Before the
SECURITIES AND EXCHANGE COMMISSION
APPLICATION FOR AN ORDER PURSUANT TO SECTIONS
6(C) AND 17(B) OF THE INVESTMENT COMPANY ACT OF 1940 EXEMPTING
CERTAIN TRANSACTIONS FROM THE PROVISIONS OF SECTION 17(A) OF THE ACT
AND PURSUANT TO SECTION 17(D) OF THE ACT AND RULE 17D-1 THEREUNDER
PERMITTING CERTAIN TRANSACTIONS
In the matter of application of
MORGAN STANLEY INVESTMENT MANAGEMENT INC.
MORGAN STANLEY INVESTMENT ADVISORS INC.
VAN KAMPEN ASSET MANAGEMENT
MORGAN STANLEY & CO. INCORPORATED
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 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
CITIGROUP ALTERNATIVE INVESTMENTS LLC
CITIGROUP GLOBAL MARKETS INC.
CITIGROUP GLOBAL MARKETS LIMITED
CITIGROUP FINANCIAL PRODUCTS INC.
CITIBANK, N.A.
CITIBANK CANADA
CITIBANK INTERNATIONAL PLC
LMP CORPORATE LOAN FUND INC.
File No. 812-
April 30, 2009
Copies to:
Stefanie V. Chang
Yu, Esq.
|
Marianna Maffucci
|
Morgan Stanley Investment Management Inc.
|
Citigroup Global Markets Inc.
|
522 Fifth Avenue
|
388 Greenwich Street, 17
th
Floor
|
New York, New York 10036
|
New York, New York 10013
|
Communications, copies and
notice to:
Brian M. Kaplowitz, Esq.
|
Nora M. Jordan, Esq.
|
Sidley Austin
LLP
|
Davis Polk & Wardwell
|
787 Seventh Avenue
|
450 Lexington Avenue
|
New York, New York 10019
|
New York, New York 10017
|
This Application consists of 81 pages (including
Exhibits),
which have been numbered sequentially.
TABLE OF
CONTENTS
I.
|
Summary of Application
|
11
|
|
|
|
II.
|
Description of the Applicants
|
14
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|
|
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A.
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The Funds
|
14
|
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B.
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The Advisers
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15
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C.
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The Trading Entities
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16
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III.
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The Joint Venture
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16
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A.
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Ownership of the Joint Venture
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17
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B.
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The Contributed Businesses
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17
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C.
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Governance of the Joint Venture
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18
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IV.
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Separation Between the MS Entities and the Citi Entities
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19
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V.
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Consolidation in the Financial Services Industry
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21
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VI.
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The Securities Transactions
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24
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A.
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The Securities Transactions Generally
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24
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B.
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Joint Transactions
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25
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VII.
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Relevant Provisions and Relief Requested
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29
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A.
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Relevant Provisions
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29
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B.
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Authority for the Order
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32
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C.
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Relief Requested
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33
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VIII.
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Rationale for Relief
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34
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IX.
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Precedent
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39
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X.
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Applicants Conditions
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43
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A.
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Structural
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43
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B.
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Transactional
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46
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XI.
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Conclusion
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51
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XII.
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Procedural Matters
|
52
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UNITED
STATES OF AMERICA
before the
SECURITIES
AND EXCHANGE COMMISSION
--------------------------------------------------------------------------------
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|
x
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In the Matter of
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|
:
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:
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Morgan Stanley Investment Management Inc.
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|
:
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Application for an order pursuant to Sections 6(c) and 17(b)
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Morgan Stanley Investment Advisors Inc.
|
|
:
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of the Investment Company Act of 1940 exempting certain
|
Van Kampen Asset Management
|
|
:
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transactions from the provisions of Sections 17(a) of the
|
Morgan Stanley & Co. Incorporated
|
|
:
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Act and pursuant to Section 17(d) of the Act and Rule
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Morgan Stanley Balanced Fund
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|
:
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17d-1 thereunder permitting certain transactions
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Morgan Stanley U.S. Government Money Market Trust
|
|
:
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Morgan Stanley Dividend Growth Securities Inc.
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:
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Morgan Stanley Natural Resource Development Securities Inc.
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:
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Morgan Stanley Special Growth Fund
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:
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Morgan Stanley Global Dividend Growth Securities
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:
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Morgan Stanley Limited Term Municipal Trust
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:
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Morgan Stanley Technology Fund
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:
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Morgan Stanley Small-Mid Special Value Fund
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:
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Morgan Stanley Global Advantage Fund
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:
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Morgan Stanley Limited Duration U.S. Government Trust
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:
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Active Assets California Tax-Free Trust
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:
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Active Assets Government Securities Trust
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:
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Active Assets Institutional Government Securities Trust
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:
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Active Assets Institutional Money Trust
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:
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Active Assets Money Trust
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:
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Active Assets Tax-Free Trust
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:
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Morgan Stanley Equally-Weighted S&P 500 Fund
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:
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Morgan Stanley Series Funds
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:
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Morgan Stanley Health Sciences Trust
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:
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Morgan Stanley Special Value Fund
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:
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Morgan Stanley Strategist Fund
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:
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Morgan Stanley High Yield Securities Inc.
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:
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Morgan Stanley International Value Equity Fund
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:
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Morgan Stanley Liquid Asset Fund Inc.
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:
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Morgan Stanley Mid-Cap Value Fund
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:
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Morgan Stanley S&P 500 Index Fund
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:
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Morgan Stanley Convertible Securities Trust
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:
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Morgan Stanley Fundamental Value Fund
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:
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Morgan Stanley Mid Cap Growth Fund
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:
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Morgan Stanley Prime Income Trust
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:
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Morgan Stanley Value Fund
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:
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8
Morgan Stanley European Equity Fund Inc.
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:
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Morgan Stanley Flexible Income Trust
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:
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Morgan Stanley International Fund
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:
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Morgan Stanley Mortgage Securities Trust
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:
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Morgan Stanley Pacific Growth Fund Inc.
