Document ID: SEC-2006-1406-0001
Agency: sec
Document Type: Notice
Title: Tactical Allocation Services, LLC, et al.; Notice of Application
Posted Date: 2006-10-31T05:00Z

[Federal Register: October 31, 2006 (Volume 71, Number 210)]
[Notices]               
[Page 63807-63810]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31oc06-95]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27523; 812-13056]

 
Tactical Allocation Services, LLC, et al.; Notice of Application

October 24, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (``Act'') for an exemption from 
sections 12(d)(1)(A) and (B) of the Act and under sections 6(c) and 
17(b) of the Act for an exemption from section 17(a) of the Act.

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    Summary of Application: The order would permit certain registered 
open-end management investment companies to acquire shares of other 
registered open-end management investment companies and unit investment 
trusts (``UITs'') both within and outside the same group of investment 
companies.
    Applicants: Agile Funds, Inc. (the ``Company''), with respect to 
its portfolio series (each a ``Fund'' and collectively the ``Funds''), 
and Tactical Allocation Services, LLC (the ``Adviser'').
    Filing Dates: The application was filed on December 18, 2003 and 
amended on October 20, 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. November 17, 2006, and should be accompanied by proof of 
service on 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, U.S. Securities and Exchange Commission, 100 F 
Street, NE, Washington, DC 20549-1090; Applicants, Tactical Allocation 
Services, LLC, and Agile Funds, Inc., 4909 Pearl East Circle, Suite 
300, Boulder, Colorado 80301-6101.

FOR FURTHER INFORMATION CONTACT: Nadya 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 
Public Reference Desk, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-0102 (telephone (202) 551-5850).

Applicants' Representations

    1. The Company is a Maryland corporation and an open-end management 
investment company registered under the Act. One Fund of the Company is 
the Agile Multi-Strategy Fund (the ``Multi-Strategy Fund''). The 
Adviser, a Colorado limited liability company, serves as investment 
adviser to the Multi-Strategy Fund and is registered under the 
Investment Advisers Act of 1940.
    2. Applicants request relief to permit: (1) One or more Funds 
(including the Multi-Strategy Fund, ``Funds of Funds'') to acquire 
shares of: (a) Registered open-end management investment companies or 
UITs that are not part of the same group of investment companies, as 
defined in section 12(d)(1)(G)(ii) of the Act, as the Fund of Funds 
(``Other Group Funds'') \1\ and the Other Group Funds to sell such 
shares to the Fund of Funds; and (2) the Fund of Funds to acquire 
shares of certain Funds that are in the same group of investment 
companies, as defined in section 12(d)(1)(G)(ii) of the Act, as the 
Fund of Funds (the ``Same Group Funds'') (together with the Other Group 
Funds, the ``Underlying Funds'') and the Same Group Funds to sell such 
shares to the Fund of Funds. Applicants also apply for an order 
pursuant to section 6(c) and section 17(b) of the Act exempting 
Applicants from section 17(a) of the Act to the extent necessary to 
permit purchases and redemptions by a Fund of Funds of shares of the 
Underlying Funds and to permit the Underlying Funds to sell or redeem 
their shares in transactions with the Fund of Funds.\2\ Applicants 
state that the requested relief will enable investors to achieve a 
diversified investment in a range of Underlying Funds through a single 
investment in a Fund of Funds.
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    \1\ The Other Group Funds may include UITs (``Other Group 
Trusts'') and open-end management investment companies (``Other 
Group Management Companies'') that have recieved exemptive relief to 
sell their shares on a national securities exchange at negotiated 
prices (``EFTs''). Shares of an ETF also may be purchased from the 
EFT in large aggregations by delivering a basket of specified 
securities to the ETF, and large aggregations of shares may be 
redeemed from an ETF in exchange for a basket of specified 
securities (``In-kind EFT Purchases and Redemptions'').
    \2\ All existing investment companies that currently intend to 
rely on the requested order are named as applicants. Any other 
investment company that relies on the order in the future will 
comply with the terms and conditions of the order.
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Applicants' Legal Analysis

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) of the Act prohibits a registered investment 
company from acquiring shares of an investment company if the 
securities represent more than 3% of the total outstanding voting stock 
of the acquired company, more than 5% of the total assets of the 
acquiring company, or, together with the securities of any other 
investment companies, more than 10% of the total assets of the 
acquiring company. Section 12(d)(1)(B) of the Act prohibits a 
registered open-end investment company, its principal underwriter and 
any broker or dealer from selling shares of the investment company to 
any other investment company if the sale will cause the acquiring 
company to own more than 3% of the acquired company's voting stock, or 
if the sale will cause more than 10% of the acquired company's voting 
stock to be owned by investment companies generally.
    2. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or

