UNITED STATES | |||
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FORM N-CSRS | |||
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED | |||
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Investment Company Act file number | 811-06153 | ||
| Integrity Managed Portfolios | ||
| (Exact name of registrant as specified in charter) | ||
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Address of Registrant | 1 Main Street North | ||
| Minot, ND 58703 | ||
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Name and Address of agent for service | Brent Wheeler, Mutual Fund Chief Compliance Officer | ||
| 1 Main Street North | ||
| Minot, ND 58703 | ||
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Registrant’s telephone number, including area code | (701) 852-5292 | ||
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Date of fiscal year end | July 31 | ||
Date of reporting period | January 31, 2007 | ||
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Item 1) | Reports to Stockholders. | ||
Dear Shareholder:
Enclosed is the semi-annual report of the Kansas Municipal Fund (the “Fund”) for the period ended January 31, 2007. The Fund’s portfolio and related financial statements are presented within for your review.
In the last part of 2006 investors pushed back when they thought the Federal Reserve would cut interest rates.
Fed Fund futures expectations of where rates are going now give less than even odds that the Fed will cut its key target rate by a quarter point by September. In November the view was that the Fed would almost certainly cut rates from the current 5.25% once and possibly twice.
The mood has shifted as economic reports suggest the economy is in better shape than investors had thought. One reason investors remain so upbeat is that the economy appears to be catching its footing and inflation looks more subdued.
Federal Reserve chairman Ben Bernanke has said repeatedly he hopes the core inflation rate will continue to moderate, falling back below 2%. But he continues to worry, at least in public, about the risk of more persistent inflation, which would force him to raise rates again.
The bond market right now is worried about a different threat, a recession. That fear helped push the yield on the 10-year Treasury bond to 4.81% at the end of the period, higher than the 4.39% at which it began 2006, but well below the 5.25% it hit in late June 2006.
Long-term government bonds now yield less than short-term bonds. That makes investors nervous because, at times, it has historically been a sign of a coming recession. Lower long-term yields suggest investors expect rates to fall when the economy is weakening.
Some tend to downplay the recession risk. Heavy foreign demand for longer-term U.S. Treasury bonds, together with exceptionally low worldwide inflation rates, have kept U.S. bonds lower than normal.
Low yields hold down other market interest rates such as fixed mortgage rates. They encourage consumers and businesses alike to borrow, spend and invest which supports corporate profits and stock prices.
The Kansas Municipal Fund began the period at $10.62 per share and ended the period at $10.60 per share for a total return of 1.69%*. This compares to the Lehman Brothers Municipal Bond Index return of 3.06% for the period.
The Funds favorable overall performance can be attributed to its defensive portfolio, with an average maturity of 16 years and a low average maturity to the first call date of 4 years. That, along with an average portfolio coupon of 5.39%, helps relative performance in a rising rate environment.
Issues contributing to this defensive portfolio include: Olathe Multifamily Housing, 5.70% coupon, due 11/1/2027; Wichita Multifamily Housing, 5.70% coupon, due 7/1/2022; and Wichita Via Christi Health 6.25% coupon, due 11/15/2024.
An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Portfolio quality for the year was as follows: AAA 74.9%, AA 10.8%, A 12.5% and BBB 1.8%.
Income exempt from federal and Kansas state income taxes with preservation of capital remain the primary objectives of the Fund.
If you would like more frequent updates, visit our website at www.integrityfunds.com for daily prices along with pertinent Fund information.
Sincerely,
Monte Avery
Portfolio Manager
The views expressed are those of Monte Avery, Chief Portfolio Strategist with Integrity Mutual Funds. The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any Integrity Mutual Fund.
*Performance does not include applicable front-end or contingent deferred sales charges, which would have reduced the performance.
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities more so than a municipal bond fund that does not concentrate its securities in a single state.
January 31, 2007 (Unaudited)
PROXY VOTING ON FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-276-1262. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Integrity's website at www.integrityfunds.com. This information is also available from the EDGAR database on the SEC's website at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
The Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports within 60 days of the end of the Fund's second and fourth fiscal quarters on the Form N-CSR(S). The annual and semi-annual reports are filed electronically with the SEC and are delivered to the Fund shareholders. The Fund also files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q and N-CSR(S) are available on the SEC's website at www.sec.gov. The Fund's Forms N-Q and N-CSR(S) may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C., and the information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. You may also access this information from Integrity's website at www.integrityfunds.com.
Terms & Definitions January 31, 2007 (Unaudited)
Appreciation
The increase in value of an asset.
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned by the fund on an annual basis, assuming all distributions are reinvested.
Coupon Rate or Face Rate
The rate of interest payable annually, based on the face amount of the bond; expressed as a percentage.
Depreciation
The decrease in value of an asset.
Lehman Brothers Municipal Bond Index
An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund.
Market Value
The actual (or estimated) price at which a bond trades in the market place.
Maturity
A measure of the term or life of a bond in years. When a bond “matures,” the issuer repays the principal.
Net Asset Value (NAV)
The value of all your fund’s assets, minus any liabilities, divided by the number of outstanding shares, not including any initial sales charge.
Quality Ratings
A designation assigned by independent rating companies to give a relative indication of a bond’s credit worthiness. “AAA,” “AA,” “A,” and “BBB” indicate investment grade securities. Ratings can range from a high of “AAA” to a low of “D”.
Total Return
Measures both the net investment income and any realized and unrealized appreciation or depreciation of the underlying investments in the fund’s portfolio for the period, assuming the reinvestment of all dividends. It represents the aggregate percentage or dollar value change over the period.
January 31, 2007 (Unaudited)
COMPOSITION
PORTFOLIO QUALITY RATINGS
(Based on Total Long-Term Investments)
AAA | 74.9% |
AA | 10.8% |
A | 12.5% |
BBB | 1.8% |
Quality ratings reflect the financial strength of the issuer. They are assigned by independent rating services such as Moody’s Investors Services and Standard & Poor’s. Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. (“Integrity Money Management” or “Adviser”), the Fund’s investment adviser.
These percentages are subject to change.
PORTFOLIO MARKET SECTORS
(As a % of Net Assets)
HC – Health Care | 25.3% |
S – School | 19.3% |
H – Housing | 13.7% |
W – Water/Sewer | 11.0% |
G – Government | 10.3% |
O - Other | 9.2% |
T – Transportation | 6.9% |
U – Utilities | 4.3% |
Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.
These percentages are subject to change.
January 31, 2007 (Unaudited)
DISCLOSURE OF FUND EXPENSES
The Example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the fund, you incur two types of costs: (1) transaction costs, including sales charges (loads), redemption fees and exchange fees; and (2) ongoing costs, including management fees, distribution (12b-1) fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 31, 2006 to January 31, 2007.
The example illustrates the Fund’s costs in two ways:
Actual expenses
The section in the table under the heading “Actual” provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the appropriate column for your share class, in the column entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The section in the table under the heading “Hypothetical (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the section in the table under the heading “Hypothetical (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value 07/31/06 | Ending Account Value 01/31/07 | Expenses Paid During Period* |
Actual |
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Class A | $1,000.00 | $1,016.90 | $5.40 |
Hypothetical (5% return before expenses) |
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Class A | $1,000.00 | $1,019.86 | $5.40 |
* Expenses are equal to the annualized expense ratio of 1.07%, multiplied by the average account value over the period, multiplied by 180/360 days. The Fund’s ending account value on the first line in the table is based on its actual total return 1.69% for the six-month period of July 31, 2006 to January 31, 2007.
January 31, 2007 (Unaudited)
AVERAGE ANNUAL TOTAL RETURNS
| For periods ending January 31, 2007 | ||||
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| Since Inception (November 15, 1990) |
Kansas Municipal Fund | 1 year | 3 year | 5 year | 10 year | |
Without sales charge | 3.34% | 2.27% | 1.47% | 3.01% | 4.59% |
With sales charge (4.25%) | (1.03)% | 0.81% | 0.60% | 2.56% | 4.31% |
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| Since Inception (November 15, 1990) |
Lehman Brothers Municipal Bond Index | 1 year | 3 year | 5 year | 10 year | |
| 4.30% | 4.00% | 5.12% | 5.71% | 6.61% |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemption of Fund shares.
January 31, 2007 (Unaudited)
COMPARATIVE INDEX GRAPH
Comparison of change in value of a $10,000 investment in the Kansas Municipal Fund and the Lehman Brothers Municipal Bond Index
| Kansas Municipal Fund w/o Sales Charge | Kansas Municipal Fund w/ Max Sales Charge | Lehman Brothers Municipal Bond Index |
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7/31/1996 | $10,000 | $9,574 | $10,000 |
1997 | $10,756 | $10,298 | $11,027 |
1998 | $11,052 | $10,581 | $11,687 |
1999 | $11,433 | $10,946 | $12,024 |
2000 | $11,626 | $11,131 | $12,542 |
2001 | $12,571 | $12,036 | $13,808 |
2002 | $13,009 | $12,455 | $14,735 |
2003 | $12,911 | $12,362 | $15,264 |
2004 | $13,132 | $12,573 | $16,147 |
2005 | $13,161 | $12,600 | $17,174 |
2006 | $13,738 | $13,153 | $17,613 |
1/31/2007 | $13,970 | $13,375 | $18,151 |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The graph does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
The graph comparing your Fund’s performance to a benchmark index provides you with a general sense of how your Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Kansas municipal bonds. Your Fund’s total return for the periods shown appears with and without sales charges and includes Fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged; there are no expenses that affect the results. In addition, few investors could purchase all of the securities necessary to match the index. And, if they could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.
January 31, 2007 (Unaudited)
MANAGEMENT OF THE FUND
The Board of Integrity Managed Portfolios consists of four Trustees. These same individuals, unless otherwise noted, also serve as Directors or Trustees for all of the funds in the Integrity family of funds, the six series of Integrity Managed Portfolios and the seven series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “Independent” Trustees. Two of the remaining three Trustees and/or executive officers are “interested” by virtue of their affiliation with the Investment Adviser and its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
NAME, ADDRESS AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1 | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Jerry M. Stai | Trustee | Since January 2006 | Faculty, Embry-Riddle University (August 2000 to September 2005); Faculty, Park University (August 2005 to December 2005); Non-Profit Specialist, Bremer Bank (since July 2005); Faculty, Minot State University (since August 2000); Director, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006). | 16 | Marycrest Franciscan Development, Inc. |
Orlin W. Backes | Trustee | Since January 1996 | Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director, South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., (Since April 2005); Trustee, The Integrity Funds (since May 2003); and Director, First Western Bank & Trust. | 16 | First Western Bank & Trust |
R. James Maxson | Trustee | Since January 1999 | Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Director, Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc. and Montana Tax-Free Fund, Inc. (since January 1999), South Dakota Tax-Free Fund, Inc. (January 1999 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); and Trustee, The Integrity Funds (since May 2003). | 16 | Vincent United Methodist Foundation
Minot Area Development Corporation |
1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.
Trustees and officers of the Fund serve until their resignation, removal or retirement.
The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.
January 31, 2007 (Unaudited)
The Interested Trustees and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEES AND EXECUTIVE OFFICERS
NAME, ADDRESS AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1 | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Robert E. Walstad2 | Trustee, Chairman, President | Since January 1996 | Director (since September 1987), President (September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., Integrity Fund Services, Inc.; Director, President (since inception) and Treasurer (May 1989 to May 2004), ND Capital, Inc. (August 1988 to September 2004), South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc.; Trustee, Chairman and President (since May 2003) and Treasurer (May 2003 to May 2004), The Integrity Funds; Director, President and Treasurer (May 2003 to August 2003), Integrity Funds Distributor, Inc.; Director (October 1999 to June 2003), Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (October 2002 to June 2003), ARM Securities Corporation; and Director, CEO, Chairman (since January 2002), President (September 2002 to December 2004), Capital Financial Services, Inc. | 16 | Capital Financial Services, Inc., and Minot Park Board |
Peter A. Quist | Vice President, Secretary | Since January 1996 | Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc., ND Capital, Inc. (August 1988 to September 2004), Integrity Fund Services, Inc., South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax Free Fund, Inc., Integrity Funds Distributor, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003); and Director, ARM Securities Corporation (May 2000 to June 2003). | 3 | None |
Laura K. Anderson | Treasurer | Since October 2005 | Fund Accountant (until May 2004), Fund Accounting Supervisor (May 2004 to October 2005), Fund Accounting Manager, Integrity Fund Services, Inc.; Treasurer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. | N/A | None |
Brent M. Wheeler | Mutual Fund Chief Compliance Officer | Since October 2005 | Fund Accounting Manager (May 1998 to October 2005), Integrity Fund Services, Inc.; Treasurer (May 2004 to October 2005), Mutual Fund Compliance Officer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. | N/A | None |
1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.
2Mr. Walstad qualifies as an interested person of the Trust, as defined in the 1940 Act, by virtue of being an officer and director of the Investment Adviser and Distributor.
Trustees and officers of the Fund serve until their resignation, removal or retirement.
The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.
January 31, 2007 (Unaudited)
Board Approval of Investment Advisory Agreement
Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”), the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“the Company”), the Fund’s sponsor.
The approval and the continuation of a fund’s investment advisory agreement must be specifically approved at least annually (1) by a vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “Interested Persons” of any party (“Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In preparation for the meeting, the Board requests and reviews a wide variety of materials provided by the Fund’s adviser. The Independent Trustees also received advice from their independent counsel on the issues to focus on during contract renewals. At a meeting held on October 25, 2006, the Board of Trustees, including a majority of the Independent Trustees of the Fund, approved the Management and Investment Advisory Agreement (“Advisory Agre ement”) between the Fundand Integrity Money Management.
The Trustees, including a majority of Trustees who are neither party to the Advisory Agreements nor “interested persons” of any such party (as such term is defined for regulatory purposes), unanimously approved the Advisory Agreement. In determining whether it was appropriate to approve the Advisory Agreement, the Trustees requested information, provided by the Investment Adviser, that it believed to be reasonably necessary to reach its conclusion. In connection with the approval of the Advisory Agreements, the Board reviewed factors set out in judicial decisions and Securities Exchange Commission directives relating to the approval of advisory contracts, which include but are not limited to, the following:
(a) | the nature and quality of services to be provided by the adviser to the fund; |
(b) | the various personnel furnishing such services and their duties and qualifications; |
(c) | the relevant fund’s investment performance as compared to standardized industry performance data; |
(d) | the adviser’s costs and profitability of furnishing the investment management services to the fund; |
(e) | the extent to which the adviser realizes economies of scale as the fund grows larger and the sharing thereof with the fund; |
(f) | an analysis of the rates charged by other investment advisers of similar funds; |
(g) | the expense ratios of the applicable fund as compared to data for comparable funds; and |
(h) | information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds. |
In evaluating the Adviser’s services and its fees, the Trustees reviewed information concerning the performance of the Fund, the recent financial statements of the Adviser and its parent, and the proposed advisory fee and other Fund expenses compared to the level of advisory fees and expenses paid by other similar funds. In reviewing the Advisory Agreement with the foregoing Fund, the Trustees considered, among other things, the fees, the Fund’s past performance, the nature and quality of the services provided, the profitability of the Adviser and its parent (estimated costs and estimated profits from furnishing the proposed services to the Fund), and the expense waivers by the Adviser. The Trustees also considered any ancillary benefits to the Adviser and its affiliates for services provided to the Fund. In this regard, the Trustees noted that there were no soft dollar arrangements involving the Adviser and the only benefits to affiliates were the fees earned for services provided. The Trustees did not identify any single factor discussed above as all-important or controlling. The Trustees also considered the Adviser’s commitment to voluntarily limit Fund expenses and the skills and capabilities of the Adviser.
The following paragraphs summarize the material information and factors considered by the Board, including the Independent Trustees, as well as their conclusions relative to such factors in considering the approval of the Advisory Agreement:
Nature, Extent and Quality of Services: The Investment Adviser currently provides services to sixteen funds in the Integrity family of funds with investment strategies ranging from non-diversified sector funds to broad-based equity funds. The experience and expertise of the Investment Adviser is attributable to the long-term focus on managing investment companies and has the potential to enhance the Fund’s future performance. They have a strong culture of compliance and provide quality services. The overall nature and quality of the services provided by the Investment Adviser had historically been, and continues to be, adequate and appropriate to the Board.
Various personnel furnishing such services and their duties and qualifications: The Portfolio Manager of the Fund has over 25 years experience in the advisory and money management area adding significant expertise to the Adviser of the Fund. A detailed biography of the portfolio manager was presented to the Trustees. This information is disclosed in the prospectus and/or SAI of the Fund.
Investment Performance: The Adviser has assured through subsidization that its Fund has had consistent performance relative to comparable and competing funds. Although the Fund has outperformed its relative benchmark for the 1-year period, it has underperformed its relative benchmark for the YTD, 5-year, 10-year and since inception periods as of September 29, 2006. The Fund has positive returns for all the periods indicated above as of September 29, 2006. In addition, the Fund has been meeting its investment objective for providing as high a level of current income exempt from federal and Kansas state income taxes as is consistent with preservation of capital.
Profitability: The Board has reviewed a year to date and a 12-month profit analysis spreadsheet completed by the controller of the investment adviser. Based on the relatively small size of each fund under management with the Adviser, the Adviser has shown no profit for the period. The Board determined that the profitability of the Adviser was not excessive based on the services it will provide for the Fund and the profit analysis spreadsheet presented by the Adviser.
Economies of Scale: The Board briefly discussed the benefits for the Fund as the Adviser could realize economies of scale as the Fund grows larger, but the size of the Fund has not reached an asset level to benefit from economies of scale. The advisory fees are structured appropriately based on the size of the Fund. The Adviser has indicated that a new advisory fee structure may be looked at if the Fund reaches an asset level where the Fund could benefit from economies of scale.
Analysis of the rates charged by other investment advisers of similar funds: The Adviser is voluntarily waiving advisory fees due to the small size of the Fund. The Board considered the compensation payable under the Advisory Agreement fair and reasonable in light of the services to be provided.
Expense ratios of the applicable fund as compared to data for comparable funds: The Fund’s net expense ratio of 1.07% for the Class A shares was comparable to other funds of similar objective and size.
Information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds: The Board noted that the Adviser does not realize material direct benefits from its relationship with the Fund. The Adviser does not participate in any soft dollar arrangements from securities trading in the Fund.
In voting unanimously to approve the Advisory Agreement, the Trustees did not identify any single factor as being of paramount importance. The Trustees noted that their discussion in this regard was premised on numerous factors including the nature, quality and resources of Integrity Money Management, the strategic plan involving the Fund and the potential for increased distribution and growth of the Fund. They determined that, after considering all relevant factors, the adoption of the Advisory Agreement would be in the best interest of the Fund and its shareholders.
Potential Conflicts of Interest – Investment Adviser
Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account. More specifically, portfolio managers who manage multiple funds are presented with the following potential conflicts:
The management of multiple funds may result in a portfolio manager devoting unequal time and attention to the management of each fund. The Investment Adviser seeks to manage such competing interests for the time and attention of portfolio managers by having them focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment models that are used in connection with the management of the Funds. The management of multiple funds and accounts also may give rise to potential conflicts of interest if the funds and accounts have different objectives, benchmarks, time horizons, and fees as the portfolio manager must allocate his time and investment ideas across multiple funds and accounts.
• | With respect to securities transactions for the Funds, the Investment Adviser determines which broker to use to execute each order, consistent with the duty to seek best execution of the transaction. The portfolio manager may execute transactions for another fund or account that may adversely impact the value of securities held by the Funds. Securities selected for funds or accounts other than the Funds may outperform the securities selected for the Funds. |
• | The appearance of a conflict of interest may arise where the Investment Adviser has an incentive, such as a performance-based management fee, which relates to the management of one fund but not all funds with respect to which a portfolio manager has day-to-day management responsibilities. The management of personal accounts may give rise to potential conflicts of interest; there is no assurance that the Funds' code of ethics will adequately address such conflicts. One of the portfolio manager's numerous responsibilities is to assist in the sale of Fund shares. Mr. Avery's compensation is based on salary paid every other week. He is not compensated for client retention. In addition, Integrity Mutual Funds, Inc., sponsors a 401(k) plan for all its employees. This plan is funded by employee elective deferrals and, to an extent, matching contribu tions by the Company. After one year of employment the employee is eligible to participate in the Company matching program. The Company matches 100% of contribution up to 3% and ½% for each additional percent contributed up to 5%. The Company has established a program in which it will grant interests in Integrity Mutual Funds Inc., shares to current employees that meet certain eligibility requirements, as a form of long-term incentive. The program is designed to allow all employees to participate in the long-term growth of the value of the firm. |
• | Although the Portfolio Managers generally do not trade securities in their own personal account, each of the Funds has adopted a code of ethics that, among other things, permits personal trading by employees under conditions where it has been determined that such trades would not adversely impact client accounts. Nevertheless, the management of personal accounts may give rise to potential conflicts of interest, and there is no assurance that these codes of ethics will adequately address such conflicts. |
The Investment Adviser and the Funds have adopted certain compliance procedures, which are designed to address these types of conflicts. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.
Schedule of Investments January 31, 2007 (Unaudited)
Name of Issuer | Rating Moody's/S&P | Coupon Rate | Maturity |
| Principal Amount |
| Market Value |
Percentages represent the market value of each investment category to total net assets | |||||||
|
|
|
|
|
|
|
|
KANSAS MUNICIPAL BONDS (98.6%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burlington, KS PCR (Gas & Elec.) MBIA | Aaa/AAA | 5.300% | 06/01/2031 | $ | 1,000,000 | $ | 1,066,800 |
Burlington, KS PCR (Gas & Elec.) MBIA | Aaa/AAA | 4.850 | 06/01/2031 |
| 500,000 |
| 513,440 |
Butler Cty., KS Public Bldg. MBIA | Aaa/NR | 5.550 | 10/01/2021 |
| 300,000 |
| 318,852 |
Coffeyville, KS Pub. Bldg. (Coffeyville Medl. Center) Rev. AMBAC | Aaa/AAA | 5.000 | 08/01/2022 |
| 250,000 |
| 259,295 |
Cowley Cty, KS USD #465 (Winfield) MBIA | Aaa/AAA | 5.250 | 10/01/2014 |
| 390,000 |
| 417,316 |
Dodge, KS School District #443 FGIC | Aaa/NR | 5.000 | 09/01/2011 |
| 1,000,000 |
| 1,054,060 |
Douglas Cty., KS Sales Tax Ref. AMBAC | Aaa/NR | 5.000 | 08/01/2019 |
| 1,000,000 |
| 1,051,770 |
Hutchinson, KS Community College | NR/A- | 5.000 | 10/01/2025 |
| 350,000 |
| 361,295 |
Hutchinson, KS Community College | NR/A- | 5.250 | 10/01/2030 |
| 300,000 |
| 315,888 |
Hutchinson, KS Community College | NR/A- | 5.250 | 10/01/2033 |
| 450,000 |
| 472,640 |
#Johnson Cty., KS USD #229 (Blue Valley) G.O. | Aa-1/AA | 5.000 | 10/01/2018 |
| 2,600,000 |
| 2,701,712 |
Johnson Cty., KS USD #231 Gardner-Edgerton FGIC | Aaa/AAA | 5.000 | 10/01/2024 |
| 1,135,000 |
| 1,196,211 |
Johnson Cty., KS USD #232 (Desoto) | Aaa/NR | 5.250 | 09/01/2023 |
| 500,000 |
| 541,480 |
Kansas City, KS Mrtge. Rev. GNMA | Aaa/NR | 5.900 | 11/01/2027 |
| 290,000 |
| 294,585 |
*Kansas City, KS Util. Syst. Ref. & Impvt. AMBAC | Aaa/AAA | 6.300 | 09/01/2016 |
| 580,000 |
| 582,598 |
*KS Devl. Finance Auth. (Dept. Admin. 7th & Harrison PJ) AMBAC | Aaa/AAA | 5.750 | 12/01/2027 |
| 2,250,000 |
| 2,377,305 |
KS Devl. Finance Auth. (Dept. of Admin. Capital Restoration) Lease Rev. FSA | Aaa/AAA | 5.375 | 10/01/2020 |
| 370,000 |
| 392,614 |
KS Devl. Finance Auth. (Juvenile Justice) Rev. MBIA | Aaa/AAA | 5.250 | 05/01/2013 |
| 570,000 |
| 598,865 |
KS Devl. Finance Auth. (Sec. 8) Rev. Ref. MBIA | Aaa/AAA | 6.400 | 01/01/2024 |
| 255,000 |
| 255,000 |
*KS Devl. Finance Auth. (Water Pollution Control) Rev. | Aaa/AAA | 5.250 | 05/01/2011 |
| 1,370,000 |
| 1,401,948 |
*KS Devl. Finance Auth. (Water Pollution Control) Rev. | Aaa/AAA | 5.250 | 05/01/2011 |
| 630,000 |
| 642,443 |
KS Devl. Finance Auth. (KS St. Projects) Rev. MBIA | Aaa/AAA | 5.000 | 10/01/2017 |
| 250,000 |
| 261,435 |
KS Devl. Finance Auth. (Water Pollution Control) Rev. | Aaa/AAA | 5.250 | 11/01/2022 |
| 1,000,000 |
| 1,071,930 |
KS Devl. Finance Auth. (Water Pollution Control) | Aaa/AAA | 5.000 | 11/01/2023 |
| 1,000,000 |
| 1,055,980 |
*KS Devl. Finance Auth. | Aaa/AAA | 5.000 | 05/01/2026 |
| 1,335,000 |
| 1,408,719 |
KS Devl. Finance Auth. (Dept. Admin.) FGIG | Aaa/AAA | 5.000 | 11/01/2025 |
| 250,000 |
| 265,025 |
KS Devl. Fin. Auth. Univ. KS Research Cent. XLCA | Aaa/AAA | 5.000 | 02/01/2026 |
| 500,000 |
| 525,510 |
*KS Devl. Finance Auth. (Park Apts.) Multifamily Hsg. Rev. | NR/AAA | 6.000 | 12/01/2021 |
| 1,975,000 |
| 1,975,000 |
KS Devl. Finance Auth. (Stormont Vail) Hlth. Care Rev. MBIA | Aaa/AAA | 5.800 | 11/15/2021 |
| 430,000 |
| 430,322 |
KS Devl. Finance Auth. (Sisters of Charity) Hlth. Rev. | Aa/AA | 6.125 | 12/01/2020 |
| 1,000,000 |
| 1,067,500 |
KS Devl. Finance Auth. (Stormont Vail) Hlth. Care Rev. MBIA | Aaa/AAA | 5.375 | 11/15/2024 |
| 1,500,000 |
| 1,585,110 |
KS Devl. Finance Auth. (Hays Medical Center) | A/NR | 5.000 | 11/15/2022 |
| 500,000 |
| 517,890 |
KS Turnpike Auth. Rev. FSA | Aaa/AAA | 5.250 | 09/01/2021 |
| 500,000 |
| 540,000 |
KS Turnpike Auth. Rev. FSA | Aaa/AAA | 5.000 | 09/01/2024 |
| 530,000 |
| 554,714 |
KS Turnpike Auth. Rev. FSA | Aaa/AAA | 5.000 | 09/01/2025 |
| 750,000 |
| 782,685 |
Lawrence, KS (Unlimited Tax) Refunding G.O. | Aa/NR | 5.375 | 09/01/2020 |
| 500,000 |
| 528,265 |
Lawrence, KS (Memorial Hospital) Rev. ASGUA | Aa-3/AA | 5.750 | 07/01/2024 |
| 1,000,000 |
| 1,046,170 |
Lawrence, KS (Memorial Hospital) Rev. | A-3/NR | 5.125 | 07/01/2026 |
| 500,000 |
| 518,275 |
Lawrence, KS (Memorial Hospital) Rev. | A-3/NR | 5.125 | 07/01/2036 |
| 500,000 |
| 515,960 |
Neosho County, KS (Sales Tax Rev.) MBIA | Aaa/AAA | 5.000 | 08/15/2008 |
| 405,000 |
| 409,937 |
Newton, KS (Newton) Hosp. Rev. | NR/BBB- | 5.700 | 11/15/2018 |
| 1,000,000 |
| 1,022,310 |
Newton, KS (Newton) Hosp. Rev. ACA | NR/A | 5.750 | 11/15/2024 |
| 500,000 |
| 510,510 |
Olathe, KS (Medl. Ctr.) Hlth. Facs. Rev. | Aaa/AAA | 5.500 | 09/01/2025 |
| 235,000 |
| 247,213 |
Olathe, KS (Medl. Ctr.) Hlth. Facs. Rev. AMBAC | Aaa/AAA | 5.500 | 09/01/2030 |
| 500,000 |
| 524,960 |
#Olathe, KS Multifamily Hsg. (Bristol Pointe) Rev. Ref. FNMA | NR/AAA | 5.700 | 11/01/2027 |
| 2,210,000 |
| 2,236,719 |
Reno Cty., KS USD #308 Hutchinson MBIA | Aaa/NR | 4.500 | 09/01/2023 |
| 500,000 |
| 501,930 |
Scott Cty, KS USD #466 FGIC | Aaa/AAA | 5.250 | 09/01/2017 |
| 900,000 |
| 964,242 |
Sedgwick Cty., KS (Catholic Care Center, Inc.) Hlth. Care Rev. | NR/A | 5.800 | 11/15/2026 |
| 1,000,000 |
| 1,041,900 |
Shawnee Cty., KS G.O. FSA | Aaa/NR | 5.000 | 09/01/2016 |
| 655,000 |
| 697,588 |
Topeka, KS G.O. XLCA | Aaa/NR | 5.000 | 08/15/2021 |
| 400,000 |
| 419,112 |
Topeka Public Bldg. Comm. (10th & Jackson Prj.) MBIA | Aaa/AAA | 5.625 | 06/01/2026 |
| 1,435,000 |
| 1,494,380 |
Topeka Public Bldg. Comm. (10th & Jackson Prj.) MBIA | Aaa/AAA | 5.625 | 06/01/2031 |
| 1,200,000 |
| 1,255,680 |
University of Kansas Hosp. Auth. AMBAC | Aaa/AAA | 5.700 | 09/01/2020 |
| 830,000 |
| 868,927 |
University of Kansas Hosp. Auth. AMBAC | Aaa/AAA | 5.550 | 09/01/2026 |
| 1,355,000 |
| 1,410,203 |
Wamego, KS PCR (Kansas Gas & Electric Project) MBIA | Aaa/AAA | 5.300 | 06/01/2031 |
| 750,000 |
| 798,637 |
Washburn Univ. (Living Learning Ctr.) Bldg. Rev. AMBAC | Aaa/NR | 5.000 | 07/01/2019 |
| 955,000 |
| 1,004,306 |
Wichita, KS G.O. (Series 772) | Aa/AA | 4.500 | 09/01/2017 |
| 565,000 |
| 577,786 |
*Wichita, KS G.O. (Series 772) | Aa/AA | 4.500 | 09/01/2018 |
| 125,000 |
| 127,535 |
Wichita, KS (Via Christi Health System) Rev. | NR/A+ | 6.250 | 11/15/2024 |
| 1,500,000 |
| 1,592,580 |
Wichita, KS (Via Christi Health System) Rev. | NR/A+ | 5.625 | 11/15/2031 |
| 1,100,000 |
| 1,167,155 |
Wichita, KS Multifamily Hsg. (Broadmoor Chelsea) Rev. FNMA | NR/AAA | 5.650 | 07/01/2016 |
| 990,000 |
| 1,002,266 |
#Wichita, KS Multifamily Hsg. (Broadmoor Chelsea) Rev. FNMA | NR/AAA | 5.700 | 07/01/2022 |
| 2,000,000 |
| 2,025,360 |
Wichita, KS Public Building Commission (State Office Prj.) Rev. AMBAC | Aaa/AAA | 4.000 | 10/01/2014 |
| 500,000 |
| 499,530 |
Wichita, KS Water & Sewer Util. Rev. FGIC | Aaa/AAA | 5.250 | 10/01/2018 |
| 1,465,000 |
| 1,566,729 |
Wichita, KS Water & Sewer Util. Rev. FGIC | Aaa/AAA | 5.000 | 10/01/2028 |
| 500,000 |
| 524,205 |
TOTAL KANSAS MUNICIPAL BONDS (COST: $54,301,701) |
|
|
|
| $ | 55,958,307 | |
|
|
|
|
|
|
|
|
SHORT-TERM SECURITIES (0.8%) |
|
|
|
| Shares |
|
|
Wells Fargo Advantage National Tax-Free Money Market (Cost: $449,096) |
|
| 449,096 | $ | 449,096 | ||
|
|
|
|
|
|
|
|
TOTAL INVESTMENTS IN SECURITIES (COST: $54,750,797) |
|
|
|
| $ | 56,407,403 | |
OTHER ASSETS LESS LIABILITIES |
|
|
|
|
|
| 330,929 |
|
|
|
|
|
|
|
|
NET ASSETS |
|
|
|
|
| $ | 56,738,332 |
|
|
|
|
|
|
|
|
* Indicates bonds are segregated by the custodian to cover when-issued or delayed-delivery purchases. |
|
| |||||
# Indicates bonds are segregated by the custodian to cover initial margin requirements. |
|
|
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| |||
|
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|
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|
|
Non-rated (NR) securities in the Fund were investment grade when purchased. |
|
|
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|
| ||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements. |
|
|
|
|
| ||
Financial Statements January 31, 2007
Statement of Assets and Liabilities January 31, 2007 (Unaudited)
| ASSETS |
|
| ||
| Investment in securities, at value (cost: $54,750,797) | $ | 56,407,403 | ||
| Accrued interest receivable |
| 743,346 | ||
| Accrued dividends receivable |
| 2,184 | ||
| Prepaid expenses |
| 9,115 | ||
| Total Assets | $ | 57,162,048 | ||
|
|
|
| ||
| LIABILITIES |
|
| ||
| Disbursements in excess of demand deposit cash | $ | 13,591 | ||
| Dividends payable |
| 186,045 | ||
| Payable for fund shares redeemed |
| 166,636 | ||
| Payable to affiliates |
| 48,000 | ||
| Accrued expenses |
| 9,444 | ||
| Total Liabilities | $ | 423,716 | ||
|
|
| |||
| NET ASSETS | $ | 56,738,332 | ||
|
|
| |||
|
|
| |||
| Net assets are represented by: |
|
| ||
| Paid-in capital | $ | 64,387,150 | ||
| Accumulated undistributed net realized gain (loss) on investments and futures |
| (9,305,638) | ||
| Accumulated undistributed net investment income |
| 214 | ||
| Unrealized appreciation (depreciation) on investments |
| 1,656,606 | ||
| Total amount representing net assets applicable to 5,354,023 outstanding shares of no par common stock (unlimited shares authorized) | $ | 56,738,332 | ||
|
|
| |||
| Net asset value per share | $ | 10.60 | ||
|
|
|
| ||
| Public offering price (based on sales charge of 4.25%) | $ | 11.07 | ||
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Operations For the six months ended January 31, 2007 (Unaudited)
INVESTMENT INCOME |
|
| ||
| Interest | $ | 1,381,306 | |
| Dividends |
| 19,766 | |
| Total Investment Income | $ | 1,401,072 | |
|
|
| ||
EXPENSES |
|
| ||
| Investment advisory fees | $ | 145,766 | |
| Distribution (12b-1) fees |
| 72,883 | |
| Administrative service fees |
| 33,355 | |
| Transfer agent fees |
| 49,432 | |
| Accounting service fees |
| 26,161 | |
| Custodian fees |
| 3,829 | |
| Professional fees |
| 15,127 | |
| Trustees fees |
| 2,198 | |
| Insurance expense |
| 1,004 | |
| Reports to shareholders |
| 2,575 | |
| Audit fees |
| 3,568 | |
| Legal fees |
| 1,387 | |
| Transfer agent out of pocket |
| 1,298 | |
| Registration and filing fees |
| 709 | |
| Total Expenses | $ | 359,292 | |
| Less expenses waived or absorbed by the Fund’s manager |
| (47,352) | |
| Total Net Expenses | $ | 311,940 | |
|
|
| ||
NET INVESTMENT INCOME | $ | 1,089,132 | ||
|
|
| ||
|
|
| ||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| ||
| Net realized gain (loss) from investment transactions | $ | 2,788 | |
| Net change in unrealized appreciation (depreciation) of investments |
| (97,455) | |
| Net Realized And Unrealized Gain (Loss) On Investments | $ | (94,667) | |
|
|
| ||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 994,465 | ||
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Changes in Net Assets
For the six months ended January 31, 2007 and the year ended July 31, 2006
|
| For The Six Months Ended January 31, 2007 (Unaudited) |
| For The Year Ended July 31, 2006 | ||
|
|
|
|
| ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| ||
| Net investment income | $ | 1,089,132 | $ | 2,397,547 | |
| Net realized gain (loss) on investment and futures transactions |
| 2,788 |
| 883,835 | |
| Net change in unrealized appreciation (depreciation) on investments and futures |
| (97,455) |
| (620,199) | |
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 994,465 | $ | 2,661,183 | |
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| ||
| Dividends from net investment income ($.20 and $.41 per share, respectively) | $ | (1,089,080) | $ | (2,397,386) | |
| Distributions from net realized gain on investment and futures transactions ($.00 and $.00 per share, respectively) |
| 0 |
| 0 | |
| Total Dividends and Distributions | $ | (1,089,080) | $ | (2,397,386) | |
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS |
|
|
|
| ||
| Proceeds from sale of shares | $ | 876,437 | $ | 1,495,672 | |
| Proceeds from reinvested dividends |
| 691,795 |
| 1,509,351 | |
| Cost of shares redeemed |
| (3,828,564) |
| (11,645,304) | |
| Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions | $ | (2,260,332) | $ | (8,640,281) | |
|
|
|
|
| ||
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | (2,354,947) | $ | (8,376,484) | ||
|
|
|
|
| ||
NET ASSETS, BEGINNING OF PERIOD |
| 59,093,279 |
| 67,469,763 | ||
|
|
|
|
| ||
NET ASSETS, END OF PERIOD | $ | 56,738,332 | $ | 59,093,279 | ||
Undistributed Net Investment Income | $ | 214 | $ | 161 | ||
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements January 31, 2007 (Unaudited)
Note 1. ORGANIZATION
Business operations - The Kansas Municipal Fund (the “Fund”) is an investment portfolio of Integrity Managed Portfolios (the “Trust”) registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. Integrity Managed Portfolios is an unincorporated business trust organized under Massachusetts law on August 10, 1990. The Fund had no operations from that date to November 15, 1990, other than matters relating to organization and registration. On November 15, 1990, the Fund commenced its Public Offering of capital shares. The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal and Kansas state income tax as is consistent with preservation of capital. The Fund will se ek to achieve this objective by investing primarily in a portfolio of Kansas municipal securities.
