HighMark Capital Management, Inc., et al.,, 24541-24546 [2011-10543]

Download as PDF Federal Register / Vol. 76, No. 84 / Monday, May 2, 2011 / Notices * The schedule for Commission meetings is subject to change on short notice. To verify the status of meetings, call (recording)—(301) 415–1292. Contact person for more information: Rochelle Bavol, (301) 415–1651. * * * * * ADDITIONAL INFORMATION By a vote of 5–0 on April 26, 2011, the Commission decided to add a closed session, part 2, to the Briefing on the Status of NRC Response to Events in Japan and Briefing on Station Blackout currently scheduled on April 28, 2011. * * * * * The NRC Commission Meeting Schedule can be found on the Internet at: http://www.nrc.gov/public-involve/ public-meetings/schedule.html. * * * * * The NRC provides reasonable accommodation to individuals with disabilities where appropriate. If you need a reasonable accommodation to participate in these public meetings, or need this meeting notice or the transcript or other information from the public meetings in another format (e.g. braille, large print), please notify Bill Dosch, Chief, Work Life and Benefits Branch, at 301–415–6200, TDD: 301– 415–2100, or by e-mail at william.dosch@nrc.gov. Determinations on requests for reasonable accommodation will be made on a caseby-case basis. * * * * * This notice is distributed electronically to subscribers. If you no longer wish to receive it, or would like to be added to the distribution, please contact the Office of the Secretary, Washington, DC 20555 (301–415–1969), or send an e-mail to darlene.wright@nrc.gov. Dated: April 27, 2011. Rochelle C. Bavol, Policy Coordinator, Office of the Secretary. [FR Doc. 2011–10702 Filed 4–28–11; 4:15 pm] BILLING CODE 7590–01–P Tuesday, May 10 at 8 a.m. (Closed) 1. Strategic Issues. 2. Pricing. 3. Financial Matters. 4. Personnel Matters and Compensation Issues. 5. Governors’ Executive Session— Discussion of prior agenda items and Board Governance. Tuesday, May 10 at 2 p.m. (Open) 1. Approval of Minutes of Previous Meetings. 2. Remarks of the Chairman of the Board. 3. Remarks of the Postmaster General and CEO. 4. Committee Reports. 5. Quarterly Report on Financial Performance. 6. Quarterly Report on Service Performance. 7. Tentative Agenda for the June 20– 21, 2011, meeting in Washington, DC. CONTACT PERSON FOR MORE INFORMATION: Julie S. Moore, Secretary of the Board, U.S. Postal Service, 475 L’Enfant Plaza, SW., Washington, DC 20260–1000. Telephone (202) 268–4800. Julie S. Moore, Secretary. [FR Doc. 2011–10750 Filed 4–28–11; 4:15 pm] BILLING CODE 7710–12–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 29660; 812–13736] HighMark Capital Management, Inc., et al., Notice of Application April 26, 2011. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of application for an order under sections 6(c) and 17(b) of the Investment Company Act of 1940 (the ‘‘Act’’) for an exemption from section 17(a) of the Act. AGENCY: HighMark Capital Management, Inc. (‘‘HCM’’ or ‘‘Adviser’’),1 HighMark Funds (each APPLICANTS: POSTAL SERVICE Board of Governors; Sunshine Act Meeting Tuesday, May 10, 2011, at 8 a.m. and 2 p.m. PLACE: Washington, DC, at U.S. Postal Service Headquarters, 475 L’Enfant Plaza, SW., in the Benjamin Franklin Room. STATUS: Tuesday, May 10 at 8 a.m.— Closed; and at 2 p.m.—Open. MATTERS TO BE CONSIDERED: mstockstill on DSKH9S0YB1PROD with NOTICES6 DATE AND TIMES: VerDate Mar<15>2010 17:48 Apr 29, 2011 Jkt 223001 1 Applicants also seek relief for any other existing or future registered investment adviser which acts as investment adviser or subadviser to a Fund (defined below) and which controls, is controlled by or is under common control (as defined in section 2(a)(9) of the Act) with HCM (individually a ‘‘Future Adviser’’ and collectively the ‘‘Future Advisers’’). HCM and the Future Advisers are referred to individually as an ‘‘Adviser’’ and collectively as the ‘‘Advisers.’’ HCM is the only Adviser that currently intends to rely on the requested order. Any other Adviser that relies on the order in the future will comply with the terms and conditions of the application. PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 24541 series of HighMark Funds a ‘‘Current Fund,’’ collectively, the ‘‘Current Funds’’),2 any existing or future registered management investment companies and their series that are advised or subadvised by the Adviser (‘‘Future Funds,’’ Future Funds and Current Funds are collectively the ‘‘Funds’’),3 and Morgan Stanley & Co., Inc. (‘‘MS & Co.’’). SUMMARY OF APPLICATION: Applicants request an order to permit the Funds to engage in principal transactions in certain money market instruments with MS & Co. DATES: Filing Dates: The application was filed on December 28, 2009, and amended on June 18, 2010, and March 25, 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 May 23, 2011, 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 may request notification of a hearing by writing to the Commission’s Secretary. ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. Applicants: c/o Karen Seaman, Esq., Union Bank, N.A., 400 California Street, 16th Floor, San Francisco, CA 94104. FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, (202) 551–6817 or Janet M. Grossnickle, Assistant Director, (202) 551–6821 (Office of Investment Company 2 HighMark Funds offers five series that operate as money market funds subject to rule 2a–7 under the 1940 Act: HighMark 100% U.S. Treasury Money Market Fund, HighMark California Tax-Free Money Market Fund, HighMark Diversified Money Market Fund, HighMark Treasury Plus Money Market Fund and HighMark U.S. Government Money Market Fund (each a ‘‘Money Market Fund’’). 3 Any existing or future Funds which are money market funds subject to rule 2a–7 and authorized to invest in Money Market Instruments (as defined below) are also ‘‘Money Market Funds.’’ Any Fund that currently intends to rely on the requested order is named as an applicant in the application. Any other Fund that relies on the order in the future will comply with the terms and conditions of the application. E:\FR\FM\02MYN1.SGM 02MYN1 24542 Federal Register / Vol. 76, No. 84 / Monday, May 2, 2011 / Notices Regulation, Division of Investment Management). 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, an open-end management company registered under the Act, is organized as a Massachusetts business trust and is comprised of multiple series that are Funds. HCM, an investment adviser registered under the Investment Advisers Act of 1940, is a California corporation and an indirect wholly-owned subsidiary of Mitsubishi UFJ Financial Group, Inc. (‘‘Mitsubishi UFJ’’). Each Fund has an investment advisory agreement with the Adviser pursuant to which the Adviser provides investment advisory and management services. MS & Co., a broker-dealer registered under the Securities Exchange Act of 1934 (the ‘‘1934 Act’’) is a primary dealer in U.S. Government securities and one of the largest dealers in the United States in commercial paper, repurchase agreements and other money market instruments. Applicants state that Mitsubishi UFJ currently holds an approximately 21% interest in Morgan Stanley (‘‘MS’’). MS & Co. is a wholly owned subsidiary of MS. 2. Applicants state that HCM and MS & Co. are functionally independent of each other and operate as completely separate entities. While MS & Co. and HCM could be deemed second-tier affiliates through their relationship with Mitsubishi UFJ, each entity has its own separate officers and employees, is separately capitalized, maintains its own separate books and records and operates on different sides of walls of separation with respect to the Funds and Money Market Instruments. HCM also maintains offices physically separate from MS & Co. 3. Investment decisions for the Funds are determined solely by the Adviser. The portfolio managers and other employees that are responsible for the investment of the Funds are employed solely by the Adviser (and not MS & Co.), and have lines of reporting responsibility solely within the Adviser. The compensation of personnel assigned to an Adviser will not depend on the volume or nature of trades with MS & Co., except to the extent that such trades may affect the profits and losses of Mitsubishi UFJ and its affiliates as a whole. mstockstill on DSKH9S0YB1PROD with NOTICES6 SUPPLEMENTARY INFORMATION: VerDate Mar<15>2010 17:48 Apr 29, 2011 Jkt 223001 4. As used in the application, the term Taxable Money Market Instruments refers to taxable securities which are eligible for purchase by money market funds under rule 2a–7, including shortterm U.S. Government securities, shortterm U.S. Government agency securities, bank money market instruments, bank notes, commercial paper, other shortterm fixed income instruments and repurchase agreements. The term TaxExempt Money Market Instruments refers to tax-exempt securities which are eligible for purchase by money market funds under rule 2a–7, including conventional municipal notes, taxexempt commercial paper, variable rate demand notes, put bonds and flexible notes. Money Market Instruments consist of Taxable and Tax-Exempt Money Market Instruments. Each Fund that is not a Money Market Fund is authorized to invest in Taxable Money Market Instruments pursuant to its investment objectives and policies. 