[Federal Register Volume 73, Number 17 (Friday, January 25, 2008)]
[Notices]
[Pages 4647-4653]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-1304]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28125; 812-13213]


Morgan Stanley Investment Management Inc., et al., Notice of 
Application

January 18, 2008.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under sections 6(c) and 
17(b) of the Investment Company Act of 1940 (the ``Act'') for an 
exemption from section 17(a) of the Act.

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Applicants: Morgan Stanley Investment Management Inc. (``MSIM''), 
Morgan Stanley Investment Advisors Inc. (``MSIA''), Morgan Stanley AIP 
GP LP (``MSAIP''), Van Kampen Asset Management (``VKAM''),\1\ Active 
Assets California Tax-Free Trust, Active Assets Government Securities 
Trust, Active Assets Institutional Government Securities Trust, Active 
Assets Institutional Money Trust, Active Assets Money Trust, Active 
Assets Tax-Free Trust, Morgan Stanley California Tax-Free Daily Income 
Trust, Morgan Stanley New York Municipal Money Market Trust, Morgan 
Stanley Tax-Free Daily Income Trust, Morgan Stanley Liquid Asset Fund 
Inc., Morgan Stanley U.S. Government Money Market Trust (each a ``Money 
Market Fund''),\2\ Morgan Stanley Select Dimensions Investment Series, 
Morgan Stanley Variable Investment Series, Morgan

[[Page 4648]]

