AdvisorOne Funds and Dunham & Associates Investment Counsel, Inc.; Notice of Application, 52592-52593 [E6-14696]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 71, Number 172 (Wednesday, September 6, 2006)]
[Notices]
[Pages 52592-52593]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-14696]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27472; 812-13154]


AdvisorOne Funds and Dunham & Associates Investment Counsel, 
Inc.; Notice of Application

August 29, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order 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 of Application: Applicants request an order that would 
permit them to enter into and materially amend subadvisory agreements 
without shareholder approval.
    Applicants: AdvisorOne Funds (the ``Trust'') and Dunham & 
Associates Investment Counsel, Inc. (the ``Manager'').
    Filing Dates: The application was filed on November 24, 2004, and 
amended on May 31, 2005, February 7, 2006, and August 9, 2006. 
Applicants have agreed to file an amendment during the notice period, 
the substance of which is reflected in the notice.
    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 25, 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 who wish to be notified of a hearing may 
request notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090. Applicants, c/o Thomas R. Westle, Esq., 
Blank Rome LLP, 405 Lexington Avenue, 23rd Floor, New York, NY 10174.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 551-6812, 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 
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 (telephone (202) 551-5850).

Applicants' Representations

    1. The Trust, a Delaware business trust, is registered under the 
Act as an open-end management investment company. The Trust currently 
has sixteen series, eleven of which are advised by the Manager (the 
``Dunham Funds'').\1\ The Manager, a California corporation, serves as 
the investment adviser to the Dunham Funds and is registered as an 
investment adviser under the Investment Advisers Act of 1940 (the 
``Advisers Act'').
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    \1\ Applicants also request relief with respect to any future 
series of the Trust and any other existing or future registered 
open-end management investment company or series thereof that: (a) 
Are advised by the Manager or an entity controlling, controlled by, 
or under common control with the Manager; (b) use the management 
structure described in the application; and (c) comply with the 
terms and conditions in the application (collectively with the 
Dunham Funds, the ``Series''). The Dunham Funds are the only 
existing Series that currently intend to rely on the requested 
order. If the name of any Series contains the name of a Sub-Adviser 
(as defined below), the name of the Manager (or the name of the 
entity controlling, controlled by, or under common control with the 
Manager that serves as the primary adviser to the Series) will 
precede the name of the Sub-Adviser.
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    2. The Manager serves as investment adviser to the Dunham Funds 
pursuant to an investment advisory agreement that was approved by the 
board of trustees of the Trust (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 or the Manager (``Independent 
Trustees''), and the shareholders of each Dunham Fund. The Advisory 
Agreement permits the Manager to enter into investment advisory 
agreements (``Sub-Advisory Agreements'') with sub-advisers (``Sub-
Advisers'') to whom the Manager may delegate responsibility for 
providing investment advice and making investment decisions for the 
Dunham Funds. The Manager monitors and evaluates the Sub-Advisers and 
recommends to the Board their hiring, termination, and replacement. The 
Manager uses a number of factors discussed in the application to 
evaluate potential Sub-Advisers' skills in managing assets pursuant to 
particular investment objectives.
    3. Each of the Dunham Funds currently has a single Sub-Adviser, 
although any Series may employ multiple Sub-Advisers in the future. 
Each Sub-Adviser is, and any future Sub-Adviser will be, registered as 
an investment adviser under the Advisers Act. Each Sub-Adviser has 
discretionary authority to invest all (or the portion assigned to it) 
of the assets of a particular Series, subject to general supervision by 
the Manager and the Board. For services rendered under a Sub-Advisory 
Agreement, each Sub-Adviser will receive a fee from the respective 
Series, negotiated by the Manager and the Series. Such fees will be 
negotiated with respect to each Series either at a flat annual rate or 
on a fulcrum fee basis, which may vary based upon the performance of 
the Series.
    4. Applicants request an order to permit the Manager, subject to 
Board approval, to enter into and materially amend Sub-Advisory 
Agreements without obtaining shareholder approval. Shareholders of a 
Series will approve any change to a Sub-Advisory Agreement if such 
change would result in an increase in the overall management and 
advisory fees payable by the Series that have been approved by the 
shareholders of the Series. 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 Series or the Manager (an ``Affiliated Sub-Adviser''), 
other than by reason of serving as a Sub-Adviser of one or more of the 
Series. None of the current Sub-Advisers is an 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

[[Page 52593]]

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. 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 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 Series' shareholders rely on the 
Manager to select the Sub-Advisers best suited to achieve a Series' 
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 each Sub-Advisory Agreement would impose costs and unnecessary 
delays on the Series, and may preclude the Manager from acting promptly 
in a manner considered advisable by the Board. Applicants also note 
that the Advisory Agreement will remain subject to section 15(a) of the 
Act and rule 18f-2 under the Act.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Series may rely on the order requested in the 
application, the operation of the Series in the manner described in the 
application will be approved by a majority of the Series' outstanding 
voting securities, as defined in the Act, or, in the case of a Series 
whose public shareholders purchase shares on the basis of a prospectus 
containing the disclosure contemplated by condition 2 below, by the 
initial shareholder before offering shares of the Series to the public.
    2. Each Series relying on the requested order will disclose in its 
prospectus the existence, substance, and effect of any order granted 
pursuant to this application. In addition, each Series will hold itself 
out to the public as employing the management structure described in 
the application. The prospectus will prominently disclose that the 
Manager has ultimate responsibility (subject to oversight by the Board) 
to oversee the Sub-Advisers and recommend their hiring, termination, 
and replacement.
    3. Within 90 days of the hiring of any new Sub-Adviser, the Manager 
will furnish shareholders of the affected Series all information about 
the new Sub-Adviser that would be included in a proxy statement. To 
meet this obligation, the Manager will provide shareholders of the 
applicable Series with an information statement meeting the 
requirements of Regulation 14C, Schedule 14C, and Item 22 of Schedule 
14A under the Securities Exchange Act of 1934.
    4. The Manager 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 Series.
    5. 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.
    6. When a Sub-Adviser change is proposed for a Series 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 a change is in the best interests of the 
Series and its shareholders and does not involve a conflict of interest 
from which the Manager or the Affiliated Sub-Adviser derives an 
inappropriate advantage.
    7. The Manager will provide general management services to each 
Series, including overall supervisory responsibility for the general 
management and investment of the Series' assets and, subject to review 
and approval of the Board, will (i) set the Series' overall investment 
strategies; (ii) evaluate, select, and recommend Sub-Advisers to manage 
all or part of a Series' assets; (iii) when appropriate, allocate and 
reallocate a Series' assets among multiple Sub-Advisers; (iv) monitor 
and evaluate the performance of Sub-Advisers; and (v) implement 
procedures reasonably designed to ensure that the Sub-Advisers comply 
with each Series' investment objective, policies, and restrictions.
    8. Shareholders of a Series will approve any change to a Sub-
Advisory Agreement if such change would result in an increase in the 
overall management and advisory fees payable by the Series that have 
been approved by the shareholders of the Series.
    9. No trustee or officer of the Trust, or director or officer of 
the Manager, 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 the 
Manager or any entity that controls, is controlled by, or is under 
common control with the Manager; 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.
    10. 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. E6-14696 Filed 9-5-06; 8:45 am]
BILLING CODE 8010-01-P