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, double exempt issues. Some purchases throughout the year were: Harvey County General Obligation, 4.00% coupon, due 2018; Wichita General Obligation, 4.50% coupon, due 2022; and Cowley County USD# 465, 5.25% coupon, due 2014.

Portfolio quality for the period was as follows: AAA 100%

Income exempt from federal and Kansas state income taxes with preservation of capital remains the primary objective 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

Senior Portfolio Manager

The views expressed are those of Monte Avery, Senior Portfolio Manager with Integrity Money Management, Inc. 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, the markets generally, or any Integrity Mutual Fund.

*Performance does not include applicable front-end or contingent deferred sales charges (“CDSCs”), 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 (800) 276-1262.

You should consider the Fund’s investment objectives, risks, 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, 2008 (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 (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. The information is also available from the Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) database on the website of the Securities and Exchange Commission (“SEC”) at www.sec.gov.

QUARTERLY PORTFOLIO SCHEDULE

Within 60 days of the end of its second and fourth fiscal quarters, the Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports on the Form N-CSR(S). These reports are filed electronically with the SEC and are delivered to the shareholders of the Fund. 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. Information on the operation of the Public Reference Room may be obtained by calling (202) 942-8090. You may also access this information from Integrity’s website at www.integrityfunds.com.


Terms & Definitions January 31, 2008 (Unaudited)

Appreciation: Increase in the value of an asset

Average Annual Total Return: A standardized measurement of the return (yield and appreciation) earned by a fund on an annual basis assuming all distributions are reinvested

Coupon Rate or Face Rate: Rate of interest payable annually based on the face amount of the bond; expressed as a percentage

Depreciation: Decrease in the 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 marketplace

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: The value of all of a 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 creditworthiness; “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 a fund’s portfolio for the period, assuming the reinvestment of all dividends; represents the aggregate percentage or dollar value change over the period


January 31, 2008 (Unaudited)

COMPOSITION

PORTFOLIO QUALITY RATINGS

(Based on total long-term investments)

 

AAA

100.0%

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

These percentages are subject to change.

PORTFOLIO MARKET SECTORS

(As a percentage of net assets)

 

S - School

25.9%

 

H - Housing

24.6%

 

HC - Health Care

12.6%

 

W/S - Water/Sewer

11.6%

 

O - Other

9.0%

 

U - Utilities

6.8%

 

T - Transportation

6.0%

 

G - Government

3.5%

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

These percentages are subject to change.


January 31, 2008 (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:

 

•

Transaction costs: including sales charges (loads), redemption fees, and exchange fees

 

•

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, 2007 to January 31, 2008.

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 account value of $8,600 divided by $1,000 equals 8.6), then multiply the result by the number 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
07/31/07

Ending Account Value
01/31/08

Expenses Paid During Period*

 

 

 

 

Actual

$1,000.00

$1,039.57

$3.82

 

 

 

 

 

Hypothetical (5% return before expenses)

$1,000.00

$1,021.46

$3.79

*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 3.96% for the six-month period of July 31, 2007 to January 31, 2008.


January 31, 2008 (Unaudited)

AVERAGE ANNUAL TOTAL RETURNS

 

For periods ending January 31, 2008

Kansas Insured Intermediate Fund

1 year

3 year

5 year

10 year

Since Inception
(November 23, 1992)

 

Without sales charge

5.61%

3.65%

2.81%

3.25%

4.00%

 

With sales charge (2.75%)

2.69%

2.68%

2.24%

2.97%

3.81%

 

 

 

 

 

 

 

Lehman Brothers Municipal Seven-Year Maturity Bond Index

1 year

3 year

5 year

10 year

Since Inception
(November 23, 1992)

 

 

8.07%

4.29%

4.31%

5.05%

5.62%

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 (800) 276-1262.

You should consider the Fund’s investment objectives, risks, 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, 2008 (Unaudited)

COMPARATIVE INDEX GRAPH

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

 

Fund without sales charge

Fund with maximum sales charge

Lehman Brothers Municipal Seven-Year Maturity Bond Index

7/31/1997

$10,000

$9,722

$10,000

1998

$10,317

$10,030

$10,526

1999

$10,699

$10,401

$10,872

2000

$10,929

$10,625

$11,371

2001

$11,665

$11,340

$12,414

2002

$12,145

$11,807

$13,300

2003

$12,298

$11,956

$13,812

2004

$12,583

$12,232

$14,440

2005

$12,489

$12,141

$15,012

2006

$12,996

$12,635

$15,319

2007

$13,430

$13,057

$15,982

1/31/2008

$13,962

$13,573

$17,005

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 (800) 276-1262.

You should consider the Fund’s investment objectives, risks, 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 the Fund’s performance to a benchmark index provides you with a general sense of how the Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers Municipal Seven-Year Maturity Bond Index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Kansas municipal bonds. The 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. If the could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.


January 31, 2008 (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 the three funds in the Integrity family of funds, the six series of Integrity Managed Portfolios and the six series of The Integrity Funds.  Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates.  These are the “Independent” Trustees.  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

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Jerry M. Stai
2405 11th Ave. NW
Minot, ND 58703
55

Trustee

Indefinite

Since January 2006

15

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).

Marycrest Franciscan Development, Inc.

Orlin W. Backes
948 13th Ave. SW
Minot, ND 58701
72

Trustee

Indefinite

Since January 1996

15

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.

First Western Bank & Trust

R. James Maxson
1 N. Main St.
Minot, ND 58701
60

Trustee

Indefinite

Since January 1999

15

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

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 six 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.


The Interested Trustees and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.

INTERESTED TRUSTEE

NAME, ADDRESS AND AGE

POSITION(S) HELD WITH REGISTRANT

TERM AND LENGTH SERVED

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Robert E. Walstad2,3
1 N. Main St.
Minot, ND 58703
63

Trustee and Chairman

Indefinite

Since January 1996

15

Director (Sept. 1987 to Feb. 2007), President (Sept. 2002 to April 2003), CEO (Sept. 2001 to Feb. 2007), Integrity Mutual Funds, Inc.; Director, President and Treasurer,  (Aug. 1988 to Feb. 2007), Integrity Money Management, Inc.; Director, President and Treasurer (Aug. 1988 to Sept. 2004), ND Capital, Inc.; Director, President and Treasurer (May 1989 to Feb. 2007), Integrity Fund Services, Inc.; Director, President, CEO, and Treasurer, (Jan. 1996 to Aug. 2003), Integrity Funds Distributor, Inc.; Director (Oct. 1999 to June 2003) Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (Oct. 2002 to June 2003), ARM Securities Corporation; Director, CEO, Chairman, (Jan. 2002 to Feb. 2007) and President (Sept. 2002 to Dec. 2004), Capital Financial Services, Inc.; Director and President, (April 1994 to June 2004) South Dakota Tax-Free Fund, Inc., (Sept. 1998 to June 2003) Integrity Small-Cap Fund of Funds Inc.; President (Jan. 1996 to July 2007) Integrity Managed Portfolios, (May 2003 to July 2007) The Integrity Funds, (Jan. 1995 to July 2007) Integrity Fund of Funds, Inc., (Jan. 1989 to July 2007) ND Tax-Free Fund, Inc., (Aug. 1993 to July 2007) Montana Tax-Free Fund, Inc.; Director and Chairman (since Jan. 1995) Integrity Fund of Funds, Inc., (since Jan. 1989) ND Tax-Free Fund, Inc., and (since Aug. 1993) Montana Tax-Free Fund, Inc.; Trustee, Chairman, (since January 1996) and Treasurer (January 1996 to May 2004), Integrity Managed Portfolios; Trustee and Chairman (since May 2003), The Integrity Funds.

Minot Park Board

OFFICERS

NAME, ADDRESS AND AGE

POSITION(S) HELD WITH REGISTRANT

TERM AND LENGTH SERVED

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Mark R.Anderson3
1 N. Main St.
Minot, ND 58703
43

President

Indefinite

Since July 2007

N/A

Personal Trust Officer (May 1999 to April 2003) Wells Fargo Bank; President (since April 2003), COO (April 2003 to Feb. 2007), Director and CEO (since Feb. 2007) Integrity Mutual Funds, Inc.; President and Director (since Feb. 2007) Integrity Money Management, Inc., and Integrity Fund Services, Inc.; President and Director (since August 2003) Integrity Funds Distributor, Inc.; President (since July 2007) Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc., Integrity Managed Portfolios and The Integrity Funds; President and Treasurer (since July 2005) BAC Properties, LLC.

None

Peter A. Quist2
1 N. Main St.
Minot, ND 58703
72

Vice President, Secretary

Indefinite

Since January 1996

3

Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, ND Capital, Inc. (August 1988 to August 2006), Integrity Fund Services, Inc., and Integrity Funds Distributor, Inc.; Director, ARM Securities Corporation (May 2000 to June 2003); Director, 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., and ND Tax Free Fund, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003).

None

Laura K. Anderson
1 N. Main St.
Minot, ND 58703
33

Treasurer

Indefinite

Since October 2005

N/A

Fund Accountant (Jan. 1999 to May 2004), Fund Accounting Supervisor (May 2004 to October 2005), Fund Accounting Manager (since October 2005), Manager of Mutual Fund Operations (since October 2006), 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.

None

Brent M. Wheeler
1 N. Main St.
Minot, ND 58703
37

Mutual Fund Chief Compliance Officer

Indefinite

Since October 2005

N/A

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.

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 six series of The Integrity Funds.

2Trustees and/or officers who are “interested persons” of the Funds as defined in the Investment Company Act of 1940. Messr. Quist is an interested person by virtue of being an officer and Director of the Fund’s Investment Adviser and Principal Underwriter. Messr. Walstad is an interested person by virtue of being an officer of the Funds and a shareholder of Integrity Mutual Funds, Inc. As indicated above, effective February 1, 2007, Mr. Walstad retired from his roles as, among other things, Director and CEO of Integrity Mutual Funds, Inc., and Director, President and Treasurer of Integrity Money Management. However, a member of his immediate family is a director of Integrity Mutual Funds, Inc.

3At a Fund Board meeting held on July 26, 2007, Interested Director/Trustee, Chairman and Officer Robert E. Walstad resigned as President of the Funds. Subsequently, the Board nominated and appointed Mark R. Anderson as President of the Funds, effective July 26, 2007. Mr. Walstad will remain as Director/Trustee and Chairman of the 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, 2008 (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 26, 2007, 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 fifteen 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. As of August 31, 2007, the Fund performance for the 1-year period was above its index and median for its peer group, but the 3-year, 5-year and 10-year periods were below its index. The performance for the 3-year period was above its median for its peer group, but the 5-year and 10-year periods were below the median for its peer group. The Fund has positive returns for the YTD, 1-year, 5-year, 10-year and since inception periods as of August 31, 2007. 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 a small 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% was lower than the average and median expense ratio of other funds of similar objective and size. The median expense ratio for state municipal bond funds is reported to be 0.97% for the year 2006 according to the Investment Company Institute.

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 an employee stock option 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 Manager generally does not trade securities in his own personal account, the Fund 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 Fund 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, 2008 (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 (90.9%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Aaa/NR

5.000%

09/01/2013

$

250,000

$

262,285

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

Aaa/NR

5.250

09/01/2016

 

770,000

 

853,907

Cowley Cty., KS USD #465 (Winfield)  MBIA

Aaa/AAA

5.250

10/01/2014

 

140,000

 

155,550

Dodge, KS USD #443 Unltd. General Obligation FSA

Aaa/AAA

5.750

09/01/2013

 

100,000

 

105,692

Harvey County KS MBIA

Aaa/NR

4.000

09/01/2018

 

250,000

 

257,168

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

Aaa/AAA

5.000

11/15/2019

 

235,000

 

256,331

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

Aaa/NR

5.000

09/01/2015

 

100,000

 

112,089

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

Aaa/AAA

5.500

12/01/2013

 

375,000

 

396,960

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

Aaa/AAA

6.400

01/01/2024

 

255,000

 

255,000

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

Aaa/AAA

5.900

04/01/2015

 

305,000

 

325,557

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

Aaa/AAA

5.250

05/01/2011

 

380,000

 

388,246

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

Aaa/AAA

5.000

10/01/2017

 

250,000

 

269,933

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

Aaa/AAA

4.100

05/01/2019

 

250,000

 

258,115

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

NR/AAA

5.700

12/01/2009

 

225,000

 

226,125

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

Aaa/AAA

5.750

11/15/2012

 

595,000

 

656,696

Kingman Cty., KS USD #331 FGIC

Aaa/AAA

5.500

10/01/2012

 

250,000

 

270,162

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

NR/AAA

5.000

10/01/2014

 

605,000

 

605,611

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

NR/AAA

5.180

10/01/2023

 

445,000

 

445,445

Morton Cty., KS USD #217 FSA

Aaa/AAA

4.000

09/01/2010

 

100,000

 

100,156

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

NR/AAA

5.250

11/01/2012

 

485,000

 

485,985

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

Aaa/NR

5.500

09/01/2015

 

190,000

 

207,603

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

Aaa/NR

5.000

09/01/2014

 

485,000

 

523,441

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

NR/AAA

5.250

10/01/2014

 

195,000

 

198,912

*University of Kansas Hosp. Auth. AMBAC

Aaa/AAA

5.500

09/01/2015

 

750,000

 

786,900

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

Aaa/AAA

5.350

07/01/2011

 

105,000

 

109,473

Wellington, KS Utility Rev. AMBAC

Aaa/AAA

5.000

05/01/2012

 

250,000

 

251,857

Wichita, KS GO AMBAC

Aaa/AAA

4.500

09/01/2022

 

150,000

 

156,502

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

NR/AAA

5.375

07/01/2010

 

245,000

 

245,777

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

NR/AAA

5.250

10/01/2012

 

345,000

 

345,338

Wichita, KS Water & Sewer Util. Rev. FGIC

Aaa/AAA

5.250

10/01/2014

 

75,000

 

83,536

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

Aaa/AAA

5.125

09/01/2013

 

500,000

 

521,020

Wyandotte Cty., KS USD #500 G.O.  FSA

Aaa/AAA

5.250

09/01/2013

 

250,000

 

279,855

 

 

 

 

 

 

 

 

TOTAL KANSAS MUNICIPAL BONDS (COST:  $10,005,117)

 

 

 

 

 

$

10,397,227

 

 

 

 

 

 

 

 

SHORT-TERM SECURITIES (7.2%)

 

 

 

 

Shares

 

 

Wells Fargo Advantage National Tax-Free Money Market (COST: $821,202)

 

 

 

 

821,202

$

821,202

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS IN SECURITIES (COST:  $10,826,319)

 

 

 

 

 

$

11,218,429

OTHER ASSETS LESS LIABILITIES

 

 

 

 

 

 

214,408

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

$

11,432,837

 

 

 

 

 

 

 

 

* 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.

Footnote:  Non-rated (NR) securities have been determined to be of investment grade quality by the Fund’s Manager.

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


Financial Statements January 31, 2008

Statement of Assets and Liabilities January 31, 2008 (Unaudited)

ASSETS

 

 

 

Investments in securities, at value (cost: $10,826,319)

$

11,218,429

 

Receivable for fund shares sold

 

100,000

 

Accrued interest receivable

 

162,003

 

Accrued dividends receivable

 

1,467

 

Receivable from manager

 

1,680

 

Prepaid expenses

 

672

 

 

Total Assets

$

11,484,251

 

 

 

 

 

LIABILITIES

 

 

 

Dividends payable

$

35,411

 

Payable to affiliates

 

8,757

 

Accrued expenses

 

7,246

 

 

Total Liabilities

$

51,414

 

 

 

 

 

NET ASSETS

$

11,432,837

 

 

 

 

 

Net assets are represented by:

 

 

 

Paid-in capital

$

12,404,274

 

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

 

(1,363,753)

 

Accumulated undistributed net investment income (loss)

 

206

 

Unrealized appreciation (depreciation) on investments

 

392,110

 

 

Total amount representing net assets applicable to 1,031,803 outstanding shares of no par common stock (unlimited shares authorized)

$

11,432,837

 

 

 

 

 

Net asset value per share

$

11.08

 

 

 

 

 

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

$

11.39

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


Financial Statements January 31, 2008

Statement of Operations For the six months ended January 31, 2008 (Unaudited)

INVESTMENT INCOME

 

 

 

Interest

$

245,227

 

Dividends

 

10,155

 

 

Total Investment Income

$

255,382

 

 

 

 

 

EXPENSES

 

 

 

Investment advisory fees

$

27,196

 

Administrative service fees

 

12,000

 

Transfer agent fees

 

12,000

 

Accounting service fees

 

14,720

 

Custodian fees

 

1,140

 

Transfer agent out-of-pockets

 

434

 

Professional fees

 

3,838

 

Trustees fees

 

1,059

 

Reports to shareholders

 

1,112

 

License, fees, and registrations

 

918

 

Insurance expense

 

137

 

Legal fees

 

1,069

 

Audit fees

 

3,293

 

 

Total Expenses

$

78,916

 

Less expenses waived or absorbed by the Fund’s manager

 

(38,122)

 

 

Total Net Expenses

$

40,794

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

$

214,588

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

 

 

 

Net realized gain (loss) from investment transactions

$

1,070

 

Net change in unrealized appreciation (depreciation) of investments

 

207,245

 

 

Net Realized and Unrealized Gain (Loss) on Investments

$

208,315

 

 

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$

422,903

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


Financial Statements January 31, 2008

Statement of Changes in Net Assets

For the six months ended January 31, 2008 and the year ended July 31, 2007

 

 

 

For The Six Months Ended January 31, 2008 (Unaudited)

For The Year Ended July 31, 2007

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

 

 

 

 

 

Net investment income (loss)

$

214,588

$

475,082

 

Net realized gain (loss) on investment transactions

 

1,070

 

24,918

 

Net change in unrealized appreciation (depreciation) on investments

 

207,245

 

(96,950)

 

 

Net Increase (Decrease) in Net Assets Resulting From Operations

$

422,903

$

403,050

 

 

 

 

 

 

 

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS

 

 

 

 

 

Dividends from net investment income ($.22 and $.44 per share, respectively)

$

(214,483)

$

(474,981)

 

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

 

0

 

0

 

 

Total Dividends and Distributions

$

(214,483)

$

(474,981)

 

 

 

 

 

 

 

CAPITAL SHARE TRANSACTIONS

 

 

 

 

 

Proceeds from sale of shares

$

758,053

$

868,389

 

Proceeds from reinvested dividends

 

159,187

 

313,886

 

Cost of shares redeemed

 

(378,936)

 

(2,842,925)

 

 

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

$

538,304

$

(1,660,650)

 

 

 

 

 

 

 

TOTAL INCREASE (DECREASE) IN NET ASSETS

$

746,724

$

(1,732,581)

NET ASSETS, BEGINNING OF PERIOD

 

10,686,113

 

12,418,694

NET ASSETS, END OF PERIOD

$

11,432,837

$

10,686,113

 

 

 

 

 

 

 

Undistributed Net Investment Income

$

206

$

101

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


Notes to Financial Statements January 31, 2008 (Unaudited)

Note 1: ORGANIZATION

The Fund is an investment portfolio of Integrity Managed Portfolios (the “Trust”) and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”) as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. The Trust 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 and includes consideration of the following: yields or prices of municipal bonds of comparable quality; type of issue, coupon, maturity, and rating; 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.