5. Trading in Money Market Instruments generally takes place in over-the-counter markets consisting of groups of dealers who are primarily major securities firms or large commercial banks. The money market consists of sophisticated and elaborate telephonic and electronic communications networks among buyers and sellers, which generally precludes being able to obtain a single market price for a given instrument at any given time. Applicants state that the money market (for both Taxable and Tax-Exempt Money Market Instruments) tends to be somewhat segmented. The markets for the different types of instruments will vary in terms of price, volatility, liquidity and availability. With respect to any given type of security or instrument, there may be only a few dealers who can be expected to have the security in inventory and be in a position to quote a favorable price. Applicants also state that different dealers may quote different prices with respect to the same type of instrument because of differing outlooks on future yields, to adjust their inventory or because of competitive pressure (or the lack thereof) to meet other dealers’ quotes. Only customers of a dealer may obtain quotations for Money Market Instruments and trade on them. 6. MS & Co. is one of the world’s largest dealers in Taxable Money Market Instruments, ranking among the top firms in each of the major markets and product areas. As of December 31, 2010, MS & Co. had become the fourth largest dealer in terms of the number of existing U.S. asset-backed commercial paper programs, the most significant part of the commercial paper market by PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 outstanding dollar amounts. Applicants believe that MS & Co. is one of the ten leading dealers in the repurchase agreement market. From January 2010 to December 2010, MS & Co.’s aggregrate month-end principal balance for repurchase agreements and reverse repurchase agreements ranged from approximately $240 billion to approximately $337 billion. MS & Co. is an active participant in the public auction market for U.S. Treasuries, being one of only 20 primary dealers and receiving on average from 0.04% to 5.34% of the primary distribution of U.S. Treasuries during January through December 31, 2010. In secondary trading, MS & Co. ranked as one of the top four primary dealers for U.S. Treasuries with maturities of three to six years and with maturities under three years for seven of the last eight quarters (through the fourth quarter of 2010). MS & Co. also has been an active participant in the secondary market for government agency securities and ranked ninth in underwriting primary issuances in 2010. 7. MS & Co. also is a major participant in both the primary new issue market and in the secondary dealer market for Tax-Exempt Money Market Instruments. MS & Co. estimates that its market share in the new issue market for Tax-Exempt Money Market Instruments included 8.6% of conventional notes, 10% of taxexempt commercial paper and 7.2% of variable rate demand notes for the period January 1, 2010 through December 31, 2010. Applicants state that there is no comprehensive information published as to the dollar amount and volume of secondary market transactions executed in TaxExempt Money Market Instruments. However, MS & Co. believes that it is generally one of the top five secondary market dealers in Tax-Exempt Money Market Instruments. Based upon MS & Co. estimates, MS & Co. was responsible for 9% of the trading volume in variable rate demand notes and tax-exempt commercial paper among MS & Co. and nine other leading dealers as of January 1, 2011. MS & Co. estimates its market share in the put bonds market at 15.7% as of December 31, 2010. 8. Applicants state that over the past few years, the growth in Money Market Instruments has been substantially outpaced by the growth in portfolios which purchase Money Market Instruments, which has contributed to the limited availability of Money Market Instruments to the Funds.4 Applicants 4 Applicants state that from 2000 through 2010, the growth of the market in Tax-Exempt Money Market Instruments was 119%, while the growth of Taxable Money Market Instruments was 143%. E:\FR\FM\02MYN1.SGM 02MYN1 mstockstill on DSKH9S0YB1PROD with NOTICES6 Federal Register / Vol. 76, No. 84 / Monday, May 2, 2011 / Notices further state that because of consolidation in the money market industry, there is a substantially smaller number of major dealers who are active in the money market than was the case a decade ago. Applicants state that MS & Co. has remained committed to the taxable and tax-exempt money market, and has moved to fill the void left by departing dealers. As the number of dealers with whom the Funds can transact business has decreased, it has become even more important for the Funds to have meaningful access to all of the major dealers in Money Market Instruments in order to diversify each Fund’s investments, to maintain portfolio liquidity, and to increase opportunities for obtaining best price and execution with respect to portfolio trades. 9. Subject to the general supervision of the board of trustees of the Funds (‘‘Board’’), the Adviser is responsible for making investment decisions and for the placement of portfolio transactions. The Funds have no obligation to deal with any dealer or group of dealers in the execution of their portfolio transactions. When placing orders, the Adviser must attempt to obtain the best net price and the most favorable execution of its orders. In doing so, it takes into account such factors as price, the size, type and difficulty of the transaction involved and the dealer’s general execution and operational facilities. The transaction costs of the Funds with respect to Money Market Instruments consist primarily of dealer or underwriter spreads. Spreads vary some based on the type of money market security or the occurrence of turbulent market conditions, but generally spread levels for Taxable Money Market Instruments are in the range of 1 to 5 basis points (.01% to .05%), while spreads for TaxExempt Money Market Instruments typically are not greater than 12.5 basis points (0.125%). Applicants’ Legal Analysis: 1. Applicants request an order pursuant to sections 6(c) and 17(b) of the Act exempting certain transactions from the provisions of section 17(a) of the Act to permit MS & Co., acting as principal, (a) to sell or purchase Taxable Money Market Instruments to or from the Funds; and (b) to sell or purchase Tax-Exempt Money Market Instruments to or from the Money Market Funds, subject to the conditions set forth below. 2. Section 17(a) of the Act generally prohibits an affiliated person or principal underwriter of a registered investment company, or any affiliated person of that person (‘‘second-tier affiliate’’), acting as principal, from selling to or purchasing from the VerDate Mar<15>2010 17:48 Apr 29, 2011 Jkt 223001 registered company, or any company controlled by the registered company, any security or other property. Because Mitsubishi UFJ could be deemed to control the Funds, and Mitsubishi UFJ indirectly owns 21% of MS & Co., the Funds and MS & Co. could be deemed second-tier affiliates, and the Funds could be prohibited from conducting portfolio transactions with MS & Co. in transactions in which MS & Co. acts as principal. 3. Section 17(b) of the Act provides that the Commission, upon application, may exempt a transaction from the provisions of section 17(a) if evidence establishes that the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair, and do not involve overreaching on the part of any person concerned, and that the proposed transaction is consistent with the policy of the registered investment company concerned and with the general purposes of the Act. Section 6(c) provides that the Commission may conditionally or unconditionally exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions, from any provision or provisions of the Act or of any rule or regulation 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. 4. Applicants note the following in support of the requested relief: (a) With over $5 billion invested in Money Market Instruments, the Funds have a strong need for access to large quantities of high quality Money Market Instruments. The applicants believe that access to a major dealer as MS & Co. in this market increases the Funds’ ability to obtain suitable portfolio securities. (b) The policy of the Funds that are money market and fixed income funds of investing in securities with short maturities combined with the active portfolio management techniques employed by the Advisers results in a high level of portfolio activity and the need to make numerous purchases and sales of Money Market Instruments. This high level of portfolio activity emphasizes the importance of increasing opportunities to obtain suitable portfolio securities and best price and execution. (c) The taxable and tax-exempt money market, including the market for repurchase agreements, is highly competitive, and maintaining a dealer as prominent as MS & Co. in the pool of dealers with which the Funds could PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 24543 conduct principal transactions may provide the Funds with opportunities to purchase and sell Money Market Instruments, including those not available from any other source. (d) MS & Co. is such a major factor in the tax-exempt and taxable money market that being unable to deal directly with MS & Co. may indirectly deprive the Funds of obtaining best price and execution even when the Funds trade with unaffiliated dealers. 