[Federal Register: October 16, 2006 (Volume 71, Number 199)]
[Notices]
[Page 60773-60775]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16oc06-105]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. IC-27512; 812-12986]
Delaware Management Business Trust, et al.; Notice of Application
October 10, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (``Act'') for an exemption from section 15(a) of
the Act and rule 18f-2 under the Act, as well as certain disclosure
requirements.
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Summary of application: Applicants request an order that would permit
them to enter into and materially amend subadvisory agreements without
shareholder approval and would grant relief from certain disclosure
requirements.
Applicants: Delaware Management Business Trust, Optimum Fund Trust,
Lincoln Variable Insurance Products Trust (the ``Lincoln Trust''),
Delaware Group Adviser Funds, Delaware Group Cash Reserve, Delaware
Group Equity Funds I, Delaware Group Equity Funds II, Delaware Group
Equity Funds III, Delaware Group Equity Funds IV, Delaware Group Equity
Funds V, Delaware Group Foundation Funds, Delaware Group Global &
International Funds, Delaware Group Government Fund, Delaware Group
Income Funds, Delaware Group Limited-Term Government Funds, Delaware
Group State Tax-Free Income Trust, Delaware Group Tax Free Fund,
Delaware Group Tax Free Money Fund, Delaware Pooled Trust, Delaware VIP
Trust, Voyageur Insured Funds, Voyageur Intermediate Tax Free Funds,
Delaware Investments Municipal Trust, Voyageur Mutual Funds, Voyageur
Mutual Funds II, Voyageur Mutual Funds III and Voyageur Tax Free Funds
(each a ``Trust'' and collectively, the ``Trusts'') and Delaware
Management Company (the ``Adviser'').
Filing dates: The application was filed on June 25, 2003 and amended on
December 8, 2005 and October 4, 2006.
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 November 6, 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 may request notification of a hearing by writing to
the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington DC, 20549-1090. Applicants, David P. O'Conner,
Esq., Delaware Investments, One Commerce Square, 2005 Market Street,
Philadelphia, PA, 19103-7094; Colleen E. Tonn, Esq., The Lincoln
National Life Insurance Company, 1300 S. Clinton Street, Fort Wayne, IN
46802.
FOR FURTHER INFORMATION CONTACT: John Yoder, Senior Counsel, at (202)
551-6878, 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 Branch, U.S. Securities and Exchange
Commission, 100 F Street NE., Washington DC 20549-0102 (tel. 202-551-
5850).
Applicants' Representations
1. Each Trust is organized as a Delaware statutory trust and is
registered under the Act as an open-end management investment company.
The Trusts currently offer 101 series (each, a ``Fund'' and
collectively, the ``Funds''), each of which has its own investment
objectives, restrictions, and policies.\1\ The Adviser is registered as
[[Page 60774]]
an investment adviser under the Investment Advisers Act of 1940
(``Advisers Act'') and serves as investment adviser to the Funds
pursuant to an investment advisory agreement with each Trust (each, an
``Advisory Agreement''). Each Advisory Agreement has been approved by
the shareholders \2\ of each Fund and by such Fund's board of trustees
(the ``Board''), including a majority of the trustees who are not
``interested persons,'' as defined in section 2(a)(19) of the Act, of
the Trust (``Independent Trustees'').
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\1\ Applicants request that any relief granted pursuant to the
application also apply to any existing or future registered open-end
management investment company or series thereof that: (i) Is advised
by the Adviser or any entity controlling, controlled by, or under
common control with the Adviser; (ii) uses the ``manager of
managers'' structure described in the application; and (iii)
complies with the terms and conditions of the application (included
in the term ``Funds''). The Trusts are the only existing investment
companies that currently intend to rely on the order. If the name of
any Fund, at any time, contains the name of a Sub-Adviser, the name
of the Adviser will precede the name of the Sub-Adviser.
\2\ The term ``shareholder'' includes variable life insurance
policy and variable annuity contract owners that are unitholders of
any separate account for which a Fund of the Lincoln Trust serves as
a funding medium.
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2. Under the terms of each Advisory Agreement, the Adviser is
authorized to manage the investment of the assets of each Fund. Each
Advisory Agreement permits the Adviser to delegate its investment
advisory responsibilities to one or more investment advisers (``Sub-
Advisers'') pursuant to sub-advisory agreements (each, a ``Sub-Advisory
Agreement''), subject to approval by the Board. The Adviser monitors
and evaluates the Sub-Advisers and recommends to the Board their
hiring, retention or termination. The Board, including a majority of
the Independent Trustees, will approve each Sub-Advisory Agreement.
Each Sub-Adviser is an investment adviser registered under the Advisers
Act. The Adviser compensates each Sub-Adviser out of the fees paid to
the Adviser under the Advisory Agreement.
3. Applicants request relief to permit the Adviser to enter into
and materially amend Sub-Advisory Agreements without obtaining
shareholder approval. The requested relief will not extend to any Sub-
Adviser that 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
Sub-Adviser to one or more of the Funds (``Affiliated Sub-Adviser'').
None of the current Sub-Advisers is an Affiliated Sub-Adviser.
4. Applicants also request an exemption from the various disclosure
provisions described below that may require the Funds to disclose the
fees paid by the Adviser to the Sub-Advisers. An exemption is requested
to permit a Fund to disclose (as both a dollar amount and as a
percentage of the Fund's net assets): (a) The aggregate fees paid to
the Adviser and any Affiliated Sub-Advisers; and (b) the aggregate fees
paid to Sub-Advisers other than Affiliated Sub-Advisers (``Aggregate
Fee Disclosure''). If a Fund employs an Affiliated Sub-Adviser, the
Fund will provide separate disclosure of any fees paid to the
Affiliated Sub-Adviser.
