[Federal Register Volume 59, Number 121 (Friday, June 24, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-15431] [[Page Unknown]] [Federal Register: June 24, 1994] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Rel. No. 20364; 812-8922] Malaysia Fund, Inc., et al.; Notice of Application June 20, 1994. Agency: Securities and Exchange Commission (``SEC''). Action: Notice of Application for Exemption under the Investment Company Act of 1940 (``the Act''). ----------------------------------------------------------------------- Applicants: The Malaysia Fund, Inc,; The Thai Fund, Inc.; The Turkish Investment Fund, Inc.; The Brazilian Investment Fund, Inc.; Morgan Stanley Emerging Markets Fund, Inc.; The Latin American Discovery Fund, Inc.; Morgan Stanley Emerging Markets Debt Fund, Inc.; The Morgan Stanley High Yield Fund, Inc.; The Pakistan Investment Fund, Inc.; Morgan Stanley Africa Investment Fund, Inc.; Morgan Stanley India Investment Fund, Inc.; and all subsequently registered closed-end investment companies that in the future are advised by Morgan Stanley Asset management Inc. (``MSAM'') or any entity controlling, controlled by, or under common control (within the meaning of section 2(a)(9) of the Act) with MSAM (the ``Funds''). Relevant Act Sections: Order requested under section 6(c) for an exemption from sections 13(a)(2), 18(a), 18(c), and 23(a) and under section 17(d) and rule 17d-1 thereunder. Summary of Application: Applicants seek an order to permit them to enter into deferred fee arrangements with certain of their directors. Filing Date: The application was filed on April 5, 1994 and amended on May 19, 1994. Hearing or Notification of Hearing: An order granting the application will be issued unless the SEC orders a hearing. Interested persons may request a hearing by writing to the SEC's secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the SEC by 5:30 p.m. on July 18, 1994, and should be accompanied by proof of service on applicants, in the form of an affidavit or, for lawyers, a certificate of service. Hearing requests should state the nature of the writer's interest, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request such notification by writing to the SEC's Secretary. Addresses: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. Applicants, 1221 Avenue of the Americas, New York, New York 10020. For Further Information Contact: Marc Duffy, Staff Attorney, (202) 942- 0565, or Robert A. Robertson, Branch Chief, (202) 942-0564 (Division of Investment Management, Office of Investment Company Regulation). Supplementary Information: The following is a summary of the application. The complete application may be obtained for a fee from the SEC's Public Reference Branch. Applicants' Representations 1. Each of the Funds is a closed-end management investment company organized as a Maryland corporation.\1\ MSAM is a wholly-owned subsidiary of Morgan Stanley Group Inc. and currently serves as the investment adviser for each of the Funds. MSAM is registered under the Investment Advisers Act of 1940. --------------------------------------------------------------------------- \1\Although certain closed-end investment companies currently advised by MSAM do not presently intend to rely on the requested order, any such company would be covered by the order if it later proposed to enter into deferred fee arrangements with its directors who are not ``affiliated persons'' (as such term is defined under section 2(a)(3) of the Act) of MSAM (or any other investment adviser or sub-adviser, of one or more of the applicants), as described in the application. --------------------------------------------------------------------------- 2. The majority of the members of the board of directors (the ``Board'') of each fund are not ``interested persons'' of such Fund within the meaning of section 2(a)(19) of the Act. Each of the directors who is not an ``affiliated person'' (within the meaning of section 2(a)(3) of the Act) of MSAM (or any other investment adviser or sub-adviser of one or more of the Funds) receives annual fees that collectively are, and are expected to continue to be, insignificant in comparison to the total net assets of the Funds. No director who is an affiliated person of MSAM (or any other investment adviser or sub- adviser of any of the Funds) receives any remuneration from the Funds. 3. Under the deferred fee arrangements (the ``Deferred Fee Arrangements''), the directors who receive directors fees from one or more of the Funds (the ``Eligible Directors'') will be entitled to deter to a later date the receipt of all or part of such fees. The Deferred Fee Arrangements will be implemented by means of a form of deferred fee Agreement (the ``Agreement'') entered into between an Eligible Director and the appropriate Fund. The purpose of the Agreement will be to permit an Eligible Director to elect to defer receipt of his or her director's fees, to defer payment of income taxes on such fees, or for other reasons. The Funds believes the availability of the proposed Deferred Fee Arrangements will enhance the Funds' ability to attract and retain directors of the same high caliber as those who now serve on their Boards. 4. Under each Agreement, deferred director's fees payable by a Fund will be credited to a book reserve account established by such Fund (the ``Deferred Fee Account''). Each Eligible Director may elect to have his or her deferred fees valued as if such fees (and all income earned thereon) had been invested and reinvested either: (i) In shares of the Fund from which such director is receiving the fees, or (ii) at a rate equal to the prevailing rate applicable to 90-day United States Treasury Bills, at the beginning of each calendar quarter for which this rate is in effect. The election made by execution of an Agreement will continue in effect for each subsequent calendar year unless, prior to January 1 of any such year, the Eligible Director delivers to the president of the appropriate Fund a written revocation or modification of such election. 