[Federal Register Volume 74, Number 196 (Tuesday, October 13, 2009)]
[Notices]
[Pages 52514-52520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-24537]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28941; File No. 812-13656]


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

October 6, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order pursuant to 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 and pursuant to section 17(d) 
of the Act and rule 17d-1 under the Act permitting certain 
transactions.

-----------------------------------------------------------------------

    Summary of the Application: Applicants request an order that would 
permit (1) registered investment companies for which certain affiliates 
of Morgan Stanley (``Morgan Stanley'') act as an adviser to engage in 
certain securities transactions with certain affiliates of Citigroup 
Inc. (``Citigroup'') and (2) registered investment companies for which 
certain affiliates of Citigroup act as an adviser to engage in certain 
securities transactions with certain affiliates of Morgan Stanley.
    Applicants: Morgan Stanley Investment Management Inc., Morgan 
Stanley Investment Advisors Inc., Van Kampen Asset Management (each, an 
``MS Adviser''), Morgan Stanley & Co. Incorporated (``MS & Co.''), 
Morgan Stanley Balanced Fund, Morgan Stanley U.S. Government Money 
Market Trust, Morgan Stanley Dividend Growth Securities Inc., Morgan 
Stanley Natural Resource Development Securities Inc., Morgan Stanley 
Special Growth Fund, Morgan Stanley Global Dividend Growth Securities, 
Morgan Stanley Limited Term Municipal Trust, Morgan Stanley Technology 
Fund, Morgan Stanley Small-Mid Special Value Fund, Morgan Stanley 
Global Advantage Fund, Morgan Stanley Limited Duration U.S. Government 
Trust, 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 
Equally-Weighted S&P 500 Fund, Morgan Stanley Series Funds, Morgan 
Stanley Health Sciences Trust, Morgan Stanley Special Value Fund, 
Morgan Stanley Strategist Fund, Morgan Stanley High Yield Securities 
Inc., Morgan Stanley International Value Equity Fund, Morgan Stanley 
Liquid Asset Fund Inc., Morgan Stanley Mid-Cap Value Fund, Morgan 
Stanley S&P 500 Index Fund, Morgan Stanley Convertible Securities 
Trust, Morgan Stanley Fundamental Value Fund, Morgan Stanley Mid Cap 
Growth Fund, Morgan Stanley Prime Income Trust, Morgan Stanley Value 
Fund, Morgan Stanley European Equity Fund Inc., Morgan Stanley Flexible 
Income Trust, Morgan Stanley International Fund, Morgan Stanley 
Mortgage Securities Trust, Morgan Stanley Pacific Growth Fund Inc., 
Morgan Stanley Capital Opportunities Trust, Morgan Stanley Real Estate 
Fund, Morgan Stanley California Tax-Free Daily Income Trust, Morgan 
Stanley California Tax-Free Income Fund, Morgan Stanley Focus Growth 
Fund, Morgan Stanley FX Series Funds, Morgan Stanley New York Municipal 
Money Market Trust, Morgan Stanley New York Tax-Free Income Fund, 
Morgan Stanley Select Dimensions Investment Series, Morgan Stanley Tax-
Exempt Securities Trust, Morgan Stanley Tax-Free Daily Income Trust, 
Morgan Stanley U.S. Government Securities Trust, Morgan Stanley Global 
Infrastructure Fund, Morgan Stanley Variable Investment Series, Morgan 
Stanley Municipal Income Opportunities Trust II, Morgan Stanley 
Municipal Income Opportunities Trust III, Morgan Stanley Municipal 
Income Opportunities Trust, Morgan Stanley Municipal Premium Income 
Trust, Morgan Stanley Income Securities Inc., 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 New 
York Quality Municipal Securities, Morgan Stanley Quality Municipal 
Income Trust, Morgan Stanley Quality Municipal Investment Trust, Morgan 
Stanley Quality Municipal Securities, Morgan Stanley Institutional Fund 
Trust, Morgan Stanley Institutional Liquidity Funds, Morgan Stanley 
Institutional Fund, Inc., The Universal Institutional Funds, Inc., 
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc., The Turkish 
Investment Fund, Inc., Morgan Stanley Asia-Pacific Fund, Inc., Morgan 
Stanley China ``A'' Share Fund, Inc., Morgan Stanley Eastern Europe 
Fund, Inc., Morgan Stanley Emerging Markets Debt Fund, Inc., Morgan 
Stanley Emerging Markets Fund, Inc., Morgan Stanley Global Opportunity 
Bond Fund, Inc., Morgan Stanley High Yield Fund, Inc., Morgan Stanley 
India Investment Fund, Inc., Morgan Stanley Frontier Emerging Markets 
Fund, Inc., The Latin American Discovery Fund, Inc., The Malaysia Fund, 
Inc., The Thai Fund, Inc., Van Kampen Equity Trust, Van Kampen Money 
Market Fund, Van Kampen Capital Growth Fund, Van Kampen Tax Free Money 
Fund, Van Kampen Series Fund, Inc., Van Kampen Senior Loan Fund, Van 
Kampen Corporate Bond Fund, Van Kampen Equity Trust II, Van Kampen High 
Yield Fund, Van Kampen Trust, Van Kampen Partners Trust, Van Kampen 
Retirement Strategy Trust, Van Kampen Government Securities Fund, Van 
Kampen Pennsylvania Tax Free Income Fund, Van Kampen Tax Free Trust, 
Van Kampen Trust II, Van Kampen Growth and Income Fund, Van Kampen Tax-
Exempt Trust, Van Kampen Comstock Fund, Van Kampen Enterprise Fund, Van 
Kampen Equity and Income Fund, Van Kampen Exchange Fund, Van Kampen 
Harbor Fund, Van Kampen Life Investment Trust, Van Kampen Limited 
Duration Fund, Van Kampen Real Estate Securities Fund, Van Kampen U.S. 
Government Trust, Van Kampen Senior Income Trust, Van Kampen Advantage 
Municipal Income Trust II, Van Kampen California Value Municipal Income 
Trust, Van Kampen Dynamic Credit Opportunities Fund, Van Kampen 
Massachusetts Value Municipal Income Trust, Van Kampen Municipal 
Opportunity Trust, Van Kampen Municipal Trust, Van Kampen Ohio

