Morgan Stanley Investment Management Inc., et al., Notice of Application, 4647-4653 [E8-1304]
Download as PDF
<![CDATA[
Federal Register / Vol. 73, No. 17 / Friday, January 25, 2008 / Notices
symbols used to common stocks, other
securities or other information
disseminated to the public through the
facilities operated by, or pursuant to,
among other plans, the Options Price
Reporting Authority (‘‘OPRA’’).
Amendment No. 1 amends Section I(b)
of the proposed Three-Characters Plan
to state that the proposed plan is
intended to be the exclusive means of
allocating and using symbols of one-,
two-, or three-characters for, among
other securities, options under OPRA. In
addition, Amendment No. 1 revises
Section I(b) of the Three-Characters Plan
to state that, in the case of ‘‘listed equity
securities’’ (as Rule 600(b)(34) of
Regulation NMS defines that term) no
one-, two-, or three-character symbols
would be allocated or used other than
for ‘‘Network A’’ or ‘‘Network B’’
‘‘Eligible Securities.’’
The Commission requests comment
on the amended provision regarding the
proposed Three-Characters Plan’s scope.
In particular, the Commission requests
comment on whether it is appropriate
that the proposed scope of the ThreeCharacters Plan include options. Should
the Commission approve a plan solely
covering equity security symbols or
should both equity and option security
symbols be covered? Are there other
matters with respect to the scope of the
plans that commenters believe the
Commission should consider? In
particular, should only root symbols be
covered or should suffixes be included
as well?
D. Name of the Plan Administrator
Amendment No. 1 also made a
number of minor, non-substantive
technical changes, including modifying
the name for the plan administrator. The
proposed Three-Characters Plan
originally referred to the plan
administrator as the ‘‘International
Symbols Reservation Authority
(‘‘ISRA’’).’’ Amendment No. 1 renamed
the authority the ‘‘Intermarket Symbols
Reservation Authority (‘‘ISRA’’).’’ The
Commission requests comment on the
name of the plan administrator.
jlentini on PROD1PC65 with NOTICES
III. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed
Amendment No. 1 is consistent with the
Act. The Commission invites comments
on whether the foregoing assures fair
competition among all parties,
including new listing markets.
Comments may be submitted by any of
the following methods:
VerDate Aug<31>2005
16:59 Jan 24, 2008
Jkt 214001
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number 4–534 on the subject line.
Paper Comments
All submissions should refer to File
Number 4–534. The file numbers should
be included on the subject line if e-mail
is used. To help the Commission
process and review your comments
more efficiently, please use only one
method. The Commission will post all
comments on the Commission’s Internet
Web site (https://www.sec.gov/rules/sro/
nms.shtml). Copies of the submission,
all subsequent amendments, all written
statements with respect to the proposed
plans that are filed with the
Commission, and all written
communications relating to the
proposed plans between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of such filing also will be
available for inspection and copying at
the principal office of the Exchange. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number 4–534 and should be submitted
on or before February 15, 2008.
By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E8–1255 Filed 1–24–08; 8:45 am]
BILLING CODE 8011–01–P
Frm 00132
Fmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
28125; 812–13213]
Morgan Stanley Investment
Management Inc., et al., Notice of
Application
January 18, 2008.
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
PO 00000
4647
Sfmt 4703
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:
Morgan Stanley Investment
Management Inc. (‘‘MSIM’’), Morgan
Stanley Investment Advisors Inc.
(‘‘MSIA’’), Morgan Stanley AIP GP LP
(‘‘MSAIP’’), Van Kampen Asset
Management (‘‘VKAM’’),1 Active Assets
California Tax-Free Trust, Active Assets
Government Securities Trust, Active
Assets Institutional Government
Securities Trust, Active Assets
Institutional Money Trust, Active Assets
Money Trust, Active Assets Tax-Free
Trust, Morgan Stanley California TaxFree Daily Income Trust, Morgan
Stanley New York Municipal Money
Market Trust, Morgan Stanley Tax-Free
Daily Income Trust, Morgan Stanley
Liquid Asset Fund Inc., Morgan Stanley
U.S. Government Money Market Trust
(each a ‘‘Money Market Fund’’),2
Morgan Stanley Select Dimensions
Investment Series, Morgan Stanley
Variable Investment Series, Morgan
APPLICANTS:
1 MSIM, MSIA, MSAIP, VKAM are collectively
referred to as the Current Advisers. 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 MS (as defined below) (individually a
‘‘Future Adviser’’ and collectively the ‘‘Future
Advisers’’). The Current Advisers and the Future
Advisers are referred to individually as an
‘‘Adviser’’ and collectively as the ‘‘Advisers.’’ Any
Adviser that currently intends to rely on the
requested order is named as an applicant in the
application. Any other Adviser that relies on the
order in the future will comply with the terms and
conditions of the application.