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:
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Morgan Stanley Capital Opportunities Trust
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:
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Morgan Stanley Real Estate Fund
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:
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Morgan Stanley California Tax-Free Daily Income Trust
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:
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Morgan Stanley California Tax-Free Income Fund
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:
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Morgan Stanley Focus Growth Fund
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:
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Morgan Stanley FX Series Funds
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:
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Morgan Stanley New York Municipal Money Market Trust
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:
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Morgan Stanley New York Tax-Free Income Fund
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:
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Morgan Stanley Select Dimensions Investment Series
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:
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Morgan Stanley Tax-Exempt Securities Trust
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:
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Morgan Stanley Tax-Free Daily Income Trust
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:
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Morgan Stanley U.S. Government Securities Trust
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:
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Morgan Stanley Global Infrastructure Fund
|
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:
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Morgan Stanley Variable Investment Series
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:
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Morgan Stanley Municipal Income Opportunities Trust II
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:
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Morgan Stanley Municipal Income Opportunities Trust III
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:
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Morgan Stanley Municipal Income Opportunities Trust
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:
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Morgan Stanley Municipal Premium Income Trust
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:
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Morgan Stanley Income Securities Inc.
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:
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Morgan Stanley California Insured Municipal Income Trust
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:
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Morgan Stanley California Quality Municipal Securities
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:
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Morgan Stanley Insured California Municipal Securities
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:
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Morgan Stanley Insured Municipal Bond Trust
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:
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Morgan Stanley Insured Municipal Income Trust
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:
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Morgan Stanley Insured Municipal Securities
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:
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Morgan Stanley Insured Municipal Trust
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:
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Morgan Stanley New York Quality Municipal Securities
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:
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Morgan Stanley Quality Municipal Income Trust
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:
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Morgan Stanley Quality Municipal Investment Trust
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:
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Morgan Stanley Quality Municipal Securities
|
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:
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Morgan Stanley Institutional Fund Trust
|
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:
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Morgan Stanley Institutional Liquidity Funds
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:
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Morgan Stanley Institutional Fund, Inc.
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:
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The Universal Institutional Funds, Inc.
|
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:
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Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
|
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:
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The Turkish Investment Fund, Inc.
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:
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Morgan Stanley Asia-Pacific Fund, Inc.
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:
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Morgan Stanley China A Share Fund, Inc.
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:
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Morgan Stanley Eastern Europe Fund, Inc.
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:
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Morgan Stanley Emerging Markets Debt Fund, Inc.
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:
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9
Morgan Stanley Emerging Markets Fund, Inc.
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:
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Morgan Stanley Global Opportunity Bond Fund, Inc.
|
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:
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Morgan Stanley High Yield Fund, Inc.
|
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:
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Morgan Stanley India Investment Fund, Inc.
|
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:
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Morgan Stanley Frontier Emerging Markets Fund, Inc.
|
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:
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The Latin American Discovery Fund, Inc.
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:
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The Malaysia Fund, Inc.
|
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:
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The Thai Fund, Inc.
|
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:
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Van Kampen Equity Trust
|
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:
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Van Kampen Money Market Fund
|
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:
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Van Kampen Capital Growth Fund
|
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:
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Van Kampen Tax Free Money Fund
|
|
:
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Van Kampen Series Fund, Inc.
|
|
:
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Van Kampen Senior Loan Fund
|
|
:
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Van Kampen Corporate Bond Fund
|
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:
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Van Kampen Equity Trust II
|
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:
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Van Kampen High Yield Fund
|
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:
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Van Kampen Trust
|
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:
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Van Kampen Partners Trust
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:
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Van Kampen Retirement Strategy Trust
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:
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Van Kampen Government Securities Fund
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:
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Van Kampen Pennsylvania Tax Free Income Fund
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:
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Van Kampen Tax Free Trust
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:
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Van Kampen Trust II
|
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:
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Van Kampen Growth and Income Fund
|
|
:
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Van Kampen Tax-Exempt Trust
|
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:
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Van Kampen Comstock Fund
|
|
:
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Van Kampen Enterprise Fund
|
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:
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Van Kampen Equity and Income Fund
|
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:
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Van Kampen Exchange Fund
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:
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Van Kampen Harbor Fund
|
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:
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Van Kampen Life Investment Trust
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:
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Van Kampen Limited Duration Fund
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:
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Van Kampen Real Estate Securities Fund
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:
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Van Kampen U.S. Government Trust
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|
:
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Van Kampen Senior Income Trust
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:
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Van Kampen Advantage Municipal Income Trust II
|
|
:
|
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Van Kampen California Value Municipal Income Trust
|
|
:
|
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Van Kampen Dynamic Credit Opportunities Fund
|
|
:
|
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Van Kampen Massachusetts Value Municipal Income Trust
|
|
:
|
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Van Kampen Municipal Opportunity Trust
|
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:
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Van Kampen Municipal Trust
|
|
:
|
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Van Kampen Ohio Quality Municipal Trust
|
|
:
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Van Kampen Pennsylvania Value Municipal Income Trust
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|
:
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Van Kampen Select Sector Municipal Trust
|
|
:
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Van Kampen Trust for Insured Municipals
|
|
:
|
|
10
Van Kampen Trust for Investment Grade Municipals
|
|
:
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Van Kampen Trust for Investment Grade New Jersey Municipals
|
|
:
|
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Van Kampen Trust for Investment Grade New York Municipals
|
|
:
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Van Kampen Bond Fund
|
|
:
|
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Van Kampen High Income Trust II
|
|
:
|
|
Citigroup Alternative Investments LLC
|
|
:
|
|
Citigroup Global Markets Inc.
|
|
:
|
|
Citigroup Global Markets Limited
|
|
:
|
|
Citigroup Financial Products, Inc.
|
|
:
|
|
Citibank, N.A.
|
|
:
|
|
Citibank Canada
|
|
:
|
|
Citibank International plc
|
|
:
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LMP Corporate Loan Fund Inc.
|
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:
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|
--------------------------------------------------------------------------------
|
|
x
|
|
I.
