

[Federal Register: December 14, 2005 (Volume 70, Number 239)]
[Notices]               
[Page 74055-74056]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14de05-102]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27184; 812-13176]

 
The Integrity Funds, et al.; Notice of Application

December 8, 2005.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 12(d)(1)(J) 
of the Investment Company Act of 1940 (``Act'') for an exemption from 
section 12(d)(1)(F)(ii) of the Act.

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    Summary of Application: Applicants request an order to permit 
certain registered open-end management investment companies relying on 
section 12(d)(1)(F) of the Act to charge a sales load in excess of 1\1/
2\ percent.
    Applicants: Integrity Money Management, Inc. (the ``Adviser''), 
Integrity Funds Distributor, Inc. (the ``Distributor''), and The 
Integrity Funds on behalf of itself and certain series thereof, and 
future registered open-end management investment companies and series 
thereof advised by the Adviser or an entity controlling, controlled by, 
or under common control with the Adviser or for which the Distributor 
or any entity controlling, controlled by, or under common control with 
the Distributor serves as principal underwriter (the ``Funds'').
    Filing Dates: The application was filed on March 17, 2005 and 
amended on December 2, 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 January 3, 2006 and should be accompanied by proof of 
service on the 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: Brenda Sem, c/o 
Integrity Mutual Funds, Inc., 1 Main Street North, Minot, North Dakota 
58703.

FOR FURTHER INFORMATION CONTACT: Keith A. Gregory, Senior Counsel, at 
(202) 551-6815 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 at the 
Commission's Public Reference Desk, 100 F Street, NE., Washington, DC 
20549-0102 (tel. (202) 551-8090).

Applicants' Representations

    1. The Integrity Funds is a Delaware statutory trust registered 
with the Commission under the Act as an open-end management investment 
company. The Integrity Funds currently consists of ten Funds.\1\ The 
Adviser is registered as an investment adviser under the Investment 
Advisers Act of 1940. The Distributor is the principal underwriter to 
the Funds and is registered as a broker-dealer under the Securities 
Exchange Act of 1934.
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    \1\ The Integrity All Season Fund (the ``All Season Fund'') is 
the only existing Fund that currently intends to rely on the 
requested relief. Any existing or future registered open-end 
management investment company or series thereof that relies on the 
order in the future will do so only in accordance with the terms and 
conditions of the application.
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    2. Certain Funds, including the All Season Fund, intend to invest 
all or a portion of their assets in the shares of various other 
registered investment companies that are not part of the same ``group 
of investment companies'' as defined in section 12(d)(1)(G)(ii) of the 
Act as the Funds (``Underlying Funds'') in reliance on section 
12(d)(1)(F) of the Act. Each of the Underlying Funds will be registered 
as a closed-end investment company, an open-end investment company or 
unit investment trust. The Underlying Funds may also be registered as 
open-end investment companies or unit investment trusts that have 
received exemptive relief to, among other things, issue shares of 
limited redeemability that can be traded on an exchange at negotiated 
prices (``Exchange-Traded Funds''). The Funds also may invest a portion 
of their assets directly in equity or fixed income securities, and 
other investments. Applicants request relief to permit the Funds to 
charge a sales load in excess of the limit in section 12(d)(1)(F)(ii) 
of the Act.

Applicants' Legal Analysis

A. Section 12(d)(1) of the Act

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire securities of another investment company 
if those securities represent more than 3% of the acquired company's 
total outstanding voting stock, more than 5% of the acquiring company's 
total assets, or if the securities, together with the securities of any 
other acquired investment companies, represent more than 10% of the 
acquiring company's total assets. Section 12(d)(1)(B) of the Act 
provides that no registered open-end investment company, its principal 
underwriter and any broker or dealer may sell securities of the company 
to another investment company if the sale will cause the acquiring 
company to own more than 3% of the acquired company's voting stock, or 
if the sale will cause more than 10% of the acquired company's voting 
stock to be owned by investment companies.
    2. Section 12(d)(1)(F) of the Act provides that section 12(d)(1) 
shall not apply to the acquisition by a registered investment company 
of the securities of an investment company if, among other things, the 
acquiring company and its affiliates immediately after the purchase own 
no more than 3% of an acquired company's total outstanding stock and 
the acquiring company does not charge a sales load in excess of 1\1/
2\%. Applicants state that the Funds will comply with section 
12(d)(1)(F) in all respects except for the sales load limit of 1\1/2\%.
    3. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt persons or transactions from any provision of section 12(d)(1), 
if and to the extent that such exemption is consistent with the public 
interest and the protection of investors.
    4. Applicants request an order under section 12(d)(1)(J) exempting 
them from the sales load limitation in section

