UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: | 811-06153 |
| 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 |
| Kevin Flagstad, Investment Adviser Chief Compliance Officer |
| 1 Main Street North |
| Minot, ND 58703 |
Registrant's telephone number, including area code: | (701) 852-5292 |
Date of fiscal year end: | July 31 |
Date of reporting period: | July 31, 2008 |
Item 1—Reports to Shareholders
Dear Shareholder:
Enclosed is the report of the operations for the Kansas Municipal Fund (the "Fund") for the year ended July 31, 2008. The Fund's portfolio and related financial statements are presented within for your review.
As we end the year, what one might have thought was an uneventful year was much the opposite.
First, interest rates spiked higher early in June as Federal Reserve Chairman Ben Bernanke voiced concern about inflation and the slumping dollar. However, a string of weak economic reports in the last part of June (consumer confidence plunged to its lowest level since 1992) along with more losses and downgrades in the banking sector, reduced corporate earnings expectations as well as higher energy prices have encouraged market participants to dump stocks in favor of low-risk government bonds, sending the 10-year treasury to 3.95%
Second, while the market likes to talk about light at the end of the tunnel, unfortunately in these days of financial turmoil we can never be sure whether it is light from the other side or another freight train coming. Most recently, Fannie Mae and Freddie Mac who own or guarantee nearly half of the $12 trillion mortgage market have seen their company stocks fall 75-80% year-to-date, as the worst housing downturn since the Great Depression impacted expected solvency levels.
Municipals on the other hand didn't fare any better as a number of the secondary insurers saw significant downgrades of their ratings, the collapse of major financial institution Bear Stearns and the exit of UBS from the municipal bond market.
The secondary insurers of municipal debt are in turmoil as a number of the insurance companies are in dire straits. Many bond professionals and investors, who in the past treated all insured bonds equal from a credit perspective, now understand the importance of the underlying credit, the purpose of the debt issued, and its commitment to pay. Currently there are three insurers of municipal debt that have AAA ratings from all three rating agencies and two of those three insurers are on Credit Watch for possible downgrade.
These events have created great uncertainty and with that, opportunity. It is now a buyers market as high quality municipals are yielding in many instances, yields higher than taxable treasuries of similar maturities. Clearly there will be price rallies and price sell offs in the months ahead, but the underlying tone for tax-free municipals is bullish.
The Kansas Municipal Fund began the period at $10.54 and ended the period at $10.44 for a total return of 2.90%*. This compares to the Lehman Brothers Municipal Bond Index return of 2.84%.
The Fund's yearly overall performance can be attributed to its defensive portfolio, with an average maturity of 15.5 years and an average maturity to the first call date of 3.5 years. That, along with an average portfolio coupon of 5.38% helps relative performance in volatile environments.
An important part of the Fund's strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Some purchases made throughout the year include: Harvey County Schools, 5.00% coupon, due 2025; Sedgwick County Schools, 5.00% coupon, due 2028; University of Kansas Athletic Facility, 5.00% coupon, due 2033; and Wyandotte County General Obligation, 5.00% coupon, due 2027.
Portfolio quality at year-end was as follows: AAA 35%, AA 34%, A 28%, BBB 2% and NR 1%.
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 the Fund's website at www.integrityfunds.com for daily prices along with pertinent Fund information.
Sincerely,
Monte Avery
Senior Portfolio Manager
The views expressed are those of Monte Avery, Senior Portfolio Manager with Integrity Mutual Funds, Inc. ("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, the markets generally, or any Integrity Mutual Fund.
*Performance does not include applicable front-end or contingent deferred sales charges ("CDSCs"), which would have reduced the performance.
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities more so than a municipal bond fund that does not concentrate its securities in a single state.
July 31, 2008 (Unaudited)
PROXY VOTING OF FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 800-276-1262. A report on Form N-PX of how the Fund voted any such proxies during the most recent twelve-month period ended June 30 is available through the Fund's website at www.integrityfunds.com. The information is also available from the Electronic Data Gathering, Analysis, and Retrieval ("EDGAR") database on the website of the Securities and Exchange Commission ("SEC") at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
Within 60 days of the end of its second and fourth fiscal quarters, the Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports on the Form N-CSR(S). These reports are filed electronically with the SEC and are delivered to the shareholders of the Fund. The Fund also files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q and N-CSR(S) are available on the SEC's website at www.sec.gov. The Fund's Forms N-Q and N-CSR(S) may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 202-942-8090. You may also access this information from the Fund's website at www.integrityfunds.com.
SHAREHOLDER INQUIRIES AND MAILINGS
All inquiries regarding the Fund should be directed to:
Integrity Funds Distributor, Inc.
1 Main Street North
Minot, ND 58703
Phone: 800-276-1262
All inquiries regarding account information should be directed to:
Integrity Fund Services, Inc.
P.O. Box 759
Minot, ND 58702
Phone: 800-601-5593
To reduce expenses, the Fund may only mail one copy of its prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please call Integrity Funds Distributor, Inc. ("Integrity Funds Distributor") at 800-276-1262 (or contact your financial institution). Individual copies will be sent thirty days after receiving your request.
Terms & Definitions July 31, 2008 (Unaudited)
Appreciation
Increase in the value of an asset
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned by a fund on an annual basis assuming all distributions are reinvested
Coupon Rate or Face Rate
Rate of interest payable annually based on the face amount of the bond; expressed as a percentage
Depreciation
Decrease in the value of an asset
Lehman Brothers Municipal Bond Index
An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market; the index does not take into account brokerage commissions or other costs, may include bonds different from those in the Fund, and may pose different risks than the Fund
Market Value
Actual (or estimated) price at which a bond trades in the marketplace
Maturity
A measure of the term or life of a bond in years; when a bond "matures", the issuer repays the principal
Net Asset Value
The value of all of a fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial sales charge
Quality Ratings
A designation assigned by independent rating companies to give a relative indication of a bond's creditworthiness; "AAA," "AA," "A," and "BBB" indicate investment grade securities. Ratings can range from a high of "AAA" to a low of "D".
Total Return
Measures both the net investment income and any realized and unrealized appreciation or depreciation of the underlying investments in a fund's portfolio for the period, assuming the reinvestment of all dividends; represents the aggregate percentage or dollar value change over the period
July 31, 2008 (Unaudited)
COMPOSITION
Portfolio Quality Ratings
(Based on total long-term investments)
| AAA | 34.6% |
| AA | 34.0% |
| A | 28.2% |
| BBB | 2.2% |
| NR | 1.0% |
Quality ratings reflect the financial strength of the issuer. They are assigned by independent ratings services such as Moody's Investors Services ("Moody's") and Standard & Poor's Ratings Group ("S&P"). Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. ("Integrity Money Management"), the Fund's investment adviser.
These percentages are subject to change.
Portfolio Market Sectors
(As a percentage of Net Assets)
| HC—Health Care | 26.1% |
| S—School | 20.2% |
| H—Housing | 15.3% |
| O—Other | 10.8% |
| W/S—Water/Sewer | 9.1% |
| T—Transportation | 8.7% |
| G—Government | 5.6% |
| U—Utilities | 4.2% |
Market sectors are breakdowns of the Fund's portfolio holdings into specific investment classes.
These percentages are subject to change.
July 31, 2008 (Unaudited)
DISCLOSURE OF FUND EXPENSES
The example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs:
| • | transaction costs: | sales charges (loads), redemption fees, and exchange fees |
| • | ongoing costs: | 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 January 31, 2008 to July 31, 2008.
The example illustrates the Fund's costs in two ways:
Actual expenses
The section in the table under the heading "Actual" provides information about actual account values and actual expenses. You may use the information in these columns together with the amount you invested to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an account value of $8,600 divided by $1,000 equals 8.6), then multiply the result by the number in the column entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The section in the table under the heading "Hypothetical (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the section in the table under the heading "Hypothetical (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value | Ending Account Value | Expenses Paid During Period* | |
Actual | $1,000.00 | $ | 990.02 | $5.32 |
Hypothetical (5% return before expenses) | $1,000.00 | $ | 1,019.51 | $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 (1.00%) for the six-month period of January 31, 2008 to July 31, 2008.
July 31, 2008 (Unaudited)
AVERAGE ANNUAL TOTAL RETURNS
| For periods ending July 31, 2008 | |||||
1 year | 3 year | 5 year | 10 year | Since Inception | ||
| Without Sales Charge | 2.90% | 3.45% | 2.44% | 2.80% | 4.44% |
| With Sales Charge (4.25%) | (1.49%) | 1.96% | 1.55% | 2.35% | 4.18% |
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1 year | 3 year | 5 year | 10 year | Since Inception | ||
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| 2.84% | 3.22% | 4.35% | 4.92% | 6.27% |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemption of Fund shares.
July 31, 2008 (Unaudited)
COMPARATIVE INDEX GRAPH
Comparison of change in value of a $10,000 investment in the Fund and the Lehman Brothers Municipal Bond Index
Kansas Municipal Fund without Sales Charge | Kansas Municipal Fund with Maximum Sales Charge | Lehman Brothers Municipal Bond Index | ||||
7/31/98 | $ | 10,000 | $ | 9,574 | $ | 10,000 |
1999 | $ | 10,344 | $ | 9,904 | $ | 10,288 |
2000 | $ | 10,519 | $ | 10,071 | $ | 10,732 |
2001 | $ | 11,374 | $ | 10,890 | $ | 11,815 |
2002 | $ | 11,770 | $ | 11,269 | $ | 12,608 |
2003 | $ | 11,682 | $ | 11,185 | $ | 13,061 |
2004 | $ | 11,882 | $ | 11,376 | $ | 13,816 |
2005 | $ | 11,908 | $ | 11,401 | $ | 14,695 |
2006 | $ | 12,430 | $ | 11,901 | $ | 15,071 |
2007 | $ | 12,810 | $ | 12,265 | $ | 15,713 |
7/31/08 | $ | 13,182 | $ | 12,621 | $ | 16,160 |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The graph does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
The graph comparing the Fund's performance to a benchmark index provides you with a general sense of how the Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers Municipal Bond Index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Kansas municipal bonds. The Fund's total return for the periods shown appears with and without sales charges and includes Fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged; there are no expenses that affect the results. In addition, few investors could purchase all of the securities necessary to match the index. If they could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.
July 31, 2008 (Unaudited)
MANAGEMENT OF THE FUND
The Board of the Fund 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 three series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with Integrity Money Management or any of its affiliates; these are the "Independent" Trustees. Two of the remaining three Trustees and/or Officers are "interested" by virtue of their affiliation with Integrity Money Management and/or its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee, and other Directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Jerry M. Stai | Trustee | Indefinite | 12 | Faculty, Embry-Riddle University (August 2000 to September 2005); Faculty, Park University (August 2005 to December 2005); Non-Profit Specialist, Bremer Bank (since July 2005); Faculty, Minot State University (since August 2000); Director, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006). | Marycrest Franciscan Development, Inc. |
Orlin W. Backes | Trustee | Indefinite | 12 | Attorney, McGee, Hankla, Backes & Dobrovolny, P.C.; Director, South Dakota Tax-Free Fund, Inc. (April 1995 to June 2004), ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc., (since April 2005); Trustee, The Integrity Funds (since June 2003). | First Western Bank & Trust |
R. James Maxson | Trustee | Indefinite | 12 | Attorney, Maxson Law Office (since November 2002); Director, South Dakota Tax-Free Fund, Inc. (January 1999 to June 2004), Integrity Fund of Funds, Inc., ND Tax-Free Fund, Inc. and Montana Tax-Free Fund, Inc. (since January 1999); and Trustee, The Integrity Funds (since June 2003). | Vincent United Methodist Foundation |
(1) The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the three series of The Integrity Funds.
Trustees and Officers of the Fund serve until their resignation, removal, or retirement.
The Statement of Additional Information ("SAI") contains more information about the Fund's Trustees and is available without charge upon request, by calling Integrity Funds Distributor at 800-276-1262.
The Interested Trustees and Officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee, and other Directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEE AND OFFICER
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Robert E. Walstad(2)(3) | Trustee, Chairman, Interim President | Indefinite | 12 | Director (Sept. 1987 to Feb. 2007), CEO (Sept. 2001 to Feb. 2007), Integrity Mutual Funds; Director, President, and Treasurer, (Aug. 1988 to Feb. 2007), Integrity Money Management; Director, President, and Treasurer (Aug. 1988 to Sept. 2004), ND Capital, Inc.; Director, President, and Treasurer (May 1989 to Feb. 2007), Integrity Fund Services, Inc.; Director, President, CEO, and Treasurer, (Jan. 1996 to Aug. 2003), Integrity Funds Distributor, Inc.; Director, CEO, Chairman, (Jan. 2002 to Feb. 2007) and President (Sept. 2002 to Dec. 2004), Capital Financial Services, Inc.; Director and President, (April 1994 to June 2004) South Dakota Tax-Free Fund, Inc.; President (Jan. 1996 to July 2007) and (since March 2008) Integrity Managed Portfolios, (May 2003 to July 2007) and (since March 2008) The Integrity Funds, (Jan. 1995 to July 2007) and (since March 2008) Integrity Fund of Funds, Inc., (Jan. 1989 to July 2007) and (since March 2008) ND Tax-Free Fund, Inc., (Aug. 1993 to July 2007) and (since March 2008) Montana Tax-Free Fund, Inc.; Director and Chairman Montana Tax-Free Fund, Inc. (since May 1993), Integrity Fund of Funds, Inc. (since Aug. 1994), and ND Tax Free Fund, Inc. (since Oct. 1988); Trustee, Chairman, (since January 1996) and Treasurer (January 1996 to May 2004), Integrity Managed Portfolios; Trustee and Chairman (since June 2003), The Integrity Funds. | Minot Park Board |
OFFICERS
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Peter A. Quist | Vice President, Secretary | Indefinite | 3 | Attorney; Director and Vice President, Integrity Mutual Funds; Director, Vice President, and Secretary, Integrity Money Management, ND Capital, Inc. (August 1988 to August 2006), Integrity Fund Services, Inc., and Integrity Funds Distributor; Director, Vice President, and Secretary, South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Montana Tax-Free Fund, Inc. (since May 1993), Integrity Fund of Funds, Inc. (since Aug. 1994), and ND Tax Free Fund, Inc. (since Oct. 1988); Vice President and Secretary, The Integrity Funds (since June 2003). | None |
Adam C. Forthun | Treasurer | Indefinite | N/A | Fund Accountant (May 2003 to October 2005), Fund Accounting Supervisor (October 2005 to March 2008), Fund Accounting Manager (since March 2008), Integrity Fund Services, Inc.; Treasurer (since May 2008), Integrity Managed Portfolios, The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. | None |
Brent M. Wheeler | Mutual Fund Chief Compliance Officer | Indefinite | N/A | Fund Accounting Manager (May 1998 to October 2005), Integrity Fund Services, Inc.; Treasurer (May 2004 to October 2005), Mutual Fund Compliance Officer (since October 2005), Integrity Managed Portfolios, The Integrity Funds, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and Integrity Fund of Funds, Inc. | None |
(1) The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the three series of The Integrity Funds.
(2) Trustees and/or Officers who are "interested persons" of the Fund as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Mr. Quist is an interested person by virtue of being an Officer and Director of the Fund's investment adviser and principal underwriter. Mr. Walstad is an interested person by virtue of being an Officer of the Fund and a shareholder of Integrity Mutual Funds.
(3) Effective February 29, 2008, Mark R. Anderson resigned as President of the Fund, and effective March 4, 2008, Mr. Walstad succeeded Mr. Anderson as Interim President of the Fund. Mr. Walstad is also a Trustee and Chairman of the Fund.
Trustees and Officers of the Fund serve until their resignation, removal, or retirement.
The SAI contains more information about the Fund's Trustees and is available without charge upon request, by calling Integrity Funds Distributor at 800-276-1262.
Schedule of Investments July 31, 2008
Name of Issuer |
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Percentages represent the market value of each investment category to total net assets | Rating (Unaudited) Moody's/S&P | Coupon Rate | Maturity |
| Principal Amount |
| Market Value | ||
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KANSAS MUNICIPAL BONDS (97.3%) |
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Burlington, KS PCR (Gas & Elec.) MBIA | A/AA | 5.300% | 06/01/2031 | $ | 1,000,000 | $ | 993,800 | ||
Burlington, KS PCR (Gas & Elec.) MBIA | A/AA | 4.850 | 06/01/2031 |
| 500,000 |
| 471,210 | ||
Butler Cty., KS Public Bldg. MBIA | A/NR | 5.550 | 10/01/2021 |
| 300,000 |
| 320,157 | ||
Coffeyville, KS Pub. BLdg. (Coffeyville Medl. Center) Rev. AMBAC | Aa-3/AA | 5.000 | 08/01/2022 |
| 250,000 |
| 254,252 | ||
Cowley Cty., KS USD #465 (Winfield) MBIA | A/AA | 5.250 | 10/01/2014 |
| 250,000 |
| 271,790 | ||
Dodge, KS School District #443 FGIC | Baa-1/NR | 5.000 | 09/01/2011 |
| 1,000,000 |
| 1,049,130 | ||
Douglas Cty., KS Sales Tax Ref. AMBAC | Aa-3/NR | 5.000 | 08/01/2019 |
| 1,000,000 |
| 1,057,430 | ||
Harvey Cnty Ks USD #373 (Newton) MBIA | A/NR | 5.000 | 09/01/2025 |
| 1,000,000 |
| 996,060 | ||
Hutchinson, KS Community College | NR/A- | 5.000 | 10/01/2025 |
| 350,000 |
| 350,557 | ||
Hutchinson, KS Community College | NR/A- | 5.250 | 10/01/2030 |
| 300,000 |
| 297,516 | ||
Hutchinson, KS Community College | NR/A- | 5.250 | 10/01/2033 |
| 450,000 |
| 446,134 | ||
#Johnson Cty., KS USD #229 (Blue Valley) G.O. | Aa-1/AA | 5.000 | 10/01/2018 |
| 1,350,000 |
| 1,395,589 | ||
Johnson Cty., KS USD #231 Gardner-Edgerton FGIC | NR/A- | 5.000 | 10/01/2024 |
| 1,135,000 |
| 1,128,678 | ||
Johnson Cty., KS USD #232 (Desoto) | Aaa/NR | 5.250 | 09/01/2023 |
| 500,000 |
| 532,330 | ||
Junction City, KS G.O. AMBAC | Aa-3/AA | 5.000 | 09/01/2025 |
| 250,000 |
| 256,502 | ||
Kansas City, KS Mrtge. Rev. GNMA | Aaa/NR | 5.900 | 11/01/2027 |
| 250,000 |
| 250,060 | ||
*Kansas City, KS Util. Syst. Ref. & Impvt. AMBAC | Aa-3/AA | 6.300 | 09/01/2016 |
| 335,000 |
| 335,070 | ||
KS Devl. Finance Auth. (Dept. of Admin. Capital Restoration) Lease Rev. FSA | Aaa/AAA | 5.375 | 10/01/2020 |
| 370,000 |
| 393,661 | ||
KS Devl. Finance Auth. (Juvenile Justice) Rev. MBIA | A/AA | 5.250 | 05/01/2013 |
| 570,000 |
| 605,123 | ||
*KS Devl. Finance Auth. (Water Pollution Control) Rev. | Aaa/AAA | 5.250 | 05/01/2011 |
| 250,000 |
| 252,217 | ||
KS Devl. Finance Auth. (KS St. Projects) Rev. MBIA | A/AA | 5.000 | 10/01/2017 |
| 250,000 |
| 263,360 | ||
KS Devl. Finance Auth. (Water Pollution Control) Rev. | Aaa/AAA | 5.250 | 11/01/2022 |
| 1,000,000 |
| 1,052,530 | ||
KS Devl. Finance Auth. (Water Pollution Control) | Aaa/AAA | 5.000 | 11/01/2023 |
| 1,000,000 |
| 1,037,670 | ||
KS Devl. Finance Auth. | Aa/AA | 5.000 | 05/01/2026 |
| 1,335,000 |
| 1,381,632 | ||
KS Devl. Finance Auth. (Dept. Admin.) FGIC | Aa/AA | 5.000 | 11/01/2025 |
| 250,000 |
| 255,660 | ||
KS Devl. Finance Auth. (Univ. KS Research Cent.) XLCA | A-1/A | 5.000 | 02/01/2026 |
| 500,000 |
| 503,885 | ||
KDFA Athletic Facs. University of KS | A-1/A | 5.000 | 06/01/2033 |
| 250,000 |
| 240,748 | ||
*KS Devl. Finance Auth. (Park Apts.) Multifamily Hsg. Rev. | NR/AAA | 6.000 | 12/01/2021 |
| 1,975,000 |
| 1,975,099 | ||
KS Devl. Finance Auth. (Sisters of Charity) Hlth. Rev. | Aa/AA | 6.125 | 12/01/2020 |
| 1,000,000 |
| 1,057,620 | ||
KS Devl. Finance Auth. (Hays Medical Center) | A/NR | 5.000 | 11/15/2022 |
| 500,000 |
| 505,515 | ||
KS Devl. Finance Auth. (Stormont Vail) Hlth. Care Rev.—Unrefunded MBIA | A/AA | 5.375 | 11/15/2024 |
| 1,365,000 |
| 1,419,764 | ||
KS Turnpike Auth. Rev. FSA | Aaa/AAA | 5.250 | 09/01/2021 |
| 500,000 |
| 529,990 | ||
KS Turnpike Auth. Rev. FSA | Aaa/AAA | 5.000 | 09/01/2024 |
| 330,000 |
| 341,111 | ||
KS Turnpike Auth. Rev. FSA | Aaa/AAA | 5.000 | 09/01/2025 |
| 750,000 |
| 770,993 | ||
Lawrence, KS (Unlimited Tax) Refunding G.O. | Aa/NR | 5.375 | 09/01/2020 |
| 500,000 |
| 522,770 | ||
Lawrence, KS (Memorial Hospital) Rev. ASGUA-Radian | A-3/A | 5.750 | 07/01/2024 |
| 1,000,000 |
| 1,037,790 | ||
Lawrence, KS (Memorial Hospital) Rev. | A-3/NR | 5.125 | 07/01/2026 |
| 500,000 |
| 481,760 | ||
Lawrence, KS (Memorial Hospital) Rev. | A-3/NR | 5.125 | 07/01/2036 |
| 300,000 |
| 282,432 | ||
Newton, KS (Newton) Hosp. Rev. ACA | NR/NR | 5.750 | 11/15/2024 |
| 500,000 |
| 461,110 | ||
Olathe, KS (Medl. Ctr.) Hlth. Facs. Rev. AMBAC | Aa-3/AA | 5.500 | 09/01/2025 |
| 235,000 |
| 242,612 | ||
Olathe, KS (Medl. Ctr.) Hlth. Facs. Rev. AMBAC | Aa-3/AA | 5.500 | 09/01/2030 |
| 500,000 |
| 512,800 | ||
Olathe, Health Fac Rev (Med Center) | NR/A+ | 5.000 | 09/01/2029 |
| 500,000 |
| 477,855 | ||
#Olathe, KS Multifamily Hsg. (Bristol Pointe) Rev. Ref. FNMA | NR/AAA | 5.700 | 11/01/2027 |
| 2,210,000 |
| 2,210,332 | ||
Reno Cty., KS USD #308 Hutchinson MBIA | A/NR | 4.500 | 09/01/2023 |
| 500,000 |
| 498,075 | ||
Salina, KS (General Obligation) | Aa-3/NR | 4.625 | 10/01/2027 |
| 200,000 |
| 194,450 | ||
Sedgwick Cty., KS (Catholic Care Center, Inc.) Hlth. Care Rev. | NR/A | 5.800 | 11/15/2026 |
| 1,000,000 |
| 1,022,650 | ||
Sedgwick Cnty Kans Uni Sch Dist No. 262 Assumed Guaranty | NR/AAA | 5.000 | 09/01/2028 |
| 500,000 |
| 503,355 | ||
Shawnee Cty., KS G.O. FSA | Aaa/NR | 5.000 | 09/01/2016 |
| 655,000 |
| 709,647 | ||
Topeka, KS G.O. XLCA | Aa-3/NR | 5.000 | 08/15/2021 |
| 400,000 |
| 410,708 | ||
*Topeka Public Bldg. Comm (10th & Jackson Prj.) MBIA | A/AA | 5.625 | 06/01/2026 |
| 1,435,000 |
| 1,481,982 | ||
Topeka Public Bldg. Comm. (10th & Jackson Prj.) MBIA | A/AA | 5.625 | 06/01/2031 |
| 1,200,000 |
| 1,239,288 | ||
University of Kansas Hosp. Auth. AMBAC | Aa-3/AAA | 5.700 | 09/01/2020 |
| 830,000 |
| 865,790 | ||
*University of Kansas Hosp. Auth. AMBAC | Aa-3/AAA | 5.550 | 09/01/2026 |
| 1,355,000 |
| 1,409,756 | ||
Wamego, KS PCR (Kansas Gas & Electric Project) MBIA | A/AA | 5.300 | 06/01/2031 |
| 750,000 |
| 731,835 | ||
Washburn Univ. (Living Learning Ctr.) Bldg. Rev. AMBAC | Aa-3/NR | 5.000 | 07/01/2019 |
| 700,000 |
| 740,768 | ||
#Wichita, KS (Via Christi Health System) Rev. | NR/A+ | 6.250 | 11/15/2024 |
| 1,500,000 |
| 1,558,110 | ||
Wichita, KS (Via Christi Health System) Rev. | NR/A+ | 5.625 | 11/15/2031 |
| 1,100,000 |
| 1,113,420 | ||
Wichita, KS Multifamily Hsg. (Broadmoor Chelsea) Rev. FNMA | NR/AAA | 5.650 | 07/01/2016 |
| 990,000 |
| 991,049 | ||
#Wichita, KS Multifamily Hsg. (Broadmoor Chelsea) Rev. FNMA | NR/AAA | 5.700 | 07/01/2022 |
| 2,000,000 |
| 2,001,880 | ||
Wichita, KS Water & Sewer Util. Rev. FGIC | A-1/NR | 5.250 | 10/01/2018 |
| 1,465,000 |
| 1,569,132 | ||
Wichita, KS Water & Sewer Util. Rev. FGIC | A-1/NR | 5.000 | 10/01/2028 |
| 500,000 |
| 495,155 | ||
Wyandotte City, KS General Obligation FSA | Aaa/AAA | 5.000 | 08/01/2027 |
| 500,000 |
| 509,795 | ||
|
|
|
|
|
|
|
| ||
TOTAL KANSAS MUNICIPAL BONDS (COST: $46,621,048) |
|
|
|
| $ | 47,269,149 | |||
|
|
|
|
|
|
|
| ||
SHORT-TERM SECURITIES (1.3%) |
|
|
|
| Shares |
|
| ||
Wells Fargo Advantage National Tax-Free Money Market (COST: $615,773) |
|
| 615,773 | $ | 615,773 | ||||
|
|
|
|
|
|
|
| ||
TOTAL INVESTMENTS IN SECURITIES (COST: $47,236,821) |
|
|
|
| $ | 47,884,922 | |||
OTHER ASSETS LESS LIABILITIES |
|
|
|
|
|
| 701,880 | ||
|
|
|
|
|
|
|
| ||
NET ASSETS |
|
|
|
|
| $ | 48,586,802 | ||
*Indicates bonds are segregated by the custodian to cover when-issued or delayed-delivery purchases.
#Indicates bonds are segregated by the custodian to cover initial margin requirements.
Footnote: Non-rated (NR) securities have been determined to be of investment grade quality by the Fund's Manager.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels:
| Level 1— | quoted prices in active markets for identical securities |
| Level 2— | other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risks, etc.) |
| Level 3— | significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) |
The following is a summary of the inputs used to value the Fund's investments as of July 31, 2008:
| Valuation Inputs | Investments in Securities |
| |
| Level 1—Quoted Prices | $ | 615,773 |
|
| Level 2—Other Significant Observable Inputs |
| 47,269,149 |
|
| Level 3—Significant Unobservable Inputs |
| 0 |
|
| Total | $ | 47,884,922 |
|
The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Assets and Liabilities
July 31, 2008
ASSETS |
|
| ||
| Investments in securities, at value (cost: $47,236,821) | $ | 47,884,922 | |
| Cash |
| 268,806 | |
| Accrued interest receivable |
| 670,066 | |
| Accrued dividends receivable |
| 1,079 | |
| Receivable from manager |
| 4,366 | |
| Prepaid expenses |
| 2,669 | |
|
| Total Assets | $ | 48,831,908 |
|
|
|
|
|
LIABILITIES |
|
| ||
| Dividends payable | $ | 158,123 | |
| Payable for fund shares redeemed |
| 25,133 | |
| Accrued expenses |
| 33,544 | |
| Payable to affiliates |
| 28,306 | |
|
| Total Liabilities | $ | 245,106 |
|
|
|
|
|
NET ASSETS | $ | 48,586,802 | ||
|
|
|
|
|
Net assets are represented by: |
|
| ||
| Paid-in capital | $ | 56,630,679 | |
| Accumulated undistributed net realized gain (loss) on investments and futures |
| (8,692,469) | |
| Accumulated undistributed net investment income (loss) |
| 491 | |
| Unrealized appreciation (depreciation) on investments |
| 648,101 | |
|
| Total amount representing net assets applicable to 4,653,648 outstanding shares of no par common stock (unlimited shares authorized) | $ | 48,586,802 |
|
|
|
|
|
Net asset value per share | $ | 10.44 | ||
|
|
|
|
|
Public offering price (based on sales charge of 4.25%) | $ | 10.90 |
The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Operations
For the year ended July 31, 2008
INVESTMENT INCOME |
|
| ||
| Interest | $ | 2,471,321 | |
| Dividends |
| 20,955 | |
|
| Total Investment Income | $ | 2,492,276 |
|
|
|
|
|
EXPENSES |
|
| ||
| Investment advisory fees | $ | 255,394 | |
| Distribution (12b-1) fees |
| 127,697 | |
| Administrative service fees |
| 63,555 | |
| Transfer agent fees |
| 101,570 | |
| Accounting service fees |
| 49,422 | |
| Custodian fees |
| 7,605 | |
| Professional fees |
| 24,721 | |
| Trustees fees |
| 5,288 | |
| Insurance expense |
| 1,390 | |
| Reports to shareholders |
| 5,540 | |
| Audit fees |
| 6,773 | |
| Legal fees |
| 38,976 | |
| Transfer agent out-of-pockets |
| 4,061 | |
| License, fees, and registrations |
| 2,066 | |
|
| Total Expenses | $ | 694,058 |
| Less expenses waived or absorbed by the Fund's manager |
| (147,515) | |
|
| Total Net Expenses | $ | 546,543 |
|
|
|
|
|
NET INVESTMENT INCOME (LOSS) | $ | 1,945,733 | ||
|
|
|
|
|
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| ||
| Net realized gain (loss) from investment transactions | $ | 177,815 | |
| Net change in unrealized appreciation (depreciation) of investments |
| (619,782) | |
|
| Net Realized and Unrealized Gain (Loss) on Investments | $ | (441,967) |
|
|
|
|
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 1,503,766 |
The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Changes in Net Assets
For the year ended July 31, 2008 and the year ended July 31, 2007
|
|
| For The Year Ended July 31, 2008 | For The Year Ended July 31, 2007 | ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| ||
| Net investment income (loss) | $ | 1,945,733 | $ | 2,140,169 | |
| Net realized gain (loss) on investment transactions |
| 177,815 |
| 85,328 | |
| Net change in unrealized appreciation (depreciation) on investments |
| (619,782) |
| (486,178) | |
|
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 1,503,766 | $ | 1,739,319 |
|
|
|
|
|
|
|
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| ||
| Dividends from net investment income ($.40 and $.40 per share, respectively) | $ | (1,945,509) | $ | (2,140,064) | |
| Distributions from net realized gain on investment transactions ($.00 and $.00 per share, respectively) |
| 0 |
| 0 | |
|
| Total Dividends and Distributions | $ | (1,945,509) | $ | (2,140,064) |
|
|
|
|
|
|
|
CAPITAL SHARE TRANSACTIONS |
|
|
|
| ||
| Proceeds from sale of shares | $ | 1,520,973 | $ | 1,094,761 | |
| Proceeds from reinvested dividends |
| 1,289,918 |
| 1,368,745 | |
| Cost of shares redeemed |
| (6,777,875) |
| (8,160,511) | |
|
| Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions | $ | (3,966,984) | $ | (5,697,005) |
|
|
|
|
|
|
|
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | (4,408,727) | $ | (6,097,750) | ||
NET ASSETS, BEGINNING OF PERIOD |
| 52,995,529 |
| 59,093,279 | ||
NET ASSETS, END OF PERIOD | $ | 48,586,802 | $ | 52,995,529 | ||
|
|
|
|
| ||
Undistributed Net Investment Income | $ | 491 | $ | 267 |
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements July 31, 2008
Note 1. ORGANIZATION
The Fund is an investment portfolio of Integrity Managed Portfolios (the "Trust") and is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. The Trust is an unincorporated business trust organized under Massachusetts law on August 10, 1990. The Fund had no operations from that date to November 15, 1990, other than matters relating to organization and registration. On November 15, 1990, the Fund commenced its Public Offering of capital shares.