Summary of Application
This Application is
submitted to the Securities and Exchange Commission (the Commission) on
behalf of the applicants named herein (the Applicants) pursuant to Sections 6(c) and
17(b) of the Investment Company Act of 1940, as amended (the Act), for
an order exempting securities transactions of the type described below from the
provisions of Sections 17(a) of the Act, and pursuant to Section 17(d) of
the Act and Rule 17d-1 permitting certain transactions. The Applicants are Morgan Stanley Investment
Management Inc., Morgan Stanley Investment Advisors Inc. and Van Kampen Asset
Management (each, a MS Adviser and collectively, the MS Advisers); the
Funds listed in Schedule A to this application, which are advised by the MS
Advisers (the MS Funds); Morgan Stanley & Co. Incorporated (MS &
Co.) (or its affiliates, together, the MS Trading Entity unless the context
otherwise requires); Citigroup Alternative Investments LLC (the Citi Adviser
and, together with the MS Advisers, the Advisers); LMP Corporate Loan Fund
Inc. (the LMP Fund) for which the Citi Adviser
11
currently acts as a sub-investment adviser;
and Citigroup Global Markets Inc. (CGMI), Citigroup Global Markets Limited,
Citigroup Financial Products Inc., Citibank, N.A., Citibank Canada or Citibank
International plc as relevant to the particular transaction (or their
affiliates, together, the Citi Trading Entity, unless the context otherwise
requires, and, together with the MS Trading Entity, the Trading Entities).
The Order sought herein would permit the MS Funds to
engage in the Securities Transactions (defined below) with the Citi Trading
Entity and would permit the LMP Fund to engage in the Securities Transactions
with the MS Trading Entity. The
Securities Transactions that are the subject of the requested order (the
Order) include primary and secondary market transactions in fixed-income
securities (and including for this purpose loans and interests therein) on a
principal basis between the MS Funds and the Citi Trading Entity and between
the LMP Fund and the MS Trading Entity.
Securities Transactions also would include, and the Order also would
permit, transactions in which the Citi Trading Entity or the MS Trading Entity
and the MS Funds or the LMP Fund, respectively, might each participate jointly
or have a joint interest (sometimes referred to as Joint Transactions). The Order would apply only under
circumstances in which the Citi Trading Entity might be deemed an affiliated
person of an affiliated person (a second-tier affiliate) of a MS Fund (or the
MS Trading Entity deemed a second-tier affiliate of the LMP Fund) solely as a
result of the formation of Morgan Stanley Smith Barney Holdings LLC (MSSB or
the Joint Venture), a joint venture to which each of Citigroup Inc.
(Citigroup) and Morgan Stanley, the parent company of the MS Advisers and MS
Trading Entity (Morgan Stanley), will contribute certain businesses. The Order requested herein is subject to certain
conditions, as more fully described below.
12
Applicants seek to extend the Order requested to (i) 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(1) controlling, controlled by or under
common control with Morgan Stanley or Citigroup other than MSSB(2) (such a
fund, when advised by a Citigroup entity, is hereafter referred to together
with the LMP Fund as a Citi Fund and, together with the MS Funds, the
Funds), (ii) the Advisers and any existing or future investment adviser
controlling, controlled by or under common control with Morgan Stanley or
Citigroup other than MSSB, (iii) the Trading Entities and any existing or
future entity controlling, controlled by or under common control with Citigroup
or Morgan Stanley other than MSSB and (iv) any successor-in-interest to
the Applicants and any of the foregoing entities, provided that any entity that
relies on the Order complies with the terms and conditions set forth in this
Application as though it were an Applicant.
Applicants request relief hereunder only for
transactions that would be restricted by Sections 17(a) and 17(d) of
the Act, and Rule 17d-1 thereunder, solely because of Citigroups and
Morgan Stanleys direct or indirect interest in MSSB. The relief sought hereunder will not apply
where a Trading Entity is an affiliated person or a second-tier affiliate of a
Fund for reasons other than such interest.
Additionally, the relief sought hereunder will not apply if the
(1)
As a general matter, the applicants believe that a Fund (as defined below) for
which an Adviser acted only as a sub-adviser would only be a third-tier
affiliate of the opposite Trading Entity and would therefore not require the
relief sought by this Application.
Nevertheless, the Applicants have requested relief for sub-advised
Funds, such as the LMP Fund, for which the Citi Adviser is a sub-adviser, where
the particular facts and circumstances of the relationship with such Fund
indicate that it might be a second-tier affiliate of the opposite Trading
Entity.
(2)
Pursuant to a Joint Venture Contribution and Formation Agreement (the JV
Agreement), Morgan Stanley will contribute to the Joint Venture its global
wealth management (retail brokerage) and private wealth management businesses,
which businesses currently operate and will in the future operate independent
of the MS Advisers, as described herein.
Citigroup will contribute 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. Smith Barney
is a division of CGMI that is under separate day-to-day management from the
other divisions of CGMI. Quilter is
operated through several separate legal entities under the control of
Citigroup.
13
transactions
would be restricted by the above provisions 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.(3)
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.(4)
II.
Description of the Applicants
A.
The Funds
Each Fund is an open-end or closed-end management
investment company registered under the Act and is organized as a statutory
trust, business trust or corporation under the laws of Delaware, Maryland, Massachusetts
or Pennsylvania.(5) The Funds 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. (For the sake of simplicity, while there are
no Citi Funds currently other than the LMP Fund, this Application generally
will use the present tense for both the MS Funds and the Citi Funds.)
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.
(3) MSSB may act as principal underwriter for new closed-end MS or Citi
Funds. However, such role will cease at
the time the syndicate terminates and prior to any transactions by such Fund
involving the opposite Trading Entity.