Shares of the Fund are offered at net asset value plus a maximum sales charge of 4.25% of the offering price.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation - Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees which include consideration of the following: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, and indications as to value from dealers and general market conditions. Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and recor ds security transactions on the trade date.
The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.
When-issued securities - The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities purchased on a when-issued basis are identified as such in the Fund’s Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic, or other factors.
Contingent Deferred Sales Charge (“CDSC”) – In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 12 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).
Federal and state income taxes - The Fund’s policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its net investment income and any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required. Distributions during year ended July 31, 2006, were characterized as tax-exempt for tax purposes.
|
| July 31, 2006 |
| July 29, 2005 |
Tax-exempt Income | $ | 2,397,386 | $ | 2,594,731 |
Ordinary Income |
| 0 |
| 0 |
Long-term Capital Gains |
| 0 |
| 0 |
Total | $ | 2,397,386 | $ | 2,594,731 |
As of July 31, 2006, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation) | Total Accumulated Earnings/(Deficit) |
$0 | $0 | $0 | ($8,982,250) | $1,754,222 | ($7,228,028) |
The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2006, totaling $8,982,250 which may be used to offset capital gains. The capital loss carryforward amounts will expire in each of the years ended July 31 as shown in the table below.
Year |
| Unexpired Capital Losses |
2008 | $ | 531,392 |
2009 | $ | 568,023 |
2010 | $ | 1,444,860 |
2011 | $ | 1,970,032 |
2012 | $ | 1,398,834 |
2013 | $ | 2,680,174 |
2014 | $ | 388,935 |
For the year ended July 31, 2006, the Fund made $1,671,432 in permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to expiring capital loss carryforwards.
Net capital losses incurred after October 31, and within the tax year are deemed to arise on the first business day of the Fund’s next taxable year. For the year ended July 31, 2006, the Fund deferred to August 1, 2006, post October capital losses, post October currency losses and post October passive foreign investment company losses of $326,177.
Distributions to shareholders - Dividends from net investment income, declared daily and paid monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed at least annually.
Premiums and discounts - Premiums and discounts on municipal securities are amortized for financial reporting purposes.
Other - Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatment for market discount, capital loss carryforwards and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
Futures contracts - The Fund may purchase and sell financial futures contracts to hedge against changes in the values of tax-exempt municipal securities the Fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of a particular index or a certain amount of U.S. government or municipal securities at a set price on a future date. Upon entering into a futures contract, the Fund is required to deposit with a broker an amount of cash or securities equal to the minimum “initial margin” requirement of the futures exchange on which the contract is traded. Subsequent payments (“variation margin”) are made or received by the Fund, dependent on the fluctuations in the value of the underlying index. Daily fluctuations in value are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize, for book purposes, a gain or loss equal to the difference between the value of the futures contracts sold and the futures contracts to buy. Unrealized appreci ation (depreciation) related to open futures contracts is required to be treated as a realized gain (loss) for Federal income tax purposes.
Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Schedule of Investments. The Statement of Assets and Liabilities reflects a receivable or payable for the daily mark to market for variation margin.
Certain risks may arise upon entering into futures contracts. These risks may include changes in the value of the futures contracts that may not directly correlate with changes in the value of the underlying securities.
Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 3. CAPITAL SHARE TRANSACTIONS
As of January 31, 2007, there were unlimited shares of no par authorized; 5,354,023 and 5,565,714 shares were outstanding at January 31, 2007, and July 31, 2006, respectively.
Transactions in capital shares were as follows:
| Shares | |
| For The Six Months Ended January 31, 2007 (Unaudited) | For The Year Ended July 31, 2006 |
| ||
| ||
Shares sold | 81,996 | 140,843 |
Shares issued on reinvestment of dividends | 64,706 | 142,220 |
Shares redeemed | (358,393) | (1,097,898) |
Net increase (decrease) | (211,691) | (814,835) |
Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, the Fund’s transfer, accounting, and administrative services agent, are subsidiaries of Integrity Mutual Funds, Inc., the Fund’s sponsor.
The Fund has engaged Integrity Money Management to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund’s average daily net assets. The Fund has recognized $98,414 of investment advisory fees after partial waiver for the six months ended January 31, 2007. The Fund has a payable to Integrity Money Management of $13,810 at January 31, 2007, for investment advisory fees. Certain officers and trustees of the Fund are also officers and directors of the investment adviser.
Under the terms of the advisory agreement, the investment adviser has agreed to pay all the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 1.25% of the Fund’s average daily net assets on an annual basis up to the amount of the investment adviser and management fee. The investment adviser and underwriter may also voluntarily waive fees or reimburse expenses not required under the advisory or other contracts from time to time. Accordingly, after fee waivers and expense reimbursements, the Fund’s actual total annual operating expenses were 1.07% for the six months ended January 31, 2007.
Principal Underwriter and Shareholder Services
Integrity Funds Distributor serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan for each class of shares as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called “Distribution Plan expenses.” The Fund currently pays an annual distribution fee of up to 0.25% of the average daily net assets of the class. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $72,883 of distribution fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Funds Distributor of $12,339 at January 31, 2007 for d istribution fees.
Integrity Fund Services, the transfer agent, provides shareholder services for a variable fee equal to 0.20% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus reimbursement of out-of-pocket expenses. An additional fee with a minimum $500 per month is charged for each additional share class. The Fund has recognized $49,432 of transfer agency fees and expenses for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $9,556 at January 31, 2007 for transfer agency fees. Integrity Fund Services also acts as the Fund’s accounting services agent for a monthly fee equal to the sum of a fixed fee of $2,000, and a variable fee equal to 0.05% of the Fund’s average daily net assets on an annual basis for the Fun d’s first $50 million and at a lower rate on the average daily net assets in excess of $50 million, together with reimbursement of out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $26,161 of accounting service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $4,471 at January 31, 2007 for accounting service fees. Integrity Fund Services also acts as the Fund’s administrative services agent for a variable fee equal to 0.125% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $ 33,355 of administrative service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $6,012 at January 31, 2007 for administrative service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from sales of investment securities (excluding short-term securities) aggregated $1,252,574 and $2,203,457, respectively, for the six months ended January 31, 2007.
Note 6. INVESTMENT IN SECURITIES
At January 31, 2007, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $54,750,797. The net unrealized appreciation of investments for financial reporting purposes based on the cost was $1,656,606, which is comprised of $1,728,526 aggregate gross unrealized appreciation and $71,920 aggregate gross unrealized depreciation. Differences between financial reporting-basis and tax-basis unrealized appreciation/depreciation are due to differing treatment of market discount.
Note 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund is presently evaluating the impact of adopting SFAS 157.
Financial Highlights January 31, 2007
Selected per share data and ratios for the periods indicated
|
| For The Six Months Ended January 31, 2007 (Unaudited) |
| For The Year Ended July 31, 2006 |
| For The Year Ended July 29, 2005 |
| For The Year Ended July 30, 2004 |
| For The Year Ended July 31, 2003 |
| For The Year Ended July 31, 2002 |
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 10.62 | $ | 10.57 | $ | 10.93 | $ | 11.19 | $ | 11.78 | $ | 11.92 |
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Income from Investment Operations: |
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Net investment income | $ | .20 | $ | .41 | $ | .38 | $ | .45 | $ | .51 | $ | .55 |
Net realized and unrealized gain (loss) on investment and futures transactions |
| (.02) |
| .05 |
| (.36) |
| (.26) |
| (.59) |
| (.14) |
Total Income (Loss) From Investment Operations | $ | 0.18 | $ | .46 | $ | .02 | $ | .19 | $ | (.08) | $ | .41 |
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Less Distributions: |
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Dividends from net investment income | $ | (.20) | $ | (.41) | $ | (.38) | $ | (.45) | $ | (.51) | $ | (.55) |
Distributions from net capital gains |
| .00 |
| .00 |
| .00 |
| .00 |
| .00 |
| .00 |
Total Distributions | $ | (.20) | $ | (.41) | $ | (.38) | $ | (.45) | $ | (.51) | $ | (.55) |
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NET ASSET VALUE, END OF PERIOD | $ | 10.60 | $ | 10.62 | $ | 10.57 | $ | 10.93 | $ | 11.19 | $ | 11.78 |
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Total Return |
| 3.38%(A)(C) |
| 4.39%(A) |
| 0.22%(A) |
| 1.71%(A) |
| (0.75%)(A) |
| 3.48%(A) |
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RATIOS/SUPPLEMENTAL DATA: |
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Net assets, end of period (in thousands) | $ | 56,738 | $ | 59,093 | $ | 67,470 | $ | 78,478 | $ | 88,850 | $ | 98,992 |
Ratio of net expenses (after expense assumption) to average net assets |
| 1.07%(B)(C) |
| 1.03%(B) |
| 0.97%(B) |
| 0.95%(B) |
| 0.95%(B) |
| 0.95%(B) |
Ratio of net investment income to average net assets |
| 3.74%(C) |
| 3.82% |
| 3.56% |
| 4.05% |
| 4.39% |
| 4.61% |
Portfolio turnover rate |
| 2.21% |
| 12.31% |
| 44.85% |
| 17.29% |
| 23.78% |
| 5.74% |
(A) Excludes maximum sales charge of 4.25%.
(B) During the periods indicated above, Integrity Mutual Funds, Inc. or Integrity Money Management assumed/waived expenses of $47,352, $79,585, $130,764, $127,695, $52,479, and $22,656, respectively. If the expenses had not been assumed/waived, the annualized ratios of total expenses to average net assets would have been 1.23%, 1.15%, 1.15%, 1.10%, 1.01%, and 0.97%, respectively.
(C) Ratio is annualized.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
Dear Shareholder:
Enclosed is the semi-annual report of the Kansas Insured Intermediate Fund (the “Fund”) for the period ended January 31, 2007. The Fund’s portfolio and related financial statements are presented within for your review.
In the last part of 2006 investors pushed back when they thought the Federal Reserve would cut interest rates.
Fed Fund futures expectations of where rates are going now give less than even odds that the Fed will cut its key target rate by a quarter point by September. In November the view was that the Fed would almost certainly cut rates from the current 5.25% once and possibly twice.
The mood has shifted as economic reports suggest the economy is in better shape than investors had thought. One reason investors remain so upbeat is that the economy appears to be catching its footing and inflation looks more subdued.
Federal Reserve chairman Ben Bernanke has said repeatedly he hopes the core inflation rate will continue to moderate, falling back below 2%. But he continues to worry, at least in public, about the risk of more persistent inflation, which would force him to raise rates again.
The bond market right now is worried about a different threat, a recession. That fear helped push the yield on the 10-year Treasury bond to 4.81% at the end of the period, higher than the 4.39% at which it began 2006, but well below the 5.25% it hit in late June 2006.
Long-term government bonds now yield less than short-term bonds. That makes investors nervous because, at times, it has historically been a sign of a coming recession. Lower long-term yields suggest investors expect rates to fall when the economy is weakening.
Some tend to downplay the recession risk. Heavy foreign demand for longer-term U.S. Treasury bonds, together with exceptionally low worldwide inflation rates, have kept U.S. bonds lower than normal.
Low yields hold down other market interest rates such as fixed mortgage rates. They encourage consumers and businesses alike to borrow, spend and invest which supports corporate profits and stock prices.
The Kansas Insured Intermediate Fund began the period at $10.95 per share and ended the period at $10.92 per share for a total return of 1.73%*. This compares to the Lehman Brothers Municipal Seven-Year Maturity Bond Index return of 2.33% for the period.
The Funds favorable overall performance can be attributed to its defensive portfolio, with an average maturity of 7 years and a low average maturity to the first call date of 3 years. That, along with an average portfolio coupon of 5.25%, helps relative performance in a rising rate environment.
Issues contributing to this defensive portfolio include: University of Kansas Hospital, 5.50% coupon, due 9/01/2015; Saline County Schools, 5.50% coupon, due 9/1/2015; and Stormont Vail Healthcare, 5.70% coupon, due 11/15/2008.
An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Portfolio quality for the year was as follows: AAA 100%.
Income exempt from federal and Kansas state income taxes with preservation of capital remain the primary objectives of the Fund.
If you would like more frequent updates, visit our website at www.integrityfunds.com for daily prices along with pertinent Fund information.
Sincerely,
Monte Avery
Portfolio Manager
The views expressed are those of Monte Avery, Chief Portfolio Strategist with Integrity Mutual Funds. The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any Integrity Mutual Fund.
*Performance does not include applicable front-end or contingent deferred sales charges, which would have reduced the performance.
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities more so than a municipal bond fund that does not concentrate its securities in a single state.
January 31, 2007 (Unaudited)
PROXY VOTING ON FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-276-1262. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Integrity's website at www.integrityfunds.com. This information is also available from the EDGAR database on the Securities and Exchange Commission’s (“SEC's”) website at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
The Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports within 60 days of the end of the Fund's second and fourth fiscal quarters on the Form N-CSR(S). The annual and semi-annual reports are filed electronically with the SEC and are delivered to the Fund shareholders. The Fund also files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q and N-CSR(S) are available on the SEC's website at www.sec.gov. The Fund's Forms N-Q and N-CSR(S) may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C., and the information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. You may also access this information from Integrity's website at www.integrityfunds.com.
Terms & Definitions January 31, 2007 (Unaudited)
Appreciation
The increase in value of an asset.
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned by the fund on an annual basis, assuming all distributions are reinvested.
Coupon Rate or Face Rate
The rate of interest payable annually, based on the face amount of the bond; expressed as a percentage.
Depreciation
The decrease in value of an asset.
Lehman Brothers Municipal Bond Index
An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund.
Market Value
The actual (or estimated) price at which a bond trades in the market place.
Maturity
A measure of the term or life of a bond in years. When a bond “matures,” the issuer repays the principal.
Net Asset Value (NAV)
The value of all your fund’s assets, minus any liabilities, divided by the number of outstanding shares, not including any initial sales charge.
Quality Ratings
A designation assigned by independent rating companies to give a relative indication of a bond’s credit worthiness. “AAA,” “AA,” “A,” and “BBB” indicate investment grade securities. Ratings can range from a high of “AAA” to a low of “D”.
Total Return
Measures both the net investment income and any realized and unrealized appreciation or depreciation of the underlying investments in the fund’s portfolio for the period, assuming the reinvestment of all dividends. It represents the aggregate percentage or dollar value change over the period.
January 31, 2007 (Unaudited)
COMPOSITION
PORTFOLIO QUALITY RATINGS
(Based on Total Long-Term Investments)
AAA | 100% |
Quality ratings reflect the financial strength of the issuer. They are assigned by independent rating services such as Moody’s Investors Services and Standard & Poor’s. Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. (“Integrity Money Management” or “Adviser”), the investment adviser.
These percentages are subject to change.
PORTFOLIO MARKET SECTORS
(As a % of Net Assets)
HC-Health Care | 26.5% |
S-School | 24.5% |
H-Housing | 23.2% |
W/S-Water/Sewer | 9.6% |
U-Utilities | 6.3% |
G-Government | 4.3% |
T-Transportation | 4.1% |
O-Other | 1.5% |
Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.
These percentages are subject to change.
January 31, 2007 (Unaudited)
DISCLOSURE OF FUND EXPENSES
The Example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the fund, you incur two types of costs: (1) transaction costs, including sales charges (loads), redemption fees and exchange fees; and (2) ongoing costs, including management fees, distribution (12b-1) fees and other fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 31, 2006, to January 31, 2007.
The example illustrates the Fund's costs in two ways:
Actual expenses
The section in the table under the heading “Actual” provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the appropriate column for your share class, in the column entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The section in the table under the heading “Hypothetical (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the section in the table under the heading “Hypothetical (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value 07/31/06 | Ending Account Value 01/31/07 | Expenses Paid During Period* |
Actual |
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Class A | $1,000.00 | $1,017.29 | $3.78 |
Hypothetical (5% return before expenses) |
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Class A | $1,000.00 | $1,021.46 | $3.78 |
* Expenses are equal to the annualized expense ratio of 0.75%, multiplied by the average account value over the period, multiplied by 180/360 days. The Fund’s ending account value on the first line in the table is based on its actual total return of 1.73% for the six month period of July 31, 2006, to January 31, 2007.
January 31, 2007 (Unaudited)
AVERAGE ANNUAL TOTAL RETURNS
| For periods ending January 31, 2007 | ||||
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| Since Inception (November 23, 1992) |
Kansas Insured Intermediate Fund | 1 year | 3 Year | 5 year | 10 year | |
Without sales charge | 4.41% | 1.76% | 1.95% | 3.01% | 3.89% |
With sales charge (2.75%) | 1.52% | 0.82% | 1.38% | 2.72% | 3.68% |
Lehman Brothers Municipal Seven-Year Maturity Bond Index | 1 year | 3 Year | 5 year | 10 year | Since Inception (November 23, 1992) |
| 3.38% | 2.64% | 4.30% | 2.13% | 5.46% |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemption of Fund shares.
January 31, 2007 (Unaudited)
COMPARATIVE INDEX GRAPH
Comparison of change in value of a $10,000 investment in the Kansas Insured Intermediate Fund and the Lehman Brothers Municipal Seven-Year Maturity Bond Index
| Kansas Insured Intermediate Fund w/o Sales Charge | Kansas Insured Intermediate Fund w/ Max Sales Charge | Lehman Brothers Municipal Seven-Year Maturity Bond Index |
7/31/1996 | $10,000 | $9,729 | $10,000 |
1997 | $10,476 | $10,191 | $10,864 |
1998 | $10,807 | $10,514 | $11,435 |
1999 | $11,208 | $10,903 | $11,810 |
2000 | $11,449 | $11,138 | $12,353 |
2001 | $12,220 | $11,888 | $13,486 |
2002 | $12,723 | $12,377 | $14,448 |
2003 | $12,883 | $12,534 | $15,005 |
2004 | $13,181 | $12,823 | $15,687 |
2005 | $13,083 | $12,728 | $16,308 |
2006 | $13,614 | $13,245 | $16,642 |
1/31/2007 | $13,850 | $13,474 | $17,094 |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The graph does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
The graph comparing your Fund’s performance to a benchmark index provides you with a general sense of how your Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Kansas municipal bonds. Your Fund’s total return for the period shown appears with and without sales charges and includes Fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged; there are no expenses that affect the results. In addition, few investors could purchase all of the securities necessary to match the index. And, if they could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.
January 31, 2007 (Unaudited)
MANAGEMENT OF THE FUND
The Board of Integrity Managed Portfolios consists of four Trustees. These same individuals, unless otherwise noted, also serve as Directors or Trustees for all of the funds in the Integrity family of funds, the six series of Integrity Managed Portfolios and the seven series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “Independent” Trustees. Two of the remaining three Trustees and/or executive officers are “interested” by virtue of their affiliation with the Investment Adviser and its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
NAME, ADDRESS AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1 | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Jerry M. Stai | Trustee | Since January 2006 | Faculty, Embry-Riddle University (August 2000 to September 2005); Faculty, Park University (August 2005 to December 2005); Non-Profit Specialist, Bremer Bank (since July 2005); Faculty, Minot State University (since August 2000); Director, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006). | 16 | Marycrest Franciscan Development, Inc. |
Orlin W. Backes | Trustee | Since January 1996 | Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director, South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., (Since April 2005); Trustee, The Integrity Funds (since May 2003); and Director, First Western Bank & Trust. | 16 | First Western Bank & Trust |
R. James Maxson | Trustee | Since January 1999 | Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Director, Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc. and Montana Tax-Free Fund, Inc. (since January 1999), South Dakota Tax-Free Fund, Inc. (January 1999 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); and Trustee, The Integrity Funds (since May 2003). | 16 | Vincent United Methodist Foundation
Minot Area Development Corporation |
1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.
Trustees and officers of the Fund serve until their resignation, removal or retirement.
The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.
January 31, 2007 (Unaudited)
The Interested Trustees and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEES AND EXECUTIVE OFFICERS
NAME, ADDRESS AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1 | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Robert E. Walstad2 | Trustee, Chairman, President | Since January 1996 | Director (since September 1987), President (September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., Integrity Fund Services, Inc.; Director, President (since inception) and Treasurer (May 1989 to May 2004), ND Capital, Inc. (August 1988 to September 2004), South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc.; Trustee, Chairman and President (since May 2003) and Treasurer (May 2003 to May 2004), The Integrity Funds; Director, President and Treasurer (May 2003 to August 2003), Integrity Funds Distributor, Inc.; Director (October 1999 to June 2003), Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (October 2002 to June 2003), ARM Securities Corporation; and Director, CEO, Chairman (since January 2002), Pres ident (September 2002 to December 2004), Capital Financial Services, Inc. | 16 | Capital Financial Services, Inc., and Minot Park Board |
Peter A. Quist | Vice President, Secretary | Since January 1996 | Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc., ND Capital, Inc. (August 1988 to September 2004), Integrity Fund Services, Inc., South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax Free Fund, Inc., Integrity Funds Distributor, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003); and Director, ARM Securities Corporation (May 2000 to June 2003). | 3 | None |
Laura K. Anderson | Treasurer | Since October 2005 | Fund Accountant (until May 2004), Fund Accounting Supervisor (May 2004 to October 2005), Fund Accounting Manager, Integrity Fund Services, Inc.; Treasurer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. | N/A | None |
Brent M. Wheeler | Mutual Fund Chief Compliance Officer | Since October 2005 | Fund Accounting Manager (May 1998 to October 2005), Integrity Fund Services, Inc.; Treasurer (May 2004 to October 2005), Mutual Fund Compliance Officer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. | N/A | None |
1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.
2Mr. Walstad qualifies as an interested person of the Trust, as defined in the 1940 Act, by virtue of being an officer and director of the Investment Adviser and Distributor.
Trustees and officers of the Fund serve until their resignation, removal or retirement.
The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800)
January 31, 2007 (Unaudited)
Board Approval of Investment Advisory Agreement
Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”), the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“the Company”), the Fund’s sponsor.
The approval and the continuation of a fund’s investment advisory agreement must be specifically approved at least annually (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “Interested Persons” of any party (“Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In preparation for the meeting, the Board requests and reviews a wide variety of materials provided by the Fund’s adviser. The Independent Trustees also received advice from their independent counsel on the issues to focus on during contract renewals. At a meeting held on October 25, 2006, the Board of Trustees, including a majority of the Independent Trustees of the Fund, approved the Management and Investment Advisory Agreement (“Advisory Agreement”), between the Fundand Integrity Money Management.
The Trustees, including a majority of Trustees who are neither party to the Advisory Agreements nor “interested persons” of any such party (as such term is defined for regulatory purposes), unanimously approved the Advisory Agreement. In determining whether it was appropriate to approve the Advisory Agreement, the Trustees requested information, provided by the Investment Adviser that it believed to be reasonably necessary to reach its conclusion. In connection with the approval of the Advisory Agreements, the Board reviewed factors set out in judicial decisions and Securities Exchange Commission directives relating to the approval of advisory contracts, which include but are not limited to, the following:
(a) | the nature and quality of services to be provided by the adviser to the fund; |
(b) | the various personnel furnishing such services and their duties and qualifications; |
(c) | the relevant fund’s investment performance as compared to standardized industry performance data; |
(d) | the adviser’s costs and profitability of furnishing the investment management services to the fund; |
(e) | the extent to which the adviser realizes economies of scale as the fund grows larger and the sharing thereof with the fund; |
(f) | an analysis of the rates charged by other investment advisers of similar funds; |
(g) | the expense ratios of the applicable fund as compared to data for comparable funds; and |
(h) | information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds. |
In evaluating the Adviser’s services and its fees, the Trustees reviewed information concerning the performance of the Fund, the recent financial statements of the Adviser and its parent, and the proposed advisory fee and other fund expenses compared to the level of advisory fees and expenses paid by other similar funds. In reviewing the Advisory Agreement with the foregoing Fund, the Trustees considered, among other things, the fees, the Fund’s past performance, the nature and quality of the services provided, the profitability of the Adviser and its parent (estimated costs and estimated profits from furnishing the proposed services to the Fund), and the expense waivers by the Adviser. The Trustees also considered any ancillary benefits to the Adviser and its affiliates for services provided to the Fund. In this regard, the Trustees noted that there were no soft dollar arrangements involving the Adviser and the only benefits to affiliates were the fees earned for services provided. The Trustees did not identify any single factor discussed above as all-important or controlling. The Trustees also considered the Adviser’s commitment to voluntarily limit Fund expenses and the skills and capabilities of the Adviser.
The following paragraphs summarize the material information and factors considered by the Board, including the Independent Trustees, as well as their conclusions relative to such factors in considering the approval of the Advisory Agreement:
Nature, Extent and Quality of Services: The Investment Adviser currently provides services to sixteen funds in the Integrity family of funds with investment strategies ranging from non-diversified sector funds to broad-based equity funds. The experience and expertise of the Investment Adviser is attributable to the long-term focus on managing investment companies and has the potential to enhance the Fund’s future performance. They have a strong culture of compliance and provide quality services. The overall nature and quality of the services provided by the Investment Adviser had historically been, and continues to be, adequate and appropriate to the Board.
Various personnel furnishing such services and their duties and qualifications: The Portfolio Manager of the Fund has over 25 years experience in the advisory and money management area adding significant expertise to the Adviser of the Fund. A detailed biography of the portfolio manager was presented to the Trustees. This information is disclosed in the prospectus and/or SAI of the Fund.
Investment Performance: The Adviser has assured through subsidization that its Fund has had consistent performance relative to comparable and competing funds. Although the Fund has outperformed its relative benchmark for the YTD, 1-year and 10-year periods, it has underperformed its relative benchmark for the 5-year and since inception periods as of September 29, 2006. The Fund has positive returns for all the periods indicated above as of September 29, 2006. In addition, the Fund has been meeting its investment objective for providing as high a level of current income exempt from federal and Kansas state income taxes as is consistent with preservation of capital.
Profitability: The Board has reviewed a year to date and a 12-month profit analysis spreadsheet completed by the controller of the investment adviser. Based on the relatively small size of each fund under management with the Adviser, the Adviser has shown no profit for the period. The Board determined that the profitability of the Adviser was not excessive based on the services it will provide for the Fund and the profit analysis spreadsheet presented by the Adviser.
Economies of Scale: The Board briefly discussed the benefits for the Fund as the Adviser could realize economies of scale as the Fund grows larger, but the size of the Fund has not reached an asset level to benefit from economies of scale.The advisory fees are structured appropriately based on the size of the Fund. The Adviser has indicated that a new advisory fee structure may be looked at if the Fund reaches an asset level where the Fund could benefit from economies of scale.
Analysis of the rates charged by other investment advisers of similar funds: The Adviser is voluntarily waiving advisory fees due to the small size of the Fund. At times the Adviser is reimbursing the Fund for expenses paid above the voluntary expense cap. The Board considered the compensation payable under the Advisory Agreement fair and reasonable in light of the services to be provided.
Expense ratios of the applicable fund as compared to data for comparable funds: The Fund’s net expense ratio of 0.75% for the Class A shares was comparable to other funds of similar objective and size.
Information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds: The Board noted that the Adviser does not realize material direct benefits from its relationship with the Fund. The Adviser does not participate in any soft dollar arrangements from securities trading in the Fund.
In voting unanimously to approve the Advisory Agreement, the Trustees did not identify any single factor as being of paramount importance. The Trustees noted that their discussion in this regard was premised on numerous factors including the nature, quality and resources of Integrity Money Management, the strategic plan involving the Fund and the potential for increased distribution and growth of the Fund. They determined that, after considering all relevant factors, the adoption of the Advisory Agreement would be in the best interest of the Fund and its shareholders.
Potential Conflicts of Interest – Investment Adviser
Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account. More specifically, portfolio managers who manage multiple funds are presented with the following potential conflicts:
The management of multiple funds may result in a portfolio manager devoting unequal time and attention to the management of each fund. The Investment Adviser seeks to manage such competing interests for the time and attention of portfolio managers by having them focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment models that are used in connection with the management of the Funds. The management of multiple funds and accounts also may give rise to potential conflicts of interest if the funds and accounts have different objectives, benchmarks, time horizons, and fees as the portfolio manager must allocate his time and investment ideas across multiple funds and accounts.
• | With respect to securities transactions for the Funds, the Investment Adviser determines which broker to use to execute each order, consistent with the duty to seek best execution of the transaction. The portfolio manager may execute transactions for another fund or account that may adversely impact the value of securities held by the Funds. Securities selected for funds or accounts other than the Funds may outperform the securities selected for the Funds. |
• | With respect to securities transactions for the Funds, the Investment Adviser determines which broker to use to execute each order, consistent with the duty to seek best execution of the transaction. The portfolio manager may execute transactions for another fund or account that may adversely impact the value of securities held by the Funds. Securities selected for funds or accounts other than the Funds may outperform the securities selected for the Funds. |
• | The appearance of a conflict of interest may arise where the Investment Adviser has an incentive, such as a performance-based management fee, which relates to the management of one fund but not all funds with respect to which a portfolio manager has day-to-day management responsibilities. The management of personal accounts may give rise to potential conflicts of interest; there is no assurance that the Funds' code of ethics will adequately address such conflicts. One of the portfolio manager's numerous responsibilities is to assist in the sale of Fund shares. Mr. Avery's compensation is based on salary paid every other week. He is not compensated for client retention. In addition, Integrity Mutual Funds, Inc., sponsors a 401(k) plan for all its employees. This plan is funded by employee elective deferrals and, to an extent, matching contributions by the Company. After one year of employment the employee is eligible to participate in the Company matching program. The Company matches 100% of contribution up to 3% and ½% for each additional percent contributed up to 5%. The Company has established a program in which it will grant interests in Integrity Mutual Funds Inc., shares to current employees that meet certain eligibility requirements, as a form of long-term incentive. The program is designed to allow all employees to participate in the long-term growth of the value of the firm. |
• | Although the Portfolio Managers generally do not trade securities in their own personal account, each of the Funds has adopted a code of ethics that, among other things, permits personal trading by employees under conditions where it has been determined that such trades would not adversely impact client accounts. Nevertheless, the management of personal accounts may give rise to potential conflicts of interest, and there is no assurance that these codes of ethics will adequately address such conflicts. |
The Investment Adviser and the Funds have adopted certain compliance procedures, which are designed to address these types of conflicts. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.