Stanley Institutional Fund, Inc., Morgan Stanley Institutional 
Liquidity Funds, The Universal Institutional Funds, Inc., Morgan 
Stanley Institutional Fund Trust, Morgan Stanley Allocator Fund, Morgan 
Stanley Capital Opportunities Trust, Morgan Stanley Developing Growth 
Securities Trust, Morgan Stanley Dividend Growth Securities Inc., 
Morgan Stanley Equally-Weighted S&P 500 Fund, Morgan Stanley European 
Equity Fund Inc., Morgan Stanley Financial Services Trust, Morgan 
Stanley Focus Growth Fund, Morgan Stanley Fundamental Value Fund, 
Morgan Stanley Global Advantage Fund, Morgan Stanley Global Dividend 
Growth Securities, Morgan Stanley Health Sciences Trust, Morgan Stanley 
Institutional Strategies Fund, Morgan Stanley International Fund, 
Morgan Stanley International SmallCap Fund, Morgan Stanley 
International Value Equity Fund, Morgan Stanley Japan Fund, Morgan 
Stanley Mid-Cap Value Fund, Morgan Stanley Multi-Asset Class Fund, 
Morgan Stanley Nasdaq-100 Index Fund, Morgan Stanley Natural Resource 
Development Securities Inc., Morgan Stanley Pacific Growth Fund Inc., 
Morgan Stanley Real Estate Fund, Morgan Stanley Series Funds, Morgan 
Stanley Small-Mid Special Value Fund, Morgan Stanley S&P 500 Index 
Fund, Morgan Stanley Special Growth Fund, Morgan Stanley Special Value 
Fund, Morgan Stanley Technology Fund, Morgan Stanley Total Market Index 
Fund, Morgan Stanley Utilities Fund, Morgan Stanley Value Fund, Morgan 
Stanley Balanced Fund, Morgan Stanley Strategist Fund, Morgan Stanley 
Convertible Securities Trust, Morgan Stanley Flexible Income Trust, 
Morgan Stanley FX Series Funds, Morgan Stanley High Yield Securities 
Inc., Morgan Stanley Income Trust, Morgan Stanley Limited Duration 
Fund, Morgan Stanley Limited Duration U.S. Government Trust, Morgan 
Stanley Mortgage Securities Trust, Morgan Stanley U.S. Government 
Securities Trust, Morgan Stanley California Tax-Free Income Fund, 
Morgan Stanley Limited Term Municipal Trust, Morgan Stanley New York 
Tax-Free Income Fund, Morgan Stanley Tax-Exempt Securities Trust, 
Morgan Stanley Income Securities Inc., Morgan Stanley Prime Income 
Trust, Morgan Stanley California Insured Municipal Income Trust, Morgan 
Stanley California Quality Municipal Securities, Morgan Stanley Insured 
California Municipal Securities, Morgan Stanley Insured Municipal Bond 
Trust, Morgan Stanley Insured Municipal Income Trust, Morgan Stanley 
Insured Municipal Securities, Morgan Stanley Insured Municipal Trust, 
Morgan Stanley Municipal Income Opportunities Trust, Morgan Stanley 
Municipal Income Opportunities Trust II, Morgan Stanley Municipal 
Income Opportunities Trust III, Morgan Stanley Municipal Premium Income 
Trust, Morgan Stanley New York Quality Municipal Securities, Morgan 
Stanley Quality Municipal Income Trust, Morgan Stanley Quality 
Municipal Investment Trust, Morgan Stanley Quality Municipal 
Securities, Morgan Stanley Asia-Pacific Fund, Inc., Morgan Stanley 
China ``A'' Share Fund, Morgan Stanley Eastern Europe Fund, Inc., 
Morgan Stanley Emerging Markets Debt Fund, Inc., Morgan Stanley 
Emerging Markets Domestic Debt Fund, Inc., Morgan Stanley Emerging 
Markets Fund, Inc., Morgan Stanley Global Opportunity Bond Fund, Inc., 
Morgan Stanley High Yield Fund, Inc., Morgan Stanley Opportunistic 
Municipal High Income Fund, The India Investment Fund, The Latin 
American Discovery Fund, Inc., The Malaysia Fund, Inc., The Thai Fund, 
Inc., The Turkish Investment Fund, Inc., Morgan Stanley Institutional 
Fund of Hedge Funds, Van Kampen U.S. Government Trust, Van Kampen Tax 
Free Trust, Van Kampen Life Investment Trust, Van Kampen Equity Trust, 
Van Kampen Equity Trust II, Van Kampen Tax-Exempt Trust, Van Kampen 
