Correspondence 0000893730-23-000012 from INTEGRITY FUNDS (CIK 0000893730)
INTEGRITY FUNDS (CIK 0000893730)
Date: April 25, 2023 · CIK: 0000893730 · Accession: 0000893730-23-000012
AI Filing Summary & Sentiment
File numbers found in text: 811-07322
Letter
correspondence20230425.htm - Generated by SEC Publisher for SEC Filing
Chicago
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vedderprice.com
Mark A. Quade Associate +1 312 609 7515 mquade@vedderprice.com
April 25, 2023
VIA EDGAR
U.S. Securities and Exchange Commission
Division of Investment Management
100 F Street N.E.
Washington, D.C. 20549
Attn: Rebecca Marquigny
Re:
The Integrity Funds (the “Registrant”) Registration Statement on Form N-1A File Nos. 033-53698; 811-07322
To the Commission:
On behalf of the Registrant, this letter is in response to the comments provided telephonically by the staff of the U.S. Securities and Exchange Commission (the “Commission”) on March 27, 2023 with respect to Post-Effective Amendment No. 114 to the Registrant’s Registration Statement on Form N-1A filed on February 10, 2023 (the “Registration Statement”) relating to the issuance of shares of beneficial interest by the Integrity Dividend Summit Fund, a series of the Registrant (the “Fund”). Set forth below are the staff’s comments, as we understand them, and the Registrant’s responses. Any capitalized terms used but not defined herein have the same meanings assigned to them in the Registration Statement.
Pursuant to Rule 485(a)(2) under the Securities Act of 1933, as amended, the Registration Statement was initially scheduled to become effective on April 26, 2023. The Registrant intends to file a delaying amendment specifying a new effective date of May 1, 2023. The Registrant intends to file a Post-Effective Amendment to the Registration Statement on or about May 1, 2023 in order to address the comments of the staff and to complete all missing information.
Prospectus Cover Page & Summary Section
1.
Comment: Please disclose the ticker symbol for each share class on the cover page of the prospectus.
Response: Registrant has completed this information.
2.
Comment: Please supplementally explain what is meant by “maximize qualified dividend income” in the Fund’s investment objectives, and explain how that objective will factor into how the Fund is marketed and managed.
Response: For the information of the staff, qualified dividends are dividends that meet the criteria to be taxed at capital gains tax rates, which are lower than regular income tax rates for some taxpayers. The Fund is sold through intermediaries and is expected to be marketed primarily as a high dividend equity product. As stated in the prospectus, the Team seeks investments in companies whose dividends will be treated as qualified dividend income.
3.
Comment: Please provide a completed shareholder fee and operating expense table and expense example table in the summary section of the Fund’s prospectus.
Response: Registrant has completed this information.
4.
Comment: In the introductory statement that precedes the shareholder fee and operating expense table, please present the second sentence in bold font.
Response: The Registrant has made the requested revision.
5.
Comment: In the shareholder fee and operating expense table, consider removing line items for shareholder fees that are not applicable to the Fund, consistent with Instruction 1(c) to Item 3 of Form N-1A.
Response: Consistent with Instruction 1(c) to Item 3 of Form N-1A, the Registrant respectfully declines to make the requested revision noting that omitting captions regarding fees that the Fund does not charge is permitted but not required.
6.
Comment: Confirm the contractual fee waiver will be in place for at least one year after date of prospectus. Fully disclose by whom and how the agreement can be terminated.
Response: Registrant has completed this disclosure and confirms the fee waiver will be in place through November 29, 2024.
7.
Comment: Clarify what is a “dividend-paying equity security” for purposes of the Fund’s 80% policy. With respect to the statement “the Fund invests at least 65% of its net assets in equity securities that pay dividends at a rate (yield) at least double that of the S&P 500” please clarify how frequently or over what time horizon the Adviser reevaluates a stock’s dividend payment history, and clarify whether this same dividend payment threshold applies to all stocks or if different thresholds apply to stocks within different sectors or market capitalization ranges.
Response: Registrant has add the following disclosure:
For the purposes of this policy, the Fund considers dividend-paying equity securities to be the common or preferred stock of a company that has paid a dividend in the current or preceding calendar year or for which the company has announced a dividend in the current calendar year.
