[Federal Register Volume 62, Number 103 (Thursday, May 29, 1997)]
[Notices]
[Pages 29165-29170]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13967]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Rel. No. 22679; 812-9934]


The Latin American Discovery Fund, Inc., et al.; Notice of 
Application

May 21, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (``Act'').

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APPLICANTS: The Latin American Discovery Fund, Inc., The Malaysia Fund, 
Inc., Morgan Stanley Africa Investment Fund, Inc., Morgan Stanley Asia-
Pacific Fund, Inc., Morgan Stanley Emerging Markets Debt Fund, Inc., 
Morgan Stanley Emerging Markets Fund, Inc., Morgan Stanley Fund, Inc., 
Morgan Stanley Global Opportunity Bond Fund, Inc., Morgan Stanley High 
Yield Fund, Inc., Morgan Stanley India Investment Fund, Inc., Morgan 
Stanley Institutional Fund, Inc., The Pakistan Investment Fund, Inc., 
Morgan Stanley Russia and New Europe Fund, Inc., Morgan Stanley 
Universal Fund, Inc., The Turkish Investment Fund, Inc. (collectively, 
the ``Funds''); Morgan Stanley Asset Management Inc.

[[Page 29166]]

(``MSAM''); Morgan Stanley Trust Company (``MSTC''); Morgan Stanley & 
Co. Incorporated (``MS&Co''); MS Securities Services Inc. (``MSSSI''), 
and Morgan Stanley Market Products Inc. (``MS Market Products''), on 
behalf of themselves and (i) securities brokers now or in the future 
controlling, controlled by, or under common control (within the meaning 
of section 2(a)(9) of the Act) with MS&Co, Morgan Stanley Group Inc. 
(``MS Group''), or Morgan Stanley, Dean Witter, Discover & Co. 
(``MSDWD'') \1\ (collectively with MS&Co, MSSSI, and MS Market 
Products, the ``Affiliated Broker-Dealers''), (ii) registered 
investment companies for which MSAM or any person controlling, 
controlled by or under common control with MSAM, MS Group, or MSDWD now 
or in the future serves as investment adviser (the ``Future Funds''), 
and (iii) Fund custodians now or in the future controlling, controlled 
by, or under common control with MSTC, MS Group, or MSDWD.

    \1\ All of the named applicants are directly or indirectly 
controlling, controlled by, or under common control with MS Group. 
In February 1997, MS Group signed a merger agreement contemplating 
the merger of MS Group with and into Dean Witter Discover & Co. to 
form MSDWD, a new corporation. As a result, MS Group is expected to 
be merged out of existence and the new holding company of the Morgan 
Stanley entities will be MSDWD. Existing entities that currently do 
not intend to rely on the requested order have not signed the 
application. These entities may rely on any such order in the 
future, however, if they decide to participate in the securities 
lending activities and cash collateral joint accounts described in 
the application.
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RELEVANT ACT SECTIONS: Exemption requested under sections 6(c) and 
17(b) of the Act from section 17(a)(3), and under rule 17d-1 from 
section 17(d) and rule 17d-1.

SUMMARY OF APPLICATION: Applicants seek an order to permit: (i) The 
Funds to lend their portfolio securities to Affiliated Broker-Dealers; 
(ii) MSTC to receive a fee from the Funds for its services as lending 
agent, such fee to be based upon a share of the proceeds derived by the 
Funds from their securities lending activities and (iii) the Funds to 
deposit cash collateral received in connection with their securities 
lending activities in one or more joint trading accounts or subaccounts 
(the ``Cash Collateral Joint Accounts'').

FILING DATES: The application was filed on December 26, 1995, and 
amended on May 10, 1996, December 20, 1996, March 18, 1997, and May 19, 
1997.