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.” FIN 48 establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax-return positions in financial statements. Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended July 31, 2004 through July 31, 2007) for purposes of implementing FIN 48, and has concluded that no provision for income tax is required in the Fund’s financial statements. Interest and penalties related to uncertain tax positions, if any, are classified in the Fund’s financial statements as other expense.

The tax character of distributions paid was as follows:

 

 

 

July 31, 2007

 

July 31, 2006

 

 

Tax-exempt Income

$

474,981

$

506,639

 

 

Ordinary Income

 

0

 

0

 

 

Long-term Capital Gains

 

0

 

0

 

 

 

Total

$

474,981

$

506,639

 

As of July 31, 2007, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed Ordinary Income

Undistributed Long-Term Capital Gains

Undistributed Accumulated Earnings

Accumulated Capital and Other Losses

Unrealized Appreciation/ (Depreciation)

Total Accumulated Earnings/(Deficit)

 

 

$0

$0

$0

($1,364,823)

$184,966

($1,179,857)

 

The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2007 totaling $1,364,823, 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

$49,698

 

2009

$78,788

 

2010

$178,976

 

2011

$209,757

 

2012

$303,542

 

2013

$544,062

For the year ended July 31, 2007, the Fund made $2,182 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, 2007, the Fund deferred to August 1, 2007, 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 treatments 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, 2008, there were unlimited shares of no par authorized; 1,031,803 and 982,925 shares were outstanding at January 31, 2008 and July 31, 2007, respectively.

Transactions in capital shares were as follows:

 

Shares

 

For The Six Months Ended January 31, 2008 (Unaudited)

For The Year Ended July 31, 2007

Shares sold

69,009

79,386

Shares issued on reinvestment of dividends

14,592

28,663

Shares redeemed

(34,723)

(259,480)

Net increase (decrease)

48,878

(151,431)

Note 4: INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, Inc. (“Integrity Funds Distributor”), the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”) the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“Integrity Mutual Funds”), 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, 2008. Certain officers and trustees of the Fund are also officers and directors of Integrity Money Management.

Under the terms of the advisory agreement, Integrity Money Management has agreed to pay all the expenses of the Fund (excluding taxes, brokerage fees, and commissions, if any) that exceed 0.75% of the Fund’s average daily net assets on an annual basis. Integrity Money Management 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, 2008.

Integrity Fund Services provides transfer agent 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 of $500 per month is charged for each additional share class. The Fund has recognized $12,000 of transfer agency fees and expenses for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $2,000 at January 31, 2008 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 $14,720 of accounting service fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $2,463 at January 31, 2008 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 fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $12,000 of administrative service fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $2,000 at January 31, 2008 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 $1,274,371 and $1,430,000, respectively, for the six months ended January 31, 2008.

Note 6: INVESTMENT IN SECURITIES

At January 31, 2008, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $10,826,319. The net unrealized appreciation of investments based on the cost was $392,110, which is comprised of $392,110 aggregate gross unrealized appreciation and $0 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 periods indicated.

 

 

For The Six Months Ended January 31, 2008 (Unaudited)

 

For The Year Ended July 31, 2007

 

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

NET ASSET VALUE, BEGINNING OF PERIOD

$

10.87

$

10.95

$

10.94

$

11.44

$

11.60

$

11.91

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Investment Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

$

.22

$

.44

$

.43

$

.42

$

.43

$

.46

 

Net realized and unrealized gain (loss) on investment transactions

 

.21

 

(.08)

 

.01

 

(.50)

 

(.16)

 

(.31)

 

 

Total Income (Loss) From Investment Operations

$

.43

$

.36

$

.44

$

(.08)

$

.27

$

.15

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from net investment income

$

(.22)

$

(.44)

$

(.43)

$

(.42)

$

(.43)

$

(.46)

 

Distributions from net realized gains

 

.00

 

.00

 

.00

 

.00

 

.00

 

.00

 

 

Total Distributions

$

(.22)

$

(.44)

$

(.43)

$

(.42)

$

(.43)

$

(.46)

 

 

 

 

 

 

 

 

 

 

 

 

 

NET ASSET VALUE, END OF PERIOD

$

11.08

$

10.87

$

10.95

$

10.94

$

11.44

$

11.60

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return

 

7.91%A,C

 

3.34%A

 

4.06%A

 

(0.75%)A

 

2.31%A

 

1.26%A

 

 

 

 

 

 

 

 

 

 

 

 

 

RATIOS/SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets, end of period (in thousands)

$

11,433

$

10,686

$

12,419

$

14,480

$

16,982

$

18,477

 

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

 

3.95%C

 

4.02%

 

3.89%

 

3.71%

 

3.67%

 

3.89%

 

Portfolio turnover rate

 

12.42%

 

9.18%

 

4.15%

 

1.81%

 

4.39%

 

26.23%

A Excludes maximum sales charge of 2.75%.

B During the periods indicated above, Integrity Mutual Funds or Integrity Money Management assumed and/or waived expenses of $38,122, $77,248, $62,295, $57,567, $58,289, and $36,281, respectively. If the expenses had not been assumed and/or waived, the annualized ratio of total expenses to average net assets would have been 1.45%, 1.40%, 1.23%, 1.10%, 1.08%, and 0.94%, 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, 2008. The Fund’s portfolio and related financial statements are presented within for your review.

As we enter the New Year, financial markets remain under considerable stress and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in the labor markets. The housing downturn and sub prime credit crunch ravaged the financial service and home building industries. To help accelerate economic growth the Federal Reserve has lowered interest rates 225 basis points since September 2007, with 125 basis points of that from the period between January 22nd through January 30th, and central banks have aggressively injected liquidity into the global financial system. All this was designed to jump start global credit markets that seized up as a result of the sub prime meltdown.

Despite the woes of the financial and housing meltdown, a number of events remained positive for the period.

Even though we have experienced several years of high energy prices and this year’s housing debacle, consumer spending has held up with unemployment near 5%. That, along with a proactive Federal Reserve and a reasonably strong global economy, should help slowdown the depth of the slowing economy.

The bond market continues to worry about the sub prime mortgage sector, the financial banking system, secondary credit insurers and inflationary concerns. The benchmark 10-year treasury began 2007 at 4.80%, rose to 5.30% in mid June over inflationary concerns and ended the period at 3.64% after many banks and financial firms reported massive write downs of assets associated with sub prime lending.

On the municipal side of the markets, several AAA-rated municipal bond insurers are under review by all of the nationally recognized credit rating agencies. The agencies are trying to determine whether the municipal bond insurers deserve to maintain their AAA-credit rating despite recent losses in the mortgage related problems. While much has been written, we believe the long-term impact on the Fund should be minimal for several reasons.

The bonds owned by the Fund that are insured by these firms tend to be of very high quality. Insurance companies tend to insure municipal bonds that are mostly in the “A” category and above. Secondly, if an insured bond defaults, the insurance company is only liable for the interest and principal payments as they come due. They are not required to pay off the entire bond issue.  

While we believe there could be some volatility in the price of insured municipal bonds while the current credit crunch runs its course, we encourage investors to take a long-term view and keep in mind the advantages of owning high quality municipal bonds and focus on the tax-free income they provide. In fact, the recent market concerns have made high quality municipal yields equal to, or in some cases, higher than U.S. Treasuries of similar maturity. This presents a very attractive buying opportunity for the Fund.    

The Maine Municipal Fund began the period at $10.45 and ended the period at $10.76 for a total return of 4.77%*. This compares to the Lehman Brothers Municipal Bond Index’s return of 3.72%. The Fund’s overall performance can be attributed to its defensive portfolio, with an average maturity of 12.9 years and an average maturity to the first call date of 4.6 years. That, along with an average portfolio coupon of 5.17% helps relative performance in volatile environments.

An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, double exempt issues. Some purchases throughout the year were: Lewiston General Obligation, 4.50% coupon, due 2025; University of Maine, 4.75% coupon, due 2037; and Maine Governmental Facilities, 5.00% coupon, due 2023.

Portfolio quality for the period was as follows: AAA 80.3%, AA 7.5%, A 11.7%, and BBB 0.5%.

Income exempt from federal and Maine state income taxes with preservation of capital remains the primary objective 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

Senior Portfolio Manager

The views expressed are those of Monte Avery, Senior Portfolio Manager with Integrity Money Management, Inc. 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, the markets generally, or any Integrity Mutual Fund.

*Performance does not include applicable front-end or contingent deferred sales charges (“CDSCs”), 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 (800) 276-1262.

You should consider the Fund’s investment objectives, risks, 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, 2008 (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 (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. The information is also available from the Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) database on the website of the Securities and Exchange Commission (“SEC”) at www.sec.gov.

QUARTERLY PORTFOLIO SCHEDULE

Within 60 days of the end of its second and fourth fiscal quarters, the Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports on the Form N-CSR(S). These reports are filed electronically with the SEC and are delivered to the shareholders of the Fund. 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. Information on the operation of the Public Reference Room may be obtained by calling (202) 942-8090. You may also access this information from Integrity’s website at www.integrityfunds.com.


Terms & Definitions January 31, 2008 (Unaudited)

Appreciation: Increase in the value of an asset

Average Annual Total Return: A standardized measurement of the return (yield and appreciation) earned by a fund on an annual basis assuming all distributions are reinvested

Coupon Rate or Face Rate: Rate of interest payable annually based on the face amount of the bond; expressed as a percentage

Depreciation: Decrease in the 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 marketplace

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: The value of all of a 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 creditworthiness; “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 a fund’s portfolio for the period, assuming the reinvestment of all dividends; represents the aggregate percentage or dollar value change over the period


January 31, 2008 (Unaudited)

COMPOSITION

PORTFOLIO QUALITY RATINGS

(Based on total long-term investments)

 

AAA

80.3%

 

AA

7.5%

 

A

11.7%

 

BBB

0.5%

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

These percentages are subject to change.

PORTFOLIO MARKET SECTORS

(As a percentage of net assets)

 

T-Transportation

35.5%

 

I-Industrial

20.5%

 

G-Government

15.0%

 

H-Health

8.8%

 

O-Other

6.4%

 

S-School

5.6%

 

U-Utilities

4.4%

 

W/S-Water/Sewer

3.8%

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

These percentages are subject to change.


January 31, 2008 (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:

 

•

Transaction costs: including sales charges (loads), redemption fees, and exchange fees

 

•

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, 2007 to January 31, 2008.

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 account value of $8,600 divided by $1,000 equals 8.6), then multiply the result by the number 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
07/31/07

Ending Account Value
01/31/08

Expenses Paid During Period*

 

 

 

 

Actual

$1,000.00

$1,047.66

$5.48

 

 

 

 

 

Hypothetical (5% return before expenses)

$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 4.77% for the six-month period of July 31, 2007 to January 31, 2008.


January 31, 2008 (Unaudited)

AVERAGE ANNUAL TOTAL RETURNS

 

For periods ending January 31, 2008

Maine Municipal Fund

1 year

3 year

5 year

10 year

Since Inception
(December 5, 1991)

 

Without sales charge

5.92%

3.77%

3.00%

3.83%

5.03%

 

With sales charge (4.25%)

1.39%

2.29%

2.11%

3.38%

4.75%

 

 

 

 

 

 

 

Lehman Brothers Municipal Bond Index

1 year

3 year

5 year

10 year

Since Inception
(December 5, 1991)

 

 

4.94%

4.02%

4.62%

5.20%

6.24%

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 (800) 276-1262.

You should consider the Fund’s investment objectives, risks, 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 another investment adviser managed the Fund, who used different investment strategies and techniques, which may have produced different investment results than those achieved by the current investment adviser. The Forum Investment Advisors, LLC, served as investment adviser to the Fund until December 19, 2003.


January 31, 2008 (Unaudited)

COMPARATIVE INDEX GRAPH

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

 

Fund without sales charge

Fund with maximum sales charge

Lehman Brothers Municipal Bond Index

7/31/1997

$10,000

$9,575

$10,000

1998

$10,484

$10,038

$10,599

1999

$10,764

$10,307

$10,904

2000

$11,175

$10,700

$11,374

2001

$12,061

$11,548

$12,522

2002

$12,684

$12,145

$13,362

2003

$12,967

$12,416

$13,842

2004

$13,479

$12,907

$14,643

2005

$13,380

$12,811

$15,575

2006

$13,931

$13,339

$15,973

2007

$14,333

$13,724

$16,654

1/31/2008

$15,017

$14,378

$17,274

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, 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 the Fund’s performance to a benchmark index provides you with a general sense of how the Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers Municipal Bond Index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Maine municipal bonds. The 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. If the could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.


January 31, 2008 (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 the three funds in the Integrity family of funds, the six series of Integrity Managed Portfolios and the six series of The Integrity Funds.  Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates.  These are the “Independent” Trustees.  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

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Jerry M. Stai
2405 11th Ave. NW
Minot, ND 58703
55

Trustee

Indefinite

Since January 2006

15

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).

Marycrest Franciscan Development, Inc.

Orlin W. Backes
948 13th Ave. SW
Minot, ND 58701
72

Trustee

Indefinite

Since January 1996

15

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.

First Western Bank & Trust

R. James Maxson
1 N. Main St.
Minot, ND 58701
60

Trustee

Indefinite

Since January 1999

15

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

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 six 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 (800) 276-1262.


The Interested Trustees and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.

INTERESTED TRUSTEE

NAME, ADDRESS AND AGE

POSITION(S) HELD WITH REGISTRANT

TERM AND LENGTH SERVED

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Robert E. Walstad2,3
1 N. Main St.
Minot, ND 58703
63

Trustee and Chairman

Indefinite

Since January 1996

15

Director (Sept. 1987 to Feb. 2007), President (Sept. 2002 to April 2003), CEO (Sept. 2001 to Feb. 2007), Integrity Mutual Funds, Inc.; Director, President and Treasurer,  (Aug. 1988 to Feb. 2007), Integrity Money Management, Inc.; Director, President and Treasurer (Aug. 1988 to Sept. 2004), ND Capital, Inc.; Director, President and Treasurer (May 1989 to Feb. 2007), Integrity Fund Services, Inc.; Director, President, CEO, and Treasurer, (Jan. 1996 to Aug. 2003), Integrity Funds Distributor, Inc.; Director (Oct. 1999 to June 2003) Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (Oct. 2002 to June 2003), ARM Securities Corporation; Director, CEO, Chairman, (Jan. 2002 to Feb. 2007) and President (Sept. 2002 to Dec. 2004), Capital Financial Services, Inc.; Director and President, (April 1994 to June 2004) South Dakota Tax-Free Fund, Inc., (Sept. 1998 to June 2003) Integrity Small-Cap Fund of Funds Inc.; President (Jan. 1996 to July 2007) Integrity Managed Portfolios, (May 2003 to July 2007) The Integrity Funds, (Jan. 1995 to July 2007) Integrity Fund of Funds, Inc., (Jan. 1989 to July 2007) ND Tax-Free Fund, Inc., (Aug. 1993 to July 2007) Montana Tax-Free Fund, Inc.; Director and Chairman (since Jan. 1995) Integrity Fund of Funds, Inc., (since Jan. 1989) ND Tax-Free Fund, Inc., and (since Aug. 1993) Montana Tax-Free Fund, Inc.; Trustee, Chairman, (since January 1996) and Treasurer (January 1996 to May 2004), Integrity Managed Portfolios; Trustee and Chairman (since May 2003), The Integrity Funds.

Minot Park Board

OFFICERS

NAME, ADDRESS AND AGE

POSITION(S) HELD WITH REGISTRANT

TERM AND LENGTH SERVED

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Mark R.Anderson3
1 N. Main St.
Minot, ND 58703
43

President

Indefinite

Since July 2007

N/A

Personal Trust Officer (May 1999 to April 2003) Wells Fargo Bank; President (since April 2003), COO (April 2003 to Feb. 2007), Director and CEO (since Feb. 2007) Integrity Mutual Funds, Inc.; President and Director (since Feb. 2007) Integrity Money Management, Inc., and Integrity Fund Services, Inc.; President and Director (since August 2003) Integrity Funds Distributor, Inc.; President (since July 2007) Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc., Integrity Managed Portfolios and The Integrity Funds; President and Treasurer (since July 2005) BAC Properties, LLC.

None

Peter A. Quist2
1 N. Main St.
Minot, ND 58703
72

Vice President, Secretary

Indefinite

Since January 1996

3

Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, ND Capital, Inc. (August 1988 to August 2006), Integrity Fund Services, Inc., and Integrity Funds Distributor, Inc.; Director, ARM Securities Corporation (May 2000 to June 2003); Director, 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., and ND Tax Free Fund, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003).

None

Laura K. Anderson
1 N. Main St.
Minot, ND 58703
33

Treasurer

Indefinite

Since October 2005

N/A

Fund Accountant (Jan. 1999 to May 2004), Fund Accounting Supervisor (May 2004 to October 2005), Fund Accounting Manager (since October 2005), Manager of Mutual Fund Operations (since October 2006), 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.

None

Brent M. Wheeler
1 N. Main St.
Minot, ND 58703
37

Mutual Fund Chief Compliance Officer

Indefinite

Since October 2005

N/A

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.

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 six series of The Integrity Funds.

2Trustees and/or officers who are “interested persons” of the Funds as defined in the Investment Company Act of 1940.  Messr. Quist is an interested person by virtue of being an officer and Director of the Fund’s Investment Adviser and Principal Underwriter.  Messr. Walstad is an interested person by virtue of being an officer of the Funds and a shareholder of Integrity Mutual Funds, Inc. As indicated above, effective February 1, 2007, Mr. Walstad retired from his roles as, among other things, Director and CEO of Integrity Mutual Funds, Inc., and Director, President and Treasurer of Integrity Money Management.  However, a member of his immediate family is a director of Integrity Mutual Funds, Inc.

3At a Fund Board meeting held on July 26, 2007, Interested Director/Trustee, Chairman and Officer Robert E. Walstad resigned as President of the Funds.  Subsequently, the Board nominated and appointed Mark R. Anderson as President of the Funds, effective July 26, 2007.  Mr. Walstad will remain as Director/Trustee and Chairman of the 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 (800) 276-1262.

January 31, 2008 (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 26, 2007, 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 fifteen 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. As of December 31, 2006, the Fund performance for the 3-year, 5-year, 10-year and since inception periods was below its index. The Funds 1-year performance was above its index. The Fund has positive returns for the YTD, 1-year, 5-year, 10-year and since inception periods as of September 28, 2007. 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% was comparable to the average expense ratio of other funds of similar objective and size but slightly higher than the median of other funds of similar objective and size. The median expense ratio for state municipal bond funds is reported to be 0.97% for the year 2006 according to the Investment Company Institute.

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 an employee stock option 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 Manager generally does not trade securities in his own personal account, the Fund 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 Fund 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, 2008 (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 (77.4%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bar Harbor, ME

A-1/NR

6.450%

06/01/2009

$

75,000

$

79,348

Bath, ME

A-3/NR

7.500

12/01/2008

 

20,000

 

20,926

Brewer, ME

A/A

4.600

11/01/2017

 

210,000

 

226,065

Ellsworth, ME

A/NR

7.200

07/01/2008

 

25,000

 

25,532

Freeport, ME

Aa-3/AA

7.250

09/01/2010

 

20,000

 

22,415

Gorham, ME Unlimited Tax G.O.  MBIA

Aaa/NR

4.300

02/01/2023

 

155,000

 

161,544

Gorham, ME Unlimited Tax G.O.  MBIA

Aaa/NR

4.350

02/01/2024

 

155,000

 

160,600

Houlton, ME Water District MBIA

Aaa/NR

4.600

05/01/2014

 

100,000

 

102,510

Kennebec, ME Regl. Dev. 