For the information of the staff, the Adviser evaluates a company’s dividend relative to the S&P 500 periodically, but no less frequently than monthly. The Adviser does not apply different thresholds to different types of stock, and believes that the disclosure is clear on this point.
8.
Comment: With respect to the Fund’s principal investment strategy to invest “in dividend-paying equity securities, including common stock and preferred stock,” please clarify how the Adviser decides whether to invest in common stock versus preferred stock.
Response: Registrant has added the following disclosure:
In determining to invest in common or preferred stock, the Team will consider a number of factors including its macroeconomic and market outlook.
9.
Comment: With respect to the disclosure in Fund’s principal investment strategy that the Fund may “make significant investments in certain sectors,” please explain how the Adviser decides when to invest significantly in a particular sector and how “economic conditions,” as stated in the principal investment strategy, impact that decision. If the Adviser anticipates that the Fund’s initial holdings will reflect concentration in a particular sector, please disclose such sector and provide corresponding risk disclosure.
Response: Registrant has revised the disclosure as follows:
While the Fund does not concentrate in any one industry, from time to time, it may make significant investments in certain economic sectors as a result of the investment process. The Team’s macroeconomic and market outlook will drive sector selection.
For the information of the staff, the Adviser has confirmed that the initial portfolio is not expected to be comprised of significant investments in any particular economic sector.
10.
Comment: With respect to the Fund’s principal investment strategy to “invest up to 30% of its net assets in foreign securities,” please describe the main factors driving the Adviser’s selection of and allocation among foreign securities (e.g., geographic location, developed versus emerging markets and foreign currency considerations).
Response: Registrant has added the following disclosure:
The Team’s macroeconomic and market outlook, along with geographic location and other factors, will drive the Adviser’s selection of and allocation among foreign securities.
11.
Comment: With respect to the Fund’s principal investment strategy to “consider selling a security if, among other considerations, its business fundamentals have deteriorated or if it fails to raise its dividend,” please state the applicable time period over which an issuer’s failure to raise its dividend will be reviewed.
Response: Registrant has deleted the disclosure regarding a rising dividend.
12.
Comment: With respect to the Fund’s principal investment strategy stating that the “Fund is non-diversified, meaning that it can concentrate its investments in a more limited number of issuers than a diversified fund,” please disclose the anticipated range of the number of issuers in which the Fund will invest.
Response: For the information of the staff, the Fund does not have a target range of number of issuers to be held in the portfolio.
13.
Comment: With respect to the Fund’s “General Market Risk,” please clarify that such risk refers to losses that can result from market factors (e.g., interest rates, credit spreads, foreign currency exchange rates, and commodity prices).
Response: Registrant has added the requested disclosure.
14.
Comment: Please expand the disclosure of “Dividend-Paying Stock Risk” to briefly discuss the key factors that might cause a company to “reduce or eliminate its dividend.”
Response: Registrant has added the following disclosure:
Key factors that may cause a company to reduce or eliminate its dividend included deteriorating fundamentals or changes in priority of use of capital, among others.
15.
Comment: With respect to the Fund’s “Risks of Foreign Securities (including Depositary Receipts),” please describe the risks disclosed in the second sentence (i.e., “international economic and political developments, foreign government actions including restrictions on payments to non-domestic persons such as the Fund, less regulation, less information, currency fluctuations, and interruptions in currency flow”).
Also, consider separate risk disclosure regarding depositary receipts. If the Fund’s depositary receipt investments primarily consist of either sponsored or unsponsored depositary receipts, please disclose this in the Fund’s principal investment strategy.
Response: Registrant has revised “Risk of Foreign Securities” as follows:
Foreign markets can be more volatile than U.S. markets. The Fund’s returns and net asset value may be affected by fluctuations in currency exchange rates or political or economic conditions in a particular country or region. In some foreign markets, it may not be possible for the Fund to repatriate capital, dividends, interest and other income from a particular country or governmental entity.
Registrant has separated the risk disclosure for depositary receipts. For the information of the staff, the Fund does not have a principal strategy of investing in a particular type of depositary receipt.
16.
Comment: Please add disclosure to the Fund’s “Cybersecurity Risk” stating that the Fund’s share price may decline as a direct consequence of unauthorized actions taken during a security breach and subsequent market activity in response to the security breach.
