[Federal Register Volume 76, Number 137 (Monday, July 18, 2011)]
[Notices]
[Pages 42141-42143]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-17956]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29723; File No. 812-13143]


HighMark Funds and HighMark Capital Management, Inc.; Notice of 
Application

July 12, 2011.
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.

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Summary of the Application: Applicants request an order that would 
permit them to enter into and materially amend sub-advisory agreements 
without shareholder approval.

Applicants: HighMark Funds and HighMark Capital Management, Inc. 
(``HMCM'').

DATES:  Filing Dates: The application was filed on December 14, 2004, 
and amended on February 17, 2010, and January 14, 2011. Applicants have 
agreed to file an amendment during the notice period, the substance of 
which is reflected in this 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 August 5, 2011, 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: HighMark Funds, 350 
California Street, Suite 1600, San Francisco, California 94104; HMCM, 
350 California Street, San Francisco, California 94104.

For Further Information Contact: Lewis B. Reich, Senior Counsel, at 
(202) 551-6919, or Jennifer L. Sawin, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

[[Page 42142]]


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. HighMark Funds is a registered open-end management investment 
company organized as a Massachusetts business trust and currently 
offers 29 series (each, a ``Fund''), each with its own investment 
objective, restrictions and policies.\1\
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    \1\ Applicants request that any relief granted pursuant to the 
application apply also to any existing or future registered open-end 
management investment company or series thereof that (a) Is advised 
by HMCM or any entity controlling, controlled by or under common 
control with HMCM or its successors (HMCM and each such entity an 
``Adviser''); (b) uses the manager of managers structure described 
in the application; and (c) complies with the terms and conditions 
in the application (any such registered open-end management 
investment company or series thereof, a ``Multi-Manager Fund''). 
HighMark Funds is the only existing investment company that 
currently intends to rely on the requested order. All Multi-Manager 
Funds that currently intend to rely on the requested order are named 
in the Application. If the name of any Multi-Manager Fund contains 
the name of any Sub-Adviser (as defined below), the name of the 
Adviser that serves as the primary adviser to that Multi-Manager 
Fund will precede the name of the Sub-Adviser.
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    2. HMCM, a California corporation with its principal office in San 
Francisco, is registered as an investment adviser under the Investment 
Advisers Act of 1940 (``Advisers Act''). HMCM is a subsidiary of Union 
Bank, N.A., which is a subsidiary of UnionBanCal Corporation, which is 
wholly owned by The Bank of Tokyo-Mitsubishi UFJ Ltd., which is a 
wholly-owned subsidiary of Mitsubishi UFJ Financial Group, Inc. HMCM 
serves as the investment adviser to the currently existing Funds 
pursuant to an investment advisory agreement with HighMark Funds (an 
``Advisory Agreement'') approved by board of trustees of the HighMark 
Funds (the ``Board''), including a majority of the trustees who are not 
``interested persons'' of HighMark Funds as defined in section 2(a)(19) 
of the Act (the ``Independent Trustees''), and by the shareholders of 
each Fund in accordance sections 15(a) and (c) of the Act and rule 18f-
2 thereunder.\2\
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    \2\ The term ``Advisory Agreement'' also refers to any other 
agreement pursuant to which an Adviser serves as the investment 
adviser to a Multi-Manager Fund. The term ``Board'' includes the 
board of trustees or directors of any Multi-Manager Fund.
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    3. Under the Advisory Agreement, the Adviser is responsible for 
providing a continuous investment program for each Multi-Manager Fund 
and determining what securities and other investments will be 
purchased, retained or sold by each Multi-Manager Fund, consistent with 
the Multi-Manager Fund's objectives, policies, and restrictions. As 
compensation for its investment management services, the Adviser 
receives the fee specified in the Advisory Agreement with respect to 
each Multi-Manager Fund based on the Multi-Manager Fund's average daily 
net assets. The Advisory Agreement permits the Adviser to retain one or 
more sub-advisers (each a ``Sub-Adviser'') pursuant to investment sub-
advisory agreements at the Adviser's own expense, for the purpose of 
managing all or a portion of the assets of a Multi-Manager Fund. Each 
Sub-Adviser is, or will be, an investment adviser registered under the 
Advisers Act. Each Sub-Adviser is and will be responsible, subject to 
the general supervision of the Adviser and the Board, for supervising 
and administering the Multi-Manager Fund's investment program with 
respect to the portion of the Multi-Manager Fund's assets assigned to 
it. The Adviser will evaluate and recommend Sub-Advisers to the Board 
and will monitor and evaluate each Sub-Adviser's investment programs, 
performance and compliance. The Adviser will recommend to the Board 
whether sub-advisory agreements should be renewed, modified or 
terminated.
    4. Applicants request an order to permit the Adviser, subject to 
Board approval, to enter into and materially amend sub-advisory 
agreements for Multi-Manager Funds without shareholder approval. The 
requested relief will not apply with respect to any Sub-Adviser that is 
an affiliated person, as defined in section 2(a)(3) of the Act, of a 
Multi-Manager Fund or of the Adviser, other than by reason of serving 
as Sub-Adviser to one or more Multi-Manager Funds (``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 adviser to a registered 
investment company except pursuant to a written contract that has been 
approved by a 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 investment company affected by a matter must 
approve the 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 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 satisfies this 
standard for the reasons below.
    3. Applicants state that the shareholders of a Multi-Manager Fund 
expect the Adviser, under the overall supervision of the Board and the 
Independent Trustees, to take responsibility for overseeing the Sub-
Advisers and recommending their hiring, termination, and replacement. 
Applicants assert that, from the perspective of the investor, the role 
of the Sub-Advisers with respect to the Multi-Manager Funds is 
substantially equivalent to the role of the individual portfolio 
managers employed by traditional investment company advisory firms. In 
the absence of exemptive relief from Section 15(a) of the Act, when a 
new Sub-Adviser is proposed for retention by a Multi-Manager Fund, 
shareholders would be required to approve the sub-advisory agreement 
with that Sub-Adviser. Similarly, approval by the shareholders of the 
affected Multi-Manager Fund would be required in order to amend an 
existing sub-advisory agreement in any material respect or in order to 
continue to retain an existing Sub-Adviser whose sub-advisory agreement 
is ``assigned'' as a result of a change of control. Applicants state 
that obtaining shareholder approval is costly and slow, so the relief 
requested would benefit the Multi-Manager Funds and their shareholders 
by reducing these expenses and enabling the Multi-Manager Funds to 
operate more efficiently. Applicants also note that each Advisory 
Agreement will remain fully subject to the requirements in sections 
15(a) and 15(c) of the Act and rule 18f-2 under the Act, including the 
requirement for shareholder approval.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Multi-Manager Fund may rely on the order requested in 
the application, the operation of the Multi-Manager Fund in the manner 
described in the application will be approved by a majority of the 
Multi-Manager Fund's outstanding voting securities, as defined in the 
Act, or, in the case of a Multi-Manager Fund whose public shareholders 
purchase shares on the basis of a prospectus containing the