Baa-1/NR

5.500

08/01/2014

 

75,000

 

80,716

#Kennebec, ME Water District FSA

Aaa/NR

5.125

12/01/2021

 

500,000

 

514,270

Kittery, ME

A-1/AA

5.200

01/01/2009

 

25,000

 

25,354

Lewiston, ME G.O.  FSA

Aaa/NR

5.000

04/01/2022

 

500,000

 

541,480

Lewiston, ME G.O.  FSA

Aaa/NR

5.000

04/01/2024

 

250,000

 

269,302

Lewiston, ME G.O.  FSA

Aaa/NR

4.500

01/15/2025

 

200,000

 

208,800

Maine Governmental Facs. Auth Lease MBIA

Aaa/AAA

5.375

10/01/2016

 

250,000

 

274,375

Maine Governmental Facs. Auth Lease Rent Rev.

Aaa/AAA

5.000

10/01/2023

 

125,000

 

134,709

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

Aaa/AAA

5.250

07/01/2011

 

25,000

 

25,354

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

Aaa/AAA

5.250

07/01/2010

 

550,000

 

562,166

Maine Health & Higher Educ. Facs. Auth.

Aaa/NR

6.000

10/01/2013

 

195,000

 

222,571

Maine Health & Higher Educ. (University Systems) MBIA

Aaa/NR

5.000

07/01/2023

 

200,000

 

218,494

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

Aaa/AAA

7.300

05/01/2014

 

5,000

 

5,000

Maine Health & Higher Educ. Facs. Rev. AMBAC

Aaa/NR

5.000

07/01/2022

 

250,000

 

271,605

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

Aaa/NR

5.000

07/01/2025

 

340,000

 

362,539

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

Aaa/AAA

4.500

07/01/2008

 

25,000

 

25,261

*Maine Municipal Bond Bank MBIA

Aaa/AAA

5.625

11/01/2016

 

1,000,000

 

1,090,370

Maine Municipal Bond Bank (Sewer & Water) Rev.

Aaa/AAA

4.900

11/01/2024

 

100,000

 

106,650

Maine State (Highway)

Aa-3/AA

5.000

06/15/2011

 

200,000

 

215,630

Maine State Turnpike Auth.  MBIA

Aaa/AAA

4.625

07/01/2010

 

100,000

 

101,934

Maine State Turnpike Auth.  MBIA

Aaa/AAA

5.250

07/01/2010

 

75,000

 

76,933

*Maine State Turnpike Auth. Rev. FGIC

Aaa/AAA

5.750

07/01/2028

 

750,000

 

817,140

Maine State Turnpike Auth. 

Aaa/AAA

5.000

07/01/2033

 

450,000

 

479,043

Portland, ME

Aa-1/AA

5.000

09/01/2013

 

60,000

 

64,480

#Portland, ME Airport Rev. FSA

Aaa/AAA

5.000

07/01/2032

 

500,000

 

522,025

Scarborough, ME G.O.  MBIA

Aaa/AAA

4.400

11/01/2031

 

250,000

 

253,785

Scarborough, ME G.O.  MBIA

Aaa/AAA

4.400

11/01/2032

 

480,000

 

486,139

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

A/A+

5.900

11/01/2013

 

1,465,000

 

1,465,000

South Portland, ME

Aa-1/NR

5.800

09/01/2008

 

150,000

 

153,411

South Portland, ME

Aa-1/NR

5.800

09/01/2011

 

40,000

 

44,559

University of Maine System Rev. AMBAC

Aaa/AAA

5.000

03/01/2024

 

100,000

 

102,736

#University of Maine System Rev. MBIA

Aaa/AAA

4.750

03/01/2037

 

550,000

 

573,425

Westbrook, ME G.O.  FGIC

Aaa/AAA

4.250

10/15/2020

 

180,000

 

187,996

Windham, ME G.O.  AMBAC

Aaa/AAA

3.125

11/01/2010

 

100,000

 

101,481

Windham, ME G.O.  AMBAC

Aaa/AAA

4.000

11/01/2014

 

415,000

 

435,576

Yarmouth, ME AMBAC

Aaa/NR

5.250

11/15/2009

 

250,000

 

263,080

#Yarmouth, ME

Aa-3/AA-

5.000

11/15/2019

 

500,000

 

548,840

York, ME G.O. 

NR/AA

4.000

09/01/2010

 

75,000

 

78,333

 

 

 

 

 

 

 

 

TOTAL MAINE MUNICIPAL BONDS

 

 

 

 

 

$

12,709,502

 

 

 

 

 

 

 

 

GUAM MUNICIPAL BONDS (0.1%)

 

 

 

 

 

 

 

Guam Hsg. Corp. Single Family Mtg. 

NR/AAA

5.750

09/01/2031

 

10,000

$

10,538

 

 

 

 

 

 

 

 

PUERTO RICO MUNICIPAL BONDS (13.8%)

 

 

 

 

 

 

*Puerto Rico Commonwealth Highway and Trans. Rev. MBIA

Aaa/AAA

5.500

07/01/2036

 

250,000

$

293,125

*Puerto Rico Public Finance Corp. Commonwealth Appropriations AMBAC

Aaa/AAA

5.375

06/01/2018

 

1,710,000

 

1,969,834

TOTAL PUERTO RICO MUNICIPAL BONDS

 

 

 

 

 

$

2,262,959

 

 

 

 

 

 

 

 

VIRGIN ISLANDS MUNICIPAL BONDS (3.1%)

 

 

 

 

 

 

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

Aaa/AAA

5.300

07/01/2021

 

500,000

$

510,190

 

 

 

 

 

 

 

 

TOTAL MUNICIPAL BONDS (COST: $14,710,733)

 

 

 

 

$

15,493,189

 

 

 

 

 

 

 

 

SHORT-TERM SECURITIES (5.0%)

 

 

 

 

 Shares

 

 

Wells Fargo Advantage National Tax-Free Money Market (COST: $826,092)

 

826,092

$

826,092

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS IN SECURITIES (COST: $15,536,825)

$

16,319,281

OTHER ASSETS LESS LIABILITIES

 

94,466

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

$

16,413,747

 

 

 

 

 

 

 

 

*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.

Footnote: Non-rated (NR) securities have been determined to be of investment grade quality by the Fund's Manager.

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


Financial Statements January 31, 2008

Statement of Assets and Liabilities January 31, 2008 (Unaudited)

ASSETS

 

 

 

Investments in securities, at value (cost: $15,536,825)

$

16,319,281

 

Cash

 

2,236

 

Accrued interest receivable

 

156,551

 

Accrued dividends receivable

 

994

 

Prepaid expenses

 

1,096

 

 

Total Assets

$

16,480,158

 

 

 

 

 

LIABILITIES

 

 

 

Dividends payable

$

46,818

 

Payable to affiliates

 

12,281

 

Accrued expenses

 

7,312

 

 

Total Liabilities

$

66,411

 

 

 

 

 

NET ASSETS

$

16,413,747

 

 

 

 

 

Net assets are represented by:

 

 

 

Paid-in capital

$

16,272,913

 

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

 

(664,401)

 

Accumulated undistributed net investment income (loss)

 

22,779

 

Unrealized appreciation (depreciation) on investments

 

782,456

 

 

Total amount representing net assets applicable to 1,526,119 outstanding shares of no par common stock (unlimited shares authorized)

$

16,413,747

 

 

 

 

 

Net asset value per share

$

10.76

 

 

 

 

 

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

$

11.24

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


Financial Statements January 31, 2008

Statement of Operations For the six months ended January 31, 2008 (Unaudited)

INVESTMENT INCOME

 

 

 

Interest

$

368,008

 

Dividends

 

11,230

 

 

Total Investment Income

$

379,238

 

 

 

 

 

EXPENSES

 

 

 

Investment advisory fees

$

41,402

 

Distribution (12b-1) fees

 

20,701

 

Administrative service fees

 

12,000

 

Transfer agent fees

 

16,561

 

Accounting service fees

 

16,140

 

Custodian fees

 

1,496

 

Transfer agent out-of-pockets

 

670

 

Professional fees

 

5,056

 

Trustees fees

 

1,222

 

Insurance expense

 

214

 

Reports to shareholders

 

1,259

 

Audit fees

 

3,293

 

Legal fees

 

1,651

 

License, fees, and registrations

 

2,205

 

 

Total Expenses

$

123,870

 

Less expenses waived or absorbed by the Fund’s manager

 

(35,269)

 

 

Total Net Expenses

$

88,601

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

$

290,637

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

 

 

 

Net realized gain (loss) from investment transactions

$

31,683

 

Net change in unrealized appreciation (depreciation) of investments

 

438,973

 

 

Net Realized and Unrealized Gain (Loss) on Investments

$

470,656

 

 

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$

761,293

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


Financial Statements January 31, 2008

Statement of Changes in Net Assets

For the six months ended January 31, 2008 and the year ended July 31, 2007

 

 

 

For The Six Months Ended January 31, 2008 (Unaudited)

For The Year Ended July 31, 2007

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

 

 

 

 

 

Net investment income (loss)

$

290,637

$

630,621

 

Net realized gain (loss) on investment transactions

 

31,683

 

33,318

 

Net change in unrealized appreciation (depreciation) on investments

 

438,973

 

(131,902)

 

 

Net Increase (Decrease) in Net Assets Resulting From Operations

$

761,293

$

532,037

 

 

 

 

 

 

 

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS

 

 

 

 

 

Dividends from net investment income ($.18 and $.37 per share, respectively)

$

(287,948)

$

(624,718)

 

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

 

0

 

0

 

 

Total Dividends and Distributions

$

(287,948)

$

(624,718)

 

 

 

 

 

 

 

CAPITAL SHARE TRANSACTIONS

 

 

 

 

 

Proceeds from sale of shares

$

112,249

$

611,753

 

Proceeds from reinvested dividends

 

164,799

 

360,742

 

Cost of shares redeemed

 

(1,043,197)

 

(2,901,433)

 

 

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

$

(766,149)

$

(1,928,938)

 

 

 

 

 

 

 

TOTAL INCREASE (DECREASE) IN NET ASSETS

$

(292,804)

$

(2,021,619)

NET ASSETS, BEGINNING OF PERIOD

 

16,706,551

 

18,728,170

NET ASSETS, END OF PERIOD

$

16,413,747

$

16,706,551

 

 

 

 

 

 

 

Undistributed Net Investment Income

$

22,779

$

20,090

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

Notes to Financial Statements January 31, 2008 (Unaudited)

Note 1: ORGANIZATION

The Fund is an investment portfolio of Integrity Managed Portfolios (the “Trust”) and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”) as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. The Trust 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 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 Fund became a series of the Trust. Prior to this date, 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 1940 Act.

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 and includes consideration of the following: yields or prices of municipal bonds of comparable quality; type of issue, coupon, maturity, and rating; 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—In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 24 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. 

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.” FIN 48 establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax-return positions in financial statements. Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended July 31, 2004 through July 31, 2007) for purposes of implementing FIN 48, and has concluded that no provision for income tax is required in the Fund’s financial statements. Interest and penalties related to uncertain tax positions, if any, are classified in the Fund’s financial statements as other expense.

The tax character of distributions paid was as follows:

 

 

 

July 31, 2007

 

July 31, 2006

 

 

Tax-exempt Income

$

624,718

$

712,764

 

 

Ordinary Income

 

0

 

0

 

 

Long-term Capital Gains

 

0

 

0

 

 

 

Total

$

624,718

$

712,764

 

As of July 31, 2007, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed Ordinary Income

Undistributed Long-Term Capital Gains

Undistributed Accumulated Earnings

Accumulated Capital and Other Losses

Unrealized Appreciation/ (Depreciation)

Total Accumulated Earnings/(Deficit)

 

 

$0

$0

$0

($696,084)

$363,573

($332,511)

 

The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2007 totaling $696,084, 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

$696,084

For the year ended July 31, 2007, the Fund did not make any permanent reclassifications to reflect tax character.

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, 2007, the fund deferred to August 1, 2007, 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 treatments 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, 2008, there were unlimited shares of no par authorized; 1,526,119 and 1,598,291 shares were outstanding at January 31, 2008 and July 31, 2007, respectively.

Transactions in capital shares were as follows:

 

Shares

 

For The Six Months Ended January 31, 2008 (Unaudited)

For The Year Ended July 31, 2007

Shares sold

10,587

58,003

Shares issued on reinvestment of dividends

15,679

34,165

Shares redeemed

(98,438)

(274,649)

Net increase (decrease)

(72,172)

(182,481)

Note 4: INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, Inc. (“Integrity Funds Distributor”), the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”) the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“Integrity Mutual Funds”), 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 $6,133 of investment advisory fees after waivers for the six months ended January 31, 2008. The Fund has a payable to Integrity Money Management of $963 at January 31, 2008 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, 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 Integrity Funds Distributor 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, 2008.

Principal Underwriter and Shareholder Services

Integrity Funds Distributor serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan 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 Fund. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $20,701 of distribution fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Funds Distributor of $3,434 at January 31, 2008 for distribution fees.

Integrity Fund Services provides transfer agent 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 of $500 per month is charged for each additional share class. The Fund has recognized $16,561 of transfer agency fees and expenses for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $2,747 at January 31, 2008 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 $16,140 of accounting service fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $2,687 at January 31, 2008 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 fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $12,000 of administrative service fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $2,000 at January 31, 2008 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 $488,795 and $895,615, respectively, for the six months ended January 31, 2008.

Note 6: INVESTMENT IN SECURITIES

At January 31, 2008, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $15,536,825. The net unrealized appreciation of investments based on the cost was $782,456, which is comprised of $782,547 aggregate gross unrealized appreciation and $91 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, 2008

Selected per share data and ratios for the periods indicated.

 

 

For The Six Months Ended January 31, 2008 (Unaudited)

 

For The Year Ended July 31, 2007

 

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

NET ASSET VALUE, BEGINNING OF PERIOD

$

10.45

$

10.52

$

10.45

$

11.10

$

11.19

$

11.35

$

10.97

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Investment Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

$

.18

$

.39

$

.35

$

.35

$

.13

$

.39

$

.39

 

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

 

.31

 

(.07)

 

.07

 

(.43)

 

(.09)

 

(.10)

 

.38

 

 

Total Income (Loss) From Investment Operations

$

.49

$

.32

$

.42

$

(.08)

$

.04

$

.29

$

.77

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from net investment income

$

(.18)

$

(.39)

$

(.35)

$

(.35)

$

(.13)

$

(.39)

$

(.39)

 

Distributions from net capital gains

 

.00

 

.00

 

.00

 

(.22)

 

.00

 

(.06)

 

.00

 

 

Total Distributions

$

(.18)

$

(.39)

$

(.35)

$

(.57)

$

(.13)

$

(.45)

$

(.39)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET ASSET VALUE, END OF PERIOD

$

10.76

$

10.45

$

10.52

$

10.45

$

11.10

$

11.19

$

11.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return

 

9.53%A,C

 

(0.67%)A

 

4.12%A

 

(0.74%)A

 

1.23%A,C

 

2.56%A

 

7.16%A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RATIOS/SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets, end of period (in thousands)

$

16,414

$

16,707

$

18,728

$

24,975

$

31,683

$

33,270

$

37,847

 

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

 

1.07%B,C

 

1.07%B

 

1.02%B

 

0.97%B,C

 

0.95%B

 

0.95%B

 

0.95%B

 

Ratio of net investment income to average net assets

 

3.48%C

 

3.52%

 

3.35%

 

3.24%

 

3.49%C

 

3.44%

 

3.49%

 

Portfolio turnover rate

 

3.11%

 

8.50%

 

1.60%

 

4.87%

 

1.92%

 

34.40%

 

26.00%

A Excludes maximum sales charge of 4.25%.

B During the periods indicated above, Integrity Mutual Funds assumed and/or waived expenses of $35,269, $64,859, $58,447, $86,089, and $29,051. If the expenses had not been assumed and/or waived, the annualized ratio of total expenses to average net assets would have been 1.50%, 1.44%, 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 and/or waived expenses of $22,736. If the expenses had not been assumed and/or 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 and/or waived expenses of $104,969. If the expenses had not been assumed and/or waived, the annualized ratio of total expenses to average net assets would have been 1.22%.

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, 2008. The Fund’s portfolio and related financial statements are presented within for your review.

As we enter the New Year, financial markets remain under considerable stress and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in the labor markets. The housing downturn and sub prime credit crunch ravaged the financial service and home building industries. To help accelerate economic growth the Federal Reserve has lowered interest rates 225 basis points since September 2007, with 125 basis points of that from the period between January 22nd through January 30th, and central banks have aggressively injected liquidity into the global financial system. All this was designed to jump start global credit markets that seized up as a result of the sub prime meltdown.

Despite the woes of the financial and housing meltdown, a number of events remained positive for the period.

Even though we have experienced several years of high energy prices and this year’s housing debacle, consumer spending has held up with unemployment near 5%. That, along with a proactive Federal Reserve and a reasonably strong global economy, should help slowdown the depth of the slowing economy.

The bond market continues to worry about the sub prime mortgage sector, the financial banking system, secondary credit insurers and inflationary concerns. The benchmark 10-year treasury began 2007 at 4.80%, rose to 5.30% in mid June over inflationary concerns and ended the period at 3.64% after many banks and financial firms reported massive write downs of assets associated with sub prime lending.

On the municipal side of the markets, several AAA-rated municipal bond insurers are under review by all of the nationally recognized credit rating agencies. The agencies are trying to determine whether the municipal bond insurers deserve to maintain their AAA-credit rating despite recent losses in the mortgage related problems. While much has been written, we believe the long-term impact on the Fund should be minimal for several reasons.

The bonds owned by the Fund that are insured by these firms tend to be of very high quality. Insurance companies tend to insure municipal bonds that are mostly in the “A” category and above. Secondly, if an insured bond defaults, the insurance company is only liable for the interest and principal payments as they come due. They are not required to pay off the entire bond issue.  

While we believe there could be some volatility in the price of insured municipal bonds while the current credit crunch runs its course, we encourage investors to take a long-term view and keep in mind the advantages of owning high quality municipal bonds and focus on the tax-free income they provide. In fact, the recent market concerns have made high quality municipal yields equal to, or in some cases, higher than U.S. Treasuries of similar maturity. This presents a very attractive buying opportunity for the Fund.

The Nebraska Municipal Fund began the period at $10.13 and ended the period at $10.33 for a total return of 3.91%*. This compares to the Lehman Brothers Municipal Bond Index’s return of 3.72%. The Fund’s overall performance can be attributed to its defensive portfolio, with an average maturity of 15 years and an average maturity to the first call date of 4.1 years. That, along with an average portfolio coupon of 5.24% helps relative performance in volatile environments.

An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, double exempt issues. Some purchases throughout the year were: Lincoln Sewer Revenue, 4.50% coupon, due 2029; Douglas County Schools, 4.50% coupon, due 2023; and Dawson County Public Power, 4.75% coupon, due 2032.

Portfolio quality for the period was as follows: AAA 52.1%, AA 34.7%, A 6.0%, BBB 2.6% and NR 4.6%.

