[Federal Register Volume 75, Number 168 (Tuesday, August 31, 2010)]
[Notices]
[Pages 53355-53357]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-21625]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29399; File No. 812-13763]
The Integrity Funds, et al.; Notice of Application
August 25, 2010.
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: Summary of Application: The requested order would permit
certain registered open-end management investment companies to enter
into and materially amend subadvisory agreements without shareholder
approval.
Applicants: The Integrity Funds (``Integrity Funds''), Integrity
Managed Portfolios (``Managed Portfolios''), Integrity Fund of Funds,
Inc. (``Fund of Funds''), Viking Mutual Funds (``Viking Funds'') (each,
a ``Mutual Fund'' and collectively, the ``Mutual Funds''), and Viking
Fund Management, LLC (the ``Adviser'').
DATES: Filing Dates: The application was filed on March 30, 2010, and
amended on August 10, 2010.
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 September 20, 2010 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 reasons 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 20549-1090. Applicants, Viking Fund
Management, LLC, 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 via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. Each Mutual Fund is registered under the Act as an open-end
management investment company. Integrity Funds is organized as a
Delaware statutory trust and currently offers three series (each, a
``Fund'' and collectively, the ``Funds''), each with its own distinct
investment objectives, policies and restrictions. Managed Portfolios is
organized as a Massachusetts business trust and
[[Page 53356]]
currently offers six Funds, each with its own distinct investment
objectives, policies and restrictions. Fund of Funds is organized as a
North Dakota corporation and currently does not operate as a series
company (included in the term ``Funds''). Viking Funds is organized as
a Delaware statutory trust and currently offers four Funds, each with
its own distinct investment objectives, policies and restrictions.\1\
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\1\ Applicants also request relief with respect to future Funds
and any other existing or future registered open-end management
investment company or series thereof that: (a) Is advised by the
Adviser or any entity controlling, controlled by, or under common
control with the Adviser (included in the term ``Adviser''); (b)
uses the manager of managers structure described in the application;
and (c) complies with the terms and conditions of the application
(included in the term ``Funds''). The only existing registered open-
end management investment companies that currently intend to rely on
the requested order are named as applicants. If the name of any Fund
contains the name of a Subadviser (as defined below), the name of
the Adviser will precede the name of the Subadviser.
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2. The Adviser, a North Dakota limited liability company, is
registered as an investment adviser under the Investment Advisers Act
of 1940 (``Advisers Act''). The Adviser is a wholly-owned subsidiary of
Corridor Investors, LLC. The Adviser serves as investment adviser to
each Fund under an investment advisory agreement (each, an ``Advisory
Agreement'') that has been approved by the shareholders of each Fund
and by the board of directors or trustees of the Mutual Funds
(``Board''), including a majority of the directors or trustees who are
not ``interested persons,'' as defined in section 2(a)(19) of the Act,
of a Mutual Fund, the Adviser, or the Subadvisers (``Independent Board
Members'').\2\
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\2\ Under a prior order, the Commission granted relief to The
Integrity Funds and Integrity Money Management, Inc., a wholly owned
subsidiary of Integrity Mutual Funds, Inc. (``Integrity Mutual
Funds'') from the provisions of section 15(a) of the Act and rule
18f-2 under the Act similar to that requested in the Application.
The Integrity Funds, et al., Investment Company Act Release Nos.
27144 (Nov. 10, 2005)(notice) and 27180 (Dec. 6, 2005)(order). On
July 31, 2009, Integrity Mutual Funds generally sold its mutual fund
services business to Corridor and the Adviser. In 2009, the existing
shareholders of the Funds approved the Advisory Agreements, the
existing Subadvisory Agreements and the manager of managers
structure.
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3. Under the terms of each Fund's Advisory Agreement, the Adviser
provides a continuous investment program for the Fund consistent with
the investment objectives, policies and limitations of the Fund. For
its services, the Adviser receives a fee from each Fund specified in
the relevant Advisory Agreement. Under each Advisory Agreement, the
Adviser may enter into investment subadvisory agreements with 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''). The Adviser will
evaluate, allocate assets to, and oversee Subadvisers, and recommend to
the Board their hiring, termination and replacement. Each Subadviser is
or will be an investment adviser registered under the Advisers Act. For
its services to a Fund, the Adviser pays each Subadviser a monthly fee
out of the fee paid to the Adviser by the Fund.
4. Applicants request an order to permit the Adviser, subject to
Board approval, to enter into and materially amend Subadvisory
Agreements without obtaining shareholder approval. The requested relief
will not extend to any Subadviser who is an affiliated person, as
defined in section 2(a)(3) of the Act, of a Fund or the Adviser (other
than by reason of serving as a Subadviser to one or more of the Funds)
(``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 policy
and provisions of the Act. Applicants believe that the requested relief
meets this standard for the reasons discussed below.
3. Applicants state that the shareholders rely on the Adviser's
experience to select one or more Subadvisers best suited to achieve the
Fund's investment objectives. Applicants assert that, from the
perspective of the investor, the role of the Subadvisers is
substantially equivalent to that of the individual portfolio managers
employed by traditional investment company 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 note that each Advisory
Agreement and any Subadvisory Agreement with an Affiliated Subadviser
will remain subject to the shareholder approval requirements of section
15(a) and rule 18f-2 under the Act.
Applicants' Conditions
Applicants agree that any order granting the requested relief shall
be subject to the following conditions:
1. Before a Fund may rely on the order requested in the
application, 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 that relies on the requested order 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 manager of managers structure
described in the application. The prospectus will prominently disclose
that the Adviser has the ultimate responsibility (subject to oversight
by the Board) to oversee the Subadvisers and to recommend their hiring,
termination and replacement.
3. At all times, at least a majority of the Board will be
Independent Board Members, and the nomination of new or additional
Independent Board Members will be placed within the discretion of the
then-existing Independent Board Members.
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 Board Members, 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.
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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 included in a proxy statement. To meet this
condition, each affected Fund will provide shareholders with an
information statement meeting the requirements of Regulation 14C,
Schedule 14C and Item 22 of Schedule 14A under the 1934 Act.
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 the
review and approval by the Board, will: (i) Set each Fund's overall
investment strategies; (ii) evaluate, select and recommend Subadvisers
to manage all or part of each Fund's assets; (iii) when appropriate,
allocate and reallocate each applicable Fund's assets among multiple
Subadvisers; (iv) monitor and evaluate the performance of Subadvisers;
and (v) implement procedures reasonably designed to ensure that the
Subadvisers comply with each Fund's investment objective, policies and
restrictions.
8. No Board Member or officer of a Mutual Fund, 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 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. In the event that the Commission adopts a rule under the Act
providing substantially similar relief to that in the order requested
in the application, the requested order will expire on the effective
date of that rule.
For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-21625 Filed 8-30-10; 8:45 am]
BILLING CODE 8010-01-P