[[Page 63808]]

transaction, or any class or classes of persons, securities or 
transactions, from any provision of section 12(d)(1) if the exemption 
is consistent with the public interest and the protection of investors. 
Applicants seek an exemption under section 12(d)(1)(J) to permit the 
Funds of Funds to acquire shares of Underlying Funds and to permit the 
Underlying Funds, their principal underwriters and any broker or dealer 
to sell shares of the Underlying Funds to the Funds of Funds beyond the 
limits set forth in sections 12(d)(1)(A) and (B) of the Act.
    3. Applicants state that the proposed arrangement will not give 
rise to the policy concerns underlying sections 12(d)(1)(A) and (B), 
which include concerns about undue influence by a fund of funds over 
underlying funds, excessive layering of fees, and overly complex fund 
structures. Accordingly, applicants believe that the requested 
exemption is consistent with the public interest and the protection of 
investors.
    4. Applicants state that the proposed arrangement will not result 
in undue influence by a Fund of Funds or its affiliated persons over an 
Other Group Fund. To limit the control that a Fund of Funds may have 
over an Other Group Fund, applicants propose a condition prohibiting: 
(a) The Adviser and any person controlling, controlled by or under 
common control with the Adviser, and any investment company or any 
issuer that would be an investment company but for section 3(c)(1) or 
3(c)(7) of the Act that is advised by the Adviser or any person 
controlling, controlled by or under common control with the Adviser 
(collectively, the ``Adviser Group''), and (b) any investment adviser 
to a Fund of Funds that meets the definition of section 2(a)(20)(B) of 
the Act (``Sub-adviser''), any person controlling, controlled by or 
under common control with the Sub-Adviser, and any investment company 
or issuer that would be an investment company but for section 3(c)(1) 
or 3(c)(7) of the Act (or portion of such investment company or issuer) 
advised by the Sub-Adviser or any person controlling, controlled by or 
under common control with the Sub-Adviser (collectively, the 
``Subadviser Group'') from controlling an Other Group Fund within the 
meaning of section 2(a)(9) of the Act.
    5. Applicants also propose conditions to preclude a Fund of Funds 
and its affiliated entities from taking advantage of an Other Group 
Fund. Under condition 2, no Fund of Funds or its Adviser, Sub-Adviser, 
promoter, principal underwriter or any person controlling, controlled 
by or under common control with any of these entities (each, a ``Fund 
of Funds Affiliate''), will cause any existing or potential investment 
by the Fund of Funds in shares of an Other Group Fund to influence the 
terms of any services or transactions between the Fund of Funds or a 
Fund of Funds Affiliate and the Other Group Fund or its investment 
adviser(s), sponsor, promoter, principal underwriter and any person 
controlling, controlled by or under common control with any of these 
entities (each, an ``Other Group Fund Affiliate''). Condition 5 
precludes a Fund of Funds and any Fund of Funds Affiliate (except to 
the extent it is acting in its capacity as an investment adviser to an 
Other Group Management Company or sponsor to an Other Group Underlying 
Trust) from causing an Other Group Fund to purchase a security in an 
offering of securities during the existence of any underwriting or 
selling syndicate of which a principal underwriter is an officer, 
director, member of an advisory board, Adviser, Sub-Adviser, or 
employee of the Fund of Funds, or a person of which any such officer, 
director, member of an advisory board, Adviser, Sub-Adviser, or 
employee is an affiliated person (each, an ``Underwriting Affiliate,'' 
except any person whose relationship to the Other Group Fund is covered 
by section 10(f) of the Act is not an Underwriting Affiliate). An 
offering of securities during the existence of any underwriting or 
selling syndicate of which a principal underwriter is an Underwriting 
Affiliate is an ``Affiliated Underwriting.''
    6. As an additional assurance that an Other Group Management 
Company understands the implications of an investment by a Fund of 
Funds under the requested order, prior to a Fund of Funds' investment 
in an Other Group Management Company in excess of the limit in section 
12(d)(1)(A)(i), condition 8 requires that the Fund of Funds and the 
Other Group Management Company execute an agreement stating, without 
limitation, that their boards of directors or trustees and their 
investment advisers understand the terms and conditions of the order 
and agree to fulfill their responsibilities under the order 
(``Participation Agreement). Applicants note that an Other Group Fund 
(other than an ETF whose shares are purchased by a Fund of Funds in the 
secondary market) will retain the right to reject an investment by a 
Fund of Funds.\3\
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    \3\ An Other Group Fund, including an EFT, would retain its 
right to reject any initial investment by a Fund of Funds in excess 
of the limit in section 12(d)(1)(A)(i) of the Act by declining to 
execute the Participation Agreement with the Fund of Funds.
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    7. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. With respect to investment advisory 
fees, applicants state that, before approving any investment advisory 
contract under section 15 of the Act, the board of directors or 
trustees (``Board'') of each Fund of Funds, including a majority of the 
directors or trustees who are not ``interested persons,'' as defined in 
section 2(a)(19) of the Act (``Disinterested Directors''), will find 
that the investment advisory fees charged under such contract are based 
on services provided that are in addition to, rather than duplicative 
of, services provided under the advisory contract(s) of any Underlying 
Fund in which the Fund of Funds may invest.
    8. Applicants state that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that an Underlying 
Fund will be prohibited from acquiring securities of any investment 
company or company relying on section 3(c)(1) or 3(c)(7) of the Act in 
excess of the limits contained in section 12(d)(1)(A), except as may be 
permitted by a Commission order allowing an Underlying Fund to purchase 
shares of an affiliated investment company for short-term cash 
management purposes or rule 12d-1 under the Act. Applicants also 
represent that a Fund of Funds' prospectus and sales literature will 
contain concise, ``plain English'' disclosure designed to inform 
investors of the unique characteristics of the proposed Fund of Funds 
structure, including, but not limited to, its expense structure and the 
additional expenses of investing in Underlying Funds. Each Fund of 
Funds also will comply with the disclosure requirements adopted in 
Investment Company Act Release No. 27399 (June 20, 2006).