Income exempt from federal and Nebraska state income taxes with preservation of capital remains the primary objective 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

Senior Portfolio Manager

The views expressed are those of Monte Avery, Senior Portfolio Manager with Integrity Money Management, Inc. 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, the markets generally, or any Integrity Mutual Fund.

*Performance does not include applicable front-end or contingent deferred sales charges (“CDSCs”), 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, 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, 2008 (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. The information is also available from the Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) database on the website of the Securities and Exchange Commission (“SEC”) at www.sec.gov.

QUARTERLY PORTFOLIO SCHEDULE

Within 60 days of the end of its second and fourth fiscal quarters, the Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports on the Form N-CSR(S). These reports are filed electronically with the SEC and are delivered to the shareholders of the Fund. 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. 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, 2008 (Unaudited)

Appreciation: Increase in the value of an asset

Average Annual Total Return: A standardized measurement of the return (yield and appreciation) earned by a fund on an annual basis assuming all distributions are reinvested

Coupon Rate or Face Rate: Rate of interest payable annually based on the face amount of the bond; expressed as a percentage

Depreciation: Decrease in the 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 marketplace

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: The value of all of a 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 creditworthiness; “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 a fund’s portfolio for the period, assuming the reinvestment of all dividends; represents the aggregate percentage or dollar value change over the period.


January 31, 2008 (Unaudited)

PERFORMANCE AND COMPOSITION

PORTFOLIO QUALITY RATINGS

(Based on total long-term investments)

 

AAA

52.1%

 

AA

34.7%

 

A

6.0%

 

BBB

2.6%

 

NR

4.6%

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

These percentages are subject to change.

PORTFOLIO MARKET SECTORS

(As a percentage of net assets)

 

S-School

34.3%

 

H-Health

20.1%

 

U-Utilities

16.2%

 

I-Industrial

8.2%

 

O-Other

8.1%

 

T-Transportation

7.6%

 

W/S-Water/Sewer

5.5%

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

These percentages are subject to change.


January 31, 2008 (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:

 

•

Transaction costs including sales charges (loads), redemption fees, and exchange fees

 

•

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, 2007 to January 31, 2008.

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 account value of $8,600 divided by $1,000 equals 8.6), then multiply the result by the number 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
07/31/07

Ending Account Value
01/31/08

Expenses Paid During Period*

Actual

$1,000.00

$1,039.09

$5.45

 

 

 

 

 

Hypothetical (5% return before expenses)

$1,000.00

$1,019.79

$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 3.91% for the six-month period of July 31, 2007 to January 31, 2008.


January 31, 2008 (Unaudited)

AVERAGE ANNUAL TOTAL RETURNS

 

For periods ending January 31, 2008

Nebraska Municipal Fund

1 year

3 year

5 year

10 year

Since Inception
(November 17, 1993)

 

Without sales charge

5.18%

4.01%

2.90%

3.60%

3.96%

 

With sales charge (4.25%)

0.73%

2.51%

2.00%

3.15%

3.64%

 

 

 

 

 

 

 

Lehman Brothers Municipal Bond Index

1 year

3 year

5 year

10 year

Since Inception
(November 17, 1993)

 

 

4.94%

4.02%

4.62%

5.20%

5.59%

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, 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, 2008 (Unaudited)

COMPARATIVE INDEX GRAPH

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

 

Fund without sales charge

Fund with maximum sales charge

Lehman Brothers Municipal Bond Index

7/31/1997

$10,000

$9,575

$10,000

1998

$10,396

$9,954

$10,599

1999

$10,793

$10,334

$10,904

2000

$11,039

$10,570

$11,374

2001

$12,145

$11,629

$12,522

2002

$12,639

$12,101

$13,362

2003

$12,537

$12,004

$13,842

2004

$12,986

$12,434

$14,643

2005

$12,962

$12,411

$15,575

2006

$13,597

$13,019

$15,973

2007

$14,028

$13,431

$16,654

1/31/2008

$14,576

$13,956

$17,274

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, 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 the Fund’s performance to a benchmark index provides you with a general sense of how the Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers Municipal Bond Index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Nebraska municipal bonds. The 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. If the could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.


January 31, 2008 (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 the three funds in the Integrity family of funds, the six series of Integrity Managed Portfolios and the six series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “Independent” Trustees. 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

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Jerry M. Stai
2405 11th Ave. NW
Minot, ND 58703
55

Trustee

Indefinite

Since January 2006

15

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).

Marycrest Franciscan Development, Inc.

Orlin W. Backes
948 13th Ave. SW
Minot, ND 58701
72

Trustee

Indefinite

Since January 1996

15

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.

First Western Bank & Trust

R. James Maxson
1 N. Main St.
Minot, ND 58701
60

Trustee

Indefinite

Since January 1999

15

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

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 six 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.


The Interested Trustees and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.

INTERESTED TRUSTEE

NAME, ADDRESS AND AGE

POSITION(S) HELD WITH REGISTRANT

TERM AND LENGTH SERVED

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Robert E. Walstad2,3
1 N. Main St.
Minot, ND 58703
63

Trustee and Chairman

Indefinite

Since January 1996

15

Director (Sept. 1987 to Feb. 2007), President (Sept. 2002 to April 2003), CEO (Sept. 2001 to Feb. 2007), Integrity Mutual Funds, Inc.; Director, President and Treasurer, (Aug. 1988 to Feb. 2007), Integrity Money Management, Inc.; Director, President and Treasurer (Aug. 1988 to Sept. 2004), ND Capital, Inc.; Director, President and Treasurer (May 1989 to Feb. 2007), Integrity Fund Services, Inc.; Director, President, CEO, and Treasurer, (Jan. 1996 to Aug. 2003), Integrity Funds Distributor, Inc.; Director (Oct. 1999 to June 2003) Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (Oct. 2002 to June 2003), ARM Securities Corporation; Director, CEO, Chairman, (Jan. 2002 to Feb. 2007) and President (Sept. 2002 to Dec. 2004), Capital Financial Services, Inc.; Director and President, (April 1994 to June 2004) South Dakota Tax-Free Fund, Inc., (Sept. 1998 to June 2003) Integrity Small-Cap Fund of Funds Inc.; President (Jan. 1996 to July 2007) Integrity Managed Portfolios, (May 2003 to July 2007) The Integrity Funds, (Jan. 1995 to July 2007) Integrity Fund of Funds, Inc., (Jan. 1989 to July 2007) ND Tax-Free Fund, Inc., (Aug. 1993 to July 2007) Montana Tax-Free Fund, Inc.; Director and Chairman (since Jan. 1995) Integrity Fund of Funds, Inc., (since Jan. 1989) ND Tax-Free Fund, Inc., and (since Aug. 1993) Montana Tax-Free Fund, Inc.; Trustee, Chairman, (since January 1996) and Treasurer (January 1996 to May 2004), Integrity Managed Portfolios; Trustee and Chairman (since May 2003), The Integrity Funds.

Minot Park Board

OFFICERS

NAME, ADDRESS AND AGE

POSITION(S) HELD WITH REGISTRANT

TERM AND LENGTH SERVED

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Mark R.Anderson3
1 N. Main St.
Minot, ND 58703
43

President

Indefinite

Since July 2007

N/A

Personal Trust Officer (May 1999 to April 2003) Wells Fargo Bank; President (since April 2003), COO (April 2003 to Feb. 2007), Director and CEO (since Feb. 2007) Integrity Mutual Funds, Inc.; President and Director (since Feb. 2007) Integrity Money Management, Inc., and Integrity Fund Services, Inc.; President and Director (since August 2003) Integrity Funds Distributor, Inc.; President (since July 2007) Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc., Integrity Managed Portfolios and The Integrity Funds; President and Treasurer (since July 2005) BAC Properties, LLC.

None

Peter A. Quist2
1 N. Main St.
Minot, ND 58703
72

Vice President, Secretary

Indefinite

Since January 1996

3

Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, ND Capital, Inc. (August 1988 to August 2006), Integrity Fund Services, Inc., and Integrity Funds Distributor, Inc.; Director, ARM Securities Corporation (May 2000 to June 2003); Director, 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., and ND Tax Free Fund, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003).

None

Laura K. Anderson
1 N. Main St.
Minot, ND 58703
33

Treasurer

Indefinite

Since October 2005

N/A

Fund Accountant (Jan. 1999 to May 2004), Fund Accounting Supervisor (May 2004 to October 2005), Fund Accounting Manager (since October 2005), Manager of Mutual Fund Operations (since October 2006), 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.

None

Brent M. Wheeler
1 N. Main St.
Minot, ND 58703
37

Mutual Fund Chief Compliance Officer

Indefinite

Since October 2005

N/A

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.

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 six series of The Integrity Funds.

2Trustees and/or officers who are “interested persons” of the Funds as defined in the Investment Company Act of 1940. Messr. Quist is an interested person by virtue of being an officer and Director of the Fund’s Investment Adviser and Principal Underwriter. Messr. Walstad is an interested person by virtue of being an officer of the Funds and a shareholder of Integrity Mutual Funds, Inc. As indicated above, effective February 1, 2007, Mr. Walstad retired from his roles as, among other things, Director and CEO of Integrity Mutual Funds, Inc., and Director, President and Treasurer of Integrity Money Management. However, a member of his immediate family is a director of Integrity Mutual Funds, Inc.

3At a Fund Board meeting held on July 26, 2007, Interested Director/Trustee, Chairman and Officer Robert E. Walstad resigned as President of the Funds. Subsequently, the Board nominated and appointed Mark R. Anderson as President of the Funds, effective July 26, 2007. Mr. Walstad will remain as Director/Trustee and Chairman of the 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, 2008 (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 26, 2007, 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 fifteen 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. As of August 31, 2007, the Fund performance for the 1-year period was above its index and median for its peer group, its 3-year, 5-year and 10-year performance was below both its index and the median for its peer group. The Fund has positive returns for the YTD, 1-year, 5-year, 10-year and since inception periods as of August 31, 2007. 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 a small 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% was comparable to the average expense ratio of other funds of similar objective and size but slightly higher than the median of other funds of similar objective and size. The median expense ratio for state municipal bond funds is reported to be 0.97% for the year 2006 according to the Investment Company Institute.

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 an employee stock option 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 Manager generally does not trade securities in his own personal account, the Fund 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 Fund 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, 2008 (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 (94.7%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

NR/AA

5.300%

12/15/2018

$

250,000

$

253,367

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

Baa/BBB-

5.650

02/01/2022

 

700,000

 

687,750

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

Aaa/AAA

4.500

12/15/2025

 

405,000

 

416,806

Dawson Cty. Public Power Electric Sys. Rev.

NR/AA-

4.750

12/01/2032

 

250,000

 

254,532

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

Aaa/NR

5.500

12/15/2020

 

1,000,000

 

1,089,550

Douglas Cty., NE G.O. 

Aa-1/AA+

4.750

12/01/2025

 

250,000

 

260,345

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

Aaa/AAA

5.250

09/01/2021

 

250,000

 

255,347

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

Aaa/AAA

5.500

11/15/2021

 

340,000

 

341,748

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

A-1/NR

5.000

11/15/2016

 

250,000

 

272,713

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

Aaa/AAA

5.375

11/15/2015

 

45,000

 

45,113

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

Aaa/AAA

5.375

11/15/2015

 

220,000

 

220,000

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

 

278,600

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

NR/NR

5.600

04/01/2023

 

500,000

 

495,000

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

NR/A+

5.050

12/15/2022

 

150,000

 

150,548

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

NR/AAA

4.500

12/15/2023

 

250,000

 

259,150

Fremont, NE Combined Utilities Rev. MBIA

Aaa/AAA

5.000

10/15/2021

 

500,000

 

533,400

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

Aaa/AAA

5.000

12/15/2023

 

500,000

 

540,385

Kearney Cty., NE Highway Allocation Fund AMBAC

Aaa/NR

5.350

06/15/2021

 

100,000

 

100,381

*Lancaster Cty., NE Hosp. Auth. #1 (BryanLGH Medical Center Project)

A-1/NR

4.750

06/01/2021

 

1,000,000

 

1,038,970

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

Aa-1/AAA

5.250

01/15/2021

 

500,000

 

538,435

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

Aa-1/AAA

5.250

01/15/2022

 

500,000

 

541,540

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

Aaa/NR

5.000

12/15/2025

 

250,000

 

260,535

*Lincoln, NE Elec. Syst. Rev. 

Aa/AA

5.000

09/01/2021

 

1,000,000

 

1,076,970

Lincoln, NE San. Swr. Rev. MBIA

Aaa/AAA

4.500

06/15/2029

 

250,000

 

253,838

Lincoln, NE Water Rev. 

Aa/AA-

5.000

08/15/2022

 

575,000

 

619,327

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

NR/AA

5.350

07/01/2018

 

250,000

 

255,930

#Metropolitan Community College South Omaha Bldg. Proj. AMBAC

Aaa/AAA

4.500

03/01/2026

 

1,000,000

 

1,030,480

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

Aaa/AAA

6.250

06/01/2018

 

800,000

 

860,440

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

Aaa/AAA

6.400

06/01/2013

 

165,000

 

175,416

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

Aaa/AAA

6.450

06/01/2018

 

400,000

 

435,196

*NE Hgr. Educ. Loan Program Student Loan MBIA

Aaa/AAA

5.875

06/01/2014

 

825,000

 

833,778

NE Hgr. Educ. Loan Program B Rev. MBIA

Aaa/AAA

6.000

06/01/2028

 

100,000

 

101,064

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

NR/AA

5.500

04/01/2027

 

1,000,000

 

1,044,800

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

NR/AAA

6.250

09/01/2028

 

5,000

 

5,040

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

NR/AAA

6.200

09/01/2017

 

20,000

 

20,310

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

NR/AAA

6.250

03/01/2021

 

15,000

 

15,232

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

NR/AAA

6.300

09/01/2028

 

75,000

 

76,161

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

Aaa/AAA

5.500

08/15/2017

 

410,000

 

418,897

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

Aaa/AAA

5.500

08/15/2027

 

1,000,000

 

1,021,730

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

NR/AAA

6.200

06/01/2028

 

135,000

 

135,356

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

NR/AA

5.450

11/15/2017

 

400,000

 

405,592

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

NR/AA

5.450

11/15/2022

 

750,000

 

792,262

Omaha, NE Various Purpose 

Aaa/AAA

5.000

05/01/2022

 

250,000

 

271,037

Omaha, NE Various Purpose 

Aaa/AAA

4.250

10/15/2026

 

500,000

 

503,050

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

Aa/AA

5.200

02/01/2022

 

500,000

 

528,080

#Omaha, NE Public Power Electric Rev.

Aa/AA

5.000

02/01/2034

 

1,000,000

 

1,052,860

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

Aa/NR

6.200

02/01/2017

 

650,000

 

769,041

#Omaha, NE (Riverfront Project) Special Obligation

Aa-1/AA

5.500

02/01/2029

 

1,000,000

 

1,095,690

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

Aaa/AAA

4.750

02/01/2025

 

250,000

 

265,087

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

Aaa/AAA

4.300

02/01/2031

 

100,000

 

93,744

Papillion, NE G.O.  MBIA

Aaa/AAA

4.350

12/15/2027

 

250,000

 

252,638

Platte Cty., NE G.O.  FSA

Aaa/AAA

4.750

12/15/2014

 

500,000

 

504,220

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

NR/AA

5.650

05/01/2012

 

100,000

 

106,783

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

NR/AA

6.150

05/01/2030

 

250,000

 

265,320

Sarpy Cty., NE School Dist. #046  FSA

Aaa/AAA

5.000

12/15/2022

 

200,000

 

200,738

Saunders Cty., NE G.O.  FSA

Aaa/AAA

5.000

11/01/2030

 

250,000

 

264,438

Saunders Cty., NE G.O.  MBIA

Aaa/AAA

4.250

12/15/2021

 

515,000

 

527,169

University of NE Fac. Corp. Deferred Maintenance AMBAC

Aaa/AAA

5.000

07/15/2020

 

500,000

 

555,830

Univ. Nebraska Board of Regents Univ. NE Omaha Student Facs.

Aa/AA-

5.000

05/15/2032

 

250,000

 

265,278

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

Aa/AA-

5.125

07/01/2032

 

250,000

 

261,925

Washington Cnty S/D#1 (Blair) 

NR/A

3.750

12/15/2013

 

145,000

 

148,149

 

 

 

 

 

 

 

 

TOTAL NEBRASKA MUNICIPAL BONDS (COST: $25,707,803)

$

26,808,111

 

 

 

 

 

 

 

 

SHORT-TERM SECURITIES (4.4%)

 

Shares

 

 

Wells Fargo Advantage National Tax-Free Money Market (COST: $1,249,850)

 

1,249,850

$

1,249,850

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS IN SECURITIES (COST: $26,957,653)

$

28,057,961

OTHER ASSETS LESS LIABILITIES

 

254,234

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

$

28,312,195

 

 

 

 

 

 

 

 

* 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.

Footnote: Non-rated (NR) securities have been determined to be of investment grade quality by the Fund's Manager.

