
[Federal Register: September 8, 2009 (Volume 74, Number 172)]
[Notices]               
[Page 46252-46254]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08se09-131]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28894; File No. 812-13643]

 
AdvisorOne Funds and CLS Investments, LLC; Notice of Application

August 31, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application 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.

-----------------------------------------------------------------------

    Summary of Application: The requested order would permit certain 
registered open-end management investment companies to enter into and 
materially amend subadvisory agreements without shareholder approval.
    Applicants: AdvisorOne Funds (the ``Trust'') and CLS Investments, 
LLC (the ``Adviser'') (collectively, ``Applicants'').
    Filing Dates: The application was filed on March 16, 2009, and 
amended on August 26, 2009.
    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, 2009 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 reasons 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, Gemini Fund 
Services, LLC, 450 Wireless Boulevard, Hauppauge, New York 11788-0132.

FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel at 
(202) 551-6990, or Jennifer L. Sawin, 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 via the 
Commission's Web site by searching for the file number or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.
    Applicants' Representations:
    1. The Trust, a Delaware statutory trust, is registered under the 
Act as an open-end management investment company and currently consists 
of six separate funds: The Amerigo Fund, Clermont Fund, Berolina Fund, 
Reservoir Fund, Descartes Fund, and Liahona Fund.\1\ Each Fund has its 
own investment objective, policies, and restrictions.
---------------------------------------------------------------------------

    \1\ Applicants also request relief with respect to future series 
of the Trust and any other existing or future registered open-end 
management investment company or series thereof that: (a) Is advised 
by the Adviser or any entity controlling, controlled by or under 
common control with the Adviser; (b) uses the manager of managers 
structure described in the application; and (c) complies with the 
terms and conditions of the application (collectively, the ``Funds'' 
and each, a ``Fund''). A Post-Effective Amendment to the Trust's 
registration statement relating to the CLS Risk-Managed Enhanced 
Income Fund, the CLS Fixed Income Fund and the CLS Concentrated 
Allocation Fund (the ``New Funds'') has been filed with the 
Commission and is not yet effective. The only existing registered 
open-end management investment company that currently intends to 
rely on the requested order is named as an Applicant. If the name of 
any Fund contains the name of a Subadviser (as defined below), the 
name of the Adviser that serves as the primary adviser to the Fund 
will precede the name of the Subadviser.
---------------------------------------------------------------------------

    The Adviser, a limited liability company organized under the laws 
of the State of Nebraska, is an investment adviser registered under the 
Investment Advisers Act of 1940 (``Advisers Act''). The Adviser serves 
as the investment adviser of each Fund and will serve as the investment 
adviser of each of the New Funds. The Adviser's primary business 
activity is providing investment management services to the Funds 
pursuant to an investment advisory agreement with the Trust (the 
``Advisory Agreement''). The Advisory Agreement was approved by the 
board of trustees of the Trust (``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 Adviser (the ``Independent 
Trustees'') and, except with respect to the New Funds, was approved by 
the initial shareholder of each Fund. With respect to the New Funds, 
the Advisory Agreement will be approved by the initial shareholder of 
the Fund.
    2. Under the terms of the Advisory Agreement, the Adviser is 
responsible for formulating each Fund's investment program and for 
making day-to-day investment decisions and engaging in portfolio 
transactions. For the investment management services that it provides 
to each Fund, the Adviser

[[Page 46253]]

receives the fee specified in the Advisory Agreement from each Fund 
based on the Fund's average daily net assets. The Advisory Agreement 
permits the Adviser to retain one or more unaffiliated subadvisers 
(``Subadvisers''), at the Adviser's own cost and expense, for the 
purpose of managing the investment of the assets of one or more Funds 
of the Trust. The Adviser intends to enter into subadvisory agreements 
with various Subadvisers (``Subadvisory Agreements'') to provide 
investment advisory services to one or more of the Funds.\2\ Each 
Subadviser currently is or will be registered as an investment adviser 
under the Advisers Act. The Adviser will monitor and evaluate each 
Subadviser's investment programs and will recommend to the Board 
whether Subadvisory Agreements should be renewed, modified or 
terminated. The Subadvisory Agreement with each Subadviser will be 
initially approved by the Board, including a majority of the 
Independent Trustees. Each Subadviser will have discretionary authority 
to invest that portion of a Fund's assets assigned to it. The Adviser 
will compensate each Subadviser out of the fees that are paid to the 
Adviser under the Advisory Agreement.
---------------------------------------------------------------------------