[[Page 74056]]

12(d)(1)(F)(ii). Applicants have agreed, as a condition to the 
requested relief, that any sales charges and/or service fees with 
respect to shares of a Fund will not exceed the limits set forth in 
Rule 2830 of the NASD Conduct Rules (``NASD Conduct Rules'') applicable 
to a fund of funds. Applicants believe that it is appropriate to apply 
the NASD's rule to the proposed arrangement instead of the sales load 
limitation in section 12(d)(1)(F)(ii) because the proposed limit would 
cap the aggregate sales charges that may be imposed by a fund of funds. 
Applicants assert that the NASD's rule more accurately reflects today's 
regulatory environment with respect to the methods by which investment 
companies finance sales expenses. Applicants also state that the Funds 
will incur brokerage commissions in connection with their purchase and 
sale of shares of closed-end funds or Exchange-Traded Funds. The 
commissions on such transactions will not differ from those customarily 
incurred in connection with the purchase and sale of comparable 
securities.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Funds will comply with section 12(d)(1)(F) in all respects 
except for the sales load limitation of section 12(d)(1)(F)(ii).
    2. Any sales charges and/or service fees (as those terms are 
defined in Rule 2830 of the NASD Conduct Rules) charged with respect to 
shares of a Fund will not exceed the limits applicable to a fund of 
funds as set forth in Rule 2830 of the NASD Conduct Rules.
    3. No Underlying Fund will acquire securities of any investment 
company or company relying on section 3(c)(1) or 3(c)(7) of the Act in 
excess of the limits contained in section 12(d)(1)(A) of the Act, 
except to the extent that such Underlying Fund (a) receives securities 
of another investment company as a dividend or as a result of a plan of 
reorganization of a company (other than a plan devised for the purpose 
of evading section 12(d)(1)of the Act); or (b) acquires (or is deemed 
to have acquired) securities of another investment company pursuant to 
exemptive relief from the Commission permitting such Underlying Fund to 
(i) acquire securities of one or more affiliated investment companies 
for short-term cash management purposes; or (ii) engage in interfund 
borrowing and lending transactions.
    4. Prior to reliance on the requested order, the board of directors 
or trustees (``Board'') of each Fund, including a majority of the Board 
who are not ``interested persons'' (as defined in section 2(a)(19) of 
the Act) (``Disinterested Directors''), shall find that the advisory 
fees, if any, charged under the Fund's advisory contract(s) are based 
on services provided that are in addition to, rather than duplicative 
of, services provided under any Underlying Fund's advisory contract(s). 
Such finding, and the basis upon which the finding was made, will be 
recorded fully in the minute books of the appropriate Fund. In 
addition, in connection with the approval of any investment advisory 
contract pursuant to section 15 of the Act subsequent to such initial 
determination, the Board of each Fund, including a majority of the 
Disinterested Directors, shall find that the advisory fees, if any, 
charged under the Fund's advisory contract(s) are based on services 
provided that are in addition to, rather than duplicative of, services 
provided pursuant to any Underlying Fund's advisory contract(s). Such 
finding, and the basis upon which the finding was made, will be 
recorded fully in the minute books of the appropriate Fund.
    5. The Board of each Fund will satisfy fund governance standards as 
defined in rule 0-1(a)(7) under the Act by the compliance date for the 
rule.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
 [FR Doc. E5-7302 Filed 12-13-05; 8:45 am]

BILLING CODE 8010-01-P