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


Financial Statements January 31, 2008

Statement of Assets and Liabilities January 31, 2008 (Unaudited)

ASSETS

 

 

 

Investments in securities, at value (cost: $26,957,653)

$

28,057,961

 

Accrued interest receivable

 

367,475

 

Accrued dividends receivable

 

2,592

 

Cash

 

25

 

Prepaid expenses

 

1,606

 

 

Total Assets

$

28,429,659

 

 

 

 

 

LIABILITIES

 

 

 

Dividends payable

$

87,412

 

Payable for fund shares redeemed

 

200

 

Payable to affiliates

 

22,048

 

Accrued expenses

 

7,804

 

 

Total Liabilities

$

117,464

 

 

 

 

 

NET ASSETS

$

28,312,195

 

 

 

 

 

Net assets are represented by:

 

 

 

Paid-in capital

$

30,382,807

 

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

 

(3,201,753)

 

Accumulated undistributed net investment income (loss)

 

30,833

 

Unrealized appreciation (depreciation) on investments

 

1,100,308

 

 

Total amount representing net assets applicable to 2,741,817 outstanding shares of no par common stock (unlimited shares authorized)

$

28,312,195

 

 

 

 

 

Net asset value per share

$

10.33

 

 

 

 

 

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

$

10.79

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


Financial Statements January 31, 2008

Statement of Operations For the six months ended January 31, 2008 (Unaudited)

INVESTMENT INCOME

 

 

 

Interest

$

678,652

 

Dividends

 

10,817

 

 

Total Investment Income

$

689,469

 

 

 

 

 

EXPENSES

 

 

 

Investment advisory fees

$

71,043

 

Distribution (12b-1) fees

 

35,522

 

Administrative service fees

 

17,761

 

Transfer agent fees

 

28,417

 

Accounting service fees

 

19,104

 

Custodian fees

 

2,202

 

Transfer agent out-of-pockets

 

832

 

Professional fees

 

7,151

 

Trustees fees

 

1,559

 

Insurance expense

 

368

 

Reports to shareholders

 

1,830

 

Audit fees

 

3,293

 

Legal fees

 

2,839

 

License, fees, and registrations

 

1,346

 

 

Total Expenses

$

193,267

 

Less expenses waived or absorbed by the Fund’s manager

 

(41,234)

 

 

Total Net Expenses

$

152,033

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

$

537,436

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

 

 

 

Net realized gain (loss) from investment transactions

$

6,212

 

Net change in unrealized appreciation (depreciation) of investments

 

527,665

 

 

Net Realized and Unrealized Gain (Loss) on Investments

$

533,877

 

 

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$

1,071,313

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


Financial Statements January 31, 2008

Statement of Changes in Net Assets

For the six months ended January 31, 2008 and the year ended July 31, 2007

 

 

 

For The Six Months Ended January 31, 2008 (Unaudited)

For The Year Ended July 31, 2007

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

 

 

 

 

 

Net investment income (loss)

$

537,436

$

1,136,418

 

Net realized gain (loss) on investment transactions

 

6,212

 

101,063

 

Net change in unrealized appreciation (depreciation) on investments

 

527,665

 

(289,997)

 

 

Net Increase (Decrease) in Net Assets Resulting From Operations

$

1,071,313

$

947,484

 

 

 

 

 

 

 

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS

 

 

 

 

 

Dividends from net investment income ($.19 and $.39 per share, respectively)

$

(535,471)

$

(1,132,417)

 

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

 

0

 

0

 

 

Total Dividends and Distributions

$

(535,471)

$

(1,132,417)

 

 

 

 

 

 

 

CAPITAL SHARE TRANSACTIONS

 

 

 

 

 

Proceeds from sale of shares

$

555,283

$

697,160

 

Proceeds from reinvested dividends

 

365,009

 

755,442

 

Cost of shares redeemed

 

(1,524,776)

 

(3,629,141)

 

 

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

$

(604,484)

$

(2,176,539)

 

 

 

 

 

 

 

TOTAL INCREASE (DECREASE) IN NET ASSETS

$

(68,642)

$

(2,361,472)

NET ASSETS, BEGINNING OF PERIOD

 

28,380,837

 

30,742,309

NET ASSETS, END OF PERIOD

$

28,312,195

$

28,380,837

 

 

 

 

 

 

 

Undistributed Net Investment Income

$

30,833

$

28,868

 

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


Notes to Financial Statements January 31, 2008 (Unaudited)

Note 1: ORGANIZATION

The Fund is an investment portfolio of Integrity Managed Portfolios (the “Trust”) and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”) as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. The Trust 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 tax 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 and includes consideration of the following: yields or prices of municipal bonds of comparable quality; type of issue, coupon, maturity, and rating; 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—In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 24 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. 

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.” FIN 48 establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax-return positions in financial statements. Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended July 31, 2004 through July 31, 2007) for purposes of implementing FIN 48, and has concluded that no provision for income tax is required in the Fund’s financial statements. Interest and penalties related to uncertain tax positions, if any, are classified in the Fund’s financial statements as other expense.

The tax character of distributions paid was as follows:

 

 

 

July 31, 2007

 

July 31, 2006

 

 

Tax-exempt Income

$

1,132,417

$

1,238,147

 

 

Ordinary Income

 

0

 

0

 

 

Long-term Capital Gains

 

0

 

0

 

 

 

Total

$

1,132,417

$

1,238,147

 

As of July 31, 2007, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed Ordinary Income

Undistributed Long-Term Capital Gains

Undistributed Accumulated Earnings

Accumulated Capital and Other Losses

Unrealized Appreciation/ (Depreciation)

Total Accumulated Earnings/(Deficit)

 

 

$0

$0

$0

($3,207,965)

$601,511

($2,606,454)

 

The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2007 totaling $3,207,965, 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

$40,628

 

2009

$158,911

 

2010

$591,993

 

2011

$713,949

 

2012

$579,276

 

2013

$1,123,208

For the year ended July 31, 2007, the Fund did not make any permanent reclassifications to reflect tax character.

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, 2007, the Fund deferred to August 1, 2007, 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 treatments 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, 2008, there were unlimited shares of no par authorized; 2,741,817 and 2,801,059 shares were outstanding at January 31, 2008 and July 31, 2007, respectively.

Transactions in capital shares were as follows:

 

Shares

 

For The Six Months Ended January 31, 2008 (Unaudited)

For The Year Ended July 31, 2007

Shares sold

54,598

68,577

Shares issued on reinvestment of dividends

35,929

73,768

Shares redeemed

(149,769)

(354,984)

Net increase (decrease)

(59,242)

(212,639)

Note 4: INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, Inc. (“Integrity Funds Distributor”), the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”) the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“Integrity Mutual Funds”), 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 $29,810 of investment advisory fees after waivers for the six months ended January 31, 2008. The Fund has a payable to Integrity Money Management of $4,916 at January 31, 2008 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, 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 Integrity Funds Distributor 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, 2008.

Principal Underwriter and Shareholder Services

Integrity Funds Distributor serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan 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 Fund. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $35,522 of distribution fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Funds Distributor of $5,897 at January 31, 2008 for distribution fees.

Integrity Fund Services provides transfer agent 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 of $500 per month is charged for each additional share class. The Fund has recognized $28,417 of transfer agency fees and expenses for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $4,718 at January 31, 2008 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 $19,104 of accounting service fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $3,179 at January 31, 2008 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 fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $17,761 of administrative service fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $2,949 at January 31, 2008 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 $394,443 and $1,863,000, respectively, for the six months ended January 31, 2008.

Note 6: INVESTMENT IN SECURITIES

At January 31, 2008, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $26,957,653. The net unrealized appreciation of investments based on the cost was $1,100,308, which is comprised of $1,119,361 aggregate gross unrealized appreciation and $19,053 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, 2008

Selected per share data and ratios for the period indicated.

 

 

For The Six Months Ended January 31, 2008 (Unaudited)

 

For The Year Ended July 31, 2007

 

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

NET ASSET VALUE, BEGINNING OF PERIOD

$

10.13

$

10.20

$

10.11

$

10.55

$

10.62

 

11.17

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Investment Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

$

.19

$

.39

$

.40

$

.42

$

.45

$

.47

 

Net realized and unrealized gain (loss) on investment transactions

 

.20

 

(.07)

 

.09

 

(.44)

 

(.07)

 

(.55)

 

 

Total Income (Loss) From Investment Operations

$

.39

$

.32

$

.49

$

(.02)

$

.38

$

(.08)

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from net investment income

$

(.19)

$

(.39)

$

(.40)

$

(.42)

$

(.45)

$

(.47)

 

Distributions from net realized gains

 

.00

 

.00

 

.00

 

.00

 

.00

 

.00

 

 

Total Distributions

$

(.19)

$

(.39)

$

(.40)

$

(.42)

$

(.45)

$

(.47)

 

 

 

 

 

 

 

 

 

 

 

 

 

NET ASSET VALUE, END OF PERIOD

$

10.33

$

10.13

$

10.20

$

10.11

$

10.55

$

10.62

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return

 

7.82%A,C

 

3.16%A

 

4.90%A

 

(0.18%)A

 

3.59%A

 

(0.81%)A

 

 

 

 

 

 

 

 

 

 

 

 

 

RATIOS/SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets, end of period (in thousands)

$

28,312

$

28,381

$

30,742

$

32,488

$

34,682

$

36,718

 

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

 

1.07%B,C

 

1.07%B

 

1.03%B

 

0.98%B

 

0.95%B

 

0.92%B

 

Ratio of net investment income to average net assets

 

3.77%C

 

3.81%

 

3.89%

 

4.07%

 

4.18%

 

4.24%

 

Portfolio turnover rate

 

1.43%

 

17.42%

 

14.63%

 

4.36%

 

8.95%

 

9.48%

A Excludes maximum sales charge of 4.25%.

B During the periods indicated above, Integrity Money Management assumed and/or waived expenses of $41,234, $81,123, $66,312, $84,449, $93,640, and $62,679, respectively. If the expenses had not been assumed and/or waived, the annualized ratio of total expenses to average net assets would have been 1.36%, 1.34%, 1.24%, 1.22%, 1.21%, 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 Shareholders:

Enclosed is the semi-annual report of the New Hampshire Municipal Fund (the “Fund”) for the period ended January 31, 2008. The Fund’s portfolio and related financial statements are presented within for your review.

As we enter the New Year, financial markets remain under considerable stress and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in the labor markets. The housing downturn and sub prime credit crunch ravaged the financial service and home building industries. To help accelerate economic growth the Federal Reserve has lowered interest rates 225 basis points since September 2007, with 125 basis points of that from the period between January 22nd through January 30th, and central banks have aggressively injected liquidity into the global financial system. All this was designed to jump start global credit markets that seized up as a result of the sub prime meltdown.

Despite the woes of the financial and housing meltdown, a number of events remained positive for the period.

Even though we have experienced several years of high energy prices and this year’s housing debacle, consumer spending has held up with unemployment near 5%. That, along with a proactive Federal Reserve and a reasonably strong global economy, should help slowdown the depth of the slowing economy.

The bond market continues to worry about the sub prime mortgage sector, the financial banking system, secondary credit insurers and inflationary concerns. The benchmark 10-year treasury began 2007 at 4.80%, rose to 5.30% in mid June over inflationary concerns and ended the period at 3.64% after many banks and financial firms reported massive write downs of assets associated with sub prime lending.

On the municipal side of the markets, several AAA-rated municipal bond insurers are under review by all of the nationally recognized credit rating agencies. The agencies are trying to determine whether the municipal bond insurers deserve to maintain their AAA-credit rating despite recent losses in the mortgage related problems. While much has been written, we believe the long-term impact on the Fund should be minimal for several reasons.

The bonds owned by the Fund that are insured by these firms tend to be of very high quality. Insurance companies tend to insure municipal bonds that are mostly in the “A” category and above. Secondly, if an insured bond defaults, the insurance company is only liable for the interest and principal payments as they come due. They are not required to pay off the entire bond issue.

While we believe there could be some volatility in the price of insured municipal bonds while the current credit crunch runs its course, we encourage investors to take a long-term view and keep in mind the advantages of owning high quality municipal bonds and focus on the tax-free income they provide. In fact, the recent market concerns have made high quality municipal yields equal to, or in some cases, higher than U.S. Treasuries of similar maturity. This presents a very attractive buying opportunity for the Fund.

The New Hampshire Municipal Fund began the period at $10.24 and ended the period at $10.49 for a total return of 3.98%*. This compares to the Lehman Brothers Municipal Bond Index’s return of 3.72%. The Fund’s overall performance can be attributed to its defensive portfolio, with an average maturity of 8.2 years and an average maturity to the first call date of 3.9 years. That, along with an average portfolio coupon of 4.89% helps relative performance in volatile environments.

An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, federally tax-exempt issues. Some purchases throughout the year were: Merrimack County General Obligation, 4.25% coupon, due 2019 and Manchester Water Revenue, 5.00% coupon, due 2028.

Portfolio quality for the period was as follows: AAA 67.5%, AA 22.2%, and A 10.3%.

Income exempt from federal income taxes and New Hampshire state interest and dividend taxes with preservation of capital remains the primary objective 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

Senior Portfolio Manager  

The views expressed are those of Monte Avery, Senior Portfolio Manager with Integrity Money Management, Inc. 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, the markets generally, or any Integrity Mutual Fund.

*Performance does not include applicable front-end or contingent deferred sales charges (“CDSCs”), 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, 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, 2008 (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. The information is also available from the Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) database on the website of the Securities and Exchange Commission (“SEC”) at www.sec.gov.

QUARTERLY PORTFOLIO SCHEDULE

Within 60 days of the end of its second and fourth fiscal quarters, the Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports on the Form N-CSR(S). These reports are filed electronically with the SEC and are delivered to the shareholders of the Fund. 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. 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, 2008 (Unaudited)

Appreciation: Increase in the value of an asset

Average Annual Total Return: A standardized measurement of the return (yield and appreciation) earned by a fund on an annual basis assuming all distributions are reinvested

Coupon Rate or Face Rate: Rate of interest payable annually based on the face amount of the bond; expressed as a percentage

Depreciation: Decrease in the 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 marketplace

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: The value of all of a 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 creditworthiness; “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 a fund’s portfolio for the period, assuming the reinvestment of all dividends; represents the aggregate percentage or dollar value change over the period


January 31, 2008 (Unaudited)

COMPOSITION

PORTFOLIO QUALITY RATINGS

(Based on total long-term investments)

 

AAA

67.5%

 

AA

22.2%

 

A

10.3%

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

These percentages are subject to change.

PORTFOLIO MARKET SECTORS

(As a percentage of net assets)

 

T-Transportation

33.3%

 

O-Other

19.0%

 

GO-General Obligation

13.9%

 

H-Health

11.8%

 

S-School

11.1%

 

I-Industrial

 8.3%

 

WS-Water/Sewer

 2.6%

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

These percentages are subject to change.


January 31, 2008 (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:

 

•

Transaction costs including sales charges (loads), redemption fees, and exchange fees

 

•

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, 2007 to January 31, 2008.

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 account value of $8,600 divided by $1,000 equals 8.6), then multiply the result by the number 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
07/31/07

Ending Account Value
01/31/08

Expenses Paid During Period*

Actual

$1,000.00

$1,039.76

$5.46

 

 

 

 

 

Hypothetical (5% return before expenses)

$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 3.98% for the six-month period of July 31, 2007 to January 31, 2008.


January 31, 2008 (Unaudited)

AVERAGE ANNUAL TOTAL RETURNS

 

For periods ending January 31, 2008

New Hampshire Municipal Fund

1 year

3 year

5 year

10 year

Since Inception
(December 31, 1992)

 

Without sales charge

5.15%

3.41%

2.70%

3.65%

4.60%

 

With sales charge (4.25%)

0.64%

1.93%

1.82%

3.20%

4.30%

 

 

 

 

 

 

 

Lehman Brothers Municipal Bond Index

1 year

3 year

5 year

10 year

Since Inception
(December 31, 1992)

 

 

4.94%

4.02%

4.62%

5.20%

5.95%

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, 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 another investment adviser managed the Fund, who used different investment strategies and techniques, which may have produced 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, 2008 (Unaudited)

COMPARATIVE INDEX GRAPH

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

 

Fund without sales charge

Fund with maximum sales charge

Lehman Brothers Municipal Bond Index

7/31/1997

$10,000

$9,578

$10,000

1998

$10,529

$10,086

$10,599

1999

$10,811

$10,355

$10,904

2000

$11,194

$10,722

$11,374

2001

$12,017

$11,511

$12,522

2002

$12,644

$12,111

$13,362

2003

$12,940

$12,395

$13,842

2004

$13,553

$12,982

$14,643

2005

$13,309

$12,748

$15,575

2006

$13,808

$13,226

$15,973

2007

$14,226

$13,626

$16,654

1/31/2008

$14,791

$14,168

$17,274

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, 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 the Fund’s performance to a benchmark index provides you with a general sense of how the Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers Municipal Bond Index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in New Hampshire municipal bonds. The 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. If the could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.


January 31, 2008 (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 the three funds in the Integrity family of funds, the six series of Integrity Managed Portfolios and the six series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “Independent” Trustees. 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

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Jerry M. Stai
2405 11th Ave. NW
Minot, ND 58703
55

Trustee

Indefinite

Since January 2006

15

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).

Marycrest Franciscan Development, Inc.

Orlin W. Backes
948 13th Ave. SW
Minot, ND 58701
72

Trustee

Indefinite

Since January 1996

15

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.

First Western Bank & Trust

R. James Maxson
1 N. Main St.
Minot, ND 58701
60

Trustee

Indefinite

Since January 1999

15

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

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 six 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.


The Interested Trustees and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.

INTERESTED TRUSTEE

NAME, ADDRESS AND AGE

POSITION(S) HELD WITH REGISTRANT

TERM AND LENGTH SERVED

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Robert E. Walstad2,3
1 N. Main St.
Minot, ND 58703
63

Trustee and Chairman

Indefinite

Since January 1996

15

Director (Sept. 1987 to Feb. 2007), President (Sept. 2002 to April 2003), CEO (Sept. 2001 to Feb. 2007), Integrity Mutual Funds, Inc.; Director, President and Treasurer, (Aug. 1988 to Feb. 2007), Integrity Money Management, Inc.; Director, President and Treasurer (Aug. 1988 to Sept. 2004), ND Capital, Inc.; Director, President and Treasurer (May 1989 to Feb. 2007), Integrity Fund Services, Inc.; Director, President, CEO, and Treasurer, (Jan. 1996 to Aug. 2003), Integrity Funds Distributor, Inc.; Director (Oct. 1999 to June 2003) Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (Oct. 2002 to June 2003), ARM Securities Corporation; Director, CEO, Chairman, (Jan. 2002 to Feb. 2007) and President (Sept. 2002 to Dec. 2004), Capital Financial Services, Inc.; Director and President, (April 1994 to June 2004) South Dakota Tax-Free Fund, Inc., (Sept. 1998 to June 2003) Integrity Small-Cap Fund of Funds Inc.; President (Jan. 1996 to July 2007) Integrity Managed Portfolios, (May 2003 to July 2007) The Integrity Funds, (Jan. 1995 to July 2007) Integrity Fund of Funds, Inc., (Jan. 1989 to July 2007) ND Tax-Free Fund, Inc., (Aug. 1993 to July 2007) Montana Tax-Free Fund, Inc.; Director and Chairman (since Jan. 1995) Integrity Fund of Funds, Inc., (since Jan. 1989) ND Tax-Free Fund, Inc., and (since Aug. 1993) Montana Tax-Free Fund, Inc.; Trustee, Chairman, (since January 1996) and Treasurer (January 1996 to May 2004), Integrity Managed Portfolios; Trustee and Chairman (since May 2003), The Integrity Funds.

Minot Park Board

OFFICERS

NAME, ADDRESS AND AGE

POSITION(S) HELD WITH REGISTRANT

TERM AND LENGTH SERVED

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Mark R.Anderson3
1 N. Main St.
Minot, ND 58703
43

President

Indefinite

Since July 2007

N/A

Personal Trust Officer (May 1999 to April 2003) Wells Fargo Bank; President (since April 2003), COO (April 2003 to Feb. 2007), Director and CEO (since Feb. 2007) Integrity Mutual Funds, Inc.; President and Director (since Feb. 2007) Integrity Money Management, Inc., and Integrity Fund Services, Inc.; President and Director (since August 2003) Integrity Funds Distributor, Inc.; President (since July 2007) Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc., Integrity Managed Portfolios and The Integrity Funds; President and Treasurer (since July 2005) BAC Properties, LLC.

None

Peter A. Quist2
1 N. Main St.
Minot, ND 58703
72

Vice President, Secretary

Indefinite

Since January 1996

3

Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, ND Capital, Inc. (August 1988 to August 2006), Integrity Fund Services, Inc., and Integrity Funds Distributor, Inc.; Director, ARM Securities Corporation (May 2000 to June 2003); Director, 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., and ND Tax Free Fund, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003).

None

Laura K. Anderson
1 N. Main St.
Minot, ND 58703
33

Treasurer

Indefinite

Since October 2005

N/A

Fund Accountant (Jan. 1999 to May 2004), Fund Accounting Supervisor (May 2004 to October 2005), Fund Accounting Manager (since October 2005), Manager of Mutual Fund Operations (since October 2006), 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.

None

Brent M. Wheeler
1 N. Main St.
Minot, ND 58703
37

Mutual Fund Chief Compliance Officer

Indefinite

Since October 2005

N/A

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.

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 six series of The Integrity Funds.

