

[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