(4) Morgan Stanley presently has an exemptive order to, among other
things, permit its broker-dealer subsidiary, MS&Co. Incorporated, to engage
in principal transactions in taxable and tax-exempt money market instruments
with the Funds. Investment Company Act
Release No. 28150 (Feb. 13, 2008).
(5) The Van Kampen Exchange Fund is a California limited partnership
and is managed by a Board of General Partners.
14
B.
The Advisers
The MS Advisers are direct or indirect wholly-owned
subsidiaries of Morgan Stanley, a Delaware corporation. Morgan Stanley is a leading global financial
services firm whose business activities include securities trading and
brokerage activities, investment banking, research and analysis, financing and
financial advisory services. Each MS Adviser
is registered as an investment adviser under the Investment Advisers Act of
1940, as amended (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.
The Citi Adviser is an indirect wholly-owned
subsidiary of Citigroup, a Delaware corporation. Citigroup, a leading global financial
services company, has some 200 million customer accounts and does business in
more than 100 countries, providing consumers, corporations, governments and
institutions with a broad range of financial products and services, including
consumer banking and credit, corporate and investment banking, securities
brokerage, and wealth management. The
Citi Adviser is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (the Advisers Act). The Citi Adviser acts as sub-investment adviser
to the LMP Fund and may, as noted above, act in the future as adviser to such
registered investment companies as may otherwise exist or are organized
subsequently.
Each Fund and its Adviser have entered into an
investment management agreement pursuant to which the Adviser is responsible
for managing the Funds investment portfolio, subject to the supervision of the
Board of Directors, Board of Trustees or other governing body of such Fund, as
applicable (each, a Board), making investment decisions on behalf of the Fund
and placing its transactions.
Each of the MS Advisers and the Citi Adviser have
adopted confidentiality policies designed to limit the unnecessary flow of
information about client holdings and transactions. As
15
described
more fully herein, such policies will be extended to prevent unnecessary
information sharing between MSSB and each of the MS Advisers and the Citi
Adviser.
C.
The Trading Entities
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. Each Trading Entity is
registered as a broker-dealer with the Commission pursuant to Section 15
of the Securities Exchange Act of 1934.
Each conducts a diversified, full service securities business, including
(but not limited to) as a dealer and underwriter for fixed-income securities,
and each is a primary dealer in U.S. government securities. Citibank, N.A., Citibank Canada, Citibank
International plc, Citigroup Global Markets Limited and Citigroup Financial
Products Inc. are each wholly-owned subsidiaries of Citigroup (directly or
indirectly) and are each, among other things, leading originators of, or
participants in, syndicated loans and/or participants in the secondary markets
for such loans.
III.
The Joint Venture
On January 13, 2009, Morgan Stanley and
Citigroup entered into a joint venture contribution and formation agreement
(the JV Agreement) to create MSSB, a Delaware limited liability company of
which the equity capitalization will consist solely of one class of common
membership interests (the Interests).(6)
MSSB is a holding company and the sole member of Morgan Stanley Smith
Barney LLC, which will conduct most of the Joint Ventures domestic operations
as a dual-registered broker-dealer and investment adviser.
(6) The JV Agreement is
included with Morgan Stanleys filing on Form 8-K dated January 13, 2009.
16
A.
Ownership of the Joint Venture
Under the JV
Agreement, Morgan Stanley will contribute into the Joint Venture the businesses
of 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 will contribute into the Joint
Venture its businesses Smith Barney, Quilter and Smith Barney Australia (the Citi
Contributed Businesses and, collectively with the MS Contributed Businesses,
the Contributed Businesses) (together with all contracts, employees, property
licenses and other assets and liabilities).
Immediately
following the closing of the Joint Venture, Morgan Stanley will own indirectly through
subsidiaries 51% of the Interests, and Citigroup will own, as currently
anticipated, indirectly through CGMI 49% of the Interests. Under the JV Agreement, Morgan Stanley will
have 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.
B.
The Contributed Businesses
No parent or any
business unit of any Adviser will be a Contributed Business. No Fund is advised by a Contributed Business.
Currently, Smith
Barney is a division of CGMI and Quilter is operated through several separate
legal entities under the control of Citigroup.
After the closing of the Joint Venture, the Citi Contributed Businesses
will form part of MSSB, operating separately from CGMI and any other Citigroup
entity. Morgan Stanleys global wealth
management businesses are formally part of MS & Co. However, after closing of the Joint Venture,
such businesses will as part of MSSB be operated separately from MS &
Co., which will remain an investment bank and broker-dealer.
17
MSSB will provide
retail brokerage and a variety of wealth management services, including as an
investment adviser, insurance broker, insurance agency and futures broker. MSSB will conduct 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
will preserve their distinct brands and continue to offer independently a wide
range of financial services. Citigroup
will have 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 will have 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).
C.
Governance of the Joint Venture
MSSB will be
governed by a newly formed Board of Directors controlled by Morgan
Stanley. Initially, the Board will
consist 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. The Chairman of MSSB is anticipated to be the
Co-President of Morgan Stanley. Morgan
Stanley designees will constitute a majority of each committee of the MSSB
Board, which must also include at least one Citigroup designee.(7)
(7) Although no public offering of common shares of MSSB is
contemplated, in the event of such a public offering, (1) the MSSB Board
will include at least three independent directors, (2) Citigroup will have
the right to proportionate representation on the MSSB Board for so long as it
owns at least 20% of MSSB (and in any event, not less than one designee) and (3) Morgan
Stanley will be entitled to designate a majority of the MSSB Board.