2Trustees and/or officers who are “interested persons” of the Funds as defined in the Investment Company Act of 1940. Messr. Quist is an interested person by virtue of being an officer and Director of the Fund’s Investment Adviser and Principal Underwriter. Messr. Walstad is an interested person by virtue of being an officer of the Funds and a shareholder of Integrity Mutual Funds, Inc. As indicated above, effective February 1, 2007, Mr. Walstad retired from his roles as, among other things, Director and CEO of Integrity Mutual Funds, Inc., and Director, President and Treasurer of Integrity Money Management. However, a member of his immediate family is a director of Integrity Mutual Funds, Inc.

3At a Fund Board meeting held on July 26, 2007, Interested Director/Trustee, Chairman and Officer Robert E. Walstad resigned as President of the Funds. Subsequently, the Board nominated and appointed Mark R. Anderson as President of the Funds, effective July 26, 2007. Mr. Walstad will remain as Director/Trustee and Chairman of the 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, 2008 (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 26, 2007, 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 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 fifteen 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. As of August 31, 2007, the Fund performance for the 1-year period was below its index but above the median for its peer group, its 3-year, 5-year and 10-year performance was below both its index and the median for its peer group. The Fund has positive returns for the YTD, 1-year, 5-year, 10-year and since inception periods as of August 31, 2007. 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 a small 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% was comparable to the average expense ratio of other funds of similar objective and size but slightly higher than the median of other funds of similar objective and size. The median expense ratio for state municipal bond funds is reported to be 0.97% for the year 2006 according to the Investment Company Institute.

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 an employee stock option 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 Manager generally does not trade securities in his own personal account, the Fund 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 Fund 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, 2008 (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 (84.3%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

#Belknap Cty., NH G.O.  MBIA

Aaa/AAA

5.200%

06/15/2013

$

225,000

$

228,827

Colebrook, NH School District  MBIA

Aaa/NR

4.000

07/15/2008

 

60,000

 

60,560

Concord, NH G.O.

Aa/AA

4.600

10/15/2014

 

100,000

 

107,452

*Derry, NH  FSA

Aaa/NR

4.800

02/01/2018

 

115,000

 

123,896

Exeter, NH G.O.

A-1/NR

5.300

06/15/2008

 

25,000

 

25,298

Gorham, NH G.O.  FSA

Aaa/NR

4.850

04/01/2014

 

65,000

 

67,697

#Hampton, NH G.O.  XLCA

Aaa/NR

4.000

12/15/2020

 

200,000

 

205,114

Hillsborough, NH G.O.  XLCA

Aaa/AAA

4.000

11/01/2020

 

100,000

 

101,426

Hillsborough, NH G.O.  XLCA

Aaa/AAA

4.000

11/01/2021

 

100,000

 

97,995

Hudson, NH G.O.

Aa-3/NR

5.250

03/15/2028

 

110,000

 

111,586

Hudson, NH School District Lot B

Aa-3/NR

7.300

12/15/2008

 

20,000

 

20,920

#Manchester, NH Airport Rev.  MBIA

Aaa/AAA

5.000

01/01/2009

 

225,000

 

228,195

*Manchester, NH School Facs. Rev.  MBIA

Aaa/AAA

5.250

06/01/2009

 

250,000

 

260,830

Manchester, NH Water Rev.  FGIC

Aaa/AAA

5.000

12/01/2028

 

100,000

 

104,955

Merrimack Cty., NH G.O.  FSA

NR/AAA

4.250

12/01/2019

 

100,000

 

105,011

Merrimack Cty., NH G.O.  FSA

NR/AAA

4.500

12/01/2027

 

100,000

 

102,889

Nashua, NH G.O.

Aa/AA+

5.250

09/15/2017

 

100,000

 

108,655

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

A/A+

5.100

10/01/2010

 

100,000

 

105,645

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

A/A+

5.200

10/01/2011

 

60,000

 

63,818

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

A/A+

5.500

10/01/2015

 

120,000

 

128,939

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

A/A+

5.625

10/01/2016

 

20,000

 

21,661

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

Aaa/AAA

5.500

07/01/2013

 

40,000

 

44,071

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

Aaa/AAA

5.500

07/01/2013

 

95,000

 

104,440

*New Hampshire State Capital Improvement G.O.

Aa/AA

5.000

04/15/2013

 

250,000

 

274,083

New Hampshire State Hsg. Finance Auth.

Aa/NR

6.000

07/01/2008

 

25,000

 

25,250

Oyster River, NH Coop School District Lot A

Aa/NR

5.850

06/15/2008

 

100,000

 

100,338

Portsmouth, NH G.O.  MBIA

Aaa/AAA

4.000

08/01/2019

 

100,000

 

103,471

*Rochester, NH G.O.  MBIA

Aaa/NR

4.750

07/15/2020

 

300,000

 

324,807

 

 

 

 

 

 

 

 

TOTAL NEW HAMPSHIRE MUNICIPAL BONDS

 

 

$

3,357,829

 

 

 

 

 

 

 

 

GUAM MUNICIPAL BONDS (0.3%)

 

 

 

 

 

 

 

Guam Hsg. Corp. Single Family Mtg.

NR/AAA

5.750

09/01/2031

 

10,000

$

10,538

 

 

 

 

 

 

 

 

TOTAL MUNICIPAL BONDS (COST: $3,287,995)

 

 

$

3,368,367

 

 

 

 

 

 

 

 

SHORT-TERM SECURITIES (13.9%)

 

 

 

 

Shares

 

 

Wells Fargo Advantage National Tax-Free Money Market (Cost: $552,765)

 

552,765

$

552,765

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS IN SECURITIES (COST: $3,840,760)

 

 

$

3,921,132

OTHER ASSETS MINUS LIABILITIES

 

 

 

59,965

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

$

3,981,097

 

 

 

 

 

 

 

 

*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.

 

 

 

 

 

Footnote: Non-rated (NR) securities have been determined to be of investment grade quality by the Fund's Manager.

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


Financial Statements January 31, 2008

Statement of Assets and Liabilities January 31, 2008 (Unaudited)

ASSETS

 

 

 

Investments in securities, at value (cost: $3,840,760)

$

3,921,132

 

Receivable for fund shares sold

 

41,000

 

Accrued interest receivable

 

37,461

 

Accrued dividends receivable

 

1,173

 

Receivable from manager

 

5,068

 

Prepaid expenses

 

220

 

 

Total Assets

$

4,006,054

 

 

 

 

 

LIABILITIES

 

 

 

Dividends payable

$

9,260

 

Accrued expenses

 

6,895

 

Payable to affiliates

 

8,802

 

 

Total Liabilities

$

24,957

 

 

 

 

 

NET ASSETS

$

3,981,097

 

 

 

 

 

Net assets are represented by:

 

 

 

Paid-in capital

$

4,046,891

 

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

 

(148,063)

 

Accumulated undistributed net investment income (loss)

 

1,897

 

Unrealized appreciation (depreciation) on investments

 

80,372

 

 

Total amount representing net assets applicable to 379,443 outstanding shares of no par common stock (unlimited shares authorized)

$

3,981,097

 

 

 

 

 

Net asset value per share

$

10.49

 

 

 

 

 

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

$

10.96

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


Financial Statements January 31, 2008

Statement of Operations For the six months ended January 31, 2008 (Unaudited)

INVESTMENT INCOME

 

 

 

Interest

$

76,199

 

Dividends

 

4,747

 

 

Total Investment Income

$

80,946

 

 

 

 

 

EXPENSES

 

 

 

Investment advisory fees

$

9,977

 

Distribution (12b-1) fees

 

4,987

 

Administrative service fees

 

12,000

 

Transfer agent fees

 

12,000

 

Accounting service fees

 

12,997

 

Custodian fees

 

873

 

Transfer agent out-of-pockets

 

139

 

Professional fees

 

2,687

 

Trustees fees

 

864

 

Insurance expense

 

79

 

Reports to shareholders

 

702

 

Audit fees

 

3,293

 

Legal fees

 

401

 

License, fees, and registrations

 

580

 

 

Total Expenses

$

61,579

 

Less expenses waived or absorbed by the Fund’s manager

 

(40,237)

 

 

Total Net Expenses

$

21,342

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

$

59,604

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

 

 

 

Net realized gain (loss) from investment transactions

$

(529)

 

Net change in unrealized appreciation (depreciation) of investments

 

95,122

 

 

Net Realized and Unrealized Gain (Loss) on Investments

$

94,593

 

 

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$

154,197

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


Financial Statements January 31, 2008

Statement of Changes in Net Assets

For the six months ended January 31, 2008 and the year ended July 31, 2007

 

 

 

For The Six Months Ended January 31, 2008 (Unaudited)

For The Year Ended July 31, 2007

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

 

 

 

 

 

Net investment income (loss)

$

59,604

$

148,624

 

Net realized gain (loss) on investment transactions

 

(529)

 

6,631

 

Net change in unrealized appreciation (depreciation) on investments

 

95,122

 

(792)

 

 

Net Increase (Decrease) in Net Assets Resulting From Operations

$

154,197

$

154,463

 

 

 

 

 

 

 

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS

 

 

 

 

 

Dividends from net investment income ($.15 and $.32 per share, respectively)

$

(59,482)

$

(148,272)

 

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

 

0

 

0

 

 

Total Dividends and Distributions

$

(59,482)

$

(148,272)

 

 

 

 

 

 

 

CAPITAL SHARE TRANSACTIONS

 

 

 

 

 

Proceeds from sale of shares

$

48,829

$

24,360

 

Proceeds from reinvested dividends

 

29,835

 

77,717

 

Cost of shares redeemed

 

(380,748)

 

(1,236,445)

 

 

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

$

(302,084)

$

(1,134,368)

 

 

 

 

 

 

 
TOTAL INCREASE (DECREASE) IN NET ASSETS

$

(207,369)

$

(1,128,177)

NET ASSETS, BEGINNING OF PERIOD

 

4,188,466

 

5,316,643

NET ASSETS, END OF PERIOD

$

3,981,097

$

4,188,466

 

 

 

 

 

 

 

Undistributed Net Investment Income

$

1,897

$

1,776

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


Notes to Financial Statements January 31, 2008 (Unaudited)

Note 1: ORGANIZATION

The Fund is an investment portfolio of Integrity Managed Portfolios (the “Trust”) and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”) as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. The Trust 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 Fund became a series of the Trust. Prior to this date, 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 1940 Act.

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 and includes consideration of the following: yields or prices of municipal bonds of comparable quality; type of issue, coupon, maturity, and rating; 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—In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 24 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. 

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.” FIN 48 establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax-return positions in financial statements. Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended July 31, 2004 through July, 2007) for purposes of implementing FIN 48, and has concluded that no provision for income tax is required in the Fund’s financial statements. Interest and penalties related to uncertain tax positions, if any, are classified in the Fund’s financial statements as other expense.

The tax character of distributions paid was as follows:

 

 

 

July 31, 2007

 

July 31, 2006

 

 

Tax-exempt Income

$

148,272

$

184,875

 

 

Ordinary Income

 

0

 

0

 

 

Long-term Capital Gains

 

0

 

0

 

 

 

Total

$

148,272

$

184,875

 

As of July 31, 2007, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed Ordinary Income

Undistributed Long-Term Capital Gains

Undistributed Accumulated Earnings

Accumulated Capital and Other Losses

Unrealized Appreciation/ (Depreciation)

Total Accumulated Earnings/(Deficit)

 

 

$0

$0

$0

($147,534)

($12,974)

($160,508)

 

The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2007 totaling $147,534, 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

$147,534

For the year ended July 31, 2007, the Fund did not make any permanent reclassifications to reflect tax character.

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, 2007, the Fund deferred to August 1, 2007, 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 treatments 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, 2008, there were unlimited shares of no par authorized; 379,443 and 408,879 shares were outstanding at January 31, 2008 and July 31, 2007, respectively.

Transactions in capital shares were as follows:

 

Shares

 

For The Six Months Ended January 31, 2008 (Unaudited)

For The Year Ended July 31, 2007

Shares sold

4,682

2,358

Shares issued on reinvestment of dividends

2,894

7,535

Shares redeemed

(37,012)

(119,810)

Net increase (decrease)

(29,436)

(109,917)

Note 4: INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, Inc. (“Integrity Funds Distributor”), the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”) the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“Integrity Mutual Funds”), 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 $0 of investment advisory fees after waivers for the six months ended January 31, 2008. The Fund has a payable to Integrity Money Management of $0 at January 31, 2008 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, 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 actual total annual operating expenses were 1.07% for the six months ended January 31, 2008.

Principal Underwriter and Shareholder Services

Integrity Funds Distributor serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan 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 Fund. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $4,987 of distribution fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Funds Distributor of $822 at January 31, 2008 for distribution fees.

Integrity Fund Services provides transfer agent 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 of $500 per month is charged for each additional share class. The Fund has recognized $12,000 of transfer agency fees and expenses for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $2,000 at January 31, 2008 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 $12,997 of accounting service fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $2,165 at January 31, 2008 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 fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $12,000 of administrative service fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $2,000 at January 31, 2008 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 $102,973 and $619,406, respectively, for the six months ended January 31, 2008.

Note 6: INVESTMENT IN SECURITIES

At January 31, 2008, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $3,840,760. The net unrealized appreciation of investments based on the cost was $80,372, which is comprised of $82,744 aggregate gross unrealized appreciation and $2,372 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, 2008

Selected per share data and ratios for the period indicated.

 

 

For The Six Months Ended January 31, 2008 (Unaudited)

 

For The Year Ended July 31, 2007

 

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

NET ASSET VALUE, BEGINNING OF PERIOD

$

10.24

$

10.25

$

10.20

$

10.82

$

10.73

$

10.88

$

10.65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Investment Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

$

.15

$

.32

$

.33

$

.33

$

.11

$

.37

$

.40

 

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

 

.25

 

(.01)

 

.05

 

(.52)

 

.09

 

(.15)

 

.30

 

 

Total Income (Loss) From Investment Operations

$

.40

$

.31

$

.38

$

(.19)

$

.20

$

.22

$

.70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from net investment income

$

(.15)

$

(.32)

$

(.33)

$

(.33)

$

(.11)

$

(.37)

$

(.40)

 

Distributions from net capital gains

 

.00

 

.00

 

.00

 

(.10)

 

.00

 

.00

 

(.07)

 

 

Total Distributions

$

(.15)

$

(.32)

$

(.33)

$

(.43)

$

(.11)

$

(.37)

$

(.47)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET ASSET VALUE, END OF PERIOD

$

10.49

$

10.24

$

10.25

$

10.20

$

10.82

$

10.73

$

10.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return

 

7.95%A,C

 

3.02%A

 

3.76%A

 

(1.81%)A

 

5.69%A,C

 

2.06%A

 

6.65%A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RATIOS/SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets, end of period (in thousands)

$

3,981

$

4,188

$

5,317

$

6,363

$

7,962

$

8,175

$

10,198

 

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

 

1.07%B,C

 

1.07%B

 

1.03%B

 

0.98%B

 

0.95%B,C

 

0.95%B

 

0.95%B

 

Ratio of net investment income to average net assets

 

2.98%C

 

3.08%

 

3.19%

 

3.14%

 

3.12%C

 

3.44%

 

3.71%

 

Portfolio turnover rate

 

2.80%

 

11.83%

 

8.10%

 

17.94%

 

10.02%

 

41.53%

 

20.00%

A Excludes maximum sales charge of 4.25%.

B During the periods indicated above, Integrity Money Management assumed and/or waived expenses of $40,237, $79,544, $69,311, $64,102, and $23,856. If the expenses had not been assumed and/or waived, the annualized ratio of total expenses to average net assets would have been 3.09%, 2.72%, 2.22%, 1.80%, and 1.84%. For the period 4/1/2003 through 12/19/2003, Forum Administrative Services assumed/waived expenses of $62,210. For the period from 12/20/2003 through 3/31/2004, 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. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets would have been 2.03%.

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 report of the operations for the Oklahoma Municipal Fund (the “Fund”) for the six months ended January 31, 2008. The Fund’s portfolio and related financial statements are presented within for your review.

As we enter the New Year, financial markets remain under considerable stress and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in the labor markets. The housing downturn and sub prime credit crunch ravaged the financial service and home building industries. To help accelerate economic growth the Federal Reserve has lowered interest rates 225 basis points since September 2007, with 125 basis points of that from the period between January 22nd through January 30th, and central banks have aggressively injected liquidity into the global financial system. All this was designed to jump start global credit markets that seized up as a result of the sub prime meltdown.

Despite the woes of the financial and housing meltdown, a number of events remained positive for the period.

Even though we have experienced several years of high energy prices and this year’s housing debacle, consumer spending has held up with unemployment near 5%. That, along with a proactive Federal Reserve and a reasonably strong global economy, should help slowdown the depth of the slowing economy.

The bond market continues to worry about the sub prime mortgage sector, the financial banking system, secondary credit insurers and inflationary concerns. The benchmark 10-year treasury began 2007 at 4.80%, rose to 5.30% in mid June over inflationary concerns and ended the period at 3.64% after many banks and financial firms reported massive write downs of assets associated with sub prime lending.

On the municipal side of the markets, several AAA-rated municipal bond insurers are under review by all of the nationally recognized credit rating agencies. The agencies are trying to determine whether the municipal bond insurers deserve to maintain their AAA-credit rating despite recent losses in the mortgage related problems. While much has been written, we believe the long-term impact on the Fund should be minimal for several reasons.

The bonds owned by the Fund that are insured by these firms tend to be of very high quality. Insurance companies tend to insure municipal bonds that are mostly in the “A” category and above. Secondly, if an insured bond defaults, the insurance company is only liable for the interest and principal payments as they come due. They are not required to pay off the entire bond issue.

While we believe there could be some volatility in the price of insured municipal bonds while the current credit crunch runs its course, we encourage investors to take a long-term view and keep in mind the advantages of owning high quality municipal bonds and focus on the tax-free income they provide. In fact, the recent market concerns have made high quality municipal yields equal to, or in some cases, higher than U.S. Treasuries of similar maturity. This presents a very attractive buying opportunity for the Fund.

The Oklahoma Municipal Fund began the period at $11.03 and ended the period at $11.22 for a total return of 3.51%*. This compares to the Lehman Brothers Municipal Bond Index’s return of 3.72%. The Fund’s overall performance can be attributed to its defensive portfolio, with an average maturity of 18 years and an average maturity to the first call date of 6.1 years. That, along with an average portfolio coupon of 5.03% helps relative performance in volatile environments.

An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, double exempt issues. Some purchases throughout the year were: Tulsa Public Facility, 5.25% coupon, due 2036; Oklahoma Housing Finance, 5.05% coupon, due 2023; and Oklahoma City Airport, 5.00% coupon, due 2021.

Portfolio quality for the period was as follows: AAA 79.1%, AA 10.4%, A 0.6%, BBB 3.4% and NR 6.5%.

Income exempt from federal and Oklahoma state income taxes with preservation of capital remains the primary objective 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

Senior Portfolio Manager

The views expressed are those of Monte Avery, Senior Portfolio Manager with Integrity Money Management, Inc. 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, the markets generally, or any Integrity Mutual Fund.

*Performance does not include applicable front-end or contingent deferred sales charges (“CDSCs”), 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 800-276-1262.