The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal and Kansas state income tax as is consistent with preservation of capital. The Fund will seek to achieve this objective by investing primarily in a portfolio of Kansas municipal securities.
Shares of the Fund are offered at net asset value plus a maximum sales charge of 4.25% of the offering price.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation—Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees and includes consideration of the following:
| • | yields or prices of municipal bonds of comparable quality; |
| • | type of issue, coupon, maturity, and rating; |
| • | indications as to value from dealers; and |
| • | general market conditions. |
Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on the trade date.
The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.
When-issued securities—The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities purchased on a when-issued basis are identified as such in the Fund's Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract's terms, or if the issuer does not issue the securities due to political, economic, or other factors.
Contingent Deferred Sales Charge—In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 24 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).
Federal and state income taxes—The Fund's policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its net investment income and any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required. Distributions during the year ended July 31, 2008 were characterized as tax-exempt for tax purposes.
In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax-return positions taken on federal income tax returns for all open tax years (tax years ended July 31, 2004 through July 31, 2008) for purposes of implementing FIN 48, and has concluded that no provision for income tax is required in the Fund's financial statements. Interest and penalties related to uncertain tax positions, if any, are classified in the Fund's financial statements as other expense.
The tax character of distributions paid was as follows:
|
|
| July 31, 2008 |
| July 31, 2007 |
| |
| Tax-exempt income | $ | 1,945,509 | $ | 2,140,064 |
| |
| Ordinary income |
| 0 |
| 0 |
| |
| Long-term capital gains |
| 0 |
| 0 |
| |
|
| Total | $ | 1,945,509 | $ | 2,140,064 |
|
As of July 31, 2008, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Undistributed Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation) | Total Accumulated Earnings/(Deficit) |
|
| $0 | $0 | ($8,692,469) | $648,592 | ($8,043,877) |
|
The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2008 totaling $8,692,469, which may be used to offset capital gains. Any difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable to timing differences associated with market discount. 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 |
| 2009 | $568,023 |
| 2010 | $1,444,860 |
| 2011 | $1,970,032 |
| 2012 | $1,399,598 |
| 2013 | $2,680,173 |
| 2014 | $388,935 |
| 2015 | $240,848 |
For the year ended July 31, 2008, the Fund made $353,577 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, 2008, the Fund did not defer to August 1, 2008, any post-October capital losses, post-October currency losses, or post-October passive foreign investment company losses.
Distributions to shareholders—Dividends from net investment income, declared daily and paid monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed at least annually.
Premiums and discounts—Premiums and discounts on municipal securities are amortized for financial reporting purposes.
Other—Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatments for market discount, capital loss carryforwards, and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
Futures contracts—The Fund may purchase and sell financial futures contracts to hedge against changes in the values of tax-exempt municipal securities the Fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of a particular index or a certain amount of U.S. government or municipal securities at a set price on a future date. Upon entering into a futures contract, the Fund is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirement of the futures exchange on which the contract is traded. Subsequent payments ("variation margin") are made or received by the Fund, dependent on the fluctuations in the value of the underlying index. Daily fluctuations in value are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize, for book purposes, a gain or loss equal to the difference between the value of the futures contracts sold and the futures contracts to buy. Unrealized appreciation (depreciation) related to open futures contracts is required to be treated as realized gain (loss) for federal income tax purposes.
Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Schedule of Investments. The Statement of Assets and Liabilities reflects a receivable or payable for the daily mark to market for variation margin.
Certain risks may arise upon entering into futures contracts. These risks may include changes in the value of the futures contracts that may not directly correlate with changes in the value of the underlying securities.
Use of estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 3. CAPITAL SHARE TRANSACTIONS
As of July 31, 2008, there were unlimited shares of no par authorized; 4,653,648 and 5,029,080 shares were outstanding at July 31, 2008 and July 31, 2007, respectively.
Transactions in capital shares were as follows:
| Shares | |
| For The Year Ended July 31, 2008 | For The Year Ended July 31, 2007 |
Shares sold | 102,578 | |
Shares issued on reinvestment of dividends | 122,244 | 128,616 |
Shares redeemed | (641,729) | (767,828) |
Net increase (decrease) | (375,432) | (536,634) |
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, Inc. ("Integrity Fund Services"), the Fund's transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, the Fund's sponsor.
The Fund has engaged Integrity Money Management to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund's average daily net assets. The Fund has recognized $116,481 of investment advisory fees after partial waiver for the year ended July 31, 2008. The Fund does not have a payable to Integrity Money Management at July 31, 2008 for investment advisory fees. Certain Officers and Trustees of the Fund are also Officers and Directors of Integrity Money Management.
Under the terms of the advisory agreement, Integrity Money Management has agreed to pay all the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 1.07% of the Fund's average daily net assets on an annual basis up to the amount of the investment advisory and management fee. Integrity Money Management and Integrity Funds Distributor may also voluntarily waive fees or reimburse expenses not required under the advisory or other contracts from time to time. Accordingly, after fee waivers and expense reimbursements, the Fund's actual total annual operating expenses were 1.07% for the year ended July 31, 2008.
Principal underwriter and shareholder services
Integrity Funds Distributor serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called "Distribution Plan expenses". The Fund currently pays an annual distribution fee of up to 0.25% of the average daily net assets of the Fund. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $127,697 of distribution fees for the year ended July 31, 2008. The Fund has a payable to Integrity Funds Distributor of $10,311 at July 31, 2008 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 of $500 per month is charged for each additional share class. The Fund has recognized $101,570 of transfer agency fees and expenses for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $8,249 at July 31, 2008 for transfer agency fees. Integrity Fund Services also acts as the Fund's accounting services agent for a monthly fee equal to the sum of a fixed fee of $2,000 and a variable fee equal to 0.05% of the Fund's average daily net assets on an annual basis for the Fund's first $50 million and at a lower rate on the average daily net assets in excess of $50 million, together with reimbursement of out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $49,422 of accounting service fees for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $4,062 at July 31, 2008 for accounting service fees. Integrity Fund Services also acts as the Fund's administrative services agent for a variable fee equal to 0.125% of the Fund's average daily net assets on an annual basis for the Fund's first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $63,555 of administrative service fees for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $5,155 at July 31, 2008 for administrative service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment securities (excluding short-term securities) aggregated $3,240,873 and $7,245,185, respectively, for the year ended July 31, 2008.
Note 6. INVESTMENT IN SECURITIES
At July 31, 2008, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $47,236,821. The net unrealized appreciation of investments based on the cost was $648,101, which is comprised of $939,573 aggregate gross unrealized appreciation and $291,472 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, and establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. The standard is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
In accordance with the provisions of SFAS No. 157, the Fund adopted this standard during the current fiscal year. The implementation of the standard did not impact the amounts reported in the financial statements.
In March 2008, FASB issued SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities. This standard requires enhanced disclosures to provide information about the reasons the Fund invests in derivative instruments, the accounting treatment and the effect derivatives have on financial performance. The standard is effective for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Management is currently evaluating the impact the adoption of SFAS No. 161 will have on the Fund's financial statement disclosures.
Financial Highlights July 31, 2008
Selected per share data and ratios for the periods indicated
|
| For The Year Ended July 31, 2008 |
| For The Year Ended July 31, 2007 |
| For The Year Ended July 31, 2006 |
| For The Year Ended July 29, 2005 |
| For The Year Ended July 30, 2004 | |||
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 10.54 | $ | 10.62 | $ | 10.57 | $ | 10.93 | $ | 11.19 | |||
|
|
|
|
|
|
|
|
|
|
| |||
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
| |||
| Net investment income (loss) | $ | .40 | $ | .40 | $ | .41 | $ | .38 | $ | .45 | ||
| Net realized and unrealized gain (loss) on investment and futures transactions |
| (.10) |
| (.08) |
| .05 |
| (.36) |
| (.26) | ||
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| Total Income (Loss) From Investment Operations | $ | .30 | $ | .32 | $ | .46 | $ | .02 | $ | .19 | |
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Less Distributions: |
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| Dividends from net investment income | $ | (.40) | $ | (.40) | $ | (.41) | $ | (.38) | $ | (.45) | ||
| Distributions from net realized gains |
| .00 |
| .00 |
| .00 |
| .00 |
| .00 | ||
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| Total Distributions | $ | (.40) | $ | (.40) | $ | (.41) | $ | (.38) | $ | (.45) | |
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NET ASSET VALUE, END OF PERIOD | $ | 10.44 | $ | 10.54 | $ | 10.62 | $ | 10.57 | $ | 10.93 | |||
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Total Return |
| 2.90%(A) |
| 3.06%(A) |
| 4.39%(A) |
| 0.22%(A) |
| 1.71%(A) | |||
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RATIOS/SUPPLEMENTAL DATA: |
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| Net assets, end of period (in thousands) | $ | 48,587 | $ | 52,996 | $ | 59,093 | $ | 67,470 | $ | 78,478 | ||
| Ratio of net expenses (after expense assumption) to average net assets |
| 1.07%(B) |
| 1.07%(B) |
| 1.03%(B) |
| 0.97%(B) |
| 0.95%(B) | ||
| Ratio of net investment income to average net assets |
| 3.81% |
| 3.77% |
| 3.82% |
| 3.56% |
| 4.05% | ||
| Portfolio turnover rate |
| 6.52% |
| 4.77% |
| 12.31% |
| 44.85% |
| 17.29% | ||
(A) Excludes maximum sales charge of 4.25%.
(B) During the periods indicated above, Integrity Money Management assumed and/or waived expenses of $147,515, $106,719, $79,585, $130,764, and $127,695, respectively. If the expenses had not been assumed and/or waived, the annualized ratio of total expenses to average net assets would have been 1.36%, 1.26%, 1.15%, 1.15%, and 1.10%, respectively.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
Tax Information for the Year Ended July 31, 2008 (Unaudited)
We are required to advise you within 60 days of the Fund's fiscal year regarding the federal tax status of distributions received by shareholders during such fiscal year. The distributions made during the fiscal year by the Fund were earned from the following sources:
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|
| Dividends and Distributions Per Share | |||||
To Shareholders of Record |
| Payment Date |
| From Net Investment Income |
| From Net Realized Short-Term Gains |
| From Net Realized Long-Term Gains |
August 31, 2007 |
| August 31, 2007 | $ | .033666 |
| .0 |
| .0 |
September 28, 2007 |
| September 28, 2007 | $ | .031289 |
| .0 |
| .0 |
October 31, 2007 |
| October 31, 2007 | $ | .035237 |
| .0 |
| .0 |
November 30, 2007 |
| November 30, 2007 | $ | .033453 |
| .0 |
| .0 |
December 31, 2007 |
| December 31, 20007 | $ | .033548 |
| .0 |
| .0 |
January 31, 2008 |
| January 31, 2008 | $ | .033629 |
| .0 |
| .0 |
February 29, 2008 |
| February 29, 2008 | $ | .033481 |
| .0 |
| .0 |
March 31, 2008 |
| March 31, 2008 | $ | .033777 |
| .0 |
| .0 |
April 30, 2008 |
| April 30, 2008 | $ | .033732 |
| .0 |
| .0 |
May 30, 2008 |
| May 30, 2008 | $ | .033610 |
| .0 |
| .0 |
June 30, 2008 |
| June 30, 2008 | $ | .033593 |
| .0 |
| .0 |
July 31, 2008 |
| July 31, 2008 | $ | .033515 |
| .0 |
| .0 |
Shareholders should consult their tax advisors.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of the Kansas Municipal Fund
We have audited the accompanying statement of assets and liabilities of the Kansas Municipal Fund (one of the portfolios constituting the Integrity Managed Portfolios), including the schedule of investments as of July 31, 2008, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2008 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Kansas Municipal Fund of the Integrity Managed Portfolios as of July 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota USA
September 12, 2008
Dear Shareholder:
Enclosed is the annual report of the Kansas Insured Intermediate Fund (the "Fund") for the year ended July 31, 2008. The Fund's portfolio and related financial statements are presented within for your review.
As we end the year, what one might have thought was an uneventful year was much the opposite.
First, interest rates spiked higher early in June as Federal Reserve Chairman Ben Bernanke voiced concern about inflation and the slumping dollar. However, a string of weak economic reports in the last part of June (consumer confidence plunged to its lowest level since 1992) along with more losses and downgrades in the banking sector, reduced corporate earnings expectations as well as higher energy prices have encouraged market participants to dump stocks in favor of low-risk government bonds, sending the 10-year treasury to 3.95%
Second, while the market likes to talk about light at the end of the tunnel, unfortunately in these days of financial turmoil we can never be sure whether it is light from the other side or another freight train coming. Most recently, Fannie Mae and Freddie Mac who own or guarantee nearly half of the $12 trillion mortgage market have seen their company stocks fall 75-80% year-to-date, as the worst housing downturn since the Great Depression impacted expected solvency levels.
Municipals on the other hand didn't fare any better as a number of the secondary insurers saw significant downgrades of their ratings, the collapse of major financial institution Bear Stearns and the exit of UBS from the municipal bond market.
The secondary insurers of municipal debt are in turmoil as a number of the insurance companies are in dire straits. Many bond professionals and investors, who in the past treated all insured bonds equal from a credit perspective, now understand the importance of the underlying credit, the purpose of the debt issued, and its commitment to pay. Currently there are three insurers of municipal debt that have AAA ratings from all three rating agencies and two of those three insurers are on Credit Watch for possible downgrade.
The bonds owned by the Fund that have their insurers downgraded tend to be of very high quality. Insurance companies tend to insure municipal bonds that are mostly in the "A" category and above. If an insured bond defaults, the insurance company is only liable for the interest and principal payments due. They are not required to pay off the entire bond issue.
These events have created great uncertainty and with that, opportunity. It is now a buyers market as high quality municipals are yielding in many instances, yields higher than taxable treasuries of similar maturities. Clearly there will be price rallies and price sell offs in the months ahead, but the underlying tone for tax-free municipals is bullish.
The Kansas Insured Intermediate Fund began the period at $10.87 and ended the period at $10.94 for a total return of 4.62%*. This compares to the Lehman Brothers Municipal Seven-Year Maturity Bond Index return of 5.83%.
We are pleased to report that Lipper Reporting Service has ranked the Kansas Insured Intermediate Fund the number one fund for the reporting period ended December 31, 2007 in the Insured Municipal Debt Fund category.
The Fund's yearly overall performance can be attributed to its defensive portfolio, with an average maturity of 8.2 years and an average maturity to the first call date of 3.2 years. That, along with an average portfolio coupon of 5.09% helps relative performance in volatile environments.
An important part of the Fund's strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Some purchases made throughout the year include: Leavenworth County Schools, 4.50% coupon, due 2028; Butler County Schools, 5.25% coupon, due 2021; Cowley County Schools, 4.75% coupon, due 2023; and Sedgwick County Schools, 5.00% coupon, due 2018.
Portfolio quality at year-end was as follows: AAA 54.8%, AA 33.2%, A 9.8%, and NR 2.2%.
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 the Fund's website at www.integrityfunds.com for daily prices along with pertinent Fund information.
Sincerely,
Monte Avery
Senior Portfolio Manager
The views expressed are those of Monte Avery, Senior Portfolio Manager with Integrity Mutual Funds, Inc. ("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, the markets generally, or any Integrity Mutual Fund.
*Performance does not include applicable front-end or contingent deferred sales charges ("CDSCs"), which would have reduced the performance.
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities more so than a municipal bond fund that does not concentrate its securities in a single state.
July 31, 2008 (Unaudited)
PROXY VOTING OF FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 800-276-1262. A report on Form N-PX of how the Fund voted any such proxies during the most recent twelve-month period ended June 30 is available through the Fund's website at www.integrityfunds.com. The information is also available from the Electronic Data Gathering, Analysis, and Retrieval ("EDGAR") database on the website of the Securities and Exchange Commission ("SEC") at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
Within 60 days of the end of its second and fourth fiscal quarters, the Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports on the Form N-CSR(S). These reports are filed electronically with the SEC and are delivered to the shareholders of the Fund. The Fund also files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q and N-CSR(S) are available on the SEC's website at www.sec.gov. The Fund's Forms N-Q and N-CSR(S) may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 202-942-8090. You may also access this information from the Fund's website at www.integrityfunds.com.
SHAREHOLDER INQUIRIES AND MAILINGS
All inquiries regarding the Fund should be directed to:
Integrity Funds Distributor, Inc.
1 Main Street North
Minot, ND 58703
Phone: 800-276-1262
All inquiries regarding account information should be directed to:
Integrity Fund Services, Inc.
P.O. Box 759
Minot, ND 58702
Phone: 800-601-5593
To reduce expenses, the Fund may only mail one copy of its prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please call Integrity Funds Distributor, Inc. ("Integrity Funds Distributor") at 800-276-1262 (or contact your financial institution). Individual copies will be sent thirty days after receiving your request.
Terms & Definitions July 31, 2008 (Unaudited)
Appreciation
Increase in the value of an asset
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned by a fund on an annual basis assuming all distributions are reinvested
Coupon Rate or Face Rate
Rate of interest payable annually based on the face amount of the bond; expressed as a percentage
Depreciation
Decrease in the value of an asset
Lehman Brothers Municipal Bond Index
An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market; the index does not take into account brokerage commissions or other costs, may include bonds different from those in the Fund, and may pose different risks than the Fund
Market Value
Actual (or estimated) price at which a bond trades in the marketplace
Maturity
A measure of the term or life of a bond in years; when a bond "matures", the issuer repays the principal
Net Asset Value
The value of all of a fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial sales charge
Quality Ratings
A designation assigned by independent rating companies to give a relative indication of a bond's creditworthiness; "AAA," "AA," "A," and "BBB" indicate investment grade securities. Ratings can range from a high of "AAA" to a low of "D".
Total Return
Measures both the net investment income and any realized and unrealized appreciation or depreciation of the underlying investments in a fund's portfolio for the period, assuming the reinvestment of all dividends; represents the aggregate percentage or dollar value change over the period
July 31, 2008 (Unaudited)
COMPOSITION
Portfolio Quality Ratings
(Based on total long-term investments)
| AAA | 54.8% |
| AA | 33.2% |
| A | 9.8% |
| NR | 2.2% |
Quality ratings reflect the financial strength of the issuer. They are assigned by independent ratings services such as Moody's Investors Services ("Moody's") and Standard & Poor's Ratings Group ("S&P"). Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. ("Integrity Money Management"), the Fund's investment adviser.
These percentages are subject to change.
Portfolio Market Sectors
(As a percentage of Net Assets)
| S—School | 33.4% |
| H—Housing | 21.2% |
| HC—Health Care | 11.5% |
| T—Transportation | 10.5% |
| W/S—Water/Sewer | 10.5% |
| U—Utilities | 5.8% |
| O—Other | 3.9% |
| G—Government | 3.2% |
Market sectors are breakdowns of the Fund's portfolio holdings into specific investment classes.
These percentages are subject to change.
July 31, 2008 (Unaudited)
DISCLOSURE OF FUND EXPENSES
The example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs:
| • | transaction costs: | sales charges (loads), redemption fees, and exchange fees |
| • | ongoing costs: | 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 January 31, 2008 to July 31, 2008.
The example illustrates the Fund's costs in two ways:
Actual expenses
The section in the table under the heading "Actual" provides information about actual account values and actual expenses. You may use the information in these columns together with the amount you invested to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an account value of $8,600 divided by $1,000 equals 8.6), then multiply the result by the number in the column entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The section in the table under the heading "Hypothetical (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the section in the table under the heading "Hypothetical (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value | Ending Account Value | Expenses Paid During Period* |
Actual | $1,000.00 | $1,006.33 | $3.76 |
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Hypothetical (5% return before expenses) | $1,000.00 | $1,021.11 | $3.79 |
*Expenses are equal to the annualized expense ratio of 0.75%, multiplied by the average account value over the period, multiplied by 180/360 days. The Fund's ending account value on the first line in the table is based on its actual total return of 0.63% for the six-month period of January 31, 2008 to July 31, 2008.
July 31, 2008 (Unaudited)
AVERAGE ANNUAL TOTAL RETURNS
| For periods ending July 31, 2008 | |||||
1 year | 3 year | 5 year | 10 year | Since Inception | ||
| Without Sales Charge | 4.62% | 4.01% | 2.70% | 3.14% | 3.91% |
| With Sales Charge (2.75%) | 1.71% | 3.04% | 2.12% | 2.85% | 3.73% |
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1 year | 3 year | 5 year | 10 year | Since Inception | ||
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| 5.83% | 3.96% | 4.08% | 4.83% | 5.41% |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemption of Fund shares.
July 31, 2008 (Unaudited)
COMPARATIVE INDEX GRAPH
Comparison of change in value of a $10,000 investment in the Fund and the Lehman Brothers Municipal Seven-Year Maturity Bond Index
Kansas Insured Intermediate Fund without Sales Charge | Kansas Insured Intermediate Fund with Maximum Sales Charge | Lehman Brothers Municipal Seven-Year Maturity Bond Index | ||||
7/31/98 | $ | 10,000 | $ | 9,726 | $ | 10,000 |
1999 | $ | 10,370 | $ | 10,086 | $ | 10,329 |
2000 | $ | 10,594 | $ | 10,304 | $ | 10,803 |
2001 | $ | 11,307 | $ | 10,997 | $ | 11,794 |
2002 | $ | 11,772 | $ | 11,450 | $ | 12,635 |
2003 | $ | 11,921 | $ | 11,594 | $ | 13,122 |
2004 | $ | 12,196 | $ | 11,862 | $ | 13,719 |
2005 | $ | 12,105 | $ | 11,774 | $ | 14,262 |
2006 | $ | 12,597 | $ | 12,252 | $ | 14,568 |
2007 | $ | 13,018 | $ | 12,662 | $ | 15,142 |
7/31/08 | $ | 13,619 | $ | 13,246 | $ | 16,024 |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The graph does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
The graph comparing the Fund's performance to a benchmark index provides you with a general sense of how the Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers Municipal Seven-Year Maturity Bond Index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Kansas municipal bonds. The Fund's total return for the periods shown appears with and without sales charges and includes Fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged; there are no expenses that affect the results. In addition, few investors could purchase all of the securities necessary to match the index. If they could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.
July 31, 2008 (Unaudited)
MANAGEMENT OF THE FUND
The Board of the Fund 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 three series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with Integrity Money Management or any of its affiliates; these are the "Independent" Trustees. Two of the remaining three Trustees and/or Officers are "interested" by virtue of their affiliation with Integrity Money Management and/or its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee, and other Directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Jerry M. Stai | Trustee | Indefinite | 12 | Faculty, Embry-Riddle University (August 2000 to September 2005); Faculty, Park University (August 2005 to December 2005); Non-Profit Specialist, Bremer Bank (since July 2005); Faculty, Minot State University (since August 2000); Director, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006). | Marycrest Franciscan Development, Inc. |
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(1) The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the three series of The Integrity Funds.
Trustees and Officers of the Fund serve until their resignation, removal, or retirement.
The Statement of Additional Information ("SAI") contains more information about the Fund's Trustees and is available without charge upon request, by calling Integrity Funds Distributor at 800-276-1262.
The Interested Trustees and Officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee, and other Directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEE AND OFFICER
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Robert E. Walstad(2)(3) | Trustee, Chairman, Interim President | Indefinite | 12 | Director (Sept. 1987 to Feb. 2007), CEO (Sept. 2001 to Feb. 2007), Integrity Mutual Funds; Director, President, and Treasurer, (Aug. 1988 to Feb. 2007), Integrity Money Management; Director, President, and Treasurer (Aug. 1988 to Sept. 2004), ND Capital, Inc.; Director, President, and Treasurer (May 1989 to Feb. 2007), Integrity Fund Services, Inc.; Director, President, CEO, and Treasurer (Jan. 1996 to Aug. 2003), Integrity Funds Distributor, Inc.; Director, CEO, Chairman, (Jan. 2002 to Feb. 2007) and President (Sept. 2002 to Dec. 2004), Capital Financial Services, Inc.; Director and President (April 1994 to June 2004), South Dakota Tax-Free Fund, Inc.; President (Jan. 1996 to July 2007) and (since March 2008) Integrity Managed Portfolios, (May 2003 to July 2007) and (since March 2008) The Integrity Funds, (Jan. 1995 to July 2007) and (since March 2008) Integrity Fund of Funds, Inc., (Jan. 1989 to July 2007) and (since March 2008) ND Tax-Free Fund, Inc., (Aug. 1993 to July 2007) and (since March 2008) Montana Tax-Free Fund, Inc.; Director and Chairman Montana Tax-Free Fund, Inc. (since May 1993), Integrity Fund of Funds, Inc. (since Aug. 1994), and ND Tax Free Fund, Inc. (since Oct. 1988); Trustee, Chairman, (since January 1996) and Treasurer (January 1996 to May 2004), Integrity Managed Portfolios; Trustee and Chairman (since June 2003), The Integrity Funds. | Minot Park Board |
OFFICERS
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Peter A. Quist | Vice President, Secretary | Indefinite | 3 | Attorney; Director and Vice President, Integrity Mutual Funds; Director, Vice President, and Secretary, Integrity Money Management, ND Capital, Inc. (August 1988 to August 2006), Integrity Fund Services, Inc., and Integrity Funds Distributor; Director, Vice President, and Secretary, South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Montana Tax-Free Fund, Inc. (since May 1993), Integrity Fund of Funds, Inc. (since Aug. 1994), and ND Tax Free Fund, Inc. (since Oct. 1988); Vice President and Secretary, The Integrity Funds (since June 2003). | None |
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(1) The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the three series of The Integrity Funds.
(2) Trustees and/or Officers who are "interested persons" of the Fund as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Mr. Quist is an interested person by virtue of being an Officer and Director of the Fund's investment adviser and principal underwriter. Mr. Walstad is an interested person by virtue of being an Officer of the Fund and a shareholder of Integrity Mutual Funds.
(3) Effective February 29, 2008, Mark R. Anderson resigned as President of the Fund, and effective March 4, 2008, Mr. Walstad succeeded Mr. Anderson as Interim President of the Fund. Mr. Walstad is also a Trustee and Chairman of the Fund.
Trustees and Officers of the Fund serve until their resignation, removal, or retirement.
The SAI contains more information about the Trustees and is available without charge upon request, by calling Integrity Funds Distributor at 800-276-1262.
Schedule of Investments July 31, 2008
Name of Issuer |
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Percentages represent the market value of each investment category to total net assets | Rating (Unaudited) Moody's/S&P | Coupon Rate | Maturity |
| Principal Amount |
| Market Value |
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KANSAS MUNICIPAL BONDS (96.2%) |
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|
Butler Cty., KS (Circle) USD #375 FSA | Aaa/NR | 5.000% | 09/01/2013 | $ | 250,000 | $ | 258,718 |
Butler Cty., KS USD#402 Assured GTY | Aaa/NR | 5.250 | 09/01/2021 |
| 250,000 |
| 266,617 |
#Chisholm Creek Util. Auth. (Bel Aire & Park City, KS Pj.) MBIA | A/NR | 5.250 | 09/01/2016 |
| 770,000 |
| 837,421 |
Cowley County, KS USD# 470 FSA | NR/AAA | 4.750 | 09/01/2023 |
| 100,000 |
| 101,477 |
Cowley Cty., KS USD #465 (Winfield) MBIA | A/AA | 5.250 | 10/01/2014 |
| 140,000 |
| 152,202 |
Dodge, KS USD #443 Unltd. General Obligation FSA | Aaa/AAA | 5.750 | 09/01/2013 |
| 100,000 |
| 104,464 |
Harvey County KS MBIA | A/NR | 4.000 | 09/01/2018 |
| 250,000 |
| 247,495 |
Johnson Cty., KS Community College Student Commons & Parking AMBAC | Aa-3/AA+ | 5.000 | 11/15/2019 |
| 235,000 |
| 246,327 |
Johnson Cty., KS USD #232 (Desoto) FSA | Aaa/NR | 5.000 | 09/01/2015 |
| 100,000 |
| 109,120 |
Kansas City, KS Util. Syst. Ref. & Impvt. AMBAC | Aa-3/AA | 6.300 | 09/01/2016 |
| 200,000 |
| 200,042 |
KS Devl. Finance Auth. (Dept. Admin. 7th & Harrison PJ) AMBAC | Aa-3/AA | 5.500 | 12/01/2013 |
| 375,000 |
| 393,214 |
KS Devl. Finance Auth. (Sec. 8) Rev. Ref. MBIA | A/AA | 6.400 | 01/01/2024 |
| 255,000 |
| 255,000 |
KS Devl. Finance Auth. (Wichita Univ.) AMBAC | Aa-3/AA | 5.900 | 04/01/2015 |
| 305,000 |
| 319,969 |
KS Devl. Finance Auth. (Water Pollution Control) Rev. | Aaa/AAA | 5.250 | 05/01/2011 |
| 380,000 |
| 383,371 |
KS Devl. Finance Auth. (KS St. Projects) Rev. MBIA | A/AA | 5.000 | 10/01/2017 |
| 250,000 |
| 263,360 |
KS Devl. Finance Auth. (State of KS Projects) MBIA | Aa/AA | 4.100 | 05/01/2019 |
| 250,000 |
| 248,850 |
KS Devl. Finance Auth. (Park Apts.) Multifamily Hsg. Rev. FNMA | NR/AAA | 5.700 | 12/01/2009 |
| 170,000 |
| 170,425 |
*KS Devl. Finance Auth. (Stormont Vail) Hlth. Care Rev. MBIA | A/AA | 5.750 | 11/15/2012 |
| 595,000 |
| 644,135 |
KS Turnpike Auth. Rev. FSA | Aaa/AAA | 5.000 | 09/01/2024 |
| 200,000 |
| 206,734 |
Kingman Cty., KS USD #331 FGIC | NR/NR | 5.500 | 10/01/2012 |
| 250,000 |
| 265,280 |
Leavenworth Cty., KS USD# 458 FSA | NR/AAA | 4.500 | 09/01/2028 |
| 250,000 |
| 239,017 |
*Mission, KS Multifamily Hsg. (Lamar Place) Rev. FNMA | NR/AAA | 5.000 | 10/01/2014 |
| 605,000 |
| 605,587 |
#Mission, KS Multifamily Hsg. (Lamar Place) Rev. FNMA | NR/AAA | 5.180 | 10/01/2023 |
| 445,000 |
| 431,107 |
Morton Cty., KS USD #217 FSA | Aaa/AAA | 4.000 | 09/01/2010 |
| 100,000 |
| 100,053 |
Olathe, KS Multifamily Hsg. (Bristol Pointe) Rev. Ref. FNMA | NR/AAA | 5.250 | 11/01/2012 |
| 445,000 |
| 445,196 |
Saline Cty., KS USD #305 (Salina) G.O. Ref. FSA | Aaa/NR | 5.500 | 09/01/2015 |
| 190,000 |
| 204,064 |
Sedgwick County KS UNI School Dist. # 262 Assumed Guaranty | NR/AAA | 5.000 | 09/01/2018 |
| 100,000 |
| 107,608 |
Sedgwick Cty., KS USD #265 (Goddard) Assured GTY | Aaa/NR | 4.500 | 10/01/2026 |
| 250,000 |
| 245,165 |
Shawnee Cty., KS USD #437 (Auburn-Washburn) G.O. Ref. FSA | Aaa/NR | 5.000 | 09/01/2014 |
| 485,000 |
| 513,896 |
*Shawnee, KS Multifamily Hsg. (Thomasbrooks Apts.) Rev. FNMA COL. | NR/AAA | 5.250 | 10/01/2014 |
| 185,000 |
| 187,076 |
*University of Kansas Hosp. Auth. AMBAC | Aa-3/AAA | 5.500 | 09/01/2015 |
| 750,000 |
| 779,580 |
Washburn Univ. (Living Learning Ctr.) Bldg. Rev. AMBAC | Aa-3/AA | 5.350 | 07/01/2011 |
| 105,000 |
| 108,353 |
Washburn Univ. (Living Learning Ctr.) Bldg. Rev. AMBAC | Aa-3/NR | 5.000 | 07/01/2019 |
| 255,000 |
| 269,851 |
Wichita, KS GO AMBAC | Aa/AA+ | 4.500 | 09/01/2022 |
| 150,000 |
| 148,988 |
Wichita, KS GO AMBAC | Aa/AA+ | 4.750 | 09/01/2027 |
| 180,000 |
| 179,003 |
# Wichita, KS Multifamily Hsg. (Broadmoor Chelsea) Rev. FNMA | NR/AAA | 5.375 | 07/01/2010 |
| 200,000 |
| 200,670 |
*Wichita, KS Multifamily Hsg. (Cimarron Apartments) FNMA | NR/AAA | 5.250 | 10/01/2012 |
| 320,000 |
| 320,294 |
Wichita, KS Water & Sewer Util. Rev. FGIC | A-1/NR | 5.250 | 10/01/2014 |
| 75,000 |
| 81,020 |
Wyandotte Cty, KS. GO FSA | Aaa/AAA | 5.000 | 08/01/2025 |
| 250,000 |
| 256,373 |
#Wyandotte Cty., KS City, KS Gov't. Util. Syst. Rev. MBIA | A-1/AA | 5.125 | 09/01/2013 |
| 500,000 |
| 514,585 |
Wyandotte Cty., KS USD #500 G.O. FSA | Aaa/AAA | 5.250 | 09/01/2013 |
| 250,000 |
| 273,915 |
|
|
|
|
| |||
TOTAL KANSAS MUNICIPAL BONDS (COST: $11,644,968) |
|
| $ | 11,885,622 | |||
|
|
|
|
| |||
SHORT-TERM SECURITIES (3.1%) |
| Shares |
|
| |||
Wells Fargo Advantage National Tax-Free Money Market (COST: $379,350) |
| 379,350 | $ | 379,350 | |||
|
|
|
|
| |||
TOTAL INVESTMENTS IN SECURITIES (COST: $12,024,318) |
|
| $ | 12,264,972 | |||
OTHER ASSETS LESS LIABILITIES |
|
|
| 95,163 | |||
|
|
|
|
| |||
NET ASSETS |
|
| $ | 12,360,135 |
*Indicates bonds are segregated by the custodian to cover when-issued or delayed-delivery purchases.