2 Morgan Stanley Institutional Liquidity Funds
also offers six series that operate as money market
funds subject to rule 2a–7 under the 1940 Act:
Government Portfolio, Government Securities
Portfolio, Money Market Portfolio, Prime Portfolio,
Tax-Exempt Portfolio, Treasury Portfolio and
Treasury Securities Portfolio. Van Kampen Equity
Trust II offers two money market funds: Van
Kampen Reserve Fund and Van Kampen Tax-Free
Money Fund. Morgan Stanley Select Dimensions
Investment Series offers one money market fund:
Money Market Portfolio. Morgan Stanley Variable
Investment Series offers one money market fund:
Money Market Portfolio. Van Kampen Life
Investment Trust offers one money market fund:
Money Market Portfolio.
E:\FR\FM\25JAN1.SGM
25JAN1
jlentini on PROD1PC65 with NOTICES
4648
Federal Register / Vol. 73, No. 17 / Friday, January 25, 2008 / Notices
Stanley Institutional Fund, Inc., Morgan
Stanley Institutional Liquidity Funds,
The Universal Institutional Funds, Inc.,
Morgan Stanley Institutional Fund
Trust, Morgan Stanley Allocator Fund,
Morgan Stanley Capital Opportunities
Trust, Morgan Stanley Developing
Growth Securities Trust, Morgan
Stanley Dividend Growth Securities
Inc., Morgan Stanley Equally-Weighted
S&P 500 Fund, Morgan Stanley
European Equity Fund Inc., Morgan
Stanley Financial Services Trust,
Morgan Stanley Focus Growth Fund,
Morgan Stanley Fundamental Value
Fund, Morgan Stanley Global Advantage
Fund, Morgan Stanley Global Dividend
Growth Securities, Morgan Stanley
Health Sciences Trust, Morgan Stanley
Institutional Strategies Fund, Morgan
Stanley International Fund, Morgan
Stanley International SmallCap Fund,
Morgan Stanley International Value
Equity Fund, Morgan Stanley Japan
Fund, Morgan Stanley Mid-Cap Value
Fund, Morgan Stanley Multi-Asset Class
Fund, Morgan Stanley Nasdaq-100
Index Fund, Morgan Stanley Natural
Resource Development Securities Inc.,
Morgan Stanley Pacific Growth Fund
Inc., Morgan Stanley Real Estate Fund,
Morgan Stanley Series Funds, Morgan
Stanley Small-Mid Special Value Fund,
Morgan Stanley S&P 500 Index Fund,
Morgan Stanley Special Growth Fund,
Morgan Stanley Special Value Fund,
Morgan Stanley Technology Fund,
Morgan Stanley Total Market Index
Fund, Morgan Stanley Utilities Fund,
Morgan Stanley Value Fund, Morgan
Stanley Balanced Fund, Morgan Stanley
Strategist Fund, Morgan Stanley
Convertible Securities Trust, Morgan
Stanley Flexible Income Trust, Morgan
Stanley FX Series Funds, Morgan
Stanley High Yield Securities Inc.,
Morgan Stanley Income Trust, Morgan
Stanley Limited Duration Fund, Morgan
Stanley Limited Duration U.S.
Government Trust, Morgan Stanley
Mortgage Securities Trust, Morgan
Stanley U.S. Government Securities
Trust, Morgan Stanley California TaxFree Income Fund, Morgan Stanley
Limited Term Municipal Trust, Morgan
Stanley New York Tax-Free Income
Fund, Morgan Stanley Tax-Exempt
Securities Trust, Morgan Stanley
Income Securities Inc., Morgan Stanley
Prime Income Trust, Morgan Stanley
California Insured Municipal Income
Trust, Morgan Stanley California
Quality Municipal Securities, Morgan
Stanley Insured California Municipal
Securities, Morgan Stanley Insured
Municipal Bond Trust, Morgan Stanley
Insured Municipal Income Trust,
Morgan Stanley Insured Municipal
VerDate Aug<31>2005
16:59 Jan 24, 2008
Jkt 214001
Securities, Morgan Stanley Insured
Municipal Trust, Morgan Stanley
Municipal Income Opportunities Trust,
Morgan Stanley Municipal Income
Opportunities Trust II, Morgan Stanley
Municipal Income Opportunities Trust
III, Morgan Stanley Municipal Premium
Income Trust, Morgan Stanley New
York Quality Municipal Securities,
Morgan Stanley Quality Municipal
Income Trust, Morgan Stanley Quality
Municipal Investment Trust, Morgan
Stanley Quality Municipal Securities,
Morgan Stanley Asia-Pacific Fund, Inc.,
Morgan Stanley China ‘‘A’’ Share Fund,
Morgan Stanley Eastern Europe Fund,
Inc., Morgan Stanley Emerging Markets
Debt Fund, Inc., Morgan Stanley
Emerging Markets Domestic Debt Fund,
Inc., Morgan Stanley Emerging Markets
Fund, Inc., Morgan Stanley Global
Opportunity Bond Fund, Inc., Morgan
Stanley High Yield Fund, Inc., Morgan
Stanley Opportunistic Municipal High
Income Fund, The India Investment
Fund, The Latin American Discovery
Fund, Inc., The Malaysia Fund, Inc.,
The Thai Fund, Inc., The Turkish
Investment Fund, Inc., Morgan Stanley
Institutional Fund of Hedge Funds, Van
Kampen U.S. Government Trust, Van
Kampen Tax Free Trust, Van Kampen
Life Investment Trust, Van Kampen
Equity Trust, Van Kampen Equity Trust
II, Van Kampen Tax-Exempt Trust, Van
Kampen Series Fund, Inc., Van Kampen
Trust, Van Kampen Corporate Bond
Fund, Van Kampen Government
Securities Fund, Van Kampen High
Yield Fund, Van Kampen Limited
Duration Fund, Van Kampen U.S.