18
All matters with
regard to MSSB generally will be determined by a majority vote of the MSSB
Board, although the Joint Venture also will include certain other specified
governance and approval rights. These
rights will 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: (i) any
merger, liquidation or sale of MSSB; (ii) any acquisition or disposition
of a business representing more than 20% of assets or revenues; (iii) related
party transactions other than those conducted (a) at arms length and (b) in
the ordinary course of business (Citigroup may dispute either (a) or (b));
(iv) issuance, repurchase or redemption of equity securities except in
certain circumstances; (v) removal or replacement of the president of MSSB
or certain other officers; (vi) entry into new business lines in certain
circumstances and (vii) certain bankruptcy and tax events. Approval of Citigroup will be required for
amendment to the LLC Agreement, as long as Citigroup owns at least 20% of the
Interests; thereafter, Citigroups approval will be required only as to certain
specified matters. Citigroup also will
be able to 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.
IV.
Separation Between the MS Entities and the Citi
Entities
After the closing
of the Joint Venture, the Citi Trading Entity and the MS Advisers (and the MS
Trading Entity and the Citi Adviser) will continue to operate as separate,
independent businesses. The Citi Trading
Entity and the MS Advisers (and the MS Trading Entity and the Citi Adviser)
have and will continue to have separate ownership, their own separate officers and
19
employees, each is and will continue to be separately capitalized and
each maintains and will continue to maintain its own separate books and records
and physically separate offices.(8)
Additionally, the
Citi Entities and the MS Entities will operate separately from each other and
from MSSB. Independent operation
generally consists of separate profit centers, separate capitalization,
separate books and records and a separate compensation system that does not
reward employees based on (i) a factor that treats the Funds differently
than unaffiliated counterparties or (ii) the amount of business done by
the Citi Funds with the MS Trading Entity (in the case of Citigroup) or the MS
Funds with the Citi Trading Entity (in the case of Morgan Stanley), except to
the extent such business might affect indirectly the profits or losses of the
Advisers.(9) The Advisers will not cause the Funds to engage in portfolio
transactions with MSSB.
Neither the Citi
Trading Entity nor the MS Trading Entity will be in a position to cause any
Securities Transaction. Moreover, there
is not, and will not be, any express or implied understanding between the Citi
Trading Entity and Morgan Stanley or any MS Adviser that a MS Adviser will
cause a MS Fund to enter into Securities Transactions or give preference to the
Citi Trading Entity in effecting such transactions between the MS Fund and the
Citi Trading Entity. Similarly, there is
not, and will not be, any express or implied understanding between the MS
Trading Entity and Citigroup or any Citi Adviser that a Citi Adviser will cause
a Citi Fund to enter into Securities Transactions or give preference to the MS
Trading Entity in effecting such transactions between the Citi Fund and the MS
Trading Entity.
(8) 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 Fund or the Citi Adviser also is or will be a director, officer or
employee of the MS Trading Entity. As
noted above, each of Citi and Morgan Stanley has the right to designate members
of the Board of Directors of MSSB. Currently, the Chairman of MSSB is
anticipated to be the Co-President of Morgan Stanley.
(9) The MS Entities and MSSB are managed as separate lines of
business, though each entity ultimately reports to the same
individual(s) with respect to the Morgan Stanley side.
20
All decisions by
the Funds to enter into portfolio transactions are determined solely by their
respective Advisers in accordance with the investment objectives of the
Fund. In that regard, trade execution
for the Funds is the responsibility of one or more individuals employed solely
by their respective Advisers. Portfolio
managers employed by MS Advisers will have no affiliation (within the meaning
of the Act) with the Citi Trading Entity, and their lines of reporting
responsibility will be solely within the MS Advisers. Portfolio managers employed by Citi Adviser
will have no affiliation (within the meaning of the Act) with the MS Trading
Entity, and their lines of reporting responsibility will be solely within the
Citi Adviser. Prior to any purchase or
sale decision, the portfolio manager at an Adviser will independently evaluate
research provided by brokers/dealers and other analysts and determine his or
her own recommendations. In addition, a
major determinant of the compensation of a portfolio manager at any Adviser is
the performance of the Fund or Funds for which he or she has
responsibility. In no instance would his
or her compensation be affected by the amount of business done by Funds he or
she manages with the Citi Trading Entity or the MS Trading Entity,
respectively.
In summary,
notwithstanding the formation of MSSB, the MS Advisers will continue to operate
independently of the Citi Trading Entity in performing portfolio management
services for the MS Funds, and the Citi Trading Entity will not have any
influence over those services. The Citi
Adviser will continue to operate independently of the MS Trading Entity in
performing portfolio management services for the Citi Funds, and the MS Trading
Entity will not have any influence over those services.
V.
Consolidation in the Financial Services Industry
Significant
consolidation has occurred in the banking and investment banking
(broker-dealer) industries, blurring the line between the two industries
(referred to herein, collectively, as
21
the financial
services industry) both conceptually and in practice. A 1995 paper published by the Brookings
Institution reported that from 1979 to 1994, the banking industry was
transformed by the massive reduction in the number of banking organizations;
the significant increase in the number of failures; the dramatic rise in
off-balance sheet activities; the major expansion in lending to U.S.
corporations by foreign banks; . . . and the opening up of interstate banking
markets.(10) Nearly a decade later, an article in the FDIC Banking
Review asserted that [o]ver the two decades 1984-2003, the structure of the
U.S. banking industry indeed underwent an almost unprecedented
transformationone marked by a substantial decline in the number of commercial
banks and savings institutions and by a growing concentration of industry
assets among a few dozen extremely large financial institutions.(11)
Indeed, consolidation in the financial services industry continued from 2003,
accelerating during the credit crisis that began in 2007.
Consolidation in
the financial services industry, combined with an increase in industry assets,
has resulted in a few major broker-dealers accounting for a large percentage of
the market share in connection with trading in various asset classes.(12)
In March 2008, The Bear Stearns Companies, Inc., the U.S.s fifth
largest investment bank, was acquired by JP Morgan Chase & Co. (JP
Morgan). In September of that
year, Lehman Brothers Holdings Inc. (Lehman Brothers) filed for Chapter 11
bankruptcy protection, and Merrill Lynch & Co. was acquired by Bank of
America Corporation (Bank of America), reducing the number of major pure
(10) Allen N. Berger,
et al.