[[Page 52515]]

Quality Municipal Trust, Van Kampen Pennsylvania Value Municipal Income 
Trust, Van Kampen Select Sector 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 Bond Fund, 
Van Kampen High Income Trust II (each, an ``MS Fund''), Citigroup 
Alternative Investments LLC (the ``Citi Adviser,'' and, together with 
the MS Advisers, the ``Advisers''), Citigroup Global Markets Inc. 
(``CGMI''), Citigroup Global Markets Limited, Citigroup Financial 
Products, Inc., Citibank, N.A., Citibank Canada, Citibank International 
plc, and LMP Corporate Loan Fund Inc. (the ``LMP Fund'').

DATES: Filing Dates: The application was filed on May 4, 2009 and 
amended on June 16, 2009 and August 10, 2009. 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 October 28, 2009, 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, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants, Stefanie V. Chang 
Yu, Esq., Morgan Stanley Investment Management Inc., 522 Fifth Avenue, 
New York, New York 10036 and Marianna Maffucci, Citigroup Global 
Markets Inc., 388 Greenwich Street, 17th Floor, New York, New York 
10013.
    For Further Information Contact: Jill Ehrlich, Attorney Adviser, at 
(202) 551-6819 or Mary Kay Frech, Branch Chief, at (202) 551-6821 
(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 via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. Each of the MS Funds and the LMP Fund (together, the ``Funds'') 
is an open-end or closed-end management investment company registered 
under the Act and is organized as a statutory trust, business trust, 
corporation, or limited partnership under the laws of Delaware, 
Maryland, Massachusetts, Pennsylvania, or California. The MS Funds and 
the LMP Fund have a variety of investment objectives, but each may to a 
greater or lesser degree invest a portion of its assets in fixed-income 
securities. The fixed-income securities in which the Funds may invest 
include, but are not limited to, government securities, municipal 
securities, tender option bonds, taxable and tax-exempt money market 
securities, repurchase agreements, asset- and mortgage-backed 
securities, corporate issues and syndicated loans (including 
assignments thereof and participations therein), each as the Funds' 
respective investment policies allow.
    2. The MS Advisers are direct or indirect wholly-owned subsidiaries 
of Morgan Stanley, a Delaware corporation. Each MS Adviser is 
registered as an investment adviser under the Investment Advisers Act 
of 1940 (the ``Advisers Act''). The MS Advisers act as investment 
advisers to each of the MS Funds and may supervise one or more 
affiliated or unaffiliated sub-advisers with respect to certain MS 
Funds.
    3. The Citi Adviser is an indirect wholly-owned subsidiary of 
Citigroup, a Delaware corporation. The Citi Adviser is registered as an 
investment adviser under the Advisers Act. The Citi Adviser acts as 
investment sub-adviser to the LMP Fund and may act in the future as 
adviser to other registered investment companies.
    4. MS & Co., a Delaware corporation, is a wholly-owned subsidiary 
of Morgan Stanley. CGMI, a New York corporation, is an indirect wholly-
owned subsidiary of Citigroup. In addition, Citibank, N.A., Citibank 
Canada, Citibank International plc, Citigroup Global Markets Limited 
and Citigroup Financial Products Inc. are each wholly-owned 
subsidiaries (directly or indirectly) of Citigroup (these entities, or 
their affiliates, together with CGMI, the ``Citi Trading Entity''). 
Each of MS & Co. (or its affiliates, together, the ``MS Trading 
Entity'') and the Citi Trading Entity (together with the MS Trading 
Entity, the ``Trading Entities'') is registered as a broker-dealer with 
the Commission under the Securities Exchange Act of 1934.
    5. On January 13, 2009, Morgan Stanley and Citigroup entered into a 
joint venture contribution and formation agreement (the ``JV 
Agreement'') to create Morgan Stanley Smith Barney Holdings LLC 
(``MSSB'' or the ``Joint Venture''), a Delaware limited liability 
company of which the equity capitalization consists solely of one class 
of common membership interests (the ``Interests''). MSSB is a holding 
company and the sole member of Morgan Stanley Smith Barney LLC, which 
conducts most of the Joint Venture's domestic operations as a dual-
registered broker-dealer and investment adviser. On June 1, 2009, the 
Joint Venture closed in accordance with the terms of the JV Agreement.
    6. Pursuant to the terms of the JV Agreement, Morgan Stanley 
contributed to the Joint Venture its global wealth management (retail 
brokerage) and private wealth management businesses (the ``MS 
Contributed Businesses'') (together with all contracts, employees, 
property licenses and other assets and liabilities). Citigroup 
contributed to the Joint Venture its retail brokerage and futures 
business operated under the name ``Smith Barney'' in the United States 
and Australia and operated under the name ``Quilter'' in the United 
Kingdom, Ireland, and the Channel Islands (the ``Citi Contributed 
Businesses'') (together with all contracts, employees, property 
licenses and other assets and liabilities). Morgan Stanley now owns 
indirectly through subsidiaries 51% of the Interests, and Citigroup 
owns indirectly through CGMI 49% of the Interests. In addition, under 
the JV Agreement, Morgan Stanley has the option to purchase an 
additional 14% of the Interests following the third anniversary of the 
closing, an additional 15% of the Interests after the fourth 
anniversary, and any remaining Interests held by Citigroup after the 
fifth anniversary.
    7. MSSB provides retail brokerage and a variety of wealth 
management services, including as an investment adviser, insurance 
broker, insurance agency and futures broker. MSSB conducts its own 
businesses, operating separately from the non-MSSB business units of 
Citigroup and Morgan Stanley (although they may perform certain 
functions, such as clearing, for MSSB for a certain period of time 
following the closing of the Joint Venture). Citigroup and Morgan 
Stanley have preserved their distinct brands and continue to offer 
independently a wide range of