Schedule of Investments January 31, 2007 (Unaudited)
Name of Issuer Percentages represent the market value of each investment category to total net assets | Rating Moody's/S&P | Coupon Rate | Maturity |
| Principal Amount |
| Market Value | ||
|
|
|
|
|
|
|
| ||
KANSAS MUNICIPAL BONDS (98.4%) |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
Butler Cty., KS (Circle) USD #375 FSA | Aaa/NR | 5.000% | 09/01/2013 | $ | 250,000 | $ | 259,580 | ||
#Chisholm Creek Util. Auth. (Bel Aire & Park City, KS Pj.) MBIA | Aaa/NR | 5.250 | 09/01/2016 |
| 770,000 |
| 826,564 | ||
Dodge, KS USD #443 Unltd. General Obligation FSA | Aaa/AAA | 5.750 | 09/01/2013 |
| 100,000 |
| 105,064 | ||
Johnson Cty., KS Community College Student Commons & Parking AMBAC | Aaa/AAA | 5.000 | 11/15/2019 |
| 235,000 |
| 247,845 | ||
Johnson Cty., KS USD #232 (Desoto) FSA | Aaa/NR | 5.000 | 09/01/2015 |
| 100,000 |
| 107,627 | ||
Johnson Cty., KS USD #232 (Desoto) MBIA | Aaa/NR | 5.000 | 03/01/2015 |
| 250,000 |
| 267,766 | ||
Kingman Cty., KS USD #331 FGIC | Aaa/AAA | 5.500 | 10/01/2012 |
| 250,000 |
| 264,933 | ||
KS Devl. Finance Auth. (Dept. Admin. 7th & Harrison PJ) AMBAC | Aaa/AAA | 5.500 | 12/01/2013 |
| 375,000 |
| 392,482 | ||
KS Devl. Finance Auth. (Hays Medl. Ctr.) Rev. MBIA | Aaa/NR | 5.200 | 11/15/2008 |
| 375,000 |
| 381,375 | ||
KS Devl. Finance Auth. (Hays Medl. Ctr.) Rev. MBIA | Aaa/NR | 5.300 | 11/15/2009 |
| 375,000 |
| 381,251 | ||
KS Devl. Finance Auth. (Hays Medl. Ctr.) Rev. MBIA | Aaa/NR | 5.500 | 11/15/2017 |
| 100,000 |
| 101,987 | ||
KS Devl. Finance Auth. (KS St. Projects) Rev. MBIA | Aaa/AAA | 5.000 | 10/01/2017 |
| 250,000 |
| 261,435 | ||
KS Devl. Finance Auth. (Park Apts.) Multifamily Hsg. Rev. FNMA | NR/AAA | 5.700 | 12/01/2009 |
| 325,000 |
| 327,997 | ||
KS Devl. Finance Auth. (State of KS Projects) MBIA | Aaa/AAA | 4.100 | 05/01/2019 |
| 250,000 |
| 246,315 | ||
#KS Devl. Finance Auth. (Stormont Vail) Hlth. Care Rev. MBIA | Aaa/AAA | 5.700 | 11/15/2008 |
| 450,000 |
| 450,337 | ||
*KS Devl. Finance Auth. (Stormont Vail) Hlth. Care Rev. MBIA | Aaa/AAA | 5.750 | 11/15/2012 |
| 845,000 |
| 901,302 | ||
KS Devl. Finance Auth. (Wichita Univ.) AMBAC | Aaa/AAA | 5.900 | 04/01/2015 |
| 305,000 |
| 320,851 | ||
*Mission, KS Multifamily Hsg. (Lamar Place) Rev. FNMA | NR/AAA | 5.000 | 10/01/2014 |
| 605,000 |
| 614,970 | ||
Mission, KS Multifamily Hsg. (Lamar Place) Rev. FNMA | NR/AAA | 5.180 | 10/01/2023 |
| 445,000 |
| 452,084 | ||
Morton Cty., KS USD# 217 FSA | Aaa/AAA | 4.000 | 09/01/2010 |
| 100,000 |
| 101,044 | ||
Olathe, KS Multifamily Hsg. (Bristol Pointe) Rev. Ref. FNMA | NR/AAA | 5.250 | 11/01/2012 |
| 485,000 |
| 490,869 | ||
Reno Cty., KS USD #308 Hutchinson MBIA | Aaa/NR | 4.500 | 09/01/2022 |
| 250,000 |
| 251,385 | ||
Saline Cty., KS USD #305 (Salina) G.O. Ref. FSA | Aaa/NR | 5.500 | 09/01/2015 |
| 190,000 |
| 201,854 | ||
Shawnee Cty., KS USD #437 (Auburn-Washburn) G.O. Ref. FSA | Aaa/NR | 5.000 | 09/01/2014 |
| 485,000 |
| 507,262 | ||
Shawnee, KS Multifamily Hsg. (Thomasbrooks Apts.) Rev. FNMA COL. | NR/AAA | 5.250 | 10/01/2014 |
| 215,000 |
| 217,988 | ||
*University of Kansas Hosp. Auth. AMBAC | Aaa/AAA | 5.500 | 09/01/2015 |
| 1,000,000 |
| 1,034,800 | ||
Washburn Univ. (Living Learning Ctr.) Bldg. Rev. AMBAC | Aaa/AAA | 5.350 | 07/01/2011 |
| 105,000 |
| 108,416 | ||
Wellington, KS Utility Rev. AMBAC | Aaa/AAA | 5.000 | 05/01/2012 |
| 250,000 |
| 253,385 | ||
Wichita, KS G.O. (Series 772) FGIC | Aaa/AAA | 4.100 | 09/01/2014 |
| 130,000 |
| 130,736 | ||
#Wichita, KS Multifamily Hsg. (Broadmoor Chelsea) Rev. FNMA | NR/AAA | 5.375 | 07/01/2010 |
| 330,000 |
| 333,950 | ||
*Wichita, KS Multifamily Hsg. (Cimarron Apartments) FNMA | NR/AAA | 5.250 | 10/01/2012 |
| 405,000 |
| 409,722 | ||
Wichita, KS Water & Sewer Util. Rev. FGIC | Aaa/AAA | 5.250 | 10/01/2014 |
| 325,000 |
| 347,763 | ||
#Wyandotte Cty., Kansas City, KS Gov't. Util. Syst. Rev. MBIA | Aaa/AAA | 5.125 | 09/01/2013 |
| 500,000 |
| 517,340 | ||
Wyandotte Cty., KS USD #500 G.O. FSA | Aaa/AAA | 5.250 | 09/01/2013 |
| 250,000 |
| 269,910 | ||
TOTAL KANSAS MUNICIPAL BONDS (COST: $11,835,699) |
|
|
|
| $ | 12,088,189 | |||
|
|
|
|
|
|
|
| ||
SHORT-TERM SECURITIES (0.6%) |
|
|
|
| Shares |
|
| ||
Wells Fargo Advantage National Tax-Free Money Market (COST: $70,464) |
|
| 70,464 | $ | 70,464 | ||||
|
|
|
|
|
|
|
| ||
TOTAL INVESTMENTS IN SECURITIES (COST: $11,906,163) |
|
|
|
| $ | 12,158,653 | |||
OTHER ASSETS LESS LIABILITIES |
|
|
|
|
|
| 130,239 | ||
|
|
|
|
|
|
|
| ||
NET ASSETS |
|
|
|
|
| $ | 12,288,892 | ||
* Indicates bonds are segregated by the custodian to cover when-issued or delayed-delivery purchases.
# Indicates bonds are segregated by the custodian to cover initial margin requirements.
Non-rated (NR) securities in the Fund were investment grade when purchased.
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Assets and Liabilities January 31, 2007 (Unaudited)
|
|
| |||
ASSETS |
|
| |||
| Investment in securities, at value (cost: $11,906,163) | $ | 12,158,653 | ||
| Cash |
| 3,900 | ||
| Accrued interest receivable |
| 186,851 | ||
| Accrued dividends receivable |
| 706 | ||
| Prepaid expenses |
| 2,736 | ||
| Receivable from manager |
| 1,601 | ||
|
|
| |||
| Total Assets | $ | 12,354,447 | ||
|
|
| |||
LIABILITIES |
|
| |||
| Dividends payable | $ | 42,420 | ||
| Payable for fund shares redeemed |
| 12,259 | ||
| Payable to affiliates |
| 7,056 | ||
| Accrued expenses |
| 3,820 | ||
|
|
| |||
| Total Liabilities | $ | 65,555 | ||
|
|
| |||
|
|
| |||
NET ASSETS | $ | 12,288,892 | |||
|
|
| |||
|
|
| |||
Net assets are represented by: |
|
| |||
| Paid-in capital | $ | 13,430,051 | ||
| Accumulated undistributed net realized gain (loss) on investments and futures |
| (1,393,674) | ||
| Accumulated undistributed net investment income |
| 25 | ||
| Unrealized appreciation (depreciation) on investments |
| 252,490 | ||
| Total amount representing net assets applicable to 1,125,370 outstanding shares of no par common stock (unlimited shares authorized) | $ | 12,288,892 | ||
|
|
| |||
Net asset value per share | $ | 10.92 | |||
Public offering price (based on sales charge of 2.75%) | $ | 11.23 | |||
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Operations For the six months ended January 31, 2007 (Unaudited)
|
|
| |||
INVESTMENT INCOME |
|
| |||
| Interest | $ | 288,549 | ||
| Dividends |
| 6,587 | ||
| Total Investment Income | $ | 295,136 | ||
|
|
| |||
EXPENSES |
|
| |||
| Investment advisory fees | $ | 31,187 | ||
| Administrative service fees |
| 11,017 | ||
| Transfer agent fees |
| 11,536 | ||
| Accounting service fees |
| 15,119 | ||
| Custodian fees |
| 1,206 | ||
| Transfer agent out-of-pockets |
| 364 | ||
| Professional fees |
| 4,509 | ||
| Trustees fees |
| 1,062 | ||
| Reports to shareholders |
| 1,253 | ||
| Registration and filing fees |
| 736 | ||
| Audit expense |
| 4,927 | ||
| Other expenses |
| 184 | ||
| Total Expenses | $ | 83,100 | ||
| Less expenses waived or absorbed by the Fund’s manager |
| (36,319) | ||
| Total Net Expenses | $ | 46,781 | ||
|
|
| |||
NET INVESTMENT INCOME | $ | 248,355 | |||
|
|
| |||
|
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| |||
| Net realized gain (loss) from investment transactions | $ | (1,751) | ||
| Net change in unrealized appreciation (depreciation) of investments |
| (29,325) | ||
| Net Realized and Unrealized Gain (Loss) On Investments | $ | (31,076) | ||
|
|
| |||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 217,279 | |||
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Changes in Net Assets
For the six months ended January 31, 2007, and the year ended July 31, 2006
|
| For The Six Months Ended January 31, 2007 (Unaudited) |
| For The Year Ended July 31, 2006 | ||
|
|
|
|
| ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| ||
| Net investment income | $ | 248,355 | $ | 506,642 | |
| Net realized gain (loss) on investment and futures transactions |
| (1,751) |
| 387,021 | |
| Net change in unrealized appreciation (depreciation) on investments and futures |
| (29,325) |
| (385,763) | |
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 217,279 | $ | 507,900 | |
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| ||
| Dividends from net investment income ($.22 and $.43 per share, respectively) | $ | (248,330) | $ | (506,639) | |
| Distributions from net realized gain on investment and futures transactions ($.00 and $.00 per share, respectively) |
| 0 |
| 0 | |
| Total Dividends and Distributions | $ | (248,330) | $ | (506,639) | |
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS |
|
|
|
| ||
| Proceeds from sale of shares | $ | 419,053 | $ | 680,818 | |
| Proceeds from reinvested dividends |
| 153,729 |
| 305,774 | |
| Cost of shares redeemed |
| (671,533) |
| (3,049,064) | |
| Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions | $ | (98,751) | $ | (2,062,472) | |
|
|
|
|
| ||
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | (129,802) | $ | (2,061,211) | ||
|
|
|
|
| ||
NET ASSETS, BEGINNING OF PERIOD |
| 12,418,694 |
| 14,479,905 | ||
|
|
|
|
| ||
NET ASSETS, END OF PERIOD | $ | 12,288,892 | $ | 12,418,694 | ||
Undistributed Net Investment Income | $ | 25 | $ | 0 | ||
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements January 31, 2007 (Unaudited)
Note 1. ORGANIZATION
Business operations - Kansas Insured Intermediate Fund (the “Fund”) is an investment portfolio of Integrity Managed Portfolios (the “Trust”) registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. Integrity Managed Portfolios is an unincorporated business trust organized under Massachusetts law on August 10, 1990. The Fund had no operations from that date to November 23, 1992, other than matters relating to organization and registration. On November 23, 1992, the Fund commenced its Public Offering of capital shares. The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal and Kansas state income tax as is consistent with preservation of capital. The Fund will seek to achieve this objective b y investing primarily in a portfolio of Kansas insured securities.
Shares of the Fund are offered at net asset value plus a maximum sales charge of 2.75% of the offering price.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation - Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees which include consideration of the following: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, and indications as to value from dealers and general market conditions. Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on t he trade date.
The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.
When-issued securities – The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities purchased on a when-issued basis are identified as such in the Fund’s Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic, or other factors.
Federal and state income taxes - The Fund’s policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its net investment income and any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required. Distributions during the year ended July 31, 2006, were characterized as tax-exempt for tax purposes.
The tax character of distributions paid was as follows:
|
| July 31, 2006 |
| July 29, 2005 | |
Tax-exempt Income | $ | 506,639 | $ | 599,718 | |
Ordinary Income |
| 0 |
| 0 | |
Long-term Capital Gains |
| 0 |
| 0 | |
| Total | $ | 506,639 | $ | 599,718 |
As of July 31, 2006, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation) | Total Accumulated Earnings/(Deficit) |
$0 | $0 | $0 | ($1,391,923) | $281,815 | ($1,110,108) |
The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2006, totaling $1,391,923, which may be used to offset capital gains. The capital loss carryforward amounts will expire in each of the years ended July 31 as shown in the table below.
Year |
| Unexpired Capital Losses |
2007 | $ | 27,100 |
2008 | $ | 49,698 |
2009 | $ | 78,788 |
2010 | $ | 178,976 |
2011 | $ | 209,757 |
2012 | $ | 303,542 |
2013 | $ | 544,062 |
For the year ended July 31, 2006, the Fund made $36,266 in permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to expiring capital loss carryforwards.
Net capital losses incurred after October 31, and within the tax year are deemed to arise on the first business day of the Fund’s next taxable year. For the year ended July 31, 2006, the Fund deferred to August 1, 2006 post October capital losses, post October currency losses and post October passive foreign investment company losses of $0.
Distributions to shareholders - Dividends from net investment income, declared daily and payable monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed at least annually.
Premiums and discounts - Premiums and discounts on municipal securities are amortized for financial reporting purposes.
Other - Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatment for market discount, capital loss carryforwards and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
Futures contracts - The Fund may purchase and sell financial futures to hedge against changes in the values of tax-exempt municipal securities the Fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of a particular index or a certain amount of U.S. government or municipal securities at a set price on a future date. Upon entering into a futures contract, the Fund is required to deposit with a broker an amount of cash or securities equal to the minimum “initial margin” requirement of the futures exchange on which the contract is traded. Subsequent payments (“variation margin”) are made or received by the Fund, dependent on the fluctuations in the value of the underlying index. Daily fluctuations in value are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize, for book purposes, a gain or loss equal to the difference between the value of the futures contracts sold and the futures contracts to buy. Unrealized appreciation (depreciation) related to open futures contracts is required to be treated as a realized gain (loss) for federal income tax purposes.
Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Schedule of Investments. The Statement of Assets and Liabilities reflects a receivable or payable for the daily mark to market for variation margin.
Certain risks may arise upon entering into futures contracts. These risks may include changes in the value of the futures contracts that may not directly correlate with changes in the value of the underlying securities.
Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 3. CAPITAL SHARE TRANSACTIONS
As of January 31, 2007, there were unlimited shares of no par authorized; 1,125,370 and 1,134,356 shares were outstanding at January 31, 2007, and July 31, 2006, respectively.
Transactions in capital shares were as follows:
| Shares | |
| For The Six Months Ended January 31, 2007 (Unaudited) |
For The Year Ended July 31, 2006 |
| ||
| ||
Shares sold | 38,152 | 62,142 |
Shares issued on reinvestment of dividends | 13,994 | 27,989 |
Shares redeemed | (61,132) | (279,142) |
Net increase (decrease) | (8,986) | (189,011) |
Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, the Fund’s transfer, accounting, and administrative services agent, are subsidiaries of Integrity Mutual Funds, Inc., the Fund’s sponsor.
The Fund has engaged Integrity Money Management to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund’s average daily net assets. All investment advisory fees were waived for the six months ended January 31, 2007. The Fund has a payable to Integrity Money Management of $0 at January 31, 2007 for investment advisory fees. Certain officers and trustees of the Fund are also officers and directors of the investment adviser.
Under the terms of the advisory agreement, the investment adviser has agreed to pay the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 0.75% of the Fund’s average daily net assets on an annual basis. The investment adviser may also voluntarily waive fees or reimburse expenses not required under the advisory contract from time to time. Accordingly, after fee waivers and expense reimbursements, the Fund’s actual total annual operating expenses were 0.75% for the six months ended January 31, 2007.
Integrity Fund Services, the transfer agent, provides shareholder services for a variable fee equal to 0.20% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus reimbursement of out-of-pocket expenses. An additional fee with a minimum of $500 per month is charged for each additional share class. The Fund has recognized $11,536 of transfer agency fees and expenses for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,120 at January 31, 2007 for transfer agency fees. Integrity Fund Services also acts as the Fund’s accounting services agent for a monthly fee equal to the sum of a fixed fee of $2,000 and a variable fee equal to 0.05% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 mil lion and at a lower rate on the average daily net assets in excess of $50 million, together with reimbursement of out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $15,119 of accounting service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,597 at January 31, 2007 for accounting service fees. Integrity Fund Services also acts as the Fund’s administrative services agent for a variable fee equal to 0.125% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $11,017 of administrative service fees for the six month s ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,067 at January 31, 2007 for administrative service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment securities (excluding short-term securities) aggregated $635,903 and $388,214, respectively, for the six months ended January 31, 2007.
Note 6. INVESTMENT IN SECURITIES
At January 31, 2007, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $11,906,163. The net unrealized appreciation of investments for financial reporting purposes based on the cost was $252,490, which is comprised of $266,426 aggregate gross unrealized appreciation and $13,936 aggregate gross unrealized depreciation. Differences between financial reporting-basis and tax-basis unrealized appreciation/depreciation are due to differing treatment of market discount.
Note 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund is presently evaluating the impact of adopting SFAS 157.
Financial Highlights
Selected per share data and ratios for the period indicated
|
| For The Six Months Ended January 31, 2007 (Unaudited) |
| For The Year Ended July 31, 2006 |
| For The Year Ended July 29, 2005 |
| For The Year Ended July 30, 2004 |
| For The Year Ended July 31, 2003 |
| For The Year Ended July 31, 2002 |
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 10.95 | $ | 10.94 | $ | 11.44 | $ | 11.60 | $ | 11.91 | $ | 11.93 |
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Income from Investment Operations: |
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Net investment income | $ | .22 | $ | .43 | $ | .42 | $ | .43 | $ | .46 | $ | .50 |
Net realized and unrealized gain (loss) on investment and futures transactions |
| (.03) |
| .01 |
| (.50) |
| (.16) |
| (.31) |
| (.02) |
Total Income (Loss) From Investment Operations | $ | .19 | $ | .44 | $ | (.08) | $ | .27 | $ | .15 | $ | .48 |
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Less Distributions: |
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Dividends from net investment income | $ | (.22) | $ | (.43) | $ | (.42) | $ | (.43) | $ | (.46) | $ | (.50) |
Distributions from net capital gains |
| .00 |
| .00 |
| .00 |
| .00 |
| .00 |
| .00 |
Total Distributions | $ | (.22) | $ | (.43) | $ | (.42) | $ | (.43) | $ | (.46) | $ | (.50) |
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NET ASSET VALUE, END OF PERIOD | $ | 10.92 | $ | 10.95 | $ | 10.94 | $ | 11.44 | $ | 11.60 | $ | 11.91 |
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Total Return |
| 3.46%(A)(C) |
| 4.06%(A) |
| (0.75%)(A) |
| 2.31%(A) |
| 1.26%(A) |
| 4.12%(A) |
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RATIOS/SUPPLEMENTAL DATA: |
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|
Net assets, end of period (in thousands) | $ | 12,289 | $ | 12,419 | $ | 14,480 | $ | 16,982 | $ | 18,477 | $ | 18,633 |
Ratio of net expenses (after expense assumption) to average net assets |
| 0.75%(B)(C) |
| 0.75%(B) |
| 0.75%(B) |
| 0.75%(B) |
| 0.75%(B) |
| 0.75%(B) |
Ratio of net investment income to average net assets |
| 3.97%(C) |
| 3.89% |
| 3.71% |
| 3.67% |
| 3.89% |
| 4.20% |
Portfolio turnover rate |
| 3.23% |
| 4.15% |
| 1.81% |
| 4.39% |
| 26.23% |
| 9.04% |
(A) Excludes maximum sales charge of 2.75%.
(B) During the periods indicated above, Integrity Mutual Funds, Inc. or Integrity Money Management assumed/waived expenses of $36,319, $62,295, $57,567, $58,289, $36,281, and $30,501, respectively. If the expenses had not been assumed/waived, the annualized ratios of total expenses to average net assets would have been 1.33%, 1.23%, 1.10%, 1.08%, 0.94%, and 0.91%, respectively.
(C) Ratio is annualized.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
Dear Shareholder:
Enclosed is the semi-annual report of the Maine Municipal Fund (the “Fund”) for the period ended January 31, 2007. The Fund’s portfolio and related financial statements are presented within for your review.
In the last part of 2006 investors pushed back when they thought the Federal Reserve would cut interest rates.
Fed Fund futures expectations of where rates are going now give less than even odds that the Fed will cut its key target rate by a quarter point by September. In November the view was that the Fed would almost certainly cut rates from the current 5.25% once and possibly twice.
The mood has shifted as economic reports suggest the economy is in better shape than investors had thought. One reason investors remain so upbeat is that the economy appears to be catching its footing and inflation looks more subdued.
Federal Reserve chairman Ben Bernanke has said repeatedly he hopes the core inflation rate will continue to moderate, falling back below 2%. But he continues to worry, at least in public, about the risk of more persistent inflation, which would force him to raise rates again.
The bond market right now is worried about a different threat, a recession. That fear helped push the yield on the 10-year Treasury bond to 4.81% at the end of the period, higher than the 4.39% at which it began 2006, but well below the 5.25% it hit in late June 2006.
Long-term government bonds now yield less than short-term bonds. That makes investors nervous because, at times, it has historically been a sign of a coming recession. Lower long-term yields suggest investors expect rates to fall when the economy is weakening.
Some tend to downplay the recession risk. Heavy foreign demand for longer-term U.S. Treasury bonds, together with exceptionally low worldwide inflation rates, have kept U.S. bonds lower than normal.
Low yields hold down other market interest rates such as fixed mortgage rates. They encourage consumers and businesses alike to borrow, spend and invest which supports corporate profits and stock prices.
The Maine Municipal Fund began the period $10.52 per share and ended the six month period at $10.52 per share for a total return of 1.70%*. This compares to the Lehman Brothers Municipal Bond Index return of 3.06% for the period.
The Funds favorable overall performance can be attributed to its defensive portfolio, with an average maturity of 12 years and a low average maturity to the first call date of 4 years. That, along with an average portfolio coupon of 5.25%, helps relative performance in a rising rate environment.
Issues contributing to this defensive portfolio include: Maine Turnpike Authority, 5.75% coupon, due 7/1/2028; Portland GO, 5.30% coupon, due 6/1/2013; and Yarmouth GO, 5.25% coupon, due 11/15/2009.
An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Portfolio quality for the year was as follows: AAA 77.7%, AA 19.4%, A 2.4% and BBB 0.5%.
Income exempt from federal and Maine state income taxes with preservation of capital remain the primary objectives of the Fund.
If you would like more frequent updates, visit our website at www.integrityfunds.com for daily prices along with pertinent Fund information.
Sincerely,
Monte Avery
Portfolio Manager
The views expressed are those of Monte Avery, Chief Portfolio Strategist with Integrity Mutual Funds. The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any Integrity Mutual Fund.
*Performance does not include applicable front-end or contingent deferred sales charges, which would have reduced the performance.
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities than a municipal bond fund that does not concentrate its securities in a single state.
January 31, 2007 (Unaudited)
PROXY VOTING ON FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-276-1262. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Integrity's website at www.integrityfunds.com. This information is also available from the EDGAR database on the Securities and Exchange Commission’s (“SEC's”) website at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
The Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports within 60 days of the end of the Fund's second and fourth fiscal quarters on the Form N-CSR(S). The annual and semi-annual reports are filed electronically with the SEC and are delivered to the Fund shareholders. The Fund also files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q and N-CSR(S) are available on the SEC's website at www.sec.gov. The Fund's Forms N-Q and N-CSR(S) may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C., and the information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. You may also access this information from Integrity's website at www.integrityfunds.com.
Terms & DefinitionsJanuary 31, 2007 (Unaudited)
Appreciation
Increase in value of an asset.
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned by the fund on an annual basis, assuming all distributions are reinvested.
Coupon Rate or Face Rate
The rate of interest payable annually, based on the face amount of the bond; expressed as a percentage.
Depreciation
Decrease in value of an asset.
Lehman Brothers Municipal Bond Index
An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund.
Market Value
Actual (or estimated) price at which a bond trades in the market place.
Maturity
A measure of the term or life of a bond in years. When a bond “matures,” the issuer repays the principal.
Net Asset Value (NAV)
The value of all your fund’s assets, minus any liabilities, divided by the number of outstanding shares, not including any initial sales charge.
Quality Ratings
A designation assigned by independent rating companies to give a relative indication of a bond’s credit worthiness. “AAA,” “AA,” “A,” and “BBB” indicate investment grade securities. Ratings can range from a high of “AAA” to a low of “D”.
Total Return
Measures both the net investment income and any realized and unrealized appreciation or depreciation of the underlying investments in the fund’s portfolio for the period, assuming the reinvestment of all dividends. It represents the aggregate percentage or dollar value change over the period.
January 31, 2007 (Unaudited)
COMPOSITION
PORTFOLIO QUALITY RATINGS
(Based on Total Long-Term Investments)
AAA | 77.7% |
AA | 19.4% |
A | 2.4% |
BBB | 0.5% |
Quality ratings reflect the financial strength of the issuer. They are assigned by independent rating services such as Moody’s Investors Services and Standard & Poor’s. Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. (“Integrity Money Management” or “Adviser”), the investment adviser.
These percentages are subject to change.
PORTFOLIO MARKET SECTORS
(As a % of Net Assets)
T-Transportation | 34.2% |
G-Government | 19.9% |
I-Industrial | 18.8% |
HC-Health Care | 8.3% |
S-School | 7.8% |
U-Utilities | 4.1% |
W/S-Water/Sewer | 3.5% |
O-Other | 3.4% |
Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.
These percentages are subject to change.
January 31, 2007 (Unaudited)
DISCLOSURE OF FUND EXPENSES
The Example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads), redemption fees and exchange fees; and (2) ongoing costs, including management fees, distribution (12b-1) fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 31, 2006 to January 31, 2007.
The example illustrates the Fund’s costs in two ways:
Actual expenses
The section in the table under the heading “Actual” provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the appropriate column for your share class, in the column entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The section in the table under the heading “Hypothetical (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the section in the table under the heading “Hypothetical (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value 07/31/06 | Ending Account Value 01/31/07 | Expenses Paid During Period* |
Actual |
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Class A | $1,000.00 | $1,017.00 | $5.40 |
Hypothetical (5% return before expenses) |
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Class A | $1,000.00 | $1,019.86 | $5.40 |
* Expenses are equal to the annualized expense ratio 1.07%, multiplied by the average account value over the period, multiplied by 180/360 days. The Fund’s ending account value on the first line in the table is based on its actual total return of 1.70% for the six-month period of July 31, 2006 to January 31, 2007.
January 31, 2007 (Unaudited)
AVERAGE ANNUAL TOTAL RETURNS
| For periods ending January 31, 2007 | ||||
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| Since Inception (December 5, 1991) |
Maine Municipal Fund | 1 year | 3 year | 5 year | 10 year | |
Without sales charge | 5.23% | 1.68% | 2.95% | 4.00% | 4.97% |
With sales charge (4.25%) | 0.75% | 0.22% | 2.06% | 3.55% | 4.67% |
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| Since Inception (December 5, 1991) |
Lehman Brothers Municipal Bond Index | 1 year | 3 year | 5 year | 10 year | |
| 4.30% | 4.00% | 5.12% | 5.71% | 6.32% |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemption of Fund shares.
The Fund's performance prior to December 19, 2003, was achieved while the Fund was managed by another investment adviser, who used different investment strategies and techniques, which may produce different investment results than those achieved by the current investment adviser. Forum Investment Advisors, LLC, served as investment adviser to the Fund until December 19, 2003.
January 31, 2007 (Unaudited)
COMPARATIVE INDEX GRAPH
Comparison of change in value of a $10,000 investment in the Maine Municipal Fund and the Lehman Brothers Municipal Bond Index
| Maine Municipal Fund w/o Sales Charge | Maine Municipal Fund w/ Max Sales Charge | Lehman Brothers Municipal Bond Index |
| |||
7/31/1996 | $10,000 | $9,571 | $10,000 |
1997 | $10,798 | $10,335 | $11,027 |
1998 | $11,321 | $10,835 | $11,687 |
1999 | $11,623 | $11,125 | $12,024 |
2000 | $12,067 | $11,549 | $12,542 |
2001 | $13,024 | $12,465 | $13,808 |
2002 | $13,697 | $13,110 | $14,735 |
2003 | $14,002 | $13,402 | $15,264 |
2004 | $14,555 | $13,932 | $16,147 |
2005 | $14,448 | $13,829 | $17,174 |
2006 | $15,043 | $14,398 | $17,613 |
1/31/2007 | $15,309 | $14,653 | $18,151 |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The graph does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
The graph comparing your Fund’s performance to a benchmark index provides you with a general sense of how your Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Maine municipal bonds. Your Fund’s total return for the period shown appears with and without sales charges and includes Fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged; there are no expenses that affect the results. In addition, few investors could purchase all of the securities necessary to match the index. And, if they could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.
January 31, 2007 (Unaudited)
MANAGEMENT OF THE FUND
The Board of Integrity Managed Portfolios consists of four Trustees. These same individuals, unless otherwise noted, also serve as Directors or Trustees for all of the funds in the Integrity family of funds, the six series of Integrity Managed Portfolios and the seven series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “Independent” Trustees. Two of the remaining three Trustees and/or executive officers are “interested” by virtue of their affiliation with the Investment Adviser and it
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
NAME, ADDRESS AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1 | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Jerry M. Stai | Trustee | Since January 2006 | Faculty, Embry-Riddle University (August 2000 to September 2005); Faculty, Park University (August 2005 to December 2005); Non-Profit Specialist, Bremer Bank (since July 2005); Faculty, Minot State University (since August 2000); Director, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006). | 16 | Marycrest Franciscan Development, Inc. |
Orlin W. Backes | Trustee | Since January 1996 | Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director, South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., (Since April 2005); Trustee, The Integrity Funds (since May 2003); and Director, First Western Bank & Trust. | 16 | First Western Bank & Trust |
R. James Maxson | Trustee | Since January 1999 | Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Director, Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc. and Montana Tax-Free Fund, Inc. (since January 1999), South Dakota Tax-Free Fund, Inc. (January 1999 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); and Trustee, The Integrity Funds (since May 2003). | 16 | Vincent United Methodist Foundation
Minot Area Development Corporation |
1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.
Trustees and officers of the Fund serve until their resignation, removal or retirement.
The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.
January 31, 2007 (Unaudited)
The Interested Trustees and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEES AND EXECUTIVE OFFICERS
NAME, ADDRESS AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1 | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Robert E. Walstad2 | Trustee, Chairman, President | Since January 1996 | Director (since September 1987), President (September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., Integrity Fund Services, Inc.; Director, President (since inception) and Treasurer (May 1989 to May 2004), ND Capital, Inc. (August 1988 to September 2004), South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc.; Trustee, Chairman and President (since May 2003) and Treasurer (May 2003 to May 2004), The Integrity Funds; Director, President and Treasurer (May 2003 to August 2003), Integrity Funds Distributor, Inc.; Director (October 1999 to June 2003), Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (October 2002 to June 2003), ARM Securities Corporation; and Director, CEO, Chairman (since January 2002), Pres ident (September 2002 to December 2004), Capital Financial Services, Inc. | 16 | Capital Financial Services, Inc., and Minot Park Board |
Peter A. Quist | Vice President, Secretary | Since January 1996 | Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc., ND Capital, Inc. (August 1988 to September 2004), Integrity Fund Services, Inc., South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax Free Fund, Inc., Integrity Funds Distributor, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003); and Director, ARM Securities Corporation (May 2000 to June 2003). | 3 | None |
Laura K. Anderson | Treasurer | Since October 2005 | Fund Accountant (until May 2004), Fund Accounting Supervisor (May 2004 to October 2005), Fund Accounting Manager, Integrity Fund Services, Inc.; Treasurer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. | N/A | None |
Brent M. Wheeler | Mutual Fund Chief Compliance Officer | Since October 2005 | Fund Accounting Manager (May 1998 to October 2005), Integrity Fund Services, Inc.; Treasurer (May 2004 to October 2005), Mutual Fund Compliance Officer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. | N/A | None |
1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.
2Mr. Walstad qualifies as an interested person of the Trust, as defined in the 1940 Act, by virtue of being an officer and director of the Investment Adviser and Distributor.
Trustees and officers of the Fund serve until their resignation, removal or retirement.
The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.
January 31, 2007 (Unaudited)
Board Approval of Investment Advisory Agreement
Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”), the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“the Company”), the Fund’s sponsor.
The approval and the continuation of a fund’s investment advisory agreement must be specifically approved at least annually (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “Interested Persons” of any party (“Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In preparation for the meeting, the Board requests and reviews a wide variety of materials provided by the Fund’s adviser. The Independent Trustees also received advice from their independent counsel on the issues to focus on during contract renewals. At a meeting held on October 25, 2006, the Board of Trustees, including a majority of the Independent Trustees of the Fund, approved the Management and Investment Advisory Agreement (“Advisory Agreement”), between the Fundand Integrity Money Management.
The Trustees, including a majority of Trustees who are neither party to the Advisory Agreements nor “interested persons” of any such party (as such term is defined for regulatory purposes), unanimously approved the Advisory Agreement. In determining whether it was appropriate to approve the Advisory Agreement, the Trustees requested information, provided by the Investment Adviser that it believed to be reasonably necessary to reach its conclusion. In connection with the approval of the Advisory Agreements, the Board reviewed factors set out in judicial decisions and Securities Exchange Commission directives relating to the approval of advisory contracts, which include but are not limited to, the following:
(a) | the nature and quality of services to be provided by the adviser to the fund; |
(b) | the various personnel furnishing such services and their duties and qualifications; |
(c) | the relevant fund’s investment performance as compared to standardized industry performance data; |
(d) | the adviser’s costs and profitability of furnishing the investment management services to the fund; |
(e) | the extent to which the adviser realizes economies of scale as the fund grows larger and the sharing thereof with the fund; |
(f) | an analysis of the rates charged by other investment advisers of similar funds; |
(g) | the expense ratios of the applicable fund as compared to data for comparable funds; and |
(h) | information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds. |
In evaluating the Adviser’s services and its fees, the Trustees reviewed information concerning the performance of the Fund, the recent financial statements of the Adviser and its parent, and the proposed advisory fee and other fund expenses compared to the level of advisory fees and expenses paid by other similar funds. In reviewing the Advisory Agreement with the foregoing Fund, the Trustees considered, among other things, the fees, the Fund’s past performance, the nature and quality of the services provided, the profitability of the Adviser and its parent (estimated costs and estimated profits from furnishing the proposed services to the Fund), and the expense waivers by the Adviser. The Trustees also considered any ancillary benefits to the Adviser and its affiliates for services provided to the Fund. In this regard, the Trustees noted that there were no soft dollar arrangements involving the Adviser and the only benefits to affiliates were the fees earned for services provided. The Trustees did not identify any single factor discussed above as all-important or controlling. The Trustees also considered the Adviser’s commitment to voluntarily limit Fund expenses and the skills and capabilities of the Adviser.
The following paragraphs summarize the material information and factors considered by the Board, including the Independent Trustees, as well as their conclusions relative to such factors in considering the approval of the Advisory Agreement:
Nature, Extent and Quality of Services: The Investment Adviser currently provides services to sixteen funds in the Integrity family of funds with investment strategies ranging from non-diversified sector funds to broad-based equity funds. The experience and expertise of the Investment Adviser is attributable to the long-term focus on managing investment companies and has the potential to enhance the Fund’s future performance. They have a strong culture of compliance and provide quality services. The overall nature and quality of the services provided by the Investment Adviser had historically been, and continues to be, adequate and appropriate to the Board.
Various personnel furnishing such services and their duties and qualifications: The Portfolio Manager of the Fund has over 25 years experience in the advisory and money management area adding significant expertise to the Adviser of the Fund. A detailed biography of the portfolio manager was presented to the Trustees. This information is disclosed in the prospectus and/or SAI of the Fund.
Investment Performance: The Adviser has assured through subsidization that its Fund has had consistent performance relative to comparable and competing funds. Although the Fund has outperformed its relative benchmark for the YTD and 1-year periods, it has underperformed its relative benchmark for the 5-year, 10-year and since inception periods as of September 29, 2006. The Fund has positive returns for all the periods indicated above as of September 29, 2006. In addition, the Fund has been meeting its investment objective for providing as high a level of current income exempt from federal and Maine state income taxes as is consistent with preservation of capital.
Profitability: The Board has reviewed a year to date and a 12-month profit analysis spreadsheet completed by the controller of the investment adviser. Based on the relatively small size of each fund under management with the Adviser, the Adviser has shown no profit for the period. The Board determined that the profitability of the Adviser was not excessive based on the services it will provide for the Fund and the profit analysis spreadsheet presented by the Adviser.