Series Fund, Inc., Van Kampen Trust, Van Kampen Corporate Bond Fund, 
Van Kampen Government Securities Fund, Van Kampen High Yield Fund, Van 
Kampen Limited Duration Fund, Van Kampen U.S. Government Trust, Van 
Kampen Pennsylvania Tax Free Income Fund, Van Kampen Comstock Fund, Van 
Kampen Enterprise Fund, Van Kampen Equity and Income Fund, Van Kampen 
Exchange Fund, Van Kampen Growth and Income Fund, Van Kampen Harbor 
Fund, Van Kampen Pace Fund, Van Kampen Real Estate Securities Fund, Van 
Kampen Strategic Growth Fund, Van Kampen Reserve Fund, Van Kampen Tax 
Free Money Fund, Van Kampen High Income Trust II, Van Kampen Senior 
Loan Fund, Van Kampen Senior Income Trust, Van Kampen Municipal Trust, 
Van Kampen Ohio Quality Municipal Trust, Van Kampen Trust For Insured 
Municipals, Van Kampen Trust For Investment Grade Municipals, Van 
Kampen Trust For Investment Grade New Jersey Municipals, Van Kampen 
Trust For Investment Grade New York Municipals, Van Kampen Municipal 
Opportunity Trust, Van Kampen California Value Municipal Income Trust, 
Van Kampen Massachusetts Value Municipal Income Trust, Van Kampen 
Pennsylvania Value Municipal Income Trust, Van Kampen Advantage 
Municipal Income Trust II, Van Kampen Select Sector Municipal Trust, 
Van Kampen Bond Fund, Van Kampen Dynamic Credit Opportunities Fund 
(each a ``Current Fund,'' collectively, the ``Current Funds''), any 
existing or future registered management investment companies and their 
series that are advised or subadvised by the Advisers (``Future 
Funds,'' Future Funds and Current Funds are collectively the 
``Funds''),\3\ and Morgan Stanley & Co., Inc. (``MS & Co.'').
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    \1\ MSIM, MSIA, MSAIP, VKAM are collectively referred to as the 
Current Advisers. Applicants also seek relief for any other existing 
or future registered investment adviser which acts as investment 
adviser or subadviser to a Fund (defined below) and which controls, 
is controlled by or is under common control (as defined in section 
2(a)(9) of the Act) with MS (as defined below) (individually a 
``Future Adviser'' and collectively the ``Future Advisers''). The 
Current Advisers and the Future Advisers are referred to 
individually as an ``Adviser'' and collectively as the ``Advisers.'' 
Any Adviser that currently intends to rely on the requested order is 
named as an applicant in the application. Any other Adviser that 
relies on the order in the future will comply with the terms and 
conditions of the application.
    \2\ Morgan Stanley Institutional Liquidity Funds also offers six 
series that operate as money market funds subject to rule 2a-7 under 
the 1940 Act: Government Portfolio, Government Securities Portfolio, 
Money Market Portfolio, Prime Portfolio, Tax-Exempt Portfolio, 
Treasury Portfolio and Treasury Securities Portfolio. Van Kampen 
Equity Trust II offers two money market funds: Van Kampen Reserve 
Fund and Van Kampen Tax-Free Money Fund. Morgan Stanley Select 
Dimensions Investment Series offers one money market fund: Money 
Market Portfolio. Morgan Stanley Variable Investment Series offers 
one money market fund: Money Market Portfolio. Van Kampen Life 
Investment Trust offers one money market fund: Money Market 
Portfolio.
    \3\ Any existing or future Funds which are money market funds 
subject to rule 2a-7 and authorized to invest in Money Market 
Instruments (as defined below) are also ``Money Market Funds.'' Any 
Fund that currently intends to rely on the requested order is named 
as an applicant in the application. Any other Fund that relies on 
the order in the future will comply with the terms and conditions of 
the application.