[[Page 42143]]

disclosure contemplated by condition 2 below, by the initial 
shareholder(s) before offering shares of the Multi-Manager Fund to the 
public.
    2. Each Multi-Manager Fund relying on the requested order will 
disclose in its prospectus the existence, substance, and effect of any 
order granted pursuant to the application. In addition, each Multi-
Manager 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 the Adviser has ultimate 
responsibility (subject to oversight by the Board) to oversee Sub-
Advisers and recommend their hiring, termination and replacement.
    3. Within 90 days of the hiring of any new Sub-Adviser, 
shareholders of the affected Multi-Manager Fund will be furnished all 
of the information about the new Sub-Adviser that would be included in 
a proxy statement. To meet this obligation the Multi-Manager Fund will, 
within 90 days of hiring a new Sub-Adviser, provide shareholders of the 
affected Multi-Manager Fund 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, as amended.
    4. The Adviser will not enter into a sub-advisory agreement with 
any Affiliated Sub-Adviser without such agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Multi-Manager Fund.
    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 change of Sub-Adviser is proposed for a Multi-Manager 
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 
Multi-Manager Fund and its shareholders and does not involve a conflict 
of interest from which the Adviser or an Affiliated Sub-Adviser derives 
an inappropriate advantage.
    7. The Adviser will provide general management services to each 
Multi-Manager Fund, including overall supervisory responsibility for 
the general management and investment of the Multi-Manager Fund's 
assets, and, subject to review and approval by the Board, will: (i) set 
the Multi-Manager Fund's overall investment strategies; (ii) evaluate, 
select and recommend Sub-Advisers to manage all or a part of the Multi-
Manager Fund's assets; (iii) when appropriate, allocate and reallocate 
the Multi-Manager Fund's assets among multiple Sub-Advisers; (iv) 
monitor and evaluate the Sub-Advisers' performance; and (v) implement 
procedures reasonably designed to ensure that the Sub-Advisers comply 
with the Multi-Manager Fund's investment objectives, policies and 
restrictions.
    8. No trustee or officer of a Multi-Manager Fund or director 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 Sub-Adviser, 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 
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. 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.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17956 Filed 7-15-11; 8:45 am]
BILLING CODE 8011-01-P