5. Applicants believe that the requested order will provide the Funds with a broader and more complete access to the money market (both taxable and non-taxable) which is necessary to carry out the policies and objectives of each of the Funds in obtaining the best price, execution and quality in all portfolio transactions, and will provide the Funds with important new information sources in the taxable and tax-exempt money market, to the direct benefit of investors in the Funds. Applicants believe that the transactions contemplated by the application are identical to those in which they are currently engaged except for the proposed participation of MS & Co. and that such transactions are consistent with the policies of the Funds as recited in their registration statements and reports filed under the Act. Applicants further believe that the conditions below and the procedures to be followed with respect to transactions with MS & Co. are structured in such a way as to ensure that the transactions will be, in all instances, reasonable and fair, will not involve overreaching on the part of any person concerned, and that the requested exemption is 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’ Conditions: Applicants agree that any order granting the requested relief will be subject to the following conditions: 1. The exemption shall be applicable to principal transactions in the secondary market and primary or secondary fixed price dealer offerings not made pursuant to underwriting syndicates. With respect to Tax-Exempt Money Market Instruments, principal purchase or sale transactions will be conducted only in Money Market Instruments that are First Tier Securities as defined in rule 2a–7(a)(14)(i) under the Act. With respect to Taxable Money Market Instruments, the principal purchase or sale transactions which may be conducted pursuant to the exemption will be limited to transactions in E:\FR\FM\02MYN1.SGM 02MYN1 mstockstill on DSKH9S0YB1PROD with NOTICES6 24544 Federal Register / Vol. 76, No. 84 / Monday, May 2, 2011 / Notices Eligible Securities.5 Notwithstanding the foregoing, if a Fund purchases a Money Market Instrument meeting the above requirements from MS & Co. and, subsequent to such purchase, the security becomes no longer an Eligible Security, the Fund may sell the security to MS & Co. in a manner consistent with the requirements of rule 2a–7(c)(7)(i)(B). To the extent a Fund is subject to rule 2a–7, such Eligible Securities must meet the portfolio maturity and quality requirements of paragraphs (c)(2) and (c)(3) of rule 2a–7. To the extent a Fund is not subject to rule 2a–7, such Eligible Securities must meet the requirements of clauses (i), (iii) and (iv) of paragraph (c)(3) of rule 2a–7. Additionally: (a) No Fund shall make portfolio purchases pursuant to the exemption that would result directly or indirectly in the Fund investing pursuant to the exemption more than 2% of its Total Assets (or, in the case of a Fund that is not subject to rule 2a–7, more than 2% of the total of its cash, cash items and Eligible Securities) in securities which, when acquired by the Fund (either initially or upon any subsequent rollover) are Second Tier Securities; provided that any Fund may make portfolio sales of Second Tier Securities pursuant to the exemption without regard to this limitation. (b) The exemption shall not apply to an Unrated Security other than a Government Security. (c) The Funds may engage in repurchase agreements with MS & Co. only if MS & Co. has: (i) Net capital, as defined in rule 15c3–1 under the 1934 Act, of at least $100 million and (ii) a record (including the record of predecessors) of at least five years continuous operations as a dealer during which time it engaged in repurchase agreements relating to the kind of security subject to the repurchase agreement. MS & Co. shall furnish the Advisers with financial statements for its most recent fiscal year and the most recent semi-annual financial statements made available to its customers. The Advisers shall determine that MS & Co. complies with the above requirements and with other repurchase agreement guidelines adopted by the Board. Each repurchase agreement will be Collateralized Fully. (d) The exemption shall not apply to any purchase or sale of any security, other than a repurchase agreement, issued by MS, Mitsubishi UFJ or any affiliated person of MS or Mitsubishi UFJ or to any security subject to a 5 Italicized terms are defined as set forth in paragraph (a) of rule 2a–7 under the Act, unless otherwise indicated. VerDate Mar<15>2010 17:48 Apr 29, 2011 Jkt 223001 Demand Feature or Guarantee issued by MS, Mitsubishi UFJ or any affiliated person of MS or Mitsubishi UFJ. For purposes of this requirement, MS and Mitsubishi UFJ will not be considered to be the issuer of a Demand Feature or Guarantee solely by reason of the fact that MS & Co. or an affiliate thereof serves as a remarketing agent for a Money Market Instrument. 2. The relevant Adviser (unless the Board decides that the Fund should make these determinations) will determine with respect to each principal transaction conducted by a Fund pursuant to the order, based upon the information reasonably available to the Funds and the Advisers, that the price available from MS & Co. is at least as favorable to the Fund as the prices obtained from two other dealer bids in connection with securities falling within the same category of instrument, quality and maturity (but not necessarily the identical security or issuer) (‘‘price test’’). In the case of ‘‘Swaps’’ involving trades of one security for another, the price test shall be based upon the transaction viewed as a whole and not upon the two components thereof individually. With respect to each transaction involving repurchase agreements, the relevant Adviser will determine (unless the Board decides that the Fund should make these determinations), based upon the information reasonably available to the Fund and the Adviser, that the income to be earned from the repurchase agreement is at least equal to that available from other sources. In the case of variable rate demand notes, for which dealer bids are not ordinarily available, the Funds will only undertake purchases and sales where the rate of interest to be earned from the variable rate demand note is at least equal to that of variable rate demand notes of comparable quality that are available from other dealers. Neither MS, Mitsubishi UFJ nor any other affiliate thereof (other than the Advisers) will have any involvement with respect to proposed transactions between the Funds and the Advisers and, except to the extent set forth in condition 6(d) below, will not attempt to influence or control in any way the placing by the Funds or the Advisers of orders with MS & Co. 3. Before any principal transaction may be conducted pursuant to the order, the relevant Fund or Adviser must obtain such information as it deems reasonably necessary to determine that the price test (as defined in condition (2) above) has been satisfied. In the case of each purchase or sale transaction, the relevant Fund or Adviser must make PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 and document a good faith determination with respect to compliance with the price test based on current price information obtained through the contemporaneous solicitation of bona fide offers in connection with securities falling within the same category of instrument, quality and maturity (but not necessarily the identical security or issuer). With respect to variable rate demand notes, contemporaneous solicitation of a bona fide offer will be construed to mean any bona fide offer solicited during the same trading day. With respect to prospective purchases of securities by a Fund, the dealer firms from which prices are solicited must be those who have securities of the same categories and the type desired in their inventories and who are in a position to quote favorable prices with respect thereto. With respect to the prospective sale of securities by a Fund, these dealer firms must be those who, in the experience of the Funds and the Advisers, are in a position to quote favorable prices. Before any repurchase agreements are entered into pursuant to the exemption, the Fund or the relevant Adviser must obtain and document competitive quotations from at least two other dealers with respect to repurchase agreements comparable to the type of repurchase agreement involved, except that if quotations are unavailable from two such dealers, only one other competitive quotation is required. 4. Principal transactions in all Money Market Instruments other than repurchase agreements conducted by a Fund pursuant to the order shall be limited to no more than (a) an aggregate of 25% of the direct or indirect purchases and 25% of the direct or indirect sales of Eligible Securities other than repurchase agreements conducted by that Fund and (b) an aggregate of 25% of the purchases or sales, as the case may be, by MS & Co. of Eligible Securities other than repurchase agreements. Repurchase agreements conducted pursuant to the exemption shall be limited to no more than 10% of (a) the repurchase agreements directly or indirectly entered into by the relevant Fund and (b) the repurchase agreements transacted by MS & Co. Principal transactions in Tax-Exempt Money Market Instruments conducted by each Money Market Fund pursuant to the order, shall be limited to no more than an aggregate of 20% of the direct or indirect purchases and 20% of the direct or indirect sales of Tax-Exempt Money Market Instruments by that Money Market Fund. The Adviser or Fund and MS & Co. will measure these E:\FR\FM\02MYN1.SGM 02MYN1 mstockstill on DSKH9S0YB1PROD with NOTICES6 Federal Register / Vol. 76, No. 84 / Monday, May 2, 2011 / Notices limits on an annual basis (the fiscal year of each Fund) and shall compute them using the dollar volume of transactions. 5. MS & Co.’s dealer spread regarding any transaction with the Funds will be no greater than its customary dealer spread on similar transactions (with unaffiliated parties) of a similar size during a comparable time period. Its customary dealer spread also will be consistent with the average or standard spread charged by dealers in Money Market Instruments of a similar type and transaction size. 6. The Advisers, on the one hand, and MS & Co. on the other, will operate on different sides of appropriate walls of separation with respect to the Funds and the Money Market Instruments. The walls of separation will include all of the following characteristics, and such others that MS & Co. and the Advisers consider reasonable to facilitate the factual independence of the Advisers from MS & Co.: (a) Each of the Advisers will maintain offices physically separate from those of MS & Co. (b) The compensation of persons assigned to any of the Advisers (i.e., executive, administrative or investment personnel) will not depend on the volume or nature of trades effected by the Advisers for the Funds with MS & Co. under the exemption, except to the extent that such trades may affect the profits and losses of Mitsubishi UFJ and its affiliates as a whole. (c) MS & Co. will not compensate the Advisers based upon its profits or losses on transactions conducted pursuant to the exemption, provided that the allocation of the profits by Mitsubishi UFJ to its shareholders and the determination of general firm-wide compensation of officers and employees, will be unaffected by this undertaking. (d) Personnel employed