Government Trust, Van Kampen
Pennsylvania Tax Free Income Fund,
Van Kampen Comstock Fund, Van
Kampen Enterprise Fund, Van Kampen
Equity and Income Fund, Van Kampen
Exchange Fund, Van Kampen Growth
and Income Fund, Van Kampen Harbor
Fund, Van Kampen Pace Fund, Van
Kampen Real Estate Securities Fund,
Van Kampen Strategic Growth Fund,
Van Kampen Reserve Fund, Van
Kampen Tax Free Money Fund, Van
Kampen High Income Trust II, Van
Kampen Senior Loan Fund, Van
Kampen Senior Income Trust, Van
Kampen Municipal Trust, Van Kampen
Ohio Quality Municipal Trust, Van
Kampen Trust For Insured Municipals,
Van Kampen Trust For Investment
Grade Municipals, Van Kampen Trust
For Investment Grade New Jersey
Municipals, Van Kampen Trust For
Investment Grade New York
Municipals, Van Kampen Municipal
Opportunity Trust, Van Kampen
California Value Municipal Income
Trust, Van Kampen Massachusetts
PO 00000
Frm 00133
Fmt 4703
Sfmt 4703
Value Municipal Income Trust, Van
Kampen Pennsylvania Value Municipal
Income Trust, Van Kampen Advantage
Municipal Income Trust II, Van Kampen
Select Sector Municipal Trust, Van
Kampen Bond Fund, Van Kampen
Dynamic Credit Opportunities Fund
(each a ‘‘Current Fund,’’ collectively,
the ‘‘Current Funds’’), any existing or
future registered management
investment companies and their series
that are advised or subadvised by the
Advisers (‘‘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.
FILING DATES: The application was filed
on July 7, 2005, and amended on
October 9, 2007, and December 26,
2007. 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 February 12, 2008, 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, Commission, 100
F Street, NE., Washington, DC 20549–
1090. Applicants: c/o Amy Doberman,
Esq., Morgan Stanley Investment
Management, 522 Fifth Avenue New
York, New York 10036.
FOR FURTHER INFORMATION CONTACT:
Bruce R. MacNeil, Senior Counsel, (202)
551–6817 or Janet M. Grossnickle,
Branch Chief, (202) 551–6821 (Office of
Investment Company Regulation,
Division of Investment Management).
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\25JAN1.SGM
25JAN1
Federal Register / Vol. 73, No. 17 / Friday, January 25, 2008 / Notices
The
following is a summary of the
application. The complete application
may be obtained for a fee from the
Commission’s Public Reference Branch,
100 F Street, NE., Washington, DC
20549–0102 (tel. 202–551–8090).
jlentini on PROD1PC65 with NOTICES
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
1. Each Fund is an open-end or
closed-end management company
registered under the Act and is
organized as a business trust or
corporation under the laws of various
states, as specified in the application.
The Current Advisers are wholly owned
subsidiaries of Morgan Stanley (‘‘MS’’),
a Delaware corporation. Each Adviser is
(or will be) registered under the
Investment Advisers Act of 1940. Each
Fund has an investment advisory
agreement with the applicable Adviser
pursuant to which the Adviser provides
investment advisory and management
services. MS & Co., a wholly owned
subsidiary of MS, is registered as a
broker-dealer under the Securities
Exchange Act of 1934 (the ‘‘1934 Act’’).
MS & Co., a primary dealer in U.S.
Government securities, is one of the
largest dealers in the United States in
commercial paper, repurchase
agreements and other money market
instruments.
2. Applicants state that the Advisers
and MS & Co. are functionally
independent of each other and operate
as completely separate entities under
the umbrella of MS, the parent holding
company. While MS & Co. and the
Advisers are under common control,
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. The Advisers also
maintain offices physically separate
from MS & Co.
3. Investment decisions for the Funds
are determined solely by the Advisers.