[[Page 52516]]

financial services. Citigroup has no interest in, and will not control 
(within the meaning of section 2(a)(9) of the Act) directly or 
indirectly, Morgan Stanley, the MS Advisers, or any other Morgan 
Stanley entity that is not a MS Contributed Business (together with the 
MS Advisers, the ``MS Entities''). Morgan Stanley has no interest in, 
and will not control (within the meaning of section 2(a)(9) of the Act) 
directly or indirectly, Citigroup, the Citi Adviser, or any other 
Citigroup entity that is not a Citi Contributed Business (together with 
the Citi Adviser, the ``Citi Entities'').
    8. MSSB is governed by a newly formed board of directors controlled 
by Morgan Stanley (``MSSB Board''). Currently, the MSSB Board consists 
of four Morgan Stanley designees and two Citigroup designees (as long 
as Citigroup owns 10% or more of the Interests) and the president of 
MSSB. All matters with regard to MSSB generally will be determined by a 
majority vote of the MSSB Board, although the Joint Venture also 
includes certain other specified governance and approval rights.\1\ 
Approval of Citigroup is required for amendment to MSSB's limited 
liability company agreement, as long as Citigroup owns at least 20% of 
the Interests; thereafter, Citigroup's approval will be required only 
as to certain specified matters. Citigroup also may put its Interests 
to Morgan Stanley, in the event of a change of control of Morgan 
Stanley or after the sixth anniversary of the closing of the Joint 
Venture transaction if Morgan Stanley has exercised its first two call 
rights.
---------------------------------------------------------------------------

    \1\ These rights require the approval of Morgan Stanley and, for 
so long as Citigroup owns at least 20% of MSSB, of Citigroup, with 
respect to certain specified major decisions, including (but not 
limited to), generally: (a) Any merger, liquidation or sale of MSSB; 
(b) any acquisition or disposition of a business representing more 
than 20% of assets or revenues; (c) related party transactions other 
than those conducted (i) at arm's length and (ii) in the ordinary 
course of business (Citigroup may dispute either (i) or (ii)); (d) 
issuance, repurchase or redemption of equity securities except in 
certain circumstances; (e) removal or replacement of the president 
of MSSB or certain other officers; (f) entry into new business lines 
in certain circumstances; and (g) certain bankruptcy and tax events.
---------------------------------------------------------------------------

    9. Subsequent to the closing of the Joint Venture, the Citi Trading 
Entity and the MS Advisers (and the MS Trading Entity and the Citi 
Adviser) continue to operate as separate, independent businesses.\2\ 
Applicants state that the Funds and their investors are protected from 
any undue influence, among other things, by the substantial separation 
and independent operation of the Trading Entities from each other and 
from MSSB. Applicants state that none of the Funds will engage in 
portfolio transactions with MSSB. In addition, applicants state that 
each of the Advisers has adopted confidentiality policies designed to 
limit the unnecessary flow of information about client holdings and 
transactions. Such policies have been extended to prevent unnecessary 
information sharing between MSSB and each of the MS Advisers and the 
Citi Adviser. For example, information regarding investment advisory 
and portfolio execution matters relating to the MS Funds and the Citi 
Funds are considered by the MS Advisers and the Citi Adviser, 
respectively, as information that may not be communicated outside of 
such Adviser except as necessary (e.g., to a potential executing broker 
or dealer on an actual trade), including to MSSB. Additionally, 
``information barriers'' are in place to prevent the dissemination of 
confidential information between the MS Advisers and other MS Entities 
and between the Citi Adviser and other Citi Entities, respectively. The 
separation of the entities is required to be maintained by the 
``Structural Conditions'' proposed by the applicants, including that 
the Citi Trading Entity and the MS Advisers (and the MS Trading Entity 
and the Citi Adviser) will continue to have separate ownership, 
officers and employees, will continue to be separately capitalized, and 
will maintain separate books and records and physically separate 
offices. Accordingly, applicants submit that neither the Citi Trading 
Entity nor the MS Trading Entity will be in a position to cause any 
Securities Transaction (as defined below) by the MS Funds or the Citi 
Funds (as defined below), respectively.
---------------------------------------------------------------------------

    \2\ No director, officer or employee of the MS Funds or the MS 
Advisers also is or will be a director, officer or employee of the 
Citi Trading Entity. No director, officer or employee of the Citi 
Funds or the Citi Adviser also is or will be a director, officer or 
employee of the MS Trading Entity. As noted above, each of Citigroup 
and Morgan Stanley has the right to designate members of the MSSB 
Board. Currently, the chairman of MSSB is the co-president of Morgan 
Stanley.
---------------------------------------------------------------------------

