[Federal Register Volume 63, Number 55 (Monday, March 23, 1998)]
[Notices]
[Pages 13887-13891]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-7374]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23067; 813-172]


Morgan Stanley Capital Investors, L.P. and Morgan Stanley, Dean 
Witter, Discover & Co.; Notice of Application

March 17, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under sections 6(b) and 6(e) 
of the Investment Company Act of 1940 (the ``Act'') granting an 
exemption from all provisions of the Act, except section 9, section 17 
(other than certain provisions of paragraphs (a), (d), (e), (f), (g) 
and (j)), section 30 (other than certain provisions of paragraphs (a), 
(b), (e), and (h)), sections 36 through 53, and the rules and 
regulations thereunder.

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SUMMARY OF APPLICATION: Applicants request an order to exempt certain 
limited partnerships and limited liability companies (``Partnerships'') 
formed for the benefit of key employees of Morgan Stanley, Dean Witter, 
Discover & Co. (``MSDWD'') and certain of its affiliates from certain 
provisions of the Act. Each Partnership will be an ``employees' 
securities company'' as defined in section 2(a)(13) of the Act.\1\
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    \1\ The requested order would supersede two prior orders. Morgan 
Stanley Capital Investors, L.P., Investment Company Act Release Nos. 
20838 (January 13, 1995) (notice) and 20892 (February 9, 1995) 
(order); Morgan Stanley Venture Investors, L.P., Investment Company 
Act Release Nos. 20206 (April 8, 1994) (notice) and 20276 (May 4, 
1994) (ordered).

APPLICANTS: Morgan Stanley Capital Investors, L.P. (the ``Initial 
Partnership'') and MSDWD, on behalf of other Partnerships which have 
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been or may in the future be formed.

FILING DATES: The application was filed on July 28, 1997 and amended on 
March 13, 1998.

HEARING OF 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 April 13, 1998, 
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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, 1221 Avenue of the Americas, New York, New York 
10020.

FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Attorney Advisor, at (202) 942-0574, or Nadya B. 
Roytblat, Assistant Director, 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 by 
writing the SEC's Public Reference Branch at 450 Fifth Street, N.W., 
Washington, D.C. 20549, tel. (202) 942-8090.

Applicants' Representations

    1. MSDWD is a diversified financial services company engaged in 
three primary businesses--securities, asset management, and credit 
cards. Morgan Stanley & Co. Incorporated (``MS&Co.''), a wholly-owned 
subsidiary of MSDWD, is a broker-dealer registered under the Securities 
Exchange Act of 1934 (the ``Exchange Act'') and an investment adviser 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). MSDWD and its affiliates, as defined in rule 12b-2 under the 
Exchange Act, (``Affiliates'') are referred to in this notice 
collectively as ``MS'' and individually as an ``MS entity.''
    2. MS offers various investment programs for the benefit of certain 
key employees. These programs may be structured as different 
Partnerships, or as separate plans within a Partnership. Each 
Partnership will be a limited partnership or limited liability company 
formed as an ``employees' securities company'' within the meaning of 
section 2(a)(13) of the Act, and will

[[Page 13888]]

