[Federal Register: November 17, 2005 (Volume 70, Number 221)]
[Notices]
[Page 69788-69790]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17no05-99]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 27144; 812-13121]
The Integrity Funds and Integrity Money Management, Inc.; Notice
of Application
November 10, 2005.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 15(a)
of the Act and rule 18f-2 under the Act.
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Summary of the Application: The requested order would permit applicants
to enter into and materially amend subadvisory agreements without
shareholder approval.
Applicants: The Integrity Funds (the ``Trust'') and Integrity Money
Management, Inc. (the ``Adviser'').
Filing Date: The application was filed on September 7, 2004 and amended
on October 14, 2005.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on December 5, 2005, and should be accompanied by proof of service
on applicants in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-9303. Applicants, c/o Robert E.
Walstad, Integrity Mutual Funds, 1 Main Street North, Minot, ND 58703.
FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel,
at (202) 551-6868, or Mary Kay Frech, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the Commission's Public Reference Branch, 100 F Street, NE.,
Washington, DC 20549-0102 (telephone (202) 551-5850).
Applicants' Representations
1. The Trust, a Delaware statutory trust, is registered under the
Act as an open-end management investment company. The Trust currently
offers eight series (each a ``Fund,'' and collectively, the ``Funds''),
each of which has its own investment objectives, policies and
restrictions.\1\
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\1\ Applicants also request relief with respect to future series
of the Trust and any other existing or future registered open-end
management investment company and its series that: (a) Are advised
by the Adviser or any entity controlling, controlled by or under
common control with the Adviser; (b) are managed in a manner
consistent with the applicant; and (c) comply with the terms and
conditions in the application (included in the term ``Funds''). The
Trust is the only existing registered open-end management investment
company that currently intends to rely on the requested order. If
the name of any Fund contains the name of a Subadviser (as defined
below), the name of the Adviser or the name of the entity
controlling, controlled by, or under common control with the Adviser
that serves as the primary adviser to the Fund will precede the name
of the Subadviser.
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2. The Adviser, registered under the Investment Advisers Act of
1940 (``Advisers Act''), serves as investment adviser to each Fund
pursuant to an investment advisory agreement with the
[[Page 69789]]
Trust (``Advisory Agreement''), that was approved by the board of
trustees of the Trust (the ``Board''), including a majority of the
trustees who are not ``interested persons,'' as defined in section
2(a)(19) of the Act (``Independent Trustees''), and the shareholders of
each Fund. Under the terms of each Advisory Agreement, the Adviser
provides each Fund with investment research, advice and supervision,
and furnishes an investment program for each Fund consistent with the
investment objectives, policies and limitations of the Fund. For its
services, the Adviser receives a fee from each Fund based on the
average daily net assets of the Fund. Under each Advisory Agreement,
the Adviser may delegate investment advisory responsibilities to one or
more subadvisers (``Subadvisers'') who have discretionary authority to
invest all or a portion of the Fund's assets pursuant to a separate
subadvisory agreement (``Subadvisory Agreement''). Each Subadviser is
or will be an investment adviser registered under the Advisers Act. For
its services to a Fund, the Adviser pays a Subadviser a monthly fee at
an annual rate based on the average daily net assets of the Fund or a
percentage of the net advisory fee paid to the Adviser by the Fund. The
fees of the Subadvisers, at rates negotiated between the Subadvisers
and the Adviser, are paid by the Adviser (and not by the applicable
Fund) out of the fees paid by the applicable Fund to the Adviser.
3. Applicants request relief to permit the Adviser, subject to
Board approval, to enter into and materially amend Subadvisory
Agreements without shareholder approval. The requested relief will not
extend to a Subadviser that is an affiliated person, as defined in
section 2(a)(3) of the Act, of the Fund or the Adviser, other than by
reason of serving as a Subadviser to one or more of the Funds (an
``Affiliated Subadviser'').
Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in relevant part, that it is
unlawful for any person to act as an investment adviser to a registered
investment company except pursuant to a written contract that has been
approved by the vote of a majority of the company's outstanding voting
securities. Rule 18f-2 under the Act provides that each series or class
of stock in a series company affected by a matter must approve such
matter if the Act requires shareholder approval.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security, or transaction or any class or classes of
persons, securities, or transactions from any provision of the Act, or
from any rule thereunder, if and to the extent that such exemption is
necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the
policies and provisions of the Act. Applicants believe that their
requested relief meets this standard for the reasons discussed below.