Response: Registrant has added the requested disclosure.
17.
Comment: With respect to the Fund’s “Valuation Risk,” please disclose in the principal investment strategy the Fund’s use of “securities that trade in thin or volatile markets or that are valued using a fair value methodology,” and if it is based on anticipated foreign investments please state this in the principal investment strategy and discuss how it impacts the Adviser’s security selection process or individual security selection decisions.
Response: For the information of the staff, Registrant believes valuation risk is appropriate in light of the Fund’s investment of up to 30% of its assets in foreign securities. Registrant does not, as a principal strategy, seek to invest in thinly traded and volatile markets and does not believe additional disclosure in the principal strategy section is warranted.
18.
Comment: In the “Fund Performance” section, amend the URL of the hyperlink so that it provides direct access to the webpage containing Fund performance or containing prominent hyperlinks to where fund-specific performance is provided.
Response: Registrant has verified the hyperlink.
19.
Comment: In the last sentence of the “Purchase and Sale of Fund Shares” section, please state what can be accomplished by contacting the Fund’s transfer agent at the address or telephone number provided.
Response: Registrant has revised the disclosure to note that transactions may be placed directly with the Fund by contacting the transfer agent.
Statutory Prospectus Section
20.
Comment: The staff notes that per Form N-1A, the description of the Fund’s principal investment strategies provided in response to Item 9(b) of Form N-1A is generally intended to be more detailed than the summary that is provided in response to Item 4(a) of Form N-1A so that the Item 9(b) description facilitates investors’ ability to conduct a more detailed review of the Fund’s principal investment strategies. Please expand the disclosure responsive to Item 9(b) focusing on how the portfolio managers apply the components of the Fund’s principal investment strategy to construct a portfolio that maximizes qualified dividend income and achieves long term capital appreciation. Supplementally confirm that the revised disclosure is consistent with the SEC staff guidance provided in IMGU No. 2014-08.
Response: Registrant believes its disclosure is consistent with the form requirements. Section 9(b) disclosure provides additional disclosure with respect certain principal risks, non-principal investment techniques and non-principal risks.
21.
Comment: With respect to the Fund’s disclosure in the “Temporary Defensive Positions, Cash Management Investments, and Certain Other Investments” section stating that “The Fund may invest in other investment companies to the extent permitted by federal law and any exemptions granted by the Securities and Exchange Commission upon which the Fund may rely,” if investment in other investment companies constitutes a principal investment strategy, disclose the strategy in response to Items 4 and 9 of Form N-1A; if it is not a principal investment strategy, consider relocating this statement to a different section entitled “Non-Principal Investment Strategies” or amend the current section heading.
Response: For the information of the staff, investment in other investment companies is not a principal investment strategy. The current disclosure does not reside under the “Principal Strategies” section and Registrant believes the disclosure is clear.
22.
Comment: Pursuant to ADI 2019-08 - Improving Principal Risks Disclosure, please reorder the Principal Risks disclosed in response to Item 9(c) of Form N-1A to prioritize the risks that are most likely to affect the Fund’s net asset value, yield and total return. The staff notes that after disclosing the most significant risks, the remaining risks can be disclosed in alphabetical order.
Response: Registrant has re-ordered the risks in the Principal Risk section.
23.
Comment: Please consider truncating the disclosure of the Investment Adviser’s history in the “Fund Management – Investment Adviser” section, as the history from 2009 does not add context for the Fund established in 2023.
Response: The Registrant has removed the disclosure regarding the 2009 transaction.
24.
Comment: In the same section, please specify the series referred to in the statement “Prior to August 1, 2009, Integrity Money Management, Inc. (“Integrity Money Management”), a subsidiary of Integrity Mutual Funds, Inc. (“Integrity”), served as investment adviser to the then-existing series of The Integrity Funds.”
Response: The statement cited has been removed in response to Comment number 23 above.
25.
Comment: Supplementally identify the SEC order referred to in the disclosure regarding the “manager-of-managers” structure, and confirm that the SEC order applies to both The Integrity Funds and Viking Mutual Funds.
Response: The Registrant confirms that IC Release No. 29418, dated September 21, 2010, which is referred to in the disclosure regarding the “manager-of-managers” structure, applies to both The Integrity Funds and Viking Mutual Funds.