B. Section 17(a)

    1. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and any 
affiliated person of the company. Section 2(a)(3) of the Act defines an 
``affiliated person'' of another person to include (a) any person 
directly or indirectly owning, controlling, or holding with power to 
vote, 5% or more of the outstanding voting securities of the other 
person; (b) any person 5% or more of whose outstanding voting 
securities are directly or indirectly owned, controlled, or held with 
power to vote by the other person; and (c) any person directly or 
indirectly controlling,

[[Page 63809]]

controlled by, or under common control with the other person.
    2. Applicants state that since the Funds of Funds and the Same 
Group Funds may be advised by the Adviser or share common officers or 
directors, they might be deemed to be under common control and 
therefore affiliated persons of one another. Applicants also state that 
the Funds of Funds and the Underlying Funds may be deemed to be 
affiliated persons of one another if a Fund of Funds acquires 5% or 
more of an Underlying Fund's outstanding voting securities. In light of 
these possible affiliations, section 17(a) could prevent an Underlying 
Fund from selling shares to and redeeming shares from a Fund of 
Funds.\4\
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    \4\ Applicants acknowledge that receipt of any compensation by 
(a) an affiliated person of a Fund of Funds, or an affiliated person 
of such person, for the purchase by the Fund of Funds of shares of 
an Underlying Fund or (b) an affiliated person of an Underlying 
Fund, or an affiliated person of such person, for the sale by the 
Underlying Fund of its shares to a Fund of Funds is subject to 
section 17(e) of the Act. The Participation Agreement also will 
include this acknowledgment.
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    3. Section 17(b) of the Act authorizes the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
it finds that (a) the terms of the proposed transaction are reasonable 
and fair and do not involve overreaching on the part of any person 
concerned; (b) the proposed transaction is consistent with the policies 
of each registered investment company involved; and (c) the proposed 
transaction is consistent with the general purposes of the Act. Section 
6(c) of the Act permits the Commission to exempt any person or 
transactions from any provision of the Act 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.
    4. Applicants submit that the proposed transactions satisfy the 
standards for relief under sections 17(b) and 6(c) of the Act. 
Applicants state that the terms of the transactions are fair and 
reasonable and do not involve overreaching. Applicants note that the 
terms upon which an Underlying Fund will sell its shares to or purchase 
its shares from a Fund of Funds will be based on the net asset value of 
the Underlying Fund.\5\ Applicants state that the proposed transactions 
will be consistent with the policies of each Fund of Funds and 
Underlying Fund, and with the general purposes of the Act.
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    \5\ Applicants note that a Fund of Funds generally would 
purchase and sell shares of an Underlying Fund that operates as an 
ETF through secondary market transactions at market prices rather 
than through principal transactions with the Underlying Fund at net 
asset value. Applicants would not rely on the requested relief from 
section 17(a) for such secondary market transactions. To the extent 
a Fund of Funds engages in In-kind ETF Purchases and Redemptions, 
Applicants request relief from section 17(a) for these transactions.
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Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. The members of the Adviser Group will not control (individually 
or in the aggregate) an Other Group Fund within the meaning of section 
2(a)(9) of the Act. The members of the Subadviser Group will not 
control (individually or in the aggregate) an Other Group Fund within 
the meaning of section 2(a)(9) of the Act. If, as a result of a 