,
The Transformation of the U.S. Banking Industry: What a Long, Strange
Trip Its Been
, Brookings Papers on Economic Activity 2, 127 (1995).
(11) Kenneth
D. Jones and Tim Critchfield,
Consolidation in the U.S.
Banking Industry: Is the Long, Strange
Trip About to End?
, 17 FDIC Banking Review 4, 31 (2005).
(12) For
example, mergers prior to 2008 involving the following companies reduced the
number of firms dealing in money market instruments and other asset
classes: Bank of America and
FleetBoston; Wachovia and First Union; Deutsche Bank and Scudder Investments;
Wachovia and Prudential Securities; J.P. Morgan Chase & Co. and Bank
One; and Bank of New York and Mellon Financial Corporation.
22
investment banks
(broker-dealers) to two, The Goldman Sachs Group, Inc. (Goldman Sachs)
and Morgan Stanley. These companies
subsequently registered as bank holding companies. In the fourth quarter of 2008, Wachovia
Corporation was acquired by former competitor Wells Fargo & Company,
and Barclays Bank, PLC (Barclays) agreed to purchase certain core capital
markets businesses of Lehman Brothers.
The aforementioned
companies, including Citigroup, JP Morgan, Goldman Sachs, Morgan Stanley, Bank
of America and Barclays all ranked in the top ten managing underwriters of U.S.
municipal new issues, global debt, global asset-backed securities and global
high yield debt in 2008.(13) These companies are important institutions
involved in secondary market trading.
The decline in the number of broker-dealers and banks trading in the
securities in which the Funds seek to invest and increasing importance of the
few remaining institutions has increased the importance to the Funds of their
relationships with such entities, including the Citi Trading Entity or the MS
Trading Entity, as applicable. The
number of broker-dealers with which the MS Funds and the Citi Funds may engage
in trades is further reduced due to the MS Funds first-tier affiliation with
Morgan Stanley broker-dealers and the Citi Funds first-tier affiliation with
Citigroup broker-dealers and bank, respectively, as the MS Funds are already
generally precluded from trading with the MS Trading Entity(14) and the
Citi Funds are already generally precluded from trading with the Citi Trading
Entity. Prohibiting the MS Funds from
engaging in Securities Transactions with the Citi Trading Entity (and the Citi
Funds from engaging in Securities Transactions with the MS Trading Entity)
would further reduce the
(13) Citigroup,
JP Morgan, Goldman Sachs, Bank of America and Barclays also ranked in the top
ten managing underwriters of global and U.S. mortgage-backed securities in
2008. Thomson Reuters,
Debt Capital Markets Review:
Fourth Quarter 2008
; Thomson Reuters,
US
Municipals Review: Year End 2008
.
(14) Morgan
Stanley does presently have an exemptive order to, among other things, permit
its broker-dealer subsidiary, MS&Co., to engage in principal transactions
in taxable and tax-exempt money market instruments with the Funds. Investment Company Act Release No. 28150
(Feb. 13, 2008).
23
opportunities available
to the Funds to obtain competitive pricing and best execution and to access the
markets for particular securities that are available from only a few
dealers. Moreover, the Citi Trading
Entity has been and is expected to be an increasingly important counterparty
for the MS Funds because of the quality of execution provided, particularly,
market liquidity.
VI.
The Securities Transactions
A.
The Securities Transactions Generally
The Funds 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 secondary market for fixed-income
securities is typically a dealer market in which trades are effected on a
principal basis. New issues of
fixed-income securities are typically offered in underwritten or private
placement transactions. The MS Funds
engage extensively, and are expected in the future (if the Order is granted) to
engage extensively, in transactions that involve the Citi Trading Entity. The LMP Fund engages in syndicated loan
transactions that involve the MS Trading Entity and, as additional Citi Funds
are organized, such funds are expected (if the Order is granted) to engage in a
wide array of transactions involving the MS Trading Entity. These Securities Transactions include the
following: (i) the purchase of securities by an MS Fund or a Citi Fund in
underwritten offerings in which the Citi Trading Entity or the MS Trading Entity,
as applicable, is a manager or member of the underwriting syndicate, and where
a MS Fund purchases underwritten securities from the Citi Trading Entity, or a
Citi Fund purchases underwritten securities from the MS Trading Entity; (ii) the
purchase by a MS Fund or a Citi Fund of securities from, or the sales of
securities to, the Citi Trading Entity or the MS Trading Entity, respectively,
in transactions in which the Citi Trading Entity or the MS Trading Entity,
respectively, is acting as a principal; and (iii) participation in certain
specific, and a myriad of
24
other types of,
arrangements or transactions that the MS Funds presently participate in with
the Citi Trading Entity, or that a Citi Fund may participate in with the MS
Trading Entity. These arrangements and
transactions may include, for example, tender option bond trust structures (TOBs),
certain asset-backed or mortgage-backed securitization structures, and loan
syndicates.(15)
If the Citi
Trading Entity were considered to be sufficiently closely affiliated with the
MS Funds (or the MS Trading Entity were considered to be sufficiently closely
affiliated with the Citi Funds), a Securities Transaction would potentially
violate one or more of Section 17(a) or Section 17(d) of
the Act and Rule 17d-1 thereunder.
The inability of the MS Funds to execute Securities Transactions
involving the Citi Trading Entity and of the Citi Funds to execute Securities
Transactions involving the MS Trading Entity would impose a hardship on the
Funds by prohibiting the Funds continued use of a broker-dealer the Funds had
chosen to use prior to there being any affiliation between Citigroup and Morgan
Stanley (which arises exclusively as a result of the Joint Venture) and by
preventing the Funds from purchasing or selling securities that the Funds would
have purchased or sold prior to that affiliation in transactions in which the
Citi Trading Entity or the MS Trading Entity, as applicable here, has some
involvement.
B.