by the Advisers’ investment advisory operations on behalf of the Funds will be exclusively devoted to the business and affairs of one or more of the Advisers. Personnel employed by MS & Co. will not participate in the decisionmaking process for or otherwise seek to influence the Advisers other than in the normal course of sales and dealer activities of the same nature as are simultaneously being carried out with respect to nonaffiliated institutional clients. Each Adviser, on the one hand, and MS & Co., on the other hand, may nonetheless maintain affiliations other than with respect to the Funds, and in addition with respect to the Funds, Adviser personnel may rely on research, including credit analysis and reports VerDate Mar<15>2010 17:48 Apr 29, 2011 Jkt 223001 prepared by various subsidiaries and divisions of MS & Co. 7. The Funds and the Advisers will maintain such records with respect to those transactions conducted pursuant to the exemption as may be necessary to confirm compliance with the conditions to the requested relief. To this end, each Fund shall maintain the following: (a) An itemized daily record of all purchases and sales of securities pursuant to the exemption, showing for each transaction the following: (i) The name and quantity of securities; (ii) the unit purchase or sale price; (iii) the time and date of the transaction; and (iv) whether the security was a First Tier or Second Tier Security. For each transaction (other than variable rate demand notes), these records shall document two quotations received from other dealers for securities falling within the same category of instrument, quality and maturity; including the following: (i) The names of the dealers; (ii) the names of the securities; (iii) the prices quoted; (iv) the times and dates the quotations were received; and (v) whether such securities were First Tier or Second Tier Securities. In the case of variable rate demand notes, the Fund shall maintain the same records except that the rates of return quoted will be substituted for the prices quoted. (b) Records sufficient to verify compliance with the volume limitations contained in condition (4) above. MS & Co. will provide the Funds with all records and information necessary to implement this requirement. (c) Each Fund shall maintain a ledger or record showing, on a daily basis, the percentage of the Fund’s Total Assets (or, in the case of a Fund that is not subject to rule 2a–7 the percentage of its total cash, cash items and Eligible Securities) represented by Second Tier Securities acquired from MS & Co. (d) Each Fund shall maintain records sufficient to verify compliance with the repurchase agreement requirements contained in condition 1(c) above. The records required by this condition (7) will be maintained and preserved in the same manner as records required under rule 31a–1(b)(1) under the Act. 8. The legal and compliance departments of MS & Co. and the Advisers will prepare and administer guidelines for personnel of MS & Co. and the Advisers to make certain that transactions conducted pursuant to the order comply with the conditions set forth in the order and that the parties generally maintain arm’s-length relationships. In the training of MS & Co’s personnel, particular emphasis will be placed upon the fact that the Funds PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 24545 are to receive rates as favorable as other institutional purchasers buying the same quantities. The legal and compliance departments will periodically monitor the activities of MS & Co. and the Advisers to make certain that the conditions set forth in the order are adhered to. 9. The members of the Board of each of the Funds who are not ‘‘interested persons’’ as defined in Section 2(a)(19) of the Act (‘‘Independent Trustees’’) will approve, periodically review, and update as necessary, guidelines for the Funds and the Advisers that are reasonably designed to make certain that the transactions conducted pursuant to the exemption comply with the conditions set forth herein and that the above procedures are followed in all respects. The Independent Trustees will periodically monitor the activities of the Funds and the Advisers in this regard to ensure that these goals are being accomplished. 10. The Board, including a majority of the Independent Trustees, will have approved each Fund’s participation in transactions conducted pursuant to the exemption and determined that such participation by the Fund is in the best interests of the Fund and its shareholders. The minutes of the meeting of the Board at which this approval was given must reflect in detail the reasons for the Board’s determination. The Board will review no less frequently than annually each Fund’s participation in transactions conducted pursuant to the exemption during the prior year and determine whether the Fund’s participation in such transactions continues to be in the best interests of the Fund and its shareholders. Such review will include (but not be limited to) (a) a comparison of the volume of transactions in each type of security conducted pursuant to the exemption to the market presence of MS & Co. in the market for that type of security, which market data may be based on good faith estimates to the extent that current formal data is not reasonably available, and (b) a determination that the Funds are maintaining appropriate trading relationships with other sources for each type of security to ensure that there are appropriate sources for the quotations required by condition 3. The minutes of the meetings of the Board at which these determinations are made will reflect in detail the reasons for the Board’s determinations. E:\FR\FM\02MYN1.SGM 02MYN1 24546 Federal Register / Vol. 76, No. 84 / Monday, May 2, 2011 / Notices For the Commission, by the Division of Investment Management, under delegated authority. Cathy H. Ahn, Deputy Secretary. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–64343; File No. SR–ISE– 2011–26] [FR Doc. 2011–10543 Filed 4–29–11; 8:45 am] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Option Expiration Months Open for Trading on the Exchange BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold a Closed Meeting on Thursday, May 5, 2011 at 1 p.m. Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meeting. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (7), 9(B) and (10) and 17 CFR 200.402(a)(3), (5), (7), 9(ii) and (10), permit consideration of the scheduled matters at the Closed Meeting. Commissioner Walter, as duty officer, voted to consider the items listed for the Closed Meeting in a closed session. The subject matter of the Closed Meeting scheduled for Thursday, May 5, 2011 will be: Institution and settlement of injunctive actions; institution and settlement of administrative proceedings; a litigation matter; and other matters relating to enforcement proceedings. mstockstill on DSKH9S0YB1PROD with NOTICES6 At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551–5400. Dated: April 28, 2011. Elizabeth M. Murphy, Secretary. [FR Doc. 2011–10772 Filed 4–28–11; 4:15 pm] April 26, 2011. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that, on April 20, 2011, the International Securities Exchange, LLC (the ‘‘Exchange’’ or the ‘‘ISE’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its rules to permit the Exchange to list additional expiration months if such expiration months are listed on another exchange. The text of the proposed rule change is available on the Exchange’s Web site http://www.ise.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B and C below, of the most significant aspects of such statements. BILLING CODE 8011–01–P 1 15 2 17 VerDate Mar<15>2010 17:48 Apr 29, 2011 Jkt 223001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00090 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend ISE Rules to permit the Exchange to list additional expiration months if such expiration months are listed on another exchange. This filing is based on a filing previously submitted by NASDAQ OMX PHLX, Inc. (‘‘PHLX’’).3 Under current rule 504(e), ISE usually will open four (4) expiration months for each type of option of a class of options open for trading on the Exchange: The first two (2) being the two nearest months, regardless of the quarterly cycle on which that class trades; the third and fourth being the next two months of the quarterly cycle previously designated by the Exchange for that specific class. For example, if the Exchange listed in late September a new stock option on a January-April-July-October quarterly cycle, the Exchange would list the two nearest-term months (October and November) and the next two expiration months of the cycle (January and April). Further, when the October series expire, the Exchange would add the December series as the next nearest month. And when the November series expire, the Exchange would add the July series as the next month of the cycle. In 2010, the Exchange established a pilot program to add up to two additional expiration months for each class of options opened for trading on the Exchange (the ‘‘Additional Expiration Months Pilot’’).4 Under the Additional Expiration Months Pilot, ISE lists expiration months that are considered ‘‘mid-month.’’ For example, for options classes that have expiration months of October, November, January, and April, the Exchange lists the December series. For options classes that have expiration months of October, November, February and May, the Exchange lists the December and January series. The listing of additional expiration months has been wellreceived by our members and has had very limited impact on system resources. PHLX recently submitted a filing to adopt rules pursuant to which it can 3 See Securities Exchange Act Release No. 63700 (January 11, 2011) 76 FR 2931 (January 18, 2011) (SR–PHLX–2011–04). In its filing, PHLX cites to the Commission’s approval of the NASDAQ Options Market and rules pertaining thereto as the basis for making the change to its rules. 4 See Securities Exchange Act Release No. 63104 (October 14, 2010) 75 FR 64773 (October 20, 2011) (SR–ISE–2010–91). E:\FR\FM\02MYN1.SGM 02MYN1

