[Federal Register Volume 68, Number 215 (Thursday, November 6, 2003)]
[Notices]
[Pages 62853-62855]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-27990]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26236; 812-12964]


Morgan Stanley Investment Advisors Inc., et al.; Notice of 
Application and Temporary Order

October 31, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Temporary order and notice of application for a permanent order 
under section 9(c) of the Investment Company Act of 1940 (``Act'').

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    Summary of Application: Applicants have received a temporary order 
exempting them from section 9(a) of the Act, with respect to an 
injunction entered against Morgan Stanley & Co. Incorporated 
(``MS&Co.'') on October 31, 2003 by the U.S. District Court for the 
Southern District of New York (the ``Federal Injunction''), until the 
earlier of the date the Commission takes action on an application for a 
permanent order, or two years from the date of the Federal Injunction. 
Applicants have requested a permanent order.
    Applicants: Morgan Stanley Investment Advisors Inc., Van Kampen 
Asset Management Inc., Morgan Stanley Investment Management Inc., 
Morgan Stanley Investments LP, Van Kampen Investment Advisory Corp., 
Van Kampen Advisors Inc., Morgan Stanley Alternative Investment 
Partners LP, Morgan Stanley AIP GP LP, Morgan Stanley Capital Partners 
III, Inc., MSDW Capital Partners IV, Inc., Morgan Stanley Global 
Emerging Markets, Inc., Morgan Stanley Venture Capital II, Inc., Morgan 
Stanley Venture Capital III, Inc., MSDW Venture Partners IV, Inc., MSVP 
2002, Inc., MSREF II, Inc., MSREF III, Inc., MSREF IV, L.L.C., MSDW 
Real Estate Special Situations II Manager, L.L.C., Van Kampen Funds 
Inc., Morgan Stanley Distributors Inc., MS&Co., Morgan Stanley 
Distribution, Inc., Morgan Stanley DW Inc., Morgan Stanley Investment 
Management Limited; MSDW OIP Investors, Inc.; Morgan Stanley Investment 
Management Company; and Morgan Stanley Asset & Investment Trust 
Management Co., Limited (together, the ``Applicants'').\1\
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    \1\ Applicants request that any relief granted pursuant to the 
application also apply to any other company of which MS&Co. is or 
hereafter becomes an affiliated person (included in the term 
Applicants).
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    Filing Dates: The application was filed on April 28, 2003. 
Applicants have agreed to file an amendment during the notice period, 
the substance of which is reflected in this notice. Applicants also 
have agreed to file amendments to the application reflecting the 
issuance of each State Injunction (as defined below).
    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 November 25, 2003, 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 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants, c/o A. Thomas Smith, Esq., Morgan Stanley, 1585 
Broadway, New York, NY 10036.

FOR FURTHER INFORMATION CONTACT: Annette M. Capretta, Branch Chief, at 
202-942-0687 (Division of Investment Management, Office of Investment 
Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a temporary order and a 
summary of the application. The complete application may be obtained 
for a fee at the Commission's Public Reference Branch, 450 Fifth 
Street, NW., Washington, DC 20549-0102 (telephone 202-942-8090).

Applicants' Representations

    1. Each Applicant is a direct or indirect subsidiary of Morgan 
Stanley, a Delaware corporation. Morgan Stanley is a publicly held 
global financial services company that provides investment, financing, 
advisory, insurance, banking and related products and services. Certain 
Applicants serve as investment adviser or subadviser for one or more 
registered investment companies (``Funds''). Certain Applicants act as 
the depositor or principal underwriter for Funds.\2\
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    \2\ Any registered unit investment trusts (``UIT'') or 
registered face amount certificate company for which Applicants may 
serve as principal underwriter or depositor are also included in the 
defined term Funds.
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    2. On October 31, 2003, the U.S. District Court for the Southern 
District of New York entered the Federal Injunction against MS&Co. in a 
matter