The portfolio managers and other
employees that are responsible for the
investment of the Funds are employed
solely by one of the Advisers (and not
MS & Co.), and have lines of reporting
responsibility solely within the
Advisers. 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 MS and its
subsidiaries 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
VerDate Aug<31>2005
16:59 Jan 24, 2008
Jkt 214001
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 September 30,
2007, MS & Co. had become the sixth
largest dealer in terms of the number of
new 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. MS & Co’s average
PO 00000
Frm 00134
Fmt 4703
Sfmt 4703
4649
outstanding repurchase agreements for
December 2006, 2006 to September,
2007 ranged from $154 billion to $206
billion. MS & Co. is an active participant
in the public auction market for U.S.
Treasuries, being one of only 22 primary
dealers and receiving on average from
4% to 9% of the primary distribution of
U.S. Treasuries. In secondary trading,
MS & Co. ranked as one of the top 5
primary dealers for U.S. Treasuries with
maturities under three years for each of
the last eight quarters (through the third
quarter of 2007). MS & Co. also has been
an active participant in the secondary
market for government agency securities
and ranked fourth in underwriting
primary issuances in 2006. MS & Co. is
also one of the leading participants in
the market for medium-term note
(‘‘MTNs’’). MTNs are offered
continuously in public or private
offerings, with maturities beginning at
nine months. MTNs represent a
significant portion of the longer-term
money market investment alternatives
because commercial paper is not issued
with maturities greater than nine
months. From July 2006 to July 2007,
MS & Co. ranked as the fifth largest
manager or co-manager of MTN
programs in terms of proceeds ($88.6
billion) and market share (8.5%). MS &
Co. is also a leading manager of
issuances of Extendible Liquidity
Securities, a MS proprietary product,
which is another longer-term
alternative. From July 2000 through
October 1, 2007, MS & Co. served as
lead manager on 91 EXLs issuances,
which represented 53% of the total
aggregate value of all EXLs issued
during that period.
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
13% of conventional notes, 7% of taxexempt commercial paper and 8% of
variable rate demand notes for the first
nine months in 2007. 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 8.7% of the trading volume in
variable rate demand notes and taxexempt commercial paper among MS &
Co. and nine other leading dealers as of
E:\FR\FM\25JAN1.SGM
25JAN1
4650
Federal Register / Vol. 73, No. 17 / Friday, January 25, 2008 / Notices
jlentini on PROD1PC65 with NOTICES
September 30, 2007. MS & Co. estimates
its market share in the put bonds market
at 12% as of December 31, 2006.
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
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 directors/trustees of each
of the Funds (each a ‘‘Board’’), the
Advisers are 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, an 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%).
4 Applicants state that from 1997 through 2007,
the growth of the market in Tax-Exempt Money
Market Instruments was 208%, while the growth of
tax-exempt money market funds was 276%. For the
same period, the growth of Taxable Money Market
Instruments was 78%, while the growth of taxable
money market funds was 181%.
VerDate Aug<31>2005
16:59 Jan 24, 2008
Jkt 214001
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, 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 an Adviser is an
affiliated person of the Funds it advises
and MS & Co. and the Advisers are
under common control, the Funds are
currently 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 approximately $75
billion invested in Money Market
Instruments, the Funds are major buyers
and sellers in the tax-exempt and
taxable money market with 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
PO 00000
Frm 00135
Fmt 4703
Sfmt 4703
increases the Funds’ ability to obtain
suitable portfolio securities.
(b) The policy of the 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 tax-exempt and taxable 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.
E:\FR\FM\25JAN1.SGM
25JAN1
jlentini on PROD1PC65 with NOTICES
Federal Register / Vol. 73, No. 17 / Friday, January 25, 2008 / Notices
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)(12)(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
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)(6)(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 a 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
5 Italicized terms are defined as set forth in
paragraph (a) of rule 2a–7 under the Act, unless
otherwise indicated.
VerDate Aug<31>2005
16:59 Jan 24, 2008
Jkt 214001
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 or any affiliated person
thereof, or to any security subject to a
Demand Feature or Guarantee issued by
MS or any affiliated person thereof. For
purposes of this requirement, MS will
not be considered to be the issuer of a
Demand Feature or Guarantee solely by
reason of the fact that MS 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 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 Advisers, 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 nor any
other affiliate thereof (other than the
Advisers) will have any involvement
PO 00000
Frm 00136
Fmt 4703
Sfmt 4703
4651
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 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
E:\FR\FM\25JAN1.SGM
25JAN1
jlentini on PROD1PC65 with NOTICES
4652
Federal Register / Vol. 73, No. 17 / Friday, January 25, 2008 / Notices
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
limits on an annual basis (the fiscal year
of each Fund and of MS & Co.) 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 MS and its
subsidiaries 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 MS to its
shareholders and the determination of
general firm-wide compensation of
officers and employees, will be
unaffected by this undertaking.