Agencies

[Federal Register Volume 76, Number 84 (Monday, May 2, 2011)]
[Notices]
[Pages 24541-24546]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-10543]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29660; 812-13736]


HighMark Capital Management, Inc., et al., Notice of Application

April 26, 2011.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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Applicants: HighMark Capital Management, Inc. (``HCM'' or 
``Adviser''),\1\ HighMark Funds (each series of HighMark Funds a 
``Current Fund,'' collectively, the ``Current Funds''),\2\ any existing 
or future registered management investment companies and their series 
that are advised or subadvised by the Adviser (``Future Funds,'' Future 
Funds and Current Funds are collectively the ``Funds''),\3\ and Morgan 
Stanley & Co., Inc. (``MS & Co.'').
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    \1\ Applicants also seek relief for any other existing or future 
registered investment adviser which acts as investment adviser or 
subadviser to a Fund (defined below) and which controls, is 
controlled by or is under common control (as defined in section 
2(a)(9) of the Act) with HCM (individually a ``Future Adviser'' and 
collectively the ``Future Advisers''). HCM and the Future Advisers 
are referred to individually as an ``Adviser'' and collectively as 
the ``Advisers.'' HCM is the only Adviser that currently intends to 
rely on the requested order. Any other Adviser that relies on the 
order in the future will comply with the terms and conditions of the 
application.
    \2\ HighMark Funds offers five series that operate as money 
market funds subject to rule 2a-7 under the 1940 Act: HighMark 100% 
U.S. Treasury Money Market Fund, HighMark California Tax-Free Money 
Market Fund, HighMark Diversified Money Market Fund, HighMark 
Treasury Plus Money Market Fund and HighMark U.S. Government Money 
Market Fund (each a ``Money Market Fund'').
    \3\ Any existing or future Funds which are money market funds 
subject to rule 2a-7 and authorized to invest in Money Market 
Instruments (as defined below) are also ``Money Market Funds.'' Any 
Fund that currently intends to rely on the requested order is named 
as an applicant in the application. Any other Fund that relies on 
the order in the future will comply with the terms and conditions of 
the application.

Summary of Application: Applicants request an order to permit the Funds 
to engage in principal transactions in certain money market instruments 
---------------------------------------------------------------------------
with MS & Co.

DATES: Filing Dates: The application was filed on December 28, 2009, 
and amended on June 18, 2010, and March 25, 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 May 23, 2011, 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 may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090. Applicants: c/o Karen Seaman, Esq., 
Union Bank, N.A., 400 California Street, 16th Floor, San Francisco, CA 
94104.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, 
(202) 551-6817 or Janet M. Grossnickle, Assistant Director, (202) 551-
6821 (Office of Investment Company

[[Page 24542]]

Regulation, Division of Investment Management).