[[Page 62854]]

brought by the Commission.\3\ The Commission alleged in the complaint 
(``Complaint'') that MS&Co. violated certain Conduct Rules of the 
National Association of Securities Dealers (``NASD'') and Rules of the 
New York Stock Exchange (``NYSE'') (the NASD Conduct Rules and NYSE 
Rules together, the ``Exchange Rules'') by engaging in conduct 
involving conflicts of interest between research analysts in MS&Co's 
research department (``Research Department'') and MS&Co.'s investment 
banking business (the ``Investment Banking Department''). The Federal 
Injunction enjoined MS&Co. directly or through its officers, directors, 
agents and employees, from violating the specific rules cited in the 
Complaint. Without admitting or denying the allegations in the 
Complaint, MS&Co. consented to the entry of the Federal Injunction as 
well as the payment of disgorgement and penalties and other equitable 
relief, including undertakings by MS&Co. to adopt and implement 
policies and procedures relating to certain research activities. 
Applicants state that MS&Co. expects to enter into settlement 
agreements relating to the activities referred to in the Complaint with 
certain State and territorial agencies which may result in an 
injunction by a court of competent jurisdiction that is based on the 
same conduct and the same facts as the Complaint (each, a ``State 
Injunction,'' and, together with the Federal Injunction, the 
``Injunctions''). Applicants request that this application cover any 
disqualifications of the Applicants under Section 9(a) resulting from 
the Injunctions.
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    \3\ Securities and Exchange Commission v. Morgan Stanley & Co. 
Incorporated, 03 Civ. 2948 (WHP) (S.D.N.Y., filed April 28, 2003).
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Applicants' Legal Analysis

