[Federal Register Volume 67, Number 73 (Tuesday, April 16, 2002)]
[Notices]
[Pages 18658-18660]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-9147]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25517; 812-12414]


AssetMark Funds and AssetMark Investment Services, Inc.; Notice 
of Application

April 9, 2002.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of an 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, as well as from 
certain disclosure requirements.

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SUMMARY OF THE APPLICATION: AssetMark Funds (the ``Trust'') and 
AssetMark Investment Services, Inc. (the ``Advisor'') (together, 
``Applicants'') request an order that would permit them to enter into 
and materially amend subadvisory agreements without shareholder 
approval and grant relief from certain disclosure requirements.

FILING DATES: The application was filed on January 16, 2001, and 
amended on April 9, 2002.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the SEC orders a hearing. Interested 
persons may request a hearing by writing to the SEC's Secretary and 
serving Applicants with a copy of the request, personally or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on May 3, 
2002, 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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, NW, Washington, DC 20549-
0609. Applicants, 2300 Contra Costa Blvd., Suite 425, Pleasant Hill, CA 
94523-3967.

FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior 
Counsel, at (202) 942-0581, or Mary Kay Frech, Branch Chief, at (202) 
942-0564 (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 
SEC's Public Reference Branch, 450 5th Street, NW, Washington, DC 
20549-0102 (telephone (202 942-8090).

Applicants' Representations

    1. The Trust, a Delaware business trust, is registered under the 
Act as an open-end management investment company. The Trust currently 
is comprised of eight series (each a ``Fund,'' collectively, the 
``Funds''), each with its own investment objectives and policies.\1\
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    \1\ Applicants also request relief with respect to future series 
of the Trust and any other registered open-end management investment 
companies and their series that in the future (a) are advised by the 
Advisor or any entity controlling, controlled by, or under common 
control with the Advisor; (b) use the Advisor/Manager structure 
described in the application; and (c) comply with the terms and 
conditions in the application (``Future Funds,'' included in the 
term ``Funds''). The Trust is the only existing registered open-end 
management investment company that currently intends to rely on the 
requested order. If the name of any Fund contains the name of a 
Manager (as defined below), it will be preceded by the name of the 
Advisor.
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    2. The Advisor, registered under the Investment Advisers Act of 
1940 (the ``Advisers Act''), serves as the investment adviser to the 
Funds pursuant to an investment advisory agreement with the Trust 
(``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 
(``Independent Trustees''), and by each Fund's initial shareholder. 
Under the terms of the Advisory Agreement, the Advisor provides 
investment advisory services for each Fund and may hire one or more 
subadvisers (``Managers'') to exercise day-to-day investment discretion 
over the assets of the Fund pursuant to separate investment advisory 
agreements (``Management Agreements''). All current and future Managers 
will be registered under the Advisers Act or exempt from registration. 
Managers are recommended to the Board by the Advisor and selected and 
approved by the Board, including a majority of the Independent 
Trustees. The Advisor compensates each Manager out of the fees paid to 
the Advisor by the applicable Fund.
    3. Subject to Board review, the Advisor selects Managers for the 
Funds, monitors and evaluates Manager performance, and oversees Manager 
compliance with the Funds' investment objectives, policies, and 
restrictions. The Advisor recommends Managers based upon research, the 
recommendations of consultants, and a number of factors used to 
evaluate their skills in managing assets pursuant to particular 
investment objectives. The Advisor also recommends to the Board whether 
a Manager's Management Agreement should be renewed, modified or 
terminated.
    4. Applicants request relief to permit the Advisor, subject to 
Board approval, to enter into and materially amend Management 
Agreements without shareholder approval. The requested relief will not 
extend to a Manager that is an affiliated person, as defined in section 
2(a)(3) of the Act, of the Trust or the Advisor, other than by reason 
of serving as a Manager to one or more of the Funds (an ``Affiliated 
Manager'').
    5. Applicants also request an exemption from the various disclosure 
provisions described below that may require the Funds to disclose the 
fees paid by the Advisor to the Managers. An exemption is requested to 
permit the Trust to disclose for each Fund (as both a dollar amount and 
as a percentage of a Fund's net assets): (a) aggregate fees paid to the 
Advisor and Affiliated Managers; and (b) aggregate fees paid to 
Managers other than Affiliated Managers (``Aggregate Fee Disclosure''). 
For any Fund that employs an Affiliated

[[Page 18659]]

Manager, the Fund will provide separate disclosure of any fees paid to 
the Affiliated Manager.