(d) Personnel assigned to 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 assigned to MS &
VerDate Aug<31>2005
16:59 Jan 24, 2008
Jkt 214001
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 as
follows: (i) Adviser personnel may rely
on research, including credit analysis
and reports prepared internally by
various subsidiaries and divisions of MS
& Co.; and (ii) The senior executives of
MS that have responsibility for
overseeing operations of various
divisions, subsidiaries and affiliates of
MS are not precluded from exercising
those functions over the Advisers
because they oversee MS & Co. as well,
provided that such persons shall not
have any involvement with respect to
proposed transactions pursuant to the
exemption and will not in any way
attempt to influence or control the
placing by the Funds or any Adviser of
orders in respect of Money Market
Instruments with 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.
PO 00000
Frm 00137
Fmt 4703
Sfmt 4703
(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 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
E:\FR\FM\25JAN1.SGM
25JAN1
Federal Register / Vol. 73, No. 17 / Friday, January 25, 2008 / Notices
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.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8–1304 Filed 1–24–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57173; File No. SR–BSE–
2008–03]
Self-Regulatory Organizations; Boston
Stock Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change Extending the
iShares Russell 2000 Index Fund
(IWM) Option Pilot Program Until
March 1, 2008
jlentini on PROD1PC65 with NOTICES
January 18, 2008.
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 January
16, 2008, the Boston Stock Exchange,
Inc. (‘‘Exchange’’ or ‘‘BSE’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been substantially prepared by the
Exchange. The Exchange has designated
this proposal as non-controversial under
section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder,4 which
renders the proposed rule change
effective upon filing with the
15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
VerDate Aug<31>2005
16:59 Jan 24, 2008
Jkt 214001
Commission. 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 the
rules of the Boston Options Exchange
(‘‘BOX’’) to extend an existing pilot
program that increases the position and
exercise limits for options on the
iShares Russell 2000 Index Fund
(‘‘IWM’’) traded on BOX (‘‘IWM Option
Pilot Program’’). The text of the rule
proposal is available on the Exchange’s
Web site (https://www.bostonstock.com),
at the offices 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
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The IWM Option Pilot Program
provides for increased position and
exercise limits for IWM options traded
on BOX. Specifically, the IWM Option
Pilot Program increased the position
and exercise limits for IWM options
from 250,000 contracts to 500,000
contracts.5 The purpose of the proposed
rule change is to extend the IWM
Option Pilot Program for an additional
43 day period, through March 1, 2008.6
The Exchange believes that extending
the IWM Option Pilot Program is
warranted because maintaining the
increased position and exercise limits
for IWM options will lead to a more
liquid and more competitive market
environment for IWM options that will
5 See Securities Exchange Act Release No. 55171
(January 25, 2007) 72 FR 4549 (January 31, 2007)
(SR–BSE–2007–03) (establishing the IWM Option
Pilot Program).
6 See Securities Exchange Act Release No. 56051
(July 12, 2007) 72 FR 39469 (July 18, 2007) (SR–
BSE–2007–30) (extending the IWM Option Pilot
Program through January 18, 2008).
PO 00000
Frm 00138
Fmt 4703
Sfmt 4703
4653
benefit customers interested in this
product. The Exchange has received
positive feedback from Participants,
who have expressed a desire that the
IWM Option Pilot Program be renewed.
The Exchange is not proposing any
other changes to the IWM Option Pilot
Program. The Exchange represents that
it has not encountered any significant
problems or difficulties relating to the
IWM Option Pilot Program since its
inception. The Exchange believes that
the above stated reasons justify the IWM
Option Pilot Program and requests that
the Commission extend the IWM Option
Pilot Program for the requested
additional pilot period, through March
1, 2008.7
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
section 6(b) of the Act 8 in general and
furthers the objectives of section 6(b)(5)
of the Act 9 because it is designed to
promote just and equitable principles of
trade, to prevent fraudulent and
manipulative acts and practices, and, in
general, to protect investors and the
public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has neither solicited
nor received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has designated the
proposed rule change as one that: (1)
Does not significantly affect the
protection of investors or the public
interest; (2) does not impose any
significant burden on competition; and
(3) does not become operative for 30
days from the date of filing, or such
shorter time as the Commission may
designate if consistent with the
7 Pursuant to Chapter III, Section 7 of BOX Rules,
the exercise limit established for IWM options shall
be equivalent to the position limit prescribed for
IWM options in Supplementary Material .02 to such
section. The increased exercise limits would only
be in effect during the pilot period and the
proposed extension of that pilot period through
March 1, 2008.
8 15 U.S.C. 78f(b).
9 15 U.S.C. 78f(b)(5).
E:\FR\FM\25JAN1.SGM
25JAN1
]]>Agencies
[Federal Register Volume 73, Number 17 (Friday, January 25, 2008)]
[Notices]
[Pages 4647-4653]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-1304]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 28125; 812-13213]
Morgan Stanley Investment Management Inc., et al., Notice of
Application
January 18, 2008.