26.
Comment: With respect to the discussion in the prospectus section entitled “The Shares Offered” regarding Appendix A’s description of the sales charge reductions and waivers applicable to Fu
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CORRESP 1 filename1.htm correspondence20230425.htm - Generated by SEC Publisher for SEC Filing Chicago New York Washington, DC London San Francisco Los Angeles Singapore Dallas Miami vedderprice.com Mark A. Quade Associate +1 312 609 7515 mquade@vedderprice.com April 25, 2023 VIA EDGAR U.S. Securities and Exchange Commission Division of Investment Management 100 F Street N.E. Washington, D.C. 20549 Attn: Rebecca Marquigny Re: The Integrity Funds (the “Registrant”) Registration Statement on Form N-1A File Nos. 033-53698; 811-07322 To the Commission: On behalf of the Registrant, this letter is in response to the comments provided telephonically by the staff of the U.S. Securities and Exchange Commission (the “Commission”) on March 27, 2023 with respect to Post-Effective Amendment No. 114 to the Registrant’s Registration Statement on Form N-1A filed on February 10, 2023 (the “Registration Statement”) relating to the issuance of shares of beneficial interest by the Integrity Dividend Summit Fund, a series of the Registrant (the “Fund”). Set forth below are the staff’s comments, as we understand them, and the Registrant’s responses. Any capitalized terms used but not defined herein have the same meanings assigned to them in the Registration Statement. Pursuant to Rule 485(a)(2) under the Securities Act of 1933, as amended, the Registration Statement was initially scheduled to become effective on April 26, 2023. The Registrant intends to file a delaying amendment specifying a new effective date of May 1, 2023. The Registrant intends to file a Post-Effective Amendment to the Registration Statement on or about May 1, 2023 in order to address the comments of the staff and to complete all missing information. Prospectus Cover Page & Summary Section 1. Comment: Please disclose the ticker symbol for each share class on the cover page of the prospectus. Response: Registrant has completed this information. 2. Comment: Please supplementally explain what is meant by “maximize qualified dividend income” in the Fund’s investment objectives, and explain how that objective will factor into how the Fund is marketed and managed. Response: For the information of the staff, qualified dividends are dividends that meet the criteria to be taxed at capital gains tax rates, which are lower than regular income tax rates for some taxpayers. The Fund is sold through intermediaries and is expected to be marketed primarily as a high dividend equity product. As stated in the prospectus, the Team seeks investments in companies whose dividends will be treated as qualified dividend income. 3. Comment: Please provide a completed shareholder fee and operating expense table and expense example table in the summary section of the Fund’s prospectus. Response: Registrant has completed this information. 4. Comment: In the introductory statement that precedes the shareholder fee and operating expense table, please present the second sentence in bold font. Response: The Registrant has made the requested revision. 5. Comment: In the shareholder fee and operating expense table, consider removing line items for shareholder fees that are not applicable to the Fund, consistent with Instruction 1(c) to Item 3 of Form N-1A. Response: Consistent with Instruction 1(c) to Item 3 of Form N-1A, the Registrant respectfully declines to make the requested revision noting that omitting captions regarding fees that the Fund does not charge is permitted but not required. 6. Comment: Confirm the contractual fee waiver will be in place for at least one year after date of prospectus. Fully disclose by whom and how the agreement can be terminated. Response: Registrant has completed this disclosure and confirms the fee waiver will be in place through November 29, 2024. 7. Comment: Clarify what is a “dividend-paying equity security” for purposes of the Fund’s 80% policy. With respect to the statement “the Fund invests at least 65% of its net assets in equity securities that pay dividends at a rate (yield) at least double that of the S&P 500” please clarify how frequently or over what time horizon the Adviser reevaluates a stock’s dividend payment history, and clarify whether this same dividend payment threshold applies to all stocks or if different thresholds apply to stocks within different sectors or market capitalization ranges. Response: Registrant has add the following disclosure: For the purposes of this policy, the Fund considers dividend-paying equity securities to be the common or preferred stock of a company that has paid a dividend in the current or preceding calendar year or for which the company has announced a dividend in the current calendar year. For the information of the staff, the Adviser evaluates a company’s dividend relative to the S&P 500 periodically, but no less frequently than monthly. The Adviser does not apply different thresholds to different types of stock, and believes that the disclosure is clear on this point. 