    10. Applicants state that, because of consolidation in the 
financial services industry, combined with an increase in industry 
assets, a few major broker-dealers account for a large percentage of 
the market share in connection with trading in various asset classes. 
For example, applicants state that the Citi Trading Entity can be 
responsible for more than 10% of the dollar trading volume of primary 
offerings and more than 20% of the dollar trading volume of secondary 
market trading in certain types of fixed income securities. Applicants 
state that the decline in the number of broker-dealers and banks 
trading in the securities in which the Funds seek to invest and the 
increasing importance of the few remaining institutions have increased 
the importance to the Funds of their relationships with such entities, 
including the Citi Trading Entity or the MS Trading Entity, as 
applicable. Applicants note, for example, that certain MS Funds have 
used the Citi Trading Entity for more than 20% of their dollar trading 
volume in certain types of fixed-income securities. Applicants assert 
that the inability of the MS Funds and the Citi Funds to execute 
Securities Transactions involving the Citi Trading Entity and the MS 
Trading Entity, respectively (solely as a result of Citigroup's and 
Morgan Stanley's direct or indirect interest in MSSB), would 
significantly limit the universe of securities broker-dealers and banks 
available to the Funds, the universe of underwritings in which the 
Funds may participate, and the level and number of Securities 
Transactions in which the Funds may engage. Applicants submit that, as 
a result, the ability of the Funds to obtain the pricing, terms and 
quality of service available from a major dealer would be materially 
limited, which may harm the Funds by preventing them from obtaining 
best execution.
    11. Applicants request an order (``Order''), pursuant to sections 
6(c) and 17(b) of the Act exempting Securities Transactions entered 
into in the ordinary course of business by a MS Fund involving the Citi 
Trading Entity and by a Citi Fund involving the MS Trading Entity, 
under the circumstances described in the application, from the 
provisions of sections 17(a) of the Act, and pursuant to section 17(d) 
of the Act and rule 17d-1 under the Act permitting the Securities 
Transactions described below.\3\ The Order would apply only

[[Page 52517]]

where the Citi Trading Entity is deemed to be an affiliated person of 
an affiliated person (``second-tier affiliate'') of a MS Fund, or the 
MS Trading Entity is deemed to be a second-tier affiliate of a Citi 
Fund, solely because of Citigroup's and Morgan Stanley's direct or 
indirect ownership interest in MSSB.\4\
---------------------------------------------------------------------------

    \3\ Applicants seek to extend the Order requested to: (a) Any 
open-end or closed-end investment company registered under the Act, 
whether now existing or organized in the future, that is advised by 
any Adviser or by any existing or future investment adviser 
controlling, controlled by or under common control with Morgan 
Stanley or Citigroup other than MSSB (such funds, when advised by a 
Citigroup entity, are hereafter referred to together with the LMP 
Fund as the ``Citi Funds'' and, together with the MS Funds are 
included in the term ``Funds''); (b) the Advisers and any existing 
or future investment adviser controlling, controlled by or under 
common control with Morgan Stanley or Citigroup other than MSSB; and 
(c) the Trading Entities and any existing or future entity 
controlling, controlled by or under common control with Citigroup or 
Morgan Stanley other than MSSB, provided that any entity that relies 
on the Order complies with the terms and conditions set forth in the 
application as though it were an applicant.
    \4\ The relief sought would not apply if the transactions would 
be restricted by section 17 and rule 17d-1 because a Trading Entity 
is a principal underwriter or promoter of a Fund. No Fund advised or 
promoted by MSSB, or for which MSSB acts as principal underwriter, 
would be covered by the Order. MSSB may, however, act as principal 
underwriter for new closed-end MS Funds or Citi Funds; such role 
will cease at the time the syndicate terminates and prior to any 
transactions by such MS Fund involving the Citi Trading Entity or by 
such Citi Fund involving the MS Trading Entity. In addition, the 
proposed Order will not apply to transactions between the MS Funds 
and any Morgan Stanley controlled entity or to transactions between 
the Citi Funds and any Citigroup controlled entity.
---------------------------------------------------------------------------

    12. The ``Securities Transactions'' that are the subject of the 
Order are: (a) primary and secondary market transactions in fixed-
income securities executed on a principal basis between the MS Funds 
and the Citi Trading Entity and between the Citi Funds and the MS 
Trading Entity \5\ and (b) the following types of transactions in which 
the Citi Trading Entity or the MS Trading Entity and the MS Funds or 
the Citi Funds, respectively, might each participate jointly or have a 
joint interest (referred to as ``Joint Transactions''): (i) Tender 
option bond trust structures involving municipal bonds; (ii) asset-
backed securities (``ABS'') or mortgage-backed securities (``MBS'') 
transactions; (iii) syndicated loan transactions; and (iv) investments 
in the same company.
---------------------------------------------------------------------------

    \5\ ``Fixed-income securities'' for purposes of the Order 
include interests in syndicated loans (including loans made directly 
as a syndicate member, or the acquisition of a loan interest in the 
form of an assignment or participation), as well as convertible 
bonds and convertible preferred stock.
---------------------------------------------------------------------------