#Indicates bonds are segregated by the custodian to cover initial margin requirements.
Footnote: Non-rated (NR) securities have been determined to be of investment grade quality by the Fund's Manager.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels:
| Level 1— | quoted prices in active markets for identical securities |
| Level 2— | other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risks, etc.) |
| Level 3— | significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) |
The following is a summary of the inputs used to value the Fund's investments as of July 31, 2008:
| Valuation Inputs | Investments in Securities |
| |
| Level 1—Quoted Prices | $ | 379,350 |
|
| Level 2—Other Significant Observable Inputs |
| 11,885,622 |
|
| Level 3—Significant Unobservable Inputs |
| — |
|
| Total | $ | 12,264,972 |
|
The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Assets and Liabilities
July 31, 2008
ASSETS |
|
| ||
| Investments in securities, at value (cost: $12,024,318) | $ | 12,264,972 | |
| Accrued interest receivable |
| 195,638 | |
| Accrued dividends receivable |
| 628 | |
| Receivable from manager |
| 4,837 | |
| Prepaid expenses |
| 1,237 | |
|
| Total Assets | $ | 12,467,312 |
|
|
|
|
|
LIABILITIES |
|
| ||
| Disbursements in excess of demand deposit cash | $ | 45,312 | |
| Dividends payable |
| 39,360 | |
| Accrued expenses |
| 15,738 | |
| Payable to affiliates |
| 6,767 | |
|
| Total Liabilities | $ | 107,177 |
|
|
|
|
|
NET ASSETS | $ | 12,360,135 | ||
|
|
|
|
|
Net assets are represented by: |
|
| ||
| Paid-in capital | $ | 13,434,203 | |
| Accumulated undistributed net realized gain (loss) on investments and futures |
| (1,315,125) | |
| Accumulated undistributed net investment income (loss) |
| 403 | |
| Unrealized appreciation (depreciation) on investments |
| 240,654 | |
|
| Total amount representing net assets applicable to 1,129,930 outstanding shares of no par common stock (unlimited shares authorized) | $ | 12,360,135 |
|
|
|
|
|
Net asset value per share | $ | 10.94 | ||
|
|
|
|
|
Public offering price (based on sales charge of 2.75%) | $ | 11.25 |
The accompanying notes are an integral part of these financial statements.
>Financial Statements July 31, 2008
Statement of Operations
For the year ended July 31, 2008
INVESTMENT INCOME |
|
| ||
| Interest | $ | 511,429 | |
| Dividends |
| 15,562 | |
|
| Total Investment Income | $ | 526,991 |
|
|
|
|
|
EXPENSES |
|
| ||
| Investment advisory fees | $ | 57,110 | |
| Administrative service fees |
| 24,001 | |
| Transfer agent fees |
| 24,181 | |
| Accounting service fees |
| 29,711 | |
| Custodian fees |
| 2,673 | |
| Professional fees |
| 8,576 | |
| Trustees fees |
| 2,354 | |
| Insurance expense |
| 273 | |
| Reports to shareholders |
| 1,804 | |
| Audit fees |
| 6,576 | |
| Legal fees |
| 9,031 | |
| Transfer agent out-of-pockets |
| 1,163 | |
| License, fees, and registrations |
| 1,729 | |
|
| Total Expenses | $ | 169,182 |
| Less expenses waived or absorbed by the Fund's manager |
| (83,516) | |
|
| Total Net Expenses | $ | 85,666 |
|
|
|
|
|
NET INVESTMENT INCOME (LOSS) | $ | 441,325 | ||
|
|
|
|
|
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| ||
| Net realized gain (loss) from investment transactions | $ | 1,070 | |
| Net change in unrealized appreciation (depreciation) of investments |
| 55,789 | |
|
| Net Realized and Unrealized Gain (Loss) on Investments | $ | 56,859 |
|
|
|
|
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 498,184 |
The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Changes in Net Assets
For the year ended July 31, 2008 and the year ended July 31, 2007
|
|
| For The Year Ended July 31, 2008 | For The Year Ended July 31, 2007 | ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| ||
| Net investment income (loss) | $ | 441,325 | $ | 475,082 | |
| Net realized gain (loss) on investment transactions |
| 1,070 |
| 24,918 | |
| Net change in unrealized appreciation (depreciation) on investments |
| 55,789 |
| (96,950) | |
|
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 498,184 | $ | 403,050 |
|
|
|
|
|
|
|
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| ||
| Dividends from net investment income ($.42 and $.44 per share, respectively) | $ | (441,023) | $ | (474,981) | |
| Distributions from net realized gain on investment transactions ($.00 and $.00 per share, respectively) |
| 0 |
| 0 | |
|
| Total Dividends and Distributions | $ | (441,023) | $ | (474,981) |
|
|
|
|
|
|
|
CAPITAL SHARE TRANSACTIONS |
|
|
|
| ||
| Proceeds from sale of shares | $ | 2,265,530 | $ | 868,389 | |
| Proceeds from reinvested dividends |
| 323,079 |
| 313,886 | |
| Cost of shares redeemed |
| (971,748) |
| (2,842,925) | |
|
| Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions | $ | 1,616,861 | $ | (1,660,650) |
|
|
|
|
|
|
|
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | 1,674,022 | $ | (1,732,581) | ||
NET ASSETS, BEGINNING OF PERIOD |
| 10,686,113 |
| 12,418,694 | ||
NET ASSETS, END OF PERIOD | $ | 12,360,135 | $ | 10,686,113 | ||
|
|
|
|
|
|
|
Undistributed Net Investment Income | $ | 402 | $ | 101 |
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements July 31, 2008
Note 1. ORGANIZATION
The Fund is an investment portfolio of Integrity Managed Portfolios (the "Trust") and is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. The Trust is an unincorporated business trust organized under Massachusetts law on August 10, 1990. The Fund had no operations from that date to November 23, 1992, other than matters relating to organization and registration. On November 23, 1992, the Fund commenced its Public Offering of capital shares.
The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal and Kansas state income tax as is consistent with preservation of capital. The Fund will seek to achieve this objective by investing primarily in a portfolio of Kansas municipal securities.
Shares of the Fund are offered at net asset value plus a maximum sales charge of 2.75% of the offering price.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation—Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees and includes consideration of the following:
| • | yields or prices of municipal bonds of comparable quality; |
| • | type of issue, coupon, maturity, and rating; |
| • | indications as to value from dealers; and |
| • | general market conditions. |
Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on the trade date.
The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.
When-issued securities—The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities purchased on a when-issued basis are identified as such in the Fund's Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract's terms, or if the issuer does not issue the securities due to political, economic, or other factors.
Federal and state income taxes—The Fund's policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its net investment income and any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required.
In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax-return positions in financial statements. Management has analyzed the Fund's tax positions taken on federal income tax returns for all open tax years (tax years ended July 31, 2004 through July 31, 2008) for purposes of implementing FIN 48, and has concluded that no provision for income tax is required in the Fund's financial statements. Interest and penalties related to uncertain tax positions, if any, are classified in the Fund's financial statements as other expense.
The tax character of distributions paid was as follows:
|
|
| July 31, 2008 |
| July 31, 2007 |
| |
| Tax-exempt income | $ | 441,023 | $ | 474,981 |
| |
| Ordinary income |
| 0 |
| 0 |
| |
| Long-term capital gains |
| 0 |
| 0 |
| |
|
| Total | $ | 441,023 | $ | 474,981 |
|
As of July 31, 2008, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Undistributed Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation) | Total Accumulated Earnings/(Deficit) |
|
| $0 | $0 | ($1,315,125) | $241,057 | ($1,074,068) |
|
The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2008 totaling $1,315,125, which may be used to offset capital gains. Any difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable to timing differences associated with market discount. 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 |
| 2009 | $78,788 |
| 2010 | $178,976 |
| 2011 | $209,757 |
| 2012 | $303,542 |
| 2013 | $544,062 |
For the year ended July 31, 2008, the Fund made $48,628 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, 2008, the Fund did not defer to August 1, 2008, any post-October capital losses, post-October currency losses, or post-October passive foreign investment company losses.
Distributions to shareholders—Dividends from net investment income, declared daily and payable monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed at least annually.
Premiums and discounts—Premiums and discounts on municipal securities are amortized for financial reporting purposes.
Other—Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the >United States of America. These differences are primarily due to differing treatments for market discount, capital loss carryforwards, and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
Futures contracts—The Fund may purchase and sell financial futures contracts to hedge against changes in the values of tax-exempt municipal securities the Fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of a particular index or a certain amount of U.S. government or municipal securities at a set price on a future date. Upon entering into a futures contract, the Fund is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirement of the futures exchange on which the contract is traded. Subsequent payments ("variation margin") are made or received by the Fund, dependent on the fluctuations in the value of the underlying index. Daily fluctuations in value are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize, for book purposes, a gain or loss equal to the difference between the value of the futures contracts sold and the futures contracts to buy. Unrealized appreciation (depreciation) related to open futures contracts is required to be treated as realized gain (loss) for federal income tax purposes.
Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Schedule of Investments. The Statement of Assets and Liabilities reflects a receivable or payable for the daily mark to market for variation margin.
Certain risks may arise upon entering into futures contracts. These risks may include changes in the value of the futures contracts that may not directly correlate with changes in the value of the underlying securities.
Use of estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 3. CAPITAL SHARE TRANSACTIONS
As of July 31, 2008, there were unlimited shares of no par authorized; 1,129,930 and 982,925 shares were outstanding at July 31, 2008 and July 31, 2007, respectively.
Transactions in capital shares were as follows:
| Shares | |
| For The Year Ended July 31, 2008 | For The Year Ended July 31, 2007 |
Shares sold | 206,132 | 79,386 |
Shares issued on reinvestment of dividends | 29,527 | 28,663 |
Shares redeemed | (88,654) | (259,480) |
Net increase (decrease) | 147,005 | (151,431) |
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, Inc. ("Integrity Fund Services"), the Fund's transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, the Fund's sponsor.
The Fund has engaged Integrity Money Management to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund's average daily net assets. All investment advisory fees were waived for the year ended July 31, 2008. Certain Officers and Trustees of the Fund are also Officers and Directors of Integrity Money Management.
Under the terms of the advisory agreement, Integrity Money Management has agreed to pay all the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 0.75% of the Fund's average daily net assets on an annual basis. Integrity Money Management may also voluntarily waive fees or reimburse expenses not required under the advisory agreement from time to time. Accordingly, after fee waivers and expense reimbursements, the Fund's actual total annual operating expenses were 0.75% for the year ended July 31, 2008.
Shareholder services
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 of $500 per month is charged for each additional share class. The Fund has recognized $24,181 of transfer agency fees and expenses for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $2,080 at July 31, 2008 for transfer agency fees. Integrity Fund Services also acts as the Fund's accounting services agent for a monthly fee equal to the sum of a fixed fee of $2,000 and a variable fee equal to 0.05% of the Fund's average daily net assets on an annual basis for the Fund's first $50 million and at a lower rate on the average daily net assets in excess of $50 million, together with reimbursement of out-of-pocket expenses. An additional minimum fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $29,711 of accounting service fees for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $2,520 at July 31, 2008 for accounting service fees. Integrity Fund Services also acts as the Fund's administrative services agent for a variable fee equal to 0.125% of the Fund's average daily net assets on an annual basis for the Fund's first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional fee of $500 per month is charged by Integrity Fund Services for each additional share class. The Fund has recognized $24,001 of administrative service fees for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $2,000 at July 31, 2008 for administrative service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment securities (excluding short-term securities) aggregated $3,855,920 and $2,355,000, respectively, for the year ended July 31, 2008.
Note 6. INVESTMENT IN SECURITIES
At July 31, 2008, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $12,024,318. The net unrealized appreciation of investments based on the cost was $240,654, which is comprised of $275,472 aggregate gross unrealized appreciation and $34,818 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, and establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. The standard is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
In accordance with the provisions of SFAS No. 157, the Fund adopted this standard during the current fiscal year. The implementation of the standard did not impact the amounts reported in the financial statements.
In March 2008, FASB issued SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities. This standard requires enhanced disclosures to provide information about the reasons the Fund invests in derivative instruments, the accounting treatment and the effect derivatives have on financial performance. The standard is effective for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Management is currently evaluating the impact the adoption of SFAS No. 161 will have on the Fund's financial statement disclosures.
Financial Highlights July 31, 2008
Selected per share data and ratios for the periods indicated
|
| For The Year Ended July 31, 2008 |
| For The Year Ended July 31, 2007 |
| For The Year Ended July 31, 2006 |
| For The Year Ended July 29, 2005 |
| For The Year Ended July 30, 2004 | |||
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 10.87 | $ | 10.95 | $ | 10.94 | $ | 11.44 | $ | 11.60 | |||
|
|
|
|
|
|
|
|
|
|
| |||
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
| |||
| Net investment income (loss) | $ | .42 | $ | .44 | $ | .43 | $ | .42 | $ | .43 | ||
| Net realized and unrealized gain (loss) on investment and futures transactions |
| .07 |
| (.08) |
| .01 |
| (.50) |
| (.16) | ||
|
| Total Income (Loss) From Investment Operations | $ | .49 | $ | .36 | $ | .44 | $ | (.08) | $ | .27 | |
|
|
|
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Less Distributions: |
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| Dividends from net investment income | $ | (.42) | $ | (.44) | $ | (.43) | $ | (.42) | $ | (.43) | ||
| Distributions from net realized gains |
| .00 |
| .00 |
| .00 |
| .00 |
| .00 | ||
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| Total Distributions | $ | (.42) | $ | (.44) | $ | (.43) | $ | (.42) | $ | (.43) | |
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NET ASSET VALUE, END OF PERIOD | $ | 10.94 | $ | 10.87 | $ | 10.95 | $ | 10.94 | $ | 11.44 | |||
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Total Return |
| 4.62%(A) |
| 3.34%(A) |
| 4.06%(A) |
| (0.75%)(A) |
| 2.31%(A) | |||
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RATIOS/SUPPLEMENTAL DATA: |
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| Net assets, end of period (in thousands) | $ | 12,360 | $ | 10,686 | $ | 12,419 | $ | 14,480 | $ | 16,982 | ||
| Ratio of net expenses (after expense assumption) to average net assets |
| 0.75%(B) |
| 0.75%(B) |
| 0.75%(B) |
| 0.75%(B) |
| 0.75%(B) | ||
| Ratio of net investment income to average net assets |
| 3.86% |
| 4.02% |
| 3.89% |
| 3.71% |
| 3.67% | ||
| Portfolio turnover rate |
| 21.80% |
| 9.18% |
| 4.15% |
| 1.81% |
| 4.39% | ||
(A)Excludes maximum sales charge of 2.75%.
(B)During the periods indicated above, Integrity Money Management assumed and/or waived expenses of $83,516, $77,248, $62,295, $57,567, and $58,289, respectively. If the expenses had not been assumed and/or waived, the annualized ratio of total expenses to average net assets would have been 1.48%, 1.40%, 1.23%, 1.10%, and 1.08%, respectively.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
Tax Information for the Year Ended July 31, 2008 (Unaudited)
We are required to advise you within 60 days of the Fund's fiscal year regarding the federal tax status of distributions received by shareholders during such fiscal year. The distributions made during the fiscal year by the Fund were earned from the following sources:
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| Dividends and Distributions Per Share | |||||
To Shareholders of Record |
| Payment Date |
| From Net Investment Income |
| From Net Realized Short-Term Gains |
| From Net Realized Long-Term Gains |
August 31, 2007 |
| August 31, 2007 | $ | .037083 |
| .0 |
| .0 |
September 28, 2007 |
| September 28, 2007 | $ | .034591 |
| .0 |
| .0 |
October 31, 2007 |
| October 31, 2007 | $ | .038584 |
| .0 |
| .0 |
November 30, 2007 |
| November 30, 2007 | $ | .034860 |
| .0 |
| .0 |
December 31, 2007 |
| December 31, 20007 | $ | .035329 |
| .0 |
| .0 |
January 31, 2008 |
| January 31, 2008 | $ | .035212 |
| .0 |
| .0 |
February 29, 2008 |
| February 29, 2008 | $ | .035215 |
| .0 |
| .0 |
March 31, 2008 |
| March 31, 2008 | $ | .035117 |
| .0 |
| .0 |
April 30, 2008 |
| April 30, 2008 | $ | .035159 |
| .0 |
| .0 |
May 30, 2008 |
| May 30, 2008 | $ | .034450 |
| .0 |
| .0 |
June 30, 2008 |
| June 30, 2008 | $ | .034151 |
| .0 |
| .0 |
July 31, 2008 |
| July 31, 2008 | $ | .034604 |
| .0 |
| .0 |
Shareholders should consult their tax advisors.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of the Kansas Insured Intermediate Fund
We have audited the accompanying statement of assets and liabilities of the Kansas Insured Intermediate Fund (one of the portfolios constituting the Integrity Managed Portfolios), including the schedule of investments as of July 31, 2008, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2008 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Kansas Insured Intermediate Fund of the Integrity Managed Portfolios as of July 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota USA
September 12, 2008
Dear Shareholder:
Enclosed is the annual report of the Maine Municipal Fund (the "Fund") for the year ended July 31, 2008. The Fund's portfolio and related financial statements are presented within for your review.
As we end the year, what one might have thought was an uneventful year was much the opposite.
First, interest rates spiked higher early in June as Federal Reserve Chairman Ben Bernanke voiced concern about inflation and the slumping dollar. However, a string of weak economic reports in the last part of June (consumer confidence plunged to its lowest level since 1992) along with more losses and downgrades in the banking sector, reduced corporate earnings expectations as well as higher energy prices have encouraged market participants to dump stocks in favor of low-risk government bonds, sending the 10-year treasury to 3.95%
Second, while the market likes to talk about light at the end of the tunnel, unfortunately in these days of financial turmoil we can never be sure whether it is light from the other side or another freight train coming. Most recently, Fannie Mae and Freddie Mac who own or guarantee nearly half of the $12 trillion mortgage market have seen their company stocks fall 75-80% year-to-date, as the worst housing downturn since the Great Depression impacted expected solvency levels.
Municipals on the other hand didn't fare any better as a number of the secondary insurers saw significant downgrades of their ratings, the collapse of major financial institution Bear Stearns and the exit of UBS from the municipal bond market.
The secondary insurers of municipal debt are in turmoil as a number of the insurance companies are in dire straits. Many bond professionals and investors, who in the past treated all insured bonds equal from a credit perspective, now understand the importance of the underlying credit, the purpose of the debt issued, and its commitment to pay. Currently there are three insurers of municipal debt that have AAA ratings from all three rating agencies and two of those three insurers are on Credit Watch for possible downgrade.
These events have created great uncertainty and with that, opportunity. It is now a buyers market as high quality municipals are yielding in many instances, yields higher than taxable treasuries of similar maturities. Clearly there will be price rallies and price sell offs in the months ahead, but the underlying tone for tax-free municipals is bullish.
The Maine Municipal Fund began the period at $10.45 and ended the period at $10.44 for a total return of 3.43%*. This compares to the Lehman Brothers Municipal Bond Index return of 2.84%.
The Fund's yearly overall performance can be attributed to its defensive portfolio, with an average maturity of 12.4 years and an average maturity to the first call date of 4.3 years. That, along with an average portfolio coupon of 5.15% helps relative performance in volatile environments.
An important part of the Fund's strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Some purchases made throughout the year include: Westbrook General Obligation, 3.25% coupon, due 2009; Maine Health & Higher Ed, 5.00% coupon, due 2022; Windham General Obligation, 3.125% coupon, due 2010; and Lewistown General Obligation, 4.50% coupon, due 2025.
Portfolio quality at year-end was as follows: AAA 42.5%, AA 40.9%, A 16.1% 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 the Fund's website at www.integrityfunds.com for daily prices along with pertinent Fund information.
Sincerely,
Monte Avery
Senior Portfolio Manager
The views expressed are those of Monte Avery, Senior Portfolio Manager with Integrity Mutual Funds, Inc. ("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, the markets generally, or any Integrity Mutual Fund.
*Performance does not include applicable front-end or contingent deferred sales charges ("CDSCs"), which would have reduced the performance.
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities more so than a municipal bond fund that does not concentrate its securities in a single state.
July 31, 2008 (Unaudited)
PROXY VOTING OF FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 800-276-1262. A report on Form N-PX of how the Fund voted any such proxies during the most recent twelve-month period ended June 30 is available through the Fund's website at www.integrityfunds.com. The information is also available from the Electronic Data Gathering, Analysis, and Retrieval ("EDGAR") database on the website of the Securities and Exchange Commission ("SEC") at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
Within 60 days of the end of its second and fourth fiscal quarters, the Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports on the Form N-CSR(S). These reports are filed electronically with the SEC and are delivered to the shareholders of the Fund. The Fund also files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q and N-CSR(S) are available on the SEC's website at www.sec.gov. The Fund's Forms N-Q and N-CSR(S) may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 202-942-8090. You may also access this information from the Fund's website at www.integrityfunds.com.
SHAREHOLDER INQUIRIES AND MAILINGS
All inquiries regarding the Fund should be directed to:
Integrity Funds Distributor, Inc.
1 Main Street North
Minot, ND 58703
Phone: 800-276-1262
All inquiries regarding account information should be directed to:
Integrity Fund Services, Inc.
P.O. Box 759
Minot, ND 58702
Phone: 800-601-5593
To reduce expenses, the Fund may only mail one copy of its prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please call Integrity Funds Distributor, Inc. ("Integrity Funds Distributor") at 800-276-1262 (or contact your financial institution). Individual copies will be sent thirty days after receiving your request.
Terms & Definitions July 31, 2008 (Unaudited)
Appreciation
Increase in the value of an asset
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned by a fund on an annual basis assuming all distributions are reinvested
Coupon Rate or Face Rate
Rate of interest payable annually based on the face amount of the bond; expressed as a percentage
Depreciation
Decrease in the value of an asset
Lehman Brothers Municipal Bond Index
An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market; the index does not take into account brokerage commissions or other costs, may include bonds different from those in the Fund, and may pose different risks than the Fund
Market Value
Actual (or estimated) price at which a bond trades in the marketplace
Maturity
A measure of the term or life of a bond in years; when a bond "matures", the issuer repays the principal
Net Asset Value
The value of all of a fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial sales charge
Quality Ratings
A designation assigned by independent rating companies to give a relative indication of a bond's creditworthiness; "AAA," "AA," "A," and "BBB" indicate investment grade securities. Ratings can range from a high of "AAA" to a low of "D".
Total Return
Measures both the net investment income and any realized and unrealized appreciation or depreciation of the underlying investments in a fund's portfolio for the period, assuming the reinvestment of all dividends; represents the aggregate percentage or dollar value change over the period
July 31, 2008 (Unaudited)
COMPOSITION
Portfolio Quality Ratings
(Based on total long-term investments)
| AAA | 42.5% |
| AA | 40.9% |
| A | 16.1% |
| BBB | 0.5% |
Quality ratings reflect the financial strength of the issuer. They are assigned by independent ratings services such as Moody's Investors Services and Standard & Poor's Ratings Group. Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. ("Integrity Money Management"), the Fund's investment adviser.
These percentages are subject to change.
Portfolio Market Sectors
(As a percentage of Net Assets)
| T—Transportation | 35.2% |
| I—Industrial | 21.0% |
| G—Government | 14.8% |
| H—Health | 8.0% |
| O—Other | 7.4% |
| S—School | 5.5% |
| U—Utilities | 4.3% |
| W/S—Water/Sewer | 3.8% |
Market sectors are breakdowns of the Fund's portfolio holdings into specific investment classes.
These percentages are subject to change.
July 31, 2008 (Unaudited)
DISCLOSURE OF FUND EXPENSES
The example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs:
| • | transaction costs: | sales charges (loads), redemption fees, and exchange fees |
| • | ongoing costs: | 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 January 31, 2008 to July 31, 2008.
The example illustrates the Fund's costs in two ways:
Actual expenses
The section in the table under the heading "Actual" provides information about actual account values and actual expenses. You may use the information in these columns together with the amount you invested to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an account value of $8,600 divided by $1,000 equals 8.6), then multiply the result by the number in the column entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The section in the table under the heading "Hypothetical (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the section in the table under the heading "Hypothetical (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value | Ending Account Value | Expenses Paid During Period* | |
Actual | $1,000.00 | $ | 987.19 | $5.32 |
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Hypothetical (5% return before expenses) | $1,000.00 | $ | 1,019.51 | $5.34 |
*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 (1.28%) for the six-month period of January 31, 2008 to July 31, 2008.
July 31, 2008 (Unaudited)
AVERAGE ANNUAL TOTAL RETURNS
| For periods ending July 31, 2008 | |||||
1 year | 3 year | 5 year | 10 year | Since Inception | ||
| Without Sales Charge | 3.43% | 3.48% | 2.71% | 3.53% | 4.79% |
| With Sales Charge (4.25%) | (0.94%) | 2.00% | 1.83% | 3.08% | 4.52% |
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1 year | 3 year | 5 year | 10 year | Since Inception | ||
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| 2.84% | 3.22% | 4.35% | 4.92% | 5.99% |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemption of Fund shares.
The Fund's performance prior to December 19, 2003 was achieved while the Fund was managed by another investment adviser that used different investment strategies and techniques, which may have produced different investment results than those achieved by the current investment adviser. Forum Investment Advisors, LLC served as investment adviser to the Fund until December 19, 2003.
July 31, 2008 (Unaudited)
COMPARATIVE INDEX GRAPH
Comparison of change in value of a $10,000 investment in the Fund and the Lehman Brothers Municipal Bond Index
Maine Municipal Fund without Sales Charge | Maine Municipal Fund with Maximum Sales Charge | Lehman Brothers Municipal Bond Index | ||||
7/31/98 | $ | 10,000 | $ | 9,575 | $ | 10,000 |
1999 | $ | 10,267 | $ | 9,832 | $ | 10,288 |
2000 | $ | 10,659 | $ | 10,206 | $ | 10,732 |
2001 | $ | 11,504 | $ | 11,016 | $ | 11,815 |
2002 | $ | 12,099 | $ | 11,585 | $ | 12,608 |
2003 | $ | 12,369 | $ | 11,844 | $ | 13,061 |
2004 | $ | 12,858 | $ | 12,312 | $ | 13,816 |
2005 | $ | 12,762 | $ | 12,221 | $ | 14,695 |
2006 | $ | 13,288 | $ | 12,724 | $ | 15,071 |
2007 | $ | 13,672 | $ | 13,091 | $ | 15,713 |
7/31/08 | $ | 14,140 | $ | 13,540 | $ | 16,160 |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The graph does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
The graph comparing the Fund's performance to a benchmark index provides you with a general sense of how the Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers Municipal Bond Index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Maine municipal bonds. The Fund's total return for the periods shown appears with and without sales charges and includes Fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged; there are no expenses that affect the results. In addition, few investors could purchase all of the securities necessary to match the index. If they could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.
July 31, 2008 (Unaudited)
MANAGEMENT OF THE FUND
The Board of the Fund 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 three series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with Integrity Money Management or any of its affiliates; these are the "Independent" Trustees. Two of the remaining three Trustees and/or Officers are "interested" by virtue of their affiliation with Integrity Money Management and/or its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee, and other Directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Jerry M. Stai | Trustee | Indefinite | 12 | Faculty, Embry-Riddle University (August 2000 to September 2005); Faculty, Park University (August 2005 to December 2005); Non-Profit Specialist, Bremer Bank (since July 2005); Faculty, Minot State University (since August 2000); Director, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006). | Marycrest Franciscan Development, Inc. |
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(1) The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the three series of The Integrity Funds.
Trustees and officers of the Fund serve until their resignation, removal, or retirement.
The Statement of Additional Information ("SAI") contains more information about the Fund's Trustees and is available without charge upon request, by calling Integrity Funds Distributor at 800-276-1262.
The Interested Trustees and Officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee, and other Directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEE AND OFFICER
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Robert E. Walstad(2)(3) | Trustee, Chairman, Interim President | Indefinite | 12 | Director (Sept. 1987 to Feb. 2007), CEO (Sept. 2001 to Feb. 2007), Integrity Mutual Funds; Director, President, and Treasurer, (Aug. 1988 to Feb. 2007), Integrity Money Management; Director, President, and Treasurer (Aug. 1988 to Sept. 2004), ND Capital, Inc.; Director, President, and Treasurer (May 1989 to Feb. 2007), Integrity Fund Services, Inc.; Director, President, CEO, and Treasurer, (Jan. 1996 to Aug. 2003), Integrity Funds Distributor, Inc.; Director, CEO, Chairman, (Jan. 2002 to Feb. 2007) and President (Sept. 2002 to Dec. 2004), Capital Financial Services, Inc.; Director and President, (April 1994 to June 2004) South Dakota Tax-Free Fund, Inc.; President (Jan. 1996 to July 2007) and (since March 2008) Integrity Managed Portfolios, (May 2003 to July 2007) and (since March 2008) The Integrity Funds, (Jan. 1995 to July 2007) and (since March 2008) Integrity Fund of Funds, Inc., (Jan. 1989 to July 2007) and (since March 2008) ND Tax-Free Fund, Inc., (Aug. 1993 to July 2007) and (since March 2008) Montana Tax-Free Fund, Inc.; Director and Chairman Montana Tax-Free Fund, Inc. (since May 1993), Integrity Fund of Funds, Inc. (since Aug. 1994), and ND Tax Free Fund, Inc. (since Oct. 1988); Trustee, Chairman, (since January 1996) and Treasurer (January 1996 to May 2004), Integrity Managed Portfolios; Trustee and Chairman (since June 2003), The Integrity Funds. | Minot Park Board |
OFFICERS
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Peter A. Quist | Vice President, Secretary | Indefinite | 3 | Attorney; Director and Vice President, Integrity Mutual Funds; Director, Vice President, and Secretary, Integrity Money Management, ND Capital, Inc. (August 1988 to August 2006), Integrity Fund Services, Inc., and Integrity Funds Distributor; Director, Vice President, and Secretary, South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Montana Tax-Free Fund, Inc. (since May 1993), Integrity Fund of Funds, Inc. (since Aug. 1994), and ND Tax Free Fund, Inc. (since Oct. 1988); Vice President and Secretary, The Integrity Funds (since June 2003). | None |
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(1) The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the three series of The Integrity Funds.
(2) Trustees and/or Officers who are "interested persons" of the Fund as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Mr. Quist is an interested person by virtue of being an Officer and Director of the Fund's investment adviser and principal underwriter. Mr. Walstad is an interested person by virtue of being an Officer of the Fund and a shareholder of Integrity Mutual Funds.
(3) Effective February 29, 2008, Mark R. Anderson resigned as President of the Fund, and effective March 4, 2008, Mr. Walstad succeeded Mr. Anderson as Interim President of the Fund. Mr. Walstad is also a Trustee and Chairman of the Fund.
Trustees and Officers of the Fund serve until their resignation, removal, or retirement.