Economies of Scale: The Board briefly discussed the benefits for the Fund as the Adviser could realize economies of scale as the Fund grows larger, but the size of the Fund has not reached an asset level to benefit from economies of scale.The advisory fees are structured appropriately based on the size of the Fund. The Adviser has indicated that a new advisory fee structure may be looked at if the Fund reaches an asset level where the Fund could benefit from economies of scale.
Analysis of the rates charged by other investment advisers of similar funds: The Adviser is voluntarily waiving advisory fees due to the small size of the Fund. The Board considered the compensation payable under the Advisory Agreement fair and reasonable in light of the services to be provided.
Expense ratios of the applicable fund as compared to data for comparable funds: The Fund’s net expense ratio of 1.07% for the Class A shares was comparable to other funds of similar objective and size.
Information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds: The Board noted that the Adviser does not realize material direct benefits from its relationship with the Fund. The Adviser does not participate in any soft dollar arrangements from securities trading in the Fund.
In voting unanimously to approve the Advisory Agreement, the Trustees did not identify any single factor as being of paramount importance. The Trustees noted that their discussion in this regard was premised on numerous factors including the nature, quality and resources of Integrity Money Management, the strategic plan involving the Fund and the potential for increased distribution and growth of the Fund. They determined that, after considering all relevant factors, the adoption of the Advisory Agreement would be in the best interest of the Fund and its shareholders.
Potential Conflicts of Interest – Investment Adviser
Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account. More specifically, portfolio managers who manage multiple funds are presented with the following potential conflicts:
The management of multiple funds may result in a portfolio manager devoting unequal time and attention to the management of each fund. The Investment Adviser seeks to manage such competing interests for the time and attention of portfolio managers by having them focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment models that are used in connection with the management of the Funds. The management of multiple funds and accounts also may give rise to potential conflicts of interest if the funds and accounts have different objectives, benchmarks, time horizons, and fees as the portfolio manager must allocate his time and investment ideas across multiple funds and accounts.
• | With respect to securities transactions for the Funds, the Investment Adviser determines which broker to use to execute each order, consistent with the duty to seek best execution of the transaction. The portfolio manager may execute transactions for another fund or account that may adversely impact the value of securities held by the Funds. Securities selected for funds or accounts other than the Funds may outperform the securities selected for the Funds. |
• | The appearance of a conflict of interest may arise where the Investment Adviser has an incentive, such as a performance-based management fee, which relates to the management of one fund but not all funds with respect to which a portfolio manager has day-to-day management responsibilities. The management of personal accounts may give rise to potential conflicts of interest; there is no assurance that the Funds' code of ethics will adequately address such conflicts. One of the portfolio manager's numerous responsibilities is to assist in the sale of Fund shares. Mr. Avery's compensation is based on salary paid every other week. He is not compensated for client retention. In addition, Integrity Mutual Funds, Inc., sponsors a 401(k) plan for all its employees. This plan is funded by employee elective deferrals and, to an extent, matching contributions by the Company. After one year of employment the employee is eligible to participate in the Company matching program. The Company matches 100% of contribution up to 3% and ½% for each additional percent contributed up to 5%. The Company has established a program in which it will grant interests in Integrity Mutual Funds Inc., shares to current employees that meet certain eligibility requirements, as a form of long-term incentive. The program is designed to allow all employees to participate in the long-term growth of the value of the firm. |
• | Although the Portfolio Managers generally do not trade securities in their own personal account, each of the Funds has adopted a code of ethics that, among other things, permits personal trading by employees under conditions where it has been determined that such trades would not adversely impact client accounts. Nevertheless, the management of personal accounts may give rise to potential conflicts of interest, and there is no assurance that these codes of ethics will adequately address such conflicts. |
The Investment Adviser and the Funds have adopted certain compliance procedures, which are designed to address these types of conflicts. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.
Schedule of Investments January 31, 2007 (Unaudited)
Name of Issuer |
|
|
|
|
|
|
| |
Percentages represent the market value of each investment category to total net assets | Rating Moody's/S&P | Coupon Rate | Maturity |
| Principal Amount |
| Market Value | |
|
|
|
|
|
|
|
| |
MAINE MUNICIPAL BONDS (72.4%) |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Bar Harbor, ME | A-1/NR | 6.450% | 06/01/2009 | $ | 75,000 | $ | 79,553 | |
Bath, ME | A-3/NR | 7.450 | 12/01/2007 |
| 30,000 |
| 31,076 | |
Bath, ME | A-3/NR | 7.500 | 12/01/2008 |
| 20,000 |
| 21,347 | |
Brewer, ME | A/A | 4.600 | 11/01/2017 |
| 210,000 |
| 218,564 | |
Bucksport, ME | NR/A- | 7.150 | 04/01/2007 |
| 25,000 |
| 25,258 | |
Ellsworth, ME | A/NR | 7.200 | 07/01/2008 |
| 25,000 |
| 26,163 | |
Freeport, ME | Aa-3/AA | 7.250 | 09/01/2010 |
| 20,000 |
| 22,293 | |
Gorham, ME Unlimited Tax G.O. MBIA | Aaa/NR | 4.200 | 02/01/2022 |
| 155,000 |
| 154,998 | |
Gorham, ME Unlimited Tax G.O. MBIA | Aaa/NR | 4.300 | 02/01/2023 |
| 155,000 |
| 156,057 | |
Gorham, ME Unlimited Tax G.O. MBIA | Aaa/NR | 4.350 | 02/01/2024 |
| 155,000 |
| 156,614 | |
Houlton, ME Water District MBIA | Aaa/NR | 4.600 | 05/01/2014 |
| 100,000 |
| 102,184 | |
Kennebec, ME Regl. Dev. | Baa-1/NR | 5.500 | 08/01/2014 |
| 75,000 |
| 79,243 | |
#Kennebec, ME Water District FSA | Aaa/NR | 5.125 | 12/01/2021 |
| 500,000 |
| 515,000 | |
Kittery, ME | A-1/AA | 5.200 | 01/01/2009 |
| 25,000 |
| 25,500 | |
Lewiston, ME G.O. FSA | Aaa/NR | 5.000 | 04/01/2022 |
| 500,000 |
| 523,400 | |
Lewiston, ME G.O. FSA | Aaa/NR | 5.000 | 04/01/2024 |
| 250,000 |
| 263,915 | |
Maine Governmental Facs. Lease Rev FSA | Aaa/AAA | 5.750 | 10/01/2007 |
| 250,000 |
| 255,435 | |
Maine Governmental Facs. Auth Lease MBIA | Aaa/AAA | 5.375 | 10/01/2016 |
| 250,000 |
| 266,825 | |
Maine Health & Higher Educ. Facs. Auth. (Bates College) FSA |
Aaa/AAA |
5.250 |
07/01/2011 |
|
25,000 |
|
25,591 | |
*Maine Health & Higher Educ. Facs. Auth. (Blue Hill Mem. Hosp) FSA |
Aaa/AAA |
5.250 |
07/01/2010 |
|
550,000 |
|
562,760 | |
Maine Health & Higher Educ. Facs. Auth. FSA | Aaa/AAA | 5.600 | 07/01/2007 |
| 175,000 |
| 175,002 | |
Maine Health & Higher Educ. Facs. Auth. | Aaa/NR | 6.000 | 10/01/2013 |
| 195,000 |
| 215,331 | |
#Maine Health & Higher Educ. Facs. Auth. Rev. FSA | Aaa/AAA | 5.300 | 07/01/2007 |
| 130,000 |
| 130,000 | |
Maine Health & Higher Educ. Facs. Auth. Rev. AMBAC | Aaa/AAA | 7.300 | 05/01/2014 |
| 5,000 |
| 5,000 | |
Maine Health & Higher Educ. Auth. (Maine Maritime Academy) MBIA |
Aaa/NR |
5.000 |
07/01/2025 |
|
340,000 |
|
354,909 | |
Maine Finance Auth. Rev. (Electric Rate Stabilization) FSA |
Aaa/AAA |
4.500 |
07/01/2008 |
|
25,000 |
|
25,271 | |
*Maine Municipal Bond Bank MBIA | Aaa/AAA | 5.625 | 11/01/2016 |
| 1,000,000 |
| 1,067,500 | |
Maine Municipal Bond Bank (Sewer & Water) Rev. | Aaa/AAA | 4.900 | 11/01/2024 |
| 100,000 |
| 104,654 | |
Maine State (Highway) | Aa-3/AA- | 5.000 | 06/15/2011 |
| 200,000 |
| 209,350 | |
Maine State Turnpike Auth. MBIA | Aaa/AAA | 4.625 | 07/01/2010 |
| 100,000 |
| 101,705 | |
Maine State Turnpike Auth. Rev. FGIC | Aaa/AAA | 5.300 | 07/01/2012 |
| 100,000 |
| 103,389 | |
Maine State Turnpike Auth. MBIA | Aaa/AAA | 5.250 | 07/01/2010 |
| 75,000 |
| 77,875 | |
*Maine State Turnpike Auth. Rev. FGIC | Aaa/AAA | 5.750 | 07/01/2028 |
| 750,000 |
| 804,510 | |
Portland, ME | Aa-1/AA | 5.000 | 09/01/2013 |
| 60,000 |
| 62,963 | |
#Portland, ME | Aa-1/AA | 5.300 | 06/01/2013 |
| 790,000 |
| 797,813 | |
Portland, ME Airport Rev. FSA | Aaa/AAA | 5.000 | 07/01/2032 |
| 500,000 |
| 515,395 | |
Scarborough, ME G.O. MBIA | Aaa/AAA | 4.400 | 11/01/2031 |
| 250,000 |
| 248,957 | |
Scarborough, ME G.O. MBIA | Aaa/AAA | 4.400 | 11/01/2032 |
| 480,000 |
| 477,955 | |
#Skowhegan, ME Pollution Ctl. Rev. (Scott Paper Co. Prj.) | Aa-3/AA- | 5.900 | 11/01/2013 |
| 1,465,000 |
| 1,465,000 | |
South Portland, ME | Aa-1/NR | 5.800 | 09/01/2008 |
| 150,000 |
| 154,991 | |
South Portland, ME | Aa-1/NR | 5.800 | 09/01/2011 |
| 40,000 |
| 43,542 | |
University of Maine System Rev. AMBAC | Aaa/AAA | 4.500 | 03/01/2007 |
| 50,000 |
| 50,171 | |
University of Maine System Rev. AMBAC | Aaa/AAA | 5.000 | 03/01/2024 |
| 100,000 |
| 102,898 | |
University of Maine System Rev. MBIA | Aaa/AAA | 4.250 | 03/01/2025 |
| 200,000 |
| 197,712 | |
Westbrook, ME MBIA | Aaa/AAA | 4.600 | 06/01/2007 |
| 240,000 |
| 242,731 | |
Westbrook, ME G.O. FGIC | Aaa/AAA | 4.250 | 10/15/2020 |
| 180,000 |
| 180,916 | |
Windham, ME General Obligation AMBAC | Aaa/AAA | 4.000 | 11/01/2014 |
| 415,000 |
| 416,623 | |
Winslow, ME (Crowe Rope Inds.) MBIA | Aaa/AAA | 5.500 | 03/01/2007 |
| 130,000 |
| 130,537 | |
Winthrop, ME | A-3/NR | 5.400 | 08/01/2007 |
| 25,000 |
| 25,442 | |
Yarmouth, ME AMBAC | Aaa/NR | 5.250 | 11/15/2009 |
| 250,000 |
| 259,572 | |
Yarmouth, ME | Aa-3/AA- | 5.000 | 11/15/2019 |
| 500,000 |
| 529,190 | |
York, ME G.O. | NR/AA | 4.000 | 09/01/2010 |
| 75,000 |
| 75,959 | |
TOTAL MAINE MUNICIPAL BONDS |
|
|
|
|
| $ | 12,864,639 | |
|
|
|
|
|
|
|
| |
GUAM MUNICIPAL BONDS (0.1%) |
|
|
|
|
|
|
| |
Guam Hsg. Corp. Single Family Mtg. | NR/AAA | 5.750 | 09/01/2031 |
| 10,000 | $ | 10,752 | |
|
|
|
|
|
|
|
| |
PUERTO RICO MUNICIPAL BONDS (22.7%) |
|
|
|
|
|
|
| |
Puerto Rico Commonwealth Highway and Trans. Rev. MBIA | Aaa/AAA | 5.500 | 07/01/2036 |
| 750,000 |
| 832,133 | |
Puerto Rico Public Finance Corp. Commonwealth Appropriations AMBAC | Aaa/AAA | 5.375 | 06/01/2018 |
| 1,960,000 |
| 2,190,241 | |
*University of Puerto Rico Univ. Revs. MBIA | Aaa/AAA | 5.500 | 06/01/2015 |
| 1,000,000 |
| 1,007,500 | |
TOTAL PUERTO RICO MUNICIPAL BONDS |
|
|
|
|
| $ | 4,029,874 | |
|
|
|
|
|
|
|
| |
VIRGIN ISLANDS MUNICIPAL BONDS (3.1%) |
|
|
|
|
|
|
| |
Virgin Islands Hsg. Finance Auth. Single Family Rev. GNMA COLL | NR/AAA | 6.000 | 03/01/2007 |
| 35,000 |
| 35,000 | |
Virgin Islands Water & Power Auth. Elec. Syst. Rev. ACA/MBIA | Aaa/AAA | 5.300 | 07/01/2021 |
| 500,000 |
| 516,200 | |
TOTAL VIRGIN ISLANDS MUNICIPAL BONDS |
|
|
|
|
| $ | 551,200 | |
|
|
|
|
|
|
|
| |
TOTAL MUNICIPAL BONDS (COST: $16,967,875) |
|
|
|
|
| $ | 17,456,465 | |
|
|
|
|
|
|
|
| |
SHORT-TERM SECURITIES (1.1%) |
|
|
|
| Shares |
|
| |
Wells Fargo Advantage National Tax-Free Money Market (COST: $199,461) |
|
| 199,461 | $ | 199,461 | |||
|
|
|
|
|
|
|
| |
TOTAL INVESTMENTS IN SECURITIES (COST: $17,167,336) |
|
|
|
| $ | 17,655,926 | ||
OTHER ASSETS LESS LIABILITIES |
|
|
|
|
|
| 109,992 | |
|
|
|
|
|
|
|
| |
NET ASSETS |
|
|
|
|
| $ | 17,765,918 | |
*Indicates bonds are segregated by the custodian to cover when-issued or delayed-delivery purchases.
#Indicates bonds are segregated by the custodian to cover initial margin requirements.
Non-rated (NR) securities in the Fund were investment grade when purchased.
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Assets and LiabilitiesJanuary 31, 2007 (Unaudited)
ASSETS |
|
| ||
| Investment in securities, at value (cost: $17,167,336) | $ | 17,655,926 | |
| Cash |
| 65 | |
| Accrued interest receivable |
| 181,023 | |
| Accrued dividends receivable |
| 1,032 | |
| Prepaid expenses |
| 4,977 | |
|
|
| ||
| Total Assets | $ | 17,843,023 | |
|
|
| ||
LIABILITIES |
|
| ||
| Dividends payable | $ | 55,402 | |
| Payable to affiliates |
| 14,820 | |
| Accrued expenses |
| 6,883 | |
|
|
| ||
| Total Liabilities | $ | 77,105 | |
|
|
| ||
NET ASSETS | $ | 17,765,918 | ||
|
|
| ||
|
|
| ||
Net assets are represented by: |
|
| ||
| Paid-in capital | $ | 17,989,346 | |
| Accumulated undistributed net realized gain (loss) on investments and futures |
| (729,130) | |
| Accumulated undistributed net investment income |
| 17,112 | |
| Unrealized appreciation (depreciation) on investments |
| 488,590 | |
| Total amount representing net assets applicable to 1,688,363 outstanding shares of no par common stock (unlimited shares authorized) | $ | 17,765,918 | |
|
|
| ||
Net asset value per share | $ | 10.52 | ||
|
|
| ||
Public offering price (based on sales charge of 4.25%) | $ | 10.99 | ||
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of OperationsFor the six months ended January 31, 2007 (Unaudited)
INVESTMENT INCOME |
|
| ||
| Interest | $ | 416,316 | |
| Dividends |
| 8,626 | |
| Total Investment Income | $ | 424,942 | |
|
|
| ||
EXPENSES |
|
| ||
| Investment advisory fees | $ | 46,039 | |
| Distribution (12b-1) fees |
| 23,020 | |
| Administrative service fees |
| 11,132 | |
| Transfer agent fees |
| 16,762 | |
| Accounting service fees |
| 16,604 | |
| Reports to shareholders |
| 1,037 | |
| Custodian fees |
| 1,422 | |
| Professional fees |
| 5,161 | |
| Trustees fees |
| 1,211 | |
| Registration and filing fees |
| 1,392 | |
| Audit fees |
| 3,449 | |
| Other fees |
| 307 | |
| Total Expenses | $ | 127,536 | |
| Less expenses waived or absorbed by the Fund’s manager |
| (29,012) | |
| Total Net Expenses | $ | 98,524 | |
|
|
| ||
NET INVESTMENT INCOME | $ | 326,418 | ||
|
|
| ||
|
|
| ||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| ||
| Net realized gain (loss) from investment transactions | $ | 273 | |
| Net change in unrealized appreciation (depreciation) of investments |
| 13,205 | |
| Net Realized and Unrealized Gain (Loss) On Investments | $ | 13,478 | |
|
|
| ||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 339,896 | ||
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Changes in Net Assets
For the six months ended January 31, 2007, and the year ended July 31, 2006
|
| For The Six Months Ended January 31, 2007 (Unaudited) |
| For The Year Ended July 31, 2006 | ||
|
|
|
|
| ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| ||
| Net investment income | $ | 326,418 | $ | 718,442 | |
| Net realized gain (loss) on investment and futures transactions |
| 273 |
| 633,405 | |
| Net change in unrealized appreciation (depreciation) on investments and futures |
| 13,205 |
| (547,466) | |
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 339,896 | $ | 804,381 | |
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| ||
| Dividends from net investment income ($.19 and $.35 per share, respectively) | $ | (323,493) | $ | (712,764) | |
| Distributions from net realized gain on investment and futures transactions ($.00 and $.00 per share, respectively) |
| 0 |
| 0 | |
| Total Dividends and Distributions | $ | (323,493) | $ | (712,764) | |
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS |
|
|
|
| ||
| Proceeds from sale of shares | $ | 290,406 | $ | 783,051 | |
| Proceeds from reinvested dividends |
| 186,539 |
| 407,076 | |
| Cost of shares redeemed |
| (1,455,600) |
| (7,528,806) | |
| Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions | $ | (978,655) | $ | (6,338,679) | |
|
|
|
|
| ||
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | (962,252) | $ | (6,247,062) | ||
|
|
|
|
| ||
NET ASSETS, BEGINNING OF PERIOD |
| 18,728,170 |
| 24,975,232 | ||
|
|
|
|
| ||
NET ASSETS, END OF PERIOD | $ | 17,765,918 | $ | 18,728,170 | ||
Undistributed Net Investment Income | $ | 17,112 | $ | 14,187 | ||
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements January 31, 2007 (Unaudited)
Note 1. ORGANIZATION
Business operations - The Maine Municipal Fund (the “Fund”) is an investment portfolio of Integrity Managed Portfolios (the “Trust”) registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. Integrity Managed Portfolios is an unincorporated business trust organized under Massachusetts law on August 10, 1990. The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal and Maine state income tax as is consistent with preservation of capital. The Fund will seek to achieve this objective by investing primarily in a portfolio of Maine municipal securities.
On December 19, 2003, the Maine Municipal Fund became a series of Integrity Managed Portfolios. Prior to this the Fund was part of the Forum Funds and was named the Maine TaxSaver Bond Fund. The Maine TaxSaver Bond Fund commenced operations on December 5, 1991. The Forum Funds is a Delaware business trust that is registered as an open-end management investment company under the Investment Company Act of 1940, as amended.
Shares of the Fund are offered at net asset value plus a maximum sales charge of 4.25% of the offering price.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation - Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees which include consideration of the following: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, and indications as to value from dealers and general market conditions. Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on t he trade date.
The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.
When-issued securities – The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities purchased on a when-issued basis are identified as such in the Fund’s Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic, or other factors.
Contingent Deferred Sales Charge (“CDSC”) – In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 12 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).
Federal and state income taxes - The Fund’s policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its net investment income and any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required.
The tax character of distributions paid was as follows:
|
| July 31, 2006 |
| July 29, 2005 | |
Tax-exempt Income | $ | 712,764 | $ | 931,874 | |
Ordinary Income |
| 0 |
| 166,154 | |
Long-term Capital Gains |
| 0 |
| 437,394 | |
| Total | $ | 712,764 | $ | 1,535,422 |
As of July 31, 2006, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation) | Total Accumulated Earnings/(Deficit) |
$0 | $0 | $0 | ($729,402) | $489,572 | ($239,830) |
The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2006, totaling $729,402 which may be used to offset capital gains. The capital loss carryforward amounts will expire in each of the years ended July 31 as shown in the table below.
Year |
| Unexpired Capital Losses |
2013 | $ | 729,402 |
For the year ended July 31, 2006, the Fund made no permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to expiring capital loss carryforwards.
Net capital losses incurred after October 31, and within the tax year are deemed to arise on the first business day of the Fund’s next taxable year. For the year ended July 31, 2006, the Fund deferred to August 1, 2006, post October capital losses, post October currency losses and post October passive foreign investment company losses of $0.
Distributions to shareholders - Dividends from net investment income, declared daily and paid monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed at least annually.
Premiums and discounts - Premiums and discounts on municipal securities are amortized for financial reporting purposes.
Other - Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatment for market discount, capital loss carryforwards and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
Futures contracts - The Fund may purchase and sell financial futures contracts to hedge against changes in the values of tax-exempt municipal securities the Fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of a particular index or a certain amount of U.S. government or municipal securities at a set price on a future date. Upon entering into a futures contract, the Fund is required to deposit with a broker an amount of cash or securities equal to the minimum “initial margin” requirement of the futures exchange on which the contract is traded. Subsequent payments (“variation margin”) are made or received by the Fund, dependent on the fluctuations in the value of the underlying index. Daily fluctuations in value are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize, for book purposes, a gain or loss equal to the difference between the value of the futures contracts sold and the futures contracts to buy. Unrealized appreciation (depreciation) related to open futures contracts is required to be treated as a realized gain (loss) for Federal income tax purposes.
Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Schedule of Investments. The Statement of Assets and Liabilities reflects a receivable or payable for the daily mark to market for variation margin.
Certain risks may arise upon entering into futures contracts. These risks may include changes in the value of the futures contracts that may not directly correlate with changes in the value of the underlying securities.
Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 3. CAPITAL SHARE TRANSACTIONS
As of January 31, 2007, there were unlimited shares of no par authorized; 1,688,363 and 1,780,772 shares were outstanding at January 31, 2007, and July 31, 2006, respectively.
Transactions in capital shares were as follows:
| Shares | |
| For The Six Months Ended January 31, 2007 (Unaudited) | For The Year Ended July 31, 2006 |
| ||
| ||
Shares sold | 27,361 | 75,280 |
Shares issued on reinvestment of dividends | 17,601 | 39,039 |
Shares redeemed | (137,371) | (723,762) |
Net increase (decrease) | (92,409) | (609,443) |
Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, the Fund’s transfer, accounting and administrative services agent, are subsidiaries of Integrity Mutual Funds, Inc.
The Fund has engaged Integrity Money Management to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund’s average daily net assets. The Fund has recognized $17,027 of investment advisory fees after partial waiver for the six months ended January 31, 2007. The Fund has a payable to Integrity Money Management of $2,459 at January 31, 2007 investment advisory fees. Certain officers and trustees of the Fund are also officers and directors of the investment adviser.
Under the terms of the advisory agreement, the investment adviser has agreed to pay all the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 1.25% of the Fund’s average daily net assets on an annual basis up to the amount of the management and investment advisory fee payable by the Fund to the adviser. Accordingly, after fee waivers and expense reimbursements, the Fund’s actual total annual operating expenses were 1.07% for the six months ended January 31, 2007.
Principal Underwriter and Shareholder Services
Integrity Funds Distributor serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan for each class of shares as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called “Distribution Plan expenses.” The Fund currently pays an annual distribution fee of up to 0.25% of the average daily net assets of the class. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $23,020 of distribution fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Funds Distributor of $3,872 at January 31, 2007 for distribution fees.
Integrity Fund Services, the transfer agent, provides shareholder services for a variable fee equal to 0.20% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus reimbursement of out-of-pocket expenses. An additional fee with a minimum $500 per month is charged for each additional share class. The Fund has recognized $16,762 of transfer agency fees and expenses for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $3,097 at January 31, 2007 for transfer agency fees. Integrity Fund Services also acts as the Fund’s accounting services agent for a monthly fee equal to the sum of a fixed fee of $2,000, and a variable fee equal to 0.05% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 milli on and at a lower rate on the average daily net assets in excess of $50 million, together with reimbursement of out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $16,604 of accounting service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,841 at January 31, 2007 for accounting service fees. Integrity Fund Services also acts as the Fund’s administrative services agent for a variable fee equal to 0.125% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $11,132 of administrative service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,067 at January 31, 2007 for administrative service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from sales of investment securities (excluding short-term securities) aggregated $0 and $475,500, respectively, for the six months ended January 31, 2007.
Note 6. INVESTMENT IN SECURITIES
At January 31, 2007, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $17,167,336. The net unrealized appreciation of investments for financial reporting purposes based on the cost was $488,590, which is comprised of $534,418 aggregate gross unrealized appreciation and $45,828 aggregate gross unrealized depreciation. Differences between financial reporting-basis and tax-basis unrealized appreciation/depreciation are due to differing treatment of market discount.
Note 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund is presently evaluating the impact of adopting SFAS 157.
Selected per share data and ratios for the period indicated
|
| For The Six Months Ended January 31, 2007 (Unaudited) |
| For The Year Ended July 31, 2006 |
| For The Year Ended July 29, 2005 |
| For The Four Month Period Ended July 30, 2004 |
| For The Year Ended March 31, 2004 |
| For The Year Ended March 31, 2003 |
| For The Year Ended March 31, 2002 | ||
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 10.52 | $ | 10.45 | $ | 11.10 | $ | 11.19 | $ | 11.35 | $ | 10.97 | $ | 11.06 | ||
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|
| ||
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Net investment income | $ | .19 | $ | .35 | $ | .35 | $ | .13 | $ | .39 | $ | .39 | $ | .42 | |
| Net realized and unrealized gain (loss) on investment and futures transactions |
| .00 |
| .07 |
| (.43) |
| (.09) |
| (.10) |
| .38 |
| (.09) | |
| Total Income (Loss) From Investment Operations | $ | .19 | $ | .42 | $ | (.08) | $ | .04 | $ | .29 | $ | .77 | $ | .33 | |
|
|
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|
| ||
Less Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Dividends from net investment income | $ | (.19) | $ | (.35) | $ | (.35) | $ | (.13) | $ | (.39) | $ | (.39) | $ | (.42) | |
| Distributions from net capital gains |
| .00 |
| .00 |
| (.22) |
| .00 |
| (.06) |
| .00 |
| .00 | |
| Total Distributions | $ | (.19) | $ | (.35) | $ | (.57) | $ | (.13) | $ | (.45) | $ | (.39) | $ | (.42) | |
|
|
|
|
|
|
|
|
|
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|
|
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|
| ||
NET ASSET VALUE, END OF PERIOD | $ | 10.52 | $ | 10.52 | $ | 10.45 | $ | 11.10 | $ | 11.19 | $ | 11.35 | $ | 10.97 | ||
|
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| ||
Total Return |
| 3.40%(A)(C) |
| 4.12%(A) |
| (0.74%)(A) |
| 1.23%(A)(C) |
| 2.56%(A) |
| 7.16%(A) |
| 3.06%(A) | ||
|
|
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| ||
RATIOS/SUPPLEMENTAL DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Net assets, end of period (in thousands) | $ | 17,766 | $ | 18,728 | $ | 24,975 | $ | 31,683 | $ | 33,270 | $ | 37,847 | $ | 38,033 | |
| Ratio of net expenses (after expense assumption) to average net assets |
| 1.07%(B)(C) |
| 1.02%(B) |
| 0.97%(B) |
| 0.95%(B)(C) |
| 0.95%(B) |
| 0.95%(B) |
| 0.95%(B) | |
| Ratio of net investment income to average net assets |
| 3.51%(C) |
| 3.35% |
| 3.24% |
| 3.49%(C) |
| 3.44% |
| 3.49% |
| 3.82% | |
| Portfolio turnover rate |
| 0.00% |
| 1.60% |
| 4.87% |
| 1.92% |
| 34.40% |
| 26.00% |
| 13.00% | |
(A) Excludes maximum sales charge of 4.25%.
(B) During the periods since March 31, 2004, Integrity Mutual Funds, Inc. assumed/waived expenses of $29,012, $58,447, $86,089 and $29,051. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets would have been 1.39%, 1.30%, 1.27% and 1.22%. For the period 4/1/2003 through 12/19/2003, Forum Administrative Services assumed/waived expenses of $64,658. For the period from 12/20/2003 through 3/31/2004, Integrity Money Management assumed/waived expenses of $22,736. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets for the year would have been 1.20%. In prior years, Forum Administrative Services, Forum Investment Advisors, Forum Shareholder Services, and Forum Accounting Services assumed/waived expenses of $104,969 (2003) and $133,718 (2002). If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net asse ts would have been 1.22% and 1.32%, respectively.
(C) Ratio is annualized.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
Dear Shareholder:
Enclosed is the semi-annual report of the Nebraska Municipal Fund (the “Fund”) for the period ended January 31, 2007. The Fund’s portfolio and related financial statements are presented within for your review.
In the last part of 2006 investors pushed back when they thought the Federal Reserve would cut interest rates.
Fed Fund futures expectations of where rates are going now give less than even odds that the Fed will cut its key target rate by a quarter point by September. In November the view was that the Fed would almost certainly cut rates from the current 5.25% once and possibly twice.
The mood has shifted as economic reports suggest the economy is in better shape than investors had thought. One reason investors remain so upbeat is that the economy appears to be catching its footing and inflation looks more subdued.
Federal Reserve chairman Ben Bernanke has said repeatedly he hopes the core inflation rate will continue to moderate, falling back below 2%. But he continues to worry, at least in public, about the risk of more persistent inflation, which would force him to raise rates again.
The bond market right now is worried about a different threat, a recession. That fear helped push the yield on the 10-year Treasury bond to 4.81% at the end of the period, higher than the 4.39% at which it began 2006, but well below the 5.25% it hit in late June 2006.
Long-term government bonds now yield less than short-term bonds. That makes investors nervous because, at times, it has historically been a sign of a coming recession. Lower long-term yields suggest investors expect rates to fall when the economy is weakening.
Some tend to downplay the recession risk. Heavy foreign demand for longer-term U.S. Treasury bonds, together with exceptionally low worldwide inflation rates, have kept U.S. bonds lower than normal.
Low yields hold down other market interest rates such as fixed mortgage rates. They encourage consumers and businesses alike to borrow, spend and invest which supports corporate profits and stock prices.
The Nebraska Municipal Fund began the period at $10.20 per share and ended the period at $10.20 per share for a total return of 1.92%*. This compares to the Lehman Brothers Municipal Bond Index return of 3.06% for the period.
The Funds favorable overall performance can be attributed to its defensive portfolio, with an average maturity of 15 years and a low average maturity to the first call date of 4 years. That, along with an average portfolio coupon of 5.29%, helps relative performance in a rising rate environment.
Issues contributing to this defensive portfolio include: Omaha Public Power, 6.20% coupon, due 1/1/2017; Fremont Schools, 5.50% coupon, due 12/15/2010; and Lincoln Schools, 5.25% coupon, due 1/15/2022.
An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Portfolio quality for the year was as follows: AAA 56.0%, AA 31.9%, A 5.1%, BBB 2.5% and NR 4.5%.
Income exempt from federal and Nebraska state income taxes with preservation of capital remain the primary objectives of the Fund.
If you would like more frequent updates, visit our website at www.integrityfunds.com for daily prices along with pertinent Fund information.
Sincerely,
Monte Avery
Portfolio Manager
The views expressed are those of Monte Avery, Chief Portfolio Strategist with Integrity Mutual Funds. The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any Integrity Mutual Fund.
*Performance does not include applicable front-end or contingent deferred sales charges, which would have reduced the performance.
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities than a municipal bond fund that does not concentrate its securities in a single state.
January 31, 2007 (Unaudited)
PROXY VOTING ON FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-276-1262. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Integrity's website at www.integrityfunds.com. This information is also available from the EDGAR database on the Securities and Exchange Commission’s (“SEC's”) website at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
The Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports within 60 days of the end of the Fund's second and fourth fiscal quarters on the Form N-CSR(S). The annual and semi-annual reports are filed electronically with the SEC and are delivered to the Fund shareholders. The Fund also files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q and N-CSR(S) are available on the SEC's website at www.sec.gov. The Fund's Forms N-Q and N-CSR(S) may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C., and the information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. You may also access this information from Integrity's website at www.integrityfunds.com.
Terms & Definitions January 31, 2007 (Unaudited)
Appreciation
The increase in value of an asset.
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned by the fund on an annual basis, assuming all distributions are reinvested.
Coupon Rate or Face Rate
The rate of interest annually payable based on the face amount of the bond; expressed as a percentage.
Depreciation
The decrease in value of an asset.
Lehman Brothers Municipal Bond Index
An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund.
Market Value
The actual (or estimated) price at which a bond trades in the market place.
Maturity
A measure of the term or life of a bond in years. When a bond “matures”, the issuer repays the principal.
Net Asset Value (NAV)
The value of all your fund’s assets, minus any liabilities, divided by the number of outstanding shares, not including any initial sales charge.
Quality Ratings
A designation assigned by independent rating companies to give a relative indication of a bond’s credit worthiness. “AAA”, “AA”, “A” and “BBB” indicate investment grade securities. Ratings can range from a high of “AAA” to a low of “D”.
Total Return
Measures both the net investment income and any realized and unrealized appreciation or depreciation of the underlying investments in the fund’s portfolio for the period, assuming the reinvestment of all dividends. It represents the aggregate percentage or dollar value change over the period.
January 31, 2007 (Unaudited)
COMPOSITION
PORTFOLIO QUALITY RATINGS
(Based on Total Long-Term Investments)
AAA | 56.0% |
AA | 31.9% |
A | 5.1% |
BBB | 2.5% |
NR | 4.5% |
Quality ratings reflect the financial strength of the issuer. They are assigned by independent rating services such as Moody’s Investors Services and Standard & Poor’s. Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. (“Integrity Money Management” or “Adviser”), the investment adviser.
These percentages are subject to change.
PORTFOLIO MARKET SECTORS
(As a % of Net Assets)
S – School | 32.2% |
HC – Health Care | 24.9% |
U – Utilities | 14.3% |
I – Industrial | 7.9% |
O – Other | 7.3% |
T – Transportation | 6.3% |
W/S – Water/Sewer | 4.4% |
H – Housing | 2.7% |
Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.
These percentages are subject to change.
January 31, 2007 (Unaudited)
DISCLOSURE OF FUND EXPENSES
The Example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads), redemption fees and exchange fees; and (2) ongoing costs, including management fees, distribution (12b-1) fees and other fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 31, 2006 to January 31, 2007.