Summary of Application: Applicants request an order to permit the Funds 
to engage in principal transactions in certain money market instruments 
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with MS & Co.

Filing Dates: The application was filed on July 7, 2005, and amended on 
October 9, 2007, and December 26, 2007. Applicants have agreed to file 
an amendment during the notice period, the substance of which is 
reflected in this notice.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on February 12, 2008, and should be accompanied by proof of 
service on the applicants, in the form of an affidavit or, for lawyers, 
a certificate of service. Hearing requests should state the nature of 
the writer's interest, the reason for the request, and the issues 
contested. Persons may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, Commission, 100 F Street, NE., Washington, DC 
20549-1090. Applicants: c/o Amy Doberman, Esq., Morgan Stanley 
Investment Management, 522 Fifth Avenue New York, New York 10036.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, 
(202) 551-6817 or Janet M. Grossnickle, Branch Chief, (202) 551-6821 
(Office of Investment Company Regulation, Division of Investment 
Management).

[[Page 4649]]


SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the Commission's Public Reference Branch, 100 F Street, NE., 
Washington, DC 20549-0102 (tel. 202-551-8090).

Applicants' Representations

    1. Each Fund is an open-end or closed-end management company 
registered under the Act and is organized as a business trust or 
corporation under the laws of various states, as specified in the 
application. The Current Advisers are wholly owned subsidiaries of 
Morgan Stanley (``MS''), a Delaware corporation. Each Adviser is (or 
will be) registered under the Investment Advisers Act of 1940. Each 
Fund has an investment advisory agreement with the applicable Adviser 
pursuant to which the Adviser provides investment advisory and 
management services. MS & Co., a wholly owned subsidiary of MS, is 
registered as a broker-dealer under the Securities Exchange Act of 1934 
(the ``1934 Act''). MS & Co., a primary dealer in U.S. Government 
securities, is one of the largest dealers in the United States in 
commercial paper, repurchase agreements and other money market 
instruments.
    2. Applicants state that the Advisers and MS & Co. are functionally 
independent of each other and operate as completely separate entities 
under the umbrella of MS, the parent holding company. While MS & Co. 
and the Advisers are under common control, each entity has its own 
separate officers and employees, is separately capitalized, maintains 
its own separate books and records and operates on different sides of 
walls of separation with respect to the Funds and Money Market 
Instruments. The Advisers also maintain offices physically separate 
from MS & Co.
    3. Investment decisions for the Funds are determined solely by the 
Advisers. The portfolio managers and other employees that are 
responsible for the investment of the Funds are employed solely by one 
of the Advisers (and not MS & Co.), and have lines of reporting 
responsibility solely within the Advisers. The compensation of 
personnel assigned to an Adviser will not depend on the volume or 
nature of trades with MS & Co., except to the extent that such trades 
may affect the profits and losses of MS and its subsidiaries as a 
whole.
    4. As used in the application, the term Taxable Money Market 
Instruments refers to taxable securities which are eligible for 
purchase by money market funds under rule 2a-7, including short-term 
U.S. Government securities, short-term U.S. Government agency 
securities, bank money market instruments, bank notes, commercial 
paper, other short-term fixed income instruments and repurchase 
agreements. The term Tax-Exempt Money Market Instruments refers to tax-
exempt securities which are eligible for purchase by money market funds 
under rule 2a-7, including conventional municipal notes, tax-exempt 
commercial paper, variable rate demand notes, put bonds and flexible 
notes. Money Market Instruments consist of Taxable and Tax-Exempt Money 
Market Instruments. Each Fund that is not a Money Market Fund is 
authorized to invest in Taxable Money Market Instruments pursuant to 
its investment objectives and policies.
    5. Trading in Money Market Instruments generally takes place in 
over-the-counter markets consisting of groups of dealers who are 
primarily major securities firms or large commercial banks. The money 
market consists of sophisticated and elaborate telephonic and 
electronic communications networks among buyers and sellers, which 
generally precludes being able to obtain a single market price for a 
given instrument at any given time. Applicants state that the money 
market (for both Taxable and Tax-Exempt Money Market Instruments) tends 
to be somewhat segmented. The markets for the different types of 
instruments will vary in terms of price, volatility, liquidity and 
availability. With respect to any given type of security or instrument, 
there may be only a few dealers who can be expected to have the 
security in inventory and be in a position to quote a favorable price. 
Applicants also state that different dealers may quote different prices 
with respect to the same type of instrument because of differing 
outlooks on future yields, to adjust their inventory or because of 
competitive pressure (or the lack thereof) to meet other dealers' 
quotes. Only customers of a dealer may obtain quotations for Money 
Market Instruments and trade on them.
    6. MS & Co. is one of the world's largest dealers in Taxable Money 