operate as a closed-end, non-diversified, management investment 
company. The Partnerships will be established primarily for the benefit 
of highly compensated employees of MS as part of a program designed to 
create capital building opportunities that are competitive with those 
at other investment banking firms and to facilitate the recruitment of 
high caliber professionals. Participation in a Partnership will be 
voluntary.
    3. MSCP III, L.P., a Delaware limited partnership, will act as the 
general partner of the Initial Partnership (together with any Affiliate 
that is controlling, controlled by, or under common control with MSDWD 
and that acts as a Partnership's general partner, the ``General 
Partner''). An MS entity will act as the investment adviser to a 
Partnership and will be registered as an investment adviser under the 
Advisers Act. The General Partner will manage, operate, and control 
each of the Partnerships. However, the General Partner will be 
authorized to delegate management responsibility to MS or to a 
committee of MS employees.
    4. Limited partner interests in the Partnerships (``Interests'') 
will be offered without registration in reliance on section 4(2) of the 
Securities Act of 1933 (the ``Securities Act'') or similar exemption 
and will be sold only to ``Eligible Employees'' and ``Qualified 
Participants'' (collectively, ``Participants''). Prior to offering 
Interests to an Eligible Employee, the General Partner must reasonably 
believe that an Eligible Employee will be a sophisticated investor 
capable of understanding and evaluating the risks of participating in 
the Partnership without the benefit of regulatory safeguards. An 
Eligible Employee is (i) an individual who is a current or former 
employee, officer, director, or ``Consultant'' of MS and, except for 
certain individuals who manage the day-to-day affairs of the 
Partnership in question (``Managing Employees''), meets the standards 
of an accredited investor under rule 501(a)(6) of Regulation D under 
the Securities Act, or (ii) an entity that is a current or former 
``Consultant'' of MS and meets the standards of an accredited investor 
under rule 501(a) of Regulation D.\2\ Eligible Employees will be 
experienced professionals in the investment banking and securities, 
investment management or credit card businesses, or in the related 
administrative, financial, accounting, legal, or operational 
activities.
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    \2\ A ``Consultant'' is a person or entity whom MS has engaged 
on retainer to provide services and professional expertise on an 
ongoing basis as a regular consultant or a business or legal adviser 
and who shares a community of interest with MS and MS employees.
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    5. Managing Employees will have primary responsibility for 
operating the Partnership. These responsibilities will include, among 
other things, identifying, investigating, structuring, negotiating, and 
monitoring investments for the Partnership, communicating with the 
limited partners of the Partnership, maintaining the books and records 
of the Partnership, and making recommendations with respect to 
investment decisions by the General Partner. Each Managing Employee 
will (a) be closely involved with, and knowledgeable with respect to, 
the Partnership's affairs and the status of the Partnership's 
investments, (b) be an officer or employee of MS and (c) have 
reportable income from all sources (including any profit shares and 
bonuses) in the calendar year immediately preceding the Employee's 
participation in the Partnership in excess of $120,000 and have a 
reasonable expectation of reportable income of at least $150,000 in the 
years in which the Employee invests in a Partnership.
    6. A Qualified Participant (i) is an Eligible Family Member or 
Qualified Entity (in each case as defined below) of an Eligible 
Employee, and, (ii) if the individual or entity is purchasing an 
Interest from a Partner or directly from the Partnership, comes within 
one of the categories of an ``accredited investor'' under rule 501(a) 