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 June 16, 1997, 
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, N.W., Washington, D.C. 
20549. Applicants: MSSI and MSTC, One Pierrepont Plaza, Brooklyn, New 
York 11201; all other applicants, 1585 Broadway, New York, New York 
10036.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 942-0583, or Mary Kay Frech, Branch Chief, at (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. The Funds are management investment companies registered under 
the Act. MSAM. a wholly-owned subsidiary of MS Group, is an investment 
adviser registered under the Investment Advisers Act of 1940, and acts 
as adviser to each Fund.
    2. MS&Co, a wholly-owned subsidiary of MS Group, is a registered 
broker-dealer. MSSSI, a wholly-owned subsidiary of MS&Co, also is a 
registered broker-dealer. MS Market Products, a wholly-owned subsidiary 
of MS Group, is primarily engaged in the trading, on principal basis, 
of Government agency mortgage-backed securities and over-the counter 
options on U.S. Treasury securities.
    3. MSTC is a wholly-owned subsidiary of MS Group that is organized 
as a trust company under the laws of the State of New York. MSTC serves 
as custodian for each of the Funds, and maintains an extensive 
monitoring system tot rack the Funds' securities holdings.
    4. The Funds propose to lend portfolio securities to securities 
brokerage firms, including the Affiliated Broker-Dealers, that meet 
certain established criteria (collectively, the ``Borrowers''). MSTC 
proposes to act as lending agent for the Funds in securities loans to 
the Borrowers. Subject to parameters set forth in procedures approved 
by the board of directors of each Fund, MSAM will pre-approve both 
securities that are eligible to be loaned and eligible Borrowers.\2\ 
MSTC will be responsible for soliciting Borrowers from among those pre-
approved, negotiating the terms of each loan within pre-approved 
limits, monitoring collateral requirements, investing cash collateral 
under the supervision of and in accordance with guidelines established 
by MSAM, and performing other administrative or ministerial functions 
in connection with each Fund's securities lending program.\3\
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    \2\ In the case of Future Funds advised by affiliated persons of 
MSAM, the affiliate rather than MSAM may establish the written 
parameters for securities lending and the Cash Collateral Joint 
Accounts, in compliance with the representations and conditions 
contained herein.
    \3\ See Norwest Bank Minnesota N.A. and Society National Bank 
(pub. avail. May 25, 1995).
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    5. Applicants state that the conditions and monitoring to which the 
securities lending program will be subject will protect the Funds 
against potential favoritism of Affiliated Broker-Dealers by MSTC. In 
order to ensure that securities loans to Affiliated Broker-Dealers do 
not involve overreaching, each such loan will be made with a spread 
that is no lower than that applied to comparable loans to unaffiliated 
broker-dealers.\4\ In addition, at least 50% of the loans made by the 
Funds, on an aggregate basis, will be made to unaffiliated Borrowers, 
all loans will be made with spreads that conform to a schedule of 
spreads established by the directors of each Fund who are not 
``interested persons'' of the Fund as defined in section 2(a)(19) of 
the Act (the ``Disinterested Directors''), and all transactions with 
Affiliated Broker-Dealers will be monitored daily by an officer of each 
Fund to ensure that the terms of such loans are comparable with the 
terms of that Fund's loans to unaffiliated Borrowers.\5\ In addition, 
the lending committee of each Fund

[[Page 29167]]