Applicants' Legal Analysis

    1. Section 17(a) of the Act, among other things, prohibits an 
affiliated person of a registered investment company, or any affiliated 
person of such a person, acting as principal, from selling to or 
purchasing from such registered company any security or other property 
and from borrowing money or other property from such investment 
company. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) of the Act if evidence establishes that 
the terms of the proposed transaction, including the consideration to 
be paid or received, are reasonable and fair and do not involve 
overreaching on the part of any person concerned and the proposed 
transaction is consistent with the policy of each registered investment 
company concerned and with the general purposes of the Act.
    2. Section 17(d) of the Act and rule 17d-1 thereunder prohibit any 
affiliated person of or principal underwriter for a registered 
investment company or any second-tier affiliate, acting as principal, 
from effecting any transaction in connection with any joint enterprise 
or other joint arrangement or profit sharing plan in which the 
investment company participates, unless an application regarding the 
joint transaction has been filed with the Commission and granted by 
order. Rule 17d-1 provides that, in passing upon an application for 
such an order, the Commission will consider whether the participation 
of a registered investment company in a joint transaction is consistent 
with the provisions, policies and purposes of the Act and the extent to 
which such participation is on a basis different from or less 
advantageous than that of the other applicants.
    3. Section 6(c) of the Act, in relevant part, authorizes the 
Commission to exempt any person or transaction, or any class or classes 
of persons or transactions, from any provision or provisions of the 
Act, if and to the extent that such exemption is necessary or 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provision of the Act.
    4. Section 2(a)(3) of the Act defines ``affiliated person'' of 
another person to include: (a) Any person directly or indirectly 
owning, controlling, or holding with power to vote, 5% or more of the 
outstanding voting securities of such other person; (b) any person 5% 
or more of whose outstanding voting securities are directly or 
indirectly owned by, controlled, or held with power to vote, by such 
person; and (c) any person directly or indirectly controlling, 
controlled by, or under common control with, such other person.
    5. Applicants state that, as a result of the Joint Venture, the 
Citi Trading Entity would arguably become a second-tier affiliate of 
the MS Funds (and the MS Trading Entity a second-tier affiliate of the 
Citi Funds) within the meaning of section 2(a)(3) of the Act. 
Applicants state that, if the MS Funds are assumed to be under the 
control of the MS Advisers, and Morgan Stanley also controls MSSB, then 
MSSB and the MS Funds are affiliated persons (``first-tier 
affiliates'') by virtue of being under common control. Applicants 
further state that the Citi Trading Entity also could be viewed as a 
first-tier affiliate of MSSB, and a second-tier affiliate of the MS 
Funds, because of CGMI's ownership of more than five percent of the 
voting securities of MSSB and its control of MSSB. Applicants represent 
that the affiliation analysis would be generally the same with respect 
to the Citi Funds and the MS Trading Entity. Applicants submit that, 
due to their second-tier affiliation, any Securities Transaction by the 
MS Funds involving the Citi Trading Entity, and by the Citi Funds 
involving the MS Trading Entity, would be subject to section 17(a) of 
the Act where it constitutes a principal transaction between them, and 
for Joint Transactions, section 17(d) of the Act and rule 17d-1 
thereunder.
    6. Applicants submit that the primary purpose of section 17(a) is 
to prevent a person with the power to control an investment company 
from essentially engaging in self-dealing, to the detriment of the 
investment company's shareholders. Similarly, applicants submit that 
section 17(d) and rule 17d-1 were intended to prohibit abuses arising 
from conflicts of interest where rather than being on opposite sides of 
a transaction, an investment company and its affiliates share ``some 
element of combination'' in a transaction.
    7. Applicants submit that the policies which sections 17(a) and 
17(d) of the Act, and rule 17d-1 thereunder, were meant to further are 
not implicated here because Citigroup and the Citi Trading Entity are 
not in a position to cause a MS Fund to enter into a Securities 
Transaction or otherwise influence portfolio decisions by the MS 
Advisers on behalf of the MS Funds; and, similarly, applicants submit 
that Morgan Stanley and the MS Trading Entity are not in a position to 
cause a Citi Fund to enter into a Securities Transaction or otherwise 
influence portfolio decisions by the Citi Adviser on behalf of the Citi 
Fund. Applicants state that, as a result, no Trading Entity is in a 
position to engage in self-dealing or otherwise cause any of the 
relevant Funds to enter into transactions that are not in the best 
interests of its shareholders.
    8. Applicants state that compliance with the ``Structural 
Conditions'' set forth below is intended to assure that the MS Advisers 
and the MS Funds continue to operate independently of, and free of any 
undue influence by, Citigroup and the Citi Trading Entity and 
similarly, that the Citi Adviser and the Citi Funds continue to operate 
independently of, and free of any undue influence by, Morgan Stanley 
and the MS Trading Entity.

[[Page 52518]]