    \2\ Currently, the Reservoir Fund is sub-advised by Horizon 
Investment, LLC, a limited liability company organized under the 
laws of the State of North Carolina and registered an investment 
adviser under the Investment Advisers Act of 1940. The Reservoir 
Fund's Subadvisory Agreement received shareholder approval.
---------------------------------------------------------------------------

    3. Applicants request an order to permit the Adviser, subject to 
Board approval, to select certain Subadvisers to manage all or a 
portion of the assets of a Fund, pursuant to a Subadvisory Agreement 
and enter into and materially amend Subadvisory Agreements without 
shareholder approval (the ``Manager of Managers Structure''). The 
Applicants will not enter into a Subadvisory Agreement with any 
Subadviser that is an affiliated person, as defined in section 2(a)(3) 
of the Act, of the Trust, a Fund or of the Adviser, other than by 
reason of serving as Subadviser to one or more Funds (``Affiliated 
Subadviser''), unless shareholder approval of the Subadvisory Agreement 
with that Affiliated Subadviser is obtained. The requested relief will 
not apply with respect to Affiliated Subadvisers.
    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 pursuant to 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 provision 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 their requested 
relief meets this standard.
    3. Applicants state that the shareholders expect the Adviser and 
the Board to select the Subadviser for a Fund that is best suited to 
achieve the Fund's investment objective. Applicants assert that, from 
the perspective of the investor, the role of the Subadvisers with 
respect to the Funds utilizing the Manager of Managers Structure is 
substantially equivalent to the role of the individual portfolio 
managers employed by traditional investment company advisory firms. 
Applicants believe that permitting the Adviser to perform those duties 
for which shareholders of the Funds are paying the Adviser without 
incurring unnecessary delay or expense will be appropriate in the 
interests of Fund shareholders and will allow each Fund to operate more 
efficiently. Applicants also note that the Advisory Agreement will 
remain fully subject to the shareholder approval requirements in 
section 15(a) of the Act and rule 18f-2 under the Act, including the 
requirement for shareholder voting.
    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 
initial shareholder(s) before offering shares of that sub-advised Fund 
to the public.
    2. The prospectus for each Fund relying on the order requested in 
this application will disclose the existence, substance, and effect of 
any order granted pursuant to this application. Each Fund relying on 
the order requested in this application will hold itself out to the 
public as utilizing the Manager of Managers Structure described in this 
application. The prospectus will prominently disclose that the Adviser 
has ultimate responsibility (subject to oversight by the Board) to 
oversee the Subadvisers and recommend their hiring, termination and 
replacement.
    3. Within 90 days of the hiring of a new Subadviser, the affected 
Fund shareholders will be furnished all information about the new 
Subadviser that would be included in a proxy statement. To meet this 
obligation, the Fund will provide shareholders 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 Adviser will not enter into a Subadvisory Agreement with any 
Affiliated Subadviser without such agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Fund.
    5. At all times, at least a majority of the Boards will be 
Independent Trustees, and the nomination of new or additional 
Independent Trustees will be placed within the discretion of the then-
existing Independent Trustees.
    6. Whenever a subadviser change is proposed for a Fund with an 
Affiliated Subadviser, the Board, including a majority of the 
Independent Trustees, will make a separate finding, reflected in the 
applicable 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 the Affiliated Subadviser derives an 
inappropriate advantage.
    7. The Adviser will provide general management services to each 
Fund that is sub-advised, 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: (i) Set each Fund's 
overall investment strategies; (ii) evaluate, select and recommend 
Subadvisers to manage all or a part of a Fund's assets; (iii) allocate 
and, when appropriate, reallocate a Fund's assets among one or more 
Subadvisers; (iv) monitor and evaluate the performance of Subadvisers; 
and (v) implement procedures reasonably designed to ensure that the 
Subadvisers comply with the relevant Fund's investment objective, 
policies and restrictions.

[[Page 46254]]

    8. No trustee or officer of the Trust or a Fund, or director, 
manager 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 Subadviser, 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 any publicly traded company that is either a Subadviser or an 
entity that controls, is controlled by or is under common control with 
a Subadviser.
    9. In the event the Commission adopts a rule under the Act 
providing substantially similar relief to that in the order requested 
in the Application, the requested order will expire on the effective 
date of that rule.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-21494 Filed 9-4-09; 8:45 am]

BILLING CODE 8010-01-P