The SAI contains more information about the Fund's Trustees and is available without charge upon request, by calling Integrity Funds Distributor at 800-276-1262.
Schedule of Investments July 31, 2008
Name of Issuer | |||||||
Percentages represent the market value of each investment category to total net assets | Rating (Unaudited) Moody's S&P | Coupon Rate | Maturity |
| Principal Amount |
| Market Value |
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MAINE MUNICIPAL BONDS (76.7%) |
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Bar Harbor, ME | A-1/NR | 6.450% | 06/01/2009 | $ | 75,000 | $ | 77,780 |
Bath, ME | A-3/NR | 7.500 | 12/01/2008 |
| 20,000 |
| 20,364 |
Brewer, ME | A/A | 4.600 | 11/01/2017 |
| 210,000 |
| 220,090 |
Freeport, ME | Aa-3/AA | 7.250 | 09/01/2010 |
| 20,000 |
| 21,989 |
Gorham, ME Unlimited Tax G.O. MBIA | A-1/NR | 4.300 | 02/01/2023 |
| 155,000 |
| 157,063 |
Gorham, ME Unlimited Tax G.O. MBIA | A-1/NR | 4.350 | 02/01/2024 |
| 155,000 |
| 157,210 |
Houlton, ME Water District MBIA | A/NR | 4.600 | 05/01/2014 |
| 100,000 |
| 101,970 |
Kennebec, ME Regl. Dev. | Baa-1/NR | 5.500 | 08/01/2014 |
| 75,000 |
| 78,989 |
#Kennebec, ME Water District FSA | Aaa/NR | 5.125 | 12/01/2021 |
| 500,000 |
| 506,040 |
Kittery, ME | A-1/AA | 5.200 | 01/01/2009 |
| 25,000 |
| 25,278 |
Lewiston, ME G.O. FSA | Aaa/NR | 5.000 | 04/01/2022 |
| 500,000 |
| 524,320 |
Lewiston, ME G.O. FSA | Aaa/NR | 5.000 | 04/01/2024 |
| 250,000 |
| 261,645 |
Lewiston, ME G.O. FSA | Aaa/NR | 4.500 | 01/15/2025 |
| 200,000 |
| 200,358 |
Maine Governmental Facs. Auth Lease MBIA | A-1/AA | 5.375 | 10/01/2016 |
| 250,000 |
| 266,445 |
Maine Governmental Facs. Auth Lease Rent Rev. | Aaa/AAA | 5.000 | 10/01/2023 |
| 125,000 |
| 129,417 |
Maine Health & Higher Educ. Facs. Auth. (Bates College) FSA | Aaa/AAA | 5.250 | 07/01/2011 |
| 25,000 |
| 25,173 |
*Maine Health & Higher Educ. Facs. Auth. (Blue Hill Mem. Hosp) FSA | Aaa/AAA | 5.250 | 07/01/2010 |
| 410,000 |
| 415,117 |
Maine Health & Higher Educ. Facs. Auth. | Aaa/NR | 6.000 | 10/01/2013 |
| 195,000 |
| 217,550 |
Maine Health & Higher Educ. (University Systems) MBIA | Aa-3/NR | 5.000 | 07/01/2023 |
| 200,000 |
| 207,872 |
Maine Health & Higher Educ. Facs. Auth. Rev. AMBAC | Aa-3/AA | 7.300 | 05/01/2014 |
| 5,000 |
| 5,000 |
Maine Health & Higher Educ. Facs. Rev. AMBAC | Aa-3/NR | 5.000 | 07/01/2022 |
| 250,000 |
| 255,308 |
Maine Health & Higher Educ. Auth. (Maine Maritime Academy) MBIA | Aa-3/NR | 5.000 | 07/01/2025 |
| 340,000 |
| 351,852 |
*Maine Municipal Bond Bank MBIA | Aa-1/AAA | 5.625 | 11/01/2016 |
| 1,000,000 |
| 1,076,710 |
Maine Municipal Bond Bank (Sewer & Water) Rev. | Aaa/AAA | 4.900 | 11/01/2024 |
| 100,000 |
| 103,905 |
Maine State (Highway) | Aa-3/AA | 5.000 | 06/15/2011 |
| 200,000 |
| 212,446 |
*Maine State Turnpike Auth. Rev. FGIC | Aa-3/A+ | 5.750 | 07/01/2028 |
| 750,000 |
| 807,383 |
Maine State Turnpike Auth. | Aa-3/AA | 5.000 | 07/01/2033 |
| 450,000 |
| 452,138 |
Portland, ME | Aa/AA | 5.000 | 09/01/2013 |
| 60,000 |
| 63,512 |
#Portland, ME Airport Rev. FSA | Aaa/AAA | 5.000 | 07/01/2032 |
| 500,000 |
| 498,650 |
Scarborough, ME G.O. MBIA | Aa-3/AA | 4.400 | 11/01/2031 |
| 250,000 |
| 231,360 |
Scarborough, ME G.O. MBIA | Aa-3/AA | 4.400 | 11/01/2032 |
| 480,000 |
| 442,766 |
#Skowhegan, ME Pollution Ctl. Rev. (Scott Paper Co. Prj.) | A/A+ | 5.900 | 11/01/2013 |
| 1,465,000 |
| 1,465,000 |
South Portland, ME | Aa-1/NR | 5.800 | 09/01/2008 |
| 150,000 |
| 150,532 |
South Portland, ME | Aa-1/NR | 5.800 | 09/01/2011 |
| 40,000 |
| 43,695 |
University of Maine System Rev. AMBAC | Aa-3/AA | 5.000 | 03/01/2024 |
| 100,000 |
| 101,277 |
#University of Maine System Rev. MBIA | A/AA | 4.750 | 03/01/2037 |
| 550,000 |
| 531,954 |
Westbrook, ME G.O. MBIA | A/AA | 3.250 | 10/15/2009 |
| 195,000 |
| 197,980 |
Westbrook, ME G.O. FGIC | NR/A+ | 4.250 | 10/15/2020 |
| 180,000 |
| 181,748 |
Windham, ME G.O. AMBAC | Aa-3/AA | 3.125 | 11/01/2010 |
| 100,000 |
| 101,250 |
Windham, ME G.O. AMBAC | Aa-3/AA | 4.000 | 11/01/2014 |
| 415,000 |
| 427,952 |
Yarmouth, ME AMBAC | Aa-3/NR | 5.250 | 11/15/2009 |
| 250,000 |
| 260,653 |
#Yarmouth, ME | Aa-3/AA- | 5.000 | 11/15/2019 |
| 500,000 |
| 532,040 |
York, ME G.O. | NR/AA | 4.000 | 09/01/2010 |
| 75,000 |
| 77,810 |
|
|
|
|
|
|
|
|
TOTAL MAINE MUNICIPAL BONDS |
|
|
|
|
| $ | 12,187,591 |
|
|
|
|
|
|
|
|
GUAM MUNICIPAL BONDS (0.1%) |
|
|
|
|
|
|
|
Guam Hsg. Corp. Single Family Mtg. | NR/AAA | 5.750 | 09/01/2031 |
| 10,000 | $ | 9,793 |
|
|
|
|
|
|
|
|
PUERTO RICO MUNICIPAL BONDS (13.3%) |
|
|
|
|
|
| |
*Puerto Rico Commonwealth Highway and Trans. Rev. MBIA | A/AA | 5.500 | 07/01/2036 |
| 250,000 | $ | 284,158 |
*Puerto Rico Public Finance Corp. Commonwealth Appropriations AMBAC | Aaa/AAA | 5.375 | 06/01/2018 |
| 1,710,000 |
| 1,826,280 |
TOTAL PUERTO RICO MUNICIPAL BONDS |
|
|
|
|
| $ | 2,110,438 |
|
|
|
|
|
|
|
|
VIRGIN ISLANDS MUNICIPAL BONDS (3.2%) |
|
|
|
|
|
| |
Virgin Islands Water & Power Auth. Elec. Syst. Rev. ACA/MBIA | Aaa/AA | 5.300 | 07/01/2021 |
| 500,000 | $ | 505,195 |
|
|
|
|
| |||
TOTAL MUNICIPAL BONDS (COST: $14,520,093) |
|
| $ | 14,813,017 | |||
|
|
|
|
| |||
SHORT-TERM SECURITIES (6.2%) |
| Shares |
|
| |||
Wells Fargo Advantage National Tax-Free Money Market (COST: $980,415) |
| 980,415 | $ | 980,415 | |||
|
|
|
|
| |||
TOTAL INVESTMENTS IN SECURITIES (COST: $15,500,508) |
|
| $ | 15,793,432 | |||
OTHER ASSETS LESS LIABILITIES |
|
|
| 86,333 | |||
|
|
|
|
| |||
NET ASSETS |
|
| $ | 15,879,765 |
*Indicates bonds are segregated by the custodian to cover when-issued or delayed delivery purchases.
#Indicates bonds are segregated by the custodian to cover initial margin requirements.
Footnote: Non-rated (NR) securities have been determined to be of investment grade quality by the Fund's Manager.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels:
| Level 1– | quoted prices in active markets for identical securities |
| Level 2– | other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risks, etc.) |
| Level 3– | significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) |
The following is a summary of the inputs used to value the Fund's investments as of July 31, 2008:
| Valuation Inputs | Investments in Securities |
| |
| Level 1–Quoted Prices | $ | 980,415 |
|
| Level 2–Other Significant Observable Inputs |
| 14,813,017 |
|
| Level 3–Significant Unobservable Inputs |
| 0 |
|
| Total | $ | 15,793,432 |
|
The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Assets and Liabilities
July 31, 2008
ASSETS |
|
| ||
| Investments in securities, at value (cost: $15,500,508) | $ | 15,793,432 | |
| Accrued interest receivable |
| 156,847 | |
| Accrued dividends receivable |
| 1,232 | |
| Receivable from manager |
| 4,006 | |
| Prepaid expenses |
| 2,217 | |
|
| Total Assets | $ | 15,957,734 |
|
|
|
|
|
LIABILITIES |
|
| ||
| Disbursements in excess of demand deposit cash | $ | 4,721 | |
| Dividends payable |
| 44,880 | |
| Accrued expenses |
| 17,561 | |
| Payable to affiliates |
| 10,807 | |
|
| Total Liabilities | $ | 77,969 |
|
|
|
|
|
NET ASSETS | $ | 15,879,765 | ||
|
|
|
|
|
Net assets are represented by: |
|
| ||
| Paid-in capital | $ | 16,225,635 | |
| Accumulated undistributed net realized gain (loss) on investments and futures |
| (664,401) | |
| Accumulated undistributed net investment income (loss) |
| 25,607 | |
| Unrealized appreciation (depreciation) on investments |
| 292,924 | |
|
| Total amount representing net assets applicable to 1,521,598 outstanding shares of no par common stock (unlimited shares authorized) | $ | 15,879,765 |
|
|
|
|
|
Net asset value per share | $ | 10.44 | ||
|
|
|
|
|
Public offering price (based on sales charge of 4.25%) | $ | 10.90 |
The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Operations
For the year ended July 31, 2008
INVESTMENT INCOME |
|
| ||
| Interest | $ | 725,347 | |
| Dividends |
| 17,020 | |
|
| Total Investment Income | $ | 742,367 |
|
|
|
|
|
EXPENSES |
|
| ||
| Investment advisory fees | $ | 81,327 | |
| Distribution (12b-1) fees |
| 40,663 | |
| Administrative service fees |
| 24,001 | |
| Transfer agent fees |
| 32,531 | |
| Accounting service fees |
| 32,133 | |
| Custodian fees |
| 3,142 | |
| Professional fees |
| 10,728 | |
| Trustees fees |
| 2,705 | |
| Insurance expense |
| 427 | |
| Reports to shareholders |
| 2,141 | |
| Audit fees |
| 6,576 | |
| Legal fees |
| 12,373 | |
| Transfer agent out-of-pockets |
| 1,207 | |
| License, fees, and registrations |
| 3,535 | |
|
| Total Expenses | $ | 253,489 |
| Less expenses waived or absorbed by the Fund's manager |
| (79,450) | |
|
| Total Net Expenses | $ | 174,039 |
|
|
|
|
|
NET INVESTMENT INCOME (LOSS) | $ | 568,328 | ||
|
|
|
|
|
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| ||
| Net realized gain (loss) from investment transactions | $ | 31,683 | |
| Net change in unrealized appreciation (depreciation) of investments |
| (50,559) | |
|
| Net Realized and Unrealized Gain (Loss) on Investments | $ | (18,876) |
|
|
|
|
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 549,452 |
The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Changes in Net Assets
For the year ended July 31, 2008 and the year ended July 31, 2007
|
|
| For The Year Ended July 31, 2008 | For The Year Ended July 31, 2007 | ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| ||
| Net investment income (loss) | $ | 568,328 | $ | 630,621 | |
| Net realized gain (loss) on investment transactions |
| 31,683 |
| 33,318 | |
| Net change in unrealized appreciation (depreciation) on investments |
| (50,559) |
| (131,902) | |
|
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 549,452 | $ | 532,037 |
|
|
|
|
|
|
|
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| ||
| Dividends from net investment income ($.36 and $.37 per share, respectively) | $ | (562,812) | $ | (624,718) | |
| Distributions from net realized gain on investment transactions ($.00 and $.00 per share, respectively) |
| 0 |
| 0 | |
|
| Total Dividends and Distributions | $ | (562,812) | $ | (624,718) |
|
|
|
|
|
|
|
CAPITAL SHARE TRANSACTIONS |
|
|
|
| ||
| Proceeds from sale of shares | $ | 366,136 | $ | 611,753 | |
| Proceeds from reinvested dividends |
| 321,799 |
| 360,742 | |
| Cost of shares redeemed |
| (1,501,361) |
| (2,901,433) | |
|
| Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions | $ | (813,426) | $ | (1,928,938) |
|
|
|
|
|
|
|
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | (826,786) | $ | (2,021,619) | ||
NET ASSETS, BEGINNING OF PERIOD |
| 16,706,551 |
| 18,728,170 | ||
NET ASSETS, END OF PERIOD | $ | 15,879,765 | $ | 16,706,551 | ||
|
|
|
|
| ||
Undistributed Net Investment Income | $ | 25,607 | $ | 20,090 |
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements July 31, 2008
Note 1. ORGANIZATION
The Fund is an investment portfolio of Integrity Managed Portfolios (the "Trust") and is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. The Trust is an unincorporated business trust organized under Massachusetts law on August 10, 1990.
The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal and Maine 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 Fund became a series of the Trust. Prior to this date, the Fund was part of the Forum Funds and was named the Maine TaxSaver Bond Fund. The Maine TaxSaver Bond Fund commenced operations on December 5, 1991. The Forum Funds is a Delaware business trust that is registered as an open-end management investment company under the 1940 Act.
Shares of the Fund are offered at net asset value plus a maximum sales charge of 4.25% of the offering price.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation—Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees and includes consideration of the following:
| • | yields or prices of municipal bonds of comparable quality; |
| • | type of issue, coupon, maturity, and rating; |
| • | indications as to value from dealers; and |
| • | general market conditions. |
Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on the trade date.
The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.
When-issued securities—The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities purchased on a when-issued basis are identified as such in the Fund's Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract's terms, or if the issuer does not issue the securities due to political, economic, or other factors.
Contingent Deferred Sales Charge—In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 24 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).
Federal and state income taxes—The Fund's policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its net investment income and any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required.
In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax-return positions taken on federal income tax returns for all open tax years (tax years ended July 31, 2004 through July 31, 2008) for purposes of implementing FIN 48, and has concluded that no provision for income tax is required in the Fund's financial statements. Interest and penalties related to uncertain tax positions, if any, are classified in the Fund's financial statements as other expense.
The tax character of distributions paid was as follows:
|
|
| July 31, 2008 |
| July 31, 2007 |
| |||
| Tax-exempt income |
| $ | 562,812 |
| $ | 624,718 |
| |
| Ordinary income |
|
| 0 |
|
| 0 |
| |
| Long-term capital gains |
|
| 0 |
|
| 0 |
| |
|
| Total |
| $ | 562,812 |
| $ | 624,718 |
|
As of July 31, 2008, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Undistributed Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation) | Total Accumulated Earnings/(Deficit) |
|
| $0 | $0 | ($664,401) | $318,531 | ($345,870) |
|
The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2008 totaling $664,401, which may be used to offset capital gains. Any difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable to timing differences associated with market discount. 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 | $664,401 |
For the year ended July 31, 2008, the Fund did not make any permanent reclassifications to reflect tax character.
Net capital losses incurred after October 31 and within the tax year are deemed to arise on the first business day of the Fund's next taxable year. For the year ended July 31, 2008, the Fund did not defer to August 1, 2008, any post-October capital losses, post-October currency losses, or post-October passive foreign investment company losses.
Distributions to shareholders—Dividends from net investment income, declared daily and paid monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed at least annually.
Premiums and discounts—Premiums and discounts on municipal securities are amortized for financial reporting purposes.
Other—Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatments for market discount, capital loss carryforwards, and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
Futures contracts—The Fund may purchase and sell financial futures contracts to hedge against changes in the values of tax-exempt municipal securities the Fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of a particular index or a certain amount of U.S. government or municipal securities at a set price on a future date. Upon entering into a futures contract, the Fund is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirement of the futures exchange on which the contract is traded. Subsequent payments ("variation margin") are made or received by the Fund, dependent on the fluctuations in the value of the underlying index. Daily fluctuations in value are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize, for book purposes, a gain or loss equal to the difference between the value of the futures contracts sold and the futures contracts to buy. Unrealized appreciation (depreciation) related to open futures contracts is required to be treated as realized gain (loss) for federal income tax purposes.
Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Schedule of Investments. The Statement of Assets and Liabilities reflects a receivable or payable for the daily mark to market for variation margin.
Certain risks may arise upon entering into futures contracts. These risks may include changes in the value of the futures contracts that may not directly correlate with changes in the value of the underlying securities.
Use of estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 3. CAPITAL SHARE TRANSACTIONS
As of July 31, 2008, there were unlimited shares of no par authorized; 1,521,598 and 1,598,291 shares were outstanding at July 31, 2008 and July 31, 2007, respectively.
Transactions in capital shares were as follows:
| Shares | |
| For The Year Ended July 31, 2008 | For The Year Ended July 31, 2007 |
Shares sold | 58,003 | |
Shares issued on reinvestment of dividends | 30,645 | 34,165 |
Shares redeemed | (142,065) | (274,649) |
Net increase (decrease) | (76,693) | (182,481) |
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, Inc. ("Integrity Fund Services"), the Fund's transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, the Fund's sponsor.
The Fund has engaged Integrity Money Management to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund's average daily net assets. The Fund has recognized $9,770 of investment advisory fees after partial waiver for the year ended July 31, 2008. The Fund does not have a payable to Integrity Money Management at July 31, 2008 for investment advisory fees. Certain Officers and Trustees of the Fund are also Officers and Directors of Integrity Money Management.
Under the terms of the advisory agreement, Integrity Money Management has agreed to pay all the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 1.07% of the Fund's average daily net assets on an annual basis up to the amount of the investment advisory and management fee. Accordingly, after fee waivers and expense reimbursements, the Fund's actual total annual operating expenses were 1.07% for the year ended July 31, 2008.
Principal underwriter and shareholder services
Integrity Funds Distributor serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called "Distribution Plan expenses". The Fund currently pays an annual distribution fee of up to 0.25% of the average daily net assets of the Fund. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $40,663 of distribution fees for the year ended July 31, 2008. The Fund has a payable to Integrity Funds Distributor of $3,324 at July 31, 2008 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 $32,531 of transfer agency fees and expenses for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $2,659 at July 31, 2008 for transfer agency fees. Integrity Fund Services also acts as the Fund's accounting services agent for a monthly fee equal to the sum of a fixed fee of $2,000, and a variable fee equal to 0.05% of the Fund's average daily net assets on an annual basis for the Fund's first $50 million and at a lower rate on the average daily net assets in excess of $50 million. An additional fee with a minimum of $500 per month is charged for each additional share class. The Fund has recognized $32,133 of accounting service fees for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $2,665 at July 31, 2008 for accounting service fees. Integrity Fund Services also acts as the Fund's administrative services agent for a variable fee equal to 0.125% of the Fund's average daily net assets on an annual basis for the Fund's first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional fee with a minimum of $500 per month will be charged for each additional share class. The Fund has recognized $24,001 of administrative service fees for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $2,000 at July 31, 2008 for administrative service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment securities (excluding short-term securities) aggregated $686,429 and $1,263,765, respectively, for the year ended July 31, 2008.
Note 6. INVESTMENT IN SECURITIES
At July 31, 2008, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $15,500,508. The net unrealized appreciation of investments based on the cost was $292,924, which is comprised of $414,400 aggregate gross unrealized appreciation and $121,476 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, and establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. The standard is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
In accordance with the provisions of SFAS No. 157, the Fund adopted this standard during the current fiscal year. The implementation of the standard did not impact the amounts reported in the financial statements.
In March 2008, FASB issued SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities. This standard requires enhanced disclosures to provide information about the reasons the Fund invests in derivative instruments, the accounting treatment and the effect derivatives have on financial performance. The standard is effective for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Management is currently evaluating the impact the adoption of SFAS No. 161 will have on the Fund's financial statement disclosures.
Financial Highlights July 31, 2008
Selected per share data and ratios for the periods indicated
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| For The Year Ended July 31, 2008 |
| For The Year Ended July 31, 2007 |
| For The Year Ended July 31, 2006 |
| For The Year Ended July 29, 2005 |
| For The Four Month Period Ended July 30, 2004 |
| For The Year Ended March 31, 2004 | ||
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 10.45 | $ | 10.52 | $ | 10.45 | $ | 11.10 | $ | 11.19 | $ | 11.35 | ||
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Income from Investment Operations: |
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| Net investment income (loss) | $ | .36 | $ | .37 | $ | .35 | $ | .35 | $ | .13 | $ | .39 | |
| Net realized and unrealized gain (loss) on investment and futures transactions |
| (.01) |
| (.07) |
| .07 |
| (.43) |
| (.09) |
| (.10) | |
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| Total Income (Loss) From Investment Operations | $ | .35 | $ | .30 | $ | .42 | $ | (.08) | $ | .04 | $ | .29 |
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Less Distributions: |
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| Dividends from net investment income | $ | (.36) | $ | (.37) | $ | (.35) | $ | (.35) | $ | (.13) | $ | (.39) | |
| Distributions from net realized gains |
| .00 |
| .00 |
| .00 |
| (.22) |
| .00 |
| (.06) | |
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| Total Distributions | $ | (.36) | $ | (.37) | $ | (.35) | $ | (.57) | $ | (.13) | $ | (.45) |
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NET ASSET VALUE, END OF PERIOD | $ | 10.44 | $ | 10.45 | $ | 10.52 | $ | 10.45 | $ | 11.10 | $ | 11.19 | ||
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Total Return |
| 3.43%(A) |
| 2.89%(A) |
| 4.12%(A) |
| (0.74%)(A) |
| 1.23%(A)(C) |
| 2.56%(A) | ||
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RATIOS/SUPPLEMENTAL DATA: |
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| Net assets, end of period (in thousands) | $ | 15,880 | $ | 16,707 | $ | 18,728 | $ | 24,975 | $ | 31,683 | $ | 33,270 | |
| Ratio of net expenses (after expense assumption) to average net assets |
| 1.07%(B) |
| 1.07%(B) |
| 1.02%(B) |
| 0.97%(B) |
| 0.95%(B)(C) |
| 0.95%(B) | |
| Ratio of net investment income to average net assets |
| 3.46% |
| 3.52% |
| 3.35% |
| 3.24% |
| 3.49%(C) |
| 3.44% | |
| Portfolio turnover rate |
| 4.44% |
| 8.50% |
| 1.60% |
| 4.87% |
| 1.92% |
| 34.40% |
(A) Excludes maximum sales charge of 4.25%.
(B) During the periods since March 31, 2004, Integrity Money Management assumed and/or waived expenses of $79,450, $64,859, $58,447, $86,089, and $29,051, respectively. If the expenses had not been assumed and/or waived, the annualized ratio of total expenses to average net assets would have been 1.56%, 1.44%, 1.30%, 1.27%, and 1.22%, respectively. 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 and/or waived, the annualized ratio of total expenses to average net assets for the year would have been 1.20%.
(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.
Tax Information for the Year Ended July 31, 2008 (Unaudited)
We are required to advise you within 60 days of the Fund's fiscal year regarding the federal tax status of distributions received by shareholders during such fiscal year. The distributions made during the fiscal year by the Fund were earned from the following sources:
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| Dividends and Distributions Per Share | |||||
To Shareholders of Record |
| Payment Date |
| From Net Investment Income |
| From Net Realized Short-Term Gains |
| From Net Realized Long-Term Gains |
August 31, 2007 |
| August 31, 2007 | $ | .030599 |
| .0 |
| .0 |
September 28, 2007 |
| September 28, 2007 | $ | .028694 |
| .0 |
| .0 |
October 31, 2007 |
| October 31, 2007 | $ | .032513 |
| .0 |
| .0 |
November 30, 2007 |
| November 30, 2007 | $ | .030580 |
| .0 |
| .0 |
December 31, 2007 |
| December 31, 2007 | $ | .030519 |
| .0 |
| .0 |
January 31, 2008 |
| January 31, 2008 | $ | .030427 |
| .0 |
| .0 |
February 29, 2008 |
| February 29, 2008 | $ | .030083 |
| .0 |
| .0 |
March 31, 2008 |
| March 31, 2008 | $ | .030465 |
| .0 |
| .0 |
April 30, 2008 |
| April 30, 2008 | $ | .030425 |
| .0 |
| .0 |
May 30, 2008 |
| May 30, 2008 | $ | .030299 |
| .0 |
| .0 |
June 30, 2008 |
| June 30, 2008 | $ | .030184 |
| .0 |
| .0 |
July 31, 2008 |
| July 31, 2008 | $ | .029447 |
| .0 |
| .0 |
Shareholders should consult their tax advisors.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of the Maine Municipal Fund
We have audited the accompanying statement of assets and liabilities of the Maine Municipal Fund (one of the portfolios constituting the Integrity Managed Portfolios), including the schedule of investments as of July 31, 2008, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for the years ended July 31, 2008, July 31, 2007, July 31, 2006, and July 29, 2005, the four month period ended July 30, 2004, and the year ended March 31, 2004. These financial statements and financial highlights are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2008 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Maine Municipal Fund of the Integrity Managed Portfolios as of July 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for the years ended July 31, 2008, July 31, 2007, July 31, 2006, and July 29, 2005, the four month period ended July 30, 2004, and the year ended March 31, 2004, in conformity with accounting principles generally accepted in the United States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota USA
September 12, 2008
Dear Shareholder:
Enclosed is the annual report of the Nebraska Municipal Fund (the "Fund") for the year ended July 31, 2008. The Fund's portfolio and related financial statements are presented within for your review.
As we end the year, what one might have thought was an uneventful year was much the opposite.
First, interest rates spiked higher early in June as Federal Reserve Chairman Ben Bernanke voiced concern about inflation and the slumping dollar. However, a string of weak economic reports in the last part of June (consumer confidence plunged to its lowest level since 1992) along with more losses and downgrades in the banking sector, reduced corporate earnings expectations as well as higher energy prices have encouraged market participants to dump stocks in favor of low-risk government bonds, sending the 10-year treasury to 3.95%.
Second, while the market likes to talk about light at the end of the tunnel, unfortunately in these days of financial turmoil we can never be sure whether it is light from the other side or another freight train coming. Most recently, Fannie Mae and Freddie Mac who own or guarantee nearly half of the $12 trillion mortgage market have seen their company stocks fall 75-80% year-to-date, as the worst housing downturn since the Great Depression impacted expected solvency levels.
Municipals on the other hand didn't fare any better as a number of the secondary insurers saw significant downgrades of their ratings, the collapse of major financial institution Bear Stearns and the exit of UBS from the municipal bond market.
The secondary insurers of municipal debt are in turmoil as a number of the insurance companies are in dire straits. Many bond professionals and investors, who in the past treated all insured bonds equal from a credit perspective, now understand the importance of the underlying credit, the purpose of the debt issued, and its commitment to pay. Currently there are three insurers of municipal debt that have AAA ratings from all three rating agencies and two of those three insurers are on Credit Watch for possible downgrade.
These events have created great uncertainty and with that, opportunity. It is now a buyers market as high quality municipals are yielding in many instances, yields higher than taxable treasuries of similar maturities. Clearly there will be price rallies and price sell offs in the months ahead, but the underlying tone for tax-free municipals is bullish.
The Nebraska Municipal Fund began the period at $10.13 and ended the period at $10.03 for a total return of 2.79%*. This compares to the Lehman Brothers Municipal Bond Index return of 2.84%.
The Fund's yearly overall performance can be attributed to its defensive portfolio, with an average maturity of 15.2 years and an average maturity to the first call date of 4.4 years. That, along with an average portfolio coupon of 5.21% helps relative performance in volatile environments.
An important part of the Fund's strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Some purchases made throughout the year include: Public Power Generation (Whelan Energy), 5.00% coupon, due 2032; University of Nebraska Health & Rec. Projects, 5.00% coupon, due 2033; Douglas County (Methodist Health), 5.50% coupon, due 2038; and Adams County Hospital (Mary Lanning Memorial), 5.25% coupon, due 2033.
Portfolio quality at year-end was as follows: AAA 18.4%, AA 54.5%, A 19.7%, BBB 2.6% and NR 4.8%.
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 the Fund's website at www.integrityfunds.com for daily prices along with pertinent Fund information.
Sincerely,
Monte Avery
Senior Portfolio Manager
The views expressed are those of Monte Avery, Senior Portfolio Manager with Integrity Mutual Funds, Inc. ("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, the markets generally, or any Integrity Mutual Fund.
*Performance does not include applicable front-end or contingent deferred sales charges ("CDSCs"), which would have reduced the performance.
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities more so than a municipal bond fund that does not concentrate its securities in a single state.
July 31, 2008 (Unaudited)
PROXY VOTING OF FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 800-276-1262. A report on Form N-PX of how the Fund voted any such proxies during the most recent twelve-month period ended June 30 is available through the Fund's website at www.integrityfunds.com. The information is also available from the Electronic Data Gathering, Analysis, and Retrieval ("EDGAR") database on the website of the Securities and Exchange Commission ("SEC") at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
Within 60 days of the end of its second and fourth fiscal quarters, the Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports on the Form N-CSR(S). These reports are filed electronically with the SEC and are delivered to the shareholders of the Fund. The Fund also files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q and N-CSR(S) are available on the SEC's website at www.sec.gov. The Fund's Forms N-Q and N-CSR(S) may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 202-942-8090. You may also access this information from the Fund's website at www.integrityfunds.com.
SHAREHOLDER INQUIRIES AND MAILINGS
All inquiries regarding the Fund should be directed to:
Integrity Funds Distributor, Inc.
1 Main Street North
Minot, ND 58703
Phone: 800-276-1262
All inquiries regarding account information should be directed to:
Integrity Fund Services, Inc.
P.O. Box 759
Minot, ND 58702
Phone: 800-601-5593
To reduce expenses, the Fund may only mail one copy of its prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please call Integrity Funds Distributor, Inc. ("Integrity Funds Distributor") at 800-276-1262 (or contact your financial institution). Individual copies will be sent thirty days after receiving your request.
Terms & Definitions July 31, 2008 (Unaudited)
Appreciation
Increase in the value of an asset
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned by a fund on an annual basis assuming all distributions are reinvested
Coupon Rate or Face Rate
Rate of interest payable annually based on the face amount of the bond; expressed as a percentage
Depreciation
Decrease in the value of an asset
Lehman Brothers Municipal Bond Index
An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market; the index does not take into account brokerage commissions or other costs, may include bonds different from those in the Fund, and may pose different risks than the Fund
Market Value
Actual (or estimated) price at which a bond trades in the marketplace
Maturity
A measure of the term or life of a bond in years; when a bond "matures", the issuer repays the principal
Net Asset Value
The value of all of a fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial sales charge
Quality Ratings
A designation assigned by independent rating companies to give a relative indication of a bond's creditworthiness; "AAA," "AA," "A," and "BBB" indicate investment grade securities. Ratings can range from a high of "AAA" to a low of "D".
Total Return
Measures both the net investment income and any realized and unrealized appreciation or depreciation of the underlying investments in a fund's portfolio for the period, assuming the reinvestment of all dividends; represents the aggregate percentage or dollar value change over the period
July 31, 2008 (Unaudited)
COMPOSITION
Portfolio Quality Ratings
(Based on total long-term investments)
| AAA | 18.4% |
| AA | 54.5% |
| A | 19.7% |
| BBB | 2.6% |
| NR | 4.8% |
Quality ratings reflect the financial strength of the issuer. They are assigned by independent ratings services such as Moody's Investors Services ("Moody's") and Standard & Poor's Ratings Group ("S&P"). Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. ("Integrity Money Management"), the Fund's investment adviser.