(``Lending Committee'') (which will be composed of Disinterested 
Directors) will review detailed quarterly and annual reports on all 
lending activity.
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    \4\ In the absence of comparable loans to unaffiliated entities 
on any given day, MSTC will review the fairness of the negotiated 
rebate to an Affiliated Broker-Dealer by analyzing the rebates paid 
in recent loans of securities of that type, taking into account 
overall trends in the securities lending and other financial markets 
since the rebate was made.
    \5\ If there are no directly comparable loans and the officer 
cannot make a reasonable evaluation based on all the loans 
outstanding, the officer will contact the Funds' securities lending 
agent for an explanation of the method used to determine the spread 
charged. In the quarterly reports to the Lending Committee, the 
officer will specifically note those spreads for which he could not 
arrive at a reasonable evaluation and the reasons for the difficulty 
in arriving at an evaluation.
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    6. Applicants represent that MSTC's procedures for soliciting and 
negotiating securities loans will provide additional protection against 
potential favoritism of Affiliated Broker-Dealers. If more than one 
Borrower requests a loan of the same assets, MSTC will allocate those 
assets on a first-come, first-served basis. If more than one request 
for the same security is received at approximately the same time, other 
factors, such as price and volume of business, may be considered. 
Furthermore, when MSTC negotiates a fee with a Borrower for securities 
available for lending, it will do so on a global basis for its entire 
available inventory in that security; at the time the fee is agreed 
upon, the MSTC trader will not know which leading client will supply 
the assets. Finally, MSTC's discretion will be circumscribed further by 
the fact that it cannot enter into a loan in which transaction costs 
would exceed the income attributable to the loan.
    7. MSTC's fee for acting as securities lending agent will be based 
on a share of returns generated by the investment of cash collateral 
received by the Fund (or, where non-cash collateral is accepted, on a 
share of the fee paid to the Fund by the Borrower). Applicants propose 
the following safeguards to ensure that the fee arrangement and other 
terms of the relationship between the Funds and MSTC are fair:
    a. In connection with the initial approval of MSTC as lending agent 
to a Fund, a majority of the board of directors of each Fund (including 
a majority of the Disinterested Directors) will determine that (i) The 
contract with MSTC is in the best interests of the fund and its 
shareholders; (ii) the services to be performed by MSTC are required by 
the Fund; (iii) the nature and quality of the services provided by MSTC 
are at least equal to those provided by others offering the same or 
similar services; and (iv) the fees for MSTC's services are fair and 
reasonable in light of the usual and customary charges imposed by 
others for services of the same nature and quality.
    b. In connection with the initial approval of MSTC as lending agent 
to a Fund, the board of directors of the Fund will review the lending 
agent fees of at least three independent lending agents to assist the 
board in making the findings referred to above.
    c. Each Fund's contract with MSTC for lending agent services will 
be reviewed annually and will be approved for continuation only if a 
majority of the board of directors of each Fund (including a majority 
of the Disinterested Directors) makes the findings referred to above.
    8. The Funds also propose to establish Cash Collateral Joint 
Accounts with Chase Manhattan Bank (``Chase'') or another custodian or 
subcustodian (collectively with Chase, the ``Custodians''), into which 
they intend to deposit some or all of the cash collateral received in 
connection with the securities lending programs.\6\ The balance in 
these accounts will be used to enter into repurchase agreements with an 
overnight, over-the-weekend or over-a-holiday maturity (``Overnight 
Investments''). The maximum maturity of any Overnight Investment will 
be seven days. No Fund will be under any obligation, on any day, to 
deposit its cash collateral, or any portion of it, in any Cash 
Collateral Joint Account.
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    \6\ Initially, the Funds intend to establish only one Cash 
Collateral Joint Account, although they may establish other Cash 
Collateral Joint Accounts in the future with Chase or other 
Custodians. Such accounts may be used to invest in investments 
collateralized by only a particular type of collateral.
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    9. The board of directors for each Fund will establish standards 
and procedures for Overnight Investments. These standards and 
procedures will include the requirements that each Overnight Investment 
(a) be fully collateralized (as defined in rule 2a-7 under the Act) at 
all times, (b) comply with the investment, and (c) include 
creditworthiness standards for repurchase agreement counterparties. 
Each Fund's list of approved counterparties will be monitored by MSAM 
on an ongoing basis and reviewed quarterly by that Fund's board of 
directors.\7\
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    \7\ Applicants expect that approved counterparties will consist 
of (a) any bank that, at the time a repurchase agreement is entered 
into, has a rating not less than AAA from Standard & Poor's Ratings 
Group (``S&P'') or the equivalent thereof by a nationally recognized 
statistical rating organization (``NRSRO''), and (b) any broker-
dealer that, at the time a repurchase agreement is entered into, has 
a rating not lower than A from S&P or the equivalent thereof by a 
NRSRO (or, if the broker-dealer is a wholly-owned subsidiary, its 
parent has such a rating). The approved counterparties will not 
include a Custodian, MSAM, or any person directly or indirectly 
controlling, controlled by, or under common control (within the 
meaning of section 2(a)(9) of the Act) with a Custodian or MSAM.
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    10. The Cash Collateral Joint Accounts may comprise multiple joint 
subaccounts, if MSAM determines that multiple joint subaccounts are 
necessary or advisable to provide the Funds with additional flexibility 
and choice in the Overnight Investments in which they choose to invest. 
For example, one joint subaccount may accept only Treasury securities 
as collateral, while another may accept other U.S. Government 
securities as collateral, and yet another may accept as collateral high 
quality commercial paper. Joint subaccounts may also be established for 
other reasons, such as to facilitate monitoring of individual Funds' 
interests in different Overnight Investments, or to permit tracking of 
Overnight Investments with different counterparties, consistent with 
the variations in investment restrictions and policies among the 
various Funds.
    11. For each Overnight Investment, the Custodian will calculate the 
market price of the collateral (to ensure full collateralization) and 
the interest earned at maturity, and will monitor aggregate exposure to 
each approved counterparty. The Custodian also will record each Fund's 
deposits into the Cash Collateral Joint Accounts and maintain account 
records with respect to each Fund and the Joint Accounts generally, 
updated daily. At the end of each day, the custodian will reconcile the 
aggregate amount of each Fund's designated cash collateral with the 
total amount of Overnight Investments made. The same allocations data 
from the settlement system also will be provided daily to MSAM and to 
MSTC as custodian for the Funds. This information will show each Fund's 
investments in the Joint Accounts and the interest rate and maturity of 
each Overnight Investment. The Custodian also will provide monthly 
reports of all Overnight Investments and each Fund's investments in and 
earnings from the Joint Accounts. MSAM will review the daily and 
monthly reports to ensure that the Overnight Investments have been made 
in compliance with the guidelines set by each Fund's board of directors 
and the conditions set forth in the application.