The example illustrates the Fund’s costs in two ways:
Actual expenses
The section in the table under the heading “Actual” provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the appropriate column for your share class, in the column entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The section in the table under the heading “Hypothetical (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the section in the table under the heading “Hypothetical (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value 07/31/06 | Ending Account Value 01/31/07 | Expenses Paid During Period* |
Actual |
|
|
|
Class A | $1,000.00 | $1,019.18 | $5.40 |
Hypothetical (5% return before expenses) |
|
|
|
Class A | $1,000.00 | $1,019.86 | $5.40 |
* Expenses are equal to the annualized expense ratio of 1.07%, multiplied by the average account value over the period, multiplied by 180/360 days. The Fund’s ending account value on the first line in the table is based on its actual total return of 1.92% for the six-month period of July 31, 2006 to January 31, 2007.
January 31, 2007 (Unaudited)
AVERAGE ANNUAL TOTAL RETURNS
| For periods ending January 31, 2007 | ||||
|
|
|
|
| Since Inception (November 17, 1993) |
Nebraska Municipal Fund | 1 year | 3 year | 5 year | 10 year | |
Without sales charge | 4.94% | 2.55% | 2.03% | 3.69% | 3.86% |
With sales charge (4.25%) | 0.47% | 1.09% | 1.15% | 3.25% | 3.52% |
|
|
|
|
| Since Inception (November 17, 1993) |
Lehman Brothers Municipal Bond Index | 1 year | 3 year | 5 year | 10 year | |
| 4.30% | 4.00% | 5.12% | 5.71% | 5.64% |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a fund prospectus at no cost from your financial adviser and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
January 31, 2007 (Unaudited)
COMPARATIVE INDEX GRAPH
Comparison of change in value of a $10,000 investment in the Nebraska Municipal Fund and the Lehman Brothers Municipal Bond Index
| Nebraska Municipal Fund w/o Sales Charge | Nebraska Municipal Fund w/ Max Sales Charge | Lehman Brothers Municipal Bond Index |
|
|
| |||
7/31/1996 | $10,000 | $9,574 | $10,000 | |
1997 | $10,757 | $10,298 | $11,027 | |
1998 | $11,182 | $10,705 | $11,687 | |
1999 | $11,609 | $11,114 | $12,024 | |
2000 | $11,875 | $11,368 | $12,542 | |
2001 | $13,064 | $12,507 | $13,808 | |
2002 | $13,595 | $13,015 | $14,735 | |
2003 | $13,485 | $12,910 | $15,264 | |
2004 | $13,969 | $13,373 | $16,147 | |
2005 | $13,943 | $13,348 | $17,174 | |
2006 | $14,626 | $14,002 | $17,613 | |
01/31/07 | $14,907 | $14,271 | $18,151 | |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The graph does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
The graph comparing your Fund’s performance to a benchmark index provides you with a general sense of how your Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Nebraska municipal bonds. Your Fund’s total return for the period shown appears with and without sales charges and includes Fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged; there are no expenses that affect the results. In addition, few investors could purchase all of the securities necessary to match the index. And, if they could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.
January 31, 2007 (Unaudited)
MANAGEMENT OF THE FUND
The Board of Integrity Managed Portfolios consists of four Trustees. These same individuals, unless otherwise noted, also serve as Directors or Trustees for all of the funds in the Integrity family of funds, the six series of Integrity Managed Portfolios and the seven series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “Independent” Trustees. Two of the remaining three Trustees and/or executive officers are “interested” by virtue of their affiliation with the Investment Adviser and its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
NAME, ADDRESS AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1 | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Jerry M. Stai | Trustee | Since January 2006 | Faculty, Embry-Riddle University (August 2000 to September 2005); Faculty, Park University (August 2005 to December 2005); Non-Profit Specialist, Bremer Bank (since July 2005); Faculty, Minot State University (since August 2000); Director, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006). | 16 | Marycrest Franciscan Development, Inc. |
Orlin W. Backes | Trustee | Since January 1996 | Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director, South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., (Since April 2005); Trustee, The Integrity Funds (since May 2003); and Director, First Western Bank & Trust. | 16 | First Western Bank & Trust |
R. James Maxson | Trustee | Since January 1999 | Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Director, Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc. and Montana Tax-Free Fund, Inc. (since January 1999), South Dakota Tax-Free Fund, Inc. (January 1999 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); and Trustee, The Integrity Funds (since May 2003). | 16 | Vincent United Methodist Foundation
Minot Area Development Corporation |
1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.
Trustees and officers of the Fund serve until their resignation, removal or retirement.
The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.
January 31, 2007 (Unaudited)
The Interested Trustees and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEES AND EXECUTIVE OFFICERS
NAME, ADDRESS AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1 | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Robert E. Walstad2 | Trustee, Chairman, President | Since January 1996 | Director (since September 1987), President (September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., Integrity Fund Services, Inc.; Director, President (since inception) and Treasurer (May 1989 to May 2004), ND Capital, Inc. (August 1988 to September 2004), South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc.; Trustee, Chairman and President (since May 2003) and Treasurer (May 2003 to May 2004), The Integrity Funds; Director, President and Treasurer (May 2003 to August 2003), Integrity Funds Distributor, Inc.; Director (October 1999 to June 2003), Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (October 2002 to June 2003), ARM Securities Corporation; and Director, CEO, Chairman (since January 2002), Pres ident (September 2002 to December 2004), Capital Financial Services, Inc. | 16 | Capital Financial Services, Inc., and Minot Park Board |
Peter A. Quist | Vice President, Secretary | Since January 1996 | Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc., ND Capital, Inc. (August 1988 to September 2004), Integrity Fund Services, Inc., South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax Free Fund, Inc., Integrity Funds Distributor, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003); and Director, ARM Securities Corporation (May 2000 to June 2003). | 3 | None |
Laura K. Anderson | Treasurer | Since October 2005 | Fund Accountant (until May 2004), Fund Accounting Supervisor (May 2004 to October 2005), Fund Accounting Manager, Integrity Fund Services, Inc.; Treasurer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. | N/A | None |
Brent M. Wheeler | Mutual Fund Chief Compliance Officer | Since October 2005 | Fund Accounting Manager (May 1998 to October 2005), Integrity Fund Services, Inc.; Treasurer (May 2004 to October 2005), Mutual Fund Compliance Officer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. | N/A | None |
1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.
2Mr. Walstad qualifies as an interested person of the Trust, as defined in the 1940 Act, by virtue of being an officer and director of the Investment Adviser and Distributor.
Trustees and officers of the Fund serve until their resignation, removal or retirement.
The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.
January 31, 2007 (Unaudited)
Board Approval of Investment Advisory Agreement
Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”), the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“the Company”), the Fund’s sponsor.
The approval and the continuation of a fund’s investment advisory agreement must be specifically approved at least annually (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “Interested Persons” of any party (“Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In preparation for the meeting, the Board requests and reviews a wide variety of materials provided by the Fund’s adviser. The Independent Trustees also received advice from their independent counsel on the issues to focus on during contract renewals. At a meeting held on October 25, 2006, the Board of Trustees, including a majority of the Independent Trustees of the Fund, approved the Management and Investment Advisory Agreement (“Advisory Agreement”), between the Fundand Integrity Money Management.
The Trustees, including a majority of Trustees who are neither party to the Advisory Agreements nor “Interested Persons” of any such party (as such term is defined for regulatory purposes), unanimously approved the Advisory Agreement. In determining whether it was appropriate to approve the Advisory Agreement, the Trustees requested information, provided by the Investment Adviser that it believed to be reasonably necessary to reach its conclusion. In connection with the approval of the Advisory Agreements, the Board reviewed factors set out in judicial decisions and Securities Exchange Commission directives relating to the approval of advisory contracts, which include but are not limited to, the following:
(a) | the nature and quality of services to be provided by the adviser to the fund; |
(b) | the various personnel furnishing such services and their duties and qualifications; |
(c) | the relevant fund’s investment performance as compared to standardized industry performance data; |
(d) | the adviser’s costs and profitability of furnishing the investment management services to the fund; |
(e) | the extent to which the adviser realizes economies of scale as the fund grows larger and the sharing thereof with the fund; |
(f) | an analysis of the rates charged by other investment advisers of similar funds; |
(g) | the expense ratios of the applicable fund as compared to data for comparable funds; and |
(h) | information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds. |
In evaluating the Adviser’s services and its fees, the Trustees reviewed information concerning the performance of the Fund, the recent financial statements of the Adviser and its parent, and the proposed advisory fee and other fund expenses compared to the level of advisory fees and expenses paid by other similar funds. In reviewing the Advisory Agreement with the foregoing Fund, the Trustees considered, among other things, the fees, the Fund’s past performance, the nature and quality of the services provided, the profitability of the Adviser and its parent (estimated costs and estimated profits from furnishing the proposed services to the Fund), and the expense waivers by the Adviser. The Trustees also considered any ancillary benefits to the Adviser and its affiliates for services provided to the Fund. In this regard, the Trustees noted that there were no soft dollar arrangements involving the Adviser and the only benefits to affiliates were the fees earned for services provided. The Trustees did not identify any single factor discussed above as all-important or controlling. The Trustees also considered the Adviser’s commitment to voluntarily limit Fund expenses and the skills and capabilities of the Adviser.
The following paragraphs summarize the material information and factors considered by the Board, including the Independent Trustees, as well as their conclusions relative to such factors in considering the approval of the Advisory Agreement:
Nature, Extent and Quality of Services: The Investment Adviser currently provides services to sixteen funds in the Integrity family of funds with investment strategies ranging from non-diversified sector funds to broad-based equity funds. The experience and expertise of the Investment Adviser is attributable to the long-term focus on managing investment companies and has the potential to enhance the Fund’s future performance. They have a strong culture of compliance and provide quality services. The overall nature and quality of the services provided by the Investment Adviser had historically been, and continues to be, adequate and appropriate to the Board.
Various personnel furnishing such services and their duties and qualifications: The Portfolio Manager of the Fund has over 25 years experience in the advisory and money management area adding significant expertise to the Adviser of the Fund. A detailed biography of the portfolio manager was presented to the Trustees. This information is disclosed in the prospectus and/or SAI of the Fund.
Investment Performance: The Adviser has assured through subsidization that its Fund has had consistent performance relative to comparable and competing funds. Although the Fund has outperformed its relative benchmark for the YTD and 1-year periods, it has underperformed its relative benchmark for the 5-year, 10-year and since inception periods as of September 29, 2006. The Fund has positive returns for all the periods indicated above as of September 29, 2006. In addition, the Fund has been meeting its investment objective for providing as high a level of current income exempt from federal and Nebraska state income taxes as is consistent with preservation of capital.
Profitability: The Board has reviewed a year to date and a 12-month profit analysis spreadsheet completed by the controller of the investment adviser. Based on the relatively small size of each fund under management with the Adviser, the Adviser has shown no profit for the period. The Board determined that the profitability of the Adviser was not excessive based on the services it will provide for the Fund and the profit analysis spreadsheet presented by the Adviser.
Economies of Scale: The Board briefly discussed the benefits for the Fund as the Adviser could realize economies of scale as the Fund grows larger, but the size of the Fund has not reached an asset level to benefit from economies of scale.The advisory fees are structured appropriately based on the size of the Fund. The Adviser has indicated that a new advisory fee structure may be looked at if the Fund reaches an asset level where the Fund could benefit from economies of scale.
Analysis of the rates charged by other investment advisers of similar funds: The Adviser is voluntarily waiving advisory fees due to the small size of the Fund. The Board considered the compensation payable under the Advisory Agreement fair and reasonable in light of the services to be provided.
Expense ratios of the applicable fund as compared to data for comparable funds: The Fund’s net expense ratio of 1.07% for the Class A shares was comparable to other funds of similar objective and size.
Information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds: The Board noted that the Adviser does not realize material direct benefits from its relationship with the Fund. The Adviser does not participate in any soft dollar arrangements from securities trading in the Fund.
In voting unanimously to approve the Advisory Agreement, the Trustees did not identify any single factor as being of paramount importance. The Trustees noted that their discussion in this regard was premised on numerous factors including the nature, quality and resources of Integrity Money Management, the strategic plan involving the Fund and the potential for increased distribution and growth of the Fund. They determined that, after considering all relevant factors, the adoption of the Advisory Agreement would be in the best interest of the Fund and its shareholders.
Potential Conflicts of Interest – Investment Adviser
Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account. More specifically, portfolio managers who manage multiple funds are presented with the following potential conflicts:
The management of multiple funds may result in a portfolio manager devoting unequal time and attention to the management of each fund. The Investment Adviser seeks to manage such competing interests for the time and attention of portfolio managers by having them focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment models that are used in connection with the management of the Funds. The management of multiple funds and accounts also may give rise to potential conflicts of interest if the funds and accounts have different objectives, benchmarks, time horizons, and fees as the portfolio manager must allocate his time and investment ideas across multiple funds and accounts.
• | With respect to securities transactions for the Funds, the Investment Adviser determines which broker to use to execute each order, consistent with the duty to seek best execution of the transaction. The portfolio manager may execute transactions for another fund or account that may adversely impact the value of securities held by the Funds. Securities selected for funds or accounts other than the Funds may outperform the securities selected for the Funds. |
• | The appearance of a conflict of interest may arise where the Investment Adviser has an incentive, such as a performance-based management fee, which relates to the management of one fund but not all funds with respect to which a portfolio manager has day-to-day management responsibilities. The management of personal accounts may give rise to potential conflicts of interest; there is no assurance that the Funds' code of ethics will adequately address such conflicts. One of the portfolio manager's numerous responsibilities is to assist in the sale of Fund shares. Mr. Avery's compensation is based on salary paid every other week. He is not compensated for client retention. In addition, Integrity Mutual Funds, Inc., sponsors a 401(k) plan for all its employees. This plan is funded by employee elective deferrals and, to an extent, matching contributions by the Company. After one year of employment the employee is eligible to participate in the Company matching program. The Company matches 100% of contribution up to 3% and ½% for each additional percent contributed up to 5%. The Company has established a program in which it will grant interests in Integrity Mutual Funds Inc., shares to current employees that meet certain eligibility requirements, as a form of long-term incentive. The program is designed to allow all employees to participate in the long-term growth of the value of the firm. |
• | Although the Portfolio Managers generally do not trade securities in their own personal account, each of the Funds has adopted a code of ethics that, among other things, permits personal trading by employees under conditions where it has been determined that such trades would not adversely impact client accounts. Nevertheless, the management of personal accounts may give rise to potential conflicts of interest, and there is no assurance that these codes of ethics will adequately address such conflicts. |
The Investment Adviser and the Funds have adopted certain compliance procedures, which are designed to address these types of conflicts. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.
Schedule of Investments January 31, 2007 (Unaudited)
Name of Issuer Percentages represent the market value of each investment category to total net assets | Rating Moody’s/S&P | Coupon Rate | Maturity |
| Principal Amount |
| Market Value |
|
|
|
|
|
|
|
|
NEBRASKA MUNICIPAL BONDS (94.5%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adams Cty., NE Hosp. Auth. #001 (Mary Lanning Memorial Hosp.) ASGUA | NR/AA | 5.300% | 12/15/2018 | $ | 250,000 | $ | 255,890 |
Dawson Cty., NE School Dist. #20 (Gothenburg) G.O. FSA | Aaa/AAA | 4.500 | 12/15/2025 |
| 405,000 |
| 408,787 |
Dawson Cty., NE SID #001 (IBP, Inc. Proj.) Ref. G.O. | Baa/BBB- | 5.650 | 02/01/2022 |
| 700,000 |
| 700,000 |
*Dodge Cty., NE SD #001 (Fremont Public Schools) FSA | Aaa/NR | 5.500 | 12/15/2020 |
| 1,000,000 |
| 1,067,690 |
Douglas Cty., NE (Catholic Health Corp.) Rev. MBIA | Aaa/AAA | 5.500 | 11/15/2021 |
| 340,000 |
| 343,383 |
Douglas Cty., NE (Catholic Health Corp.) Rev. MBIA | Aaa/AAA | 5.375 | 11/15/2015 |
| 45,000 |
| 45,563 |
Douglas Cty., NE (Catholic Health Corp.) Rev. MBIA | Aaa/AAA | 5.375 | 11/15/2015 |
| 225,000 |
| 227,250 |
Douglas Cty., NE G.O. | Aa/AA+ | 4.750 | 12/01/2025 |
| 250,000 |
| 255,708 |
Douglas Cty., NE Hosp. Auth. #001 (Alegent Hlth - Immanuel Med. Ctr.) Rev. AMBAC | Aaa/AAA | 5.250 | 09/01/2021 |
| 250,000 |
| 258,678 |
Douglas Cty., NE Hosp. Auth. #002 (Nebraska Medical Center) | A-1/NR | 5.000 | 11/15/2016 |
| 250,000 |
| 262,630 |
Douglas Cty., NE SD #010 (Elkhorn Pub. Schools) G.O. FSA Insured | NR/AAA | 4.500 | 12/15/2023 |
| 250,000 |
| 250,103 |
Douglas Cty., NE SD #010 (Elkhorn Public Schools) | NR/A+ | 5.050 | 12/15/2022 |
| 150,000 |
| 152,576 |
Douglas Cty., NE SID #392 (Cinnamon Creek) G.O. | NR/NR | 5.750 | 08/15/2017 |
| 200,000 |
| 200,000 |
Douglas Cty., NE SID #397 (Linden Estates II) | NR/NR | 5.600 | 07/15/2018 |
| 265,000 |
| 265,000 |
Douglas Cty., NE SID #397 (Linden Estates II) | NR/NR | 5.600 | 07/15/2019 |
| 280,000 |
| 280,000 |
Douglas Cty., NE SID #397 (Linden Estates II) | NR/NR | 5.600 | 04/01/2023 |
| 500,000 |
| 500,000 |
Fremont, NE Combined Utilities Rev. MBIA | Aaa/AAA | 5.000 | 10/15/2021 |
| 500,000 |
| 521,505 |
Hall Cty., NE School Dist. #2 Grand Island FSA | Aaa/AAA | 5.000 | 12/15/2023 |
| 500,000 |
| 528,780 |
Kearney Cty., NE Highway Allocation Fund AMBAC | Aaa/NR | 5.350 | 06/15/2021 |
| 100,000 |
| 100,001 |
Lancaster Cty, NE School District #0160 (Norris Schools) G.O. FSA | Aaa/NR | 5.000 | 12/15/2025 |
| 250,000 |
| 256,058 |
#Lancaster Cty., NE (Bryan Memorial Hospital) Rev. MBIA | Aaa/AAA | 5.375 | 06/01/2019 |
| 1,400,000 |
| 1,443,260 |
Lancaster Cty., NE Hosp. #001 (Bryant Mem. LGH) | A-1/NR | 4.750 | 06/01/2021 |
| 1,000,000 |
| 1,019,070 |
Lancaster Cty., NE School Dist. #1 (Lincoln Public Schools) | Aa-1/AAA | 5.250 | 01/15/2021 |
| 500,000 |
| 526,950 |
Lancaster Cty., NE School Dist. #1 (Lincoln Public Schools) G.O. | Aa-1/AAA | 5.250 | 01/15/2022 |
| 500,000 |
| 532,780 |
Lincoln Cty., NE School Dist. #55 (Sutherland Public Schools) FSA | Aaa/NR | 5.000 | 12/15/2020 |
| 225,000 |
| 228,141 |
Lincoln, NE Elec. Syst. Rev. | Aa/AA | 5.000 | 09/01/2021 |
| 1,000,000 |
| 1,043,580 |
Lincoln, NE Water Rev. | Aa/AA- | 5.000 | 08/15/2022 |
| 575,000 |
| 602,543 |
Madison Cty., NE Hosp. Auth. #001 (Faith Regl. Hlth. Svcs.) Rev. ASGUA | NR/AA | 5.350 | 07/01/2018 |
| 250,000 |
| 258,453 |
Metropolitan Community College South Omaha Bldg. Proj. AMBAC | Aaa/AAA | 4.500 | 03/01/2026 |
| 1,000,000 |
| 1,007,050 |
NE Educ. Finance Auth. (Wesleyan Univ.) Rev. Radian Insured | NR/AA | 5.500 | 04/01/2027 |
| 1,000,000 |
| 1,055,240 |
NE Hgr. Educ. Loan Program B Rev. MBIA | Aaa/AAA | 6.000 | 06/01/2028 |
| 100,000 |
| 100,984 |
NE Hgr. Educ. Loan Program Junior Subord. Rev. MBIA | Aaa/AAA | 6.400 | 06/01/2013 |
| 200,000 |
| 207,874 |
NE Hgr. Educ. Loan Program Junior Subord. Term MBIA | Aaa/AAA | 6.450 | 06/01/2018 |
| 400,000 |
| 418,288 |
NE Hgr. Educ. Loan Program Senior Subord. Term MBIA | Aaa/AAA | 6.250 | 06/01/2018 |
| 800,000 |
| 838,328 |
*NE Hgr. Educ. Loan Program Student Loan MBIA | Aaa/AAA | 5.875 | 06/01/2014 |
| 935,000 |
| 944,200 |
NE Invmt. Finance Auth. (Catholic Hlth. Initiatives) Rev. | Aa/AA | 5.125 | 12/01/2017 |
| 200,000 |
| 204,744 |
NE Invmt. Finance Auth. (Childrens Healthcare Svcs.) Facs. Rev. | Aaa/AAA | 5.500 | 08/15/2017 |
| 410,000 |
| 425,244 |
#NE Invmt. Finance Auth. (Childrens Healthcare Svcs.) Rev. AMBAC | Aaa/AAA | 5.500 | 08/15/2027 |
| 1,000,000 |
| 1,038,020 |
NE Invmt. Finance Auth. (Great Plains Regional Medical Center) ASGUA | NR/AA | 5.450 | 11/15/2017 |
| 400,000 |
| 410,680 |
NE Invmt. Finance Auth. (Great Plains Regional Medical Center) Rev. Asset Guaranty | NR/AA | 5.450 | 11/15/2022 |
| 750,000 |
| 798,435 |
NE Invmt. Finance Auth. (Waterbrook) Multifamily Rev. | Aaa/AAA | 5.600 | 04/01/2007 |
| 165,000 |
| 165,936 |
NE Invmt. Finance Auth. Multifamily Hsg. Rev. FNMA | NR/AAA | 6.200 | 06/01/2028 |
| 275,000 |
| 277,802 |
*NE Invmt. Finance Auth. Single Family Hsg. Rev. | NR/AAA | 6.300 | 09/01/2028 |
| 215,000 |
| 218,715 |
NE Invmt. Finance Auth. Single Family Hsg. Rev. FHA/GNMA | NR/AAA | 6.500 | 09/01/2018 |
| 10,000 |
| 10,003 |
NE Invmt. Finance Auth. Single Family Hsg. Rev. FNMA/GNMA | NR/AAA | 6.400 | 09/01/2026 |
| 15,000 |
| 15,006 |
NE Invmt. Finance Auth. Single Family Hsg. Rev. GNMA | NR/AAA | 6.200 | 09/01/2017 |
| 45,000 |
| 45,783 |
NE Invmt. Finance Auth. Single Family Hsg. Rev. GNMA | NR/AAA | 6.250 | 03/01/2021 |
| 50,000 |
| 50,946 |
NE Invmt. Finance Auth. Single Family Hsg. Rev. GNMA/FNMA | NR/AAA | 6.250 | 09/01/2028 |
| 15,000 |
| 15,267 |
Omaha, NE (Riverfront Project) Special Obligation | Aa-1/AA | 5.500 | 02/01/2029 |
| 1,000,000 |
| 1,077,450 |
Omaha, NE Public Power Dist. (Electric Rev) AMBAC | Aaa/AAA | 4.750 | 02/01/2025 |
| 250,000 |
| 258,958 |
Omaha, NE Public Power Dist. (Electric Rev) AMBAC | Aaa/AAA | 4.300 | 02/01/2031 |
| 100,000 |
| 96,513 |
Omaha, NE Public Power Dist. Elec. Syst. Rev. | Aa/AA | 5.200 | 02/01/2022 |
| 500,000 |
| 522,845 |
Omaha, NE Public Power Dist. Elec. Syst. Rev. | Aa/NR | 6.200 | 02/01/2017 |
| 650,000 |
| 744,393 |
Omaha, NE Public Power Electric Rev. | Aa/AA | 5.000 | 02/01/2034 |
| 1,000,000 |
| 1,040,080 |
Omaha, NE Various Purpose | Aaa/AAA | 5.000 | 05/01/2022 |
| 250,000 |
| 262,595 |
Omaha, NE Various Purpose | Aaa/AAA | 4.250 | 10/15/2026 |
| 500,000 |
| 490,535 |
Platte Cty., NE G.O. FSA | Aaa/AAA | 4.750 | 12/15/2014 |
| 500,000 |
| 504,935 |
Platte Cty., NE Hosp. Auth. No. 1 (Columbus Community Hospital Proj.) Hosp. Rev. Asset Guaranty | NR/AA | 5.650 | 05/01/2012 |
| 100,000 |
| 104,631 |
Platte Cty., NE Hosp. Auth. No. 1 (Columbus Community Hospital Proj.) Hosp. Rev. Asset Guaranty | NR/AA | 6.150 | 05/01/2030 |
| 250,000 |
| 266,890 |
Sarpy Cty., NE School Dist. #046 FSA | Aaa/AAA | 5.000 | 12/15/2022 |
| 200,000 |
| 202,860 |
Saunders Cty., NE G.O. FSA | Aaa/AAA | 5.000 | 11/01/2030 |
| 250,000 |
| 256,858 |
Saunders Cty., NE G.O. MBIA | NR/AAA | 4.250 | 12/15/2021 |
| 515,000 |
| 507,301 |
Univ. of NE (U. of NE - Lincoln Student Fees) Rev. | Aa/AA- | 5.125 | 07/01/2032 |
| 250,000 |
| 259,505 |
University of NE Fac. Corp. Deferred Maintenance AMBAC | Aaa/AAA | 5.000 | 07/15/2020 |
| 500,000 |
| 528,605 |
|
|
|
|
|
|
|
|
TOTAL NEBRASKA MUNICIPAL BONDS (COST: $27,098,980) |
| $ | 27,907,872 | ||||
|
|
|
| ||||
SHORT-TERM SECURITIES (4.8%) | Shares |
|
| ||||
Wells Fargo Advantage National Tax-Free Money Market (COST: $1,410,424) | 1,410,424 | $ | 1,410,424 | ||||
|
|
|
| ||||
TOTAL INVESTMENTS IN SECURITIES (COST: $28,509,404) |
| $ | 29,318,296 | ||||
OTHER ASSETS LESS LIABILITIES |
|
| 202,160 | ||||
|
|
|
| ||||
NET ASSETS |
| $ | 29,520,456 | ||||
* Indicates bonds are segregated by the custodian to cover when-issued or delayed-delivery purchases.
# Indicates bonds are segregated by the custodian to cover initial margin requirements.
Non-rated (NR) securities in the Fund were investment grade when purchased.
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Assets and Liabilities January 31, 2007 (Unaudited)
ASSETS |
|
| ||
| Investment in securities, at value (cost: $ 28,509,404) | $ | 29,318,296 | |
| Accrued interest receivable |
| 382,739 | |
| Accrued dividends receivable |
| 4,190 | |
| Prepaid expenses |
| 5,687 | |
|
|
| ||
| Total Assets | $ | 29,710,912 | |
|
|
| ||
LIABILITIES |
|
| ||
| Dividends payable | $ | 97,568 | |
| Disbursements in excess of demand deposit cash |
| 17,841 | |
| Payable for fund shares redeemed |
| 46,263 | |
| Payable to affiliates |
| 23,311 | |
| Accrued expenses |
| 5,473 | |
|
|
| ||
| Total Liabilities | $ | 190,456 | |
|
|
| ||
|
|
| ||
NET ASSETS | $ | 29,520,456 | ||
|
|
| ||
Net assets are represented by: |
|
| ||
| Paid-in capital | $ | 31,926,450 | |
| Accumulated undistributed net realized gain (loss) on investments and futures |
| (3,244,682) | |
| Accumulated undistributed net investment income |
| 29,796 | |
| Unrealized appreciation (depreciation) on investments |
| 808,892 | |
| Total amount representing net assets applicable to 2,893,314 outstanding shares of no par common stock (unlimited shares authorized) | $ | 29,520,456 | |
|
|
| ||
Net asset value per share | $ | 10.20 | ||
Public offering price (based on sales charge of 4.25%) | $ | 10.65 | ||
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Operations For the six months ended January 31, 2007 (Unaudited)
INVESTMENT INCOME |
|
| ||
| Interest | $ | 707,630 | |
| Dividends |
| 36,607 | |
| Total Investment Income | $ | 744,237 | |
|
|
| ||
EXPENSES |
|
| ||
| Investment advisory fees | $ | 76,067 | |
| Distribution (12b-1) fees |
| 38,033 | |
| Administrative service fees |
| 17,756 | |
| Transfer agent fees |
| 27,199 | |
| Accounting service fees |
| 19,607 | |
| Transfer agent out-of-pockets |
| 775 | |
| Reports to shareholders |
| 1,603 | |
| Custodian fees |
| 2,581 | |
| Professional fees |
| 8,544 | |
| Trustees fees |
| 1,508 | |
| Registration and filing fees |
| 812 | |
| Insurance expense |
| 516 | |
| Legal fees |
| 403 | |
| Audit fees |
| 4,209 | |
| Total Expenses | $ | 199,613 | |
| Less expenses waived or absorbed by the Fund’s manager |
| (36,831) | |
| Total Net Expenses | $ | 162,782 | |
|
|
| ||
NET INVESTMENT INCOME | $ | 581,455 | ||
|
|
| ||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| ||
| Net realized gain (loss) from investment transactions | $ | 67,265 | |
| Net change in unrealized appreciation (depreciation) of investments |
| (53,748) | |
| Net Realized And Unrealized Gain (Loss) On Investments | $ | 13,517 | |
|
|
| ||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 594,972 | ||
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Changes in Net Assets
For the six months ended January 31, 2007 and the year ended July 31, 2006
|
| For The Six Months Ended January 31, 2007 (Unaudited) |
| For The Year Ended July 31, 2006 | ||
|
|
|
|
| ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| ||
| Net investment income | $ | 581,455 | $ | 1,242,166 | |
| Net realized gain (loss) on investment and futures transactions |
| 67,265 |
| 887,612 | |
| Net change in unrealized appreciation (depreciation) on investments and futures |
| (53,748) |
| (609,436) | |
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 594,972 | $ | 1,520,342 | |
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| ||
| Dividends from net investment income ($.20 and $.40 per share, respectively) | $ | (579,445) | $ | (1,238,147) | |
| Distributions from net realized gain on investment and futures transactions ($.00 and $.00 per share, respectively) |
| 0 |
| 0 | |
| Total Dividends and Distributions | $ | (579,445) | $ | (1,238,147) | |
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS |
|
|
|
| ||
| Proceeds from sale of shares | $ | 144,896 | $ | 1,505,567 | |
| Proceeds from reinvested dividends |
| 385,117 |
| 826,643 | |
| Cost of shares redeemed |
| (1,767,393) |
| (4,359,905) | |
| Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions | $ | (1,237,380) | $ | (2,027,695) | |
|
|
|
|
| ||
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | (1,221,853) | $ | (1,745,500) | ||
|
|
|
|
| ||
NET ASSETS, BEGINNING OF PERIOD |
| 30,742,309 |
| 32,487,809 | ||
|
|
|
|
| ||
NET ASSETS, END OF PERIOD | $ | 29,520,456 | $ | 30,742,309 | ||
Undistributed Net Investment Income | $ | 29,796 | $ | 27,787 | ||
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements January 31, 2007 (Unaudited)
Note 1. ORGANIZATION
Business operations - The Nebraska Municipal Fund (the “Fund”) is an investment portfolio of Integrity Managed Portfolios (the “Trust”) registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. IntegrityManaged Portfolios is an unincorporated business trust organized under Massachusetts law on August 10, 1990. The Fund had no operations from that date to November 17, 1993, other than matters relating to organization and registration. On November 17, 1993, the Fund commenced its Public Offering of capital shares. The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal and Nebraska state income taxes as is consistent with preservation of capital. The Fund will seek to achieve this objective by investing primarily in a portfolio of Nebraska municipal securities.
Shares of the Fund are offered at net asset value plus a maximum sales charge of 4.25% of the offering price.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation - Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees which include consideration of the following: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, and indications as to value from dealers and general market conditions. Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on t he trade date.
The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.
When-issued securities – The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The values of the securities purchased on a when-issued basis are identified as such in the Fund’s Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic, or other factors.
Contingent Deferred Sales Charge (“CDSC”) – In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 12 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).
Federal and state income taxes - The Fund’s policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its net investment income and any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required. Distributions during the year ended July 31, 2006, were characterized as tax-exempt for tax purposes.
The tax character of distributions paid was as follows:
|
| July 31, 2006 |
| July 29, 2005 |
Tax-exempt Income | $ | 1,238,147 | $ | 1,382,244 |
Ordinary Income |
| 0 |
| 0 |
Long-term Capital Gains |
| 0 |
| 0 |
Total | $ | 1,238,147 | $ | 1,382,244 |
As of July 31, 2006, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation) | Total Accumulated Earnings/(Deficit) |
$0 | $0 | $0 | ($3,311,947) | $890,427 | ($2,421,520) |
The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2006, totaling $3,311,947, which may be used to offset capital gains. The capital loss carryforward amounts will expire in each of the years ended July 31 as shown in the table below.
Year |
| Unexpired Capital Losses |
2008 | $ | 144,610 |
2009 | $ | 158,911 |
2010 | $ | 591,993 |
2011 | $ | 713,949 |
2012 | $ | 579,276 |
2013 | $ | 1,123,208 |
For the year ended July 31, 2006, the Fund made no permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to expiring capital loss carryforwards.
Net capital losses incurred after October 31, and within the tax year are deemed to arise on the first business day of the Fund’s next taxable year. For the year ended July 31, 2006, the Fund deferred to August 1, 2006, post October capital losses, post October currency losses and post October passive foreign investment company losses of $0.
Distributions to shareholders - Dividends from net investment income, declared daily and payable monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed at least annually.
Premiums and discounts - Premiums and discounts on municipal securities are amortized for financial reporting purposes.
Other - Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatment for market discount, capital loss carryforwards and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
Futures contracts - The Fund may purchase and sell financial futures contracts to hedge against changes in the values of tax-exempt municipal securities the Fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of a particular index or a certain amount of U.S. government or municipal securities at a set price on a future date. Upon entering into a futures contract, the Fund is required to deposit with a broker an amount of cash or securities equal to the minimum “initial margin” requirement of the futures exchange on which the contract is traded. Subsequent payments (“variation margin”) are made or received by the Fund, dependent on the fluctuations in the value of the underlying index. Daily fluctuations in value are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize, for book purposes, a gain or loss equal to the difference between the value of the futures contracts sold and the futures contracts to buy. Unrealized appreciation (depreciation) related to open futures contracts is required to be treated as a realized gain (loss) for Federal income tax purposes.
Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Schedule of Investments. The Statement of Assets and Liabilities reflects a receivable or payable for the daily mark to market for variation margin.
Certain risks may arise upon entering into futures contracts. These risks may include changes in the value of the futures contracts that may not directly correlate with changes in the value of the underlying securities.
Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 3. CAPITAL SHARE TRANSACTIONS
As of January 31, 2007, there were unlimited shares of no par authorized; 2,893,314 and 3,013,698 shares were outstanding at January 31, 2007, and July 31, 2006, respectively.
Transactions in capital shares were as follows:
| Shares | |
| For The Six Months Ended January 31, 2007 (Unaudited) | For The Year Ended July 31, 2006 |
Shares sold | 14,096 | 148,688 |
Shares issued on reinvestment of dividends | 37,452 | 81,633 |
Shares redeemed | (171,932) | (430,272) |
Net increase (decrease) | (120,384) | (199,951) |
Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, the Fund’s transfer, accounting, and administrative services agent, are subsidiaries of Integrity Mutual Funds, Inc., the Fund’s sponsor.