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: Morgan Stanley Investment Management Inc. (``MSIM''),
Morgan Stanley Investment Advisors Inc. (``MSIA''), Morgan Stanley AIP
GP LP (``MSAIP''), Van Kampen Asset Management (``VKAM''),\1\ Active
Assets California Tax-Free Trust, Active Assets Government Securities
Trust, Active Assets Institutional Government Securities Trust, Active
Assets Institutional Money Trust, Active Assets Money Trust, Active
Assets Tax-Free Trust, Morgan Stanley California Tax-Free Daily Income
Trust, Morgan Stanley New York Municipal Money Market Trust, Morgan
Stanley Tax-Free Daily Income Trust, Morgan Stanley Liquid Asset Fund
Inc., Morgan Stanley U.S. Government Money Market Trust (each a ``Money
Market Fund''),\2\ Morgan Stanley Select Dimensions Investment Series,
Morgan Stanley Variable Investment Series, Morgan
[[Page 4648]]
Stanley Institutional Fund, Inc., Morgan Stanley Institutional
Liquidity Funds, The Universal Institutional Funds, Inc., Morgan
Stanley Institutional Fund Trust, Morgan Stanley Allocator Fund, Morgan
Stanley Capital Opportunities Trust, Morgan Stanley Developing Growth
Securities Trust, Morgan Stanley Dividend Growth Securities Inc.,
Morgan Stanley Equally-Weighted S&P 500 Fund, Morgan Stanley European
Equity Fund Inc., Morgan Stanley Financial Services Trust, Morgan
Stanley Focus Growth Fund, Morgan Stanley Fundamental Value Fund,
Morgan Stanley Global Advantage Fund, Morgan Stanley Global Dividend
Growth Securities, Morgan Stanley Health Sciences Trust, Morgan Stanley
Institutional Strategies Fund, Morgan Stanley International Fund,
Morgan Stanley International SmallCap Fund, Morgan Stanley
International Value Equity Fund, Morgan Stanley Japan Fund, Morgan
Stanley Mid-Cap Value Fund, Morgan Stanley Multi-Asset Class Fund,
Morgan Stanley Nasdaq-100 Index Fund, Morgan Stanley Natural Resource
Development Securities Inc., Morgan Stanley Pacific Growth Fund Inc.,
Morgan Stanley Real Estate Fund, Morgan Stanley Series Funds, Morgan
Stanley Small-Mid Special Value Fund, Morgan Stanley S&P 500 Index
Fund, Morgan Stanley Special Growth Fund, Morgan Stanley Special Value
Fund, Morgan Stanley Technology Fund, Morgan Stanley Total Market Index
Fund, Morgan Stanley Utilities Fund, Morgan Stanley Value Fund, Morgan
Stanley Balanced Fund, Morgan Stanley Strategist Fund, Morgan Stanley
Convertible Securities Trust, Morgan Stanley Flexible Income Trust,
Morgan Stanley FX Series Funds, Morgan Stanley High Yield Securities
Inc., Morgan Stanley Income Trust, Morgan Stanley Limited Duration
Fund, Morgan Stanley Limited Duration U.S. Government Trust, Morgan
Stanley Mortgage Securities Trust, Morgan Stanley U.S. Government
Securities Trust, Morgan Stanley California Tax-Free Income Fund,
Morgan Stanley Limited Term Municipal Trust, Morgan Stanley New York
Tax-Free Income Fund, Morgan Stanley Tax-Exempt Securities Trust,
Morgan Stanley Income Securities Inc., Morgan Stanley Prime Income
Trust, Morgan Stanley California Insured Municipal Income Trust, Morgan
Stanley California Quality Municipal Securities, Morgan Stanley Insured
California Municipal Securities, Morgan Stanley Insured Municipal Bond
Trust, Morgan Stanley Insured Municipal Income Trust, Morgan Stanley
Insured Municipal Securities, Morgan Stanley Insured Municipal Trust,
Morgan Stanley Municipal Income Opportunities Trust, Morgan Stanley
Municipal Income Opportunities Trust II, Morgan Stanley Municipal
Income Opportunities Trust III, Morgan Stanley Municipal Premium Income
Trust, Morgan Stanley New York Quality Municipal Securities, Morgan
Stanley Quality Municipal Income Trust, Morgan Stanley Quality
Municipal Investment Trust, Morgan Stanley Quality Municipal
Securities, Morgan Stanley Asia-Pacific Fund, Inc., Morgan Stanley
China ``A'' Share Fund, Morgan Stanley Eastern Europe Fund, Inc.,
Morgan Stanley Emerging Markets Debt Fund, Inc., Morgan Stanley
Emerging Markets Domestic Debt Fund, Inc., Morgan Stanley Emerging
Markets Fund, Inc., Morgan Stanley Global Opportunity Bond Fund, Inc.,
Morgan Stanley High Yield Fund, Inc., Morgan Stanley Opportunistic
Municipal High Income Fund, The India Investment Fund, The Latin
American Discovery Fund, Inc., The Malaysia Fund, Inc., The Thai Fund,
Inc., The Turkish Investment Fund, Inc., Morgan Stanley Institutional
Fund of Hedge Funds, Van Kampen U.S. Government Trust, Van Kampen Tax
Free Trust, Van Kampen Life Investment Trust, Van Kampen Equity Trust,
Van Kampen Equity Trust II, Van Kampen Tax-Exempt Trust, Van Kampen
Series Fund, Inc., Van Kampen Trust, Van Kampen Corporate Bond Fund,
Van Kampen Government Securities Fund, Van Kampen High Yield Fund, Van