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, an open-end management company registered under 
the Act, is organized as a Massachusetts business trust and is 
comprised of multiple series that are Funds. HCM, an investment adviser 
registered under the Investment Advisers Act of 1940, is a California 
corporation and an indirect wholly-owned subsidiary of Mitsubishi UFJ 
Financial Group, Inc. (``Mitsubishi UFJ''). Each Fund has an investment 
advisory agreement with the Adviser pursuant to which the Adviser 
provides investment advisory and management services. MS & Co., a 
broker-dealer registered under the Securities Exchange Act of 1934 (the 
``1934 Act'') is a primary dealer in U.S. Government securities and one 
of the largest dealers in the United States in commercial paper, 
repurchase agreements and other money market instruments. Applicants 
state that Mitsubishi UFJ currently holds an approximately 21% interest 
in Morgan Stanley (``MS''). MS & Co. is a wholly owned subsidiary of 
MS.
    2. Applicants state that HCM and MS & Co. are functionally 
independent of each other and operate as completely separate entities. 
While MS & Co. and HCM could be deemed second-tier affiliates through 
their relationship with Mitsubishi UFJ, each entity has its own 
separate officers and employees, is separately capitalized, maintains 
its own separate books and records and operates on different sides of 
walls of separation with respect to the Funds and Money Market 
Instruments. HCM also maintains offices physically separate from MS & 
Co.
    3. Investment decisions for the Funds are determined solely by the 
Adviser. The portfolio managers and other employees that are 
responsible for the investment of the Funds are employed solely by the 
Adviser (and not MS & Co.), and have lines of reporting responsibility 
solely within the Adviser. The compensation of personnel assigned to an 
Adviser will not depend on the volume or nature of trades with MS & 
Co., except to the extent that such trades may affect the profits and 
losses of Mitsubishi UFJ and its affiliates as a whole.
    4. As used in the application, the term Taxable Money Market 
Instruments refers to taxable securities which are eligible for 
purchase by money market funds under rule 2a-7, including short-term 
U.S. Government securities, short-term U.S. Government agency 
securities, bank money market instruments, bank notes, commercial 
paper, other short-term fixed income instruments and repurchase 
agreements. The term Tax-Exempt Money Market Instruments refers to tax-
exempt securities which are eligible for purchase by money market funds 
under rule 2a-7, including conventional municipal notes, tax-exempt 
commercial paper, variable rate demand notes, put bonds and flexible 
notes. Money Market Instruments consist of Taxable and Tax-Exempt Money 
Market Instruments. Each Fund that is not a Money Market Fund is 
authorized to invest in Taxable Money Market Instruments pursuant to 
its investment objectives and policies.
    5. Trading in Money Market Instruments generally takes place in 
over-the-counter markets consisting of groups of dealers who are 
primarily major securities firms or large commercial banks. The money 
market consists of sophisticated and elaborate telephonic and 
electronic communications networks among buyers and sellers, which 
generally precludes being able to obtain a single market price for a 
given instrument at any given time. Applicants state that the money 
market (for both Taxable and Tax-Exempt Money Market Instruments) tends 
to be somewhat segmented. The markets for the different types of 
instruments will vary in terms of price, volatility, liquidity and 
availability. With respect to any given type of security or instrument, 
there may be only a few dealers who can be expected to have the 
security in inventory and be in a position to quote a favorable price. 
Applicants also state that different dealers may quote different prices 
with respect to the same type of instrument because of differing 
outlooks on future yields, to adjust their inventory or because of 
competitive pressure (or the lack thereof) to meet other dealers' 
quotes. Only customers of a dealer may obtain quotations for Money 
Market Instruments and trade on them.
    6. MS & Co. is one of the world's largest dealers in Taxable Money 
Market Instruments, ranking among the top firms in each of the major 
markets and product areas. As of December 31, 2010, MS & Co. had become 
the fourth largest dealer in terms of the number of existing U.S. 
asset-backed commercial paper programs, the most significant part of 
the commercial paper market by outstanding dollar amounts. Applicants 
believe that MS & Co. is one of the ten leading dealers in the 
repurchase agreement market. From January 2010 to December 2010, MS & 
Co.'s aggregrate month-end principal balance for repurchase agreements 
and reverse repurchase agreements ranged from approximately $240 
billion to approximately $337 billion. MS & Co. is an active 
participant in the public auction market for U.S. Treasuries, being one 
of only 20 primary dealers and receiving on average from 0.04% to 5.34% 
of the primary distribution of U.S. Treasuries during January through 
December 31, 2010. In secondary trading, MS & Co. ranked as one of the 
top four primary dealers for U.S. Treasuries with maturities of three 
to six years and with maturities under three years for seven of the 
last eight quarters (through the fourth quarter of 2010). MS & Co. also 
has been an active participant in the secondary market for government 
agency securities and ranked ninth in underwriting primary issuances in 
2010.
    7. MS & Co. also is a major participant in both the primary new 
issue market and in the secondary dealer market for Tax-Exempt Money 
Market Instruments. MS & Co. estimates that its market share in the new 
issue market for Tax-Exempt Money Market Instruments included 8.6% of 
conventional notes, 10% of tax-exempt commercial paper and 7.2% of 
variable rate demand notes for the period January 1, 2010 through 
December 31, 2010. Applicants state that there is no comprehensive 
information published as to the dollar amount and volume of secondary 
market transactions executed in Tax-Exempt Money Market Instruments. 
However, MS & Co. believes that it is generally one of the top five 
secondary market dealers in Tax-Exempt Money Market Instruments. Based 
upon MS & Co. estimates, MS & Co. was responsible for 9% of the trading 
volume in variable rate demand notes and tax-exempt commercial paper 
among MS & Co. and nine other leading dealers as of January 1, 2011. MS 
& Co. estimates its market share in the put bonds market at 15.7% as of 
December 31, 2010.
    8. Applicants state that over the past few years, the growth in 
Money Market Instruments has been substantially outpaced by the growth 
in portfolios which purchase Money Market Instruments, which has 
contributed to the limited availability of Money Market Instruments to 
the Funds.\4\ Applicants

[[Page 24543]]

further state that because of consolidation in the money market 
industry, there is a substantially smaller number of major dealers who 
are active in the money market than was the case a decade ago. 
Applicants state that MS & Co. has remained committed to the taxable 
and tax-exempt money market, and has moved to fill the void left by 
departing dealers. As the number of dealers with whom the Funds can 
transact business has decreased, it has become even more important for 
the Funds to have meaningful access to all of the major dealers in 
Money Market Instruments in order to diversify each Fund's investments, 
to maintain portfolio liquidity, and to increase opportunities for 
obtaining best price and execution with respect to portfolio trades.
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    \4\ Applicants state that from 2000 through 2010, the growth of 
the market in Tax-Exempt Money Market Instruments was 119%, while 
the growth of Taxable Money Market Instruments was 143%.
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    9. Subject to the general supervision of the board of trustees of 
the Funds (``Board''), the Adviser is responsible for making investment 
decisions and for the placement of portfolio transactions. The Funds 
have no obligation to deal with any dealer or group of dealers in the 
execution of their portfolio transactions. When placing orders, the 
Adviser must attempt to obtain the best net price and the most 
favorable execution of its orders. In doing so, it takes into account 
such factors as price, the size, type and difficulty of the transaction 
involved and the dealer's general execution and operational facilities. 
The transaction costs of the Funds with respect to Money Market 
Instruments consist primarily of dealer or underwriter spreads. Spreads 
vary some based on the type of money market security or the occurrence 
of turbulent market conditions, but generally spread levels for Taxable 
Money Market Instruments are in the range of 1 to 5 basis points (.01% 
to .05%), while spreads for Tax-Exempt Money Market Instruments 
typically are not greater than 12.5 basis points (0.125%).
    Applicants' Legal Analysis:
    1. Applicants request an order pursuant to sections 6(c) and 17(b) 
of the Act exempting certain transactions from the provisions of 
section 17(a) of the Act to permit MS & Co., acting as principal, (a) 
to sell or purchase Taxable Money Market Instruments to or from the 
Funds; and (b) to sell or purchase Tax-Exempt Money Market Instruments 
to or from the Money Market Funds, subject to the conditions set forth 
below.
    2. Section 17(a) of the Act generally prohibits an affiliated 
person or principal underwriter of a registered investment company, or 
any affiliated person of that person (``second-tier affiliate''), 
acting as principal, from selling to or purchasing from the registered 
company, or any company controlled by the registered company, any 
security or other property. Because Mitsubishi UFJ could be deemed to 
control the Funds, and Mitsubishi UFJ indirectly owns 21% of MS & Co., 
the Funds and MS & Co. could be deemed second-tier affiliates, and the 
Funds could be prohibited from conducting portfolio transactions with 
MS & Co. in transactions in which MS & Co. acts as principal.
    3. Section 17(b) of the Act provides that the Commission, upon 
application, may exempt a transaction from the provisions of section 
17(a) if evidence establishes that the terms of the proposed 
transaction, including the consideration to be paid, are reasonable and 
fair, and do not involve overreaching on the part of any person 
concerned, and that the proposed transaction is consistent with the 
policy of the registered investment company concerned and with the 
general purposes of the Act. Section 6(c) provides that the Commission 
may conditionally or unconditionally exempt any person, security, or 
transaction, or any class or classes of persons, securities, or 
transactions, from any provision or provisions of the Act or of any 
rule or regulation 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.
    4. Applicants note the following in support of the requested 
relief:
    (a) With over $5 billion invested in Money Market Instruments, the 
Funds have a strong need for access to large quantities of high quality 
Money Market Instruments. The applicants believe that access to a major 
dealer as MS & Co. in this market increases the Funds' ability to 
obtain suitable portfolio securities.
    (b) The policy of the Funds that are money market and fixed income 
funds of investing in securities with short maturities combined with 
the active portfolio management techniques employed by the Advisers 
results in a high level of portfolio activity and the need to make 
numerous purchases and sales of Money Market Instruments. This high 
level of portfolio activity emphasizes the importance of increasing 
opportunities to obtain suitable portfolio securities and best price 
and execution.
    (c) The taxable and tax-exempt money market, including the market 
for repurchase agreements, is highly competitive, and maintaining a 
dealer as prominent as MS & Co. in the pool of dealers with which the 
Funds could conduct principal transactions may provide the Funds with 
opportunities to purchase and sell Money Market Instruments, including 
those not available from any other source.
    (d) MS & Co. is such a major factor in the tax-exempt and taxable 
money market that being unable to deal directly with MS & Co. may 
indirectly deprive the Funds of obtaining best price and execution even 
when the Funds trade with unaffiliated dealers.
    5. Applicants believe that the requested order will provide the 
Funds with a broader and more complete access to the money market (both 
taxable and non-taxable) which is necessary to carry out the policies 
and objectives of each of the Funds in obtaining the best price, 
execution and quality in all portfolio transactions, and will provide 
the Funds with important new information sources in the taxable and 
tax-exempt money market, to the direct benefit of investors in the 
Funds. Applicants believe that the transactions contemplated by the 
application are identical to those in which they are currently engaged 
except for the proposed participation of MS & Co. and that such 
transactions are consistent with the policies of the Funds as recited 
in their registration statements and reports filed under the Act. 
Applicants further believe that the conditions below and the procedures 
to be followed with respect to transactions with MS & Co. are 
structured in such a way as to ensure that the transactions will be, in 
all instances, reasonable and fair, will not involve overreaching on 
the part of any person concerned, and that the requested exemption is 
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' Conditions:
    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The exemption shall be applicable to principal transactions in 
the secondary market and primary or secondary fixed price dealer 
offerings not made pursuant to underwriting syndicates. With respect to 
Tax-Exempt Money Market Instruments, principal purchase or sale 
transactions will be conducted only in Money Market Instruments that 
are First Tier Securities as defined in rule 2a-7(a)(14)(i) under the 
Act. With respect to Taxable Money Market Instruments, the principal 
purchase or sale transactions which may be conducted pursuant to the 
exemption will be limited to transactions in