Market Instruments, ranking among the top firms in each of the major 
markets and product areas. As of September 30, 2007, MS & Co. had 
become the sixth largest dealer in terms of the number of new U.S. 
asset-backed commercial paper programs, the most significant part of 
the commercial paper market by outstanding dollar amounts. Applicants 
believe that MS & Co. is one of the ten leading dealers in the 
repurchase agreement market. MS & Co's average outstanding repurchase 
agreements for December 2006, 2006 to September, 2007 ranged from $154 
billion to $206 billion. MS & Co. is an active participant in the 
public auction market for U.S. Treasuries, being one of only 22 primary 
dealers and receiving on average from 4% to 9% of the primary 
distribution of U.S. Treasuries. In secondary trading, MS & Co. ranked 
as one of the top 5 primary dealers for U.S. Treasuries with maturities 
under three years for each of the last eight quarters (through the 
third quarter of 2007). MS & Co. also has been an active participant in 
the secondary market for government agency securities and ranked fourth 
in underwriting primary issuances in 2006. MS & Co. is also one of the 
leading participants in the market for medium-term note (``MTNs''). 
MTNs are offered continuously in public or private offerings, with 
maturities beginning at nine months. MTNs represent a significant 
portion of the longer-term money market investment alternatives because 
commercial paper is not issued with maturities greater than nine 
months. From July 2006 to July 2007, MS & Co. ranked as the fifth 
largest manager or co-manager of MTN programs in terms of proceeds 
($88.6 billion) and market share (8.5%). MS & Co. is also a leading 
manager of issuances of Extendible Liquidity Securities[reg], a MS 
proprietary product, which is another longer-term alternative. From 
July 2000 through October 1, 2007, MS & Co. served as lead manager on 
91 EXLs[reg] issuances, which represented 53% of the total aggregate 
value of all EXLs[reg] issued during that period.
    7. MS & Co. also is a major participant in both the primary new 
issue market and in the secondary dealer market for Tax-Exempt Money 
Market Instruments. MS & Co. estimates that its market share in the new 
issue market for Tax-Exempt Money Market Instruments included 13% of 
conventional notes, 7% of tax-exempt commercial paper and 8% of 
variable rate demand notes for the first nine months in 2007. 
Applicants state that there is no comprehensive information published 
as to the dollar amount and volume of secondary market transactions 
executed in Tax-Exempt Money Market Instruments. However, MS & Co. 
believes that it is generally one of the top five secondary market 
dealers in Tax-Exempt Money Market Instruments. Based upon MS & Co. 
estimates, MS & Co. was responsible for 8.7% of the trading volume in 
variable rate demand notes and tax-exempt commercial paper among MS & 
Co. and nine other leading dealers as of

[[Page 4650]]

September 30, 2007. MS & Co. estimates its market share in the put 
bonds market at 12% as of December 31, 2006.
    8. Applicants state that over the past few years, the growth in 
Money Market Instruments has been substantially outpaced by the growth 
in portfolios which purchase Money Market Instruments, which has 
contributed to the limited availability of Money Market Instruments to 
the Funds.\4\ Applicants further state that because of consolidation in 
the money market industry, there is a substantially smaller number of 
major dealers who are active in the money market than was the case a 
decade ago. Applicants state that MS & Co. has remained committed to 
the taxable and tax-exempt money market, and has moved to fill the void 
left by departing dealers. As the number of dealers with whom the Funds 
can transact business has decreased, it has become even more important 
for the Funds to have meaningful access to all of the major dealers in 
Money Market Instruments in order to diversify each Fund's investments, 
to maintain portfolio liquidity, and to increase opportunities for 
obtaining best price and execution with respect to portfolio trades.
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    \4\ Applicants state that from 1997 through 2007, the growth of 
the market in Tax-Exempt Money Market Instruments was 208%, while 
the growth of tax-exempt money market funds was 276%. For the same 
period, the growth of Taxable Money Market Instruments was 78%, 
while the growth of taxable money market funds was 181%.
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    9. Subject to the general supervision of the board of directors/
trustees of each of the Funds (each a ``Board''), the Advisers are 
responsible for making investment decisions and for the placement of 
portfolio transactions. The Funds have no obligation to deal with any 
dealer or group of dealers in the execution of their portfolio 
transactions. When placing orders, an Adviser must attempt to obtain 
the best net price and the most favorable execution of its orders. In 
doing so, it takes into account such factors as price, the size, type 
and difficulty of the transaction involved and the dealer's general 
execution and operational facilities. The transaction costs of the 
Funds with respect to Money Market Instruments consist primarily of 
dealer or underwriter spreads. Spreads vary some based on the type of 
money market security or the occurrence of turbulent market conditions, 
but generally spread levels for Taxable Money Market Instruments are in 
the range of 1 to 5 basis points (.01% to .05%), while spreads for Tax-
Exempt Money Market Instruments typically are not greater than 12.5 
basis points (0.125%).