Applicants' Legal Analysis

    1. Section 17(a)(3) of the Act makes it unlawful for any affiliated 
person of a registered investment company (or any affiliated person of 
such person), acting as principal, to borrow money or other property 
from that investment company. Section 2(a)(3) of the Act defines the 
term ``affiliated person'' of another person to include any person 
under common control with that other person and, if that other person 
is an investment company, any investment adviser of that company. 
Because MSAM and the Affiliated Broker-Dealers are under the common 
control of MS Group, they may be deemed to be affiliated persons of 
each other. In addition, MSAM is an affiliated person of the Funds. 
Accordingly, absent an exemption from section 17(a)(3), the Affiliated 
Broker-Dealers would not be

[[Page 29168]]

permitted to borrow property from the Funds.
    2. Section 17(b) of the Act provides that any person may file an 
application for an exemption from section 17(a) with the SEC, and the 
SEC shall grant the requested relief if it is established that: (a) the 
terms of the proposed transaction, including the consideration to be 
paid or received, are reasonable and fair and do not involve 
overreaching on the part of any person concerned; (b) the proposed 
transaction is consistent with the policy of each registered investment 
company concerned (as recited in its registration statement and reports 
filed under the Act); and (c) the proposed transaction is consistent 
with the general purposes of the Act. Section 6(c) of the Act provides 
that the SEC by order upon application may conditionally or 
unconditionally exempt any person, security, or transaction (or any 
class or classes thereof) from any provisions of the Act, 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. 
Applicants request an order under sections 6(c) and 17(b) for an 
exemption from the provisions of section 17(a)(3) to avoid having to 
file a separate application for an order pursuant to section 17(b) with 
respect to each proposed securities loan.
    3. Applicants assert that the terms of the proposed securities 
loans to Affiliated Broker-Dealers, as outlined above, including the 
consideration to be paid to the Funds, are reasonable and fair and do 
not involve overreaching. Applicants also submit that the proposed 
securities loans are consistent with the policy of each Fund, as 
recited in its registration statement and reports filed under the Act. 
Applicants believe that the proposed securities loans are consistent 
with the general purposes of the Act, as a failure to grant the 
requested exemption would limit the number of companies to which the 
Funds can lend securities and would exclude MS&Co, one of the largest 
single borrowers of securities, from the group of Borrowers to which 
the Funds may loan securities. Furthermore, the lack of diversity in 
Borrowers could have a tangible effect on the spreads that the Funds 
receive from unaffiliated broker-dealers, who would not be subject to 
competition from Affiliated Broker-Dealers. Finally, applicants believe 
that the safeguards described above will ensure a substantially similar 
level of investor protection to that afforded by section 17(a)(3), and 
that the requested exemption is consistent with the protection of 
investors and with the purpose, policy and provisions of the Act.
    4. Section 17(d) of the Act makes it unlawful for any affiliated 
person, or affiliated person of an affiliated person, of a registered 
investment company, acting as principal, to effect any transaction in 
which the company is a joint or joint and several participant with the 
affiliated person in contravention of such rules and regulations as the 
SEC may prescribe for the purpose of limiting or preventing 
participation by such company. Rule 17d-1 thereunder authorizes the SEC 
to grant an exemption if the participation of each of the Funds is not 
on a basis different from or less advantageous than that of the other 
participants and is consistent with the provisions, policies, and 
purposes of the Act.
    5. Because MSAM and MSTC are subsidiaries of the same parent 
company and because MSTC's compensation as securities lending agent 
will be based on a share of returns, the compensation of MSTC in its 
capacity as securities lending agent for the Funds may be deemed to 
involve a prohibited joint enterprise or joint transaction or profit-
sharing plan within the meaning of section 17(d) and rule 17d-1 
thereunder. Applicants assert, however, that the arrangements outlined 
above pursuant to which MSTC will receive its lending agent fee satisfy 
the requirements of rule 17d-1 for an exemption.