Joint Transactions
Applicants are
requesting an Order pursuant to Rule 17d-1 under the Act (i) to the
extent necessary to permit the Citi Trading Entity to participate jointly with
the MS Funds (and the MS Trading Entity with the Citi Funds) in TOBs
transactions involving municipal bonds, (ii) in connection with certain
asset-backed or mortgage-backed securities and (iii) with respect to other
types of transactions or arrangements in which the Citi Trading Entity (or the
MS Trading
(15) As
discussed below, TOBs and securitization structures will be subject to certain
specific conditions in light of their unique nature.
25
Entity) and the MS
Funds (or the Citi Funds), respectively, might each participate jointly or have
a joint interest. Applicants are
describing (i) and (ii) separately because of the multiple roles
which may be involved.
(i)
Tender Option Bond Trust
Structures
Each of the MS
Funds investing in long-term municipal bonds may engage, and/or has in the past
engaged, in transactions with the Citi Trading Entity involving tender option
bond trusts (TOBs). TOBs are
derivative securities that (as relevant here) are created by a fund placing
municipal bonds into a trust arrangement established by a dealer on behalf of
the fund. In exchange, each respective
fund receives cash and a residual interest security. In a typical TOBs transaction, the trust
funds the purchases of the municipal bonds by issuing securities (floaters)
which are purchased by third-party investors (often tax-exempt money market
funds) and which pay interest (generally quarterly or semi-annually) based on
interest rates that are typically reset weekly.
The floaters are remarketed typically on a weekly basis by a remarketing
agent, which receives a fee from the trust for such service. During that activity, the remarketing agent
may also own floaters for a brief period of time while the fund holds the
residual interest. In addition, the
remarketing agent, or a separate entity, which may or may not be affiliated
with the remarketing agent, also serves as the liquidity provider by committing
to hold a floater the remarketing agent is unable to place with an investor
until such time as the floater can be placed or the trust is collapsed and the
municipal bond is delivered back into the fund or otherwise sold, events which
can be triggered by the liquidity provider under certain circumstances.(16)
Where floaters are tendered back to the liquidity provider, the liquidity provider
would hold the floaters at the same time the fund held the residual interest in
the underlying bond. If the Citi Trading
(16) For example, a termination event may include a downgrade in
the credit quality of (i) the underlying bond; (ii) the insurer of
the bond; or (iii) the liquidity provider, as determined with reference to
the higher of the requisite credit of the underlying bond or the liquidity
provider.
26
Entity establishes
the trust to which a MS Fund wishes to sell its long-term security and serves
as remarketing agent and/or liquidity provider, and the Fund holds the residual
interest in the underlying bond, such a transaction could be considered a joint
transaction and therefore subject to Section 17(d) and Rule 17d-1
thereunder.(17) Situations could also
arise in which a Citi Trading Entity establishes a TOBs structure for itself or
a related party and holds the residual and a MS Fund (
e.g.
,
a tax-exempt money market fund) holds the floater (Section 17(a) also
may be involved where, for example, a Citi Trading Entity, as liquidity
provider, is to purchase a floater held by such MS Fund). The above analysis would also apply to future
TOBs transactions involving the MS Trading Entity and a Citi Fund.
(ii)
Asset- and Mortgage-Backed
Securities
The MS Funds, as
consistent with their investment policies, may enter into transactions
involving asset-backed securities (ABS) or mortgage-backed securities (MBS),
including those that are newly issued by special purpose entities sponsored by
the Citi Trading Entity (or an affiliate), and the Citi Funds may do so with
respect to ABS or MBS of entities sponsored by the MS Trading Entity (or an
affiliate), respectively, under circumstances in which both (i) the
residual interest in the special purpose entity is owned directly or indirectly
by the respective Trading Entity (or an affiliate) and (ii) the respective
Trading Entity (or an affiliate) acts as the servicer of assets. Though Applicants do not necessarily concede
that such transactions fall
(17) Applicants do not consider the payment of a fee to the remarketing
agent or liquidity provider an activity falling within
Section 17(d) or Rule 17d-1 of the Act, as the Commission has
taken the position that service arrangements do not constitute a joint
enterprise or other arrangement or profit-sharing plan within the meaning of
Section 17(d) where such arrangement (including compensation)
receives prior approval from a majority of the funds disinterested
Trustees. See Flex-Fund, SEC No-Action
Letter (pub. avail. Nov. 22, 1985) (an affiliated company of a mutual
funds investment adviser could perform stock transfer and accounting services
for the fund upon approval of a majority of the funds disinterested trustees
since a service arrangement does not constitute a joint enterprise or other
arrangement or profit-sharing plan within the meaning of
Section 17(d)). Further,
Applicants submit that Section 17(e) also is not applicable here to
the fees paid for the remarketing agent and liquidity provider because those
functions are performed on behalf of the TOBs trust, and not in connection with
any purchase or sale of property to the Fund.
Moreover, any policy concerns of the type underlying Section 17(e) are
addressed by the Applicants conditions for Joint Transactions, as set forth in
section X below.
27
under Section 17(d) of
the Act and Rule 17d-1 thereunder, such transactions could arguably fall
under those provisions due to the various roles played by the respective
Trading Entity (or an affiliate) as compared to the more straightforward
purchase or sale of a third-party sponsored ABS or MBS from the Trading Entity.
(iii)
Other Joint Transactions
There is a wide
variety of other transactions or arrangements in which the MS Funds or the Citi
Funds might be viewed as participating jointly or having a joint interest with
the Citi Trading Entity or the MS Trading Entity, respectively. Consequently, it is difficult to specify
precisely, in advance, the exact nature of transactions intended to be covered
by the Order. These Joint Transactions
might include, for example, transactions where the MS Fund and the Citi Trading
Entity each invest in the same company, and participation by a Fund in
syndicated loan transactions in which a Trading Entity (or its affiliate) is a
member or even lead agent of the syndicate.