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 under 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. Form N-1A is the registration statement used by open-end
investment companies. Item 14(a)(3) of Form N-1A requires disclosure of
the method and amount of the investment adviser's compensation.
3. Rule 20a-1 under the Act requires proxies solicited with respect
to an investment company to comply with Schedule 14A under the
Securities Exchange Act of 1934 (``1934 Act''). Items 22(c)(1)(ii),
22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together,
require a proxy statement for a shareholder meeting at which the
advisory contract will be voted upon to include the ``rate of
compensation of the investment adviser,'' the ``aggregate amount of the
investment adviser's fees,'' a description of the ``terms of the
contract to be acted upon,'' and, if a change in the advisory fee is
proposed, the existing and proposed fees and the difference between the
two fees.
4. Form N-SAR is the semi-annual report filed with the Commission
by registered investment companies. Item 48 of Form N-SAR requires
investment companies to disclose the rate schedule for fees paid to
their investment advisers, including the Sub-Advisers.
5. Regulation S-X sets forth the requirements for financial
statements required to be included as part of investment company
registration statements and shareholder reports filed with the
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require
that investment companies include in their financial statements
information about investment advisory fees.
6. 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 provisions of the Act, or
from any rule thereunder, if 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 state that their requested relief meets this standard
for the reasons discussed below.
7. Applicants state that the Funds' shareholders will rely on the
Adviser to select the Sub-Advisers best suited to achieve a Fund's
investment objectives. Applicants assert that, from the perspective of
the investor, the role of the Sub-Advisers is comparable to that of
individual portfolio managers employed by traditional investment
advisory firms. Applicants contend that requiring shareholder approval
of Sub-Advisory Agreements would impose unnecessary costs and delays on
the Funds and may preclude the prompt replacement of a Sub-Adviser when
considered advisable by the Board and the Adviser. Applicants note that
each Advisory Agreement will remain subject to the shareholder approval
requirements of section 15(a) and rule 18f-2.
8. Applicants assert that some Sub-Advisers use a ``posted'' fee
schedule to set their fees. Applicants state that while Sub-Advisers
are willing to negotiate fees that are lower than those posted on the
schedule, they are reluctant to do so where the fees are disclosed to
other prospective and existing customers. Applicants submit that the
requested relief will better enable the Adviser to negotiate lower
advisory fees with the Sub-Advisers, the benefits of which would be
passed on to the shareholders of the Funds.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
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
sole initial shareholder before offering the Fund's shares to the
public.
2. The prospectus for each Fund will disclose 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
[[Page 60775]]
the Board) to oversee Sub-Advisers and to recommend their hiring,
termination and replacement.
3. At all times, at least a majority of the Board will be
Independent Trustees, and the nomination of new or additional
Independent Trustees will be placed at the discretion of the then-
existing Independent Trustees.
4. The Adviser will not enter into a Sub-Advisory Agreement with
any Affiliated Sub-Adviser without that agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Fund.
5. When a change of Sub-Adviser is proposed for a Fund with an
Affiliated Sub-Adviser, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
Board minutes, that such 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 an Affiliated Sub-Adviser derives an inappropriate
advantage.
6. Within 90 days of the hiring of any new Sub-Adviser,
shareholders will be furnished all information about the new Sub-
Adviser that would be contained in a proxy statement, except as
modified to permit Aggregate Fee Disclosure. This information will
include Aggregate Fee Disclosure and any change in such disclosure
caused by the addition of a new Sub-Adviser. The applicable Trust or
the Adviser will meet this condition by providing shareholders, within
90 days of the hiring of a new Sub-Adviser, an information statement
meeting the requirements of Regulation 14C, Schedule 14C and Item 22 of
Schedule 14A under the 1934 Act, except as modified to permit Aggregate
Fee Disclosure.
7. The Adviser will provide general investment advisory services to
the Funds, including overall supervisory responsibility for the general
management and investment of each Fund's assets, and, subject to review
and approval by the Board, the Adviser will: (i) Set the Fund's overall
investment strategies; (ii) Evaluate, select and recommend Sub-Advisers
to manage all or part of each Fund's assets; (iii) when appropriate,
allocate and reallocate each applicable Fund's assets among multiple
Sub-Advisers; (iv) monitor and evaluate the investment performance of
the Sub-Advisers; and (v) ensure that the Sub-Advisers comply with each
Fund's investment objectives, policies and restrictions, by among other
things, implementing procedures reasonably designed to ensure
compliance.
8. No trustee or officer of a 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 Sub-Adviser 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 Sub-Adviser or an entity that controls,
is controlled by, or is under common control with a Sub-Adviser.
9. Independent legal counsel, as defined in rule 0-1(a)(6) under
the Act, will be engaged to represent the Independent Trustees. The
selection of such counsel will be within the discretion of the then
existing Independent Trustees.
10. Each Trust will include in its registration statement the
Aggregate Fee Disclosure for each Fund.
11. Whenever a Sub-Adviser is hired or terminated, the Adviser will
provide the Board with information showing the expected impact on the
Adviser's profitability.
12. The Adviser will provide the Board, no less frequently than
quarterly, with information about the Adviser's profitability on a per-
Fund basis. The information will reflect the impact on profitability of
the hiring or termination of any Sub-Adviser during the applicable
quarter.
13. 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.
Nancy M. Morris,
Secretary.
[FR Doc. E6-17082 Filed 10-13-06; 8:45 am]
BILLING CODE 8011-01-P