    6. Applicants believe that MSTC is the most advantageous choice to 
employ as lending agent for the Funds and Future Funds, even if MSTC 
does not serve as custodian for the Future Funds. MSTC is experienced 
in securities lending, and already maintains communications links with 
a wide range of Borrowers. In addition, MSTC can administer the Funds' 
securities lending program through systems it already has in place to 
monitor the Funds' securities holdings. Applicants represent that an 
unaffiliated lending agent would have to maintain a parallel 
communications and monitoring system for securities lending purposes, 
raising the prospect that redundancies and inconsistencies between 
securities lending networks would create confusion and inefficiency 
within the funds' securities lending program, the cost of which would 
be passed on to the Funds.
    7. Applicants also believe that the Funds' participation in the 
proposed Cash Collateral Joint Accounts could be deemed to involve a 
prohibited joint enterprise or joint transaction or profit-sharing plan 
within the meaning of section 17(d) and rule 17d-1. Each Fund may be 
deemed an affiliated person of each other Fund under the definition set 
forth in section 2(a)(3).
    8. Applicants believe that investing in Overnight Investments 
through the Cash Collateral Joint Accounts, as contrasted with 
separated accounts, would increase the Funds' average returns on 
Overnight Investments because use of the Cash Collateral Joint Accounts 
is expected to reduce transaction costs and enable MSAM to negotiate 
more favorable interest rates on these instruments. In addition, tri-
party repurchase agreements (i.e., repurchase agreements in which both 
parties maintain accounts at the same custodian bank) for which there 
are no collateral transfer costs and, as a consequence, higher net 
yields, may not be available for small transactions.
    9. Applicants believe that the proposed operation of the Cash 
Collateral Joint Accounts will be free of any inherent bias favoring 
one Fund over another, and that the anticipated benefits flowing to 
each participating Fund will fall within an acceptable range of 
fairness. Applicants also believe that the proposed method of operating 
the Cash Collateral Joint Accounts will not result in any conflicts of 
interest between any of the Funds or between any Funds and MSAM. MSAM 
will likely gain some benefit through the administrative convenience of 
investing in Overnight Investments on a joint basis and may experience 
some reduction in clerical costs. Applicants assert that the Funds will 
be the primary beneficiaries of the proposed joint investments in 
overnight Investments, however, because of the increased efficiencies 
realized through use of the Cash Collateral Joint Accounts, the 
possible increase in rates of return available, and, for some Funds, 
the opportunity to invest in Overnight Investments. Accordingly, 
applicants submit that the proposed operations of the Cash Collateral 
Joint Accounts meet the standard established in rule 17d-1 for granting 
exemptions under that rule.
    10. Applicants submit that participation in an integrated 
securities lending program would permit the Funds to derive benefits 
beyond those conferred by each individual exemption. Specifically, 
applicants believe that it is important for the success of the 
securities lending program that the Funds be permitted to use the 
strength of their combined securities inventories and the breadth of 
their relationships with all Borrowers to obtain the best available 
spreads on securities loans to Affiliated Broker-Dealers and 
unaffiliated broker-dealers alike. All spreads will be measured

[[Page 29169]]

against an objective benchmark established by the schedule of spreads 
as well as an objective benchmark established by comparable market 
transactions. The combination of loans to Affiliated Broker-Dealers and 
the use of MSTC as lending agent will permit the Funds to offer their 
broad array of securities collectively and efficiently, and to develop 
the business relationships necessary for a successful securities 
lending program. In addition, the use of Cash Collateral Joint Accounts 
will provide the Funds with an opportunity to maximize the advantages 
of the securities lending program through the investment of cash 
collateral obtained through the program. Finally, applicants state that 
the potential for overreaching by affiliates in the consolidated 
securities lending program will be avoided through the combination of 
oversight by Fund directors and officers, the competitive pressures of 
the securities lending market, and compliance with explicit, objective 
conditions that can be easily verified.