decrease in the outstanding voting securities of an Other Group Fund, 
the Adviser Group or the Subadviser Group, each in the aggregate, 
becomes a holder of more than 25% of the outstanding voting securities 
of the Other Group Fund, it will vote its shares of the Other Group 
Fund in the same proportion as the vote of all other holders of the 
Other Group Fund's shares. This condition does not apply to the 
Subadviser Group with respect to an Other Group Fund for which the 
Subadviser or a person controlling, controlled by, or under common 
control with the Subadviser acts as the investment adviser within the 
meaning section 2(a)(20)(A) of the Act (in the case of an Other Group 
Management Company) or as the sponsor (in the case of an Other Group 
Trust).
    2. No Fund of Funds or Fund of Funds Affiliate will cause any 
existing or potential investment by the Fund of Funds in shares of an 
Other Group Fund to influence the terms of any services or transactions 
between the Fund of Funds or a Fund of Funds Affiliate and the Other 
Group Fund or an Other Group Fund Affiliate.
    3. The Board of a Fund of Funds, including a majority of the 
Disinterested Directors, will adopt procedures reasonably designed to 
assure that the Adviser and any Subadviser to the Fund of Funds are 
conducting the investment program of the Fund of Funds without taking 
into account any consideration received by the Fund of Funds or a Fund 
of Funds Affiliate from an Other Group Fund or an Other Group Fund 
Affiliate in connection with any services or transactions.
    4. Once an investment by a Fund of Funds in the securities of an 
Other Group Management Company exceeds the limit in section 
12(d)(1)(A)(i) of the Act, the Board of the Other Group Management 
Company, including a majority of the Disinterested Directors, will 
determine that any consideration paid by the Other Group Management 
Company to the Fund of Funds or a Fund of Funds Affiliate in connection 
with any services or transactions: (a) Is fair and reasonable in 
relation to the nature and quality of the services and benefits 
received by the Other Group Management Company; (b) is within the range 
of consideration that the Other Group Management Company would be 
required to pay to another unaffiliated entity in connection with the 
same services or transactions; and (c) does not involve overreaching on 
the part of any person concerned. This condition does not apply with 
respect to any services or transactions between an Other Group 
Management Company and its investment adviser(s), or any person 
controlling, controlled by, or under common control with such 
investment adviser(s).
    5. No Fund of Funds or Fund of Funds Affiliate (except to the 
extent it is acting in its capacity as an investment adviser to an 
Other Group Management Company or sponsor to an Other Group Trust) will 
cause an Other Group Fund to purchase a security in any Affiliated 
Underwriting.
    6. The Board of an Other Group Management Company, including a 
majority of the Disinterested Directors, will adopt procedures 
reasonably designed to monitor any purchases of securities by the Other 
Group Management Company in Affiliated Underwritings, once an 
investment by a Fund of Funds in the securities of the Other Group 
Management Company exceeds the limit of section 12(d)(1)(A)(i) of the 
Act, including any purchases made directly from an Underwriting 
Affiliate. The Board will review these purchases periodically, but no 
less frequently than annually, to determine whether the purchases were 
influenced by the investment by the Fund of Funds in shares of the 
Other Group Management Company. The Board will consider, among other 
things: (a) whether the purchases were consistent with the investment 
objectives and policies of the Other Group Management Company; (b) how 
the performance of securities purchased in an Affiliated Underwriting 
compares to the performance of comparable securities purchased during a 
comparable period of time in underwritings other than Affiliated 
Underwritings or to a benchmark such as a comparable market index; and 
(c) whether the amount of securities