The Fund has engaged Integrity Money Management to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund’s average daily net assets. The Fund has recognized $39,236 of investment advisory fees after partial waiver for the six months ended January 31, 2007. The Fund has a payable to Integrity Money Management of $4,982 at January 31, 2007 for investment advisory fees. Certain officers and trustees of the Fund are also officers and directors of the investment adviser.
Under the terms of the advisory contract, the investment adviser has agreed to pay the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 1.25% of the Fund’s average daily net assets on an annual basis up to the amount of the investment advisory and management fee. The investment adviser and underwriter may also voluntarily waive fees or reimburse expenses not required by the advisory or other agreements from time to time. Accordingly, after fee waivers and expense reimbursements, the Fund’s actual total annual operating expenses were 1.07% for the six months ended January 31, 2007.
Principal Underwriter and Shareholder Services
Integrity Funds Distributor serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan for each class of shares as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called “Distribution Plan expenses.” The Fund currently pays an annual distribution fee of up to 0.25% of the average daily net assets of the class. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $38,033 of distribution fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Funds Distributor of $6,401 at January 31, 2007 for distribution fees.
Integrity Fund Services, the transfer agent, provides shareholder services for a variable fee equal to 0.20% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus reimbursement of out-of-pocket expenses. An additional fee with a minimum of $500 per month is charged for each additional share class. The Fund has recognized $27,199 of transfer agency fees and expenses for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $5,121 at January 31, 2007 for transfer agency fees. Integrity Fund Services also acts as the Fund’s accounting services agent for a monthly fee equal to the sum of a fixed fee of $2,000 and a variable fee equal to 0.05% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 mil lion and at a lower rate on the average daily net assets in excess of $50 million, together with reimbursement of out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $19,607 of accounting service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $3,347 at January 31, 2007 for accounting service fees. Integrity Fund Services also acts as the Fund’s administrative services agent for a variable fee equal to 0.125% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $17,756 of administrative service fees for the six month s ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $3,200 at January 31, 2007 for administrative service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment securities (excluding short-term securities) aggregated $2,920,943 and $3,848,312, respectively, for the six months ended January 31, 2007.
Note 6. INVESTMENT IN SECURITIES
At January 31, 2007, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $28,509,404. The net unrealized appreciation of investments for financial reporting purposes based on the cost was $808,892, which is comprised of $841,091 aggregate gross unrealized appreciation and $32,199 aggregate gross unrealized depreciation. Differences between financial reporting-basis and tax-basis unrealized appreciation/depreciation are due to differing treatment of market discount.
Note 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund is presently evaluating the impact of adopting SFAS 157.
Financial Highlights January 31, 2007
Selected per share data and ratios for the period indicated
|
| For The Six Months Ended January 31, 2007 (Unaudited) |
| For The Year Ended July 31, 2006 |
| For The Year Ended July 29, 2005 |
| For The Year Ended July 30, 2004 |
| For The Year Ended July 31, 2003 |
| For The Year Ended July 31, 2002 | ||
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 10.20 | $ | 10.11 | $ | 10.55 | $ | 10.62 | $ | 11.17 | $ | 11.23 | ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Net investment income | $ | .20 | $ | .40 | $ | .42 | $ | .45 | $ | .47 | $ | .51 | |
| Net realized and unrealized gain (loss) on investment and futures transactions |
| .00 |
| .09 |
| (.44) |
| (.07) |
| (.55) |
| (.06) | |
| Total Income (Loss) From Investment Operations | $ | .20 | $ | .49 | $ | (.02) | $ | .38 | $ | (.08) | $ | .45 | |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Less Distributions: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Dividends from net investment income | $ | (.20) | $ | (.40) | $ | (.42) | $ | (.45) | $ | (.47) | $ | (.51) | |
| Distributions from net capital gains |
| .00 |
| .00 |
| .00 |
| .00 |
| .00 |
| .00 | |
| Total Distributions | $ | (.20) | $ | (.40) | $ | (.42) | $ | (.45) | $ | (.47) | $ | (.51) | |
|
|
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NET ASSET VALUE, END OF PERIOD | $ | 10.20 | $ | 10.20 | $ | 10.11 | $ | 10.55 | $ | 10.62 | $ | 11.17 | ||
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Total Return |
| 3.84%(A)(C) |
| 4.90%(A) |
| (0.18)%(A) |
| 3.59%(A) |
| (0.81)%(A) |
| 4.06%(A) | ||
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RATIOS/SUPPLEMENTAL DATA: |
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| Net assets, end of period (in thousands) | $ | 29,520 | $ | 30,742 | $ | 32,488 | $ | 34,682 | $ | 36,718 | $ | 37,273 | |
| Ratio of net expenses (after expense assumption) to average net assets |
| 1.07%(B)(C) |
| 1.03%(B) |
| 0.98%(B) |
| 0.95%(B) |
| 0.92%(B) |
| 0.82%(B) | |
| Ratio of net investment income to average net assets |
| 3.81%(C) |
| 3.89% |
| 4.07% |
| 4.18% |
| 4.24% |
| 4.52% | |
| Portfolio turnover rate |
| 10.35% |
| 14.63% |
| 4.36% |
| 8.95% |
| 9.48% |
| 13.08% | |
(A) Excludes maximum sales charge of 4.25%.
(B) During the periods indicated above, Integrity Mutual Funds, Inc. or Integrity Money Management assumed/waived expenses of $36,831, $66,312, $84,449, $93,640, $62,679, and $99,292, respectively. If the expenses had not been assumed/waived, the annualized ratios of total expenses to average net assets would have been 1.31%, 1.24%, 1.22%, 1.21%, 1.08%, and 1.08%, respectively.
(C) Ratio is annualized.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
Dear Shareholder:
Enclosed is the semi-annual report of the New Hampshire Municipal Fund (the “Fund”) for the period ended January 31, 2007. The Fund’s portfolio and related financial statements are presented within for your review.
In the last part of 2006 investors pushed back when they thought the Federal Reserve would cut interest rates.
Fed Fund futures expectations of where rates are going now give less than even odds that the Fed will cut its key target rate by a quarter point by September. In November the view was that the Fed would almost certainly cut rates from the current 5.25% once and possibly twice.
The mood has shifted as economic reports suggest the economy is in better shape than investors had thought. One reason investors remain so upbeat is that the economy appears to be catching its footing and inflation looks more subdued.
Federal Reserve chairman Ben Bernanke has said repeatedly he hopes the core inflation rate will continue to moderate, falling back below 2%. But he continues to worry, at least in public, about the risk of more persistent inflation, which would force him to raise rates again.
The bond market right now is worried about a different threat, a recession. That fear helped push the yield on the 10-year Treasury bond to 4.81% at the end of the period, higher than the 4.39% at which it began 2006, but well below the 5.25% it hit in late June 2006.
Long-term government bonds now yield less than short-term bonds. That makes investors nervous because, at times, it has historically been a sign of a coming recession. Lower long-term yields suggest investors expect rates to fall when the economy is weakening.
Some tend to downplay the recession risk. Heavy foreign demand for longer-term U.S. Treasury bonds, together with exceptionally low worldwide inflation rates, have kept U.S. bonds lower than normal.
Low yields hold down other market interest rates such as fixed mortgage rates. They encourage consumers and businesses alike to borrow, spend and invest which supports corporate profits and stock prices.
The New Hampshire Municipal Fund began the period at $10.25 per share and ended the period at $10.28 per share for a total return of 1.88%*. This compares to the Lehman Brothers Municipal Bond Index return of 3.06% for the period.
The Funds favorable overall performance can be attributed to its defensive portfolio, with an average maturity of 9 years and a low average maturity to the first call date of 4 years. That, along with an average portfolio coupon of 4.96%, helps relative performance in a rising rate environment.
Issues contributing to this defensive portfolio include: Dartmouth College, 5.70% coupon, due 6/1/2027; Manchester GO, 5.50% coupon, due 6/1/2019; and New Hampshire University Systems, 5.50% coupon, due 7/1/2013.
An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, federally tax-exempt issues. Portfolio quality for the year was as follows: AAA 68.0%, AA 23.1% and A 8.9%.
Income exempt from federal income taxes and New Hampshire state interest and dividend taxes with preservation of capital remain the primary objectives of the Fund.
If you would like more frequent updates, visit our website at www.integrityfunds.com for daily prices along with pertinent Fund information.
Sincerely,
Monte Avery
Portfolio Manager
The views expressed are those of Monte Avery, Chief Portfolio Strategist with Integrity Mutual Funds. The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any Integrity Mutual Fund.
*Performance does not include applicable front-end or contingent deferred sales charges, which would have reduced the performance.
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities than a municipal bond fund that does not concentrate its securities in a single state.
January 31, 2007 (Unaudited)
PROXY VOTING ON FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-276-1262. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Integrity's website at www.integrityfunds.com. This information is also available from the EDGAR database on the Securities and Exchange Commission’s (“SEC's”) website at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
The Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports within 60 days of the end of the Fund's second and fourth fiscal quarters on the Form N-CSR(S). The annual and semi-annual reports are filed electronically with the SEC and are delivered to the Fund shareholders. The Fund also files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q and N-CSR(S) are available on the SEC's website at www.sec.gov. The Fund's Forms N-Q and N-CSR(S) may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C., and the information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. You may also access this information from Integrity's website at www.integrityfunds.com.
Terms & Definitions January 31, 2007 (Unaudited)
Appreciation
Increase in value of an asset.
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned by the fund on an annual basis, assuming all distributions are reinvested.
Coupon Rate or Face Rate
The rate of interest payable annually, based on the face amount of the bond; expressed as a percentage.
Depreciation
Decrease in value of an asset.
Lehman Brothers Municipal Bond Index
An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund.
Market Value
Actual (or estimated) price at which a bond trades in the market place.
Maturity
A measure of the term or life of a bond in years. When a bond “matures,” the issuer repays the principal.
Net Asset Value (NAV)
The value of all your fund’s assets, minus any liabilities, divided by the number of outstanding shares, not including any initial sales charge.
Quality Ratings
A designation assigned by independent rating companies to give a relative indication of a bond’s credit worthiness. “AAA,” “AA,” “A,” and “BBB” indicate investment grade securities. Ratings can range from a high of “AAA” to a low of “D”.
Total Return
Measures both the net investment income and any realized and unrealized appreciation or depreciation of the underlying investments in the fund’s portfolio for the period, assuming the reinvestment of all dividends. It represents the aggregate percentage or dollar value change over the period.
January 31, 2007 (Unaudited)
COMPOSITION
PORTFOLIO QUALITY RATINGS
(Based on Total Long-Term Investments)
AAA | 68.0% |
AA | 23.1% |
A | 8.9% |
Quality ratings reflect the financial strength of the issuer. They are assigned by independent rating services such as Moody’s Investors Services and Standard & Poor’s. Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. (“Integrity Money Management” or “Adviser”), the investment adviser.
These percentages are subject to change.
PORTFOLIO MARKET SECTORS
(As a % of Net Assets)
T - Transportation | 28.5% |
S - School | 20.2% |
O - Other | 14.3% |
I - Industrial | 13.1% |
HC - Health Care | 12.7% |
GO - General Obligation | 11.2% |
Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.
These percentages are subject to change.
January 31, 2007 (Unaudited)
DISCLOSURE OF FUND EXPENSES
The Example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads), redemption fees and exchange fees; and (2) ongoing costs, including management fees, distribution (12b-1) fees and other fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 31, 2006, to January 31, 2007.
The example illustrates the Fund’s costs in two ways:
Actual expenses
The section in the table under the heading “Actual” provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the appropriate column for your share class, in the column entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The section in the table under the heading “Hypothetical (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the section in the table under the heading “Hypothetical (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value 07/31/06 | Ending Account Value 01/31/07 | Expenses Paid During Period* |
Actual |
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Class A | $1,000.00 | $1,018.76 | $5.40 |
Hypothetical (5% return before expenses) |
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Class A | $1,000.00 | $1,019.86 | $5.40 |
* Expenses are equal to the annualized expense ratio of 1.07%, multiplied by the average account value over the period, multiplied by 180/360 days. The Fund’s ending account value on the first line in the table is based on its actual total return of 1.88% for the six-month period of July 31, 2006, to January 31, 2007.
January 31, 2007 (Unaudited)
AVERAGE ANNUAL TOTAL RETURNS
| For periods ending January 31, 2007 | ||||
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| Since Inception (December 31, 1992) |
New Hampshire Municipal Fund | 1 year | 3 year | 5 year | 10 year | |
Without sales charge | 4.41% | 1.81% | 2.77% | 3.95% | 4.56% |
With sales charge (4.25%) | (0.02%) | 0.35% | 1.88% | 3.50% | 4.24% |
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| Since Inception (December 31, 1992) |
Lehman Brothers Municipal Bond Index | 1 year | 3 year | 5 year | 10 year | |
| 4.30% | 4.00% | 5.12% | 5.71% | 6.02% |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemption of Fund shares.
The Fund's performance prior to December 19, 2003, was achieved while the Fund was managed by another investment adviser, who used different investment strategies and techniques, which may produce different investment results than those achieved by the current investment adviser. Forum Investment Advisors, LLC, served as investment adviser to the Fund until December 19, 2003.
January 31, 2007 (Unaudited)
COMPARATIVE INDEX GRAPH
Comparison of change in value of a $10,000 investment in the New Hampshire Municipal Fund and the Lehman Brothers Municipal Bond Index
| New Hampshire Municipal Fund w/o Sales Charge | New Hampshire Municipal Fund w/ Max Sales Charge | Lehman Brothers Municipal Bond Index |
7/31/1996 | $10,000 | $9,573 | $10,000 |
1997 | $10,847 | $10,384 | $11,027 |
1998 | $11,421 | $10,933 | $11,687 |
1999 | $11,726 | $11,226 | $12,024 |
2000 | $12,142 | $11,623 | $12,542 |
2001 | $13,035 | $12,478 | $13,808 |
2002 | $13,715 | $13,129 | $14,735 |
2003 | $14,036 | $13,437 | $15,264 |
2004 | $14,701 | $14,073 | $16,147 |
2005 | $14,436 | $13,819 | $17,174 |
2006 | $14,978 | $14,338 | $17,613 |
01/31/07 | $15,259 | $14,607 | $18,151 |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The graph does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
The graph comparing your Fund’s performance to a benchmark index provides you with a general sense of how your Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in New Hampshire municipal bonds. Your Fund’s total return for the period shown appears with and without sales charges and includes Fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged; there are no expenses that affect the results. In addition, few investors could purchase all of the securities necessary to match the index. And, if they could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.
January 31, 2007 (Unaudited)
MANAGEMENT OF THE FUND
The Board of Integrity Managed Portfolios consists of four Trustees. These same individuals, unless otherwise noted, also serve as Directors or Trustees for all of the funds in the Integrity family of funds, the six series of Integrity Managed Portfolios and the seven series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “Independent” Trustees. Two of the remaining three Trustees and/or executive officers are “interested” by virtue of their affiliation with the Investment Adviser and its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
NAME, ADDRESS AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1 | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Jerry M. Stai | Trustee | Since January 2006 | Faculty, Embry-Riddle University (August 2000 to September 2005); Faculty, Park University (August 2005 to December 2005); Non-Profit Specialist, Bremer Bank (since July 2005); Faculty, Minot State University (since August 2000); Director, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006). | 16 | Marycrest Franciscan Development, Inc. |
Orlin W. Backes Minot, ND 58701 | Trustee | Since January 1996 | Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director, South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., (Since April 2005); Trustee, The Integrity Funds (since May 2003); and Director, First Western Bank & Trust. | 16 | First Western Bank & Trust |
R. James Maxson | Trustee | Since January 1999 | Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Director, Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc. and Montana Tax-Free Fund, Inc. (since January 1999), South Dakota Tax-Free Fund, Inc. (January 1999 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); and Trustee, The Integrity Funds (since May 2003). | 16 | Vincent United Methodist Foundation
Minot Area Development Corporation |
1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.
Trustees and officers of the Fund serve until their resignation, removal or retirement.
The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.
January 31, 2007 (Unaudited)
The Interested Trustees and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEES AND EXECUTIVE OFFICERS
NAME, ADDRESS AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1 | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Robert E. Walstad2 | Trustee, Chairman, President | Since January 1996 | Director (since September 1987), President (September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., Integrity Fund Services, Inc.; Director, President (since inception) and Treasurer (May 1989 to May 2004), ND Capital, Inc. (August 1988 to September 2004), South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc.; Trustee, Chairman and President (since May 2003) and Treasurer (May 2003 to May 2004), The Integrity Funds; Director, President and Treasurer (May 2003 to August 2003), Integrity Funds Distributor, Inc.; Director (October 1999 to June 2003), Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (October 2002 to June 2003), ARM Securities Corporation; and Director, CEO, Chairman (since January 2002), Pres ident (September 2002 to December 2004), Capital Financial Services, Inc. | 16 | Capital Financial Services, Inc., and Minot Park Board |
Peter A. Quist | Vice President, Secretary | Since January 1996 | Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc., ND Capital, Inc. (August 1988 to September 2004), Integrity Fund Services, Inc., South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax Free Fund, Inc., Integrity Funds Distributor, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003); and Director, ARM Securities Corporation (May 2000 to June 2003). | 3 | None |
Laura K. Anderson | Treasurer | Since October 2005 | Fund Accountant (until May 2004), Fund Accounting Supervisor (May 2004 to October 2005), Fund Accounting Manager, Integrity Fund Services, Inc.; Treasurer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. | N/A | None |
Brent M. Wheeler | Mutual Fund Chief Compliance Officer | Since October 2005 | Fund Accounting Manager (May 1998 to October 2005), Integrity Fund Services, Inc.; Treasurer (May 2004 to October 2005), Mutual Fund Compliance Officer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. | N/A | None |
1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.
2Mr. Walstad qualifies as an interested person of the Trust, as defined in the 1940 Act, by virtue of being an officer and director of the Investment Adviser and Distributor.
Trustees and officers of the Fund serve until their resignation, removal or retirement.
The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.
January 31, 2007 (Unaudited)
Board Approval of Investment Advisory Agreement
Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”), the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“the Company”), the Fund’s sponsor.
The approval and the continuation of a fund’s investment advisory agreement must be specifically approved at least annually (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “Interested Persons” of any party (“Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In preparation for the meeting, the Board requests and reviews a wide variety of materials provided by the Fund’s adviser. The Independent Trustees also received advice from their independent counsel on the issues to focus on during contract renewals. At a meeting held on October 25, 2006, the Board of Trustees, including a majority of the Independent Trustees of the Fund, approved the Management and Investment Advisory Agreement (“Advisory Agreement”), between the Fund and Integrity Money Management.
The Trustees, including a majority of Trustees who are neither party to the Advisory Agreement nor “interested persons” of any such party (as such term is defined for regulatory purposes), unanimously approved the Advisory Agreement. In determining whether it was appropriate to approve the Advisory Agreement, the Trustees requested information, provided by the Investment Adviser that it believed to be reasonably necessary to reach its conclusion. In connection with the approval of the Advisory Agreements, the Board reviewed factors set out in judicial decisions and Securities Exchange Commission directives relating to the approval of advisory contracts, which include but are not limited to, the following:
(a) | the nature and quality of services to be provided by the adviser to the fund; |
(b) | the various personnel furnishing such services and their duties and qualifications; |
(c) | the relevant fund’s investment performance as compared to standardized industry performance data; |
(d) | the adviser’s costs and profitability of furnishing the investment management services to the fund; |
(e) | the extent to which the adviser realizes economies of scale as the fund grows larger and the sharing thereof with the fund; |
(f) | an analysis of the rates charged by other investment advisers of similar funds; |
(g) | the expense ratios of the applicable fund as compared to data for comparable funds; and |
(h) | information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds. |
In evaluating the Adviser’s services and its fees, the Trustees reviewed information concerning the performance of the Fund, the recent financial statements of the Adviser and its parent, and the proposed advisory fee and other fund expenses compared to the level of advisory fees and expenses paid by other similar funds. In reviewing the Advisory Agreement with the foregoing Fund, the Trustees considered, among other things, the fees, the Fund’s past performance, the nature and quality of the services provided, the profitability of the Adviser and its parent (estimated costs and estimated profits from furnishing the proposed services to the Fund), and the expense waivers by the Adviser. The Trustees also considered any ancillary benefits to the Adviser and its affiliates for services provided to the Fund. In this regard, the Trustees noted that there were no soft dollar arrangements involving the Adviser and the only benefits to affiliates were the fees earned for services provided. The Trustees did not identify any single factor discussed above as all-important or controlling. The Trustees also considered the Adviser’s commitment to voluntarily limit Fund expenses and the skills and capabilities of the Adviser.
The following paragraphs summarize the material information and factors considered by the Board, including the Independent Trustees, as well as their conclusions relative to such factors in considering the approval of the Advisory Agreement:
Nature, Extent and Quality of Services: The Investment Adviser currently provides services to sixteen funds in the Integrity family of funds with investment strategies ranging from non-diversified sector funds to broad-based equity funds. The experience and expertise of the Investment Adviser is attributable to the long-term focus on managing investment companies and has the potential to enhance the Fund’s future performance. They have a strong culture of compliance and provide quality services. The overall nature and quality of the services provided by the Investment Adviser had historically been, and continues to be, adequate and appropriate to the Board.
Various personnel furnishing such services and their duties and qualifications: The Portfolio Manager of the Fund has over 25 years experience in the advisory and money management area adding significant expertise to the Adviser of the Fund. A detailed biography of the portfolio manager was presented to the Trustees. This information is disclosed in the prospectus and/or SAI of the Fund.
Investment Performance: The Adviser has assured through subsidization that its Fund has had consistent performance relative to comparable and competing funds. Although the Fund has outperformed its relative benchmark for the YTD and 1-year periods, it has underperformed its relative benchmark for the 5-year, 10-year and since inception periods as of September 29, 2006. The Fund has positive returns for all the periods indicated above as of September 29, 2006. In addition, the Fund has been meeting its investment objective for providing as high a level of current income exempt from federal and New Hampshire state interest and dividend taxes as is consistent with preservation of capital.
Profitability: The Board has reviewed a year to date and a 12-month profit analysis spreadsheet completed by the controller of the investment adviser. Based on the relatively small size of each fund under management with the Adviser, the Adviser has shown no profit for the period. The Board determined that the profitability of the Adviser was not excessive based on the services it will provide for the Fund and the profit analysis spreadsheet presented by the Adviser.
Economies of Scale: The Board briefly discussed the benefits for the Fund as the Adviser could realize economies of scale as the Fund grows larger, but the size of the Fund has not reached an asset level to benefit from economies of scale.The advisory fees are structured appropriately based on the size of the Fund. The Adviser has indicated that a new advisory fee structure may be looked at if the Fund reaches an asset level where the Fund could benefit from economies of scale.
Analysis of the rates charged by other investment advisers of similar funds: The Adviser is voluntarily waiving advisory fees due to the small size of the Fund. At times the Adviser is reimbursing the Fund for expenses paid above the voluntary expense cap. The Board considered the compensation payable under the Advisory Agreement fair and reasonable in light of the services to be provided.
Expense ratios of the applicable fund as compared to data for comparable funds: The Fund’s net expense ratio of 1.07% for the Class A shares was comparable to other funds of similar objective and size.
Information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds: The Board noted that the Adviser does not realize material direct benefits from its relationship with the Fund. The Adviser does not participate in any soft dollar arrangements from securities trading in the Fund.
In voting unanimously to approve the Advisory Agreement, the Trustees did not identify any single factor as being of paramount importance. The Trustees noted that their discussion in this regard was premised on numerous factors including the nature, quality and resources of Integrity Money Management, the strategic plan involving the Fund and the potential for increased distribution and growth of the Fund. They determined that, after considering all relevant factors, the adoption of the Advisory Agreement would be in the best interest of the Fund and its shareholders.
Potential Conflicts of Interest – Investment Adviser
Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account. More specifically, portfolio managers who manage multiple funds are presented with the following potential conflicts:
The management of multiple funds may result in a portfolio manager devoting unequal time and attention to the management of each fund. The Investment Adviser seeks to manage such competing interests for the time and attention of portfolio managers by having them focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment models that are used in connection with the management of the Funds. The management of multiple funds and accounts also may give rise to potential conflicts of interest if the funds and accounts have different objectives, benchmarks, time horizons, and fees as the portfolio manager must allocate his time and investment ideas across multiple funds and accounts.
• | With respect to securities transactions for the Funds, the Investment Adviser determines which broker to use to execute each order, consistent with the duty to seek best execution of the transaction. The portfolio manager may execute transactions for another fund or account that may adversely impact the value of securities held by the Funds. Securities selected for funds or accounts other than the Funds may outperform the securities selected for the Funds. |
• | The appearance of a conflict of interest may arise where the Investment Adviser has an incentive, such as a performance-based management fee, which relates to the management of one fund but not all funds with respect to which a portfolio manager has day-to-day management responsibilities. The management of personal accounts may give rise to potential conflicts of interest; there is no assurance that the Funds' code of ethics will adequately address such conflicts. One of the portfolio manager's numerous responsibilities is to assist in the sale of Fund shares. Mr. Avery's compensation is based on salary paid every other week. He is not compensated for client retention. In addition, Integrity Mutual Funds, Inc., sponsors a 401(k) plan for all its employees. This plan is funded by employee elective deferrals and, to an extent, matching contributions by the Company. After one year of employment the employee is eligible to participate in the Company matching program. The Company matche s 100% of contribution up to 3% and ½% for each additional percent contributed up to 5%. The Company has established a program in which it will grant interests in Integrity Mutual Funds Inc., shares to current employees that meet certain eligibility requirements, as a form of long-term incentive. The program is designed to allow all employees to participate in the long-term growth of the value of the firm. |
• | Although the Portfolio Managers generally do not trade securities in their own personal account, each of the Funds has adopted a code of ethics that, among other things, permits personal trading by employees under conditions where it has been determined that such trades would not adversely impact client accounts. Nevertheless, the management of personal accounts may give rise to potential conflicts of interest, and there is no assurance that these codes of ethics will adequately address such conflicts. |
The Investment Adviser and the Funds have adopted certain compliance procedures, which are designed to address these types of conflicts. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.
Schedule of Investments January 31, 2007 (Unaudited)
Name of Issuer Percentages represent the market value of each investment category to total net assets | Rating Moody’s/S&P | Coupon Rate | Maturity |
| Principal Amount |
| Market Value |
|
|
|
|
|
|
|
|
NEW HAMPSHIRE MUNICIPAL BONDS (88.4%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
#Belknap Cty., NH G.O. MBIA | Aaa/AAA | 5.200% | 06/15/2013 | $ | 225,000 | $ | 232,535 |
Colebrook, NH School District MBIA | Aaa/NR | 4.000 | 07/15/2008 |
| 60,000 |
| 60,280 |
Concord, NH G.O. | Aa/AA | 4.600 | 10/15/2014 |
| 100,000 |
| 103,919 |
Derry, NH FSA | Aaa/NR | 4.800 | 02/01/2018 |
| 115,000 |
| 120,028 |
Exeter, NH G.O. | A-1/NR | 5.300 | 06/15/2008 |
| 25,000 |
| 25,493 |
Franlin, NH G.O. MBIA | Aaa/AAA | 5.200 | 10/01/2007 |
| 50,000 |
| 50,000 |
Gorham, NH G.O. FSA | Aaa/NR | 4.850 | 04/01/2014 |
| 65,000 |
| 67,000 |
#Hampton, NH G.O. XLCA | Aaa/NR | 4.000 | 12/15/2020 |
| 200,000 |
| 196,696 |
Hillsborough, NH G.O. XLCA | Aaa/AAA | 4.000 | 11/01/2020 |
| 100,000 |
| 98,280 |
Hillsborough, NH G.O. XLCA | Aaa/AAA | 4.000 | 11/01/2021 |
| 100,000 |
| 98,298 |
Hudson, NH G.O. | Aa-3/NR | 5.250 | 03/15/2028 |
| 110,000 |
| 112,627 |
Hudson, NH School District Lot B | Aa-3/NR | 7.300 | 12/15/2008 |
| 20,000 |
| 21,278 |
Keene, NH G.O. | A-1/NR | 5.150 | 10/15/2011 |
| 45,000 |
| 46,612 |
#Manchester, NH Airport Rev. MBIA | Aaa/AAA | 5.000 | 01/01/2009 |
| 225,000 |
| 228,375 |
*Manchester, NH Public Improvement | Aa/NR | 5.500 | 06/01/2019 |
| 200,000 |
| 213,564 |
*Manchester, NH School Facs. Rev. MBIA | Aaa/AAA | 5.250 | 06/01/2009 |
| 250,000 |
| 259,065 |
Nashua, NH G.O. | Aa/AA+ | 5.250 | 09/15/2017 |
| 100,000 |
| 106,444 |
Nashua, NH G.O. MBIA | Aaa/AAA | 4.000 | 03/15/2017 |
| 100,000 |
| 99,543 |
New Hampshire Hgr. Educ. & Hlth. Facs. (Dartmouth College) Rev. | Aaa/AAA | 5.700 | 06/01/2027 |
| 100,000 |
| 103,367 |
*New Hampshire Hgr. Educ. & Hlth. Facs. (Dartmouth College) Rev. | Aaa/AAA | 5.125 | 06/01/2028 |
| 285,000 |
| 291,139 |
New Hampshire Hlth. & Educ. Facs. Auth. (Exeter) | A/A+ | 5.100 | 10/01/2010 |
| 100,000 |
| 102,977 |
New Hampshire Hlth. & Educ. Facs. Auth. (Exeter) | A/A+ | 5.200 | 10/01/2011 |
| 60,000 |
| 62,275 |
New Hampshire Hlth. & Educ. Facs. Auth. (Exeter) | A/A+ | 5.500 | 10/01/2015 |
| 120,000 |
| 127,302 |
New Hampshire Hlth. & Educ. Facs. Auth. (Exeter) | A/A+ | 5.625 | 10/01/2016 |
| 20,000 |
| 21,436 |
#New Hampshire Hlth. & Educ. Facs. Auth. (Univ. Sys. of NH) AMBAC | Aaa/AAA | 5.500 | 07/01/2013 |
| 190,000 |
| 204,508 |
New Hampshire Hlth. & Educ. Facs. Auth. (Univ. Sys. of NH) AMBAC | Aaa/AAA | 5.500 | 07/01/2013 |
| 95,000 |
| 101,614 |
New Hampshire Muni Bond Bank FSA | Aaa/AAA | 4.400 | 08/15/2016 |
| 100,000 |
| 101,441 |
New Hampshire Muni Bond Bank (Pinkerton Academy) AMBAC | Aaa/AAA | 5.250 | 06/01/2007 |
| 5,000 |
| 5,000 |
*New Hampshire State Capital Improvement G.O. | Aa/AA | 5.000 | 04/15/2013 |
| 250,000 |
| 264,220 |
New Hampshire State Hsg. Finance Auth. | Aa/NR | 6.000 | 07/01/2008 |
| 25,000 |
| 25,378 |
Oyster River, NH Coop School District Lot A | Aa/NR | 5.750 | 06/15/2007 |
| 50,000 |
| 50,068 |
Oyster River, NH Coop School District Lot A | Aa/NR | 5.850 | 06/15/2008 |
| 100,000 |
| 100,135 |
Portsmouth, NH G.O. MBIA | Aaa/AAA | 4.000 | 08/01/2017 |
| 100,000 |
| 99,490 |
Portsmouth, NH G.O. MBIA | Aaa/AAA | 4.000 | 08/01/2019 |
| 100,000 |
| 98,836 |
*Rochester, NH G.O. MBIA | Aaa/NR | 4.750 | 07/15/2020 |
| 300,000 |
| 313,965 |
#Stratham, NH School District AMBAC | Aaa/AAA | 5.100 | 01/15/2008 |
| 100,000 |
| 101,245 |
TOTAL NEW HAMPSHIRE MUNICIPAL BONDS |
|
|
|
|
| $ | 4,314,432 |
|
|
|
|
|
|
|
|
GUAM MUNICIPAL BONDS (0.2%) |
|
|
|
|
|
|
|
Guam Hsg. Corp. Single Family Mtg. | NR/AAA | 5.750 | 09/01/2031 |
| 10,000 | $ | 10,752 |
|
|
|
|
|
|
| |
TOTAL MUNICIPAL BONDS (COST: $4,316,843) |
|
|
|
| $ | 4,325,184 | |
|
|
|
|
|
|
| |
SHORT-TERM SECURITIES (12.0%) |
|
|
| Shares |
|
| |
Wells Fargo Advantage National Tax-Free Money Market (Cost: $585,199) |
|
|
| 585,199 | $ | 585,199 | |
|
|
|
|
|
|
| |
TOTAL INVESTMENTS IN SECURITIES (COST: $4,902,042) |
|
|
|
| $ | 4,910,383 | |
OTHER ASSETS LESS LIABILITIES |
|
|
|
|
| (28,331) | |
|
|
|
|
|
|
| |
NET ASSETS |
|
|
|
| $ | 4,882,052 | |
* Indicates bonds are segregated by the custodian to cover when-issued or delayed-delivery purchases.
# Indicates bonds are segregated by the custodian to cover initial margin requirements.
Non-rated (NR) securities in the Fund were investment grade when purchased.
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Assets and Liabilities January 31, 2007 (Unaudited)
ASSETS |
|
|
Investment in securities, at value (cost: $4,902,042) | $ | 4,910,383 |
Accrued interest receivable |
| 44,427 |
Accrued dividends receivable |
| 1,323 |
Receivable from manager |
| 4,937 |
Prepaid expenses |
| 1,650 |
|
|
|
Total Assets | $ | 4,962,720 |
|
|
|
LIABILITIES |
|
|
Dividends payable | $ | 12,936 |
Payable for fund shares redeemed |
| 55,997 |
Payable to affiliates |
| 7,836 |
Accrued expenses |
| 3,899 |
|
|
|
Total Liabilities | $ | 80,668 |
|
|
|
|
|
|
NET ASSETS | $ | 4,882,052 |
|
|
|
|
|
|
Net assets are represented by: |
|
|
Paid-in capital | $ | 5,028,146 |
Accumulated undistributed net realized gain (loss) on investments and futures |
| (156,035) |
Accumulated undistributed net investment income |
| 1,600 |
Unrealized appreciation (depreciation) on investments |
| 8,341 |
Total amount representing net assets applicable to 474,717 outstanding shares of no par common stock (unlimited shares authorized) | $ | 4,882,052 |
|
|
|
Net asset value per share | $ | 10.28 |
|
|
|
Public offering price (based on sales charge of 4.25%) | $ | 10.74 |
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Operations For the six months ended January 31, 2007 (Unaudited)
INVESTMENT INCOME |
|
| ||
| Interest | $ | 104,668 | |
| Dividends |
| 4,184 | |
| Total Investment Income | $ | 108,852 | |
|
|
|
| |
EXPENSES |
|
| ||
| Investment advisory fees | $ | 12,910 | |
| Distribution (12b-1) fees |
| 6,455 | |
| Transfer agent fees |
| 11,017 | |
| Administrative service fees |
| 11,017 | |
| Accounting service fees |
| 13,291 | |
| Custodian fees |
| 892 | |
| Professional fees |
| 2,867 | |
| Trustees fees |
| 882 | |
| Reports to shareholders |
| 1,050 | |
| License, fees, and registrations |
| 535 | |
| Audit fees |
| 4,614 | |
| Other fees |
| 20 | |
| Total Expenses | $ | 65,550 | |
| Less expenses waived or absorbed by the Fund’s manager |
| (37,923) | |
| Total Net Expenses | $ | 27,627 | |
|
|
| ||
NET INVESTMENT INCOME | $ | 81,225 | ||
|
|
| ||
|
|
| ||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| ||
| Net realized gain (loss) from investment transactions | $ | (1,870) | |
| Net change in unrealized appreciation (depreciation) of investments |
| 22,299 | |
| Net Realized and Unrealized Gain (Loss) On Investments | $ | 20,429 | |
|
|
| ||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 101,654 | ||
|
|
| ||
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Changes in Net Assets
For the six months ended January 31, 2007 and the year ended July 31, 2006
|
| For The Six Months Ended January 31, 2007 (Unaudited) |
| For The Year Ended July 31, 2006 | ||
|
|
|
|
| ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| ||
| Net investment income | $ | 81,225 | $ | 185,220 | |
| Net realized gain (loss) on investment and futures transactions |
| (1,870) |
| 195,409 | |
| Net change in unrealized appreciation (depreciation) on investments and futures |
| 22,299 |
| (172,988) | |
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 101,654 | $ | 207,641 | |
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| ||
| Dividends from net investment income ($.16 and $.33 per share, respectively) | $ | (81,049) | $ | (184,875) | |
| Distributions from net realized gain on investment and futures transactions ($.00 and $.00 per share) |
| 0 |
| 0 | |
| Total Dividends and Distributions | $ | (81,049) | $ | (184,875) | |
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS |
|
|
|
| ||
| Proceeds from sale of shares | $ | 19,574 | $ | 298,121 | |
| Proceeds from reinvested dividends |
| 44,600 |
| 105,044 | |
| Cost of shares redeemed |
| (519,370) |
| (1,472,571) | |
| Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions | $ | (455,196) | $ | (1,069,406) | |
|
|
|
|
| ||
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | (434,591) | $ | (1,046,640) | ||
|
|
|
|
| ||
NET ASSETS, BEGINNING OF PERIOD |
| 5,316,643 |
| 6,363,283 | ||
|
|
|
|
| ||
NET ASSETS, END OF PERIOD | $ | 4,882,052 | $ | 5,316,643 | ||
Undistributed Net Investment Income | $ | 1,600 | $ | 1,424 | ||
The accompanying notes are an integral part of these financial statements.