Applicants' Conditions

    Applicants agree that any order of the SEC granting the requested 
relief will be subject to the following conditions:
    1. The Funds, on an aggregate basis, will make at least 50% of 
their portfolio securities loans to unaffiliated Borrowers.
    2. A Fund will not make any loan to an Affiliated Broker-Dealer 
unless the income attributable to such loan fully covers the 
transaction costs incurred in making such loan.
    3. a. All loans will be made with spreads no lower than those set 
forth in a schedule of spreads (the ``Schedule of Spreads'').
    b. The Schedule of Spreads, which will be established and may be 
modified from time to time by committees of the Funds' board of 
directors composed of Disinterested Directors, will set forth rates of 
compensation to the Funds that are reasonable and fair, and that are 
determined in light of those considerations set forth in the 
application. The Schedule of Spreads and any modifications thereto will 
be ratified by the full board of directors of each Fund and by a 
majority of the Disinterested Directors.
    c. The Schedule of Spreads will be uniformly applied to all 
Borrowers of the Funds' portfolio securities, and will specify the 
lowest allowable spread with respect to a loan of securities to any 
Borrower.
    d. If a security is loaned to an unaffiliated Borrower with a 
spread higher than the minimum set forth in the Schedule of Spreads, 
all comparable loans to an Affiliated Broker-Dealer will be made at no 
less than the higher spread.
    e. The Funds' portfolio securities lending program will be 
monitored on a daily basis by an officer of each Fund who is subject to 
section 36(a) of the Act. This officer will review the terms of each 
loan to an Affiliated Broker-Dealer for comparability with loans to 
unaffiliated Borrowers and conformity with the Schedule of Spreads, and 
will periodically, and at least quarterly, report his or her findings 
to the Funds' Lending Committees.
    4. The boards of directors of the Funds, including a majority of 
the directors who are not interested persons, (a) will determine no 
less frequently than quarterly that all transactions with Affiliated 
Broker-Dealers effected during the preceding quarter were effected in 
compliance with the requirements of the procedures adopted by the 
boards and the conditions of any order that may be granted and that 
such transactions were documented on terms that were reasonable and 
fair; and (b) will review no less frequently than annually such 
requirements and conditions for their continuing appropriateness.
    5. The Funds will maintain and preserve permanently in an easily 
accessible place a written copy of the procedures (and any 
modifications thereto) that are followed in lending securities, and 
shall maintain and preserve for a period of not less than six years 
from the end of the fiscal year in which any loan occurs, the first two 
years in an easily accessible place, a written record of each loan 
setting forth the number of shares loaned, the face amount of the 
securities loaned, the fee received (or the rebate remitted), the 
identity of the Borrower, the terms of the loan, and any other 
information or materials upon which the finding was made that each loan 
made to an Affiliated Broker-Dealer was fair and reasonable, and that 
the procedures followed in making such loan were in accordance with the 
other undertakings set forth herein.
    6. The total value of securities loaned to any one broker-dealer on 
the approved list will be in accordance with a schedule to be approved 
by the board of directors of each Fund, but in no event will the total 
value of securities that may be loaned to any one Affiliated Broker-
Dealer exceed 10% of the net assets of the Fund, computed at market.
    7. Except as set forth herein, the securities lending program of 
each Fund will comply with all present and future applicable SEC staff 
positions regarding securities lending arrangements, ie., with respect 
to the type and amount of collateral, voting of loaned securities, 
limitations on the percentage of portfolio securities on loan, 
prospectus disclosure, termination of loans, receipt of dividends or 
other distributions, and compliance with fundamental policies.
    8. Approval of the board of directors of a Fund, including a 
majority of the Disinterested Directors, shall be required for the 
initial and subsequent approvals of MSTC's service as lending agent for 
the Fund, for the institution of all procedures relating to the 
securities lending program of the Fund, and for any periodic review of 
loan transactions for which MSTC acted as lending agent.
    9. The Cash Collateral Joint Accounts will be established as one or 
more separate cash accounts on behalf of the Funds at a Custodian. Each 
Fund may deposit, daily, all or a portion of its cash collateral into 
the Cash Collateral Joint Accounts.
    10. Cash in the Cash Collateral Joint Accounts will be invested 
solely in Overnight Investments that are collateralized fully, as 
defined in rule 2a-7 under the Act, and that comply with the 
investments policies of all Funds participating in that Overnight 
Investment.
    11. All Overnight Investments invested in through the Cash 
Collateral Joint Accounts will be valued on an amortized cost basis. 
Each Fund that relies on rule 2a-7 will use the dollarweighted average 
maturity of a Cash Collateral Joint Account's Overnight Investments for 
the purpose of computing that Fund's average portfolio maturity with 
respect to the portion of the cash collateral held by it in that Cash 
Collateral Joint Account.
    12. In order to ensure that there will be no opportunity for one 
Fund to use any part of a balance of any Cash Collateral Joint Account 
credited to another Fund, no Fund will be allowed to create a negative 
balance in any Cash Collateral Joint Account for any reason, although 
each Fund will be permitted to draw down its pro rata share of the 
entire balance at any time. Each Fund's decision to invest through the 
Cash Collateral Joint Accounts shall be solely at the option of that 
Fund and MSAM (within the strict standards and procedures established 
by that Fund's board of directors), and no Fund will, in any way, be 
obligated to invest through, or to maintain any minimum balance in, the 
Cash Collateral Joint Accounts. In addition, each Fund will retain the 
sole rights to any of the cash collateral, including interest payable 
on the cash collateral, invested by that Fund through the Cash 
Collateral Joint