Applicants' Legal Analysis

    1. Applicants request an order pursuant to sections 6(c) and 17(b) 
of the Act exempting certain transactions from the provisions of 
section 17(a) of the Act to permit MS & Co., acting as principal, (a) 
to sell or purchase Taxable Money Market Instruments to or from the 
Funds; and (b) to sell or purchase Tax-Exempt Money Market Instruments 
to or from the Money Market Funds, subject to the conditions set forth 
below.
    2. Section 17(a) of the Act generally prohibits an affiliated 
person or principal underwriter of a registered investment company, or 
any affiliated person of that person, acting as principal, from selling 
to or purchasing from the registered company, or any company controlled 
by the registered company, any security or other property. Because an 
Adviser is an affiliated person of the Funds it advises and MS & Co. 
and the Advisers are under common control, the Funds are currently 
prohibited from conducting portfolio transactions with MS & Co. in 
transactions in which MS & Co. acts as principal.
    3. Section 17(b) of the Act provides that the Commission, upon 
application, may exempt a transaction from the provisions of section 
17(a) if evidence establishes that the terms of the proposed 
transaction, including the consideration to be paid, are reasonable and 
fair, and do not involve overreaching on the part of any person 
concerned, and that the proposed transaction is consistent with the 
policy of the registered investment company concerned and with the 
general purposes of the Act. Section 6(c) provides that the Commission 
may conditionally or unconditionally exempt any person, security, or 
transaction, or any class or classes of persons, securities, or 
transactions, from any provision or provisions of the Act or of any 
rule or regulation thereunder, if and to the extent that such exemption 
is necessary or appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the Act.
    4. Applicants note the following in support of the requested 
relief:
    (a) With over approximately $75 billion invested in Money Market 
Instruments, the Funds are major buyers and sellers in the tax-exempt 
and taxable money market with a strong need for access to large 
quantities of high quality Money Market Instruments. The applicants 
believe that access to a major dealer as MS & Co. in this market 
increases the Funds' ability to obtain suitable portfolio securities.
    (b) The policy of the Funds of investing in securities with short 
maturities combined with the active portfolio management techniques 
employed by the Advisers results in a high level of portfolio activity 
and the need to make numerous purchases and sales of Money Market 
Instruments. This high level of portfolio activity emphasizes the 
importance of increasing opportunities to obtain suitable portfolio 
securities and best price and execution.
    (c) The tax-exempt and taxable money market, including the market 
for repurchase agreements, is highly competitive, and maintaining a 
dealer as prominent as MS & Co. in the pool of dealers with which the 
Funds could conduct principal transactions may provide the Funds with 
opportunities to purchase and sell Money Market Instruments, including 
those not available from any other source.
    (d) MS & Co. is such a major factor in the tax-exempt and taxable 
money market that being unable to deal directly with MS & Co. may 
indirectly deprive the Funds of obtaining best price and execution even 
when the Funds trade with unaffiliated dealers.
    5. Applicants believe that the requested order will provide the 
Funds with a broader and more complete access to the money market (both 
taxable and non-taxable) which is necessary to carry out the policies 
and objectives of each of the Funds in obtaining the best price, 
execution and quality in all portfolio transactions, and will provide 
the Funds with important new information sources in the taxable and 
tax-exempt money market, to the direct benefit of investors in the 
Funds. Applicants believe that the transactions contemplated by the 
application are identical to those in which they are currently engaged 
except for the proposed participation of MS & Co. and that such 
transactions are consistent with the policies of the Funds as recited 
in their registration statements and reports filed under the Act. 
Applicants further believe that the conditions below and the procedures 
to be followed with respect to transactions with MS & Co. are 
structured in such a way as to ensure that the transactions will be, in 
all instances, reasonable and fair, will not involve overreaching on 
the part of any person concerned, and that the requested exemption is 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act.