These percentages are subject to change.
Portfolio Market Sectors
(As a percentage of Net Assets)
| S—School | 35.8% |
| U—General Utilities | 19.1% |
| H—Health | 18.8% |
| I—Industrial | 8.4% |
| O—Other | 6.6% |
| T—Transportation | 5.7% |
| WS—Water/Sewer | 5.6% |
Market sectors are breakdowns of the Fund's portfolio holdings into specific investment classes.
These percentages are subject to change.
July 31, 2008 (Unaudited)
DISCLOSURE OF FUND EXPENSES
The example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs:
| • | transaction costs: | sales charges (loads), redemption fees, and exchange fees |
| • | ongoing costs: | 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 January 31, 2008 to July 31, 2008.
The example illustrates the Fund's costs in two ways:
Actual expenses
The section in the table under the heading "Actual" provides information about actual account values and actual expenses. You may use the information in these columns together with the amount you invested to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an account value of $8,600 divided by $1,000 equals 8.6), then multiply the result by the number in the column entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The section in the table under the heading "Hypothetical (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the section in the table under the heading "Hypothetical (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value | Ending Account Value | Expenses Paid During Period* | |
Actual | $1,000.00 | $ | 989.20 | $5.32 |
Hypothetical (5% return before expenses) | $1,000.00 | $ | 1,019.51 | $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 (1.08%) for the six-month period of January 31, 2008 to July 31, 2008.
July 31, 2008 (Unaudited)
AVERAGE ANNUAL TOTAL RETURNS
| For periods ending July 31, 2008 | |||||
1 year | 3 year | 5 year | 10 year | Since Inception | ||
| Without Sales Charge | 2.79% | 3.61% | 2.84% | 3.33% | 3.74% |
| With Sales Charge (4.25%) | (1.59%) | 2.12% | 1.95% | 2.88% | 3.44% |
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1 year | 3 year | 5 year | 10 year | Since Inception | ||
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| 2.84% | 3.22% | 4.35% | 4.92% | 5.34% |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemption of Fund shares.
July 31, 2008 (Unaudited)
COMPARATIVE INDEX GRAPH
Comparison of change in value of a $10,000 investment in the Fund and the Lehman Brothers Municipal Bond Index
Nebraska Municipal Fund without Sales Charge | Nebraska Municipal Fund with Maximum Sales Charge | Lehman Brothers Municipal Bond Index | ||||
7/31/98 | $ | 10,000 | $ | 9,578 | $ | 10,000 |
1999 | $ | 10,382 | $ | 9,944 | $ | 10,288 |
2000 | $ | 10,619 | $ | 10,171 | $ | 10,732 |
2001 | $ | 11,683 | $ | 11,190 | $ | 11,815 |
2002 | $ | 12,158 | $ | 11,645 | $ | 12,608 |
2003 | $ | 12,060 | $ | 11,551 | $ | 13,061 |
2004 | $ | 12,492 | $ | 11,965 | $ | 13,816 |
2005 | $ | 12,469 | $ | 11,943 | $ | 14,695 |
2006 | $ | 13,080 | $ | 12,528 | $ | 15,071 |
2007 | $ | 13,494 | $ | 12,925 | $ | 15,713 |
7/31/08 | $ | 13,870 | $ | 13,285 | $ | 16,160 |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The graph does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
The graph comparing the Fund's performance to a benchmark index provides you with a general sense of how the Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers Municipal Bond Index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Nebraska municipal bonds. The Fund's total return for the periods shown appears with and without sales charges and includes Fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged; there are no expenses that affect the results. In addition, few investors could purchase all of the securities necessary to match the index. If they could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.
July 31, 2008 (Unaudited)
MANAGEMENT OF THE FUND
The Board of the Fund 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 three series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with Integrity Money Management or any of its affiliates; these are the "Independent" Trustees. Two of the remaining three Trustees and/or Officers are "interested" by virtue of their affiliation with Integrity Money Management and/or its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee, and other Directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Jerry M. Stai | Trustee | Indefinite | 12 | Faculty, Embry-Riddle University (August 2000 to September 2005); Faculty, Park University (August 2005 to December 2005); Non-Profit Specialist, Bremer Bank (since July 2005); Faculty, Minot State University (since August 2000); Director, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006). | Marycrest Franciscan Development, Inc. |
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(1) The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the three series of The Integrity Funds.
Trustees and Officers of the Fund serve until their resignation, removal, or retirement.
The Statement of Additional Information ("SAI") contains more information about the Fund's Trustees and is available without charge upon request, by calling Integrity Funds Distributor at 800-276-1262.
The Interested Trustees and Officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee, and other Directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEE AND OFFICER
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Robert E. Walstad(2)(3) | Trustee, Chairman, Interim President | Indefinite | 12 | Director (Sept. 1987 to Feb. 2007), CEO (Sept. 2001 to Feb. 2007), Integrity Mutual Funds; Director, President, and Treasurer, (Aug. 1988 to Feb. 2007), Integrity Money Management; Director, President, and Treasurer (Aug. 1988 to Sept. 2004), ND Capital, Inc.; Director, President, and Treasurer (May 1989 to Feb. 2007), Integrity Fund Services, Inc.; Director, President, CEO, and Treasurer, (Jan. 1996 to Aug. 2003), Integrity Funds Distributor, Inc.; Director, CEO, Chairman, (Jan. 2002 to Feb. 2007) and President (Sept. 2002 to Dec. 2004), Capital Financial Services, Inc.; Director and President, (April 1994 to June 2004) South Dakota Tax-Free Fund, Inc.; President (Jan. 1996 to July 2007) and (since March 2008) Integrity Managed Portfolios, (May 2003 to July 2007) and (since March 2008) The Integrity Funds, (Jan. 1995 to July 2007) and (since March 2008) Integrity Fund of Funds, Inc., (Jan. 1989 to July 2007) and (since March 2008) ND Tax-Free Fund, Inc., (Aug. 1993 to July 2007) and (since March 2008) Montana Tax-Free Fund, Inc.; Director and Chairman Montana Tax-Free Fund, Inc. (since May 1993), Integrity Fund of Funds, Inc. (since Aug. 1994), and ND Tax Free Fund, Inc. (since Oct. 1988); Trustee, Chairman, (since January 1996) and Treasurer (January 1996 to May 2004), Integrity Managed Portfolios; Trustee and Chairman (since June 2003), The Integrity Funds. | Minot Park Board |
OFFICERS
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Peter A. Quist | Vice President, Secretary | Indefinite | 3 | Attorney; Director and Vice President, Integrity Mutual Funds; Director, Vice President, and Secretary, Integrity Money Management, ND Capital, Inc. (August 1988 to August 2006), Integrity Fund Services, Inc., and Integrity Funds Distributor; Director, Vice President, and Secretary, South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Montana Tax-Free Fund, Inc. (since May 1993), Integrity Fund of Funds, Inc. (since Aug. 1994), and ND Tax Free Fund, Inc. (since Oct. 1988); Vice President and Secretary, The Integrity Funds (since June 2003). | None |
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| None |
(1) The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the three series of The Integrity Funds.
(2) Trustees and/or Officers who are "interested persons" of the Fund as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Mr. Quist is an interested person by virtue of being an Officer and Director of the Fund's investment adviser and principal underwriter. Mr. Walstad is an interested person by virtue of being an Officer of the Fund and a shareholder of Integrity Mutual Funds.
(3) Effective February 29, 2008, Mark R. Anderson resigned as President of the Fund, and effective March 4, 2008, Mr. Walstad succeeded Mr. Anderson as Interim President of the Fund. Mr. Walstad is also a Trustee and Chairman of the Fund.
Trustees and Officers of the Fund serve until their resignation, removal, or retirement.
The SAI contains more information about the Fund's Trustees and is available without charge upon request, by calling Integrity Funds Distributor at 800-276-1262.
Schedule of Investments July 31, 2008
Name of Issuer |
|
|
|
|
|
|
|
Percentages represent the market value of each investment category to total net assets | Rating (Unaudited) Moody's/S&P | Coupon Rate | Maturity |
| Principal Amount |
| Market Value |
|
|
|
|
|
|
|
|
NEBRASKA MUNICIPAL BONDS (95.9%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adams Cty., NE Hosp. Auth. #001 (Mary Lanning Memorial Hosp.) ASGUA | NR/A | 5.300% | 12/15/2018 | $ | 250,000 | $ | 252,517 |
Adams County Hospital Rev Mary Lanning Memorial Radian Insured | NR/A | 5.250 | 12/15/2033 |
| 250,000 |
| 240,372 |
Dawson Cty., NE SID #001 (IBP, Inc. Proj.) Ref. G.O. | Baa/BBB- | 5.650 | 02/01/2022 |
| 700,000 |
| 687,750 |
Dawson Cty., NE School Dist. #20 (Gothenburg) G.O. MBIA | A/AA | 4.500 | 12/15/2025 |
| 405,000 |
| 393,445 |
Dawson Cty. Public Power Electric Sys. Rev. | NR/AA- | 4.750 | 12/01/2032 |
| 250,000 |
| 234,442 |
*Dodge Cty., NE SD #001 (Fremont Public Schools) FSA | Aaa/NR | 5.500 | 12/15/2020 |
| 1,000,000 |
| 1,074,010 |
Douglas Cty., NE G.O. | Aa-1/AA+ | 4.750 | 12/01/2025 |
| 250,000 |
| 250,585 |
Douglas Cty., NE Hosp. Auth. #001 (Alegent Hlth—Immanuel Med. Ctr.) Rev. AMBAC | Aa-3/AA | 5.250 | 09/01/2021 |
| 250,000 |
| 255,062 |
Douglas Cty., NE (Catholic Health Corp.) Rev. MBIA | A/AA | 5.500 | 11/15/2021 |
| 340,000 |
| 340,105 |
Douglas Cty., NE Hosp. Auth. #002 (Nebraska Medical Center) | Aa-3/NR | 5.000 | 11/15/2016 |
| 250,000 |
| 265,105 |
Douglas Cty., NE (Catholic Health Corp.) Rev. MBIA | A/AA | 5.375 | 11/15/2015 |
| 45,000 |
| 45,113 |
Douglas Cty., NE (Catholic Health Corp.) Rev. MBIA | A/AA | 5.375 | 11/15/2015 |
| 220,000 |
| 220,000 |
Douglas County, NE Hosp. Methodist Health | NR/A- | 5.500 | 11/01/2038 |
| 500,000 |
| 482,820 |
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 |
Douglas Cty., NE SD #010 (Elkhorn Pub. Schools) G.O. FSA Insured | NR/AAA | 4.500 | 12/15/2023 |
| 250,000 |
| 245,565 |
Fremont, NE Combined Utilities Rev. MBIA | A/AA | 5.000 | 10/15/2021 |
| 500,000 |
| 515,140 |
Hall Cty., NE School Dist. #2 Grand Island FSA | Aaa/AAA | 5.000 | 12/15/2023 |
| 500,000 |
| 526,975 |
Kearney Cty., NE Highway Allocation Fund AMBAC | Aa-3/NR | 5.350 | 06/15/2021 |
| 100,000 |
| 100,039 |
Lancaster Cnty Neb Hosp Auth No 1 (Bryanlg Med Center) | A-1/NR | 4.000 | 06/01/2010 |
| 250,000 |
| 252,805 |
*Lancaster Cty., NE Hosp. Auth. #1 (BryanLGH Medical Center Project) | A-1/NR | 4.750 | 06/01/2021 |
| 1,000,000 |
| 986,520 |
Lancaster Cty., NE School Dist. #1 (Lincoln Public Schools) | Aa-1/AAA | 5.250 | 01/15/2021 |
| 500,000 |
| 524,610 |
Lancaster Cty., NE School Dist. #1 (Lincoln Public Schools) G.O. | Aa-1/AAA | 5.250 | 01/15/2022 |
| 500,000 |
| 524,370 |
Lancaster Cty, NE School District #0160 (Norris Schools) G.O. FSA | Aaa/NR | 5.000 | 12/15/2025 |
| 250,000 |
| 254,560 |
*Lincoln, NE Elec. Syst. Rev. | Aa/AA | 5.000 | 09/01/2021 |
| 1,000,000 |
| 1,043,220 |
Lincoln, NE San. Swr. Rev. MBIA | Aa/AA+ | 4.500 | 06/15/2029 |
| 250,000 |
| 236,892 |
Lincoln, NE Water Rev. | Aa/AA- | 5.000 | 08/15/2022 |
| 575,000 |
| 599,236 |
Madison Cty., NE Hosp. Auth. #001 (Faith Regl. Hlth. Svcs.) Rev. ASGUA | NR/A | 5.350 | 07/01/2018 |
| 250,000 |
| 252,680 |
#Metropolitan Community College South Omaha Bldg. Proj. AMBAC | Aa-3/AA | 4.500 | 03/01/2026 |
| 1,000,000 |
| 966,320 |
NE Hgr. Educ. Loan Program Senior Subord. Term MBIA | A/AA | 6.250 | 06/01/2018 |
| 800,000 |
| 824,776 |
NE Hgr. Educ. Loan Program Junior Subord. Rev. MBIA | A/AA | 6.400 | 06/01/2013 |
| 145,000 |
| 147,952 |
NE Hgr. Educ. Loan Program Junior Subord. Term MBIA | A/AA | 6.450 | 06/01/2018 |
| 400,000 |
| 412,276 |
*NE Hgr. Educ. Loan Program Student Loan MBIA | A/AA | 5.875 | 06/01/2014 |
| 765,000 |
| 765,803 |
NE Hgr. Educ. Loan Program B Rev. MBIA | A/AA | 6.000 | 06/01/2028 |
| 100,000 |
| 100,039 |
#NE Educ. Finance Auth. (Wesleyan Univ.) Rev. Radian Insured | NR/A | 5.500 | 04/01/2027 |
| 1,000,000 |
| 1,008,380 |
NE Invmt. Finance Auth. Single Family Hsg. Rev. GNMA/FNMA | NR/AAA | 6.250 | 09/01/2028 |
| 5,000 |
| 5,037 |
NE Invmt. Finance Auth. Single Family Hsg. Rev. GNMA | NR/AAA | 6.200 | 09/01/2017 |
| 5,000 |
| 5,037 |
*NE Invmt. Finance Auth. Single Family Hsg. Rev. | NR/AAA | 6.300 | 09/01/2028 |
| 10,000 |
| 10,075 |
NE Invmt. Finance Auth. Multifamily Hsg. Rev. FNMA | NR/AAA | 6.200 | 06/01/2028 |
| 135,000 |
| 135,019 |
NE Public Power District | Aaa/AAA | 5.125 | 01/01/2011 |
| 300,000 |
| 306,420 |
NE Invmt. Finance Auth. (Great Plains Regional Medical Center) ASGUA | NR/A | 5.450 | 11/15/2017 |
| 400,000 |
| 403,628 |
NE Invmt. Finance Auth. (Great Plains Regional Medical Center) Rev. Asset Guaranty | NR/A | 5.450 | 11/15/2022 |
| 750,000 |
| 758,685 |
Omaha, NE Various Purpose | Aaa/AAA | 5.000 | 05/01/2022 |
| 250,000 |
| 261,638 |
Omaha, NE Various Purpose | Aaa/AAA | 4.250 | 10/15/2026 |
| 500,000 |
| 473,210 |
Omaha, NE Public Power Dist. Elec. Syst. Rev. | Aa-1/AA | 5.200 | 02/01/2022 |
| 500,000 |
| 523,855 |
#Omaha, NE Public Power Electric Rev. | Aa-1/AA | 5.000 | 02/01/2034 |
| 1,000,000 |
| 1,003,570 |
Omaha, NE Public Power Dist. Elec. Syst. Rev. | Aa/NR | 6.200 | 02/01/2017 |
| 650,000 |
| 739,616 |
#Omaha, NE (Riverfront Project) Special Obligation | Aa-1/AA+ | 5.500 | 02/01/2029 |
| 1,000,000 |
| 1,046,390 |
Omaha, NE Public Power Dist. (Electric Rev) AMBAC | Aa-3/AA | 4.750 | 02/01/2025 |
| 250,000 |
| 251,478 |
Omaha, NE Public Power Dist. (Electric Rev) AMBAC | Aa-3/AA | 4.300 | 02/01/2031 |
| 100,000 |
| 88,996 |
Papillion, NE G.O. MBIA | A/AA | 4.350 | 12/15/2027 |
| 250,000 |
| 233,840 |
Platte Cty., NE Hosp. Auth. No. 1 (Columbus Community Hospital Proj.) Hosp. Rev. Asset Guaranty | NR/A | 5.650 | 05/01/2012 |
| 100,000 |
| 105,309 |
Platte Cty., NE Hosp. Auth. No. 1 (Columbus Community Hospital Proj.) Hosp. Rev. Asset Guaranty | NR/A | 6.150 | 05/01/2030 |
| 250,000 |
| 257,063 |
Public Power Generation Agy Whelan Energy Rev AMBAC | Aa-3/AA | 5.000 | 01/01/2032 |
| 500,000 |
| 488,235 |
Sarpy Cty., NE School Dist. #046 FSA | Aaa/AAA | 5.000 | 12/15/2022 |
| 200,000 |
| 200,070 |
Saunders Cty., NE G.O. FSA | Aaa/AAA | 5.000 | 11/01/2030 |
| 250,000 |
| 250,903 |
Saunders Cty., NE G.O. MBIA | A/AA | 4.250 | 12/15/2021 |
| 515,000 |
| 497,495 |
University of NE Fac. Corp. Deferred Maintenance AMBAC | Aa/AA | 5.000 | 07/15/2020 |
| 500,000 |
| 526,660 |
Univ. of NE Board of Regents Student Facs. | Aa/AA- | 5.000 | 05/15/2032 |
| 250,000 |
| 250,900 |
Univ. of NE Board of Regents (Heath & Rec. Proj.) | Aa/AA- | 5.000 | 05/15/2033 |
| 600,000 |
| 604,674 |
Univ. of NE (U. of NE - Lincoln Student Fees) Rev. | Aa/AA- | 5.125 | 07/01/2032 |
| 250,000 |
| 252,998 |
Washington Cnty S/D#1 (Blair) | NR/A | 3.750 | 12/15/2013 |
| 145,000 |
| 146,939 |
|
|
|
|
| |||
TOTAL NEBRASKA MUNICIPAL BONDS (COST: $25,860,438) |
|
| $ | 26,102,224 | |||
|
|
|
|
| |||
SHORT-TERM SECURITIES (3.0%) |
| Shares |
|
| |||
Wells Fargo Advantage National Tax-Free Money Market (COST: $810,031) |
| 810,031 | $ | 810,031 | |||
|
|
|
|
| |||
TOTAL INVESTMENTS IN SECURITIES (COST: $26,670,469) |
|
| $ | 26,912,255 | |||
OTHER ASSETS LESS LIABILITIES |
|
|
| 316,908 | |||
|
|
|
|
| |||
NET ASSETS |
|
| $ | 27,229,163 |
*Indicates bonds are segregated by the custodian to cover when-issued or delayed-delivery purchases.
#Indicates bonds are segregated by the custodian to cover initial margin requirements.
Footnote: Non-rated (NR) securities have been determined to be of investment grade quality by the Fund's Manager.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels:
| Level 1— | quoted prices in active markets for identical securities |
| Level 2— | other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risks, etc.) |
| Level 3— | significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) |
The following is a summary of the inputs used to value the Fund's investments as of July 31, 2008:
| Valuation Inputs | Investments in Securities |
| |
| Level 1—Quoted Prices | $ | 810,031 |
|
| Level 2—Other Significant Observable Inputs |
| 26,102,224 |
|
| Level 3—Significant Unobservable Inputs |
| — |
|
| Total | $ | 26,912,255 |
|
The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Assets and Liabilities
July 31, 2008
ASSETS |
|
| ||
| Investments in securities, at value (cost: $26,670,469) | $ | 26,912,255 | |
| Cash |
| 1,800 | |
| Accrued interest receivable |
| 345,849 | |
| Accrued dividends receivable |
| 586 | |
| Receivable for fund shares sold |
| 100,000 | |
| Receivable from manager |
| 3,839 | |
| Prepaid expenses |
| 2,116 | |
|
| Total Assets | $ | 27,366,445 |
|
|
|
|
|
LIABILITIES |
|
| ||
| Dividends payable | $ | 84,735 | |
| Payable for fund shares redeemed |
| 10,200 | |
| Accrued expenses |
| 22,781 | |
| Payable to affiliates |
| 19,566 | |
|
| Total Liabilities | $ | 137,282 |
|
|
|
|
|
NET ASSETS | $ | 27,229,163 | ||
|
|
|
|
|
Net assets are represented by: |
|
| ||
| Paid-in capital | $ | 30,113,265 | |
| Accumulated undistributed net realized gain (loss) on investments and futures |
| (3,157,412) | |
| Accumulated undistributed net investment income (loss) |
| 31,524 | |
| Unrealized appreciation (depreciation) on investments |
| 241,786 | |
|
| Total amount representing net assets applicable to 2,715,976 outstanding shares of no par common stock (unlimited shares authorized) | $ | 27,229,163 |
|
|
|
|
|
Net asset value per share | $ | 10.03 | ||
|
|
|
|
|
Public offering price (based on sales charge of 4.25%) | $ | 10.48 |
The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Operations
For the year ended July 31, 2008
INVESTMENT INCOME |
|
| ||
| Interest | $ | 1,319,376 | |
| Dividends |
| 21,687 | |
|
| Total Investment Income | $ | 1,341,063 |
|
|
|
|
|
EXPENSES |
|
| ||
| Investment advisory fees | $ | 139,084 | |
| Distribution (12b-1) fees |
| 69,542 | |
| Administrative service fees |
| 34,771 | |
| Transfer agent fees |
| 55,634 | |
| Accounting service fees |
| 37,908 | |
| Custodian fees |
| 4,875 | |
| Professional fees |
| 15,404 | |
| Trustees fees |
| 3,558 | |
| Insurance expense |
| 736 | |
| Reports to shareholders |
| 3,070 | |
| Audit fees |
| 6,576 | |
| Legal fees |
| 21,129 | |
| Transfer agent out-of-pockets |
| 1,648 | |
| License, fees, and registrations |
| 2,447 | |
|
| Total Expenses | $ | 396,382 |
| Less expenses waived or absorbed by the Fund's manager |
| (98,742) | |
|
| Total Net Expenses | $ | 297,640 |
|
|
|
|
|
NET INVESTMENT INCOME (LOSS) | $ | 1,043,423 | ||
|
|
|
|
|
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| ||
| Net realized gain (loss) from investment transactions | $ | 49,200 | |
| Net change in unrealized appreciation (depreciation) of investments |
| (330,857) | |
|
| Net Realized and Unrealized Gain (Loss) on Investments | $ | (281,657) |
|
|
|
|
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 761,766 |
The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Changes in Net Assets
For the year ended July 31, 2008 and the year ended July 31, 2007
|
|
| For The Year Ended July 31, 2008 | For The Year Ended July 31, 2007 | ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| ||
| Net investment income (loss) | $ | 1,043,423 | $ | 1,136,418 | |
| Net realized gain (loss) on investment transactions |
| 49,200 |
| 101,063 | |
| Net change in unrealized appreciation (depreciation) on investments |
| (330,857) |
| (289,997) | |
|
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 761,766 | $ | 947,484 |
|
|
|
|
|
|
|
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| ||
| Dividends from net investment income ($.38 and $.39 per share, respectively) | $ | (1,039,415) | $ | (1,132,417) | |
| Distributions from net realized gain on investment transactions ($.00 and $.00 per share, respectively) |
| 0 |
| 0 | |
|
| Total Dividends and Distributions | $ | (1,039,415) | $ | (1,132,417) |
|
|
|
|
|
|
|
CAPITAL SHARE TRANSACTIONS |
|
|
|
| ||
| Proceeds from sale of shares | $ | 1,513,172 | $ | 697,160 | |
| Proceeds from reinvested dividends |
| 707,111 |
| 755,442 | |
| Cost of shares redeemed |
| (3,094,308) |
| (3,629,141) | |
|
| Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions | $ | (874,025) | $ | (2,176,539) |
|
|
|
|
|
|
|
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | (1,151,674) | $ | (2,361,472) | ||
NET ASSETS, BEGINNING OF PERIOD |
| 28,380,837 |
| 30,742,309 | ||
NET ASSETS, END OF PERIOD | $ | 27,229,163 | $ | 28,380,837 | ||
|
|
|
|
| ||
Undistributed Net Investment Income | $ | 31,524 | $ | 28,868 |
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements July 31, 2008
Note 1. ORGANIZATION
The Fund is an investment portfolio of Integrity Managed Portfolios (the "Trust") and is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. The Trust is an unincorporated business trust organized under Massachusetts law on August 10, 1990. The Fund had no operations from that date to November 17, 1993, other than matters relating to organization and registration. On November 17, 1993, the Fund commenced its Public Offering of capital shares.
The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal and Nebraska state income tax as is consistent with preservation of capital. The Fund will seek to achieve this objective by investing primarily in a portfolio of Nebraska municipal securities.
Shares of the Fund are offered at net asset value plus a maximum sales charge of 4.25% of the offering price.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation—Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees and includes consideration of the following:
| • | yields or prices of municipal bonds of comparable quality; |
| • | type of issue, coupon, maturity, and rating; |
| • | indications as to value from dealers; and |
| • | general market conditions. |
Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on the trade date.
The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.
When-issued securities—The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities purchased on a when-issued basis are identified as such in the Fund's Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract's terms, or if the issuer does not issue the securities due to political, economic, or other factors.
Contingent Deferred Sales Charge—In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 24 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).
Federal and state income taxes—The Fund's policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its net investment income and any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required. Distributions during the year ended July 31, 2008 were characterized as tax-exempt for tax purposes.
In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax-return positions taken on federal income tax returns for all open tax years (tax years ended July 31, 2004 through July 31, 2008) for purposes of implementing FIN 48, and has concluded that no provision for income tax is required in the Fund's financial statements. Interest and penalties related to uncertain tax positions, if any, are classified in the Fund's financial statements as other expense.
The tax character of distributions paid was as follows:
|
|
| July 31, 2008 |
| July 31, 2007 |
| |
| Tax-exempt income | $ | 1,039,415 | $ | 1,132,417 |
| |
| Ordinary income |
| 0 |
| 0 |
| |
| Long-term capital gains |
| 0 |
| 0 |
| |
|
| Total | $ | 1,039,415 | $ | 1,132,417 |
|
As of July 31, 2008, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Undistributed Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation) | Total Accumulated Earnings/(Deficit) |
|
| $0 | $0 | ($3,157,412) | $273,310 | ($2,884,102) |
|
The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2008 totaling $3,157,412, which may be used to offset capital gains. Any difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable to timing differences associated with market discount. 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 |
| 2009 | $148,986 |
| 2010 | $591,993 |
| 2011 | $713,949 |
| 2012 | $579,276 |
| 2013 | $1,123,208 |
For the year ended July 31, 2008, the Fund did not make any permanent reclassifications to reflect tax character.
Net capital losses incurred after October 31 and within the tax year are deemed to arise on the first business day of the Fund's next taxable year. For the year ended July 31, 2008, the Fund did not defer to August 1, 2008, any post-October capital losses, post-October currency losses, or post-October passive foreign investment company losses.
Distributions to shareholders—Dividends from net investment income, declared daily and paid monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed at least annually.
Premiums and discounts—Premiums and discounts on municipal securities are amortized for financial reporting purposes.
Other—Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatments for market discount, capital loss carryforwards, and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
Futures contracts—The Fund may purchase and sell financial futures contracts to hedge against changes in the values of tax-exempt municipal securities the Fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of a particular index or a certain amount of U.S. government or municipal securities at a set price on a future date. Upon entering into a futures contract, the Fund is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirement of the futures exchange on which the contract is traded. Subsequent payments ("variation margin") are made or received by the Fund, dependent on the fluctuations in the value of the underlying index. Daily fluctuations in value are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize, for book purposes, a gain or loss equal to the difference between the value of the futures contracts sold and the futures contracts to buy. Unrealized appreciation (depreciation) related to open futures contracts is required to be treated as realized gain (loss) for federal income tax purposes.
Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Schedule of Investments. The Statement of Assets and Liabilities reflects a receivable or payable for the daily mark to market for variation margin.
Certain risks may arise upon entering into futures contracts. These risks may include changes in the value of the futures contracts that may not directly correlate with changes in the value of the underlying securities.
Use of estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 3. CAPITAL SHARE TRANSACTIONS
As of July 31, 2008, there were unlimited shares of no par authorized; 2,715,976 and 2,801,059 shares were outstanding at July 31, 2008 and July 31, 2007, respectively.
Transactions in capital shares were as follows:
| Shares | |
| For The Year Ended July 31, 2008 | For The Year Ended July 31, 2007 |
Shares sold | 68,577 | |
Shares issued on reinvestment of dividends | 69,816 | 73,768 |
Shares redeemed | (304,694) | (354,984) |
Net increase (decrease) | (85,083) | (212,639) |
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, Inc. ("Integrity Fund Services"), the Fund's transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, the Fund's sponsor.
The Fund has engaged Integrity Money Management to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund's average daily net assets. The Fund has recognized $47,942 of investment advisory fees after partial waiver for the year ended July 31, 2008. The Fund does not have a payable to Integrity Money Management at July 31, 2008 for investment advisory fees. Certain Officers and Trustees of the Fund are also Officers and Directors of Integrity Money Management.
Under the terms of the advisory agreement, Integrity Money Management has agreed to pay all the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 1.07% of the Fund's average daily net assets on an annual basis up to the amount of the investment advisory and management fee. Accordingly, after fee waivers and expense reimbursements, the Fund's actual total annual operating expenses were 1.07% for the year ended July 31, 2008.
Principal underwriter and shareholder services
Integrity Funds Distributor serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called "Distribution Plan expenses". The Fund currently pays an annual distribution fee of up to 0.25% of the average daily net assets of the Fund. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $69,542 of distribution fees for the year ended July 31, 2008. The Fund has a payable to Integrity Funds Distributor of $5,626 at July 31, 2008 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 $55,634 of transfer agency fees and expenses for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $4,500 at July 31, 2008 for transfer agency fees. Integrity Fund Services also acts as the Fund's accounting services agent for a monthly fee equal to the sum of a fixed fee of $2,000, and a variable fee equal to 0.05% of the Fund's average daily net assets on an annual basis for the Fund's first $50 million and at a lower rate on the average daily net assets in excess of $50 million. An additional fee with a minimum of $500 per month is charged for each additional share class. The Fund has recognized $37,908 of accounting service fees for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $3,125 at July 31, 2008 for accounting service fees. Integrity Fund Services also acts as the Fund's administrative services agent for a variable fee equal to 0.125% of the Fund's average daily net assets on an annual basis for the Fund's first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional fee with a minimum of $500 per month will be charged for each additional share class. The Fund has recognized $34,771 of administrative service fees for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $2,813 at July 31, 2008 for administrative service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment securities (excluding short-term securities) aggregated $2,786,900 and $4,126,200, respectively, for the year ended July 31, 2008.
Note 6. INVESTMENT IN SECURITIES
At July 31, 2008, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $26,670,469. The net unrealized appreciation of investments based on the cost was $241,786, which is comprised of $491,179 aggregate gross unrealized appreciation and $249,393 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, and establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. The standard is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
In accordance with the provisions of SFAS No. 157, the Fund adopted this standard during the current fiscal year. The implementation of the standard did not impact the amounts reported in the financial statements.
In March 2008, FASB issued SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities. This standard requires enhanced disclosures to provide information about the reasons the Fund invests in derivative instruments, the accounting treatment and the effect derivatives have on financial performance. The standard is effective for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Management is currently evaluating the impact the adoption of SFAS No. 161 will have on the Fund's financial statement disclosures.