of Regulation D. An ``Eligible Family Member'' is a spouse, parent, 
child, spouse of child, brother, sister, or grandchild of an Eligible 
Employee. A ``Qualified Entity'' is (i) a trust of which the trustee, 
grantor, and/or beneficiary is an Eligible Employee; (ii) a 
partnership, corporation, or other entity controlled by an Eligible 
Employee; \3\ or (iii) a trust or other entity established for the 
benefit of Eligible Family Members of an Eligible Employee.
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    \3\ The inclusion of partnerships, corporations, or other 
entities controlled by an Eligible Employee in the definition of 
``Qualified Entities'' is intended to enable Eligible Employees to 
make investments in the Partnerships through personal investment 
vehicles for the purpose of personal and family investment and 
estate planning objectives. Eligible Employees will exercise 
investment discretion or control over these investment vehicles, 
thereby creating a close nexus between MS and these investment 
vehicles. In the case of a partnership, corporation, or other entity 
controlled by a Consultant entity, individual participants will be 
limited to senior level employees, members, or partners of the 
Consultant who will be required to qualify as an ``accredited 
investor'' under rule 501(a)(6) of Regulation D and who will have 
access to the General Partner or MS.
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    7. The terms of a Partnership will be fully disclosed to each 
Eligible Employee and, if applicable, to a Qualified Participant of the 
Eligible Employee, at the time the Eligible Employee is invited to 
participate in the Partnership. Each Partnership will send audited 
financial statements to each Participant within 120 days or as soon as 
practicable after the end of its fiscal year. In addition, each 
Participant will receive a copy of Schedule K-1 showing the 
Participant's share of income, credits, reductions, and other tax 
items.
    8. Interests in a Partnership will be non-transferable except with 
the prior written consent of the General Partner. No person will be 
admitted into a Partnership unless the person is an Eligible Employee, 
a Qualified Participant of an Eligible Employee, or an MS entity. No 
sales load will be charged in connection with the sale of a limited 
partnership interest.
    9. An Eligible Employee's interest in a Partnership may be subject 
to repurchase or cancellation if: (i) The Eligible Employee's 
relationship with MS is terminated for cause; (ii) the Eligible 
Employee becomes a consultant to or joins any firm that the General 
Partner determines, in its reasonable discretion, is competitive with 
any business of MS; or (iii) the Eligible Employee voluntarily resigns 
from employment with MS. Upon repurchase or cancellation, the General 
Partner will pay to the Eligible Employee at least the lesser of (i) 
the amount actually paid by the Eligible Employee to acquire the 
Interest (plus interest, as determined by the General Partner), and 
(ii) the fair market value of the Interest as determined at the time of 
repurchase by the General Partner. The terms of any repurchase or 
cancellation will apply equally to any Qualified Participant of an 
Eligible Employee.
    10. Subject to the terms of the applicable Limited Partnership 
Agreement, a Partnership will be permitted to enter into transactions 
involving (i) an MS entity, (ii) a portfolio company, (iii) any Partner 
or any person or entity affiliated with a Partner, (iv) an investment 
fund or separate account that is organized for the benefit of investors 
who are not affiliated with MS and over which an MS entity will 
exercise investment discretion (a ``Third Party Fund''), or (v) any 
partner or other investor of a Third Party Fund that is not affiliated 
with MS (a ``Third Party Investor''). These transactions may include a 
Partnership's purchase or sale of an investment or an interest from or 
to any MS entity or Third Party Fund, acting as principal. Prior to 
entering into these transactions,

