

[Federal Register: November 15, 2006 (Volume 71, Number 220)]
[Notices]               
[Page 66566-66568]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15no06-108]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27550; 812-13145]

 
Old Mutual Advisor Funds II, et al.; Notice of Application

November 8, 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 sub-advisory agreements 
without shareholder approval and would grant relief from certain 
disclosure requirements.
    Applicants: Old Mutual Advisor Funds II (``OMAF II'') on behalf of 
Old Mutual Cash Reserves Fund, Old Mutual Columbus Circle Technology 
and Communications Fund, Old Mutual Growth Fund, Old Mutual Large Cap 
Growth Concentrated Fund, Old Mutual Large Cap Growth Fund, Old Mutual 
Select Growth Fund, Old Mutual Small Cap Fund and Old Mutual Strategic 
Small Company Fund (together, the ``OMAF II Funds''), Old Mutual 
Insurance Series Fund (``OMISF'', and each of OMAF II and OMISF, a 
``Trust'') on behalf of Old Mutual Columbus Circle Technology and 
Communications Portfolio, Old Mutual Growth II Portfolio, Old Mutual 
Large Cap Growth Concentrated Portfolio, Old Mutual Large Cap Growth 
Portfolio and Old Mutual Small Cap Portfolio (together, the ``OMISF 
Funds'', and together with the OMAF II Funds, the ``Funds''), and Old 
Mutual Capital, Inc. (``Old Mutual Capital'').
    Filing Dates: The application was filed on January 3, 2005, and 
amended on June 27, 2005, August 18, 2005, June 21, 2006, and November 
3, 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 December 4, 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, Andra C. Ozols, Old 
Mutual Capital, 4643 South Ulster Street, Suite 600, Denver, Colorado 
80237.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at 
(202) 551-6873, or Nadya B. Roytblat, Assistant Director, at (202) 551-
6821 (Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the

[[Page 66567]]

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. 202-551-5850).

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. 
Each Fund has its own investment objective, policies, and restrictions. 
Old Mutual Capital is registered as an investment adviser under the 
Investment Advisers Act of 1940 (``Advisers Act'') and serves as 
investment adviser to the Funds.\1\ Each Trust, on behalf of its Funds, 
has entered into separate investment management agreements with Old 
Mutual Capital (each a ``Management Agreement'' and collectively, the 
``Management Agreements''). The Management Agreements have been 
approved by the respective Trust's board of trustees (each, a 
``Board''), including a majority of the trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act, of 
the respective Trust or of Old Mutual Capital (``Independent 
Trustees''), as well as by each applicable Fund's shareholders.\2\
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    \1\ Applicants also request relief with respect to future series 
of the Trusts and any other existing or future registered open-end 
management investment company or series thereof that: (a) Is advised 
by Old Mutual Capital or any entity controlling, controlled by, or 
under common control with Old Mutual Capital; (b) uses the multi-
manager structure described in the application; and (c) complies 
with the terms and conditions of the application (included in the 
term ``Funds''). The Trusts are the only existing registered open-
end management investment companies that currently intend to rely on 
the requested order. If the name of any Fund contains the name of a 
Sub-Adviser (as defined below), the name of Old Mutual Capital or 
the name of the entity controlling, controlled by, or under common 
control with Old Mutual Capital that serves as the primary 
investment adviser to the Fund will precede the name of the Sub-
Adviser.
    \2\ The term ``shareholders'' includes variable life insurance 
policy and variable annuity contract owners that are unitholders of 
any separate account for which an OMISF Fund serves as a funding 
medium.
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    2. Under the terms of the Management Agreements, Old Mutual Capital 
has primary responsibility for management of the Funds, subject to 
Board oversight. The Management Agreements also provide that Old Mutual 
Capital may select and contract with one or more investment advisers 
(``Sub-Advisers'') to exercise day-to-day investment discretion over 
all or a portion of the assets of the Funds (each such agreement, a 
``Sub-Advisory Agreement'' and collectively, the ``Sub-Advisory 
Agreements''). Old Mutual Capital monitors and evaluates the Sub-
Advisers and recommends to the Board their hiring, termination, and 
replacement. All Sub-Advisory Agreements have been approved by the 
respective Trust's Board, including a majority of the Independent 
Trustees. Each Sub-Adviser is, and any future Sub-Adviser will be, an 
investment adviser that is registered under the Advisers Act. Old 
Mutual Capital compensates or will compensate each Sub-Adviser out of 
the management fees it receives from each Fund under the respective 
Management Agreement.
    3. Applicants request relief to permit Old Mutual Capital, subject 
to Board approval, to enter into and materially amend Sub-Advisory 
Agreements without 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 of Old Mutual Capital, other 
than by reason of serving as a Sub-Adviser to one or more Funds 
(``Affiliated Sub-Adviser'').\3\
    4. Applicants also request an exemption from the various disclosure 
provisions described below that may require the Funds to disclose fees 
paid by Old Mutual Capital to the Sub-Advisers. An exemption is 
requested to permit a Fund to disclose (as both a dollar amount and as 
a percentage of its net assets): (a) The aggregate fees paid to Old 
Mutual Capital and any Affiliated Sub-Advisers, and (b) the aggregate 
fees paid to Sub-Advisers other than Affiliated Sub-Advisers 
(collectively, ``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.
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    \3\ Currently, two OMAF II Funds and one OMISF Fund each employ 
an Affiliated Sub-Adviser.
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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 (``Exchange 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 the requested relief meets this standard for 
the reasons discussed below.
    7. Applicants assert that by investing in a Fund, shareholders, in 
effect, will hire Old Mutual Capital to manage the Fund's assets by 
using its investment adviser selection and monitoring process. 
Applicants assert that investors will purchase Fund shares to gain 
access to Old Mutual Capital's expertise in these areas. Applicants 
believe that permitting Old Mutual Capital to hire Sub-Advisers without 
incurring the unnecessary delay and expense of obtaining shareholder 
approval of each Sub-Advisory Agreement is appropriate in the interests 
of the Funds' shareholders and will allow each Fund to potentially 
operate more efficiently. Applicants note that the Management 
Agreements will remain subject to the