3. Applicants state that the Funds' shareholders rely on the
Adviser, subject to the oversight by the Board, to select the
Subadvisers best suited to achieve a Fund's investment objectives.
Applicants assert that, from the perspective of the investor, the role
of the Subadvisers is substantially equivalent to that of individual
portfolio managers employed by traditional investment advisory firms.
Applicants contend that requiring shareholder approval of Subadvisory
Agreements would impose costs and unnecessary delays on the Funds and
may preclude the Adviser and the Board from acting promptly when a
change in Subadvisers would benefit a Fund. Applicants also note that
the Advisory Agreement will remain subject to the shareholder approval
requirements in section 15(a) of the Act and rule 18f-2 under the Act.
4. Applicants note that the Commission recently adopted certain
fund governance standards on June 23, 2004.\2\ Applicants agree that
each Fund will comply with the fund governance standards set forth in
rule 0-1(a)(7) under the Act by the compliance date. Applicants also
note that the Commission has proposed rule 15a-5 under the Act and
agree that the requested order will expire on the effective date of
rule 15a-5 under the Act, if adopted.\3\
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\2\ See Investment Company Act Release No. 26520 (July 27,
2004).
\3\ Investment Company Act Release No. 26230 (Oct. 23, 2003).
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Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the followingconditions:
1. Before a Fund may rely on the order requested, the operation of
the Fund in the manner described in the application will be approved by
a majority of the Fund's outstanding voting securities, as defined in
the Act, or, in the case of a Fund whose public shareholders purchase
shares on the basis of a prospectus containing the disclosure
contemplated by condition 2 below, by the initial shareholder(s) before
offering shares of that Fund to the public.
2. Each Fund will disclose in its prospectus the existence,
substance, and effect of any order granted pursuant to the application.
In addition, each Fund will hold itself out to the public as employing
the management structure described in the application. The prospectus
will prominently disclose that the Adviser has ultimate responsibility
(subject to oversight by the Board) to oversee Subadvisers and
recommend their hiring, termination, and replacement.
3. The Board will satisfy the fund governance standards as set
forth inrule 0-1(a)(7) under the Act by the compliance date for the
rule. Prior to the compliance date, a majority of the Board will be
Independent Trustees, and the nomination of new or additional
Independent Trustees will be at the discretion of the then-existing
Independent Trustees.
4. The Adviser will not enter into a Subadvisory Agreement with any
Affiliated Subadviser without that agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Fund.
5. When a Subadviser change is proposed for a Fund with an
Affiliated Subadviser, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
Board minutes, that the change is in the best interests of the Fund and
its shareholders and does not involve a conflict of interest from which
the Adviser or the Affiliated Subadviser derives an inappropriate
advantage.
6. Within 90 days of the hiring of any new Subadviser, shareholders
of the affected Fund will be furnished all information about the new
Subadviser that would be contained in a proxy statement. Each Fund will
meet this condition by providing shareholders with an information
statement meeting the requirements of Regulation 14C, Schedule 14C and
Item 22 of Schedule 14A under the Securities Exchange Act of 1934.
7. The Adviser will provide general management services to each
Fund, including overall supervisory responsibility for the general
management and investment of each Fund's assets, and, subject to review
and approval by the Board, will (i) set the Fund's overall investment
strategies; (ii) evaluate, select and recommend Subadvisers to manage
all or a part of the Fund's assets; (iii) when appropriate, allocate
and reallocate a Fund's assets among multiple Subadvisers; (iv) monitor
and evaluate
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the performance of Subadvisers; and (v) implement procedures reasonably
designed to ensure that the Subadvisers comply with each Fund's
investment objectives, policies, and restrictions.
8. No trustee or officer of the Trust, or director or officer of
the Adviser, will own directly or indirectly (other than through a
pooled investment vehicle that is not controlled by such person) any
interest in a Subadviser, except for (i) ownership of interests in the
Adviser or any entity that controls, is controlled by, or is under
common control with the Adviser; or (ii) ownership of less than 1% of
the outstanding securities of any class of equity or debt of a
publicly-traded company that is either a Subadviser or an entity that
controls, is controlled by or is under common control with a
Subadviser.
9. The requested order will expire on the effective date of rule
15a-5 under the Act, if adopted.
For the Commission, by the Division of Investment Management,
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. E5-6354 Filed 11-16-05; 8:45 am]
BILLING CODE 8010-01-P