8. Comment: With respect to the Fund’s principal investment strategy to invest “in dividend-paying equity securities, including common stock and preferred stock,” please clarify how the Adviser decides whether to invest in common stock versus preferred stock. Response: Registrant has added the following disclosure: In determining to invest in common or preferred stock, the Team will consider a number of factors including its macroeconomic and market outlook. 9. Comment: With respect to the disclosure in Fund’s principal investment strategy that the Fund may “make significant investments in certain sectors,” please explain how the Adviser decides when to invest significantly in a particular sector and how “economic conditions,” as stated in the principal investment strategy, impact that decision. If the Adviser anticipates that the Fund’s initial holdings will reflect concentration in a particular sector, please disclose such sector and provide corresponding risk disclosure. Response: Registrant has revised the disclosure as follows: While the Fund does not concentrate in any one industry, from time to time, it may make significant investments in certain economic sectors as a result of the investment process. The Team’s macroeconomic and market outlook will drive sector selection. For the information of the staff, the Adviser has confirmed that the initial portfolio is not expected to be comprised of significant investments in any particular economic sector. 10. Comment: With respect to the Fund’s principal investment strategy to “invest up to 30% of its net assets in foreign securities,” please describe the main factors driving the Adviser’s selection of and allocation among foreign securities (e.g., geographic location, developed versus emerging markets and foreign currency considerations). Response: Registrant has added the following disclosure: The Team’s macroeconomic and market outlook, along with geographic location and other factors, will drive the Adviser’s selection of and allocation among foreign securities. 11. Comment: With respect to the Fund’s principal investment strategy to “consider selling a security if, among other considerations, its business fundamentals have deteriorated or if it fails to raise its dividend,” please state the applicable time period over which an issuer’s failure to raise its dividend will be reviewed. Response: Registrant has deleted the disclosure regarding a rising dividend. 12. Comment: With respect to the Fund’s principal investment strategy stating that the “Fund is non-diversified, meaning that it can concentrate its investments in a more limited number of issuers than a diversified fund,” please disclose the anticipated range of the number of issuers in which the Fund will invest. Response: For the information of the staff, the Fund does not have a target range of number of issuers to be held in the portfolio. 13. Comment: With respect to the Fund’s “General Market Risk,” please clarify that such risk refers to losses that can result from market factors (e.g., interest rates, credit spreads, foreign currency exchange rates, and commodity prices). Response: Registrant has added the requested disclosure. 14. Comment: Please expand the disclosure of “Dividend-Paying Stock Risk” to briefly discuss the key factors that might cause a company to “reduce or eliminate its dividend.” Response: Registrant has added the following disclosure: Key factors that may cause a company to reduce or eliminate its dividend included deteriorating fundamentals or changes in priority of use of capital, among others. 15. Comment: With respect to the Fund’s “Risks of Foreign Securities (including Depositary Receipts),” please describe the risks disclosed in the second sentence (i.e., “international economic and political developments, foreign government actions including restrictions on payments to non-domestic persons such as the Fund, less regulation, less information, currency fluctuations, and interruptions in currency flow”). Also, consider separate risk disclosure regarding depositary receipts. If the Fund’s depositary receipt investments primarily consist of either sponsored or unsponsored depositary receipts, please disclose this in the Fund’s principal investment strategy. Response: Registrant has revised “Risk of Foreign Securities” as follows: Foreign markets can be more volatile than U.S. markets. The Fund’s returns and net asset value may be affected by fluctuations in currency exchange rates or political or economic conditions in a particular country or region. In some foreign markets, it may not be possible for the Fund to repatriate capital, dividends, interest and other income from a particular country or governmental entity. Registrant has separated the risk disclosure for depositary receipts. For the information of the staff, the Fund does not have a principal strategy of investing in a particular type of depositary receipt. 16. Comment: Please add disclosure to the Fund’s “Cybersecurity Risk” stating that the Fund’s share price may decline as a direct consequence of unauthorized actions taken during a security breach and subsequent market activity in response to the security breach. Response: Registrant has added the requested disclosure. 