    1. Section 9(a)(2) of the Act, in relevant part, prohibits a person 
who has been enjoined from engaging in or continuing any conduct or 
practice in connection with the purchase or sale of a security from 
acting, among other things, as an investment adviser or depositor of 
any registered investment company or a principal underwriter for any 
registered open-end investment company, registered UIT or registered 
face-amount certificate company. Section 9(a)(3) of the Act makes the 
prohibition in section 9(a)(2) applicable to a company, any affiliated 
person of which has been disqualified under the provisions of section 
9(a)(2). Section 2(a)(3) of the Act defines ``affiliated person'' to 
include any person directly or indirectly controlling, controlled by, 
or under common control with, the other person. Applicants state that 
MS&Co. is an affiliated person of each of the other Applicants within 
the meaning of section 2(a)(3) of the Act. Applicants further state 
that the entry of the Injunctions would result in Applicants being 
subject to the disqualification provisions of section 9(a) of the Act.
    2. Section 9(c) of the Act provides that the Commission shall grant 
an application for exemption from the disqualification provisions of 
section 9(a) if it is established that these provisions, as applied to 
Applicants, are unduly or disproportionately severe or that the 
Applicants' conduct has been such as not to make it against the public 
interest or the protection of investors to grant the application. 
Applicants have filed an application pursuant to section 9(c) seeking a 
temporary and permanent order exempting them from the disqualification 
provisions of section 9(a) of the Act.
    3. Applicants believe they meet the standard for exemption 
specified in section 9(c). Applicants state that the prohibitions of 
section 9(a) as applied to them would be unduly and disproportionately 
severe and that the conduct of Applicants has been such as not to make 
it against the public interest or the protection of investors to grant 
the exemption from section 9(a).
    4. Applicants state that the conduct giving rise to the Injunctions 
did not involve any of the Applicants acting in the capacity of 
investment adviser, subadviser, depositor, or principal underwriter for 
a Fund. Applicants state that the Complaint did not expressly reference 
the conduct of any current or former employee of any of the Applicants 
who is or was involved in providing advisory, sub-advisory or 
underwriting services to the Funds advised or underwritten by 
Applicants.\4\ While the Applicants' portfolio managers had access to 
research materials issued by the Research Department, there is no 
indication that the portfolio managers relied on such research more 
than any other data that would have been considered by the portfolio 
managers in making investment decisions for the Funds, except as noted 
in the application.\5\ Although some of the Funds held securities in 
their portfolios at the time that MS&Co. issued research reports 
concerning the issuers of such securities, as far as Applicants are 
aware, none of the officers, portfolio managers, or any other 
investment personnel employed by the Applicants made any investment 
decisions based on any non-public information relating to the conduct 
underlying the Final Judgment. In addition, Morgan Stanley has adopted 
policies regarding information barriers (the ``Policies''). The 
Policies, which apply to each of the Applicants and which were in 
effect at the time of the conduct described in the Complaint, are 
designed to separate and maintain information barriers between 
investment management operations and certain other Morgan Stanley 
businesses, such as research analysts.
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    \4\ The Complaint refers to general practices regarding the 
relationship between the research and investment banking departments 
of MS&Co. It is possible that one or more current or former officers 
or employees of Applicants, who is or was engaged in the provision 
of investment advisory, principal underwriter or depositor services 
to the Funds was at some time involved in investment banking or 
research activities.
    \5\ Applicants state that they have acted as investment adviser, 
principal underwriter, or depositor to certain Funds whose portfolio 
securities were selected based primarily on a list of recommended 
securities compiled by the Research Department.
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    5. The Applicants will distribute written materials, including an 
offer to meet in person to discuss the materials, to the board of 
directors or trustees of each Fund (each, a ``Board''), including the 
directors who are not ``interested persons,'' as defined in section 
2(a)(19) of the Act, of the Fund, and their independent legal counsel, 
if any, regarding the Federal Injunction, any impact on the Funds, and 
this application.\6\ The Applicants will provide the Boards with all 
information concerning the Injunctions and this application that is 
necessary for the Funds to fulfill their disclosure and other 
obligations under the Federal securities laws.
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    \6\ Applicants state that they will advise the Boards of any 
State Injunctions that are issued. With respect to the Funds 
discussed in footnote 5 that are UITs, Applicants state that they 
will provide written notification to the trustee for each of these 
UITs concerning the Final Judgment, any impact on the UITs, and this 
application, and will provide any other related information that may 
be requested by the trustee.
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    6. Applicants state that the inability to continue providing 
advisory services to the Funds and the inability to continue serving as 
principal underwriter to the Funds would result in potentially severe 
hardships for the Funds and their shareholders. Applicants also assert 
that, if they were barred from providing services to the Funds, the 
effect on their businesses and employees would be severe. The 
Applicants state that they have committed substantial resources to 
establish an expertise in advising and distributing Funds. Certain 
affiliated persons of MS&Co. previously have received exemptions under 
section 9(c) as the result of conduct that triggered

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section 9(a) as described in greater detail in the application.

Applicants' Condition

    Applicants agree that any order granting the requested relief will 
be subject to the following condition:
    Any temporary exemption granted pursuant to the application shall 
be without prejudice to, and shall not limit the Commission's rights in 
any manner with respect to, any Commission investigation of, or 
administrative proceedings involving or against, Applicants, including 
without limitation, the consideration by the Commission of a permanent 
exemption from section 9(a) of the Act requested pursuant to the 
application or the revocation or removal of any temporary exemptions 
granted under the Act in connection with the application.

Temporary Order

    The Commission has considered the matter and finds that Applicants 
have made the necessary showing to justify granting a temporary 
exemption.
    Accordingly,
    It Is Hereby Ordered, pursuant to section 9(c) of the Act, that the 
Applicants are granted a temporary exemption from the provisions of 
section 9(a), effective forthwith, solely with respect to the 
Injunctions, subject to the condition in the application, until the 
date the Commission takes final action on their application for a 
permanent order or, if earlier, October 31, 2005.

By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-27990 Filed 11-5-03; 8:45 am]
BILLING CODE 8010-01-P