[[Page 24544]]

Eligible Securities.\5\ Notwithstanding the foregoing, if a Fund 
purchases a Money Market Instrument meeting the above requirements from 
MS & Co. and, subsequent to such purchase, the security becomes no 
longer an Eligible Security, the Fund may sell the security to MS & Co. 
in a manner consistent with the requirements of rule 2a-7(c)(7)(i)(B). 
To the extent a Fund is subject to rule 2a-7, such Eligible Securities 
must meet the portfolio maturity and quality requirements of paragraphs 
(c)(2) and (c)(3) of rule 2a-7. To the extent a Fund is not subject to 
rule 2a-7, such Eligible Securities must meet the requirements of 
clauses (i), (iii) and (iv) of paragraph (c)(3) of rule 2a-7. 
Additionally:
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    \5\ Italicized terms are defined as set forth in paragraph (a) 
of rule 2a-7 under the Act, unless otherwise indicated.
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    (a) No Fund shall make portfolio purchases pursuant to the 
exemption that would result directly or indirectly in the Fund 
investing pursuant to the exemption more than 2% of its Total Assets 
(or, in the case of a Fund that is not subject to rule 2a-7, more than 
2% of the total of its cash, cash items and Eligible Securities) in 
securities which, when acquired by the Fund (either initially or upon 
any subsequent rollover) are Second Tier Securities; provided that any 
Fund may make portfolio sales of Second Tier Securities pursuant to the 
exemption without regard to this limitation.
    (b) The exemption shall not apply to an Unrated Security other than 
a Government Security.
    (c) The Funds may engage in repurchase agreements with MS & Co. 
only if MS & Co. has: (i) Net capital, as defined in rule 15c3-1 under 
the 1934 Act, of at least $100 million and (ii) a record (including the 
record of predecessors) of at least five years continuous operations as 
a dealer during which time it engaged in repurchase agreements relating 
to the kind of security subject to the repurchase agreement. MS & Co. 
shall furnish the Advisers with financial statements for its most 
recent fiscal year and the most recent semi-annual financial statements 
made available to its customers. The Advisers shall determine that MS & 
Co. complies with the above requirements and with other repurchase 
agreement guidelines adopted by the Board. Each repurchase agreement 
will be Collateralized Fully.
    (d) The exemption shall not apply to any purchase or sale of any 
security, other than a repurchase agreement, issued by MS, Mitsubishi 
UFJ or any affiliated person of MS or Mitsubishi UFJ or to any security 
subject to a Demand Feature or Guarantee issued by MS, Mitsubishi UFJ 
or any affiliated person of MS or Mitsubishi UFJ. For purposes of this 
requirement, MS and Mitsubishi UFJ will not be considered to be the 
issuer of a Demand Feature or Guarantee solely by reason of the fact 
that MS & Co. or an affiliate thereof serves as a remarketing agent for 
a Money Market Instrument.
    2. The relevant Adviser (unless the Board decides that the Fund 
should make these determinations) will determine with respect to each 
principal transaction conducted by a Fund pursuant to the order, based 
upon the information reasonably available to the Funds and the 
Advisers, that the price available from MS & Co. is at least as 
favorable to the Fund as the prices obtained from two other dealer bids 
in connection with securities falling within the same category of 
instrument, quality and maturity (but not necessarily the identical 
security or issuer) (``price test''). In the case of ``Swaps'' 
involving trades of one security for another, the price test shall be 
based upon the transaction viewed as a whole and not upon the two 
components thereof individually. With respect to each transaction 
involving repurchase agreements, the relevant Adviser will determine 
(unless the Board decides that the Fund should make these 
determinations), based upon the information reasonably available to the 
Fund and the Adviser, that the income to be earned from the repurchase 
agreement is at least equal to that available from other sources. In 
the case of variable rate demand notes, for which dealer bids are not 
ordinarily available, the Funds will only undertake purchases and sales 
where the rate of interest to be earned from the variable rate demand 
note is at least equal to that of variable rate demand notes of 
comparable quality that are available from other dealers. Neither MS, 
Mitsubishi UFJ nor any other affiliate thereof (other than the 
Advisers) will have any involvement with respect to proposed 
transactions between the Funds and the Advisers and, except to the 
extent set forth in condition 6(d) below, will not attempt to influence 
or control in any way the placing by the Funds or the Advisers of 
orders with MS & Co.
    3. Before any principal transaction may be conducted pursuant to 
the order, the relevant Fund or Adviser must obtain such information as 
it deems reasonably necessary to determine that the price test (as 
defined in condition (2) above) has been satisfied. In the case of each 
purchase or sale transaction, the relevant Fund or Adviser must make 
and document a good faith determination with respect to compliance with 
the price test based on current price information obtained through the 
contemporaneous solicitation of bona fide offers in connection with 
securities falling within the same category of instrument, quality and 
maturity (but not necessarily the identical security or issuer). With 
respect to variable rate demand notes, contemporaneous solicitation of 
a bona fide offer will be construed to mean any bona fide offer 
solicited during the same trading day. With respect to prospective 
purchases of securities by a Fund, the dealer firms from which prices 
are solicited must be those who have securities of the same categories 
and the type desired in their inventories and who are in a position to 
quote favorable prices with respect thereto. With respect to the 
prospective sale of securities by a Fund, these dealer firms must be 
those who, in the experience of the Funds and the Advisers, are in a 
position to quote favorable prices. Before any repurchase agreements 
are entered into pursuant to the exemption, the Fund or the relevant 
Adviser must obtain and document competitive quotations from at least 
two other dealers with respect to repurchase agreements comparable to 
the type of repurchase agreement involved, except that if quotations 
are unavailable from two such dealers, only one other competitive 
quotation is required.
    4. Principal transactions in all Money Market Instruments other 
than repurchase agreements conducted by a Fund pursuant to the order 
shall be limited to no more than (a) an aggregate of 25% of the direct 
or indirect purchases and 25% of the direct or indirect sales of 
Eligible Securities other than repurchase agreements conducted by that 
Fund and (b) an aggregate of 25% of the purchases or sales, as the case 
may be, by MS & Co. of Eligible Securities other than repurchase 
agreements. Repurchase agreements conducted pursuant to the exemption 
shall be limited to no more than 10% of (a) the repurchase agreements 
directly or indirectly entered into by the relevant Fund and (b) the 
repurchase agreements transacted by MS & Co. Principal transactions in 
Tax-Exempt Money Market Instruments conducted by each Money Market Fund 
pursuant to the order, shall be limited to no more than an aggregate of 
20% of the direct or indirect purchases and 20% of the direct or 
indirect sales of Tax-Exempt Money Market Instruments by that Money 
Market Fund. The Adviser or Fund and MS & Co. will measure these