[[Page 63810]]

purchased by the Other Group Management Company in Affiliated 
Underwritings and the amount purchased directly from an Underwriting 
Affiliate have changed significantly from prior years. The Board will 
take any appropriate actions based on its review, including, if 
appropriate, the institution of procedures designed to assure that 
purchases of securities in Affiliated Underwritings are in the best 
interests of shareholders.
    7. The Other Group Management Company will maintain and preserve 
permanently in an easily accessible place a written copy of the 
procedures described in the preceding condition, and any modifications 
to such procedures, and will maintain and preserve for a period of not 
less than six years from the end of the fiscal year in which any 
purchase from an Affiliated Underwriting occurred, the first two years 
in an easily accessible place, a written record of each purchase of 
securities in Affiliated Underwritings once an investment by a Fund of 
Funds in the securities of an Other Group Management Company exceeds 
the limit of section 12(d)(1)(A)(i) of the Act, setting forth from whom 
the securities were acquired, the identity of the underwriting 
syndicate's members, the terms of the purchase, and the information or 
materials upon which the determinations of the Board of the Other Group 
Management Company were made.
    8. Before investing in an Other Group Management Company in excess 
of the limit in section 12(d)(1)(A)(i) of the Act, the Fund of Funds 
and the Other Group Management Company will execute a Participation 
Agreement stating, without limitation, that their Boards and their 
investment advisers understand the terms and conditions of the order 
and agree to fulfill their responsibilities under the order. At the 
time of its investment in shares of an Other Group Management Company 
in excess of the limit in section 12(d)(1)(A)(i), a Fund of Funds will 
notify the Other Group Management Company of the investment. At such 
time, the Fund of Funds will also transmit to the Other Group 
Management Company a list of the names of each Fund of Funds Affiliate 
and Underwriting Affiliate. The Fund of Funds will notify the Other 
Group Management Company of any changes to the list as soon as 
reasonably practicable after a change occurs. The Other Group 
Management Company and the Fund of Funds will maintain and preserve a 
copy of the order, the Participation Agreement, and the list with any 
updated information for the duration of the investment and for a period 
of not less than six years thereafter, the first two years in an easily 
accessible place.
    9. Before approving any advisory contract under section 15 of the 
Act, the Board of each Fund of Funds, including a majority of the 
Disinterested Directors, will find that the advisory fees charged under 
such advisory contract are based on services provided that are in 
addition to, rather than duplicative of, the services provided under 
the advisory contract(s) of any Underlying Fund in which the Fund of 
Funds may invest. These findings and their basis will be recorded fully 
in the minute books of the appropriate Fund of Funds.
    10. The Adviser will waive fees otherwise payable to it by the Fund 
of Funds in an amount at least equal to any compensation (including 
fees received pursuant to any plan adopted by an Other Group Management 
Company under rule 12b-1 under the Act) received from an Other Group 
Management Company by the Adviser, or an affiliated person of the 
Adviser, other than any advisory fees paid to the Adviser or its 
affiliated person by the Other Group Management Company, in connection 
with the investment by the Fund of Funds in the Other Group Management 
Company. Any Subadviser will waive fees otherwise payable to the 
Subadviser, directly or indirectly, by the Fund of Funds in an amount 
at least equal to any compensation received from an Other Group Fund by 
the Subadviser, or an affiliated person of the Subadviser, other than 
any advisory fees paid to the Subadviser or its affiliated person by 
the Other Group Management Company, in connection with the investment 
by the Fund of Funds in the Other Group Fund made at the direction of 
the Subadviser. In the event that the Subadviser waives fees, the 
benefit of the waiver will be passed through to the Fund of Funds.
    11. Any sales charges and/or service fees charged with respect to 
shares of a Fund of Funds will not exceed the limits applicable to a 
fund of funds as set forth in NASD Conduct Rule 2830.
    12. No Underlying Fund will acquire securities of any other 
investment company or company relying on section 3(c)(1) or 3(c)(7) of 
the Act in excess of the limits contained in section 12(d)(1)(A) of the 
Act, except as may be permitted by a Commission order allowing an 
Underlying Fund to purchase shares of an affiliated investment company 
for short-term cash management purposes or rule 12d-1 under the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Nancy M. Morris,
Secretary.
 [FR Doc. E6-18256 Filed 10-30-06; 8:45 am]

BILLING CODE 8011-01-P