You should consider the Fund’s investment objectives, risks, 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, 2008 (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 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. The information is also available from the Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) database on the website of the Securities and Exchange Commission (“SEC”) at www.sec.gov.

QUARTERLY PORTFOLIO SCHEDULE

Within 60 days of the end of its second and fourth fiscal quarters, the Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports on the Form N-CSR(S). These reports are filed electronically with the SEC and are delivered to the shareholders of the Fund. 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. Information on the operation of the Public Reference Room may be obtained by calling 202-942-8090. You may also access this information from Integrity’s website at www.integrityfunds.com.


Terms & Definitions January 31, 2008 (Unaudited)

Appreciation: Increase in the value of an asset

Average Annual Total Return: A standardized measurement of the return (yield and appreciation) earned by a fund on an annual basis assuming all distributions are reinvested

Coupon Rate or Face Rate: Rate of interest payable annually based on the face amount of the bond; expressed as a percentage

Depreciation: Decrease in the 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 marketplace

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: The value of all of a 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 creditworthiness; “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 a fund’s portfolio for the period, assuming the reinvestment of all dividends; represents the aggregate percentage or dollar value change over the period


January 31, 2008 (Unaudited)

COMPOSITION

PORTFOLIO QUALITY RATINGS

(Based on total long-term investments)

 

AAA

79.1%

 

AA

10.4%

 

A

0.6%

 

BBB

3.4%

 

NR

6.5%

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

These percentages are subject to change.

PORTFOLIO MARKET SECTORS

(As a percentage of net assets)

 

S - School

27.2%

 

U - Utilities

21.3%

 

T - Transportation

18.9%

 

O - Other

12.4%

 

HC - Health Care

7.1%

 

WS - Water/Sewer

5.3%

 

H - Housing

4.2%

 

G - Government

3.6%

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

These percentages are subject to change.


January 31, 2008 (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:

 

•

Transaction costs: including sales charges (loads), redemption fees, and exchange fees

 

•

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, 2007 to January 31, 2008.

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 account value of $8,600 divided by $1,000 equals 8.6), then multiply the result by the number 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
07/31/07

Ending Account Value
01/31/08

Expenses Paid During Period*

 

 

 

 

Actual

$1,000.00

$1,035.09

$5.44

 

 

 

 

 

Hypothetical (5% return before expenses)

$1,000.00

$1,019.79

$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 3.51% for the six-month period of July 31, 2007 to January 31, 2008.


January 31, 2008 (Unaudited)

AVERAGE ANNUAL TOTAL RETURNS

 

For periods ending January 31, 2008

Oklahoma Municipal Fund

1 year

3 year

5 year

10 year

Since Inception
(September 25, 1996)

 

Without sales charge

4.49%

3.97%

3.46%

3.74%

4.28%

 

With sales charge (4.25%)

0.08%

2.48%

2.57%

3.29%

3.88%

 

 

 

 

 

 

 

Lehman Brothers Municipal Bond Index

1 year

3 year

5 year

10 year

Since Inception
(September 25, 1996)

 

 

4.94%

4.02%

4.62%

5.20%

5.84%

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 800-276-1262.

You should consider the Fund’s investment objectives, risks, 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, 2008 (Unaudited)

COMPARATIVE INDEX GRAPH

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

 

Oklahoma Municipal Fund without sales charge

Oklahoma Municipal Fund with maximum sales charge

Lehman Brothers Municipal Bond Index

7/31/1997

$10,000

$9,572

$10,000

1998

$10,378

$9,934

$10,599

1999

$10,819

$10,356

$10,904

2000

$10,806

$10,344

$11,374

2001

$11,862

$11,355

$12,522

2002

$12,509

$11,974

$13,362

2003

$12,544

$12,008

$13,842

2004

$13,004

$12,448

$14,643

2005

$13,397

$12,824

$15,575

2006

$13,985

$13,387

$15,973

2007

$14,418

$13,802

$16,654

1/31/2008

$14,924

$14,286

$17,274

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 800-276-1262.

You should consider the Fund’s investment objectives, risks, 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 the Fund’s performance to a benchmark index provides you with a general sense of how the Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers Municipal Bond Index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Oklahoma municipal bonds. The 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. If the could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.


January 31, 2008 (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 the three funds in the Integrity family of funds, the six series of Integrity Managed Portfolios and the six series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “Independent” Trustees. 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

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Jerry M. Stai
2405 11th Ave. NW
Minot, ND 58703
55

Trustee

Indefinite

Since January 2006

15

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).

Marycrest Franciscan Development, Inc.

Orlin W. Backes
948 13th Ave. SW
Minot, ND 58701
72

Trustee

Indefinite

Since January 1996

15

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.

First Western Bank & Trust

R. James Maxson
1 N. Main St.
Minot, ND 58701
60

Trustee

Indefinite

Since January 1999

15

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

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 six 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 800-276-1262.


The Interested Trustees and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.

INTERESTED TRUSTEE

NAME, ADDRESS AND AGE

POSITION(S) HELD WITH REGISTRANT

TERM AND LENGTH SERVED

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Robert E. Walstad2,3
1 N. Main St.
Minot, ND 58703
63

Trustee and Chairman

Indefinite

Since January 1996

15

Director (Sept. 1987 to Feb. 2007), President (Sept. 2002 to April 2003), CEO (Sept. 2001 to Feb. 2007), Integrity Mutual Funds, Inc.; Director, President and Treasurer, (Aug. 1988 to Feb. 2007), Integrity Money Management, Inc.; Director, President and Treasurer (Aug. 1988 to Sept. 2004), ND Capital, Inc.; Director, President and Treasurer (May 1989 to Feb. 2007), Integrity Fund Services, Inc.; Director, President, CEO, and Treasurer, (Jan. 1996 to Aug. 2003), Integrity Funds Distributor, Inc.; Director (Oct. 1999 to June 2003) Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (Oct. 2002 to June 2003), ARM Securities Corporation; Director, CEO, Chairman, (Jan. 2002 to Feb. 2007) and President (Sept. 2002 to Dec. 2004), Capital Financial Services, Inc.; Director and President, (April 1994 to June 2004) South Dakota Tax-Free Fund, Inc., (Sept. 1998 to June 2003) Integrity Small-Cap Fund of Funds Inc.; President (Jan. 1996 to July 2007) Integrity Managed Portfolios, (May 2003 to July 2007) The Integrity Funds, (Jan. 1995 to July 2007) Integrity Fund of Funds, Inc., (Jan. 1989 to July 2007) ND Tax-Free Fund, Inc., (Aug. 1993 to July 2007) Montana Tax-Free Fund, Inc.; Director and Chairman (since Jan. 1995) Integrity Fund of Funds, Inc., (since Jan. 1989) ND Tax-Free Fund, Inc., and (since Aug. 1993) Montana Tax-Free Fund, Inc.; Trustee, Chairman, (since January 1996) and Treasurer (January 1996 to May 2004), Integrity Managed Portfolios; Trustee and Chairman (since May 2003), The Integrity Funds.

Minot Park Board

OFFICERS

NAME, ADDRESS AND AGE

POSITION(S) HELD WITH REGISTRANT

TERM AND LENGTH SERVED

NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS

OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX

Mark R.Anderson3
1 N. Main St.
Minot, ND 58703
43

President

Indefinite

Since July 2007

N/A

Personal Trust Officer (May 1999 to April 2003) Wells Fargo Bank; President (since April 2003), COO (April 2003 to Feb. 2007), Director and CEO (since Feb. 2007) Integrity Mutual Funds, Inc.; President and Director (since Feb. 2007) Integrity Money Management, Inc., and Integrity Fund Services, Inc.; President and Director (since August 2003) Integrity Funds Distributor, Inc.; President (since July 2007) Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc., Integrity Managed Portfolios and The Integrity Funds; President and Treasurer (since July 2005) BAC Properties, LLC.

None

Peter A. Quist2
1 N. Main St.
Minot, ND 58703
72

Vice President, Secretary

Indefinite

Since January 1996

3

Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, ND Capital, Inc. (August 1988 to August 2006), Integrity Fund Services, Inc., and Integrity Funds Distributor, Inc.; Director, ARM Securities Corporation (May 2000 to June 2003); Director, 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., and ND Tax Free Fund, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003).

None

Laura K. Anderson
1 N. Main St.
Minot, ND 58703
33

Treasurer

Indefinite

Since October 2005

N/A

Fund Accountant (Jan. 1999 to May 2004), Fund Accounting Supervisor (May 2004 to October 2005), Fund Accounting Manager (since October 2005), Manager of Mutual Fund Operations (since October 2006), 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.

None

Brent M. Wheeler
1 N. Main St.
Minot, ND 58703
37

Mutual Fund Chief Compliance Officer

Indefinite

Since October 2005

N/A

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.

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 six series of The Integrity Funds.

2Trustees and/or officers who are “interested persons” of the Funds as defined in the Investment Company Act of 1940. Messr. Quist is an interested person by virtue of being an officer and Director of the Fund’s Investment Adviser and Principal Underwriter. Messr. Walstad is an interested person by virtue of being an officer of the Funds and a shareholder of Integrity Mutual Funds, Inc. As indicated above, effective February 1, 2007, Mr. Walstad retired from his roles as, among other things, Director and CEO of Integrity Mutual Funds, Inc., and Director, President and Treasurer of Integrity Money Management. However, a member of his immediate family is a director of Integrity Mutual Funds, Inc.

3At a Fund Board meeting held on July 26, 2007, Interested Director/Trustee, Chairman and Officer Robert E. Walstad resigned as President of the Funds.; Subsequently, the Board nominated and appointed Mark R. Anderson as President of the Funds, effective July 26, 2007. Mr. Walstad will remain as Director/Trustee and Chairman of the 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 800-276-1262.

January 31, 2008 (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 26, 2007, 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 fifteen 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. As of August 31, 2007, the Fund performance for the 1-year and 3-year periods was below its index but at or above the median for its peer group, its five-year and 10-year performance was below both its index and the median for its peer group. The Fund has positive returns for the YTD, 1-year, 5-year, 10-year and since inception periods as of August 31, 2007.  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 a small 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% was comparable to the average expense ratio of other funds of similar objective and size but slightly higher than the median of other funds of similar objective and size. The median expense ratio for state municipal bond funds is reported to be 0.97% for the year 2006 according to the Investment Company Institute.

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 an employee stock option 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 Manager generally does not trade securities in his own personal account, the Fund 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 Fund 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, 2008 (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 (95.8%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alva, OK Hosp. Auth. (Sales Tax Rev) Radian (Xcel)

Aa-3/AA

5.250%

06/01/2025

$

250,000

$

263,547

Claremore, OK Student Hsg. Rev. (Rogers University) ACA

NR/NR

5.750

09/01/2034

 

500,000

 

459,645

Claremore Public Works Auth. Capital Improvement Rev. FSA

Aaa/AAA

5.250

06/01/2027

 

750,000

 

842,520

Cleveland Cty. OK School District # 029

Aa-3/NR

2.750

03/01/2008

 

350,000

 

350,066

Drumright, OK Utility Sys. Rev. Assured Guaranty Ins.

NR/AAA

4.750

02/01/2036

 

950,000

 

996,702

Durant, OK Community Fac. Auth. Sales Tax Rev. XLCA

Aaa/AAA

5.500

11/01/2019

 

500,000

 

558,740

Edmond Economic Dev. Auth., OK Student Housing Rev.

Baa-3/NR

5.375

12/01/2019

 

200,000

 

201,830

#Edmond Economic Dev. Auth., OK Student Housing Rev.

Baa-3/NR

5.500

12/01/2028

 

865,000

 

869,455

Edmond Public Works Auth.  AMBAC

Aaa/AAA

4.850

01/01/2024

 

155,000

 

165,242

Edmond Public Works Auth.  AMBAC

Aaa/AAA

4.750

07/01/2024

 

250,000

 

265,405

Edmond Public Works Sales Tax & Utility Rev. AMBAC

Aaa/AAA

4.750

07/01/2023

 

200,000

 

212,086

Garfield Cty., Criminal Justice Auth. (Enid, OK) Rev. MBIA

Aaa/NR

4.500

04/01/2018

 

250,000

 

263,947

Glenpool Utility Authority XL Capital

Aaa/AAA

5.000

10/01/2027

 

555,000

 

595,559

*Grand River Dam Auth., OK Rev. AMBAC

Aaa/AAA

6.250

06/01/2011

 

210,000

 

233,671

Grand River Dam Auth., OK Rev. Ref. AMBAC

Aaa/AAA

5.500

06/01/2013

 

700,000

 

783,293

Grand River Dam Auth., OK FSA

Aaa/AAA

5.000

06/01/2012

 

250,000

 

273,030

Jackson Cty., OK Sales Tax Rev. AMBAC

Aaa/AAA

5.000

10/01/2022

 

500,000

 

521,595

Jenks, OK General Obligation FSA

Aaa/AAA

4.200

02/01/2014

 

400,000

 

427,076

Jenks, OK General Obligation FSA

Aaa/AAA

5.000

02/01/2025

 

250,000

 

276,372

Jenks Aquarium Auth. Rev. MBIA

Aaa/AAA

5.250

07/01/2029

 

500,000

 

546,210

Mannford Public Works Auth. 

NR/BBB+

6.000

04/01/2027

 

300,000

 

327,396

Mannford Public Works Auth. 

NR/BBB+

5.900

04/01/2032

 

250,000

 

268,977

McAlester, OK Public Works Auth.  FSA

Aaa/NR

5.100

02/01/2030

 

100,000

 

108,210

McClain Cty., OK Econ. Dev. Auth. Ed. Lease Rev. (Purcell Schools) Assured GTY

Aaa/AAA

4.250

09/01/2020

 

585,000

 

604,837

Midwest City, OK Capital Impvt.  MBIA

Aaa/AAA

5.375

09/01/2024

 

500,000

 

546,050

Norman, OK (Regl. Hospital) Auth.  Asset Guaranty

Aa-3/AA

5.250

09/01/2016

 

180,000

 

192,539

Norman, OK Utilities Auth. Utility Rev. FGIC

Aaa/NR

4.000

11/01/2022

 

265,000

 

256,997

OK Agric. & Mech. Colleges (OK St. Univ.) Athletic Facs. AMBAC

Aaa/NR

5.000

08/01/2024

 

300,000

 

304,230

Oklahoma City, OK MBIA

Aaa/AAA

4.250

03/01/2022

 

110,000

 

112,642

Oklahoma City, OK Unlimited GO

Aa-1/AA+

4.250

03/01/2025

 

500,000

 

484,265

Oklahoma City Airport Trust Jr. Lien Refunding Series B. AMBAC

Aaa/AAA

5.000

07/01/2019

 

250,000

 

278,697

Oklahoma City Airport Trust Jr. Lien Refunding Series B AMBAC

Aaa/AAA

5.000

07/01/2021

 

250,000

 

275,123

Oklahoma City, OK Public Auth. (OKC Fairgrounds Fac.) FGIC

Aaa/AAA

5.500

10/01/2019

 

250,000

 

284,367

Oklahoma City, OK Water Utility Trust (Water & Sewer) Rev. FGIC

Aaa/AAA

5.000

07/01/2029

 

425,000

 

451,435

OK Colleges Board of Regents (NE State Univ. Ctr.) Rev. FSA

Aaa/AAA

5.100

03/01/2016

 

140,000

 

140,218

OK Colleges Board of Regents (NE State Univ. Ctr.) Rev. FSA

Aaa/AAA

5.150

03/01/2021

 

100,000

 

100,142

OK Board of Regents (Univ. of Central OK) AMBAC

Aaa/AAA

5.600

08/01/2020

 

150,000

 

164,230

OK Board of Regents (Univ. of Central OK) AMBAC

Aaa/AAA

5.700

08/01/2025

 

390,000

 

425,938

OK Devl. Finance Auth. (DHS Lease Rev.) Series 2000A MBIA

Aaa/NR

5.600

03/01/2015

 

280,000

 

284,612

OK Devl. Finance Auth. (Lease Rev.) Law Enforcement MBIA

Aaa/AAA

5.100

06/01/2027

 

120,000

 

128,197

OK Devl. Finance Auth. (OK State Syst. Higher Ed.) AMBAC

Aaa/AAA

4.900

12/01/2022

 

200,000

 

213,806

OK Devl. Finance Auth. OK Dept. of Corrections (McLoud Fac.) FGIC

Aaa/AAA

4.600%

04/01/2022

$

250,000

$

261,055

OK Devl. Finance Auth. OK Dept. of Corrections (McLoud Fac.) FGIC

Aaa/AAA

4.650

04/01/2023

 

250,000

 

261,400

OK Devl. Finance Auth. OK State Higher Ed (Master Lease) FSA

Aaa/AAA

4.500

06/01/2026

 

250,000

 

258,767

OK Housing Finance Agency Single Family Homeownership

Aaa/NR

5.250

09/01/2021

 

100,000

 

102,744

*OK Housing Finance Agency Single Family Homeownership GNMA

Aaa/NR

5.375

03/01/2020

 

75,000

 

76,158

OK Housing Finance Agency Single Family Homeownership GNMA/FNMA

Aaa/NR

5.850

09/01/2020

 

45,000

 

46,209

Oklahoma Housing Finance GNMA / FNMA

Aaa/NR

5.050

09/01/2023

 

1,000,000

 

1,014,200

Oklahoma Housing Finance FNMA / GNMA

Aaa/NR

5.150

09/01/2029

 

500,000

 

507,065

Oklahoma Housing Finance GNMA / FNMA

Aaa/NR

5.200

09/01/2032

 

500,000

 

507,050

#OK Devl. Finance Auth. (St. John Health Sys)

Aa-3/AA-

5.000

02/15/2037

 

1,000,000

 

1,032,620

OK Devl. Finance Auth. (St. John Health Syst.) Rev. Ref. - Prerefunded

Aaa/AAA

5.750

02/15/2025

 

375,000

 

393,008

OK Devl. Finance Auth. (St. John Health Syst.) Rev. Ref. - Prerefunded

Aaa/NR

6.000

02/15/2029

 

300,000

 

315,174

OK Devl. Finance Auth. (St. John Health Syst.) Rev. Ref. - Unrefunded

Aa-3/AA-

5.750

02/15/2025

 

125,000

 

131,014

OK Devl. Finance Auth. (St. John Health Syst.) Rev. Ref. - Unrefunded

Aa-3/AA-

6.000

02/15/2029

 

100,000

 

105,067

OK Devl. Finance Auth. (St. John Health Syst.) MBIA

Aaa/AAA

5.750

02/15/2025

 

50,000

 

52,385

OK Devl. Finance Auth. (St. John Health Syst.) MBIA

Aaa/AAA

5.750

02/15/2025

 

150,000

 

156,854

OK Devl. Finance Auth. (Southern Nazarene Univ.) Rev.

NR/NR

5.750

03/01/2013

 

400,000

 

409,348

#OK Devl. Finance Auth. (Southern Nazarene Univ.) Rev.

NR/NR

6.000

03/01/2018

 

600,000

 

614,148

OK Devl. Finance Auth. (St. Ann's Retirement Village) Rev. MBIA

Aaa/NR

5.000

12/01/2028

 

500,000

 

511,505

OK Devl. Finance Auth. (Comanche County Hosp.)