[[Page 4651]]

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The exemption shall be applicable to principal transactions in 
the secondary market and primary or secondary fixed price dealer 
offerings not made pursuant to underwriting syndicates. With respect to 
Tax-Exempt Money Market Instruments, principal purchase or sale 
transactions will be conducted only in Money Market Instruments that 
are First Tier Securities as defined in rule 2a-7(a)(12)(i) under the 
Act. With respect to Taxable Money Market Instruments, the principal 
purchase or sale transactions which may be conducted pursuant to the 
exemption will be limited to transactions in Eligible Securities.\5\ 
Notwithstanding the foregoing, if a Fund purchases a Money Market 
Instrument meeting the above requirements from MS & Co. and, subsequent 
to such purchase the security becomes no longer an Eligible Security, 
the Fund may sell the security to MS & Co. in a manner consistent with 
the requirements of rule 2a-7(c)(6)(i)(B). To the extent a Fund is 
subject to rule 2a-7, such Eligible Securities must meet the portfolio 
maturity and quality requirements of paragraphs (c)(2) and (c)(3) of 
rule 2a-7. To the extent a Fund is not subject to rule 2a-7, such 
Eligible Securities must meet the requirements of clauses (i), (iii) 
and (iv) of paragraph (c)(3) of rule 2a-7. Additionally:
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    \5\ Italicized terms are defined as set forth in paragraph (a) 
of rule 2a-7 under the Act, unless otherwise indicated.
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    (a) No Fund shall make portfolio purchases pursuant to the 
exemption that would result directly or indirectly in a Fund investing 
pursuant to the exemption more than 2% of its Total Assets (or, in the 
case of a Fund that is not subject to rule 2a-7, more than 2% of the 
total of its cash, cash items and Eligible Securities) in securities 
which, when acquired by the Fund (either initially or upon any 
subsequent rollover) are Second Tier Securities; provided that any Fund 
may make portfolio sales of Second Tier Securities pursuant to the 
exemption without regard to this limitation.
    (b) The exemption shall not apply to an Unrated Security other than 
a Government Security.
    (c) The Funds may engage in repurchase agreements with MS & Co. 
only if MS & Co. has: (i) Net capital, as defined in rule 15c3-1 under 
the 1934 Act, of at least $100 million and (ii) a record (including the 
record of predecessors) of at least five years continuous operations as 
a dealer during which time it engaged in repurchase agreements relating 
to the kind of security subject to the repurchase agreement. MS & Co. 
shall furnish the Advisers with financial statements for its most 
recent fiscal year and the most recent semi-annual financial statements 
made available to its customers. The Advisers shall determine that MS & 
Co. complies with the above requirements and with other repurchase 
agreement guidelines adopted by the Board. Each repurchase agreement 
will be Collateralized Fully.
    (d) The exemption shall not apply to any purchase or sale of any 
security, other than a repurchase agreement, issued by MS or any 
affiliated person thereof, or to any security subject to a Demand 
Feature or Guarantee issued by MS or any affiliated person thereof. For 
purposes of this requirement, MS will not be considered to be the 
issuer of a Demand Feature or Guarantee solely by reason of the fact 
that MS or an affiliate thereof serves as a remarketing agent for a 
Money Market Instrument.
    2. The relevant Adviser (unless the Board decides that the Fund 
should make these determinations) will determine with respect to each 
principal transaction conducted by a Fund pursuant to the order, based 
upon the information available to the Funds and the Advisers, that the 
price available from MS & Co. is at least as favorable to the Fund as 
the prices obtained from two other dealer bids in connection with 
securities falling within the same category of instrument, quality and 
maturity (but not necessarily the identical security or issuer) 
(``price test''). In the case of ``swaps'' involving trades of one 
security for another, the price test shall be based upon the 
transaction viewed as a whole and not upon the two components thereof 
individually. With respect to each transaction involving repurchase 
agreements, the relevant Adviser will determine (unless the Board 
decides that the Fund should make these determinations), based upon the 
information reasonably available to the Fund and the Advisers, that the 
income to be earned from the repurchase agreement is at least equal to 
that available from other sources. In the case of variable rate demand 
notes, for which dealer bids are not ordinarily available, the Funds 
will only undertake purchases and sales where the rate of interest to 
be earned from the variable rate demand note is at least equal to that 
of variable rate demand notes of comparable quality that are available 
from other dealers. Neither MS nor any other affiliate thereof (other 
than the Advisers) will have any involvement with respect to proposed 
transactions between the Funds and the Advisers and, except to the 
extent set forth in condition 6(d) below, will not attempt to influence 
or control in any way the placing by the Funds or the Advisers of 
orders with MS & Co.
    3. Before any principal transaction may be conducted pursuant to 
the order, the relevant Fund or Adviser must obtain such information as 
it deems reasonably necessary to determine that the price test (as 
defined in condition (2) above) has been satisfied. In the case of each 
purchase or sale transaction, the relevant Fund or Adviser must make 
and document a good faith determination with respect to compliance with 
the price test based on current price information obtained through the 
contemporaneous solicitation of bona fide offers in connection with 
securities falling within the same category of instrument, quality and 
maturity (but not necessarily the identical security or issuer). With 
respect to variable rate demand notes, contemporaneous solicitation of 
a bona fide offer will be construed to mean any bona fide offer 
solicited during the same trading day. With respect to prospective 
purchases of securities by a Fund, the dealer firms from which prices 
are solicited must be those who have securities of the same categories 
and the type desired in their inventories and who are in a position to 
quote favorable prices with respect thereto. With respect to the 
prospective sale of securities by a Fund, these dealer firms must be 
those who, in the experience of the Funds and the Advisers, are in a 
position to quote favorable prices. Before any repurchase agreements 
are entered into pursuant to the exemption, the Fund or the Adviser 
must obtain and document competitive quotations from at least two other 
dealers with respect to repurchase agreements comparable to the type of 
repurchase agreement involved, except that if quotations are 
unavailable from two such dealers, only one other competitive quotation 
is required.
    4. Principal transactions in all Money Market Instruments other 
than repurchase agreements conducted by a Fund pursuant to the order 
shall be limited to no more than (a) an aggregate of 25% of the direct 
or indirect purchases and 25% of the direct or indirect sales of 
Eligible Securities other than repurchase agreements conducted by that 
Fund and (b) an aggregate of 25% of the purchases or sales, as the case 
may be, by MS & Co. of Eligible Securities other than repurchase 
agreements. Repurchase agreements conducted pursuant to the exemption