5. Each Agreement provides that the obligation of each Fund to make payments from the Deferred Fee Account will be general obligations of each such Fund and payments made under the Agreement will be made from such Fund's general assets and property. With respect to the obligations created under the Agreements, the relationship of the Eligible Directors to the applicable Funds will be only that of general unsecured creditors. The Funds will be under no obligation to purchase, hold, or dispose of any investments under the Agreements, but, if one or more of the Funds choose to purchase investments to cover their obligations under the Agreements, then any and all such investments will continue to be part of the general assets and property of the Funds. 6. Under each Agreement, deferred director's fees (including the return accrued thereon) will become payable in cash upon such Eligible Director's resignation from the Board of the participating Fund in generally equal annual installments over a period of five years (unless the participating Fund has agreed to a longer payment period) beginning on the first day of the year following the year in which such Eligible Director's resignation occurred. In the event of an Eligible Director's death, remaining amounts payable to him or her under an Agreement will thereafter be payable to his or her designated beneficiary; in all other events, the Eligible Director's right to receive payments will be non-transferable. Each Agreement provides that the Funds in their sole discretion have reserved the right to accelerate payment of amounts in the Deferred Fee Account at any time after the termination of an Eligible Director's service as a director. In the event of the liquidation, dissolution, or winding up of the appropriate Fund or the distribution of all or substantially all of a Fund's assets and property to its shareholders (other than in connection with a reorganization or merger into another Fund), all unpaid amounts in the Deferred Fee Account maintained by such Fund shall be paid in a lump sum to the Eligible Directors. 7. The amounts paid to the Eligible Directors are expected to be insignificant in comparison to the total net assets of each Fund. Accordingly, deferral of director's fees in accordance with the Agreements is expected to have a negligible effect on any Fund's assets, liabilities, net assets, and net income. Applicants' Legal Conclusions 1. In connection with the adoption and implementation of the Deferred Fee Arrangements, applicants seek an order under section 6(c) of the Act exempting the Funds from sections 13(a)(2), 18(a), 18(c), and 23(a) and under section 17(d) and rule 17d-1 thereunder. The order would permit the Funds to enter into deferred fee arrangements with certain of their directors, and to effect transactions incident to those arrangements. Section 6(c) authorizes the SEC to exempt any person, security, or transaction from any provision of the Act if such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Applicants believe that their proposal meets the section 6(c) standards. 2. Section 18(a) prohibits a registered closed-end investment company from issuing any class of senior security or selling any seniority security of which it is the issuer unless certain requirements are satisfied. In addition, section 18(c), in pertinent part, prohibits a registered closed-end investment company from issuing any senior security representing indebtedness if immediately thereafter such company will have outstanding more than one class of senior security representing indebtedness. Section 13(a)(2) requires each registered investment company to obtain authorization by a vote of a majority of its outstanding voting securities before issuing any senior securities not contemplated by the recitals of policy contained in its registration statement. 3. Applicants contend that the Deferred Fee Arrangements possess none of the characteristics of senior securities that led Congress to enact sections 18(a), 18(c), and 13(a)(2). The Funds will not be borrowing from the Eligible Directors in the sense that concerned Congress. All liabilities created by credits to the Deferred Fee Account under the Deferred Fee Arrangements are expected to be offset by essentially equal amounts of assets of each Fund that would not otherwise exist if the fees were paid on a current basis. The Deferred Fee Arrangements will not induce speculative investments by any Fund or provide opportunity for manipulative allocation of the expenses and profits of any Fund; control of each Fund will not be affected; and the Deferred Fee Arrangements will not confuse investors or convey a false impression of safety. 4. Section 23(a) prohibits closed-end investment companies from issuing any of their securities for services or for property other than cash or securities. Section 23(a) is concerned primarily with the dilutive effect on the equity and voting power that can result when securities are issued for consideration that is not readily valued. The Deferred Fee Arrangements merely provide for the deferral of directors fees and thus should be viewed as being ``issued'' not in return for services, but in return for the Funds not being required to pay such fees on a current basis. 5. Section 17(d) and rule 17d-1 thereunder prohibit an affiliated person of a registered investment company, acting as principal, from participating in, or effecting any transaction in connection with, any joint enterprise or other joint arrangement or profit-sharing plan in which such registered company is a participant, without prior receipt of an order of the SEC. Deferral of Eligible Directors' fees in accordance with the Deferred Fee Arrangements will essentially maintain the parties in the same position as if the fees were paid on a current basis. When all payments under the Deferred Fee Arrangements have been made to an Eligible Director, the Eligible Director will be in a position relative to the Fund no better than if any deferred fees had been paid to such Eligible Director on a current basis and invested in shares of the relevant Fund. For the SEC, by the Division of Investment Management, under delegated authority. Margaret H. McFarland, Deputy Secretary. [FR Doc. 94-15431 Filed 6-23-94; 8:45 am] BILLING CODE 8010-01-M