    9. Applicants state that compliance with the ``Transactional 
Conditions'' set forth below is designed to assure that the terms of 
the individual transactions are fair from the perspective of the Funds. 
For example, applicants note that, at the outset, the conditions 
require each Fund's board of directors, board of trustees or other 
governing body of such Fund, as applicable (each, a ``Board''), 
including a majority of its disinterested directors or trustees, as 
applicable (``Necessary Majority''), to approve, and the Fund to 
implement, procedures governing all Securities Transactions pursuant to 
the Order. Applicants submit that, pursuant to such procedures, the 
Securities Transactions will be subject to ongoing review by each 
Fund's chief compliance officer, and will be reviewed by its Board, 
including the Necessary Majority, on a quarterly basis. In addition, 
among other procedures, the relevant Adviser will make a determination 
that each Securities Transaction is consistent with the investment 
objectives of the relevant Fund and in the best interests of such 
Fund's shareholders. The conditions also require price quotes from 
unaffiliated sources to assure fairness of price.
    10. Applicants state that the Securities Transactions described in 
the Application satisfy the standards of sections 6(c) and 17(b). 
Applicants submit that there is no danger of overreaching or self-
dealing by a Trading Entity in connection with a Securities 
Transaction, and there will be no conflict of interest associated with 
an Adviser's decision to engage in a Securities Transaction with a 
Trading Entity on behalf of a Fund. Moreover, applicants state that the 
Order is consistent with the policies of the Funds and the protection 
of investors, as the Advisers will manage the Funds in accordance with 
the policies and investment objectives of the Funds and without any 
influence by the Trading Entities. Finally, applicants state that 
permitting the Securities Transactions will be appropriate in the 
public interest and consistent with general purposes of the Act because 
the ability to engage in Securities Transactions increases the 
likelihood of a Fund achieving best price and execution in such 
transactions and results in none of the abuses that the Act was 
designed to prevent.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:

A. Structural

    1. Citigroup will control none of the MS Advisers or the MS Funds 
or any principal underwriter for the MS Funds,\6\ directly or 
indirectly, within the meaning of section 2(a)(9) of the Act. The Order 
will remain in effect only so long as Morgan Stanley, or such other 
entity not controlling, controlled by or under common control with 
Citigroup, primarily controls the MS Advisers.
---------------------------------------------------------------------------

    \6\ MSSB may act as principal underwriter with respect to 
certain newly organized closed-end MS Funds; however, such role will 
cease at the time the syndicate terminates and prior to any 
transactions by such MS Funds involving the Citi Trading Entity.
---------------------------------------------------------------------------

    2. Morgan Stanley will control none of the Citi Adviser or the Citi 
Funds or any principal underwriter for the Citi Funds,\7\ directly or 
indirectly, within the meaning of section 2(a)(9) of the Act. The Order 
will remain in effect only so long as Citigroup, or such other entity 
not controlling, controlled by or under common control with Morgan 
Stanley, primarily controls the Citi Adviser.
---------------------------------------------------------------------------

    \7\ MSSB may act as principal underwriter with respect to 
certain newly organized closed-end Citi Funds; however, such role 
will cease at the time the syndicate terminates and prior to any 
transactions by such Citi Funds involving the MS Trading Entity.
---------------------------------------------------------------------------

    3. Citigroup will not directly or indirectly consult with Morgan 
Stanley, the MS Advisers or any portfolio manager of the MS Advisers 
concerning securities purchases or sales or the selection of a broker 
or dealer for any Securities Transaction placed or to be placed on 
behalf of a MS Fund, or otherwise seek to influence the choice of 
broker or dealer for any Securities Transaction by a MS Fund other than 
in the normal course of sales activities of the same nature that are 
being carried out during the same time period with respect to 
unaffiliated institutional clients of the Citi Trading Entity, or that 
existed between the Citi Trading Entity and the MS Advisers prior to 
consummation of the Joint Venture.
    4. Morgan Stanley will not directly or indirectly consult with 
Citigroup, the Citi Adviser or any portfolio manager of the Citi 
Adviser concerning securities purchases or sales or the selection of a 
broker or dealer for any Securities Transaction placed or to be placed 
on behalf of a Citi Fund, or otherwise seek to influence the choice of 
broker or dealer for any Securities Transaction by a Citi Fund other 
than in the normal course of sales activities of the same nature that 
are being carried out during the same time period with respect to 
unaffiliated institutional clients of the MS Trading Entity, or that 
existed between the MS Trading Entity and the Citi Adviser prior to 
consummation of the Joint Venture.
    5. No officer, director or employee of MSSB will directly or 
indirectly seek to influence in any way the terms of any Securities 
Transaction covered by the Order.
    6. The MS Advisers and the Citi Trading Entity will operate as 
separate organizations, with separate capitalization, separate books 
and records, separate officers and employees, and physically separate 
offices. The Citi Trading Entity will adopt and implement policies that 
prohibit the Citi Trading Entity from (a) linking any approval or 
action relating to MSSB to any action by any MS Fund, or by any MS 
Adviser relating to any MS Fund, or (b) using the existence of MSSB as 
a basis for seeking to persuade any MS Fund or MS Adviser to engage in 
business with the Citi Trading Entity. The MS Advisers have adopted 
policies designed to keep information about client holdings and 
transactions on a confidential basis, prior to any public disclosure. 
Pursuant to these policies, the MS Advisers will designate information 
regarding investment advisory and portfolio execution matters relating 
to the MS Funds as information that may not be communicated between 
MSSB, on one hand, and the MS Advisers, on the other hand, prior to any 
public disclosure.
    7. The Citi Adviser and the MS Trading Entity will operate as 
separate organizations, with separate capitalization, separate books 
and records, separate officers and employees, and physically separate 
offices. The MS Trading Entity will adopt and implement policies that 
prohibit the MS Trading Entity from (a) linking any approval or action 
relating to MSSB to any action by any Citi Fund, or by any Citi Adviser 
relating to any Citi Fund, or (b) using the existence of MSSB as a 
basis for seeking to persuade any Citi Fund or Citi Adviser to engage 
in business with the MS Trading Entity. The Citi Adviser has adopted 
policies designed to keep information about client holdings and 
transactions on a confidential basis, prior to any public disclosure. 
Pursuant to these policies, the Citi Adviser will designate information 
regarding investment advisory and portfolio execution matters relating 
to the Citi Funds as information that may not be communicated between 
MSSB, on the one hand, and the Citi Adviser, on the other hand, prior 
to any public disclosure.
    8. Citigroup will not adopt any compensation scheme any component 
of which is based on (a) a factor that treats the MS Funds differently 
than