[[Page 13889]]

the General Partner must determine that the terms are fair to the 
Partners.
    11. A Partnership will not invest more than 15% of its assets in 
securities issued by registered investment companies (with the 
exception of temporary investments in money market funds). A 
Partnership will acquire any security issued by a registered investment 
company if immediately after the acquisition, the Partnership will own 
more than 3%of the outstanding voting stock of the registered 
investment company.
    12. An MS entity (including the General Partner) acting as agent or 
broker may receive placement fees, advisory fees, or other compensation 
from a Partnership or a portfolio company in connection with a 
Partnership's purchase or sale of securities, provided the placement 
fees, advisory fees, or other compensation are ``usual and customary.'' 
Fees or other compensation will be deemed ``usual and customary'' only 
if (i) the Partnership is purchasing or selling securities with other 
unaffiliated third parties, including Third Party Funds, (ii) the fees 
or compensation being charged to the Partnership are also being charged 
to the unaffiliated third parties, including Third Party Funds, and 
(iii) the amount of securities being purchased or sold by the 
Partnership does not exceed 50% of the total amount of securities being 
purchased or sold by the Partnership and the Unaffiliated third 
parties, including Third Party Funds. MS entities (including the 
General Partner) also may be compensated for services to entities in 
which the Partnerships invest and to entities that are competitors of 
these entities, and may otherwise engage in normal business activities 
that conflict with the interests of the Partnerships.

