HighMark Capital Management, Inc., et al.,, 24541-24546 [2011-10543]
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Federal Register / Vol. 76, No. 84 / Monday, May 2, 2011 / Notices
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Dated: April 27, 2011.
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[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:
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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.
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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.
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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 https://
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.
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SUPPLEMENTARY INFORMATION:
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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
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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%.
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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
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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
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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
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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.
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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
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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
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02MYN1
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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
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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.
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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 https://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
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]]>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]
=======================================================================
-----------------------------------------------------------------------
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.
-----------------------------------------------------------------------
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.'').
---------------------------------------------------------------------------
\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 https://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.
---------------------------------------------------------------------------
\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%.
---------------------------------------------------------------------------
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