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 the 
matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 15(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 (the ``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 Managers.
    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 provision 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 believe that the requested relief meets this standard 
for the reasons discussed below.
    7. Applicants assert that investors choose the Funds because of the 
Advisor's expertise in evaluating, selecting and supervising Managers. 
Applicants contend that permitting the Advisor to perform those duties 
for which the shareholders are paying the Advisor, namely the 
selection, supervision and evaluation of Managers, will allow each Fund 
to operate more efficiently. Applicants contend that requiring 
shareholder approval of the Management Agreements would impose 
unnecessary costs and delays on the Funds, and may preclude the Advisor 
from acting promptly in a manner considered advisable by the Board. 
Applicants note that the Advisory Agreement will remain subject to the 
shareholder approval requirements of section 15(a) of the Act and rule 
18f-2 under the Act.
    8. Applicants assert that many Managers set their fees for advisory 
services according to a ``posted'' rate schedule. Applicants state that 
while Managers are willing to negotiate fees lower than those posted in 
the rate schedule, particularly with large institutional clients, they 
are reluctant to do so when the fees are disclosed to other prospective 
and existing customers. Applicants submit that the relief will 
encourage Managers to negotiate lower advisory fees with the Advisor, 
the benefits of which may be passed on to Fund 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 outstanding voting securities of the Fund, as defined 
in the Act, or in the case of a Fund whose shareholders purchase shares 
in a public offering on the basis of a prospectus containing the 
disclosure contemplated by condition 3 below, by the initial 
shareholder(s) before the shares of the Fund are offered to the public.
    2. Within 90 days of the hiring of any new Manager, the Advisor 
will furnish the shareholders of the applicable Fund all the 
information about a new Manager that would have been included in a 
proxy statement, except as modified to permit Aggregate Fee Disclosure. 
Such information will include Aggregate Fee Disclosure and any changes 
in such disclosure caused by the addition of a new Manager. To meet 
this obligation, the Advisor will provide the shareholders of the 
applicable Fund, within 90 days of the hiring of a Manager, with an 
Information Statement meeting the requirements of Regulation 14C, 
Schedule 14C and Item 22 of Schedule 14A under the 1934 Act, except as 
modified by the order to permit Aggregate Fee Disclosure.
    3. The Trust's prospectus will disclose the existence, substance 
and effect of any order granted pursuant to the application. In 
addition, the Funds will hold themselves out to the public as employing 
the Advisor/Manager approach described in the application. The Trust's 
prospectus will prominently disclose that the Advisor has ultimate 
responsibility (subject to oversight by the Board) to oversee the 
Managers and recommend their hiring, termination and replacement.
    4. The Advisor will provide general management services to the 
Trust and its Funds, including overall supervisory responsibility for 
the general management and investment of each Fund's securities 
portfolio, and, subject to review and approval by the Board will: (i) 
Set the Fund's overall investment strategies; (ii) evaluate, select, 
and recommend Managers to manage all or part of a Fund's assets; (iii) 
when appropriate, allocate and reallocate a Fund's assets among 
Managers; (iv) monitor and evaluate the performance of Managers, 
including their compliance with the investment objectives, policies, 
and restrictions of the Funds; and (v) implement procedures to ensure 
that the Managers comply with the Fund's investment objectives, 
policies, and restrictions.
    5. At all times, 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. The Advisor will not enter into a Management Agreement with any 
Affiliated Manager, without such Management Agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Fund.
    7. No trustee or officer of the Trust or director or officer of the 
Advisor will own directly or indirectly (other than through a pooled 
investment vehicle that is not controlled by that trustee, director or 
officer) any interest in a Manager except for: (i) ownership of 
interests in the Advisor or any entity that controls, is controlled by, 
or is under common control with the

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Advisor, 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 Manager or an entity that controls, is controlled by 
or is under common control with a Manager.
    8. When a change in Manager is proposed for a Fund with an 
Affiliated Manager, the Board, including a majority of the Independent 
Trustees, will make a separate finding, reflected in the Fund's Board 
minutes, that the change is in the best interests of the Fund and its 
shareholders and does not involve a conflict of interest from which the 
Advisor or the Affiliated Manager derives an inappropriate advantage.
    9. Each Fund will include in its registration statement the 
Aggregate Fee Disclosure.
    10. 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.
    11. The Advisor will provide the Board, no less frequently than 
quarterly, with information about the Advisor's profitability on a per-
Fund basis. The information will reflect the impact on profitability of 
the hiring or termination of any Manager during the applicable quarter.
    12. Whenever a Manager is hired or terminated, the Advisor will 
provide the Board with information showing the expected impact on the 
Advisor's profitability.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-9147 Filed 4-15-02; 8:45 am]
BILLING CODE 8010-01-P