Notes to Financial StatementsJanuary 31, 2007 (Unaudited)
Note 1. ORGANIZATION
Business operations – The New Hampshire Municipal Fund (the “Fund”) is an investment portfolio of Integrity Managed Portfolios (the “Trust”), registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. Integrity Managed Portfolios is an unincorporated business trust organized under Massachusetts law on August 10, 1990. The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal and New Hampshire state interest and dividend tax as is consistent with preservation of capital. The Fund will seek to achieve this objective by investing primarily in a portfolio of New Hampshire municipal securities.
On December 19, 2003, the New Hampshire Municipal Fund became a series of the Integrity Managed Portfolios. Prior to this the Fund was part of the Forum Funds and was named the New Hampshire TaxSaver Bond Fund. The New Hampshire TaxSaver Bond Fund commenced operations on December 31, 1992. The Forum Funds is a Delaware business trust that is registered as an open-end management investment company under the Investment Company Act of 1940, as amended.
Shares of the Fund are offered at net asset value plus a maximum sales charge of 4.25% of the offering price.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation – Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees which include consideration of the following: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, and indications as to value from dealers and general market conditions. Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on the trade date.
The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.
When-issued securities – The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities purchased on a when-issued basis are identified as such in the Fund’s Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic, or other factors.
Contingent Deferred Sales Charge (“CDSC”) – In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 12 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).
Federal and state income taxes – The Fund’s policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its net investment income and any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required.
The tax character of distributions paid was as follows:
|
| July 31, 2006 |
| July 29, 2005 |
Tax-exempt Income | $ | 184,875 | $ | 244,007 |
Ordinary Income |
| 0 |
| 0 |
Long-term Capital Gains |
| 0 |
| 72,597 |
Total | $ | 184,875 | $ | 316,604 |
As of July 31, 2006, the components of accumulated earnings/(deficit) on a tax basis was as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation) | Total Accumulated Earnings/(Deficit) |
$0 | $0 | $0 | ($154,165) | ($12,534) | ($166,699) |
The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2006, totaling $154,165, which may be used to offset capital gains. The capital loss carryforward amounts will expire in each of the years ended July 31 as shown in the table below.
Year | Unexpired Capital Losses |
2013 | $154,165 |
For the year ended July 31, 2006, the Fund made no permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to expiring capital loss carryforwards.
Net capital losses incurred after October 31, and within the tax year are deemed to arise on the first business day of the Fund’s next taxable year. For the year ended July 31, 2006, the Fund deferred to August 1, 2006 post October capital losses, post October currency losses and post October passive foreign investment company losses of $0.
Distributions to shareholders – Dividends from net investment income, declared daily and paid monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed at least annually.
Premiums and discounts - Premiums and discounts on municipal securities are amortized for financial reporting purposes.
Other – Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatment for market discount, capital loss carryforwards and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
Futures contracts – The Fund may purchase and sell financial futures contracts to hedge against changes in the values of tax-exempt municipal securities the Fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of a particular index or a certain amount of U.S. government or municipal securities at a set price on a future date. Upon entering into a futures contract, the Fund is required to deposit with a broker an amount of cash or securities equal to the minimum “initial margin” requirement of the futures exchange on which the contract is traded. Subsequent payments (“variation margin”) are made or received by the Fund, dependent on the fluctuations in the value of the underlying index. Daily fluctuations in value are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize, for book purposes, a gain or loss equal to the difference between the value of the futures contracts sold and the futures contracts to buy. Unrealized appreciation (depreciation) related to open futures contracts is required to be treated as a realized gain (loss) for Federal income tax purposes.
Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Schedule of Investments. The Statement of Assets and Liabilities reflects a receivable or payable for the daily mark to market for variation margin.
Certain risks may arise upon entering into futures contracts. These risks may include changes in the value of the futures contracts that may not directly correlate with changes in the value of the underlying securities.
Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 3. CAPITAL SHARE TRANSACTIONS
As of January 31, 2007, there were unlimited shares of no par authorized; 474,717 and 518,796 shares were outstanding at January 31, 2007, and July 31, 2006, respectively.
Transactions in capital shares were as follows:
| Shares | |
| For The Six Months Ended January 31, 2007 (Unaudited) | For The Year Ended July 31, 2006 |
| ||
Shares sold | 1,894 | 29,452 |
Shares issued on reinvestment of dividends | 4,317 | 10,337 |
Shares redeemed | (50,290) | (144,925) |
Net increase (decrease) | (44,079) | (105,136) |
Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, the Fund’s transfer, accounting, and administrative services agent, are subsidiaries of Integrity Mutual Funds, Inc.
The Fund has engaged Integrity Money Management to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund’s average daily net assets. All investment advisory fees were waived for the six months ended January 31, 2007. The Fund has a payable to Integrity Money Management of $0 at January 31, 2007 for investment advisory fees. Certain officers and trustees of the Fund are also officers and directors of the investment adviser.
Under the terms of the advisory agreement, the investment adviser has agreed to pay all the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 1.25% of the Fund’s average daily net assets on an annual basis up to the amount of the management and investment advisory fee payable by the Fund to the adviser. Accordingly, after fee waivers and expense reimbursements, the Fund’s total annual operating expenses were 1.07% for the six months ended January 31, 2007.
Principal Underwriter and Shareholder Services
Integrity Funds Distributor serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan for each class of shares as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called “Distribution Plan expenses.” The Fund currently pays an annual distribution fee of up to 0.25% of the average daily net assets of the class. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $6,455 of distribution fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Funds Distributor of $1,073 at January 31, 2007 for distribution fees.
Integrity Fund Services, the transfer agent, provides shareholder services for a variable fee equal to 0.20% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus reimbursement of out-of-pocket expenses. An additional fee with a minimum of $500 per month is charged for each additional share class. The Fund has recognized $11,017 of transfer agent fees and expenses for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,067 at January 31, 2007 for transfer agent fees. Integrity Fund Services also acts as the Fund’s accounting services agent for a monthly fee equal to the sum of a fixed fee of $2,000, and a variable fee equal to 0.05% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 mill ion and at a lower rate on the average daily net assets in excess of $50 million, together with reimbursement of out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $13,291 of accounting service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,281 at January 31, 2007 for accounting service fees. Integrity Fund Services also acts as the Fund’s administrative services agent for a variable fee equal to 0.125% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $11,017 of administrative service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $2,067 at January 31, 2007 for administrative service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from sales of investment securities (excluding short-term securities) aggregated $0 and $767,205, respectively, for the six months ended January 31, 2007.
Note 6. INVESTMENT IN SECURITIES
At January 31, 2007, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $4,902,042. The net unrealized appreciation of investments for financial reporting purposes based on the cost was $8,341, which is comprised of $46,496 aggregate gross unrealized appreciation and $38,155 aggregate gross unrealized depreciation. Differences between financial reporting-basis and tax-basis unrealized appreciation/depreciation are due to differing treatment of market discount.
Note 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund is presently evaluating the impact of adopting SFAS 157.
Financial Highlights January 31, 2007
Selected per share data and ratios for the period indicated
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| For The Six Months Ended January 31, 2007 (Unaudited) |
| For The Year Ended July 31, 2006 |
| For The Year Ended July 29, 2005 |
| For The Four Month Period Ended July 30, 2004 |
| For The Year Ended March 31, 2004 |
| For The Year Ended March 31, 2003 |
| For The Year Ended March 31, 2002 | ||
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 10.25 | $ | 10.20 | $ | 10.82 | $ | 10.73 | $ | 10.88 | $ | 10.65 | $ | 10.74 | ||
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Income from Investment Operations: |
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| Net investment income | $ | .16 | $ | .33 | $ | .33 | $ | .11 | $ | .37 | $ | .40 | $ | .42 | |
| Net realized and unrealized gain (loss) on investment and futures transactions |
| .03 |
| .05 |
| (.52) |
| .09 |
| (.15) |
| .30 |
| (.09) | |
| Total Income (Loss) From Investment Operations | $ | .19 | $ | .38 | $ | (.19) | $ | .20 | $ | .22 | $ | .70 | $ | .33 | |
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Less Distributions: |
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| Dividends from net investment income | $ | (.16) | $ | (.33) | $ | (.33) | $ | (.11) | $ | (.37) | $ | (.40) | $ | (.42) | |
| Distributions from net capital gains |
| .00 |
| .00 |
| (.10) |
| .00 |
| .00 |
| (.07) |
| .00 | |
| Total Distributions | $ | (.16) | $ | (.33) | $ | (.43) | $ | (.11) | $ | (.37) | $ | (.47) | $ | (.42) | |
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NET ASSET VALUE, END OF PERIOD | $ | 10.28 | $ | 10.25 | $ | 10.20 | $ | 10.82 | $ | 10.73 | $ | 10.88 | $ | 10.65 | ||
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Total Return |
| 3.75%(A)(C) |
| 3.76%(A) |
| (1.81%)(A) |
| 5.69%(A)(C) |
| 2.06%(A) |
| 6.65%(A) |
| 3.11%(A) | ||
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RATIOS/SUPPLEMENTAL DATA: |
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| Net assets, end of period (in thousands) | $ | 4,882 | $ | 5,317 | $ | 6,363 | $ | 7,962 | $ | 8,175 | $ | 10,198 | $ | 11,843 | |
| Ratio of net expenses (after expense assumption) to average net assets |
| 1.07%(B)(C) |
| 1.03%(B) |
| 0.98%(B) |
| 0.95%(B)(C) |
| 0.95%(B) |
| 0.95%(B) |
| 0.95%(B) | |
| Ratio of net investment income to average net assets |
| 3.14%(C) |
| 3.19% |
| 3.14% |
| 3.12%(C) |
| 3.44% |
| 3.71% |
| 3.88% | |
| Portfolio turnover rate |
| 0.00% |
| 8.10% |
| 17.94% |
| 10.02% |
| 41.53% |
| 20.00% |
| 21.00% | |
(A) Excludes maximum sales charge of 4.25%.
(B) During the periods since March 31, 2004, Integrity Money Management assumed/waived expenses of $37,923, $69,311, $64,102, and $23,856, respectively. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets would have been 2.54%, 2.22%, 1.80%, and 1.84%, respectively. For the period 4/1/03 through 12/19/03, Forum Administrative Services and Forum Investment Advisors assumed/waived expenses of $62,210. For the period from 12/20/03 through 3/31/04, Integrity Money Management assumed/waived expenses of $21,859. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets for the year would have been 1.86%. In prior years, Forum Administrative Services, Forum Investment Advisors, Forum Shareholder Services, and Forum Accounting Services assumed/waived expenses of $106,577 (2003) and $112,886 (2002). If the expenses had not been assumed/waived, the annu alized ratio of total expenses to average net assets would have been 2.03% and 1.86%, respectively.
(C) Ratio is annualized.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
Dear Shareholder:
Enclosed is the semi-annual report of the Oklahoma Municipal Fund (the “Fund”) for the period ended January 31, 2007. The Fund’s portfolio and related financial statements are presented within for your review.
In the last part of 2006 investors pushed back when they thought the Federal Reserve would cut interest rates.
Fed Fund futures expectations of where rates are going now give less than even odds that the Fed will cut its key target rate by a quarter point by September. In November the view was that the Fed would almost certainly cut rates from the current 5.25% once and possibly twice.
The mood has shifted as economic reports suggest the economy is in better shape than investors had thought. One reason investors remain so upbeat is that the economy appears to be catching its footing and inflation looks more subdued.
Federal Reserve chairman Ben Bernanke has said repeatedly he hopes the core inflation rate will continue to moderate, falling back below 2%. But he continues to worry, at least in public, about the risk of more persistent inflation, which would force him to raise rates again.
The bond market right now is worried about a different threat, a recession. That fear helped push the yield on the 10-year Treasury bond to 4.81% at the end of the period, higher than the 4.39% at which it began 2006, but well below the 5.25% it hit in late June 2006.
Long-term government bonds now yield less than short-term bonds. That makes investors nervous because, at times, it has historically been a sign of a coming recession. Lower long-term yields suggest investors expect rates to fall when the economy is weakening.
Some tend to downplay the recession risk. Heavy foreign demand for longer-term U.S. Treasury bonds, together with exceptionally low worldwide inflation rates, have kept U.S. bonds lower than normal.
Low yields hold down other market interest rates such as fixed mortgage rates. They encourage consumers and businesses alike to borrow, spend and invest which supports corporate profits and stock prices.
The Oklahoma Municipal Fund began the period at $11.08 per share and ended the period at $11.12 per share for a total return of 2.13%*. This compares to the Lehman Brothers Municipal Bond Index return of 3.06% for the period.
The Funds favorable overall performance can be attributed to its defensive portfolio, with an average maturity of 17 years and a low average maturity to the first call date of 6 years. That, along with an average portfolio coupon of 5.14%, helps relative performance in a rising rate environment.
Issues contributing to this defensive portfolio include: Grand River Dam, 5.50% coupon, due 6/1/2013; Oklahoma Municipal Power, 5.75% coupon, due 1/1/2024; and Southern Nazarene University, 6.00% coupon, due 3/1/2008.
An important part of the Fund’s strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Portfolio quality for the year was as follows, AAA 76.9%, AA 10.0%, A 6.7%, BBB 4.0% and NR 2.4%.
Income exempt from federal and Oklahoma state income taxes with preservation of capital remain the primary objectives of the Fund.
If you would like more frequent updates, visit our website at www.integrityfunds.com for daily prices along with pertinent Fund information.
Sincerely,
Monte Avery
Portfolio Manager
The views expressed are those of Monte Avery, Chief Portfolio Strategist with Integrity Mutual Funds. The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any Integrity Mutual Fund.
*Performance does not include applicable front-end or contingent deferred sales charges, which would have reduced the performance.
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities more so than a municipal bond fund that does not concentrate its securities in a single state.
January 31, 2007 (Unaudited)
PROXY VOTING ON FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-276-1262. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Integrity's website at www.integrityfunds.com. This information is also available from the EDGAR database on the Securities and Exchange Commission’s (“SEC's”) website at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
The Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports within 60 days of the end of the Fund's second and fourth fiscal quarters on the Form N-CSR(S). The annual and semi-annual reports are filed electronically with the SEC and are delivered to the Fund shareholders. The Fund also files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q and N-CSR(S) are available on the SEC's website at www.sec.gov. The Fund's Forms N-Q and N-CSR(S) may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C., and the information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. You may also access this information from Integrity's website at www.integrityfunds.com.
Terms & Definitions January 31, 2007 (Unaudited)
Appreciation
The increase in value of an asset.
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned by the fund on an annual basis, assuming all distributions are reinvested.
Coupon Rate or Face Rate
The rate of interest payable annually, based on the face amount of the bond; expressed as a percentage.
Depreciation
The decrease in value of an asset.
Lehman Brothers Municipal Bond Index
An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund.
Market Value
The actual (or estimated) price at which a bond trades in the market place.
Maturity
A measure of the term or life of a bond in years. When a bond “matures,” the issuer repays the principal.
Net Asset Value (NAV)
The value of all your fund’s assets, minus any liabilities, divided by the number of outstanding shares, not including any initial sales charge.
Quality Ratings
A designation assigned by independent rating companies to give a relative indication of a bond’s credit worthiness. “AAA,” “AA,” “A,” and “BBB” indicate investment grade securities. Ratings can range from a high of “AAA” to a low of “D”.
Total Return
Measures both the net investment income and any realized and unrealized appreciation or depreciation of the underlying investments in the fund’s portfolio for the period, assuming the reinvestment of all dividends. It represents the aggregate percentage or dollar value change over the period.
January 31, 2007 (Unaudited)
COMPOSITION
PORTFOLIO QUALITY RATINGS
(Based on Total Long-Term Investments)
AAA | 76.9% |
AA | 10.0% |
A | 6.7% |
BBB | 4.0% |
NR | 2.4% |
Quality ratings reflect the financial strength of the issuer. They are assigned by independent rating services such as Moody’s Investors Services and Standard & Poor’s. Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. (“Integrity Money Management” or “Adviser”), the investment adviser.
These percentages are subject to change.
PORTFOLIO MARKET SECTORS
(As a % of Net Assets)
S-School | 37.7% |
U-Utilities | 17.6% |
T-Transportation | 16.8% |
O-Other | 10.3% |
W/S-Water/Sewer | 6.2% |
HC-Health Care | 6.1% |
G-Government | 5.3% |
Market sectors are breakdowns of the Fund’s portfolio holdings into specific investment classes.
These percentages are subject to change.
January 31, 2007 (Unaudited)
DISCLOSURE OF FUND EXPENSES
The Example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the fund, you incur two types of costs: (1) transaction costs, including sales charges (loads), redemption fees and exchange fees; and (2) ongoing costs, including management fees, distribution (12b-1) fees and other fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 31, 2006 to January 31, 2007.
The example illustrates the Fund’s costs in two ways:
Actual expenses
The section in the table under the heading “Actual” provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the appropriate column for your share class, in the column entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The section in the table under the heading “Hypothetical (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the section in the table under the heading “Hypothetical (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value 07/31/06 | Ending Account Value 01/31/07 | Expenses Paid During Period* |
Actual |
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Class A | $1,000.00 | $1,021.33 | $5.41 |
Hypothetical (5% return before expenses) |
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Class A | $1,000.00 | $1,019.86 | $5.40 |
* Expenses are equal to the annualized expense ratio of 1.07%, multiplied by the average account value over the period, multiplied by 180/360 days. The Fund’s ending account value on the first line in the table is based on its actual total return of 2.13% for the six-month period of July 31, 2006 to January 31, 2007.
January 31, 2007 (Unaudited)
AVERAGE ANNUAL TOTAL RETURNS
| For periods ending January 31, 2007 | ||||
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| Since Inception (September 25, 1996) |
Oklahoma Municipal Fund | 1 year | 3 year | 5 year | 10 year | |
Without sales charge | 5.18% | 3.29% | 3.03% | 4.17% | 4.25% |
With sales charge (4.25%) | 0.67% | 1.81% | 2.13% | 3.72% | 3.82% |
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| Since Inception (September 25, 1996) |
Lehman Brothers Municipal Bond Index | 1 year | 3 year | 5 year | 10 year | |
| 4.30% | 4.00% | 5.12% | 5.71% | 5.93% |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemption of Fund shares.
January 31, 2007 (Unaudited)
COMPARATIVE INDEX GRAPH
Comparison of change in value of a $10,000 investment in the Oklahoma Municipal Fund and the Lehman Brothers Municipal Bond Index
| Oklahoma Municipal Fund w/o Sales Charge | Oklahoma Municipal Fund w/ Max Sales Charge | Lehman Brothers Municipal Bond Index |
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09/25/1996 | $10,000 | $ 9,575 | $10,000 |
1997 | $10,779 | $10,321 | $11,029 |
1998 | $11,186 | $10,711 | $11,689 |
1999 | $11,662 | $11,166 | $12,026 |
2000 | $11,647 | $11,153 | $12,545 |
2001 | $12,786 | $12,243 | $13,811 |
2002 | $13,484 | $12,911 | $14,737 |
2003 | $13,522 | $12,947 | $15,267 |
2004 | $14,017 | $13,422 | $16,150 |
2005 | $14,440 | $13,827 | $17,178 |
2006 | $15,074 | $14,434 | $17,617 |
01/31/07 | $15,396 | $14,742 | $18,155 |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 1-800-276-1262.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The graph does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
The graph comparing your Fund’s performance to a benchmark index provides you with a general sense of how your Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Oklahoma municipal bonds. Your Fund’s total return for the period shown appears with and without sales charges and includes Fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged; there are no expenses that affect the results. In addition, few investors could purchase all of the securities necessary to match the index. And, if they could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.
January 31, 2007 (Unaudited)
MANAGEMENT OF THE FUND
The Board of Integrity Managed Portfolios consists of four Trustees. These same individuals, unless otherwise noted, also serve as Directors or Trustees for all of the funds in the Integrity family of funds, the six series of Integrity Managed Portfolios and the seven series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with the Investment Adviser or any of its affiliates. These are the “Independent” Trustees. Two of the remaining three Trustees and/or executive officers are “interested” by virtue of their affiliation with the Investment Adviser and its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
NAME, ADDRESS AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1 | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Jerry M. Stai | Trustee | Since January 2006 | Faculty, Embry-Riddle University (August 2000 to September 2005); Faculty, Park University (August 2005 to December 2005); Non-Profit Specialist, Bremer Bank (since July 2005); Faculty, Minot State University (since August 2000); Director, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006). | 16 | Marycrest Franciscan Development, Inc. |
Orlin W. Backes | Trustee | Since January 1996 | Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director, South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., (Since April 2005); Trustee, The Integrity Funds (since May 2003); and Director, First Western Bank & Trust. | 16 | First Western Bank & Trust |
R. James Maxson | Trustee | Since January 1999 | Attorney, Maxson Law Office (since November 2002); Attorney, McGee, Hankla, Backes & Dobrovolny, P.C. (April 2000 to November 2002); Director, Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc. and Montana Tax-Free Fund, Inc. (since January 1999), South Dakota Tax-Free Fund, Inc. (January 1999 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (January 1999 to June 2003); and Trustee, The Integrity Funds (since May 2003). | 16 | Vincent United Methodist Foundation
Minot Area Development Corporation |
1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.
Trustees and officers of the Fund serve until their resignation, removal or retirement.
The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.
January 31, 2007 (Unaudited)
The Interested Trustees and executive officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee and other directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEES AND EXECUTIVE OFFICERS
NAME, ADDRESS AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX1 | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Robert E. Walstad2 | Trustee, Chairman, President | Since January 1996 | Director (since September 1987), President (September 2002 to May 2003), Integrity Mutual Funds, Inc.; Director, President and Treasurer, Integrity Money Management, Inc., Integrity Fund Services, Inc.; Director, President (since inception) and Treasurer (May 1989 to May 2004), ND Capital, Inc. (August 1988 to September 2004), South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 June 2003), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc.; Trustee, Chairman and President (since May 2003) and Treasurer (May 2003 to May 2004), The Integrity Funds; Director, President and Treasurer (May 2003 to August 2003), Integrity Funds Distributor, Inc.; Director (October 1999 to June 2003), Magic Internet Services, Inc.; Director (May 2000 to June 2003), President (October 2002 to June 2003), ARM Securities Corporation; and Director, CEO, Chairman (since January 2002), Pres ident (September 2002 to December 2004), Capital Financial Services, Inc. | 16 | Capital Financial Services, Inc., and Minot Park Board |
Peter A. Quist | Vice President, Secretary | Since January 1996 | Attorney; Director and Vice President, Integrity Mutual Funds, Inc.; Director, Vice President and Secretary, Integrity Money Management, Inc., ND Capital, Inc. (August 1988 to September 2004), Integrity Fund Services, Inc., South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Integrity Small-Cap Fund of Funds, Inc. (September 1998 to June 2003), Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., ND Tax Free Fund, Inc., Integrity Funds Distributor, Inc.; Vice President and Secretary, The Integrity Funds (since May 2003); and Director, ARM Securities Corporation (May 2000 to June 2003). | 3 | None |
Laura K. Anderson | Treasurer | Since October 2005 | Fund Accountant (until May 2004), Fund Accounting Supervisor (May 2004 to October 2005), Fund Accounting Manager, Integrity Fund Services, Inc.; Treasurer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. | N/A | None |
Brent M. Wheeler | Mutual Fund Chief Compliance Officer | Since October 2005 | Fund Accounting Manager (May 1998 to October 2005), Integrity Fund Services, Inc.; Treasurer (May 2004 to October 2005), Mutual Fund Compliance Officer (since October 2005), The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. | N/A | None |
1The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the seven series of The Integrity Funds.
2Mr. Walstad qualifies as an interested person of the Trust, as defined in the 1940 Act, by virtue of being an officer and director of the Investment Adviser and Distributor.
Trustees and officers of the Fund serve until their resignation, removal or retirement.
The Statement of Additional Information contains more information about the Fund’s Trustees and is available without charge upon request, by calling Integrity Funds Distributor, Inc. at 1(800) 276-1262.
January 31, 2007 (Unaudited)
Board Approval of Investment Advisory Agreement
Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, Inc. (“Integrity Fund Services”), the Fund’s transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, Inc. (“the Company”), the Fund’s sponsor.
The approval and the continuation of a fund’s investment advisory agreement must be specifically approved at least annually (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “Interested Persons” of any party (“Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In preparation for the meeting, the Board requests and reviews a wide variety of materials provided by the Fund’s adviser. The Independent Trustees also received advice from their independent counsel on the issues to focus on during contract renewals. At a meeting held on October 25, 2006, the Board of Trustees, including a majority of the Independent Trustees of the Fund, approved the Management and Investment Advisory Agreement (“Advisory Agreement”), between the Fund and Integrity Money Management.
The Trustees, including a majority of Trustees who are neither party to the Advisory Agreements nor “interested persons” of any such party (as such term is defined for regulatory purposes), unanimously approved the Advisory Agreement. In determining whether it was appropriate to approve the Advisory Agreement, the Trustees requested information, provided by the Investment Adviser that it believed to be reasonably necessary to reach its conclusion. In connection with the approval of the Advisory Agreements, the Board reviewed factors set out in judicial decisions and Securities Exchange Commission directives relating to the approval of advisory contracts, which include but are not limited to, the following:
(a) | the nature and quality of services to be provided by the adviser to the fund; |
(b) | the various personnel furnishing such services and their duties and qualifications; |
(c) | the relevant fund’s investment performance as compared to standardized industry performance data; |
(d) | the adviser’s costs and profitability of furnishing the investment management services to the fund; |
(e) | the extent to which the adviser realizes economies of scale as the fund grows larger and the sharing thereof with the fund; |
(f) | an analysis of the rates charged by other investment advisers of similar funds; |
(g) | the expense ratios of the applicable fund as compared to data for comparable funds; and |
(h) | information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds. |
In evaluating the Adviser’s services and its fees, the Trustees reviewed information concerning the performance of the Fund, the recent financial statements of the Adviser and its parent, and the proposed advisory fee and other fund expenses compared to the level of advisory fees and expenses paid by other similar funds. In reviewing the Advisory Agreement with the foregoing Fund, the Trustees considered, among other things, the fees, the Fund’s past performance, the nature and quality of the services provided, the profitability of the Adviser and its parent (estimated costs and estimated profits from furnishing the proposed services to the Fund), and the expense waivers by the Adviser. The Trustees also considered any ancillary benefits to the Adviser and its affiliates for services provided to the Fund. In this regard, the Trustees noted that there were no soft dollar arrangements involving the Adviser and the only benefits to affiliates were the fees earned for services provided The Trustees did not identify any single factor discussed above as all-important or controlling. The Trustees also considered the Adviser’s commitment to voluntarily limit Fund expenses and the skills and capabilities of the Adviser.
The following paragraphs summarize the material information and factors considered by the Board, including the Independent Trustees, as well as their conclusions relative to such factors in considering the approval of the Advisory Agreement:
Nature, Extent and Quality of Services: The Investment Adviser currently provides services to sixteen funds in the Integrity family of funds with investment strategies ranging from non-diversified sector funds to broad-based equity funds. The experience and expertise of the Investment Adviser is attributable to the long-term focus on managing investment companies and has the potential to enhance the Fund’s future performance. They have a strong culture of compliance and provide quality services. The overall nature and quality of the services provided by the Investment Adviser had historically been, and continues to be, adequate and appropriate to the Board.
Various personnel furnishing such services and their duties and qualifications: The Portfolio Manager of the Fund has over 25 years experience in the advisory and money management area adding significant expertise to the Adviser of the Fund. A detailed biography of the portfolio manager was presented to the Trustees. This information is disclosed in the prospectus and/or SAI of the Fund.
Investment Performance: The Adviser has assured through subsidization that its Fund has had consistent performance relative to comparable and competing funds. Although the Fund has outperformed its relative benchmark for the YTD and 1-year periods, it has underperformed its relative benchmark for the 5-year, 10-year and since inception periods as of September 29, 2006. The Fund has positive returns for all the periods indicated above as of September 29, 2006. In addition, the Fund has been meeting its investment objective for providing as high a level of current income exempt from federal and Oklahoma state income taxes as is consistent with preservation of capital.
Profitability: The Board has reviewed a year to date and a 12-month profit analysis spreadsheet completed by the controller of the investment adviser. Based on the relatively small size of each fund under management with the Adviser, the Adviser has shown no profit for the period. The Board determined that the profitability of the Adviser was not excessive based on the services it will provide for the Fund and the profit analysis spreadsheet presented by the Adviser.
Economies of Scale: The Board briefly discussed the benefits for the Fund as the Adviser could realize economies of scale as the Fund grows larger, but the size of the Fund has not reached an asset level to benefit from economies of scale.The advisory fees are structured appropriately based on the size of the Fund. The Adviser has indicated that a new advisory fee structure may be looked at if the Fund reaches an asset level where the Fund could benefit from economies of scale.
Analysis of the rates charged by other investment advisers of similar funds: The Adviser is voluntarily waiving advisory fees due to the small size of the Fund. The Board considered the compensation payable under the Advisory Agreement fair and reasonable in light of the services to be provided.
Expense ratios of the applicable fund as compared to data for comparable funds: The Fund’s net expense ratio of 1.07% for the Class A shares was comparable to other funds of similar objective and size.
Information with respect to all benefits to the adviser associated with the fund, including an analysis of so-called “fallout” benefits or indirect profits to the adviser from its relationship to the funds: The Board noted that the Adviser does not realize material direct benefits from its relationship with the Fund. The Adviser does not participate in any soft dollar arrangements from securities trading in the Fund.
In voting unanimously to approve the Advisory Agreement, the Trustees did not identify any single factor as being of paramount importance. The Trustees noted that their discussion in this regard was premised on numerous factors including the nature, quality and resources of Integrity Money Management, the strategic plan involving the Fund and the potential for increased distribution and growth of the Fund. They determined that, after considering all relevant factors, the adoption of the Advisory Agreement would be in the best interest of the Fund and its shareholders.
Potential Conflicts of Interest – Investment Adviser
Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account. More specifically, portfolio managers who manage multiple funds are presented with the following potential conflicts:
The management of multiple funds may result in a portfolio manager devoting unequal time and attention to the management of each fund. The Investment Adviser seeks to manage such competing interests for the time and attention of portfolio managers by having them focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment models that are used in connection with the management of the Funds. The management of multiple funds and accounts also may give rise to potential conflicts of interest if the funds and accounts have different objectives, benchmarks, time horizons, and fees as the portfolio manager must allocate his time and investment ideas across multiple funds and accounts.
• | With respect to securities transactions for the Funds, the Investment Adviser determines which broker to use to execute each order, consistent with the duty to seek best execution of the transaction. The portfolio manager may execute transactions for another fund or account that may adversely impact the value of securities held by the Funds. Securities selected for funds or accounts other than the Funds may outperform the securities selected for the Funds. |
• | The appearance of a conflict of interest may arise where the Investment Adviser has an incentive, such as a performance-based management fee, which relates to the management of one fund but not all funds with respect to which a portfolio manager has day-to-day management responsibilities. The management of personal accounts may give rise to potential conflicts of interest; there is no assurance that the Funds' code of ethics will adequately address such conflicts. One of the portfolio manager's numerous responsibilities is to assist in the sale of Fund shares. Mr. Avery's compensation is based on salary paid every other week. He is not compensated for client retention. In addition, Integrity Mutual Funds, Inc., sponsors a 401(k) plan for all its employees. This plan is funded by employee elective deferrals and, to an extent, matching contributions by the Company. After one year of employment the employee is eligible to participate in the Company matching program. The Company matches 100% of contribution up to 3% and ½% for each additional percent contributed up to 5%. The Company has established a program in which it will grant interests in Integrity Mutual Funds Inc., shares to current employees that meet certain eligibility requirements, as a form of long-term incentive. The program is designed to allow all employees to participate in the long-term growth of the value of the firm. |
• | Although the Portfolio Managers generally do not trade securities in their own personal account, each of the Funds has adopted a code of ethics that, among other things, permits personal trading by employees under conditions where it has been determined that such trades would not adversely impact client accounts. Nevertheless, the management of personal accounts may give rise to potential conflicts of interest, and there is no assurance that these codes of ethics will adequately address such conflicts. |
The Investment Adviser and the Funds have adopted certain compliance procedures, which are designed to address these types of conflicts. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.