Financial Highlights July 31, 2008
Selected per share data and ratios for the periods indicated
|
| For The Year Ended July 31, 2008 |
| For The Year Ended July 31, 2007 |
| For The Year Ended July 31, 2006 |
| For The Year Ended July 29, 2005 |
| For The Year Ended July 30, 2004 | ||
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 10.13 | $ | 10.20 | $ | 10.11 | $ | 10.55 | $ | 10.62 | ||
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Income from Investment Operations: |
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| Net investment income (loss) | $ | .38 | $ | .39 | $ | .40 | $ | .42 | $ | .45 | |
| Net realized and unrealized gain (loss) on investment and futures transactions |
| (.10) |
| (.07) |
| .09 |
| (.44) |
| (.07) | |
|
| Total Income (Loss) From Investment Operations | $ | .28 | $ | .32 | $ | .49 | $ | (.02) | $ | .38 |
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Less Distributions: |
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| Dividends from net investment income | $ | (.38) | $ | (.39) | $ | (.40) | $ | (.42) | $ | (.45) | |
| Distributions from net realized gains |
| .00 |
| .00 |
| .00 |
| .00 |
| .00 | |
|
| Total Distributions | $ | (.38) | $ | (.39) | $ | (.40) | $ | (.42) | $ | (.45) |
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NET ASSET VALUE, END OF PERIOD | $ | 10.03 | $ | 10.13 | $ | 10.20 | $ | 10.11 | $ | 10.55 | ||
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Total Return |
| 2.79%(A) |
| 3.16(A) |
| 4.90%(A) |
| (0.18%)(A) |
| 3.59%(A) | ||
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RATIOS/SUPPLEMENTAL DATA: |
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| Net assets, end of period (in thousands) | $ | 27,229 | $ | 28,381 | $ | 30,742 | $ | 32,488 | $ | 34,682 | |
| Ratio of net expenses (after expense assumption) to average net assets |
| 1.07%(B) |
| 1.07%(B) |
| 1.03%(B) |
| 0.98%(B) |
| 0.95%(B) | |
| Ratio of net investment income to average net assets |
| 3.74% |
| 3.81% |
| 3.89% |
| 4.07% |
| 4.18% | |
| Portfolio turnover rate |
| 10.42% |
| 17.42% |
| 14.63% |
| 4.36% |
| 8.95% |
(A)Excludes maximum sales charge of 4.25%.
(B)During the periods indicated above, Integrity Money Management assumed and/or waived expenses of $98,742, $81,123, $66,312, $84,449, and $93,640, respectively. If the expenses had not been assumed and/or waived, the annualized ratio of total expenses to average net assets would have been 1.43%, 1.34%, 1.24%, 1.22%, and 1.21%, respectively.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
Tax Information for the Year Ended July 31, 2008 (Unaudited)
We are required to advise you within 60 days of the Fund's fiscal year regarding the federal tax status of distributions received by shareholders during such fiscal year. The distributions made during the fiscal year by the Fund were earned from the following sources:
|
|
| Dividends and Distributions Per Share | |||||
To Shareholders of Record |
| Payment Date |
| From Net Investment Income |
| From Net Realized Short-Term Gains |
| From Net Realized Long-Term Gains |
August 31, 2007 |
| August 31, 2007 | $ | .032590 |
| .0 |
| .0 |
September 28, 2007 |
| September 28, 2007 | $ | .029594 |
| .0 |
| .0 |
October 31, 2007 |
| October 31, 2007 | $ | .034200 |
| .0 |
| .0 |
November 30, 2007 |
| November 30, 2007 | $ | .031403 |
| .0 |
| .0 |
December 31, 2007 |
| December 31, 20007 | $ | .032254 |
| .0 |
| .0 |
January 31, 2008 |
| January 31, 2008 | $ | .031803 |
| .0 |
| .0 |
February 29, 2008 |
| February 29, 2008 | $ | .030856 |
| .0 |
| .0 |
March 31, 2008 |
| March 31, 2008 | $ | .030623 |
| .0 |
| .0 |
April 30, 2008 |
| April 30, 2008 | $ | .031367 |
| .0 |
| .0 |
May 30, 2008 |
| May 30, 2008 | $ | .031344 |
| .0 |
| .0 |
June 30, 2008 |
| June 30, 2008 | $ | .031457 |
| .0 |
| .0 |
July 31, 2008 |
| July 31, 2008 | $ | .031591 |
| .0 |
| .0 |
Shareholders should consult their tax advisors.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of the Nebraska Municipal Fund
We have audited the accompanying statement of assets and liabilities of the Nebraska Municipal Fund (one of the portfolios constituting the Integrity Managed Portfolios), including the schedule of investments as of July 31, 2008, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2008 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Nebraska Municipal Fund of the Integrity Managed Portfolios as of July 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota USA
September 12, 2008
Dear Shareholder:
Enclosed is the report of the operations for the New Hampshire Municipal Fund (the "Fund") for the year ended July 31, 2008. The Fund's portfolio and related financial statements are presented within for your review.
As we end the year, what one might have thought was an uneventful year was much the opposite.
First, interest rates spiked higher early in June as Federal Reserve Chairman Ben Bernanke voiced concern about inflation and the slumping dollar. However, a string of weak economic reports in the last part of June (consumer confidence plunged to its lowest level since 1992) along with more losses and downgrades in the banking sector, reduced corporate earnings expectations as well as higher energy prices have encouraged market participants to dump stocks in favor of low-risk government bonds, sending the 10-year treasury to 3.95%
Second, while the market likes to talk about light at the end of the tunnel, unfortunately in these days of financial turmoil we can never be sure whether it is light from the other side or another freight train coming. Most recently, Fannie Mae and Freddie Mac who own or guarantee nearly half of the $12 trillion mortgage market have seen their company stocks fall 75-80% year-to-date, as the worst housing downturn since the Great Depression impacted expected solvency levels.
Municipals on the other hand didn't fare any better as a number of the secondary insurers saw significant downgrades of their ratings, the collapse of major financial institution Bear Stearns and the exit of UBS from the municipal bond market.
The secondary insurers of municipal debt are in turmoil as a number of the insurance companies are in dire straits. Many bond professionals and investors, who in the past treated all insured bonds equal from a credit perspective, now understand the importance of the underlying credit, the purpose of the debt issued, and its commitment to pay. Currently there are three insurers of municipal debt that have AAA ratings from all three rating agencies and two of those three insurers are on Credit Watch for possible downgrade.
These events have created great uncertainty and with that, opportunity. It is now a buyers market as high quality municipals are yielding in many instances, yields higher than taxable treasuries of similar maturities. Clearly there will be price rallies and price sell offs in the months ahead, but the underlying tone for tax-free municipals is bullish.
The New Hampshire Municipal Fund began the period at $10.24 and ended the period at $10.32 for a total return of 3.72%*. This compares to the Lehman Brothers Municipal Bond Index return of 2.84%.
The Fund's yearly overall performance can be attributed to its defensive portfolio, with an average maturity of 8.7 years and an average maturity to the first call date of 4.1 years. That, along with an average portfolio coupon of 4.87% helps relative performance in volatile environments.
An important part of the Fund's strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Some purchases made throughout the year include: Manchester Water, 5.00% coupon, due 2028; N.H. State Capital Improvement, 4.75% coupon, due 2027; N.H. Housing, 4.90% coupon, due 2025; and Merrimack County General Obligations, 4.25% coupon, due 2019.
Portfolio quality at year-end was as follows: AAA 12.0%, AA 57.3% and A 30.7%.
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 the Fund's website at www.integrityfunds.com for daily prices along with pertinent Fund information.
Sincerely,
Monte Avery
Senior Portfolio Manager
The views expressed are those of Monte Avery, Senior Portfolio Manager with Integrity Mutual Funds, Inc. ("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, the markets generally, or any Integrity Mutual Fund.
*Performance does not include applicable front-end or contingent deferred sales charges ("CDSCs"), which would have reduced the performance.
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities more so than a municipal bond fund that does not concentrate its securities in a single state.
July 31, 2008 (Unaudited)
PROXY VOTING OF FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 800-276-1262. A report on Form N-PX of how the Fund voted any such proxies during the most recent twelve-month period ended June 30 is available through the Fund's website at www.integrityfunds.com. The information is also available from the Electronic Data Gathering, Analysis, and Retrieval ("EDGAR") database on the website of the Securities and Exchange Commission ("SEC") at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
Within 60 days of the end of its second and fourth fiscal quarters, the Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports on the Form N-CSR(S). These reports are filed electronically with the SEC and are delivered to the shareholders of the Fund. The Fund also files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q and N-CSR(S) are available on the SEC's website at www.sec.gov. The Fund's Forms N-Q and N-CSR(S) may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 202-942-8090. You may also access this information from the Fund's website at www.integrityfunds.com.
SHAREHOLDER INQUIRIES AND MAILINGS
All inquiries regarding the Fund should be directed to:
Integrity Funds Distributor, Inc.
1 Main Street North
Minot, ND 58703
Phone: 800-276-1262
All inquiries regarding account information should be directed to:
Integrity Fund Services, Inc.
P.O. Box 759
Minot, ND 58702
Phone: 800-601-5593
To reduce expenses, the Fund may only mail one copy of its prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please call Integrity Funds Distributor, Inc. ("Integrity Funds Distributor") at 800-276-1262 (or contact your financial institution). Individual copies will be sent thirty days after receiving your request.
Terms & Definitions July 31, 2008 (Unaudited)
Appreciation
Increase in the value of an asset
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned by a fund on an annual basis assuming all distributions are reinvested
Coupon Rate or Face Rate
Rate of interest payable annually based on the face amount of the bond; expressed as a percentage
Depreciation
Decrease in the value of an asset
Lehman Brothers Municipal Bond Index
An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market; the index does not take into account brokerage commissions or other costs, may include bonds different from those in the Fund, and may pose different risks than the Fund
Market Value
Actual (or estimated) price at which a bond trades in the marketplace
Maturity
A measure of the term or life of a bond in years; when a bond "matures", the issuer repays the principal
Net Asset Value
The value of all of a fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial sales charge
Quality Ratings
A designation assigned by independent rating companies to give a relative indication of a bond's creditworthiness; "AAA," "AA," "A," and "BBB" indicate investment grade securities. Ratings can range from a high of "AAA" to a low of "D".
Total Return
Measures both the net investment income and any realized and unrealized appreciation or depreciation of the underlying investments in a fund's portfolio for the period, assuming the reinvestment of all dividends; represents the aggregate percentage or dollar value change over the period
July 31, 2008 (Unaudited)
COMPOSITION
Portfolio Quality Ratings
(Based on total long-term investments)
| AAA | 12.0% |
| AA | 57.3% |
| A | 30.7% |
Quality ratings reflect the financial strength of the issuer. They are assigned by independent ratings services such as Moody's Investors Services ("Moody's") and Standard & Poor's Ratings Group ("S&P"). Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. ("Integrity Money Management"), the Fund's investment adviser.
These percentages are subject to change.
Portfolio Market Sectors
(As a percentage of Net Assets)
| T—Transportation | 39.3% |
| O—Other | 15.6% |
| GO—General Obligations | 14.7% |
| HC—Health Care | 12.5% |
| S—School | 7.6% |
| H—Housing | 5.2% |
| I—Industrial | 5.1% |
Market sectors are breakdowns of the Fund's portfolio holdings into specific investment classes.
These percentages are subject to change.
July 31, 2008 (Unaudited)
DISCLOSURE OF FUND EXPENSES
The example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs:
| • | transaction costs: | sales charges (loads), redemption fees, and exchange fees |
| • | ongoing costs: | 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 January 31, 2008 to July 31, 2008.
The example illustrates the Fund's costs in two ways:
Actual expenses
The section in the table under the heading "Actual" provides information about actual account values and actual expenses. You may use the information in these columns together with the amount you invested to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an account value of $8,600 divided by $1,000 equals 8.6), then multiply the result by the number in the column entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The section in the table under the heading "Hypothetical (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the section in the table under the heading "Hypothetical (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value | Ending Account Value | Expenses Paid During Period* | |
Actual | $1,000.00 | $ | 997.54 | $5.34 |
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Hypothetical (5% return before expenses) | $1,000.00 | $ | 1,019.51 | $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 (0.25%) for the six-month period of January 31, 2008 to July 31, 2008.
July 31, 2008 (Unaudited)
AVERAGE ANNUAL TOTAL RETURNS
| For periods ending July 31, 2008 | |||||
1 year | 3 year | 5 year | 10 year | Since Inception | ||
| Without Sales Charge | 3.72% | 3.50% | 2.66% | 3.43% | 4.43% |
| With Sales Charge (4.25%) | (0.65%) | 2.02% | 1.78% | 2.98% | 4.14% |
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1 year | 3 year | 5 year | 10 year | Since Inception | ||
|
| 2.84% | 3.22% | 4.35% | 4.92% | 5.70% |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemption of Fund shares.
The Fund's performance prior to December 19, 2003 was achieved while the Fund was managed by another investment adviser that used different investment strategies and techniques, which may have produced different investment results than those achieved by the current investment adviser. Forum Investment Advisors, LLC served as investment adviser to the Fund until December 19, 2003.
July 31, 2008 (Unaudited)
COMPARATIVE INDEX GRAPH
Comparison of change in value of a $10,000 investment in the Fund and the Lehman Brothers Municipal Bond Index
New Hampshire Municipal Fund without Sales Charge | New Hampshire Municipal Fund with Maximum Sales Charge | Lehman Brothers Municipal Bond Index | ||||
7/31/98 | $ | 10,000 | $ | 9,573 | $ | 10,000 |
1999 | $ | 10,267 | $ | 9,829 | $ | 10,288 |
2000 | $ | 10,631 | $ | 10,177 | $ | 10,732 |
2001 | $ | 11,413 | $ | 10,926 | $ | 11,815 |
2002 | $ | 12,009 | $ | 11,496 | $ | 12,608 |
2003 | $ | 12,289 | $ | 11,765 | $ | 13,061 |
2004 | $ | 12,872 | $ | 12,322 | $ | 13,816 |
2005 | $ | 12,639 | $ | 12,100 | $ | 14,695 |
2006 | $ | 13,114 | $ | 12,554 | $ | 15,071 |
2007 | $ | 13,511 | $ | 12,934 | $ | 15,713 |
7/31/08 | $ | 14,013 | $ | 13,415 | $ | 16,160 |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The graph does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
The graph comparing the Fund's performance to a benchmark index provides you with a general sense of how the Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers Municipal Bond Index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in New Hampshire municipal bonds. The Fund's total return for the periods shown appears with and without sales charges and includes Fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged; there are no expenses that affect the results. In addition, few investors could purchase all of the securities necessary to match the index. If they could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.
July 31, 2008 (Unaudited)
MANAGEMENT OF THE FUND
The Board of the Fund 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 three series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with Integrity Money Management or any of its affiliates; these are the "Independent" Trustees. Two of the remaining three Trustees and/or Officers are "interested" by virtue of their affiliation with Integrity Money Management and/or its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee, and other Directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Jerry M. Stai | Trustee | Indefinite | 12 | Faculty, Embry-Riddle University (August 2000 to September 2005); Faculty, Park University (August 2005 to December 2005); Non-Profit Specialist, Bremer Bank (since July 2005); Faculty, Minot State University (since August 2000); Director, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006). | Marycrest Franciscan Development, Inc. |
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(1) The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the three series of The Integrity Funds.
Trustees and Officers of the Fund serve until their resignation, removal, or retirement.
The Statement of Additional Information ("SAI") contains more information about the Fund's Trustees and is available without charge upon request, by calling Integrity Funds Distributor at 800-276-1262.
The Interested Trustees and Officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee, and other Directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEE AND OFFICER
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Robert E. Walstad(2),(3) | Trustee, Chairman, Interim President | Indefinite | 12 | Director (Sept. 1987 to Feb. 2007), CEO (Sept. 2001 to Feb. 2007), Integrity Mutual Funds; Director, President, and Treasurer, (Aug. 1988 to Feb. 2007), Integrity Money Management; Director, President, and Treasurer (Aug. 1988 to Sept. 2004), ND Capital, Inc.; Director, President, and Treasurer (May 1989 to Feb. 2007), Integrity Fund Services, Inc.; Director, President, CEO, and Treasurer, (Jan. 1996 to Aug. 2003), Integrity Funds Distributor, Inc.; Director, CEO, Chairman, (Jan. 2002 to Feb. 2007) and President (Sept. 2002 to Dec. 2004), Capital Financial Services, Inc.; Director and President, (April 1994 to June 2004) South Dakota Tax-Free Fund, Inc.; President (Jan. 1996 to July 2007) and (since March 2008) Integrity Managed Portfolios, (May 2003 to July 2007) and (since March 2008) The Integrity Funds, (Jan. 1995 to July 2007) and (since March 2008) Integrity Fund of Funds, Inc., (Jan. 1989 to July 2007) and (since March 2008) ND Tax-Free Fund, Inc., (Aug. 1993 to July 2007) and (since March 2008) Montana Tax-Free Fund, Inc.; Director and Chairman Montana Tax-Free Fund, Inc. (since May 1993), Integrity Fund of Funds, Inc. (since Aug. 1994), and ND Tax Free Fund, Inc. (since Oct. 1988); Trustee, Chairman, (since January 1996) and Treasurer (January 1996 to May 2004), Integrity Managed Portfolios; Trustee and Chairman (since June 2003), The Integrity Funds. | Minot Park Board |
OFFICERS
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Peter A. Quist | Vice President, Secretary | Indefinite | 3 | Attorney; Director and Vice President, Integrity Mutual Funds; Director, Vice President, and Secretary, Integrity Money Management, ND Capital, Inc. (August 1988 to August 2006), Integrity Fund Services, Inc., and Integrity Funds Distributor; Director, Vice President, and Secretary, South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Montana Tax-Free Fund, Inc. (since May 1993), Integrity Fund of Funds, Inc. (since Aug. 1994), and ND Tax Free Fund, Inc. (since Oct. 1988); Vice President and Secretary, The Integrity Funds (since June 2003). | None |
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(1) The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the three series of The Integrity Funds.
(2) Trustees and/or Officers who are "interested persons" of the Fund as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Mr. Quist is an interested person by virtue of being an Officer and Director of the Fund's investment adviser and principal underwriter. Mr. Walstad is an interested person by virtue of being an Officer of the Fund and a shareholder of Integrity Mutual Funds.
(3) Effective February 29, 2008, Mark R. Anderson resigned as President of the Fund, and effective March 4, 2008, Mr. Walstad succeeded Mr. Anderson as Interim President of the Fund. Mr. Walstad is also a Trustee and Chairman of the Fund.
Trustees and Officers of the Fund serve until their resignation, removal, or retirement.
The SAI contains more information about the Fund's Trustees and is available without charge upon request, by calling Integrity Funds Distributor at 800-276-1262.
Schedule of Investments July 31, 2008
Name of Issuer |
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Percentages represent the market value of each investment category to total net assets | Rating (Unaudited) Moody's/S&P | Coupon Rate | Maturity |
| Principal Amount |
| Market Value | |
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NEW HAMPSHIRE MUNICIPAL BONDS (89.7%) |
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#Belknap Cty., NH G.O. MBIA | A-1/AA | 5.200% | 06/15/2013 | $ | 225,000 | $ | 227,309 | |
Concord, NH G.O. | Aa/AA | 4.600 | 10/15/2014 |
| 100,000 |
| 105,569 | |
*Derry, NH FSA | Aaa/NR | 4.800 | 02/01/2018 |
| 115,000 |
| 120,827 | |
Gorham, NH G.O. FSA | Aaa/NR | 4.850 | 04/01/2014 |
| 65,000 |
| 67,015 | |
#Hampton, NH G.O. XLCA | A-1/NR | 4.000 | 12/15/2020 |
| 200,000 |
| 193,326 | |
Hillsborough, NH G.O. XLCA | NR/A | 4.000 | 11/01/2020 |
| 100,000 |
| 98,776 | |
Hillsborough, NH G.O. XLCA | NR/A | 4.000 | 11/01/2021 |
| 100,000 |
| 97,505 | |
Hudson, NH School District Lot B | Aa-3/NR | 7.300 | 12/15/2008 |
| 20,000 |
| 20,422 | |
Manchester, NH Public Improvement | Aa/NR | 5.875 | 05/01/2019 |
| 50,000 |
| 51,880 | |
#Manchester, NH Airport Rev. MBIA | A/AA | 5.000 | 01/01/2009 |
| 225,000 |
| 227,502 | |
*Manchester, NH School Facs. Rev. MBIA | Aa-3/AA | 5.250 | 06/01/2009 |
| 250,000 |
| 257,688 | |
Manchester, NH Water Rev. FGIC | Aa-3/AA | 5.000 | 12/01/2028 |
| 100,000 |
| 100,846 | |
Merrimack Cty., NH G.O. FSA | NR/AAA | 4.250 | 12/01/2019 |
| 100,000 |
| 101,586 | |
Merrimack Cty., NH G.O. FSA | NR/AAA | 4.500 | 12/01/2027 |
| 100,000 |
| 98,010 | |
Nashua, NH G.O. | Aa/AA+ | 5.250 | 09/15/2017 |
| 100,000 |
| 107,353 | |
New Hampshire Hlth. & Educ. Facs. Auth. (Exeter) | A/A+ | 5.100 | 10/01/2010 |
| 100,000 |
| 104,434 | |
New Hampshire Hlth. & Educ. Facs. Auth. (Exeter) | A/A+ | 5.200 | 10/01/2011 |
| 60,000 |
| 62,768 | |
*New Hampshire Hlth. & Educ. Facs. Auth. (Exeter) | A/A+ | 5.500 | 10/01/2015 |
| 120,000 |
| 126,116 | |
New Hampshire Hlth. & Educ. Facs. Auth. (Exeter) | A/A+ | 5.625 | 10/01/2016 |
| 20,000 |
| 21,112 | |
#New Hampshire Hlth. & Educ. Facs. Auth. (Univ. Sys. of NH) AMBAC | Aa-3/AA | 5.500 | 07/01/2013 |
| 40,000 |
| 43,358 | |
New Hampshire Hlth. & Educ. Facs. Auth. (Univ. Sys. of NH) AMBAC | Aa-3/AA | 5.500 | 07/01/2013 |
| 95,000 |
| 102,526 | |
*New Hampshire State Capital Improvement G.O. | Aa/AA | 5.000 | 04/15/2013 |
| 250,000 |
| 269,030 | |
New Hampshire State Capital Improvement G.O. | Aa/AA | 4.750 | 03/01/2027 |
| 100,000 |
| 100,999 | |
New Hampshire State Hsg. Single Fam. Rev. | Aa/NR | 4.900 | 07/01/2025 |
| 200,000 |
| 183,070 | |
Portsmouth, NH G.O. MBIA | Aa/AA | 4.000 | 08/01/2019 |
| 100,000 |
| 99,644 | |
*Rochester, NH G.O. MBIA | A/NR | 4.750 | 07/15/2020 |
| 300,000 |
| 312,327 | |
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TOTAL NEW HAMPSHIRE MUNICIPAL BONDS |
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| $ | 3,300,998 | ||||
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GUAM MUNICIPAL BONDS (0.3%) |
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Guam Hsg. Corp. Single Family Mtg. | NR/AAA | 5.750 | 09/01/2031 |
| 10,000 | $ | 9,793 | |
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TOTAL MUNICIPAL BONDS (COST: $3,294,620) |
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| $ | 3,310,791 | |
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SHORT-TERM SECURITIES (9.4%) |
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| Shares |
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Wells Fargo Advantage National Tax-Free Money Market (Cost: $347,524) |
| 347,524 | $ | 347,524 | ||||
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TOTAL INVESTMENTS IN SECURITIES (COST: $3,642,144) |
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| $ | 3,658,315 | ||||
OTHER ASSETS MINUS LIABILITIES |
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| 22,584 | ||||
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NET ASSETS |
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| $ | 3,680,899 | |
*Indicates bonds are segregated by the custodian to cover when-issued or delayed delivery purchases.
#Indicates bonds are segregated by the custodian to cover initial margin requirements.
Footnote: Non-rated (NR) securities have been determined to be of investment grade quality by the Fund's Manager.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels:
| Level 1— | quoted prices in active markets for identical securities |
| Level 2— | other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risks, etc.) |
| Level 3— | significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) |
The following is a summary of the inputs used to value the Fund's investments as of July 31, 2008:
| Valuation Inputs | Investments in Securities |
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| Level 1—Quoted Prices | $ | 347,524 |
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| Level 2—Other Significant Observable Inputs |
| 3,310,791 |
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| Level 3—Significant Unobservable Inputs |
| — |
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| Total | $ | 3,658,315 |
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The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Assets and Liabilities
July 31, 2008
ASSETS |
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| Investments in securities, at value (cost: $3,642,144) | $ | 3,658,315 | |
| Accrued interest receivable |
| 41,799 | |
| Accrued dividends receivable |
| 573 | |
| Receivable from manager |
| 6,514 | |
| Prepaid expenses |
| 1,279 | |
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| Total Assets | $ | 3,708,480 |
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LIABILITIES |
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| Dividends payable | $ | 8,236 | |
| Accrued expenses |
| 12,377 | |
| Payable to affiliates |
| 6,968 | |
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| Total Liabilities | $ | 27,581 |
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NET ASSETS | $ | 3,680,899 | ||
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Net assets are represented by: |
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| Paid-in capital | $ | 3,810,768 | |
| Accumulated undistributed net realized gain (loss) on investments and futures |
| (148,062) | |
| Accumulated undistributed net investment income (loss) |
| 2,022 | |
| Unrealized appreciation (depreciation) on investments |
| 16,171 | |
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| Total amount representing net assets applicable to 356,507 outstanding shares of no par common stock (unlimited shares authorized) | $ | 3,680,899 |
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Net asset value per share | $ | 10.32 | ||
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Public offering price (based on sales charge of 4.25%) | $ | 10.78 |
The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Operations
For the year ended July 31, 2008
INVESTMENT INCOME |
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| Interest | $ | 144,922 | |
| Dividends |
| 9,569 | |
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| Total Investment Income | $ | 154,491 |
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EXPENSES |
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| Investment advisory fees | $ | 19,560 | |
| Distribution (12b-1) fees |
| 9,778 | |
| Administrative service fees |
| 24,001 | |
| Transfer agent fees |
| 24,001 | |
| Accounting service fees |
| 25,956 | |
| Custodian fees |
| 1,911 | |
| Professional fees |
| 5,613 | |
| Trustees fees |
| 1,791 | |
| Insurance expense |
| 105 | |
| Reports to shareholders |
| 1,240 | |
| Audit fees |
| 6,576 | |
| Legal fees |
| 3,039 | |
| Transfer agent out-of-pockets |
| 287 | |
| License, fees, and registrations |
| 1,430 | |
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| Total Expenses | $ | 125,288 |
| Less expenses waived or absorbed by the Fund's manager |
| (83,438) | |
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| Total Net Expenses | $ | 41,850 |
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NET INVESTMENT INCOME (LOSS) | $ | 112,641 | ||
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
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| Net realized gain (loss) from investment transactions | $ | (529) | |
| Net change in unrealized appreciation (depreciation) of investments |
| 30,921 | |
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| Net Realized and Unrealized Gain (Loss) on Investments | $ | 30,392 |
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NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 143,033 |
The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Changes in Net Assets
For the year ended July 31, 2008 and the year ended July 31, 2007
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| For The Year Ended July 31, 2008 | For The Year Ended July 31, 2007 | ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
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| Net investment income (loss) | $ | 112,641 | $ | 148,624 | |
| Net realized gain (loss) on investment transactions |
| (529) |
| 6,631 | |
| Net change in unrealized appreciation (depreciation) on investments |
| 30,921 |
| (792) | |
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| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 143,033 | $ | 154,463 |
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DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
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| Dividends from net investment income ($.30 and $.32 per share, respectively) | $ | (112,395) | $ | (148,272) | |
| Distributions from net realized gain on investment transactions ($.00 and $.00 per share, respectively) |
| 0 |
| 0 | |
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| Total Dividends and Distributions | $ | (112,395) | $ | (148,272) |
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CAPITAL SHARE TRANSACTIONS |
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| Proceeds from sale of shares | $ | 219,028 | $ | 24,360 | |
| Proceeds from reinvested dividends |
| 54,708 |
| 77,717 | |
| Cost of shares redeemed |
| (811,941) |
| (1,236,445) | |
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| Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions | $ | (538,205) | $ | (1,134,368) |
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TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | (507,567) | $ | (1,128,177) | ||
NET ASSETS, BEGINNING OF PERIOD |
| 4,188,466 |
| 5,316,643 | ||
NET ASSETS, END OF PERIOD | $ | 3,680,899 | $ | 4,188,466 | ||
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Undistributed Net Investment Income | $ | 2,022 | $ | 1,776 |
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements July 31, 2008
Note 1. ORGANIZATION
The Fund is an investment portfolio of Integrity Managed Portfolios (the "Trust") and is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. The Trust is an unincorporated business trust organized under Massachusetts law on August 10, 1990.
The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal income tax and New Hampshire state interest and dividend tax as is consistent with preservation of capital. The Fund will seek to achieve this objective by investing primarily in a portfolio of New Hampshire municipal securities.
On December 19, 2003 the Fund became a series of the Trust. Prior to this date, the Fund was part of the Forum Funds and was named the New Hampshire TaxSaver Bond Fund. The New Hampshire TaxSaver Bond Fund commenced operations on December 31, 1992. The Forum Funds is a Delaware business trust that is registered as an open-end management investment company under the 1940 Act.
Shares of the Fund are offered at net asset value plus a maximum sales charge of 4.25% of the offering price.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation—Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees and includes consideration of the following:
| • | yields or prices of municipal bonds of comparable quality; |
| • | type of issue, coupon, maturity, and rating; |
| • | indications as to value from dealers; and |
| • | general market conditions. |
Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on the trade date.
The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.
When-issued securities—The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities purchased on a when-issued basis are identified as such in the Fund's Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract's terms, or if the issuer does not issue the securities due to political, economic, or other factors.
Contingent Deferred Sales Charge—In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 24 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).
Federal and state income taxes—The Fund's policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its net investment income and any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required. Distributions during the year ended July 31, 2008 were characterized as tax-exempt for tax purposes.
In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax-return positions taken on federal income tax returns for all open tax years (tax years ended July 31, 2004 through July 31, 2008) for purposes of implementing FIN 48, and has concluded that no provision for income tax is required in the Fund's financial statements. Interest and penalties related to uncertain tax positions, if any, are classified in the Fund's financial statements as other expense.
The tax character of distributions paid was as follows:
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| July 31, 2008 |
| July 31, 2007 |
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| Tax-exempt income | $ | 112,395 | $ | 148,272 |
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| Ordinary income |
| 0 |
| 0 |
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| Long-term capital gains |
| 0 |
| 0 |
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| Total | $ | 112,395 | $ | 148,272 |
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As of July 31, 2008, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Undistributed Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation) | Total Accumulated Earnings/(Deficit) |
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| $0 | $0 | ($148,062) | $18,193 | ($129,869) |
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The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2008 totaling $148,062, which may be used to offset capital gains. Any difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable to timing differences associated with market discount. The capital loss carryforward amounts will expire in each of the years ended July 31 as shown in the table below.
| Year | Unexpired Capital Losses |
| 2013 | $147,534 |
| 2016 | $528 |
For the year ended July 31, 2008, the Fund did not make any permanent reclassifications to reflect tax character.
Net capital losses incurred after October 31 and within the tax year are deemed to arise on the first business day of the Fund's next taxable year. For the year ended July 31, 2008, the Fund did not defer to August 1, 2008, any post-October capital losses, post-October currency losses, or post-October passive foreign investment company losses.
Distributions to shareholders—Dividends from net investment income, declared daily and paid monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed at least annually.
Premiums and discounts—Premiums and discounts on municipal securities are amortized for financial reporting purposes.
Other—Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatments for market discount, capital loss carryforwards, and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
Futures contracts—The Fund may purchase and sell financial futures contracts to hedge against changes in the values of tax-exempt municipal securities the Fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of a particular index or a certain amount of U.S. government or municipal securities at a set price on a future date. Upon entering into a futures contract, the Fund is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirement of the futures exchange on which the contract is traded. Subsequent payments ("variation margin") are made or received by the Fund, dependent on the fluctuations in the value of the underlying index. Daily fluctuations in value are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize, for book purposes, a gain or loss equal to the difference between the value of the futures contracts sold and the futures contracts to buy. Unrealized appreciation (depreciation) related to open futures contracts is required to be treated as realized gain (loss) for federal income tax purposes.
Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Schedule of Investments. The Statement of Assets and Liabilities reflects a receivable or payable for the daily mark to market for variation margin.
Certain risks may arise upon entering into futures contracts. These risks may include changes in the value of the futures contracts that may not directly correlate with changes in the value of the underlying securities.
Use of estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 3. CAPITAL SHARE TRANSACTIONS
As of July 31, 2008, there were unlimited shares of no par authorized; 356,507 and 408,879 shares were outstanding at July 31, 2008 and July 31, 2007, respectively.
Transactions in capital shares were as follows:
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| For The Year Ended July 31, 2008 | For The Year Ended July 31, 2007 |
Shares sold | 2,358 | |
Shares issued on reinvestment of dividends | 5,298 | 7,535 |
Shares redeemed | (78,615) | (119,810) |
Net increase (decrease) | (52,372) | (109,917) |
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, Inc. ("Integrity Fund Services"), the Fund's transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, the Fund's sponsor.