Kampen Limited Duration Fund, Van Kampen U.S. Government Trust, Van
Kampen Pennsylvania Tax Free Income Fund, Van Kampen Comstock Fund, Van
Kampen Enterprise Fund, Van Kampen Equity and Income Fund, Van Kampen
Exchange Fund, Van Kampen Growth and Income Fund, Van Kampen Harbor
Fund, Van Kampen Pace Fund, Van Kampen Real Estate Securities Fund, Van
Kampen Strategic Growth Fund, Van Kampen Reserve Fund, Van Kampen Tax
Free Money Fund, Van Kampen High Income Trust II, Van Kampen Senior
Loan Fund, Van Kampen Senior Income Trust, Van Kampen Municipal Trust,
Van Kampen Ohio Quality Municipal Trust, Van Kampen Trust For Insured
Municipals, Van Kampen Trust For Investment Grade Municipals, Van
Kampen Trust For Investment Grade New Jersey Municipals, Van Kampen
Trust For Investment Grade New York Municipals, Van Kampen Municipal
Opportunity Trust, Van Kampen California Value Municipal Income Trust,
Van Kampen Massachusetts Value Municipal Income Trust, Van Kampen
Pennsylvania Value Municipal Income Trust, Van Kampen Advantage
Municipal Income Trust II, Van Kampen Select Sector Municipal Trust,
Van Kampen Bond Fund, Van Kampen Dynamic Credit Opportunities Fund
(each a ``Current Fund,'' collectively, the ``Current Funds''), any
existing or future registered management investment companies and their
series that are advised or subadvised by the Advisers (``Future
Funds,'' Future Funds and Current Funds are collectively the
``Funds''),\3\ and Morgan Stanley & Co., Inc. (``MS & Co.'').
---------------------------------------------------------------------------
\1\ MSIM, MSIA, MSAIP, VKAM are collectively referred to as the
Current Advisers. 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 MS (as defined below) (individually a
``Future Adviser'' and collectively the ``Future Advisers''). The
Current Advisers and the Future Advisers are referred to
individually as an ``Adviser'' and collectively as the ``Advisers.''
Any Adviser that currently intends to rely on the requested order is
named as an applicant in the application. Any other Adviser that
relies on the order in the future will comply with the terms and
conditions of the application.
\2\ Morgan Stanley Institutional Liquidity Funds also offers six
series that operate as money market funds subject to rule 2a-7 under
the 1940 Act: Government Portfolio, Government Securities Portfolio,
Money Market Portfolio, Prime Portfolio, Tax-Exempt Portfolio,
Treasury Portfolio and Treasury Securities Portfolio. Van Kampen
Equity Trust II offers two money market funds: Van Kampen Reserve
Fund and Van Kampen Tax-Free Money Fund. Morgan Stanley Select
Dimensions Investment Series offers one money market fund: Money
Market Portfolio. Morgan Stanley Variable Investment Series offers
one money market fund: Money Market Portfolio. Van Kampen Life
Investment Trust offers one money market fund: Money Market
Portfolio.
\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.
Filing Dates: The application was filed on July 7, 2005, and amended on
October 9, 2007, and December 26, 2007. 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 February 12, 2008, 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, Commission, 100 F Street, NE., Washington, DC
20549-1090. Applicants: c/o Amy Doberman, Esq., Morgan Stanley
Investment Management, 522 Fifth Avenue New York, New York 10036.
FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel,
(202) 551-6817 or Janet M. Grossnickle, Branch Chief, (202) 551-6821
(Office of Investment Company Regulation, Division of Investment
Management).
[[Page 4649]]
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the Commission's Public Reference Branch, 100 F Street, NE.,
Washington, DC 20549-0102 (tel. 202-551-8090).
Applicants' Representations
1. Each Fund is an open-end or closed-end management company
registered under the Act and is organized as a business trust or
corporation under the laws of various states, as specified in the
application. The Current Advisers are wholly owned subsidiaries of
Morgan Stanley (``MS''), a Delaware corporation. Each Adviser is (or
will be) registered under the Investment Advisers Act of 1940. Each
Fund has an investment advisory agreement with the applicable Adviser
pursuant to which the Adviser provides investment advisory and
management services. MS & Co., a wholly owned subsidiary of MS, is
registered as a broker-dealer under the Securities Exchange Act of 1934
(the ``1934 Act''). MS & Co., a primary dealer in U.S. Government
securities, is one of the largest dealers in the United States in
commercial paper, repurchase agreements and other money market
instruments.