Schedule of Investments January 31, 2007 (Unaudited)
Name of Issuer |
|
|
|
|
|
|
|
Percentages represent the market value of each investment category to total net assets | Rating Moody's/S&P | Coupon Rate | Maturity |
| Principal Amount |
| Market Value |
|
|
|
|
|
|
|
|
OKLAHOMA MUNICIPAL BONDS (96.2%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alva, OK Hosp. Auth. (Sales Tax Rev) Radian (Xcel) | Aa-3/AA | 5.250% | 06/01/2025 | $ | 250,000 | $ | 263,010 |
Claremore, OK Student Hsg. Rev. (Rogers University) ACA | NR/A | 5.750 | 09/01/2034 |
| 500,000 |
| 524,650 |
Claremore Public Works Auth. Capital Improvement Rev. FSA | Aaa/AAA | 5.250 | 06/01/2027 |
| 750,000 |
| 811,163 |
Drumright, OK Utility Sys. Rev. Assured Guaranty Ins. | NR/AAA | 4.750 | 02/01/2036 |
| 950,000 |
| 979,744 |
Durant, OK Community Fac. Auth. Sales Tax Rev. XLCA | Aaa/AAA | 5.500 | 11/01/2019 |
| 500,000 |
| 545,605 |
Edmond Economic Dev. Auth., OK Student Housing Rev. | Baa-3/NR | 5.375 | 12/01/2019 |
| 200,000 |
| 200,906 |
#Edmond Economic Dev. Auth., OK Student Housing Rev. | Baa-3/NR | 5.500 | 12/01/2028 |
| 865,000 |
| 868,970 |
Edmond Public Works Auth. AMBAC | Aaa/AAA | 4.850 | 01/01/2024 |
| 155,000 |
| 160,540 |
Edmond Public Works Auth. AMBAC | Aaa/AAA | 4.750 | 07/01/2024 |
| 250,000 |
| 255,970 |
Edmond Public Works Sales Tax & Utility Rev. AMBAC | Aaa/AAA | 4.750 | 07/01/2023 |
| 200,000 |
| 205,756 |
Garfield Cty., Criminal Justice Auth. (Enid, OK) Rev. MBIA | Aaa/NR | 4.500 | 04/01/2018 |
| 250,000 |
| 255,207 |
*Grand River Dam Auth., OK Rev. AMBAC | Aaa/AAA | 6.250 | 06/01/2011 |
| 210,000 |
| 228,934 |
Grand River Dam Auth., OK Rev. Ref. AMBAC | Aaa/AAA | 5.500 | 06/01/2013 |
| 700,000 |
| 763,917 |
Grand River Dam Auth., OK Rev. MBIA | Aaa/AAA | 5.875 | 06/01/2007 |
| 160,000 |
| 161,744 |
Grand River Dam Auth., OK FSA | Aaa/AAA | 5.000 | 06/01/2012 |
| 500,000 |
| 527,705 |
Jackson Cty., OK Sales Tax Rev. AMBAC | Aaa/AAA | 5.000 | 10/01/2022 |
| 500,000 |
| 513,565 |
Jenks, OK General Obligation FSA | Aaa/AAA | 4.200 | 02/01/2014 |
| 400,000 |
| 408,024 |
Jenks, OK General Obligation FSA | Aaa/AAA | 5.000 | 02/01/2025 |
| 250,000 |
| 277,768 |
Jenks Aquarium Auth. Rev. MBIA | Aaa/AAA | 5.250 | 07/01/2029 |
| 500,000 |
| 536,730 |
Mannford Public Works Auth. | NR/BBB+ | 6.000 | 04/01/2027 |
| 300,000 |
| 323,142 |
Mannford Public Works Auth. | NR/BBB+ | 5.900 | 04/01/2032 |
| 250,000 |
| 264,827 |
McAlester, OK Public Works Auth. FSA | Aaa/NR | 5.100 | 02/01/2030 |
| 100,000 |
| 105,832 |
McClain Cty., OK Econ. Dev. Auth. Ed. Lease Rev. (Purcell Schools) Assured GTY | Aa-1/AAA | 4.250 | 09/01/2020 |
| 585,000 |
| 583,087 |
Midwest City, OK Capital Impvt. MBIA | Aaa/AAA | 5.375 | 09/01/2024 |
| 500,000 |
| 532,555 |
Norman, OK (Regl. Hospital) Auth. Asset Guaranty | Aa-3/AA | 5.250 | 09/01/2016 |
| 180,000 |
| 189,293 |
Norman, OK Utilities Auth. Utility Rev. FGIC | Aaa/NR | 4.000 | 11/01/2022 |
| 265,000 |
| 255,810 |
OK Agric. & Mech. Colleges (OK St. Univ.) Athletic Facs. AMBAC | Aaa/NR | 5.000 | 08/01/2024 |
| 300,000 |
| 304,806 |
OK Agric. & Mech. Colleges Utility Rev. Sys. FGIC | Aaa/AAA | 4.000 | 07/01/2008 |
| 185,000 |
| 185,588 |
Oklahoma City, OK MBIA | Aaa/AAA | 4.250 | 03/01/2022 |
| 110,000 |
| 109,612 |
*OK Board of Regents (Oklahoma City Community College) Student Rev. AMBAC | Aaa/AAA | 5.550 | 07/01/2022 |
| 750,000 |
| 797,092 |
Oklahoma City, OK Public Auth. (OKC Fairgrounds Fac.) FGIC | Aaa/AAA | 5.500 | 10/01/2019 |
| 250,000 |
| 274,785 |
Oklahoma City, OK Water Utility Trust (Water & Sewer) Rev. FGIC | Aaa/AAA | 5.000 | 07/01/2029 |
| 425,000 |
| 443,908 |
OK Colleges Board of Regents (NE State Univ. Ctr.) Rev. FSA | Aaa/AAA | 5.100 | 03/01/2016 |
| 140,000 |
| 141,407 |
OK Colleges Board of Regents (NE State Univ. Ctr.) Rev. FSA | Aaa/AAA | 5.150 | 03/01/2021 |
| 100,000 |
| 101,047 |
OK Board of Regents (Univ. of Central OK) AMBAC | Aaa/AAA | 5.600 | 08/01/2020 |
| 150,000 |
| 161,143 |
OK Board of Regents (Univ. of Central OK) AMBAC | Aaa/AAA | 5.700 | 08/01/2025 |
| 390,000 |
| 419,176 |
OK Devl. Finance Auth. (DHS Lease Rev.) Series 2000A MBIA | Aaa/NR | 5.600 | 03/01/2015 |
| 280,000 |
| 286,681 |
OK Devl. Finance Auth. (Lease Rev.) Law Enforcement MBIA | Aaa/AAA | 5.100 | 06/01/2027 |
| 120,000 |
| 125,164 |
OK Devl. Finance Auth. (OK State Syst. Higher Ed.) AMBAC | Aaa/AAA | 4.900 | 12/01/2022 |
| 200,000 |
| 207,636 |
OK Devl. Finance Auth. OK Dept. of Corrections (McLoud Fac.) FGIC | Aaa/AAA | 4.600 | 04/01/2022 |
| 250,000 |
| 253,402 |
OK Devl. Finance Auth. OK Dept. of Corrections (McLoud Fac.) FGIC | Aaa/AAA | 4.650 | 04/01/2023 |
| 250,000 |
| 254,207 |
OK Devl. Finance Auth. OK State Higher Ed (Master Lease) FSA | Aaa/AAA | 4.500 | 06/01/2026 |
| 250,000 |
| 251,057 |
OK Housing Finance Agency Single Family Homeownership | Aaa/NR | 5.250 | 09/01/2021 |
| 140,000 |
| 142,085 |
*OK Housing Finance Agency Single Family Homeownership GNMA | Aaa/NR | 5.375 | 03/01/2020 |
| 75,000 |
| 75,356 |
OK Housing Finance Agency Single Family Homeownership GNMA/FNMA | Aaa/NR | 5.850 | 09/01/2020 |
| 50,000 |
| 50,824 |
OK Devl. Finance Auth. (Southern Nazarene Univ.) Rev. | NR/NR | 5.750 | 03/01/2013 |
| 400,000 |
| 414,540 |
#OK Devl. Finance Auth. (Southern Nazarene Univ.) Rev. | NR/NR | 6.000 | 03/01/2018 |
| 600,000 |
| 623,448 |
OK Devl. Finance Auth. (St. Ann's Retirement Village) Rev. MBIA | Aaa/NR | 5.000 | 12/01/2028 |
| 500,000 |
| 514,250 |
OK Devl. Finance Auth. (St. John Health Syst.) Rev. Ref. | Aa-3/AA | 5.750 | 02/15/2025 |
| 500,000 |
| 523,765 |
OK Devl. Finance Auth. (St. John Health Syst.) Rev. Ref. | Aa-3/AA | 6.000 | 02/15/2029 |
| 400,000 |
| 420,956 |
OK Devl. Finance Auth. (St. John Health Syst.) MBIA | Aaa/AAA | 5.750 | 02/15/2025 |
| 200,000 |
| 209,430 |
OK Devl. Finance Auth. (Comanche County Hosp.) | NR/BBB- | 5.625 | 07/01/2009 |
| 105,000 |
| 107,511 |
OK Devl. Finance Auth. (Seminole State College) | NR/AA | 5.125 | 12/01/2027 |
| 150,000 |
| 158,080 |
OK Devl. Finance Auth. (Langston Univ. Stadium) | NR/AA | 5.000 | 07/01/2027 |
| 250,000 |
| 261,935 |
*OK Devl. Finance Auth. (Oklahoma City Univ.) Rev. Ref. AMBAC | Aaa/AAA | 5.125 | 06/01/2017 |
| 555,000 |
| 572,055 |
#OK State G.O. (OK Building Commission) FGIC | Aaa/AAA | 5.000 | 07/15/2018 |
| 1,600,000 |
| 1,694,752 |
OK Capital Impvt. Auth. (State Highway) Rev. MBIA | Aaa/AAA | 5.000 | 06/01/2014 |
| 250,000 |
| 265,188 |
OK Capital Impvt. Auth. (Higher Ed. Project) Rev. AMBAC | Aaa/AAA | 5.000 | 07/01/2022 |
| 500,000 |
| 527,850 |
OK Capital Impvt. Auth. (Higher Ed. Project) AMBAC | Aaa/AAA | 5.000 | 07/01/2024 |
| 250,000 |
| 263,020 |
OK Capital Impvt. Auth. (Higher Ed. Project) Rev. AMBAC | Aaa/AAA | 5.000 | 07/01/2030 |
| 2,000,000 |
| 2,098,380 |
OK Capital Impvt. Auth. (Supreme Court Proj.) CIFG | Aaa/AAA | 4.500 | 07/01/2024 |
| 500,000 |
| 500,485 |
OK Capital Impvt. Auth. (Supreme Court Proj.) CIFG | Aaa/AAA | 4.500 | 07/01/2026 |
| 500,000 |
| 500,105 |
OK Capital Impvt. Auth. (OK St. Bureau of Investigation) FSA | Aaa/AAA | 4.375 | 07/01/2022 |
| 100,000 |
| 99,959 |
OK Capital Impvt. Auth. (OK St. Bureau of Investigation) FSA | Aaa/AAA | 4.375 | 07/01/2023 |
| 100,000 |
| 99,957 |
OK Capital Impvt. Auth. (OK St. Bureau of Investigation) FSA | Aaa/AAA | 4.500 | 07/01/2024 |
| 200,000 |
| 200,958 |
*OK State Indl. Finance Auth. G.O. | Aa-3/NR | 6.050 | 02/01/2015 |
| 285,000 |
| 285,000 |
OK Devl. Finance Auth. (Integris Baptist Medical Center) AMBAC | Aaa/AAA | 5.600 | 06/01/2020 |
| 250,000 |
| 267,970 |
OK State Municipal Power Auth. Rev. MBIA | Aaa/AAA | 5.750 | 01/01/2024 |
| 2,230,000 |
| 2,504,290 |
OK State Student Loan Auth. | A/NR | 6.350 | 09/01/2025 |
| 280,000 |
| 306,034 |
*OK State Student Loan Auth. | Aaa/AAA | 5.625 | 06/01/2031 |
| 685,000 |
| 721,195 |
OK State Student Loan Auth. MBIA | Aaa/AAA | 5.300 | 12/01/2032 |
| 450,000 |
| 464,414 |
OK State Turnpike Auth. FGIC | Aaa/AAA | 5.000 | 01/01/2023 |
| 165,000 |
| 169,406 |
OK State Turnpike Auth. Rev. FGIC | Aaa/AAA | 5.250 | 01/01/2028 |
| 430,000 |
| 445,557 |
OK State Turnpike Auth. FGIC | Aaa/AAA | 5.250 | 01/01/2012 |
| 225,000 |
| 229,986 |
OK State Turnpike Auth. Rev. FGIC | Aaa/AAA | 5.000 | 01/01/2028 |
| 120,000 |
| 123,451 |
OK State Turnpike Auth. Rev. MBIA-IBC | Aaa/AAA | 4.750 | 01/01/2024 |
| 140,000 |
| 143,697 |
OK Water Resources Board Rev. AMBAC | Aaa/AAA | 4.750 | 04/01/2024 |
| 100,000 |
| 102,870 |
OK State Water (Loan Program) Rev. | NR/AAA | 5.400 | 09/01/2015 |
| 105,000 |
| 106,623 |
*OK State Water (Loan Program) Rev. | NR/AAA | 5.100 | 09/01/2016 |
| 415,000 |
| 430,907 |
OK State Water Resources Board Rev. | NR/AAA | 5.050 | 10/01/2022 |
| 200,000 |
| 212,372 |
OK State Water Resources Board Rev. | NR/AAA | 5.125 | 10/01/2027 |
| 500,000 |
| 534,385 |
OK State Water Resources Loan Rev. | NR/AAA | 5.100 | 10/01/2027 |
| 500,000 |
| 534,020 |
OK State Water Resources Board Rev. | NR/AAA | 4.625 | 10/01/2018 |
| 435,000 |
| 444,357 |
OK Board of Regents (University of Oklahoma) Athletic Fac. Rev. MBIA | Aaa/NR | 5.250 | 06/01/2026 |
| 550,000 |
| 576,108 |
OK Transportation Auth. Turnpike Sys. Rev. AMBAC | Aaa/AAA | 5.000 | 01/01/2021 |
| 100,000 |
| 104,651 |
#Okmulgee Public Works Auth. Capital Improvement Rev. MBIA | Aaa/AAA | 5.125 | 08/01/2030 |
| 750,000 |
| 785,498 |
Okmulgee Public Works Auth. Capital Improvement Rev. MBIA | Aaa/AAA | 4.800 | 10/01/2027 |
| 500,000 |
| 515,680 |
Rural Enterprises, OK Inc. OK Govt. Fin. (Cleveland Cty. Hlth.) MBIA | Aaa/NR | 5.000 | 11/01/2021 |
| 250,000 |
| 260,773 |
Rural Enterprises, OK Inc. Okmulgee Student Housing Proj. Series A ALA | NR/A | 5.625 | 12/01/2020 |
| 140,000 |
| 147,595 |
Rural Enterprises, OK Inc. Okmulgee Student Housing Proj. Series A ACA | NR/A | 5.700 | 12/01/2025 |
| 220,000 |
| 232,030 |
Rural Enterprises, OK Inc. Okmulgee Student Housing Proj. ACA | NR/A | 5.750 | 12/01/2030 |
| 250,000 |
| 264,105 |
Rural Enterprises, OK Inc. Student Hsg. (Connors College) ACA | NR/A | 5.550 | 11/01/2021 |
| 250,000 |
| 264,233 |
Rural Enterprises, OK Inc. Student Hsg. (Connors College) ACA | NR/A | 5.650 | 11/01/2031 |
| 375,000 |
| 396,776 |
Rural Enterprises, OK Inc. USAOF Student Housing ACA | NR/A | 5.550 | 11/01/2021 |
| 250,000 |
| 264,343 |
Rural Enterprises, OK Inc. USAOF Student Housing ACA | NR/A | 5.650 | 11/01/2031 |
| 250,000 |
| 264,628 |
Sapulpa Municipal Authority Utility Rev. FSA | Aaa/AAA | 5.125 | 01/01/2032 |
| 250,000 |
| 262,100 |
Texas Cty., OK Dev. Auth. (OPSU Student Hsg.) ACA | NR/A | 5.250 | 11/01/2023 |
| 250,000 |
| 259,735 |
Tulsa Cty, OK Indl. Auth. Recreation Facs. | NR/AA- | 4.700 | 09/01/2024 |
| 500,000 |
| 510,350 |
Tulsa, OK General Obligation | Aa/AA | 4.500 | 03/01/2023 |
| 700,000 |
| 707,091 |
Tulsa, OK General Obligation | Aa/AA | 4.500 | 03/01/2026 |
| 1,035,000 |
| 1,045,485 |
Tulsa, OK Ind. Auth Rev University of Tulsa | Aaa/NR | 4.500 | 10/01/2026 |
| 500,000 |
| 499,755 |
University of OK Board of Regents (Research Fac.) Rev. | Aaa/NR | 4.800 | 03/01/2028 |
| 670,000 |
| 687,648 |
University of OK Board of Regents (Multi Facs.) Rev. MBIA | Aaa/NR | 4.750 | 06/01/2029 |
| 250,000 |
| 254,948 |
University of OK (Board of Regents) Rev. FGIC | Aaa/AAA | 4.000 | 07/01/2016 |
| 250,000 |
| 250,835 |
OK Board of Regents Univ. of OK FGIC | NR/AAA | 4.125 | 07/01/2026 |
| 500,000 |
| 489,295 |
University of OK Board of Regents Student Hsg. Rev. FGIC | Aaa/NR | 5.000 | 11/01/2027 |
| 1,000,000 |
| 1,044,970 |
University of OK Student Hsg. (Cameron Univ.) Rev. AMBAC | Aaa/AAA | 5.500 | 07/01/2023 |
| 250,000 |
| 272,470 |
|
|
|
|
|
|
|
|
TOTAL OKLAHOMA MUNICIPAL BONDS (COST: $42,645,164) |
|
|
|
|
| $ | 43,773,690 |
|
|
|
|
|
|
|
|
SHORT-TERM SECURITIES (5.1%) |
|
|
|
| Shares |
|
|
Wells Fargo Advantage National Tax-Free Money Market (COST: $2,313,612) |
|
|
| 2,313,612 | $ | 2,313,612 | |
|
|
|
|
|
|
|
|
TOTAL INVESTMENTS IN SECURITIES (COST: $44,958,776) |
|
|
|
|
| $ | 46,087,302 |
OTHER ASSETS LESS LIABILITIES |
|
|
|
|
|
| (585,989) |
|
|
|
|
|
|
|
|
NET ASSETS |
|
|
|
|
| $ | 45,501,313 |
* Indicates bonds are segregated by the custodian to cover when-issued or delayed delivery purchases.
As of January 31, 2007, the Fund had one when-issued purchase:
500,000 of OK Board of Regents (University of Oklahoma); 4.125%; 07/01/26
# Indicates bonds are segregated by the custodian to cover initial margin requirements.
Non-rated (NR) securities in the Fund were investment grade when purchased.
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Assets and Liabilities January 31, 2007 (Unaudited)
ASSETS |
|
| ||
| Investment in securities, at value (cost: $44,958,776) | $ | 46,087,302 | |
| Receivable for fund shares sold |
| 45,829 | |
| Accrued interest receivable |
| 542,190 | |
| Accrued dividends receivable |
| 4,832 | |
| Prepaid expenses |
| 8,317 | |
|
|
|
| |
| Total Assets | $ | 46,688,470 | |
|
|
| ||
LIABILITIES |
|
| ||
| Security purchases payable | $ | 998,397 | |
| Dividends payable |
| 136,174 | |
| Disbursements in excess of demand deposit cash |
| 11,386 | |
| Payable to affiliates |
| 36,688 | |
| Accrued expenses |
| 4,512 | |
|
|
|
| |
| Total Liabilities | $ | 1,187,157 | |
|
|
| ||
NET ASSETS | $ | 45,501,313 | ||
|
|
| ||
|
|
| ||
Net assets are represented by: |
|
| ||
| Paid-in capital | $ | 46,846,545 | |
| Accumulated undistributed net realized gain (loss) on investments and futures |
| (2,476,654) | |
| Accumulated undistributed net investment income |
| 2,896 | |
| Unrealized appreciation (depreciation) on investments |
| 1,128,526 | |
| Total amount representing net assets applicable to 4,092,121 outstanding shares of no par common stock (unlimited shares authorized) | $ | 45,501,313 | |
|
|
| ||
Net asset value per share | $ | 11.12 | ||
|
|
| ||
Public offering price (based on sales charge of 4.25%) | $ | 11.61 | ||
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Operations For the six months ended January 31, 2007 (Unaudited)
INVESTMENT INCOME |
|
| ||
| Interest | $ | 1,006,451 | |
| Dividends |
| 16,155 | |
| Total Investment Income | $ | 1,022,606 | |
|
|
| ||
EXPENSES |
|
| ||
| Investment advisory fees | $ | 111,727 | |
| Distribution (12b-1) fees |
| 55,864 | |
| Administrative service fees |
| 26,114 | |
| Transfer agent fees |
| 39,457 | |
| Transfer agent out-of-pocket expense |
| 284 | |
| Accounting service fees |
| 23,172 | |
| Custodian fees |
| 3,079 | |
| Registration and filing fees |
| 831 | |
| Trustees fees |
| 1,853 | |
| Reports to shareholders |
| 1,463 | |
| Professional fees |
| 10,877 | |
| Insurance expense |
| 664 | |
| Audit fees |
| 3,706 | |
| Legal fees |
| 341 | |
| Total Expenses | $ | 279,432 | |
| Less expenses waived or absorbed by the Fund’s manager |
| (40,336) | |
| Total Net Expenses | $ | 239,096 | |
|
|
| ||
NET INVESTMENT INCOME | $ | 783,510 | ||
|
|
| ||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| ||
| Net realized gain (loss) from investment transactions | $ | 5,994 | |
| Net change in unrealized appreciation (depreciation) of investments |
| 150,663 | |
| Net Realized And Unrealized Gain (Loss) On Investments | $ | 156,657 | |
|
|
| ||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 940,167 | ||
The accompanying notes are an integral part of these financial statements.
Financial Statements January 31, 2007
Statement of Changes in Net Assets
For the six months ended January 31, 2007 and the year ended July 31, 2006
|
| For The Six Months Ended January 31, 2007 (Unaudited) |
| For The Year Ended July 31, 2006 | ||
|
|
|
|
| ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| ||
| Net investment income | $ | 783,510 | $ | 1,355,659 | |
| Net realized gain (loss) on investment and futures transactions |
| 5,994 |
| 789,653 | |
| Net change in unrealized appreciation (depreciation) on investments and futures |
| 150,663 |
| (476,388) | |
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 940,167 | $ | 1,668,924 | |
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| ||
| Dividends from net investment income ($.20 and $.39 per share, respectively) | $ | (783,099) | $ | (1,354,904) | |
| Distributions from net realized gain on investment and futures transactions ($.00 and $.00 per share, respectively) |
| 0 |
| 0 | |
| Total Dividends and Distributions | $ | (783,099) | $ | (1,354,904) | |
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS |
|
|
|
| ||
| Proceeds from sale of shares | $ | 3,704,608 | $ | 15,763,169 | |
| Proceeds from reinvested dividends |
| 321,319 |
| 576,842 | |
| Cost of shares redeemed |
| (2,244,712) |
| (7,978,446) | |
| Net Increase (Decrease) in Net Assets Resulting From Capital Share Transactions | $ | 1,781,215 | $ | 8,361,565 | |
|
|
|
|
| ||
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | 1,938,283 | $ | 8,675,585 | ||
|
|
|
|
| ||
NET ASSETS, BEGINNING OF PERIOD |
| 43,563,030 |
| 34,887,445 | ||
|
|
|
|
| ||
NET ASSETS, END OF PERIOD | $ | 45,501,313 | $ | 43,563,030 | ||
Undistributed Net Investment Income | $ | 2,896 | $ | 2,484 | ||
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements January 31, 2007 (Unaudited)
Note 1. ORGANIZATION
Business operations - Oklahoma Municipal Fund (the “Fund”) is an investment portfolio of Integrity Managed Portfolios (the “Trust”), registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. Integrity Managed Portfolios is an unincorporated business trust organized under Massachusetts law on August 10, 1990. The Fund had no operations from that date to September 25, 1996, other than matters relating to organization and registration. On September 25, 1996, the Fund commenced its Public Offering of capital shares. The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal income tax and, to a certain extent, Oklahoma state income tax, as is consistent with preservation of capital. Up to 20% of the Fund’s total assets may be invested in Oklahoma municipal securities which are subject to Oklahoma state income taxes. The Fund will seek to achieve this objective by investing primarily in a portfolio of Oklahoma municipal securities.
Shares of the Fund are offered at net asset value plus a maximum sales charge of 4.25% of the offering price.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation - Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees which include consideration of the following: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, and indications as to value from dealers and general market conditions. Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on t he trade date.
The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.
Repurchase agreements – In connection with transactions in repurchase agreements, it is the Fund’s policy that its custodian take possession of the underlying collateral securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. If the seller defaults, and the fair value of the collateral declines, realization of the collateral by the Fund may be delayed or limited.
When-issued securities – The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities purchased on a when-issued basis are identified as such in the Fund’s Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic, or other factors.
Contingent Deferred Sales Charge (“CDSC”) – In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 12 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).
Federal and state income taxes - The Fund’s policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its net investment income and any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required. Distributions during the year ended July 31, 2006, were characterized as tax-exempt for tax purposes.
The tax character of distributions paid was as follows:
|
| July 31, 2006 |
| July 29, 2005 | |
Tax-exempt Income | $ | 1,354,904 | $ | 1,295,062 | |
Ordinary Income |
| 0 |
| 0 | |
Long-term Capital Gains |
| 0 |
| 0 | |
| Total | $ | 1,354,904 | $ | 1,295,062 |
As of July 31, 2006, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation) | Total Accumulated Earnings/(Deficit) |
$0 | $0 | $0 | ($2,482,648) | $980,347 | ($1,502,301) |
The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2006, totaling $2,482,648, which may be used to offset capital gains. The capital loss carryforward amounts will expire in each of the years ended July 31 as shown in the table below.
Year |
| Unexpired Capital Losses |
2010 | $ | 375,368 |
2011 | $ | 412,304 |
2012 | $ | 547,833 |
2013 | $ | 1,147,143 |
For the year ended July 31, 2006, the Fund made no permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to expiring capital loss carryforwards.
Net capital losses incurred after October 31, and within the tax year are deemed to arise on the first business day of the Funds’ next taxable year. For the year ended July 31, 2006, the Fund deferred to August 1, 2006 post October capital losses, post October currency losses and post October passive foreign investment company losses of $0.
Distributions to shareholders - Dividends from net investment income, declared daily and payable monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed at least annually.
Premiums and discounts - Premiums and discounts on municipal securities are amortized for financial reporting purposes.
Other - Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatment for market discount, capital loss carryforwards and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
Futures contracts - The Fund may purchase and sell financial futures contracts to hedge against changes in the values of tax-exempt municipal securities the Fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of a particular index or a certain amount of U.S. government or municipal securities at a set price on a future date. Upon entering into a futures contract, the Fund is required to deposit with a broker an amount of cash or securities equal to the minimum “initial margin” requirement of the futures exchange on which the contract is traded. Subsequent payments (“variation margin”) are made or received by the Fund, dependent on the fluctuations in the value of the underlying index. Daily fluctuations in value are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize, for book purposes, a gain or loss equal to the difference between the value of the futures contracts sold and the futures contracts to buy. Unrealized appreciation (depreciation) related to open futures contracts is required to be treated as realized gain (loss) for Federal income tax purposes.
Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Schedule of Investments. The Statement of Assets and Liabilities reflects a receivable or payable for the daily mark to market for variation margin.
Certain risks may arise upon entering into futures contracts. These risks may include changes in the value of the futures contracts that may not directly correlate with changes in the value of the underlying securities.
Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 3. CAPITAL SHARE TRANSACTIONS
As of January 31, 2007, there were unlimited shares of no par authorized; 4,092,121 and 3,932,533 shares were outstanding at January 31, 2007, and July 31, 2006, respectively.
Transactions in capital shares were as follows:
| Shares | |
| For The Six Months Ended January 31, 2007 (Unaudited) | For The Year Ended July 31, 2006 |
Shares sold | 331,283 | 1,433,102 |
Shares issued on reinvestment of dividends | 28,666 | 52,488 |
Shares redeemed | (200,361) | (725,822) |
Net increase (decrease) | 159,588 | 759,768 |
Note 4. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Integrity Money Management, the Fund’s investment adviser; Integrity Funds Distributor, the Fund’s underwriter; and Integrity Fund Services, the Fund’s transfer, accounting, and administrative services agent, are subsidiaries of Integrity Mutual Funds, Inc., the Fund’s sponsor.
The Fund has engaged Integrity Money Management to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund’s average daily net assets. The Fund has recognized $71,391 of investment advisory fees after partial waiver for the six months ended January 31, 2007. The Fund has a payable to Integrity Money Management of $9,913 at January 31, 2007 for investment advisory fees. Certain officers and trustees of the Fund are also officers and directors of the investment adviser.
Under the terms of the advisory agreement, the investment adviser has agreed to pay all expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 1.25% of the Fund’s average daily net assets on an annual basis up to the amount of the investment advisory and management fee. The investment adviser and underwriter may also voluntarily waive fees or reimburse expenses not required under the advisory or other contracts from time to time. Accordingly, after fee waivers and expense reimbursements, the Fund’s total annual operating expenses were 1.07% for the six months ended January 31, 2007.
Principal Underwriter and Shareholder Services
Integrity Funds Distributor serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan for each class of shares as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called “Distribution Plan expenses.” The Fund currently pays an annual distribution fee of up to 0.25% of the average daily net assets of the class. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $55,864 of distribution fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Funds Distributor of $9,722 at January 31, 2007 for distribution fees.
Integrity Fund Services, the transfer agent, provides shareholder services for a variable fee equal to 0.20% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus reimbursement of out-of-pocket expenses. An additional fee with a minimum of $500 per month is charged for each additional share class. The Fund has recognized $39,457 of transfer agent fees and expenses for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $7,778 at January 31, 2007 for transfer agent fees. Integrity Fund Services also acts as the Fund’s accounting services agent for a monthly fee equal to the sum of a fixed fee of $2,000, and a variable fee equal to 0.05% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 mill ion and at a lower rate on the average daily net assets in excess of $50 million, together with reimbursement of out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $23,172 of accounting service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $4,011 at January 31, 2007 for accounting service fees. Integrity Fund Services also acts as the Fund’s administrative services agent for a variable fee equal to 0.125% of the Fund’s average daily net assets on an annual basis for the Fund’s first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $26,114 of administrative service fees for the six months ended January 31, 2007. The Fund has a payable to Integrity Fund Services of $4,861 at January 31, 2007 for administrative service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment securities (excluding short-term securities) aggregated $2,462,652 and $810,910, respectively, for the six months ended January 31, 2007.
Note 6. INVESTMENT IN SECURITIES
At January 31, 2007, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $44,958,776. The net unrealized appreciation of investments for financial reporting purposes based on the cost was $1,128,526, which is comprised of $1,242,360 aggregate gross unrealized appreciation and $113,834 aggregate gross unrealized depreciation. Differences between financial reporting-basis and tax-basis unrealized appreciation/depreciation are due to differing treatment of market discount.
Note 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund is presently evaluating the impact of adopting SFAS 157.
Financial Highlights January 31, 2007
Selected per share data and ratios for the period indicated
|
|
| For The Six Months Ended January 31, 2007 (Unaudited) |
| For The Year Ended July 31, 2006 |
| For The Year Ended July 29, 2005 |
| For The Year Ended July 30, 2004 |
| For The Year Ended July 31, 2003 |
| For The Year Ended July 31, 2002 | |||
| NET ASSET VALUE, BEGINNING OF PERIOD | $ | 11.08 | $ | 11.00 | $ | 11.07 | $ | 11.09 | $ | 11.54 | $ | 11.47 | |||
|
|
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|
|
| |||
| Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
| |||
| Net investment income | $ | .20 | $ | .39 | $ | .40 | $ | .42 | $ | .49 | $ | .55 | |||
| Net realized and unrealized gain (loss) on investment and futures transactions |
| .04 |
| .08 |
| (.07) |
| (.02) |
| (.45) |
| .07 | |||
| Total Income (Loss) From Investment Operations | $ | .24 | $ | .47 | $ | .33 | $ | .40 | $ | .04 | $ | .62 | |||
|
|
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|
| |||
| Less Distributions: |
|
|
|
|
|
|
|
|
|
|
|
| |||
| Dividends from net investment income | $ | (.20) | $ | (.39) | $ | (.40) | $ | (.42) | $ | (.49) | $ | (.55) | |||
| Distributions from net capital gains |
| .00 |
| .00 |
| .00 |
| .00 |
| .00 |
| .00 | |||
| Total Distributions | $ | (.20) | $ | (.39) | $ | (.40) | $ | (.42) | $ | (.49) | $ | (.55) | |||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| NET ASSET VALUE, END OF PERIOD | $ | 11.12 | $ | 11.08 | $ | 11.00 | $ | 11.07 | $ | 11.09 | $ | 11.54 | |||
|
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|
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|
| |||
| Total Return |
| 4.27%(A)(C) |
| 4.39%(A) |
| 3.02%(A) |
| 3.67%(A) |
| 0.28%(A) |
| 5.46%(A) | |||
|
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| |||
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| |||
| RATIOS/SUPPLEMENTAL DATA: |
|
|
|
|
|
|
|
|
|
|
|
| |||
| Net assets, end of period (in thousands) | $ | 45,501 | $ | 43,563 | $ | 34,887 | $ | 35,472 | $ | 31,799 | $ | 21,995 | |||
| Ratio of net expenses (after expense assumption) to average net assets |
| 1.07%(B)(C) |
| 1.03%(B) |
| 0.98%(B) |
| 0.93%(B) |
| 0.65%(B) |
| 0.51%(B) | |||
| Ratio of net investment income to average net assets |
| 3.51%(C) |
| 3.55% |
| 3.60% |
| 3.77% |
| 4.21% |
| 4.69% | |||
| Portfolio turnover rate |
| 1.87% |
| 4.65% |
| 8.69% |
| 10.70% |
| 9.39% |
| 15.77% | |||
(A) Excludes maximum sales charge of 4.25%.
(B) During the periods indicated above, Integrity Mutual Funds, Inc. or Integrity Money Management assumed/waived expenses of $40,336, $60,854, $81,636, $87,525, $124,432, and $137,514, respectively. If the expenses had not been assumed/waived, the annualized ratio of total expenses to average net assets would have been 1.25%, 1.19%, 1.20%, 1.19%, 1.11%, and 1.19%, respectively.
(C) Ratio is annualized.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
Item 2) | Code of Ethics. | |||||
| A code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions is filed as an exhibit to the registrant's annual Form N-CSR. The Code has been amended to remove references to the functions of the corporation and apply specifically to the Funds during the registrant's most recent fiscal half-year. The registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PFO and PEO during the period covered by this report. | |||||
Item 3) | Audit Committee Financial Expert. | |||||
| The information required by this Item is only required in an annual report on Form N-CSR. | |||||
Item 4) | Principal Accountant Fees and Services. | |||||
| The information required by this Item is only required in an annual report on Form N-CSR. | |||||
Item 5) | Audit Committee of Listed Registrants. | |||||
| Not applicable. | |||||
Item 6) | Schedule of Investments. | |||||
| The Schedule of Investments is included in Item 1 of this Form N-CSRS. | |||||
Item 7) | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. | |||||
| Not applicable. | |||||
Item 8) | Portfolio Managers of Closed-End Management Investment Companies. | |||||
| Not Applicable. | |||||
Item 9) | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. | |||||
| Not Applicable. | |||||
Item 10) | Submissions of Matters to a Vote of Security Holders. | |||||
| There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of directors in the last fiscal half-year. | |||||
Item 11) | Controls and Procedures. | |||||
| (a) | Based on their evaluation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of this Form N-CSRS (the “Report”), the registrant’s principal executive officer and principal financial officer believe that the disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effectively designed to ensure that information required to be disclosed by the registrant in the Report is recorded, processed, summarized and reported by the filing date, including ensuring that information required to be disclosed in the Report is accumulated and communicated to the registrant’s principal executive officer and principal financial officer who are making certifications in the Report, as appropriate, to allow timely decisions regarding required disclosure. | ||||
| (b) | There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant's most recent fiscal half-year that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. | ||||
Item 12) | Exhibits. | |||||
| (a) | (1) | The registrant’s code of ethics filed pursuant to Item 2 of the N-CSR is filed with the registrant’s annual N-CSR. | |||
| (2) | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is filed and attached hereto. | ||||
| (b) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is filed and attached hereto. | ||||
| ||||||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | ||||||
| ||||||
By: | /s/Robert E. Walstad | |||||
Robert E. Walstad | ||||||
President, Integrity Managed Portfolios | ||||||
Date: | March 30, 2007 | |||||
| ||||||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | ||||||
| ||||||
By: | /s/Laura K. Anderson | |||||
Laura K. Anderson | ||||||
Treasurer, Integrity Managed Portfolios | ||||||
Date: | March 30, 2007 | |||||