

[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