2. Applicants state that the Advisers and MS & Co. are functionally
independent of each other and operate as completely separate entities
under the umbrella of MS, the parent holding company. While MS & Co.
and the Advisers are under common control, 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. The Advisers also maintain offices physically separate
from MS & Co.
3. Investment decisions for the Funds are determined solely by the
Advisers. The portfolio managers and other employees that are
responsible for the investment of the Funds are employed solely by one
of the Advisers (and not MS & Co.), and have lines of reporting
responsibility solely within the Advisers. 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 MS and its subsidiaries 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 September 30, 2007, MS & Co. had
become the sixth largest dealer in terms of the number of new 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. MS & Co's average outstanding repurchase
agreements for December 2006, 2006 to September, 2007 ranged from $154
billion to $206 billion. MS & Co. is an active participant in the
public auction market for U.S. Treasuries, being one of only 22 primary
dealers and receiving on average from 4% to 9% of the primary
distribution of U.S. Treasuries. In secondary trading, MS & Co. ranked
as one of the top 5 primary dealers for U.S. Treasuries with maturities
under three years for each of the last eight quarters (through the
third quarter of 2007). MS & Co. also has been an active participant in
the secondary market for government agency securities and ranked fourth
in underwriting primary issuances in 2006. MS & Co. is also one of the
leading participants in the market for medium-term note (``MTNs'').
MTNs are offered continuously in public or private offerings, with
maturities beginning at nine months. MTNs represent a significant
portion of the longer-term money market investment alternatives because
commercial paper is not issued with maturities greater than nine
months. From July 2006 to July 2007, MS & Co. ranked as the fifth
largest manager or co-manager of MTN programs in terms of proceeds
($88.6 billion) and market share (8.5%). MS & Co. is also a leading
manager of issuances of Extendible Liquidity Securities[reg], a MS
proprietary product, which is another longer-term alternative. From
July 2000 through October 1, 2007, MS & Co. served as lead manager on
91 EXLs[reg] issuances, which represented 53% of the total aggregate
value of all EXLs[reg] issued during that period.
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 13% of
conventional notes, 7% of tax-exempt commercial paper and 8% of
variable rate demand notes for the first nine months in 2007.
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 8.7% of the trading volume in
variable rate demand notes and tax-exempt commercial paper among MS &
Co. and nine other leading dealers as of
[[Page 4650]]
September 30, 2007. MS & Co. estimates its market share in the put
bonds market at 12% as of December 31, 2006.
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 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 1997 through 2007, the growth of
the market in Tax-Exempt Money Market Instruments was 208%, while
the growth of tax-exempt money market funds was 276%. For the same
period, the growth of Taxable Money Market Instruments was 78%,
while the growth of taxable money market funds was 181%.
---------------------------------------------------------------------------
9. Subject to the general supervision of the board of directors/
trustees of each of the Funds (each a ``Board''), the Advisers are
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, an 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, 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 an
Adviser is an affiliated person of the Funds it advises and MS & Co.
and the Advisers are under common control, the Funds are currently
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 approximately $75 billion invested in Money Market
Instruments, the Funds are major buyers and sellers in the tax-exempt
and taxable money market with 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 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 tax-exempt and taxable 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.
[[Page 4651]]
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)(12)(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 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)(6)(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:
---------------------------------------------------------------------------
\5\ Italicized terms are defined as set forth in paragraph (a)
of rule 2a-7 under the Act, unless otherwise indicated.
---------------------------------------------------------------------------
(a) No Fund shall make portfolio purchases pursuant to the
exemption that would result directly or indirectly in a 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 or any
affiliated person thereof, or to any security subject to a Demand
Feature or Guarantee issued by MS or any affiliated person thereof. For
purposes of this requirement, MS will not be considered to be the
issuer of a Demand Feature or Guarantee solely by reason of the fact
that MS 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 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 Advisers, 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 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 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
[[Page 4652]]
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 limits
on an annual basis (the fiscal year of each Fund and of MS & Co.) 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 MS and its
subsidiaries 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 MS to its shareholders
and the determination of general firm-wide compensation of officers and
employees, will be unaffected by this undertaking.
(d) Personnel assigned to 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 assigned
to 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 as
follows: (i) Adviser personnel may rely on research, including credit
analysis and reports prepared internally by various subsidiaries and
divisions of MS & Co.; and (ii) The senior executives of MS that have
responsibility for overseeing operations of various divisions,
subsidiaries and affiliates of MS are not precluded from exercising
those functions over the Advisers because they oversee MS & Co. as
well, provided that such persons shall not have any involvement with
respect to proposed transactions pursuant to the exemption and will not
in any way attempt to influence or control the placing by the Funds or
any Adviser of orders in respect of Money Market Instruments with 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 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
[[Page 4653]]
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.
For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-1304 Filed 1-24-08; 8:45 am]
BILLING CODE 8011-01-P