Applicants' Legal Analysis

    1. Section 6(b) of the Act provides, in part, that the SEC will 
exempt employees' securities companies from the provisions of the Act 
to the extent that the exemption is consistent with the protection of 
investors. Section 6(b) provides that the Commission will consider, in 
determining the provisions of the Act from which the company should be 
exempt, the company's form of organization and capital structure, the 
persons owning and controlling its securities, the price of the 
company's securities and the amount of any sales load, how the 
company's funds are invested, and the relationship between the company 
and the issuers of the securities in which it invests. Section 2(a)(13) 
defines an employees' security company, in relevant part, as any 
investment company all of whose securities are beneficially owned (a) 
by current or former employees, or persons on retainer, of one or more 
affiliated employers, (b) by immediate family members of such persons, 
or (c) by such employer or employers together with any of the persons 
in (a) or (b).
    2. Section 7 of the Act generally prohibits an investment company 
that is not registered under section 8 of the Act from selling or 
redeeming its securities. Section 6(e) provides that, in connection 
with any order exempting an investment company from any provision of 
section 7, certain provisions of the Act, as specified by the SEC, will 
be applicable to the company and other persons dealing with the company 
as though the company were registered under the Act. Applicants request 
an order under sections 6(b) and 6(e) of the Act for an exemption from 
all provisions of the Act except section 9, section 17 (other than 
certain provisions of paragraphs (a), (d), (e), (f), (g), and (j)), 
section 30 (other than certain provisions of paragraphs (a), (b), (e), 
and (h)), sections 36 through 53, and the rules and regulations 
thereunder.
    3. Section 17(a) generally prohibits any affiliated person of a 
registered investment company, or any affiliated person of an 
affiliated person, acting as principal, from knowingly selling or 
purchasing any security or other property to or from the company. 
Applicants request an exemption from section 17(a) to (i) permit an MS 
entity or a Third Party Fund, acting as principal, to engage in any 
transaction directly or indirectly with any Partnership or any company 
controlled by the Partnership; (ii) permit any Partnership to invest in 
or engage in any transaction with any MS entity, acting as principal, 
(a) in which the Partnership, any company controlled by the 
Partnership, or any MS entity or Third Party Fund has invested or will 
invest or (b) with which the Partnership, any company controlled by the 
Partnership, or any MS entity or Third Party Fund will become 
affiliated; and (iii) permit a Third Party Investor, acting as 
principal, to engage in any transaction directly or indirectly with any 
Partnership or any company controlled by the Partnership.
    4. Applicants state that an exemption from section 17(a) is 
consistent with the protection of investors and is necessary to promote 
the purpose of the Partnerships. Applicants state that the Participants 
in each Partnership will be fully informed of the extent of the 
Partnership's dealings with MS. Applicants also state that, as 
professionals employed in the investment banking and financial services 
businesses, Participants will be able to understand and evaluate the 
attendant risks. Applicants assert that the community of interest among 
the Participants and MS will provide the best protection against any 
risk of abuse.
    5. Section 17(d) and rule 17d-1 prohibit any affiliated person or 
principal underwriter of a registered investment company, or any 
affiliated person of such person or principal underwriter, acting as 
principal, from participating in any joint arrangement with the company 
unless authorized by the SEC. Applicants request exemptive relief to 
permit affiliated persons of each Partnership, or affiliated persons of 
any of these persons, to participate in any joint arrangement in which 
the Partnership or a company controlled by the Partnership is a 
participant.
    6. Applicants submit that it is likely that suitable investments 
will be brought to the attention of a Partnership because of its 
affiliation with MS, MS's large capital resources, and its experience 
in structuring complex transactions. Applicants also submit that the 
types of investment opportunities considered by a Partnership often 
require each investor to make funds available in an amount that may be 
substantially greater than what a Partnership may make available on its 
own. Applicants contend that, as a result, the only way in which a 
Partnership may be able to participate in these opportunities may be to 
co-invest with other persons, including its affiliates. Applicants note 
that each Partnership will be primarily organized for the benefit of 
Eligible Employees as an incentive for them to remain with MS and for 
the generation and maintenance of goodwill. Applicants believe that, if 
co-investments with MS are prohibited, the appeal of the Partnerships 
would be significantly diminished. Applicants assert that Eligible 
Employees wish to participate in co-investment opportunities because 
they believe that (a) the resources of MS enable it to analyze 
investment opportunities to an extent that individual employees would 
not be able to duplicate, (b) investments made by MS will not be 
generally available to investors even of the financial status of the 
Eligible Employees, and (c) Eligible Employees will be able to pool 
their investment resources, thus achieving greater diversification of 
their individual investment portfolios.
    7. Applicants assert that the flexibility to structure co-
investments and joint investments will not involve abuses of the type 
section 17(d) and rule 17d-1 were designed to prevent. Applicants