17. Comment: With respect to the Fund’s “Valuation Risk,” please disclose in the principal investment strategy the Fund’s use of “securities that trade in thin or volatile markets or that are valued using a fair value methodology,” and if it is based on anticipated foreign investments please state this in the principal investment strategy and discuss how it impacts the Adviser’s security selection process or individual security selection decisions. Response: For the information of the staff, Registrant believes valuation risk is appropriate in light of the Fund’s investment of up to 30% of its assets in foreign securities. Registrant does not, as a principal strategy, seek to invest in thinly traded and volatile markets and does not believe additional disclosure in the principal strategy section is warranted. 18. Comment: In the “Fund Performance” section, amend the URL of the hyperlink so that it provides direct access to the webpage containing Fund performance or containing prominent hyperlinks to where fund-specific performance is provided. Response: Registrant has verified the hyperlink. 19. Comment: In the last sentence of the “Purchase and Sale of Fund Shares” section, please state what can be accomplished by contacting the Fund’s transfer agent at the address or telephone number provided. Response: Registrant has revised the disclosure to note that transactions may be placed directly with the Fund by contacting the transfer agent. Statutory Prospectus Section 20. Comment: The staff notes that per Form N-1A, the description of the Fund’s principal investment strategies provided in response to Item 9(b) of Form N-1A is generally intended to be more detailed than the summary that is provided in response to Item 4(a) of Form N-1A so that the Item 9(b) description facilitates investors’ ability to conduct a more detailed review of the Fund’s principal investment strategies. Please expand the disclosure responsive to Item 9(b) focusing on how the portfolio managers apply the components of the Fund’s principal investment strategy to construct a portfolio that maximizes qualified dividend income and achieves long term capital appreciation. Supplementally confirm that the revised disclosure is consistent with the SEC staff guidance provided in IMGU No. 2014-08. Response: Registrant believes its disclosure is consistent with the form requirements. Section 9(b) disclosure provides additional disclosure with respect certain principal risks, non-principal investment techniques and non-principal risks. 21. Comment: With respect to the Fund’s disclosure in the “Temporary Defensive Positions, Cash Management Investments, and Certain Other Investments” section stating that “The Fund may invest in other investment companies to the extent permitted by federal law and any exemptions granted by the Securities and Exchange Commission upon which the Fund may rely,” if investment in other investment companies constitutes a principal investment strategy, disclose the strategy in response to Items 4 and 9 of Form N-1A; if it is not a principal investment strategy, consider relocating this statement to a different section entitled “Non-Principal Investment Strategies” or amend the current section heading. Response: For the information of the staff, investment in other investment companies is not a principal investment strategy. The current disclosure does not reside under the “Principal Strategies” section and Registrant believes the disclosure is clear. 22. Comment: Pursuant to ADI 2019-08 - Improving Principal Risks Disclosure, please reorder the Principal Risks disclosed in response to Item 9(c) of Form N-1A to prioritize the risks that are most likely to affect the Fund’s net asset value, yield and total return. The staff notes that after disclosing the most significant risks, the remaining risks can be disclosed in alphabetical order. Response: Registrant has re-ordered the risks in the Principal Risk section. 23. Comment: Please consider truncating the disclosure of the Investment Adviser’s history in the “Fund Management – Investment Adviser” section, as the history from 2009 does not add context for the Fund established in 2023. Response: The Registrant has removed the disclosure regarding the 2009 transaction. 24. Comment: In the same section, please specify the series referred to in the statement “Prior to August 1, 2009, Integrity Money Management, Inc. (“Integrity Money Management”), a subsidiary of Integrity Mutual Funds, Inc. (“Integrity”), served as investment adviser to the then-existing series of The Integrity Funds.” Response: The statement cited has been removed in response to Comment number 23 above. 25. Comment: Supplementally identify the SEC order referred to in the disclosure regarding the “manager-of-managers” structure, and confirm that the SEC order applies to both The Integrity Funds and Viking Mutual Funds. Response: The Registrant confirms that IC Release No. 29418, dated September 21, 2010, which is referred to in the disclosure regarding the “manager-of-managers” structure, applies to both The Integrity Funds and Viking Mutual Funds. 26. Comment: With respect to the discussion in the prospectus section entitled “The Shares Offered” regarding Appendix A’s description of the sales charge reductions and waivers applicable to Fu