[[Page 52519]]

unaffiliated counterparties or (b) the amount of business done by the 
Citi Funds with the MS Trading Entity except to the extent such 
business might affect indirectly the profits or losses of the Citi 
Adviser.
    9. Morgan Stanley will not adopt any compensation scheme any 
component of which is based on (a) a factor that treats the Citi Funds 
differently than unaffiliated counterparties or (b) the amount of 
business done by the MS Funds with the Citi Trading Entity except to 
the extent such business might affect indirectly the profits or losses 
of the MS Advisers.
    10. The respective legal/compliance departments of the MS Advisers 
and the Citi Trading Entity, and of the Citi Adviser and the MS Trading 
Entity, will prepare guidelines for their respective personnel to make 
certain that Securities Transactions effected pursuant to the Order 
comply with its conditions, and that the respective Advisers and 
Trading Entities maintain an arms-length relationship. The respective 
compliance departments of the Advisers and Trading Entities will 
monitor periodically the activities of the Advisers and Trading 
Entities, respectively, to make certain that the conditions to the 
Order are met.

B. Transactional

    With respect to each Securities Transaction entered into or 
effected pursuant to the Order:
    1. Each Fund's Board, including the Necessary Majority, shall 
approve, and the Fund shall implement, procedures governing all 
transactions pursuant to the Order and the Fund's Board shall no less 
frequently than quarterly review all such transactions and receive and 
review a report of those transactions. Such report, which will be 
prepared by the Fund's Adviser, and reviewed and approved by the Fund's 
Chief Compliance Officer, will indicate for each transaction that the 
conditions of the Order have been satisfied, and will include a 
discussion of any significant changes in the volume, type or terms of 
transactions between the relevant Fund and Trading Entity, the reasons 
for these changes, and a determination that such changes are 
legitimate.
    2. For each transaction, the MS Advisers will adhere to a ``best 
execution'' standard and will consider only the interests of the MS 
Funds and will not take into account the impact of a MS Fund's 
investment decision on the Citi Trading Entity or its affiliates. For 
each transaction, the Citi Adviser will adhere to a ``best execution'' 
standard and will consider only the interests of the Citi Funds and 
will not take into account the impact of a Citi Fund's investment 
decision on the MS Trading Entity or its affiliates. Before entering 
into any such transaction, the Adviser will determine that the 
transaction is consistent with the investment objectives and policies 
of the Fund and is in the best interests of the Fund and its 
shareholders.
    3. Each Fund will (a) for so long as the Order is relied upon, 
maintain and preserve in an easily accessible place a written copy of 
the procedures and conditions (and any modifications thereto) that are 
described herein, and (b) maintain and preserve for a period of not 
less than six years from the end of the fiscal year in which any 
Securities Transaction in which the Fund's Adviser knows that both a 
Trading Entity and the Fund directly or indirectly have an interest 
occurs, the first two years in an easily accessible place, a written 
record of each such transaction setting forth a description of the 
security purchased or sold by the Fund, a description of the Trading 
Entity's interest or role in the transaction, the terms of the 
transaction, and the information or materials upon which the 
determination was made that each such transaction was made in 
accordance with the procedures and conditions set forth herein and in 
the application.
    4. Except as otherwise provided in 4(a) and 4(b) below, before any 
secondary market principal transaction is entered into between a Fund 
and a Trading Entity, the Fund's Adviser must obtain a competitive 
quotation for the same securities (or in the case of securities for 
which quotations for the same securities are not available, a 
competitive quotation for Comparable Securities \8\) from at least two 
unaffiliated dealers that are in a position to quote favorable market 
prices. For each such transaction, the Adviser will determine, based 
upon the quotations and such other relevant information (such as 
available transaction prices and any other information regarding the 
value of the securities) as is reasonably available to the Adviser, 
that the price available from the Trading Entity is at least as 
favorable as that available from other sources.
---------------------------------------------------------------------------

    \8\ The term ``Comparable Securities'' refers to securities with 
substantially identical maturities, credit risk and repayment terms 
(including floating or fixed-rate coupons, attached options, or any 
other provisions that affect the expected size or timing of the 
payments from the securities) as the securities to be purchased or 
sold.
---------------------------------------------------------------------------

    (a) With respect to each such transaction involving repurchase 
agreements, a Fund will enter into such agreements only where the 
Adviser has determined, based upon relevant information reasonably 
available to the Adviser, that the income to be earned from the 
repurchase agreement is at least equal to that available from other 
sources. Before any repurchase agreements are entered into pursuant to 
the exemption, the Fund or the Adviser must obtain competitive 
quotations from at least two unaffiliated 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.
    (b) With respect to each such transaction involving variable rate 
demand notes for which dealer quotes are not ordinarily available, a 
Fund will only undertake purchases and sales where the Adviser has 
determined, based on relevant information reasonably available to the 
Adviser, that the income 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 sources.
    5. With respect to securities offered in a primary market 
underwritten transaction, a Fund will undertake such purchase from the 
Trading Entity only where the Adviser has determined, based upon 
relevant information reasonably available to the Adviser, that the 
securities were purchased at a price that is no more than the price 
paid by each other purchaser of securities from the Trading Entity or 
other members of the underwriting syndicate in that offering or in any 
concurrent offering of the securities, and on the same terms as such 
other purchasers (except in the case of an offering conducted under the 
laws of a country other than the United States, for any rights to 
purchase that are required by law to be granted to existing securities 
holders of the issuer).
    6. In the case of an arrangement regarding a tender option bond 
trust for which a Trading Entity acts as a liquidity provider or 
remarketing agent and owns an interest (or may own an interest as a 
result of such capacity):
    (a) Where such arrangement was structured prior to the closing of 
the Joint Venture, the terms of such arrangement will not change after 
such closing without the approval of the Necessary Majority of the 
Fund's Board, based on a finding that it is in the best interests of 
the Fund to continue such arrangement, as proposed to be modified; 
provided that if the Trading Entity owns the residual interest and a 
Fund owns the floating rate interest, such Board approval will not be 
required if: (i) The Fund is eligible to