[[Page 66568]]

shareholder approval requirements of section 15(a) and rule 18f-2.
    8. Applicants assert that many Sub-Advisers charge their customers 
for advisory services according to a ``posted'' rate schedule. 
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 encourage 
potential Sub-Advisers to negotiate lower subadvisory fees with Old 
Mutual Capital, the benefits of which may be passed on to the Funds' 
shareholders.

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 requested order, 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. 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 manager of managers structure described in the application. The 
prospectus will prominently disclose that Old Mutual Capital has 
ultimate responsibility, subject to oversight by the Board, to oversee 
the Sub-Advisers and recommend their hire, 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 at the discretion of the then-existing 
Independent Trustees.
    4. Old Mutual Capital will not enter into a Sub-Advisory Agreement 
with any Affiliated Sub-Adviser, without such agreement, including 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Fund.
    5. When a Sub-Adviser change 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 Old Mutual Capital or the Affiliated Sub-Adviser derives an 
inappropriate advantage.
    6. Within 90 days of the hiring of any new Sub-Adviser, Old Mutual 
Capital will furnish the shareholders of the affected Fund all 
information about the new Sub-Adviser that would be contained in a 
proxy statement, except as modified by the order to permit Aggregate 
Fee Disclosure. This information will include Aggregate Fee Disclosure 
and any change in such disclosure caused by the addition of the new 
Sub-Adviser. To meet this condition, Old Mutual Capital will provide 
shareholders of the affected Fund with an information statement meeting 
the requirements of Regulation 14C, Schedule 14C, and Item 22 of 
Schedule 14A under the Exchange Act, except as modified by the order to 
permit Aggregate Fee Disclosure.
    7. Old Mutual Capital will provide general management services to 
each Fund, including overall supervisory responsibility for the general 
management and investment of the Fund's assets, and, subject to review 
and approval by the Board, will: (a) Set the Fund's overall investment 
strategies; (b) evaluate, select, and recommend Sub-Advisers to manage 
all or a part of the Fund's assets; (c) when appropriate, allocate and 
reallocate the Fund's assets among multiple Sub-Advisers; (d) monitor 
and evaluate the performance of the Sub-Advisers; and (e) implement 
procedures reasonably designed to ensure that the Sub-Advisers comply 
with the Fund's investment objective, policies and restrictions.
    8. No trustee or officer of a Fund or director or officer of Old 
Mutual Capital 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: (a) Ownership of interests in 
Old Mutual Capital or any entity that controls, is controlled by, or is 
under common control with Old Mutual Capital; or (b) 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. Old Mutual Capital will provide the Board, no less frequently 
than quarterly, with information about the profitability of Old Mutual 
Capital 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.
    11. Whenever a Sub-Adviser is hired or terminated, Old Mutual 
Capital will provide the Board with information showing the expected 
impact on Old Mutual Capital's profitability.
    12. Each Fund will disclose in its registration statement the 
Aggregate Fee Disclosure.
    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. E6-19238 Filed 11-14-06; 8:45 am]

BILLING CODE 8011-01-P