The Fund has engaged Integrity Money Management to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund's average daily net assets. The Fund has recognized no investment advisory fees for the year ended July 31, 2008. Certain Officers and Trustees of the Fund are also Officers and Directors of Integrity Money Management.
Under the terms of the advisory agreement, Integrity Money Management has agreed to pay all the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any ) that exceed 1.07% of the Fund's average daily net assets on an annual basis up to the amount of the investment advisory and management fee. Accordingly, after fee waivers and expense reimbursements, the Fund's actual total annual operating expenses were 1.07% for the year ended July 31, 2008.
Principal underwriter and shareholder services
Integrity Funds Distributor serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called "Distribution Plan expenses". The Fund currently pays an annual distribution fee of up to 0.25% of the average daily net assets of the Fund. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $9,778 of distribution fees for the year ended July 31, 2008. The Fund has a payable to Integrity Funds Distributor of $771 at July 31, 2008 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 $24,001 of transfer agency fees and expenses for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $2,000 at July 31, 2008 for transfer agency fees. Integrity Fund Services also acts as the Fund's accounting services agent for a monthly fee equal to the sum of a fixed fee of $2,000, and a variable fee equal to 0.05% of the Fund's average daily net assets on an annual basis for the Fund's first $50 million and at a lower rate on the average daily net assets in excess of $50 million. An additional fee with a minimum of $500 per month is charged for each additional share class. The Fund has recognized $25,956 of accounting service fees for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $2,154 at July 31, 2008 for accounting service fees. Integrity Fund Services also acts as the Fund's administrative services agent for a variable fee equal to 0.125% of the Fund's average daily net assets on an annual basis for the Fund's first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional fee with a minimum of $500 per month will be charged for each additional share class. The Fund has recognized $24,001 of administrative service fees for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $2,000 at July 31, 2008 for administrative service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment securities (excluding short-term securities) aggregated $440,548 and $940,506, respectively, for the year ended July 31, 2008.
Note 6. INVESTMENT IN SECURITIES
At July 31, 2008, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $3,642,144. The net unrealized appreciation of investments based on the cost was $16,171, which is comprised of $38,583 aggregate gross unrealized appreciation and $22,412 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, and establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. The standard is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
In accordance with the provisions of SFAS No. 157, the Fund adopted this standard during the current fiscal year. The implementation of the standard did not impact the amounts reported in the financial statements.
In March 2008, FASB issued SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities. This standard requires enhanced disclosures to provide information about the reasons the Fund invests in derivative instruments, the accounting treatment and the effect derivatives have on financial performance. The standard is effective for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Management is currently evaluating the impact the adoption of SFAS No. 161 will have on the Fund's financial statement disclosures.
Financial Highlights July 31, 2008
Selected per share data and ratios for the periods indicated
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| For The Year Ended July 31, 2008 |
| For The Year Ended July 31, 2007 |
| For The Year Ended July 31, 2006 |
| For The Year Ended July 29, 2005 |
| For The Four Month Period Ended July 30, 2004 |
| For The Year Ended March 31, 2004 | ||
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 10.24 | $ | 10.25 | $ | 10.20 | $ | 10.82 | $ | 10.73 | $ | 10.88 | ||
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Income from Investment Operations: |
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| Net investment income (loss) | $ | .30 | $ | .32 | $ | .33 | $ | .33 | $ | .11 | $ | .37 | |
| Net realized and unrealized gain (loss) on investment and futures transactions |
| .08 |
| (.01) |
| .05 |
| (.52) |
| .09 |
| (.15) | |
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| Total Income (Loss) From Investment Operations | $ | .38 | $ | .31 | $ | .38 | $ | (.19) | $ | .20 | $ | .22 |
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Less Distributions: |
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| Dividends from net investment income | $ | (.30) | $ | (.32) | $ | (.33) | $ | (.33) | $ | (.11) | $ | (.37) | |
| Distributions from net realized gains |
| .00 |
| .00 |
| .00 |
| (.10) |
| .00 |
| .00 | |
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| Total Distributions | $ | (.30) | $ | (.32) | $ | (.33) | $ | (.43) | $ | (.11) | $ | (.37) |
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NET ASSET VALUE, END OF PERIOD | $ | 10.32 | $ | 10.24 | $ | 10.25 | $ | 10.20 | $ | 10.82 | $ | 10.73 | ||
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Total Return |
| 3.72%(A) |
| 3.02%(A) |
| 3.76%(A) |
| (1.81%)(A) |
| 5.69%(A)(C) |
| 2.06%(A) | ||
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RATIOS/SUPPLEMENTAL DATA: |
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| Net assets, end of period (in thousands) | $ | 3,681 | $ | 4,188 | $ | 5,317 | $ | 6,363 | $ | 7,962 | $ | 8,175 | |
| Ratio of net expenses (after expense assumption) to average net assets |
| 1.07%(B) |
| 1.07%(B) |
| 1.03%(B) |
| 0.98%(B) |
| 0.95(B)(C) |
| 0.95%(B) | |
| Ratio of net investment income to average net assets |
| 2.87% |
| 3.09% |
| 3.19% |
| 3.14% |
| 3.12%(C) |
| 3.44% | |
| Portfolio turnover rate |
| 12.56% |
| 11.83% |
| 8.10% |
| 17.94% |
| 10.02% |
| 41.53% |
(A) Excludes maximum sales charge of 4.25%.
(B) During the periods since March 31, 2004, Integrity Money Management assumed/waived expenses of $83,438, $79,544, $69,311, $64,102, and $23,856, respectively. If the expenses had not been assumed and/or waived, the annualized ratio of total expenses to average net assets would have been 3.20%, 2.72%, 2.22%, 1.80%, and 1.84%, respectively. For the period 4/1/2003 through 12/19/2003, Forum Administrative Services assumed/waived expenses of $62,210. For the period from 12/20/2003 through 3/31/2004, Integrity Money Management assumed/waived expenses of $21,859. If the expenses had not been assumed and/or waived, the annualized ratio of total expenses to average net assets for the year would have been 1.86%.
(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.
Tax Information for the Year Ended July 31, 2008 (Unaudited)
We are required to advise you within 60 days of the Fund's fiscal year regarding the federal tax status of distributions received by shareholders during such fiscal year. The distributions made during the fiscal year by the Fund were earned from the following sources:
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| Dividends and Distributions Per Share | |||||
To Shareholders of Record |
| Payment Date |
| From Net Investment Income |
| From Net Realized Short-Term Gains |
| From Net Realized Long-Term Gains |
August 31, 2007 |
| August 31, 2007 | $ | .026008 |
| .0 |
| .0 |
September 28, 2007 |
| September 28, 2007 | $ | .024542 |
| .0 |
| .0 |
October 31, 2007 |
| October 31, 2007 | $ | .027598 |
| .0 |
| .0 |
November 30, 2007 |
| November 30, 2007 | $ | .025804 |
| .0 |
| .0 |
December 31, 2007 |
| December 31, 2007 | $ | .025616 |
| .0 |
| .0 |
January 31, 2008 |
| January 31, 2008 | $ | .024538 |
| .0 |
| .0 |
February 29, 2008 |
| February 29, 2008 | $ | .023661 |
| .0 |
| .0 |
March 31, 2008 |
| March 31, 2008 | $ | .024567 |
| .0 |
| .0 |
April 30, 2008 |
| April 30, 2008 | $ | .023994 |
| .0 |
| .0 |
May 30, 2008 |
| May 30, 2008 | $ | .024427 |
| .0 |
| .0 |
June 30, 2008 |
| June 30, 2008 | $ | .023690 |
| .0 |
| .0 |
July 31, 2008 |
| July 31, 2008 | $ | .023043 |
| .0 |
| .0 |
Shareholders should consult their tax advisors.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of the New Hampshire Municipal Fund
We have audited the accompanying statement of assets and liabilities of the New Hampshire Municipal Fund (one of the portfolios constituting the Integrity Managed Portfolios), including the schedule of investments as of July 31, 2008, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for the years ended July 31, 2008, July 31, 2007, July 31, 2006, and July 29, 2005, the four month period ended July 30, 2004, and the year ended March 31, 2004. These financial statements and financial highlights are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2008 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the New Hampshire Municipal Fund of the Integrity Managed Portfolios as of July 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for the years ended July 31, 2008, July 31, 2007, July 31, 2006, and July 29, 2005, the four month period ended July 30, 2004, and the year ended March 31, 2004, in conformity with accounting principles generally accepted in the United States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota USA
September 12, 2008
Dear Shareholder:
Enclosed is the report of the operations for the Oklahoma Municipal Fund (the "Fund") for the year ended July 31, 2008. The Fund's portfolio and related financial statements are presented within for your review.
As we end the year, what one might have thought was an uneventful year was much the opposite.
First, interest rates spiked higher early in June as Federal Reserve Chairman Ben Bernanke voiced concern about inflation and the slumping dollar. However, a string of weak economic reports in the last part of June (consumer confidence plunged to its lowest level since 1992) along with more losses and downgrades in the banking sector, reduced corporate earnings expectations as well as higher energy prices have encouraged market participants to dump stocks in favor of low-risk government bonds, sending the 10-year treasury to 3.95%
Second, while the market likes to talk about light at the end of the tunnel, unfortunately in these days of financial turmoil we can never be sure whether it is light from the other side or another freight train coming. Most recently, Fannie Mae and Freddie Mac who own or guarantee nearly half of the $12 trillion mortgage market have seen their company stocks fall 75-80% year-to-date, as the worst housing downturn since the Great Depression impacted expected solvency levels.
Municipals on the other hand didn't fare any better as a number of the secondary insurers saw significant downgrades of their ratings, the collapse of major financial institution Bear Stearns and the exit of UBS from the municipal bond market.
The secondary insurers of municipal debt are in turmoil as a number of the insurance companies are in dire straits. Many bond professionals and investors, who in the past treated all insured bonds equal from a credit perspective, now understand the importance of the underlying credit, the purpose of the debt issued, and its commitment to pay. Currently there are three insurers of municipal debt that have AAA ratings from all three rating agencies and two of those three insurers are on Credit Watch for possible downgrade.
These events have created great uncertainty and with that, opportunity. It is now a buyers market as high quality municipals are yielding in many instances, yields higher than taxable treasuries of similar maturities. Clearly there will be price rallies and price sell offs in the months ahead, but the underlying tone for tax-free municipals is bullish.
The Oklahoma Municipal Fund began the period at $11.03 and ended the period at $10.75 for a total return of 1.01%*. This compares to the Lehman Brothers Municipal Bond Index return of 2.84%.
We are pleased to report that Lipper Reporting Service has ranked the Oklahoma Municipal Fund the number one fund in the Other States Municipal Debt Funds category over three years for the period ended June 30, 2008.
The Fund's yearly overall performance can be attributed to its defensive portfolio, with an average maturity of 18.3 years and an average maturity to the first call date of 6.0 years. That, along with an average portfolio coupon of 5.01% helps relative performance in volatile environments.
An important part of the Fund's strategy includes searching the primary and secondary markets for high quality, double tax-exempt issues. Some purchases made throughout the year include: Glenpool Utility, 5.00% coupon, due 2027; Tulsa Public Facilities, 5.25% coupon, due 2036; Oklahoma Housing, 5.00% coupon, due 2017; and Oklahoma City Water Utility, 5.00% coupon, due 2034.
Portfolio quality at year-end was as follows: AAA 18.7%, AA 55.8%, A 14.5%, BBB 5.5% and NR 5.5%.
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 the Fund's website at www.integrityfunds.com for daily prices along with pertinent Fund information.
Sincerely,
Monte Avery
Senior Portfolio Manager
The views expressed are those of Monte Avery, Senior Portfolio Manager with Integrity Mutual Funds, Inc. ("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, the markets generally, or any Integrity Mutual Fund.
*Performance does not include applicable front-end or contingent deferred sales charges ("CDSCs"), which would have reduced the performance.
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
Bond prices and, therefore, the value of bond funds decline as interest rates rise. Because the Fund invests in securities of a single state, the Fund is more susceptible to factors adversely impacting the respective state securities more so than a municipal bond fund that does not concentrate its securities in a single state.
July 31, 2008 (Unaudited)
PROXY VOTING OF FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 800-276-1262. A report on Form N-PX of how the Fund voted any such proxies during the most recent twelve-month period ended June 30 is available through the Fund's website at www.integrityfunds.com. The information is also available from the Electronic Data Gathering, Analysis, and Retrieval ("EDGAR") database on the website of the Securities and Exchange Commission ("SEC") at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
Within 60 days of the end of its second and fourth fiscal quarters, the Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports on the Form N-CSR(S). These reports are filed electronically with the SEC and are delivered to the shareholders of the Fund. The Fund also files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q and N-CSR(S) are available on the SEC's website at www.sec.gov. The Fund's Forms N-Q and N-CSR(S) may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 202-942-8090. You may also access this information from the Fund's website at www.integrityfunds.com.
SHAREHOLDER INQUIRIES AND MAILINGS
All inquiries regarding the Fund should be directed to:
Integrity Funds Distributor, Inc.
1 Main Street North
Minot, ND 58703
Phone: 800-276-1262
All inquiries regarding account information should be directed to:
Integrity Fund Services, Inc.
P.O. Box 759
Minot, ND 58702
Phone: 800-601-5593
To reduce expenses, the Fund may only mail one copy of its prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please call Integrity Funds Distributor, Inc. ("Integrity Funds Distributor") at 800-276-1262 (or contact your financial institution). Individual copies will be sent thirty days after receiving your request.
Terms & Definitions July 31, 2008 (Unaudited)
Appreciation
Increase in the value of an asset
Average Annual Total Return
A standardized measurement of the return (yield and appreciation) earned by a fund on an annual basis assuming all distributions are reinvested
Coupon Rate or Face Rate
Rate of interest payable annually based on the face amount of the bond; expressed as a percentage
Depreciation
Decrease in the value of an asset
Lehman Brothers Municipal Bond Index
An unmanaged list of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market; the index does not take into account brokerage commissions or other costs, may include bonds different from those in the Fund, and may pose different risks than the Fund
Market Value
Actual (or estimated) price at which a bond trades in the marketplace
Maturity
A measure of the term or life of a bond in years; when a bond "matures", the issuer repays the principal
Net Asset Value
The value of all of a fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial sales charge
Quality Ratings
A designation assigned by independent rating companies to give a relative indication of a bond's creditworthiness; "AAA," "AA," "A," and "BBB" indicate investment grade securities. Ratings can range from a high of "AAA" to a low of "D".
Total Return
Measures both the net investment income and any realized and unrealized appreciation or depreciation of the underlying investments in a fund's portfolio for the period, assuming the reinvestment of all dividends; represents the aggregate percentage or dollar value change over the period
July 31, 2008 (Unaudited)
COMPOSITION
Portfolio Quality Ratings
(Based on total long-term investments)
| AAA | 18.7% |
| AA | 55.8% |
| A | 14.5% |
| BBB | 5.5% |
| NR | 5.5% |
Quality ratings reflect the financial strength of the issuer. They are assigned by independent ratings services such as Moody's Investors Services ("Moody's") and Standard & Poor's Ratings Group ("S&P"). Non-rated bonds have been determined to be of appropriate quality for the portfolio by Integrity Money Management, Inc. ("Integrity Money Management"), the Fund's investment adviser.
These percentages are subject to change.
Portfolio Market Sectors
(As a percentage of Net Assets)
| S—School | 30.0% |
| U—Utilities | 21.6% |
| T—Transportation | 18.3% |
| O—Other | 12.4% |
| H—Housing | 5.4% |
| W/S—Water/Sewer | 5.3% |
| HC—Health Care | 3.8% |
| G—Government | 3.2% |
Market sectors are breakdowns of the Fund's portfolio holdings into specific investment classes.
These percentages are subject to change.
July 31, 2008 (Unaudited)
DISCLOSURE OF FUND EXPENSES
The example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs:
| • | transaction costs: | sales charges (loads), redemption fees, and exchange fees |
| • | ongoing costs: | 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 January 31, 2008 to July 31, 2008.
The example illustrates the Fund's costs in two ways:
Actual expenses
The section in the table under the heading "Actual" provides information about actual account values and actual expenses. You may use the information in these columns together with the amount you invested to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an account value of $8,600 divided by $1,000 equals 8.6), then multiply the result by the number in the column entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The section in the table under the heading "Hypothetical (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the section in the table under the heading "Hypothetical (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value | Ending Account Value | Expenses Paid During Period* | |
Actual | $1,000.00 | $ | 975.84 | $5.29 |
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Hypothetical (5% return before expenses) | $1,000.00 | $ | 1,019.51 | $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 (2.42%) for the six-month period of January 31, 2008 to July 31, 2008.
July 31, 2008 (Unaudited)
AVERAGE ANNUAL TOTAL RETURNS
| For periods ending July 31, 2008 | |||||
1 year | 3 year | 5 year | 10 year | Since Inception | ||
| Without Sales Charge | 1.01% | 2.82% | 3.03% | 3.45% | 3.88% |
| With Sales Charge (4.25%) | (3.29%) | 1.34% | 2.14% | 3.00% | 3.50% |
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1 year | 3 year | 5 year | 10 year | Since Inception | ||
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| 2.84% | 3.22% | 4.35% | 4.92% | 5.51% |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemption of Fund shares.
July 31, 2008 (Unaudited)
COMPARATIVE INDEX GRAPH
Comparison of change in value of a $10,000 investment in the Fund and the Lehman Brothers Municipal Bond Index
Oklahoma Municipal Fund without sales charge | Oklahoma Municipal Fund with maximum sales charge | Lehman Brothers Municipal Bond Index | ||||
7/31/98 | $ | 10,000 | $ | 9,574 | $ | 10,000 |
1999 | $ | 10,425 | $ | 9,980 | $ | 10,288 |
2000 | $ | 10,412 | $ | 9,969 | $ | 10,732 |
2001 | $ | 11,430 | $ | 10,943 | $ | 11,815 |
2002 | $ | 12,054 | $ | 11,540 | $ | 12,608 |
2003 | $ | 12,087 | $ | 11,572 | $ | 13,061 |
2004 | $ | 12,531 | $ | 11,997 | $ | 13,816 |
2005 | $ | 12,909 | $ | 12,359 | $ | 14,695 |
2006 | $ | 13,476 | $ | 12,901 | $ | 15,071 |
2007 | $ | 13,894 | $ | 13,301 | $ | 15,713 |
7/31/08 | $ | 14,034 | $ | 13,436 | $ | 16,160 |
Putting Performance into Perspective
Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. You can obtain performance data current to the most recent month end (available within seven business days of the most recent month end) by calling 800-276-1262.
You should consider the Fund's investment objectives, risks, charges, and expenses carefully before investing. For this and other important information, please obtain a Fund prospectus at no cost from your financial adviser and read it carefully before investing.
The graph does not reflect the deduction of taxes that a shareholder would pay on Fund distributions and redemptions of Fund shares.
The graph comparing the Fund's performance to a benchmark index provides you with a general sense of how the Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The Lehman Brothers Municipal Bond Index is a national index representative of the national municipal bond market, whereas the Fund concentrates its investments in Oklahoma municipal bonds. The Fund's total return for the periods shown appears with and without sales charges and includes Fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged; there are no expenses that affect the results. In addition, few investors could purchase all of the securities necessary to match the index. If they could, they would incur transaction costs and other expenses. All Fund and benchmark returns include reinvested dividends.
July 31, 2008 (Unaudited)
MANAGEMENT OF THE FUND
The Board of the Fund 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 three series of The Integrity Funds. Three Trustees (75% of the total) have no affiliation or business connection with Integrity Money Management or any of its affiliates; these are the "Independent" Trustees. Two of the remaining three Trustees and/or Officers are "interested" by virtue of their affiliation with Integrity Money Management and/or its affiliates.
The Independent Trustees of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Independent Trustee, and other Directorships, if any, held outside the Fund Complex, are shown below.
INDEPENDENT TRUSTEES
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Jerry M. Stai | Trustee | Indefinite | 12 | Faculty, Embry-Riddle University (August 2000 to September 2005); Faculty, Park University (August 2005 to December 2005); Non-Profit Specialist, Bremer Bank (since July 2005); Faculty, Minot State University (since August 2000); Director, ND Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., Integrity Fund of Funds, Inc., (since January 2006); Trustee, The Integrity Funds (since January 2006). | Marycrest Franciscan Development, Inc. |
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(1) The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the three series of The Integrity Funds.
Trustees and Officers of the Fund serve until their resignation, removal, or retirement.
The Statement of Additional Information ("SAI") contains more information about the Fund's Trustees and is available without charge upon request, by calling Integrity Funds Distributor at 800-276-1262.
The Interested Trustees and Officers of the Fund, their term of office and length of time served, their principal occupation(s) during the past five years, the number of portfolios overseen in the Fund Complex by each Interested Trustee, and other Directorships, if any, held outside the Fund Complex, are shown below.
INTERESTED TRUSTEE AND OFFICER
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Robert E. Walstad(2)(3) | Trustee, Chairman, Interim President | Indefinite | 12 | Director (Sept. 1987 to Feb. 2007), CEO (Sept. 2001 to Feb. 2007), Integrity Mutual Funds; Director, President, and Treasurer, (Aug. 1988 to Feb. 2007), Integrity Money Management; Director, President, and Treasurer (Aug. 1988 to Sept. 2004), ND Capital, Inc.; Director, President, and Treasurer (May 1989 to Feb. 2007), Integrity Fund Services, Inc.; Director, President, CEO, and Treasurer, (Jan. 1996 to Aug. 2003), Integrity Funds Distributor, Inc.; Director, CEO, Chairman, (Jan. 2002 to Feb. 2007) and President (Sept. 2002 to Dec. 2004), Capital Financial Services, Inc.; Director and President, (April 1994 to June 2004) South Dakota Tax-Free Fund, Inc.; President (Jan. 1996 to July 2007) and (since March 2008) Integrity Managed Portfolios, (May 2003 to July 2007) and (since March 2008) The Integrity Funds, (Jan. 1995 to July 2007) and (since March 2008) Integrity Fund of Funds, Inc., (Jan. 1989 to July 2007) and (since March 2008) ND Tax-Free Fund, Inc., (Aug. 1993 to July 2007) and (since March 2008) Montana Tax-Free Fund, Inc.; Director and Chairman Montana Tax-Free Fund, Inc. (since May 1993), Integrity Fund of Funds, Inc. (since Aug. 1994), and ND Tax Free Fund, Inc. (since Oct. 1988); Trustee, Chairman, (since January 1996) and Treasurer (January 1996 to May 2004), Integrity Managed Portfolios; Trustee and Chairman (since June 2003), The Integrity Funds. | Minot Park Board |
OFFICERS
NAME, ADDRESS, AND AGE | POSITION(S) HELD WITH REGISTRANT | TERM AND LENGTH SERVED | NUMBER OF PORTFOLIOS OVERSEEN IN THE FUND COMPLEX(1) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS | OTHER DIRECTORSHIPS HELD OUTSIDE THE FUND COMPLEX |
Peter A. Quist | Vice President, Secretary | Indefinite | 3 | Attorney; Director and Vice President, Integrity Mutual Funds; Director, Vice President, and Secretary, Integrity Money Management, ND Capital, Inc. (August 1988 to August 2006), Integrity Fund Services, Inc., and Integrity Funds Distributor; Director, Vice President, and Secretary, South Dakota Tax-Free Fund, Inc. (April 1994 to June 2004), Montana Tax-Free Fund, Inc. (since May 1993), Integrity Fund of Funds, Inc. (since Aug. 1994), and ND Tax Free Fund, Inc. (since Oct. 1988); Vice President and Secretary, The Integrity Funds (since June 2003). | None |
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(1) The Fund Complex consists of the three incorporated funds in the Integrity family of funds, the six series of Integrity Managed Portfolios, and the three series of The Integrity Funds.
(2) Trustees and/or Officers who are "interested persons" of the Fund as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Mr. Quist is an interested person by virtue of being an Officer and Director of the Fund's investment adviser and principal underwriter. Mr. Walstad is an interested person by virtue of being an Officer of the Fund and a shareholder of Integrity Mutual Funds.
(3) Effective February 29, 2008, Mark R. Anderson resigned as President of the Fund, and effective March 4, 2008, Mr. Walstad succeeded Mr. Anderson as Interim President of the Fund. Mr. Walstad is also a Trustee and Chairman of the Fund.
Trustees and Officers of the Fund serve until their resignation, removal, or retirement.
The SAI contains more information about the Fund's Trustees and is available without charge upon request, by calling Integrity Funds Distributor at 800-276-1262.