[[Page 52520]]

participate in any discretionary tender on the same basis as any 
similarly situated holder of floating rate interests; (ii) the Fund 
must participate in any mandatory tender on the same basis as each 
similarly situated holder; and (iii) less than 50% of the floating rate 
interests are owned by Funds (and other discretionary accounts) managed 
by the Fund's Adviser.
    (b) In the case of such arrangements structured after the closing 
of the Joint Venture:
    (i) The Necessary Majority of the Fund's Board will adopt 
procedures designed to assure that it is in the best interests of the 
Fund to participate in any such arrangements. Such procedures will take 
into consideration, among other things, the terms of the arrangement, 
the nature of the respective interests in the trusts that may be held 
by the Trading Entity and the Funds, and the circumstances under which 
the Trading Entity may cause termination of the trust and the transfer 
of the underlying bonds back to the Fund; and
    (ii) where a Trading Entity owns the residual interest and a Fund 
owns a floating rate interest: (1) The Fund must be eligible to 
participate in any discretionary tender on the same basis as any 
similarly situated holder of floating rate interests; (2) the Fund must 
participate in any mandatory tender on the same basis as each similarly 
situated holder; and (3) less than 50% of the floating rate interests 
must be owned by Funds (and other discretionary accounts) managed by 
the Fund's Adviser.
    (c) Before any such arrangements are entered into pursuant to the 
exemption, where the Fund holds the residual interest, the Fund or the 
Adviser must obtain competitive quotations from at least two 
unaffiliated institutions with respect to fees charged by such 
institutions for acting as liquidity provider or remarketing agent, 
except that if quotations are unavailable from two such institutions, 
only one other competitive quotation is required. Any fees paid to the 
Trading Entity as liquidity provider or remarketing agent will be no 
greater than the lowest of such quotations, unless the Board finds that 
such difference is justified by a corresponding difference in the 
nature of the services provided.
    7. With respect to ABS or MBS that are newly issued by special 
purpose entities sponsored by a Trading Entity (or an affiliate) under 
circumstances in which both the following are true: (a) The residual 
interest in the special purpose entity is owned directly or indirectly 
by the Trading Entity (or an affiliate); and (b) the Trading Entity (or 
an affiliate) acts as the servicer of assets, purchases of such 
securities will be made by a Fund only where, based on relevant 
information that is reasonably available to the Adviser, the Adviser 
believes that, upon the close of the transaction, Funds (and other 
discretionary advisory accounts) managed by the Adviser will purchase 
less than 50% of the dollar amount of securities of each class acquired 
by the Fund in the aggregate, and the Fund participates in each such 
class on the same terms as other purchasers of that class.
    8. With respect to a syndicated loan facility in which a Fund and a 
Trading Entity participate in a manner that might otherwise be 
prohibited by section 17(d) of the Act and rule 17d-1 thereunder: (a) 
The participation by the Fund and the Trading Entity will involve no 
coordination between the Fund and the Trading Entity beyond that of a 
type the Trading Entity engages in with other unaffiliated participants 
in such facility; (b) the terms of the Fund's participation in the 
facility (to the extent within the knowledge and control of the Trading 
Entity) will be on a basis no less advantageous than that of other 
similarly situated participants (i.e., the Fund will receive the same 
priority, security, interest rate and fees as other participants in the 
same tranche or other portion of the loan in which the Fund is a 
participant), except to the extent such difference is related to 
services performed with respect to the facility or their role in the 
facility; and (c) in the case of the primary syndication of a loan 
facility where the Trading Entity is lead agent with primary 
responsibility for structuring, arranging or placing such facility, the 
Fund will participate in the facility only where, based on relevant 
information that is reasonably available to the Adviser, the Adviser 
believes that, upon conclusion of allocations to holders of record in 
the primary syndication of the facility, less than 50% of the 
participations will be held by Funds (and other discretionary advisory 
accounts) managed by the Adviser.
    9. With respect to situations in which a Fund and a Trading Entity 
have invested in the same company and that might otherwise be 
prohibited by section 17(d) of the Act and rule 17d-1 thereunder (other 
than a syndicated loan transaction, which is subject to condition B.8 
above): (a) The Fund's and the Trading Entity's investment will involve 
no coordination between the Trading Entity and the Fund beyond that of 
a type the Trading Entity engages in with other unaffiliated investors 
in such company; and (b) the Fund will participate or invest in a type 
or class of securities (e.g., equity securities) of the company only 
where, based on relevant information that is reasonably available to 
the Adviser, the Adviser believes that, upon the close of the 
investment transaction, less than 50% of the dollar amount of the 
securities of such type or class will be owned by Funds (and other 
discretionary advisory accounts) managed by the Adviser.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-24537 Filed 10-9-09; 8:45 am]
BILLING CODE 8011-01-P