[[Page 29170]]

Accounts. Each Fund's investments effected through the Cash Collateral 
Joint Accounts will be documented daily on the books of that Fund as 
well as on the books of the Custodian.
    13. Each Fund will participate in the income earned or accrued in 
the Cash Collateral Joint Accounts through which it is invested on the 
basis of its percentage share of the total balance of such Cash 
Collateral Joint Accounts on that day.
    14. MSAM (or the appropriate affiliated investment adviser) will 
administer the Cash Collateral Joint Accounts in accordance with the 
strict standards and procedures established by the boards of directors 
of the Funds as part of its duties under the existing or any future 
investment advisory contracts with the Funds. MSAM and its investment 
adviser affiliates will receive no additional or separate fee for 
administering the Cash Collateral Joint Accounts.
    15. The administration of the Cash Collateral Joint Accounts will 
be within the fidelity bond coverage required by section 17(g) of the 
Act and rule 17g-1 thereunder.
    16. The board of directors for each Fund investing in Overnight 
Investments through the Cash Collateral Joint Accounts will adopt 
procedures pursuant to which such Accounts will operate, which 
procedures will be reasonably designed to provide that requirements of 
the exemption will be met. In addition, not less frequently than 
annually, the boards will evaluate the Cash Collateral Joint Account 
arrangements, will determine whether such Accounts have been operated 
in accordance with the adopted procedures, and will authorize a Fund's 
continued participation in such Accounts only if the Board determines 
that there is a reasonable likelihood that such continued participation 
would benefit that Fund and its shareholders.
    17. Substantially all investments by the Cash Collateral Joint 
Accounts will be Overnight Investments with a maximum maturity of seven 
days.
    18. The Cash Collateral Joint Accounts will not be distinguished 
from any other accounts maintained by a Fund with a Custodian except 
that cash collateral from various Fund will be deposited in the Cash 
Collateral Joint Accounts on a commingled basis. The Cash Collateral 
Joint Account will not have separate existence with indicia of a 
separate legal entity. The sole function of the Cash Collateral Joint 
Accounts will be provide a convenient way of aggregating individual 
transactions that would otherwise require daily management and 
investment by each Fund of its cash collateral.
    19. All transactions in Overnight Investments will be effected in 
accordance with Investment Company Act Release No. 13005 (February 2, 
1983) and with other existing and future positions taken by the SEC or 
its staff by rule, interpretive release, no-action letter, any release 
adopting any new rule, or any release adopting any amendments to any 
existing rule.

    For the SEC, by the Division or Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-13967 Filed 5-28-97; 8:45 am]
BILLING CODE 8010-01-M