Schedule of Investments July 31, 2008
Name of Issuer |
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Percentages represent the market value of each investment category to total net assets | Rating (Unaudited) Moody's/S&P | Coupon Rate | Maturity |
| Principal Amount |
| Market Value | |
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OKLAHOMA MUNICIPAL BONDS (96.5%) |
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Alva, OK Hosp. Auth. (Sales Tax Rev) Radian (Xcel) | A-3/A | 5.250% | 06/01/2025 | $ | 250,000 | $ | 253,705 | |
Claremore, OK Student Hsg. Rev. (Rogers University) ACA | NR/NR | 5.750 | 09/01/2034 |
| 500,000 |
| 445,660 | |
Drumright, OK Utility Sys. Rev. Assured Guaranty Ins. | NR/AAA | 4.750 | 02/01/2036 |
| 950,000 |
| 966,805 | |
Durant, OK Community Fac. Auth. Sales Tax Rev. XLCA | NR/A | 5.500 | 11/01/2019 |
| 500,000 |
| 532,745 | |
Edmond Economic Dev. Auth., OK Student Housing Rev. | Baa-3/NR | 5.375 | 12/01/2019 |
| 200,000 |
| 195,422 | |
#Edmond Economic Dev. Auth., OK Student Housing Rev. | Baa-3/NR | 5.500 | 12/01/2028 |
| 865,000 |
| 799,545 | |
Edmond Public Works Auth. AMBAC | Aa-3/AA | 4.850 | 01/01/2024 |
| 155,000 |
| 157,688 | |
Edmond Public Works Auth. AMBAC | Aa-3/AA | 4.750 | 07/01/2024 |
| 250,000 |
| 247,645 | |
Edmond Public Works Sales Tax & Utility Rev. AMBAC | Aa-3/AA | 4.750 | 07/01/2023 |
| 200,000 |
| 201,080 | |
Garfield Cty., Criminal Justice Auth. (Enid, OK) Rev. MBIA | A/NR | 4.500 | 04/01/2018 |
| 250,000 |
| 253,877 | |
Glenpool Utility Authority XLCA | NR/BBB- | 5.000 | 10/01/2027 |
| 555,000 |
| 555,228 | |
Jackson Cty., OK Sales Tax Rev. AMBAC | Aa-3/AA | 5.000 | 10/01/2022 |
| 500,000 |
| 511,185 | |
Jenks Aquarium Auth. Rev. MBIA | A/AA | 5.250 | 07/01/2029 |
| 500,000 |
| 510,920 | |
Mannford Public Works Auth. | NR/BBB+ | 6.000 | 04/01/2027 |
| 300,000 |
| 315,402 | |
Mannford Public Works Auth. | NR/BBB+ | 5.900 | 04/01/2032 |
| 250,000 |
| 259,355 | |
McAlester, OK Public Works Auth. FSA | Aaa/NR | 5.100 | 02/01/2030 |
| 100,000 |
| 102,210 | |
McClain Cty., OK Econ. Dev. Auth. Ed. Lease Rev. (Purcell Schools) Assured GTY | Aaa/AAA | 4.250 | 09/01/2020 |
| 585,000 |
| 576,851 | |
Midwest City, OK Capital Impvt. MBIA | A/AA | 5.375 | 09/01/2024 |
| 500,000 |
| 519,805 | |
Norman, OK (Regl. Hospital) Auth. Radian | A-3/A | 5.250 | 09/01/2016 |
| 180,000 |
| 187,490 | |
Norman, OK Utilities Auth. Utility Rev. FGIC | A/NR | 4.000 | 11/01/2022 |
| 265,000 |
| 242,894 | |
OK Agric. & Mech. Colleges (OK St. Univ.) Athletic Facs. AMBAC | Aa-3/NR | 5.000 | 08/01/2024 |
| 300,000 |
| 300,000 | |
Oklahoma City, OK MBIA | Aa-1/AA+ | 4.250 | 03/01/2022 |
| 110,000 |
| 105,976 | |
Oklahoma City Airport Trust Jr. Lien Refunding Series B. AMBAC | Aa-3/AA | 5.000 | 07/01/2019 |
| 250,000 |
| 264,207 | |
Oklahoma City Airport Trust Jr. Lien Refunding Series B AMBAC | Aa-3/AA | 5.000 | 07/01/2021 |
| 250,000 |
| 259,440 | |
Oklahoma City, OK Public Auth. (OKC Fairgrounds Fac.) FGIC | A/A | 5.500 | 10/01/2019 |
| 250,000 |
| 268,127 | |
Oklahoma City, OK Water Utility Trust (Water & Sewer) Rev. FGIC | Aa/AA+ | 5.000 | 07/01/2029 |
| 425,000 |
| 427,448 | |
Oklahoma City, OK Water Utility Rev. FGIC | Aa/AA+ | 5.000 | 07/01/2034 |
| 250,000 |
| 249,297 | |
OK Colleges Board of Regents (NE State Univ. Ctr.) Rev. FSA | Aaa/AAA | 5.100 | 03/01/2016 |
| 140,000 |
| 140,032 | |
OK Colleges Board of Regents (NE State Univ. Ctr.) Rev. FSA | Aaa/AAA | 5.150 | 03/01/2021 |
| 100,000 |
| 100,032 | |
OK Board of Regents (Univ. of Central OK) AMBAC | Aa-3/AA | 5.600 | 08/01/2020 |
| 150,000 |
| 159,433 | |
OK Board of Regents (Univ. of Central OK) AMBAC | Aa-3/AA | 5.700 | 08/01/2025 |
| 390,000 |
| 407,827 | |
OK Devl. Finance Auth. (DHS Lease Rev.) Series 2000A MBIA | A/NR | 5.600 | 03/01/2015 |
| 280,000 |
| 284,267 | |
OK Devl. Finance Auth. (Lease Rev.) Law Enforcement MBIA | A/AA | 5.100 | 06/01/2027 |
| 120,000 |
| 121,987 | |
OK Devl. Finance Auth. (OK State Syst. Higher Ed.) AMBAC | Aa-3/AA | 4.900 | 12/01/2022 |
| 200,000 |
| 204,526 | |
OK Devl. Finance Auth. OK Dept. of Corrections (McLoud Fac.) FGIC | NR/AA- | 4.600 | 04/01/2022 |
| 250,000 |
| 249,982 | |
OK Devl. Finance Auth. OK Dept. of Corrections (McLoud Fac.) FGIC | NR/AA- | 4.650 | 04/01/2023 |
| 250,000 |
| 250,190 | |
OK Devl. Finance Auth. OK State Higher Ed (Master Lease) FSA | Aaa/AAA | 4.500 | 06/01/2026 |
| 250,000 |
| 245,172 | |
OK Housing Finance Agency Single Family Homeownership | Aaa/NR | 5.250 | 09/01/2021 |
| 90,000 |
| 89,520 | |
*OK Housing Finance Agency Single Family Homeownership GNMA | Aaa/NR | 5.375 | 03/01/2020 |
| 70,000 |
| 71,039 | |
OK Housing Finance Agency Single Family Homeownership GNMA/FNMA | Aaa/NR | 5.850 | 09/01/2020 |
| 30,000 |
| 30,354 | |
Oklahoma Housing Finance GNMA/FNMA | Aaa/NR | 5.050 | 09/01/2023 |
| 1,000,000 |
| 964,900 | |
Oklahoma Housing Finance FNMA/GNMA | Aaa/NR | 5.150 | 09/01/2029 |
| 500,000 |
| 463,295 | |
Oklahoma Housing Finance GNMA/FNMA | Aaa/NR | 5.200 | 09/01/2032 |
| 500,000 |
| 461,565 | |
Oklahoma Housing Fin. Agy. Single Family Mtg. Rev | Aaa/NR | 5.100 | 03/01/2017 |
| 100,000 |
| 99,525 | |
Oklahoma Housing Fin. Agy. Single Family Mtg. Rev. | Aaa/NR | 5.100 | 09/01/2017 |
| 100,000 |
| 99,450 | |
OK Devl. Finance Auth. (St. John Health Syst.) Rev. Ref.—Unrefunded | A-1/AA- | 5.750 | 02/15/2025 |
| 125,000 |
| 127,955 | |
OK Devl. Finance Auth. (St. John Health Syst.) Rev. Ref.—Unrefunded | A-1/AA- | 6.000 | 02/15/2029 |
| 100,000 |
| 102,641 | |
OK Devl. Finance Auth. (St. John Health Syst.) MBIA | A-1/AA | 5.750 | 02/15/2025 |
| 50,000 |
| 51,191 | |
OK Devl. Finance Auth. (St. Ann's Retirement Village) Rev. MBIA | A/NR | 5.000 | 12/01/2028 |
| 500,000 |
| 506,300 | |
OK Devl. Finance Auth. (Comanche County Hosp.) | NR/BBB- | 5.625 | 07/01/2009 |
| 105,000 |
| 107,596 | |
OK Devl. Finance Auth. (Seminole State College) | NR/AA | 5.125 | 12/01/2027 |
| 150,000 |
| 154,364 | |
OK Devl. Finance Auth. (Langston Univ. Stadium) | NR/AA | 5.000 | 07/01/2027 |
| 250,000 |
| 258,215 | |
#OK State G.O. (OK Building Commission) FGIC | Aa-3/AA | 5.000 | 07/15/2018 |
| 900,000 |
| 951,426 | |
OK Capital Impvt. Auth. (State Highway) Rev. MBIA | A/AA | 5.000 | 06/01/2014 |
| 250,000 |
| 269,978 | |
OK Capital Impvt. Auth. (Higher Ed. Project) Rev. AMBAC | Aa-3/AA | 5.000 | 07/01/2022 |
| 500,000 |
| 518,455 | |
OK Capital Impvt. Auth. (Higher Ed. Project) AMBAC | Aa-3/AA | 5.000 | 07/01/2024 |
| 250,000 |
| 258,323 | |
*OK Capital Impvt. Auth. (Higher Ed. Project) Rev. AMBAC | Aa-3/AA | 5.000 | 07/01/2030 |
| 2,000,000 |
| 2,012,000 | |
OK Capital Impvt. Auth. (Supreme Court Proj.) CIFG | A-1/AA- | 4.500 | 07/01/2026 |
| 500,000 |
| 473,160 | |
OK Capital Impvt. Auth. (OK St. Bureau of Investigation) FSA | Aaa/AAA | 4.375 | 07/01/2022 |
| 100,000 |
| 99,377 | |
OK Capital Impvt. Auth. (OK St. Bureau of Investigation) FSA | Aaa/AAA | 4.375 | 07/01/2023 |
| 100,000 |
| 98,915 | |
OK Capital Impvt. Auth. (OK St. Bureau of Investigation) FSA | Aaa/AAA | 4.500 | 07/01/2024 |
| 200,000 |
| 199,426 | |
OK Municipal Power Auth. Rev. MBIA | A/AA | 5.750 | 01/01/2024 |
| 2,230,000 |
| 2,480,719 | |
OK Municipal Power Auth. Power Supply Rev. FGIC | A/A | 4.250 | 01/01/2037 |
| 500,000 |
| 417,290 | |
*OK Municipal Power Auth. Power Supply Rev. FGIC | A/A | 4.500 | 01/01/2047 |
| 1,350,000 |
| 1,150,160 | |
OK State Student Loan Auth. | A/NR | 6.350 | 09/01/2025 |
| 280,000 |
| 283,945 | |
*OK State Student Loan Auth. | Aaa/AAA | 5.625 | 06/01/2031 |
| 685,000 |
| 685,007 | |
OK State Student Loan Auth. MBIA | A/AA | 5.300 | 12/01/2032 |
| 450,000 |
| 423,981 | |
OK Water Resources Board Rev. AMBAC | Aaa/AAA | 4.750 | 04/01/2024 |
| 100,000 |
| 102,105 | |
OK State Water (Loan Program) Rev. | NR/AAA | 5.400 | 09/01/2015 |
| 105,000 |
| 105,547 | |
*OK State Water (Loan Program) Rev. | NR/AAA | 5.100 | 09/01/2016 |
| 415,000 |
| 421,320 | |
OK State Water Resources Board Rev. | NR/AAA | 5.050 | 10/01/2022 |
| 200,000 |
| 210,812 | |
OK State Water Resources Loan Rev. | NR/AAA | 5.100 | 10/01/2027 |
| 500,000 |
| 517,460 | |
OK State Water Resources Board Rev. | NR/AAA | 4.625 | 10/01/2018 |
| 435,000 |
| 454,501 | |
OK Transportation Auth. Turnpike Sys. Rev.—Prerefunded AMBAC | Aa-3/AA | 5.000 | 01/01/2021 |
| 10,000 |
| 10,691 | |
OK Transportation Auth. Turnpike Sys. Rev.—Unrefunded AMBAC | Aa-3/AA | 5.000 | 01/01/2021 |
| 90,000 |
| 93,059 | |
#Okmulgee Public Works Auth. Capital Improvement Rev. MBIA | A/AA | 5.125 | 08/01/2030 |
| 750,000 |
| 760,725 | |
Okmulgee Public Works Auth. Capital Improvement Rev. MBIA | A/AA | 4.800 | 10/01/2027 |
| 500,000 |
| 510,350 | |
Rural Enterprises, OK Inc. OK Govt. Fin. (Cleveland Cty. Hlth.) MBIA | A/NR | 5.000 | 11/01/2021 |
| 250,000 |
| 257,378 | |
Rural Enterprises, OK Inc. Okmulgee Student Housing Proj. Series A ACA | NR/NR | 5.625 | 12/01/2020 |
| 140,000 |
| 134,044 | |
Rural Enterprises, OK Inc. Okmulgee Student Housing Proj. Series A ACA | NR/NR | 5.700 | 12/01/2025 |
| 220,000 |
| 201,265 | |
Rural Enterprises, OK Inc. Okmulgee Student Housing Proj. ACA | NR/NR | 5.750 | 12/01/2030 |
| 250,000 |
| 222,220 | |
Rural Enterprises, OK Inc. Student Hsg. (Connors College) ACA | NR/NR | 5.550 | 11/01/2021 |
| 250,000 |
| 233,398 | |
Rural Enterprises, OK Inc. Student Hsg. (Connors College) ACA | NR/NR | 5.650 | 11/01/2031 |
| 375,000 |
| 330,683 | |
Rural Enterprises, OK Inc. USAOF Student Housing ACA | NR/NR | 5.550 | 11/01/2021 |
| 250,000 |
| 231,493 | |
Rural Enterprises, OK Inc. USAOF Student Housing ACA | NR/NR | 5.650 | 11/01/2031 |
| 250,000 |
| 219,123 | |
Sapulpa Municipal Authority Utility Rev. FSA | Aaa/AAA | 5.125 | 01/01/2032 |
| 250,000 |
| 255,645 | |
Texas Cty., OK Dev. Auth. (OPSU Student Hsg.) ACA | NR/NR | 5.250 | 11/01/2023 |
| 250,000 |
| 221,290 | |
Tulsa Cty, OK Indl. Auth. Recreation Facs. | NR/AA- | 4.700 | 09/01/2024 |
| 500,000 |
| 500,105 | |
Tulsa, OK General Obligation | Aa/AA | 4.500 | 03/01/2023 |
| 700,000 |
| 709,324 | |
Tulsa, OK General Obligation | Aa/AA | 4.500 | 03/01/2026 |
| 1,035,000 |
| 1,036,035 | |
Tulsa, Oklahoma Unlimited GO MBIA | Aa/AA | 4.250 | 03/01/2024 |
| 500,000 |
| 479,850 | |
City of Tulsa, OK MBIA | Aa/AA | 4.250 | 03/01/2025 |
| 1,000,000 |
| 968,110 | |
Tulsa Metropolitan Util. Auth. Utility Revs XLCA | Aa/AA | 4.250 | 05/01/2026 |
| 650,000 |
| 594,815 | |
Tulsa Metropolitan Util. Auth. Utility Revs XLCA | Aa/AA | 4.500 | 05/01/2027 |
| 910,000 |
| 861,597 | |
Tulsa Oklahoma Public Facs. Auth. XLCA | Aa-3/NR | 5.250 | 11/15/2036 |
| 1,000,000 |
| 1,007,010 | |
Tulsa Oklahoma Pub. Facs. Auth. XLCA | Aa-3/NR | 4.750 | 11/15/2037 |
| 500,000 |
| 467,740 | |
University of OK Board of Regents (Research Fac.) Rev. AMBAC | Aa-3/NR | 4.800 | 03/01/2028 |
| 670,000 |
| 670,268 | |
University of OK Board of Regents (Multi Facs.) Rev. MBIA | A-1/NR | 4.750 | 06/01/2029 |
| 250,000 |
| 241,530 | |
OK Board of Regents (Univ. of OK) FGIC | NR/AA- | 4.125 | 07/01/2026 |
| 500,000 |
| 462,270 | |
University of OK Board of Regents Student Hsg. Rev. FGIC | A-1/NR | 5.000 | 11/01/2027 |
| 1,000,000 |
| 1,006,760 | |
University of OK Student Hsg. (Cameron Univ.) Rev. AMBAC | Aa-3/AA | 5.500 | 07/01/2023 |
| 250,000 |
| 266,523 | |
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TOTAL OKLAHOMA MUNICIPAL BONDS (COST: $41,349,990) |
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| $ | 40,548,573 | ||||
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SHORT-TERM SECURITIES (0.7%) |
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Wells Fargo Advantage National Tax-Free Money Market (COST: $308,094) |
| 308,094 | $ | 308,094 | ||||
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TOTAL INVESTMENTS IN SECURITIES (COST: $41,658,084) |
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| $ | 40,856,667 | ||||
OTHER ASSETS LESS LIABILITIES |
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| 1,168,956 | ||||
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NET ASSETS |
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| $ | 42,025,623 | ||||
*Indicates bonds are segregated by the custodian to cover when-issued or delayed-delivery purchases.
#Indicates bonds are segregated by the custodian to cover initial margin requirements.
Footnote: Non-rated (NR) securities have been determined to be of investment grade quality by the Fund's Manager.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels:
| Level 1— | quoted prices in active markets for identical securities |
| Level 2— | other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risks, etc.) |
| Level 3— | significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) |
The following is a summary of the inputs used to value the Fund's investments as of July 31, 2008:
| Valuation Inputs | Investments in Securities |
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| Level 1—Quoted Prices | $ | 308,094 |
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| Level 2—Other Significant Observable Inputs |
| 40,548,573 |
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| Level 3—Significant Unobservable Inputs |
| — |
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| Total | $ | 40,856,667 |
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The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Assets and Liabilities
July 31, 2008
ASSETS |
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| Investments in securities, at value (cost: $41,658,084) | $ | 40,856,667 | |
| Accrued interest receivable |
| 515,560 | |
| Accrued dividends receivable |
| 468 | |
| Security sales receivable |
| 1,062,880 | |
| Receivable from manager |
| 4,472 | |
| Prepaid expenses |
| 2,506 | |
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| Total Assets | $ | 42,442,553 |
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LIABILITIES |
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| Disbursements in excess of demand deposit cash | $ | 60,909 | |
| Dividends payable |
| 131,062 | |
| Payable for fund shares redeemed |
| 170,115 | |
| Accrued expenses |
| 30,562 | |
| Payable to affiliates |
| 24,282 | |
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| Total Liabilities | $ | 416,930 |
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NET ASSETS | $ | 42,025,623 | ||
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Net assets are represented by: |
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| Paid-in capital | $ | 45,091,556 | |
| Accumulated undistributed net realized gain (loss) on investments and futures |
| (2,273,200) | |
| Accumulated undistributed net investment income (loss) |
| 8,684 | |
| Unrealized appreciation (depreciation) on investments |
| (801,417) | |
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| Total amount representing net assets applicable to 3,909,928 outstanding shares of no par common stock (unlimited shares authorized) | $ | 42,025,623 |
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Net asset value per share | $ | 10.75 | ||
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Public offering price (based on sales charge of 4.25%) | $ | 11.23 |
The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Operations
For the year ended July 31, 2008
INVESTMENT INCOME |
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| Interest | $ | 2,197,052 | |
| Dividends |
| 50,573 | |
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| Total Investment Income | $ | 2,247,625 |
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EXPENSES |
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| Investment advisory fees | $ | 242,729 | |
| Distribution (12b-1) fees |
| 121,365 | |
| Administrative service fees |
| 60,353 | |
| Transfer agent fees |
| 96,433 | |
| Accounting service fees |
| 48,141 | |
| Custodian fees |
| 7,515 | |
| Professional fees |
| 23,893 | |
| Trustees fees |
| 5,059 | |
| Insurance expense |
| 1,297 | |
| Reports to shareholders |
| 3,033 | |
| Audit fees |
| 6,772 | |
| Legal fees |
| 35,363 | |
| Transfer agent out-of-pockets |
| 716 | |
| License, fees, and registrations |
| 2,092 | |
|
| Total Expenses | $ | 654,761 |
| Less expenses waived or absorbed by the Fund's manager |
| (135,321) | |
|
| Total Net Expenses | $ | 519,440 |
|
|
|
|
|
NET INVESTMENT INCOME (LOSS) | $ | 1,728,185 | ||
|
|
|
|
|
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
| ||
| Net realized gain (loss) from investment transactions | $ | 191,550 | |
| Net change in unrealized appreciation (depreciation) of investments |
| (1,430,856) | |
|
| Net Realized and Unrealized Gain (Loss) on Investments | $ | (1,239,306) |
|
|
|
|
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 488,879 |
The accompanying notes are an integral part of these financial statements.
Financial Statements July 31, 2008
Statement of Changes in Net Assets
For the year ended July 31, 2008 and the year ended July 31, 2007
|
|
| For The Year Ended July 31, 2008 | For The Year Ended July 31, 2007 | ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
|
|
|
| ||
| Net investment income (loss) | $ | 1,728,185 | $ | 1,645,717 | |
| Net realized gain (loss) on investment transactions |
| 191,550 |
| 17,886 | |
| Net change in unrealized appreciation (depreciation) on investments |
| (1,430,856) |
| (348,424) | |
|
| Net Increase (Decrease) in Net Assets Resulting From Operations | $ | 488,879 | $ | 1,315,179 |
|
|
|
|
|
|
|
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS |
|
|
|
| ||
| Dividends from net investment income ($.39 and $.39 per share, respectively) | $ | (1,723,635) | $ | (1,644,054) | |
| Distributions from net realized gain on investment transactions ($.00 and $.00 per share, respectively) |
| 0 |
| 0 | |
|
| Total Dividends and Distributions | $ | (1,723,635) | $ | (1,644,054) |
|
|
|
|
|
|
|
CAPITAL SHARE TRANSACTIONS |
|
|
|
| ||
| Proceeds from sale of shares | $ | 7,697,361 | $ | 14,210,933 | |
| Proceeds from reinvested dividends |
| 968,322 |
| 703,589 | |
| Cost of shares redeemed |
| (13,252,678) |
| (10,301,303) | |
|
| Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions | $ | (4,586,995) | $ | 4,613,219 |
|
|
|
|
|
|
|
TOTAL INCREASE (DECREASE) IN NET ASSETS | $ | (5,821,751) | $ | 4,284,344 | ||
NET ASSETS, BEGINNING OF PERIOD |
| 47,847,374 |
| 43,563,030 | ||
NET ASSETS, END OF PERIOD | $ | 42,025,623 | $ | 47,847,374 | ||
|
|
|
|
| ||
Undistributed Net Investment Income | $ | 8,684 | $ | 4,148 |
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements July 31, 2008
Note 1. ORGANIZATION
The Fund is an investment portfolio of Integrity Managed Portfolios (the "Trust") and is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as a non-diversified, open-end management investment company. The Trust may offer multiple portfolios; currently six portfolios are offered. The Trust is an unincorporated business trust organized under Massachusetts law on August 10, 1990. The Fund had no operations from that date to September 25, 1996, other than matters relating to organization and registration. On September 25, 1996, the Fund commenced its Public Offering of capital shares.
The investment objective of the Fund is to provide its shareholders with as high a level of current income exempt from both federal and Oklahoma 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 Oklahoma municipal securities.
Shares of the Fund are offered at net asset value plus a maximum sales charge of 4.25% of the offering price.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment security valuation—Securities for which quotations are not readily available (which will constitute a majority of the securities held by the Fund) are valued using a matrix system at fair value as determined by Integrity Money Management. The matrix system has been developed based on procedures approved by the Board of Trustees and includes consideration of the following:
| • | yields or prices of municipal bonds of comparable quality; |
| • | type of issue, coupon, maturity, and rating; |
| • | indications as to value from dealers; and |
| • | general market conditions. |
Because the market value of securities can only be established by agreement between parties in a sales transaction, and because of the uncertainty inherent in the valuation process, the fair values as determined may differ from the values that would have been used had a ready market for the securities existed. The Fund follows industry practice and records security transactions on the trade date.
The Fund concentrates its investments in a single state. This concentration may result in the Fund investing a relatively high percentage of its assets in a limited number of issuers.
When-issued securities—The Fund may purchase securities on a when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities purchased on a when-issued basis are identified as such in the Fund's Schedule of Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract's terms, or if the issuer does not issue the securities due to political, economic, or other factors.
Contingent Deferred Sales Charge—In the case of investments of $1 million or more, a 1.00% CDSC may be assessed on shares redeemed within 24 months of purchase (excluding shares purchased with reinvested dividends and/or distributions).
Federal and state income taxes— The Fund's policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its net investment income and any net realized gain on investments to its shareholders. Therefore, no provision for income taxes is required. Distributions during the year ended July 31, 2008 were characterized as tax-exempt for tax purposes.
In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax-return positions taken on federal income tax returns for all open tax years (tax years ended July 31, 2004 through July 31, 2008) for purposes of implementing FIN 48, and has concluded that no provision for income tax is required in the Fund's financial statements. Interest and penalties related to uncertain tax positions, if any, are classified in the Fund's financial statements as other expense.
The tax character of distributions paid was as follows:
|
|
| July 31, 2008 |
| July 31, 2007 |
| |
| Tax-exempt income | $ | 1,723,635 | $ | 1,644,054 |
| |
| Ordinary income |
| 0 |
| 0 |
| |
| Long-term capital gains |
| 0 |
| 0 |
| |
|
| Total | $ | 1,723,635 | $ | 1,644,054 |
|
As of July 31, 2008, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Undistributed Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation) | Total Accumulated Earnings/(Deficit) |
|
| $0 | $0 | ($2,273,200) | ($792,733) | ($3,065,933) |
|
The Fund has unexpired capital loss carryforwards for tax purposes as of July 31, 2008 totaling $2,273,200, which may be used to offset capital gains. Any difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable to timing differences associated with market discount. 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 | $165,920 |
| 2011 | $412,304 |
| 2012 | $547,833 |
| 2013 | $1,147,143 |
For the year ended July 31, 2008, the Fund did not make any permanent reclassifications to reflect tax character.
Net capital losses incurred after October 31 and within the tax year are deemed to arise on the first business day of the Fund's next taxable year. For the year ended July 31, 2008, the Fund did not defer to August 1, 2008, any post-October capital losses, post-October currency losses, or post-October passive foreign investment company losses.
Distributions to shareholders—Dividends from net investment income, declared daily and paid monthly, are reinvested in additional shares of the Fund at net asset value or paid in cash. Capital gains, when available, are distributed at least annually.
Premiums and discounts—Premiums and discounts on municipal securities are amortized for financial reporting purposes.
Other—Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatments for market discount, capital loss carryforwards, and losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax basis differences will reverse in a subsequent period.
Futures contracts—The Fund may purchase and sell financial futures contracts to hedge against changes in the values of tax-exempt municipal securities the Fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of a particular index or a certain amount of U.S. government or municipal securities at a set price on a future date. Upon entering into a futures contract, the Fund is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirement of the futures exchange on which the contract is traded. Subsequent payments ("variation margin") are made or received by the Fund, dependent on the fluctuations in the value of the underlying index. Daily fluctuations in value are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize, for book purposes, a gain or loss equal to the difference between the value of the futures contracts sold and the futures contracts to buy. Unrealized appreciation (depreciation) related to open futures contracts is required to be treated as realized gain (loss) for federal income tax purposes.
Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Schedule of Investments. The Statement of Assets and Liabilities reflects a receivable or payable for the daily mark to market for variation margin.
Certain risks may arise upon entering into futures contracts. These risks may include changes in the value of the futures contracts that may not directly correlate with changes in the value of the underlying securities.
Use of estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 3. CAPITAL SHARE TRANSACTIONS
As of July 31, 2008, there were unlimited shares of no par authorized; 3,909,928 and 4,337,842 shares were outstanding at July 31, 2008 and July 31, 2007, respectively.
Transactions in capital shares were as follows:
|
| |
| For The Year Ended July 31, 2008 | For The Year Ended July 31, 2007 |
Shares sold | 1,272,549 | |
Shares issued on reinvestment of dividends | 88,436 | 63,077 |
Shares redeemed | (1,214,782) | (930,317) |
Net increase (decrease) | (427,914) | 405,309 |
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, Inc. ("Integrity Fund Services"), the Fund's transfer, accounting, and administrative services agent; are subsidiaries of Integrity Mutual Funds, the Fund's sponsor.
The Fund has engaged Integrity Money Management to provide investment advisory and management services to the Fund. The Investment Advisory Agreement provides for fees to be computed at an annual rate of 0.50% of the Fund's average daily net assets. The Fund has recognized $115,919 of investment advisory fees after partial waiver for the year ended July 31, 2008. The Fund does not have a payable to Integrity Money Management at July 31, 2008 for investment advisory fees. Certain Officers and Trustees of the Fund are also Officers and Directors of Integrity Money Management.
Under the terms of the advisory agreement, Integrity Money Management has agreed to pay all the expenses of the Fund (excluding taxes and brokerage fees and commissions, if any) that exceed 1.07% of the Fund's average daily net assets on an annual basis up to the amount of the investment advisory and management fee. Accordingly, after fee waivers and expense reimbursements, the Fund's actual total annual operating expenses were 1.07% for the year ended July 31, 2008.
Principal underwriter and shareholder services
Integrity Funds Distributor serves as the principal underwriter for the Fund. The Fund has adopted a distribution plan as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by shareholders through expenses called "Distribution Plan expenses". The Fund currently pays an annual distribution fee of up to 0.25% of the average daily net assets of the Fund. Distribution Plan expenses are calculated daily and paid monthly. The Fund has recognized $121,365 of distribution fees for the year ended July 31, 2008. The Fund has a payable to Integrity Funds Distributor of $8,875 at July 31, 2008 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 $96,433 of transfer agency fees and expenses for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $7,100 at July 31, 2008 for transfer agency fees. Integrity Fund Services also acts as the Fund's accounting services agent for a monthly fee equal to the sum of a fixed fee of $2,000, and a variable fee equal to 0.05% of the Fund's average daily net assets on an annual basis for the Fund's first $50 million and at a lower rate on the average daily net assets in excess of $50 million. An additional fee with a minimum of $500 per month is charged for each additional share class. The Fund has recognized $48,141 of accounting service fees for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $3,775 at July 31, 2008 for accounting service fees. Integrity Fund Services also acts as the Fund's administrative services agent for a variable fee equal to 0.125% of the Fund's average daily net assets on an annual basis for the Fund's first $50 million and at a lower rate on the average daily net assets in excess of $50 million, with a minimum of $2,000 per month plus out-of-pocket expenses. An additional fee with a minimum of $500 per month will be charged for each additional share class. The Fund has recognized $60,353 of administrative service fees for the year ended July 31, 2008. The Fund has a payable to Integrity Fund Services of $4,438 at July 31, 2008 for administrative service fees.
Note 5. INVESTMENT SECURITY TRANSACTIONS
The cost of purchases and proceeds from the sales of investment securities (excluding short-term securities) aggregated $4,797,697 and $9,473,096, respectively, for the year ended July 31, 2008.
Note 6. INVESTMENT IN SECURITIES
At July 31, 2008, the aggregate cost of securities for federal income tax purposes was substantially the same for financial reporting purposes at $41,658,084. The net unrealized depreciation of investments based on the cost was $801,417, which is comprised of $359,425 aggregate gross unrealized appreciation and $1,160,842 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, and establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. The standard is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
In accordance with the provisions of SFAS No. 157, the Fund adopted this standard during the current fiscal year. The implementation of the standard did not impact the amounts reported in the financial statements.
In March 2008, FASB issued SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities. This standard requires enhanced disclosures to provide information about the reasons the Fund invests in derivative instruments, the accounting treatment and the effect derivatives have on financial performance. The standard is effective for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Management is currently evaluating the impact the adoption of SFAS No. 161 will have on the Fund's financial statement disclosures.
Financial Highlights July 31, 2008
Selected per share data and ratios for the periods indicated
|
| For The Year Ended July 31, 2008 |
| For The Year Ended July 31, 2007 |
| For The Year Ended July 31, 2006 |
| For The Year Ended July 29, 2005 |
| For The Year Ended July 30, 2004 | ||
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 11.03 | $ | 11.08 | $ | 11.00 | $ | 11.07 | $ | 11.09 | ||
|
|
|
|
|
|
|
|
|
|
| ||
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
| ||
| Net investment income (loss) | $ | .39 | $ | .39 | $ | .39 | $ | .40 | $ | .42 | |
| Net realized and unrealized gain (loss) on investment and futures transactions |
| (.28) |
| (.05) |
| .08 |
| (.07) |
| (.02) | |
|
| Total Income (Loss) From Investment Operations | $ | .11 | $ | .34 | $ | .47 | $ | .33 | $ | .40 |
|
|
|
|
|
|
|
|
|
|
| ||
Less Distributions: |
|
|
|
|
|
|
|
|
|
| ||
| Dividends from net investment income | $ | (.39) | $ | (.39) | $ | (.39) | $ | (.40) | $ | (.42) | |
| Distributions from net realized gains |
| .00 |
| .00 |
| .00 |
| .00 |
| .00 | |
|
| Total Distributions | $ | (.39) | $ | (.39) | $ | (.39) | $ | (.40) | $ | (.42) |
|
|
|
|
|
|
|
|
|
|
| ||
NET ASSET VALUE, END OF PERIOD | $ | 10.75 | $ | 11.03 | $ | 11.08 | $ | 11.00 | $ | 11.07 | ||
|
|
|
|
|
|
|
|
|
|
| ||
Total Return |
| 1.01%(A) |
| 3.10%(A) |
| 4.39%(A) |
| 3.02%(A) |
| 3.67%(A) | ||
|
|
|
|
|
|
|
|
|
|
| ||
RATIOS/SUPPLEMENTAL DATA: |
|
|
|
|
|
|
|
|
|
| ||
| Net assets, end of period (in thousands) | $ | 42,026 | $ | 47,847 | $ | 43,563 | $ | 34,887 | $ | 35,472 | |
| Ratio of net expenses (after expense assumption) to average net assets |
| 1.07%(B) |
| 1.07%(B) |
| 1.03%(B) |
| 0.98%(B) |
| 0.93%(B) | |
| Ratio of net investment income to average net assets |
| 3.55% |
| 3.50% |
| 3.55% |
| 3.60% |
| 3.77% | |
| Portfolio turnover rate |
| 10.37% |
| 11.97% |
| 4.65% |
| 8.69% |
| 10.70% |
(A) Excludes maximum sales charge of 4.25%.
(B) During the periods indicated above, Integrity Money Management assumed and/or waived expenses of $135,321, $98,960, $60,854, $81,636, and $87,525, respectively. If the expenses had not been assumed and/or waived, the annualized ratio of total expenses to average net assets would have been 1.35%, 1.28%, 1.19%, 1.20%, and 1.19%, respectively.
Total return represents the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of all dividends and distributions.
The accompanying notes are an integral part of these financial statements.
Tax Information for the Year Ended July 31, 2008 (Unaudited)
We are required to advise you within 60 days of the Fund's fiscal year regarding the federal tax status of distributions received by shareholders during such fiscal year. The distributions made during the fiscal year by the Fund were earned from the following sources:
|
|
| Dividends and Distributions Per Share | |||||
To Shareholders of Record |
| Payment Date |
| From Net Investment Income |
| From Net Realized Short-Term Gains |
| From Net Realized Long-Term Gains |
August 31, 2007 |
| August 31, 2007 | $ | .032603 |
| .0 |
| .0 |
September 28, 2007 |
| September 28, 2007 | $ | .029739 |
| .0 |
| .0 |
October 31, 2007 |
| October 31, 2007 | $ | .033890 |
| .0 |
| .0 |
November 30, 2007 |
| November 30, 2007 | $ | .032427 |
| .0 |
| .0 |
December 31, 2007 |
| December 31, 20007 | $ | .032557 |
| .0 |
| .0 |
January 31, 2008 |
| January 31, 2008 | $ | .032313 |
| .0 |
| .0 |
February 29, 2008 |
| February 29, 2008 | $ | .032229 |
| .0 |
| .0 |
March 31, 2008 |
| March 31, 2008 | $ | .032967 |
| .0 |
| .0 |
April 30, 2008 |
| April 30, 2008 | $ | .033120 |
| .0 |
| .0 |
May 30, 2008 |
| May 30, 2008 | $ | .033012 |
| .0 |
| .0 |
June 30, 2008 |
| June 30, 2008 | $ | .033050 |
| .0 |
| .0 |
July 31, 2008 |
| July 31, 2008 | $ | .033339 |
| .0 |
| .0 |
Shareholders should consult their tax advisors.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of the Oklahoma Municipal Fund
We have audited the accompanying statement of assets and liabilities of the Oklahoma Municipal Fund (one of the portfolios constituting the Integrity Managed Portfolios), including the schedule of investments as of July 31, 2008, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2008 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Oklahoma Municipal Fund of the Integrity Managed Portfolios as of July 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota USA
September 12, 2008
Item 2—Code of Ethics
(a) | The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions (the "Code"). | |
|
| |
(b) | For purposes of this Item, the term "code of ethics" means written standards that are reasonably designed to deter wrongdoing and promote: | |
|
| |
| (1) | Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
|
|
|
| (2) | Full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, the Commission and in other public communications made by the registrant; |
|
|
|
| (3) | Compliance with applicable governmental laws, rules, and regulations; |
|
|
|
| (4) | The prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and |
|
|
|
| (5) | Accountability for adherence to the Code. |
|
| |
(c) | There were no amendments to the Code during the period covered by the Report. | |
|
| |
(d) | 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. | |
|
| |
(e) | Not applicable. | |
|
| |
(f) | See Item 12(a) regarding the filing of the Code of Ethics for the Principal Executive and Principal Financial Officers of the Integrity Managed Portfolios and Integrity Mutual Funds, Inc. |
Item 3—Audit Committee Financial Expert
The Trust's Board of Trustees has determined that Jerry Stai is an audit committee financial expert, as defined in paragraph (a)(2) of Item 3 of Form N-CSR. Mr. Stai is independent for purposes of Item 3 of Form N-CSR.
Item 4—Principal Accountant Fees and Services
(a) | Audit fees include the amounts related to the professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. | ||
|
| Audit Fees | |
|
| 2007 | $39,900 |
|
| 2008 | $39,900 |
|
| ||
(b) | Audit-related fees are fees principally paid for professional services rendered for due diligence and technical accounting consulting and research. | ||
|
| Audit-Related Fees | |
|
| 2007 | $4,800 |
|
| 2008 | $7,200 |
|
| ||
(c) | Tax fees include amounts related to the preparation and review of the registrant's tax returns. | ||
|
| Tax Fees | |
|
| 2007 | $7,200 |
|
| 2008 | $7,200 |
|
| ||
(d) | All Other Fees. | ||
|
| None. | |
|
|
| |
(e) | (1) | The registrant's audit committee has adopted policies and procedures that require the audit committee to pre-approve all audit and non-audit services provided to the registrant by the principal accountant. | |
|
|
| |
| (2) | 0% of the services described in paragraphs (b) through (d) of Item 4 were not pre-approved by the audit committee. All of the services described in paragraphs (b) through (d) of Item 4 were approved by the audit committee. | |
|
| ||
(f) | All services performed on the engagement to audit the registrant's financial statements for the most recent fiscal year end were performed by the principal accountant's full-time permanent employees. | ||
|
| ||
(g) | None. | ||
|
| ||
(h) | The registrant's independent auditor did not provide any non-audit services to the registrant's investment adviser or any entity controlling, controlled by, or controlled with the registrant's investment adviser that provides ongoing services to the registrant. |
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-CSR.
Item 7—Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable
Item 8—Portfolio Managers of Closed-End Management Investment Company and Affiliated Purchasers
Not applicable
Item 9—Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable
Item 10—Submissions of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's board of directors in the last fiscal half-year.
Item 11—Controls and Procedures
(a) | Based on their evaluation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this Form N-CSR (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. |
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(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 attached hereto. |
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| (2) | Certification pursuant to Section 30a-2(a) of the Sarbanes-Oxley Act of 2002 is filed and attached hereto. |
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(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 |
| Interim President, Integrity Managed Portfolios |
Date: September 29, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
By: | /s/ Adam Forthun |
| Adam Forthun |
| Treasurer, Integrity Managed Portfolios |
Date: September 29, 2008