[[Page 4652]]

shall be limited to no more than 10% of (a) the repurchase agreements 
directly or indirectly entered into by the relevant Fund and (b) the 
repurchase agreements transacted by MS & Co. Principal transactions in 
Tax-Exempt Money Market Instruments conducted by each Money Market Fund 
pursuant to the order, shall be limited to no more than an aggregate of 
20% of the direct or indirect purchases and 20% of the direct or 
indirect sales of Tax-Exempt Money Market Instruments by that Money 
Market Fund. The Adviser or Fund and MS & Co. will measure these limits 
on an annual basis (the fiscal year of each Fund and of MS & Co.) and 
shall compute them using the dollar volume of transactions.
    5. MS & Co.'s dealer spread regarding any transaction with the 
Funds will be no greater than its customary dealer spread on similar 
transactions (with unaffiliated parties) of a similar size during a 
comparable time period. Its customary dealer spread also will be 
consistent with the average or standard spread charged by dealers in 
Money Market Instruments of a similar type and transaction size.
    6. The Advisers, on the one hand, and MS & Co. on the other, will 
operate on different sides of appropriate walls of separation with 
respect to the Funds and the Money Market Instruments. The walls of 
separation will include all of the following characteristics, and such 
others that MS & Co. and the Advisers consider reasonable to facilitate 
the factual independence of the Advisers from MS & Co.:
    (a) Each of the Advisers will maintain offices physically separate 
from those of MS & Co.
    (b) The compensation of persons assigned to any of the Advisers 
(i.e., executive, administrative or investment personnel) will not 
depend on the volume or nature of trades effected by the Advisers for 
the Funds with MS & Co. under the exemption, except to the extent that 
such trades may affect the profits and losses of MS and its 
subsidiaries as a whole.
    (c) MS & Co. will not compensate the Advisers based upon its 
profits or losses on transactions conducted pursuant to the exemption, 
provided that the allocation of the profits by MS to its shareholders 
and the determination of general firm-wide compensation of officers and 
employees, will be unaffected by this undertaking.
    (d) Personnel assigned to the Advisers' investment advisory 
operations on behalf of the Funds will be exclusively devoted to the 
business and affairs of one or more of the Advisers. Personnel assigned 
to MS & Co. will not participate in the decision-making process for or 
otherwise seek to influence the Advisers other than in the normal 
course of sales and dealer activities of the same nature as are 
simultaneously being carried out with respect to nonaffiliated 
institutional clients. Each Adviser, on the one hand, and MS & Co., on 
the other hand, may nonetheless maintain affiliations other than with 
respect to the Funds, and in addition with respect to the Funds as 
follows: (i) Adviser personnel may rely on research, including credit 
analysis and reports prepared internally by various subsidiaries and 
divisions of MS & Co.; and (ii) The senior executives of MS that have 
responsibility for overseeing operations of various divisions, 
subsidiaries and affiliates of MS are not precluded from exercising 
those functions over the Advisers because they oversee MS & Co. as 
well, provided that such persons shall not have any involvement with 
respect to proposed transactions pursuant to the exemption and will not 
in any way attempt to influence or control the placing by the Funds or 
any Adviser of orders in respect of Money Market Instruments with MS & 
Co.
    7. The Funds and the Advisers will maintain such records with 
respect to those transactions conducted pursuant to the exemption as 
may be necessary to confirm compliance with the conditions to the 
requested relief. To this end, each Fund shall maintain the following:
    (a) An itemized daily record of all purchases and sales of 
securities pursuant to the exemption, showing for each transaction the 
following: (i) The name and quantity of securities; (ii) the unit 
purchase or sale price; (iii) the time and date of the transaction; and 
(iv) whether the security was a First Tier or Second Tier Security. For 
each transaction (other than variable rate demand notes), these records 
shall document two quotations received from other dealers for 
securities falling within the same category of instrument, quality and 
maturity; including the following: (i) The names of the dealers; (ii) 
the names of the securities; (iii) the prices quoted; (iv) the times 
and dates the quotations were received; and (v) whether such securities 
were First Tier or Second Tier Securities. In the case of variable rate 
demand notes, the Fund shall maintain the same records except that the 
rates of return quoted will be substituted for the prices quoted.
    (b) Records sufficient to verify compliance with the volume 
limitations contained in condition (4) above. MS & Co. will provide the 
Funds with all records and information necessary to implement this 
requirement.
    (c) Each Fund shall maintain a ledger or record showing, on a daily 
basis, the percentage of the Fund's Total Assets (or, in the case of a 
Fund not subject to rule 2a-7 the percentage of its total cash, cash 
items and Eligible Securities) represented by Second Tier Securities 
acquired from MS & Co.
    (d) Each Fund shall maintain records sufficient to verify 
compliance with the repurchase agreement requirements contained in 
condition 1(c) above.
    The records required by this condition (7) will be maintained and 
preserved in the same manner as records required under rule 31a-1(b)(1) 
under the Act.
    8. The legal and compliance departments of MS & Co. and the 
Advisers will prepare and administer guidelines for personnel of MS & 
Co. and the Advisers to make certain that transactions conducted 
pursuant to the order comply with the conditions set forth in the order 
and that the parties generally maintain arm's-length relationships. In 
the training of MS & Co's personnel, particular emphasis will be placed 
upon the fact that the Funds are to receive rates as favorable as other 
institutional purchasers buying the same quantities. The legal and 
compliance departments will periodically monitor the activities of MS & 
Co. and the Advisers to make certain that the conditions set forth in 
the order are adhered to.
    9. The members of the Board of each of the Funds who are not 
``interested persons'' as defined in Section 2(a)(19) of the Act 
(``Independent Trustees'') will approve, periodically review, and 
update as necessary, guidelines for the Funds and the Advisers that are 
reasonably designed to make certain that the transactions conducted 
pursuant to the exemption comply with the conditions set forth herein 
and that the above procedures are followed in all respects. The 
Independent Trustees will periodically monitor the activities of the 
Funds and the Advisers in this regard to ensure that these goals are 
being accomplished.
    10. The Board, including a majority of the Independent Trustees, 
will have approved each Fund's participation in transactions conducted 
pursuant to the exemption and determined that such participation by the 
Fund is in the best interests of the Fund and its shareholders. The 
minutes of the meeting of the Board at which this approval was given 
must reflect in detail the reasons for the Board's determination. The 
Board will review no less frequently than annually each Fund's 
participation in transactions conducted pursuant to the exemption

[[Page 4653]]

during the prior year and determine whether the Fund's participation in 
such transactions continues to be in the best interests of the Fund and 
its shareholders. Such review will include (but not be limited to) (a) 
a comparison of the volume of transactions in each type of security 
conducted pursuant to the exemption to the market presence of MS & Co. 
in the market for that type of security, which market data may be based 
on good faith estimates to the extent that current formal data is not 
reasonably available, and (b) a determination that the Funds are 
maintaining appropriate trading relationships with other sources for 
each type of security to ensure that there are appropriate sources for 
the quotations required by condition 3. The minutes of the meetings of 
the Board at which these determinations are made will reflect in detail 
the reasons for the Board's determinations.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-1304 Filed 1-24-08; 8:45 am]
BILLING CODE 8011-01-P