[[Page 13890]]

state that the concern that permitting co-investments by MS and a 
Partnership might lead to less advantageous treatment of the 
Partnership will be mitigated by the community of interest among MS and 
the Participants, and the fact that senior officers and directors of MS 
entities will be investing in the Partnership. In addition, applicants 
assert that strict compliance with section 17(d) would cause the 
Partnership to forego investment opportunities simply because a 
Participant or other affiliated person of the Partnership (or any 
affiliate of such person) made a similar investment. Finally, 
applicants contend that the possibility that a Partnership may be 
disadvantaged by the participation of an affiliate in a transaction 
will be minimized by compliance with the lockstep procedures described 
in condition 3 below. Applicants believe that this condition will 
ensure that a Partnership will co-invest side-by-side and pro rata 
with, and on at least as favorable terms as, an MS entity.
    8. Co-investments with Third Party Funds, or by an MS entity 
pursuant to a contractual obligation to a Third Party Fund, will not be 
subject to condition 3. Applicants note that it is common for a Third 
Party Fund to require that MS invest its own capital in Third party 
Fund investments, and that the MS investments be subject to 
substantially the same terms as those applicable to the Third Party 
Fund. Applicants believe it is important that the interests of the 
Third Party Fund take priority over the interests of the Partnerships, 
and that the Third Party Fund not be burdened or otherwise affected by 
activities of the Partnerships. In addition, applicants assert that the 
relationship of a Partnership to a Third Party Fund is fundamentally 
different from a Partnership's relationship to MS. Applicants contend 
that the focus of, and the rationale for, the protections contained in 
the requested relief are to protect the Partnerships from any 
overreaching by MS in the employer/employee context, whereas the same 
concerns are not present with respect to the Partnerships via-a-vis a 
Third Party Fund.
    9. Section 17(e) and rule 17e-1 limit the compensation an 
affiliated person may receive when acting as agent or broker for a 
registered investment company. Applicants request an exemption from 
section 17(e) to permit an MS entity (including the General Partner), 
that acts as an agent or broker, to receive placement fees, advisory 
fees, or other compensation from a Partnership in connection with the 
purchase or sale by the Partnership of securities, provided that the 
fees or other compensation are deemed ``usual and customary.'' 
Applicants state that for the purposes of the application, fees or 
other compensation that are charged or received by an MS entity will be 
deemed ``usual and customary'' only if (i) the Partnership is 
purchasing or selling securities with other unaffiliated third parties, 
including Third Party Funds, (ii) the fees or compensation being 
charged to the Partnership are also being charged to the unaffiliated 
third parties, including Third Party Funds, and (iii) the amount of 
securities being purchased or sold by the Partnership does not exceed 
50% of the total amount of securities being purchased or sold by the 
Partnership and the unaffiliated third parties, including Third Party 
Funds. Applicants assert that, because MS does not wish it to appear as 
if it is favoring the Partnerships, compliance with section 17(e) would 
prevent a Partnership from participating in transactions where the 
Partnership is being charged lower fees than unaffiliated third 
parties. Applicants assert that the fees or other compensation paid by 
a Partnership to an MS entity will be the same as those negotiated at 
arm's length with unaffiliated third parties.
    10. Rule 17e-1(b) requires that a majority of directors who are not 
``interested persons'' (as defined in section 2(a)(19) of the Act) take 
actions and make approvals regarding commissions, fees, or other 
remuneration. Applicants request an exemption from rule 17e-1(b) to the 
extent necessary to permit each Partnership to comply with the rule 
without having a majority of the directors of the General Partner who 
are not interested persons take actions and make determinations as set 
forth in the rule. Applicants state that because all the directors of 
the General Partner will be affiliated persons, without the relief 
requested, a Partnership could not comply with rule 17e-1(b). 
Applicants state that each Partnership will comply with rule 17e-1(b) 
by having a majority of the directors of the Partnership take actions 
and make approvals as are set forth in rule 17e-1. Applicants state 
that each Partnership will comply with all other requirements of rule 
17e-1 for the transactions described above in the discussion of section 
17(e).
    11. Section 17(f) designates the entities that may act as 
investment company custodians, and rule 17f-1 imposes certain 
requirements when the custodian is a member of a national securities 
exchange. Applicants request an exemption from section 17(f) and rule 
17f-1 to permit MS to act as custodian of Partnership asserts without a 
written contract, as would be required by rule 17f-1(a). Applicants 
also request an exemption from the rule 17f-1(b)(4) requirement that an 
independent accountant periodically verify the asserts held by the 
custodian. Applicants believe that, because of the community of 
interest between MS and the Partnerships and the existing requirement 
for an independent audit, compliance with these requirements would be 
unnecessarily burdensome and expensive. Applicants will comply with all 
other requirements of rule 17f-1.
    12. Section 17(g) and rule 17g-1 generally require the bonding of 
officers and employees of a registered investment company who have 
access to its securities or funds. Rule 17g-1 requires that a majority 
of directors who are not interested persons take certain actions and 
given certain approvals relating to fidelity bonding. Applicants 
request exemptive relief to permit the General Partner's officers and 
directors, who may be deemed interested persons, to take actions and 
make determinations set forth in the rule. Applicants state that, 
because all the directors of the General Partner will be affiliated 
persons, a Partnership could not comply with rule 17g-1 without the 
requested relief. Specifically, each Partnership will comply with rule 
17g-1 by having a majority of the Partnership's directors take actions 
and make determinations as are set forth in rule 17g-1. Applicants also 
state that each Partnership will comply with all other requirements of 
rule 17g-1.
    13. Section 17(j) and paragraph (a) of rule 17j-1 make it unlawful 
for certain enumerated persons to engage in fraudulent or deceptive 
practices in connection with the purchase or sale of a security held or 
to be acquired by a registered investment company. Rule 17j-1 also 
requires that every registered investment company adopt a written code 
of ethics and that every access person of a registered investment 
company report personal securities transactions. Applicants request an 
exemption from the provisions of rule 17j-1, except for the anti-fraud 
provisions of paragraph (a), because they are unnecessarily burdensome 
as applied to the Partnerships.
    14. Applicants request an exemption from the requirements in 
sections 30(a), 30(b), and 30(e), and the rules under those sections, 
that registered investment companies prepare and file with the SEC and 
mail to their shareholders certain periodic reports and financial 
statements. Applicants content that the forms prescribed by the