[[Page 24545]]

limits on an annual basis (the fiscal year of each Fund) and shall 
compute them using the dollar volume of transactions.
    5. MS & Co.'s dealer spread regarding any transaction with the 
Funds will be no greater than its customary dealer spread on similar 
transactions (with unaffiliated parties) of a similar size during a 
comparable time period. Its customary dealer spread also will be 
consistent with the average or standard spread charged by dealers in 
Money Market Instruments of a similar type and transaction size.
    6. The Advisers, on the one hand, and MS & Co. on the other, will 
operate on different sides of appropriate walls of separation with 
respect to the Funds and the Money Market Instruments. The walls of 
separation will include all of the following characteristics, and such 
others that MS & Co. and the Advisers consider reasonable to facilitate 
the factual independence of the Advisers from MS & Co.:
    (a) Each of the Advisers will maintain offices physically separate 
from those of MS & Co.
    (b) The compensation of persons assigned to any of the Advisers 
(i.e., executive, administrative or investment personnel) will not 
depend on the volume or nature of trades effected by the Advisers for 
the Funds with MS & Co. under the exemption, except to the extent that 
such trades may affect the profits and losses of Mitsubishi UFJ and its 
affiliates as a whole.
    (c) MS & Co. will not compensate the Advisers based upon its 
profits or losses on transactions conducted pursuant to the exemption, 
provided that the allocation of the profits by Mitsubishi UFJ to its 
shareholders and the determination of general firm-wide compensation of 
officers and employees, will be unaffected by this undertaking.
    (d) Personnel employed by the Advisers' investment advisory 
operations on behalf of the Funds will be exclusively devoted to the 
business and affairs of one or more of the Advisers. Personnel employed 
by MS & Co. will not participate in the decision-making process for or 
otherwise seek to influence the Advisers other than in the normal 
course of sales and dealer activities of the same nature as are 
simultaneously being carried out with respect to nonaffiliated 
institutional clients. Each Adviser, on the one hand, and MS & Co., on 
the other hand, may nonetheless maintain affiliations other than with 
respect to the Funds, and in addition with respect to the Funds, 
Adviser personnel may rely on research, including credit analysis and 
reports prepared by various subsidiaries and divisions of MS & Co.
    7. The Funds and the Advisers will maintain such records with 
respect to those transactions conducted pursuant to the exemption as 
may be necessary to confirm compliance with the conditions to the 
requested relief. To this end, each Fund shall maintain the following:
    (a) An itemized daily record of all purchases and sales of 
securities pursuant to the exemption, showing for each transaction the 
following: (i) The name and quantity of securities; (ii) the unit 
purchase or sale price; (iii) the time and date of the transaction; and 
(iv) whether the security was a First Tier or Second Tier Security. For 
each transaction (other than variable rate demand notes), these records 
shall document two quotations received from other dealers for 
securities falling within the same category of instrument, quality and 
maturity; including the following: (i) The names of the dealers; (ii) 
the names of the securities; (iii) the prices quoted; (iv) the times 
and dates the quotations were received; and (v) whether such securities 
were First Tier or Second Tier Securities. In the case of variable rate 
demand notes, the Fund shall maintain the same records except that the 
rates of return quoted will be substituted for the prices quoted.
    (b) Records sufficient to verify compliance with the volume 
limitations contained in condition (4) above. MS & Co. will provide the 
Funds with all records and information necessary to implement this 
requirement.
    (c) Each Fund shall maintain a ledger or record showing, on a daily 
basis, the percentage of the Fund's Total Assets (or, in the case of a 
Fund that is not subject to rule 2a-7 the percentage of its total cash, 
cash items and Eligible Securities) represented by Second Tier 
Securities acquired from MS & Co.
    (d) Each Fund shall maintain records sufficient to verify 
compliance with the repurchase agreement requirements contained in 
condition 1(c) above.
    The records required by this condition (7) will be maintained and 
preserved in the same manner as records required under rule 31a-1(b)(1) 
under the Act.
    8. The legal and compliance departments of MS & Co. and the 
Advisers will prepare and administer guidelines for personnel of MS & 
Co. and the Advisers to make certain that transactions conducted 
pursuant to the order comply with the conditions set forth in the order 
and that the parties generally maintain arm's-length relationships. In 
the training of MS & Co's personnel, particular emphasis will be placed 
upon the fact that the Funds are to receive rates as favorable as other 
institutional purchasers buying the same quantities. The legal and 
compliance departments will periodically monitor the activities of MS & 
Co. and the Advisers to make certain that the conditions set forth in 
the order are adhered to.
    9. The members of the Board of each of the Funds who are not 
``interested persons'' as defined in Section 2(a)(19) of the Act 
(``Independent Trustees'') will approve, periodically review, and 
update as necessary, guidelines for the Funds and the Advisers that are 
reasonably designed to make certain that the transactions conducted 
pursuant to the exemption comply with the conditions set forth herein 
and that the above procedures are followed in all respects. The 
Independent Trustees will periodically monitor the activities of the 
Funds and the Advisers in this regard to ensure that these goals are 
being accomplished.
    10. The Board, including a majority of the Independent Trustees, 
will have approved each Fund's participation in transactions conducted 
pursuant to the exemption and determined that such participation by the 
Fund is in the best interests of the Fund and its shareholders. The 
minutes of the meeting of the Board at which this approval was given 
must reflect in detail the reasons for the Board's determination. The 
Board will review no less frequently than annually each Fund's 
participation in transactions conducted pursuant to the exemption 
during the prior year and determine whether the Fund's participation in 
such transactions continues to be in the best interests of the Fund and 
its shareholders. Such review will include (but not be limited to) (a) 
a comparison of the volume of transactions in each type of security 
conducted pursuant to the exemption to the market presence of MS & Co. 
in the market for that type of security, which market data may be based 
on good faith estimates to the extent that current formal data is not 
reasonably available, and (b) a determination that the Funds are 
maintaining appropriate trading relationships with other sources for 
each type of security to ensure that there are appropriate sources for 
the quotations required by condition 3. The minutes of the meetings of 
the Board at which these determinations are made will reflect in detail 
the reasons for the Board's determinations.


[[Page 24546]]


    For the Commission, by the Division of Investment Management, 
under delegated authority.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-10543 Filed 4-29-11; 8:45 am]
BILLING CODE 8011-01-P