NR/BBB-

5.625

07/01/2009

 

105,000

 

108,891

OK Devl. Finance Auth. (Seminole State College)

NR/AA

5.125

12/01/2027

 

150,000

 

161,397

OK Devl. Finance Auth. (Langston Univ. Stadium)

NR/AA

5.000

07/01/2027

 

250,000

 

269,188

#OK State G.O. (OK Building Commission) FGIC

Aaa/AAA

5.000

07/15/2018

 

1,400,000

 

1,542,926

OK Capital Impvt. Auth. (State Highway) Rev. MBIA

Aaa/AAA

5.000

06/01/2014

 

250,000

 

275,880

OK Capital Impvt. Auth. (Higher Ed. Project) Rev. AMBAC

Aaa/AAA

5.000

07/01/2022

 

500,000

 

548,305

OK Capital Impvt. Auth. (Higher Ed. Project) AMBAC

Aaa/AAA

5.000

07/01/2024

 

250,000

 

270,588

*OK Capital Impvt. Auth. (Higher Ed. Project) Rev. AMBAC

Aaa/AAA

5.000

07/01/2030

 

2,000,000

 

2,132,660

OK Capital Impvt. Auth. (Supreme Court Proj.)  CIFG

Aaa/AAA

4.500

07/01/2024

 

500,000

 

507,680

OK Capital Impvt. Auth. (Supreme Court Proj.)  CIFG

Aaa/AAA

4.500

07/01/2026

 

500,000

 

502,060

OK Capital Impvt. Auth. (OK St. Bureau of Investigation) FSA

Aaa/AAA

4.375

07/01/2022

 

100,000

 

103,666

OK Capital Impvt. Auth. (OK St. Bureau of Investigation) FSA

Aaa/AAA

4.375

07/01/2023

 

100,000

 

103,666

OK Capital Impvt. Auth. (OK St. Bureau of Investigation) FSA

Aaa/AAA

4.500

07/01/2024

 

200,000

 

208,382

OK Devl. Finance Auth. (Integris Baptist Medical Center) AMBAC

Aaa/AAA

5.600

06/01/2020

 

250,000

 

272,348

OK Municipal Power Auth. Rev. MBIA

Aaa/AAA

5.750

01/01/2024

 

2,230,000

 

2,543,315

OK Municipal Power Auth. Power Supply Rev. FGIC

Aaa/AAA

4.250

01/01/2037

 

500,000

 

455,830

*OK Municipal Power Auth. Power Supply Rev. FGIC

Aaa/AAA

4.500

01/01/2047

 

1,350,000

 

1,274,360

OK State Student Loan Auth.  

A/NR

6.350

09/01/2025

 

280,000

 

291,620

*OK State Student Loan Auth. 

Aaa/AAA

5.625

06/01/2031

 

685,000

 

721,456

OK State Student Loan Auth.  MBIA

Aaa/AAA

5.300

12/01/2032

 

450,000

 

470,214

OK State Turnpike Auth.  FGIC

Aaa/AAA

5.000

01/01/2023

 

165,000

 

169,806

OK State Turnpike Auth. Rev. FGIC

Aaa/AAA

5.250

01/01/2028

 

430,000

 

444,538

OK State Turnpike Auth. Rev. FGIC

Aaa/AAA

5.000

01/01/2028

 

120,000

 

123,318

OK State Turnpike Auth. Rev. MBIA-IBC

Aaa/AAA

4.750

01/01/2024

 

140,000

 

143,426

OK Water Resources Board Rev.  AMBAC

Aaa/AAA

4.750

04/01/2024

 

100,000

 

105,911

OK State Water (Loan Program) Rev. 

NR/AAA

5.400

09/01/2015

 

105,000

 

105,673

*OK State Water (Loan Program) Rev. 

NR/AAA

5.100

09/01/2016

 

415,000

 

421,810

OK State Water Resources Board Rev.

NR/AAA

5.050

10/01/2022

 

200,000

 

216,718

OK State Water Resources Board Rev.

NR/AAA

5.125%

10/01/2027

$

500,000

$

540,020

OK State Water Resources Loan Rev.

NR/AAA

5.100

10/01/2027

 

500,000

 

540,385

OK State Water Resources Board Rev.

NR/AAA

4.625

10/01/2018

 

435,000

 

464,389

OK Transportation Auth. Turnpike Sys. Rev. - Prerefunded AMBAC

Aaa/AAA

5.000

01/01/2021

 

10,000

 

10,866

OK Transportation Auth. Turnpike Sys. Rev. - Unrefunded AMBAC

Aaa/AAA

5.000

01/01/2021

 

90,000

 

96,791

#Okmulgee Public Works Auth. Capital Improvement Rev. MBIA

Aaa/AAA

5.125

08/01/2030

 

750,000

 

801,825

Okmulgee Public Works Auth. Capital Improvement Rev. MBIA

Aaa/AAA

4.800

10/01/2027

 

500,000

 

530,465

Rural Enterprises, OK Inc. OK Govt. Fin. (Cleveland Cty. Hlth.) MBIA

Aaa/NR

5.000

11/01/2021

 

250,000

 

268,408

Rural Enterprises, OK Inc. Okmulgee Student Housing Proj. Series A ALA

NR/NR

5.625

12/01/2020

 

140,000

 

141,266

Rural Enterprises, OK Inc. Okmulgee Student Housing Proj. Series A ACA

NR/NR

5.700

12/01/2025

 

220,000

 

210,951

Rural Enterprises, OK Inc. Okmulgee Student Housing Proj. ACA

NR/NR

5.750

12/01/2030

 

250,000

 

230,703

Rural Enterprises, OK Inc. Student Hsg. (Connors College) ACA

NR/NR

5.550

11/01/2021

 

250,000

 

240,610

Rural Enterprises, OK Inc. Student Hsg. (Connors College) ACA

NR/NR

5.650

11/01/2031

 

375,000

 

344,381

Rural Enterprises, OK Inc. USAOF Student Housing ACA

NR/NR

5.550

11/01/2021

 

250,000

 

243,353

Rural Enterprises, OK Inc. USAOF Student Housing ACA

NR/NR

5.650

11/01/2031

 

250,000

 

229,588

Sapulpa Municipal Authority Utility Rev. FSA

Aaa/AAA

5.125

01/01/2032

 

250,000

 

268,583

Texas Cty., OK Dev. Auth. (OPSU Student Hsg.) ACA

NR/NR

5.250

11/01/2023

 

250,000

 

232,180

Tulsa Cty, OK Indl. Auth. Recreation Facs.

NR/AA-

4.700

09/01/2024

 

500,000

 

520,540

Tulsa, OK General Obligation

Aa/AA

4.500

03/01/2023

 

700,000

 

741,391

Tulsa, OK General Obligation

Aa/AA

4.500

03/01/2026

 

1,035,000

 

1,078,863

Tulsa, Oklahoma Unlimited GO MBIA

Aaa/AAA

4.250

03/01/2024

 

500,000

 

507,345

City of Tulsa, OK MBIA

Aaa/AAA

4.250

03/01/2025

 

1,000,000

 

1,008,550

Tulsa Metropolitan Util. Auth. Utility Revs XLCA

Aaa/AAA

4.250

05/01/2026

 

650,000

 

624,975

Tulsa Metropolitan Util. Auth. Utility Revs XLCA

Aaa/AAA

4.500

05/01/2027

 

910,000

 

931,367

Tulsa Oklahoma Public Facs. Auth.  XLCA

Aaa/NR

5.250

11/15/2036

 

1,000,000

 

1,063,430

Tulsa Oklahoma Pub. Facs. Auth.  XLCA

Aaa/NR

4.750

11/15/2037

 

500,000

 

501,405

University of OK Board of Regents (Research Fac.) Rev. AMBAC

Aaa/NR

4.800

03/01/2028

 

670,000

 

699,701

University of OK Board of Regents (Multi Facs.) Rev. MBIA

Aaa/NR

4.750

06/01/2029

 

250,000

 

260,193

OK Board of Regents (Univ. of OK) FGIC

Aaa/AAA

4.125

07/01/2026

 

500,000

 

480,250

University of OK Board of Regents Student Hsg. Rev. FGIC

Aaa/NR

5.000

11/01/2027

 

1,000,000

 

1,058,530

University of OK Student Hsg. (Cameron Univ.) Rev. AMBAC

Aaa/AAA

5.500

07/01/2023

 

250,000

 

282,265

 

 

 

 

 

 

 

 

TOTAL OKLAHOMA MUNICIPAL BONDS (COST: $49,945,072)

 

 

 

$

51,463,871

 

 

 

 

 

 

 

 

SHORT-TERM SECURITIES (3.4%)

 

Shares

 

 

Wells Fargo Advantage National Tax-Free Money Market (COST: $1,817,789)

 

1,817,789

$

1,817,789

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS IN SECURITIES (COST: $51,762,861)

OTHER ASSETS LESS LIABILITIES

 

 

$

53,281,660

 

 

 

436,182

 

 

 

 

 

 

 

 

NET ASSETS

 

 

$

53,717,842

 

 

 

 

 

 

 

 

* 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.

Footnote: Non-rated (NR) securities have been determined to be of investment grade quality by the Fund's Manager.

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


Financial Statements January 31, 2008

Statement of Assets and Liabilities January 31, 2008 (Unaudited)

ASSETS

 

 

 

Investments in securities, at value (cost: $51,762,861)

$

53,281,660

 

Accrued interest receivable

 

654,828

 

Accrued dividends receivable

 

3,295

 

Prepaid expenses

 

1,213

 

 

Total Assets

$

53,940,996

 

 

 

 

 

LIABILITIES

 

 

 

Disbursements in excess of demand deposit cash

$

19,310

 

Dividends payable

 

153,714

 

Payable for fund shares redeemed

 

115

 

Payable to affiliates

 

42,680

 

Accrued expenses

 

7,335

 

 

Total Liabilities

$

223,154

 

 

 

 

 

NET ASSETS

$

53,717,842

 

 

 

 

 

Net assets are represented by:

 

 

 

Paid-in capital

$

54,656,163

 

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

 

(2,464,753)

 

Accumulated undistributed net investment income (loss)

 

7,633

 

Unrealized appreciation (depreciation) on investments

 

1,518,799

 

 

Total amount representing net assets applicable to 4,789,053 outstanding shares of no par common stock (unlimited shares authorized)

$

53,717,842

 

 

 

 

 

Net asset value per share

$

11.22

 

 

 

 

 

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

$

11.72

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


Financial Statements January 31, 2008

Statement of Operations For the six months ended January 31, 2008 (Unaudited)

INVESTMENT INCOME

 

 

 

Interest

$

1,141,594

 

Dividends

 

41,669

 

 

Total Investment Income

$

1,183,263

 

 

 

 

 

EXPENSES

 

 

 

Investment advisory fees

$

129,560

 

Distribution (12b-1) fees

 

64,780

 

Administrative service fees

 

32,111

 

Transfer agent fees

 

51,265

 

Accounting service fees

 

24,844

 

Custodian fees

 

3,195

 

Transfer agent out-of-pockets

 

345

 

Professional fees

 

10,798

 

Trustees fees

 

2,207

 

Insurance expense

 

648

 

Reports to shareholders

 

1,815

 

Audit fees

 

3,382

 

Legal fees

 

5,024

 

License, fees, and registrations

 

1,348

 

 

Total Expenses

$

331,322

 

Less expenses waived or absorbed by the Fund’s manager

 

(54,063)

 

 

Total Net Expenses

$

277,259

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

$

906,004

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

 

 

 

Net realized gain (loss) from investment transactions

$

9

 

Net change in unrealized appreciation (depreciation) of investments

 

889,360

 

 

Net Realized and Unrealized Gain (Loss) on Investments

$

889,369

 

 

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$

1,795,373

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


Financial Statements January 31, 2008

Statement of Changes in Net Assets

For the six months ended January 31, 2008 and the year ended July 31, 2007

 

 

 

For The Six Months Ended January 31, 2008 (Unaudited)

For The Year Ended July 31, 2007

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

 

 

 

 

 

Net investment income (loss)

$

906,004

$

1,645,717

 

Net realized gain (loss) on investment transactions

 

9

 

17,886

 

Net change in unrealized appreciation (depreciation) on investments

 

889,360

 

(348,424)

 

 

Net Increase (Decrease) in Net Assets Resulting From Operations

$

1,795,373

$

1,315,179

 

 

 

 

 

 

 

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS

 

 

 

 

 

Dividends from net investment income ($.19 and $.39 per share, respectively)

$

(902,519)

$

(1,644,054)

 

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

 

0

 

0

 

 

Total Dividends and Distributions

$

(902,519)

$

(1,644,054)

 

 

 

 

 

 

 

CAPITAL SHARE TRANSACTIONS

 

 

 

 

 

Proceeds from sale of shares

$

6,532,644

$

14,210,933

 

Proceeds from reinvested dividends

 

463,744

 

703,589

 

Cost of shares redeemed

 

(2,018,774)

 

(10,301,303)

 

 

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

$

4,977,614

$

4,613,219

 

 

 

 

 

 

 

TOTAL INCREASE (DECREASE) IN NET ASSETS

$

5,870,468

$

4,284,344

NET ASSETS, BEGINNING OF PERIOD

 

47,847,374

 

43,563,030

NET ASSETS, END OF PERIOD

$

53,717,842

$

47,847,374

 

 

 

 

 

 

 

Undistributed Net Investment Income

$

7,633

$

4,148

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


Notes to Financial Statements January 31, 2008 (Unaudited)

Note 1: ORGANIZATION

The Fund is an investment portfolio of Integrity Managed Portfolios (the “Trust”) and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”) as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. The Trust 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 and includes consideration of the following: yields or prices of municipal bonds of comparable quality; type of issue, coupon, maturity, and rating; 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—In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 24 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.

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.” FIN 48 establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax-return positions in financial statements. Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended July 31, 2004 through July 31, 2007) for purposes of implementing FIN 48, and has concluded that no provision for income tax is required in the Fund’s financial statements. Interest and penalties related to uncertain tax positions, if any, are classified in the Fund’s financial statements as other expense.

 

 

 

July 31, 2007

 

July 31, 2006

 

 

Tax-exempt Income

$

1,644,054

$

1,354,904

 

 

Ordinary Income

 

0

 

0

 

 

Long-term Capital Gains

 

0

 

0

 

 

 

Total

$

1,644,054

$

1,354,904

 

As of July 31, 2007, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed Ordinary Income

Undistributed Long-Term Capital Gains

Undistributed Accumulated Earnings

Accumulated Capital and Other Losses

Unrealized Appreciation/ (Depreciation)

Total Accumulated Earnings/(Deficit)

 

 

$0

$0

$0

($2,464,763)

$633,586

($1,831,177)

 

The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2007 totaling $2,464,763, 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

$357,483

 

2011

$412,304

 

2012

$547,833

 

2013

$1,147,143

For the year ended July 31, 2007, the Fund did not make any permanent reclassifications to reflect tax character.

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, 2007, the Fund deferred to August 1, 2007, 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 treatments 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, 2008, there were unlimited shares of no par authorized; 4,789,053 and 4,337,842 shares were outstanding at January 31, 2008 and July 31, 2007, respectively.

Transactions in capital shares were as follows:

 

Shares

 

For The Six Months Ended January 31, 2008 (Unaudited)

For The Year Ended July 31, 2007

Shares sold

591,799

1,272,549

Shares issued on reinvestment of dividends

41,888

63,077

Shares redeemed

(182,476)

(930,317)

Net increase (decrease)

451,211

405,309

Note 4: INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, Inc. (“Integrity Funds Distributor”), the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”) the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“Integrity Mutual Funds”), 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 $75,497 of investment advisory fees after waivers for the six months ended January 31, 2008. The Fund has a payable to Integrity Money Management of $13,005 at January 31, 2008 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, 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 Integrity Funds Distributor 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, 2008.

Principal Underwriter and Shareholder Services

Integrity Funds Distributor serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan 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 Fund. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $64,780 of distribution fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Funds Distributor of $11,140 at January 31, 2008 for distribution fees.

Integrity Fund Services provides transfer agent 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 of $500 per month is charged for each additional share class. The Fund has recognized $51,265 of transfer agency fees and expenses for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $8,767 at January 31, 2008 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 $24,844 of accounting service fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $4,199 at January 31, 2008 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 fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $32,111 of administrative service fees for the six months ended January 31, 2008. The Fund has a payable to Integrity Fund Services of $5,498 at January 31, 2008 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 $4,093,900 and $25,000, respectively, for the six months ended January 31, 2008.

Note 6: INVESTMENT IN SECURITIES

At January 31, 2008, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $51,762,861. The net unrealized appreciation of investments based on the cost was $1,518,799, which is comprised of $1,834,575 aggregate gross unrealized appreciation and $315,776 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, 2008

Selected per share data and ratios for the period indicated.

 

 

For The Six Months Ended January 31, 2008 (Unaudited)

 

For The Year Ended July 31, 2007

 

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 30, 2003

NET ASSET VALUE, BEGINNING OF PERIOD

$

11.03

$

11.08

$

11.00

$

11.07

$

11.09

 

11.54

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Investment Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

$

.19

$

.39

$

.39

$

.40

$

.42

$

.49

 

Net realized and unrealized gain (loss) on investment transactions

 

.19

 

(.05)

 

.08

 

(.07)

 

(.02)

 

(.45)

 

 

Total Income (Loss) From Investment Operations

$

.38

$

.34

$

.47

$

.33

$

.40

$

.04

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from net investment income

$

(.19)

$

(.39)

$

(.39)

$

(.40)

$

(.42)

$

(.49)

 

Distributions from net realized gains

 

.00

 

.00

 

.00

 

.00

 

.00

 

.00

 

 

Total Distributions

$

(.19)

$

(.39)

$

(.39)

$

(.40)

$

(.42)

$

(.49)

 

 

 

 

 

 

 

 

 

 

 

 

 

NET ASSET VALUE, END OF PERIOD

$

11.22

$

11.03

$

11.08

$

11.00

$

11.07

$

11.09

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return

 

7.02%A,C

 

3.10%A

 

4.39%A

 

3.02%A

 

3.67%A

 

0.28%A

 

 

 

 

 

 

 

 

 

 

 

 

 

RATIOS/SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets, end of period (in thousands)

$

53,718

$

47,847

$

43,563

$

34,887

$

35,472

$

31,799

 

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

 

1.07%B,C

 

1.07%B

 

1.03%B

 

0.98%B

 

0.93%B

 

0.65%B

 

Ratio of net investment income to average net assets

 

3.48%C

 

3.50%

 

3.55%

 

3.60%

 

3.77%

 

4.21%

 

Portfolio turnover rate

 

0.05%

 

11.97%

 

4.65%

 

8.69%

 

10.70%

 

9.39%

A Excludes maximum sales charge of 4.25%.

B During the periods indicated above, Integrity Mutual Funds or Integrity Money Management assumed and/or waived expenses of $54,063, $98,960, $60,854, $81,636, $87,525, and $124,432, respectively. If the expenses had not been assumed and/or waived, the annualized ratio of total expenses to average net assets would have been 1.28%, 1.28%, 1.19%, 1.20%, 1.19%, and 1.11%, 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. There were no amendments to the Code 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 of ethics to the principal financial officer and principal executive officer during the period covered by this report.

Item 3—Audit Committee Financial Expert

The information required in 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 Company and Affiliated Purchasers

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: April 3, 2008

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/ Laura K. Anderson

 

Laura K. Anderson

 

Treasurer, Integrity Managed Portfolios

Date: April 3, 2008