[[Page 13891]]

SEC for periodic reports have little relevance to the Partnerships and 
would entail administrative and legal costs that outweigh any benefit 
to the Participants. Applicants request exemptive relief to the extent 
necessary to permit each Partnership to report annually to its 
Participants. Applicants also request an exemption from section 30(h) 
to the extent necessary to exempt the General Partner of each 
Partnership and any other persons who may be deemed to be members of an 
advisory board of a Partnership from filing Forms 3, 4 and 5 under 
section 16(a) of the Exchange Act with respect to their ownership of 
Interests in the Partnership. Applicants assert that, because there 
will be no trading market and the transfers of Interests will be 
severely restricted, these filings are unnecessary for the protection 
of investors and burdensome to those required to make them.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. Each proposed transaction otherwise prohibited by section 17(a) 
or section 17(d) and rule 17d-1 to which a Partnership is a party (the 
``Section 17 Transaction'') will be effected only if the General 
Partner determines that: (i) The terms of the transaction, including 
the consideration to be paid or received, are fair and reasonable to 
the Partners of the Partnership and do not involve overreaching of the 
Partnership or its Participants on the part of any person concerned; 
and (ii) the transaction is consistent with the interests of the 
Participants in the Partnership, and the Partnership's organizational 
documents and reports to its Participants. In addition, the General 
Partner of each Partnership will record and preserve a description of 
the Section 17 Transactions, the General Partner's findings, the 
information or materials upon which the General Partner's findings are 
based, and the basis for the findings. All records relating to an 
investment program will be maintained until the termination of the 
investment program and at least two years thereafter, and will be 
subject to examination by the SEC and its staff.\4\
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    \4\ Each Partnership will preserve the accounts, books and other 
documents required to be maintained in an easily accessible place 
for the first two years.
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    2. In conneciton with the Section 17 Transactions, the General 
Partner of each Partnership will adopt, and periodically review and 
update, procedures designed to ensure that reasonable inquiry is made, 
prior to the consummation of any Section 17 Transaction, with respect 
to the possible involvement in the Transaction of any affiliated person 
or promoter of or principal underwriter for the Partnership, or any 
affiliated person of the affiliated person, promoter, or principal 
underwriter.
    3. The General Partner of each Partnership will not invest the 
funds of the Partnership in any investment in which a ``Co-Investor'' 
(as defined below) has acquired or proposes to acquire the same class 
of securities of the same issuer, if the investment involves a joint 
enterprise or other joint arrangement within the meaning of rule 17d-1 
in which the Partnership and the Co-Investor are Participants, unless 
the Co-Investor, prior to disposing of all or part of its investment, 
(i) gives the General Partner sufficient, but not less than one day's, 
notice of its intent to dispose of its investment; and (ii) refrains 
from disposing of its investment unless the Partnership has the 
opportunity to dispose of the Partnership's investment prior to or 
concurrently with, on the same terms as, and pro rata with the Co-
Investor. The term ``Co-Investor'' with respect to any Partnership 
means any person who is: (i) An ``affiliated person'' (as defined in 
section 2(a)(3) of the Act) of the Partnership (other than a Third 
Party Fund); (ii) MS; (iii) an officer or director of MS; or (iv) an 
entity (other than a Third Party Fund) in which the General Partner 
acts as a general partner or has a similar capacity to control the sale 
or other disposition of the entity's securities. The restrictions 
contained in this condition, however, will not be deemed to limit or 
prevent the disposition of an investment by a Co-Investor: (i) To its 
direct or direct wholly-owned subsidiary, to any company (a ``Parent'') 
of which the Co-Investor is a direct or indirect wholly-owned 
subsidiary, or to a direct or indirect wholly-owned subsidiary of its 
Parent; (ii) to immediate family members of the Co-Investor or a trust 
or other investment vehicle established for any immediate family 
member; (iii) when the investment is comprised of securities that are 
listed on any exchange registered as a national securities exchange 
under section 6 of the Exchange Act; (iv) when the investment is 
comprised of securities that are national market system securities 
pursuant to section 11A(a)(2) of the Exchange Act and rule 11Aa2-1 
under the Exchange Act; or (v) when the investment is comprised of 
securities that are listed on or traded on any foreign securities 
exchange or board of trade that satisfies regulatory requirements under 
the law of the jurisdiction in which the foreign securities exchange or 
board of trade is organized similar to those that apply to a national 
securities exchange or a national market system for securities.
    4. Each Partnership and the General Partner will maintained and 
preserve, for the life of the Partnership and at least two years 
thereafter, the accounts, books, and other documents that constitute 
the record forming the basis of the audited financial statements that 
are to be provided to the Participants in the Partnership, and each 
annual report of the Partnership required to be sent to Participants, 
and agree that these records will be subject to examination by the SEC 
and its staff.\5\
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    \5\ Each Partnership will preserve the accounts, books and other 
documents required to be maintained in an easily accessible place 
for the first two years.
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    5. The General Partner of each Partnership will send to each 
Participant in the Partnership who had an interest in any capital 
account of the Partnership, at any time during the fiscal year then 
ended, Partnership financial statements audited by the Partnership's 
independent accountants. At the end of each fiscal year, the General 
Partner will make a valuation or have a valuation made of all of the 
assets of the Partnership as of the fiscal year end in a manner 
consistent with customary practice with respect to the valuation of 
assets of the kind held by the Partnership. In addition, within 120 
days after the end of each fiscal year of each Partnership or as soon 
as practicable thereafter, the General Partner of the Partnership will 
send a report to each person who was a Participant in the Partnership 
at any time during the fiscal year then ended, setting forth the tax 
information necessary for the preparation by the Participant of federal 
and state income tax returns.
    6. If purchases or sales are made by a Partnership from or to an 
entity affiliated with the Partnership by reason of a 5% or more 
investment in the entity by an MS director, officer, or employee, the 
individual will not participate in the Partnership's determination of 
whether or not to effect the purchase or sale.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-7374 Filed 3-20-98; 8:45 am]
BILLING CODE 8010-01-M