For any transaction or arrangement that might be deemed to fall under Section 17(d),
the terms of the Funds participation (to the extent within the knowledge and
control of the Trading Entity) would be on a basis no less advantageous than
that of other similarly situated participants, except to the extent such
difference is related to services performed or role in the transaction. As for all transactions pursuant to the
Order, Joint Transactions would be subject to procedures adopted by the Funds
Board, including the majority of the Funds disinterested directors or
trustees, as applicable.
28
VII.
Relevant Provisions and Relief Requested
A.
Relevant Provisions
(i)
Section 2(a)(3)
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.
Section 2(a)(3) of the Act, in relevant part, defines affiliated
person of another person as:
(A) any person directly or indirectly owning,
controlling, or holding with power to vote, 5 per centum or more of the
outstanding voting securities of such other person; (B) any person 5 per
centum or more of whose outstanding voting securities are directly or
indirectly owned by, controlled, or held with power to vote, by such person; (C) any
person directly or indirectly controlling, controlled by, or under common
control with, such other person; (D) any officer, director, partner,
copartner, or employee of such other person; (E) if such person is an
investment company, any investment adviser thereof ....
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. The Citi Trading Entity
could also be viewed as a first-tier affiliate of MSSB, and a second-tier
affiliate of the MS Funds, because of the Citi Trading Entitys ownership of
more than five percent of the voting securities of MSSB, and, moreover, its
control of MSSB. The affiliation
analysis would be generally the same with respect to the Citi Funds and the MS
Trading Entity. In reaching the above
conclusion, Applicants also assume that the presumption in Section 2(a)(9) of
the Act that ownership of greater than 25% of an entity constitutes control
cannot be rebutted on the facts of the present case.
29
(ii)
Section 17(a)
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.
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
companys shareholders.(18) In that
regard, Section 1(b)(2) of the Act declares that it is against the
public interest and the interest of investors when:
investment companies are organized, operated, managed,
or their portfolio securities are selected, in the interest of directors,
officers, investment advisers, depositors, or other affiliated persons thereof,
in the interest of underwriters, brokers, or dealers, in the interest of
special classes of their security holders, or in the interest of other
investment companies or persons engaged in other lines of business, rather than
in the interest of all classes of such companies security holders . . . .
When the person acting on behalf of an investment company has no direct
or indirect pecuniary interest in a party to a principal transaction, then the
abuse that Section 17(a) is designed to prevent is not present. The MS Funds and the Citi Funds propose to
engage in Securities Transactions with the Citi Trading Entity and the MS
Trading Entity, respectively, following closing of the Joint Venture, just as
they have previously. Applicants submit
that just as in previous transactions, as is discussed in section VIII below,
no risk of self-dealing would present itself in any Securities Transaction, as
the Citi Trading Entity and the MS Trading Entity will have no influence over
portfolio decisions by the MS Advisers and the Citi Adviser, respectively, and
the MS Advisers and the Citi Adviser would receive no unfair pecuniary
advantage from
(18)
See
,
e.g.
,
S. Rep. No. 1775, 76
th
Cong. 3d Sess. 6 (1940).
30
engaging in the Securities Transactions with the Citi Trading Entity
and the MS Trading Entity, respectively.
(iii)
Section 17(d)
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.
Section 17(d), and Rule 17d-1 thereunder,
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.(19) As noted above and explained further below,
the Applicants submit that in no event will the Citi Trading Entity or the MS
Trading Entity have the ability to influence the decisions of the MS Advisers
on behalf of the MS Funds or the Citi Adviser on behalf of the Citi Funds,
respectively. Moreover, participation by
the MS Funds or the Citi Funds in such transactions with the Citi Trading
Entity or the MS Trading Entity, respectively, would be on a basis similar to
the Citi Trading Entity or
(19)
SEC v.
Talley Industries, Inc.
, 399 F.2d 396, 403 (2d Cir. 1968),
cert denied
, 393 U.S. 1015 (1969);
see also
,
Investment Company Act Release No. 17534 (June 15, 1990) (Sections 17(a) and
17(d) were designed to protect investment companies from self-dealing and
overreaching by insiders).
31
the MS
Trading Entity, respectively, unless any difference is related to the differing
nature of their participation in the transaction.
B.
Authority for the Order
Section 17(b) of the Act permits any person
to file an application for an order of the Commission exempting a proposed
transaction of the applicant from the provisions of Section 17(a). Such applications are to be granted by the
Commission if evidence establishes that:
(1)
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;
(2)
the proposed transaction is consistent with
the policy of each registered investment company
concerned . . .; and
(3)
the proposed transaction is consistent
with the general purposes of [the Act].
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. Relief is being requested pursuant to Section 6(c),
as well as Section 17(b) because, among other things, the Order would
cover certain classes of transactions.
Rule 17d-1 provides that, in passing upon an
application for an order of the Commission permitting a proposed joint venture
or joint arrangement otherwise proscribed by Section 17(d), the Commission
will consider whether the participation of a registered investment company in a
joint venture or joint arrangement 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.
32
C.
Relief Requested
Due to their second-tier affiliation, any Securities
Transaction by the MS Funds involving the Citi Trading Entity, and by the Citi
Fund 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.
The inability of the MS Funds and the Citi Fund to
execute Securities Transactions involving the Citi Trading Entity and the MS
Trading Entity, respectively (exclusively as a result of Citigroups and Morgan
Stanleys 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.
In order to permit the Funds to be managed as
effectively as possible, Applicants seek relief from the provisions of Sections
17(a) and an Order pursuant to Section 17(d) of the Act and Rule 17d-1
thereunder.(20) Applicants request an
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 herein from the provisions of
Sections 17(a) of the Act, and pursuant to Rule 17d-1 under Section 17(d) of
the Act permitting the Securities Transactions described above. Applicants request relief pursuant to Section 6(c) of
the Act for transactions of the classes described herein, including any future
Securities Transaction, as such term is defined
(20) Sections 10(f) and
12(d)(3) contain prohibitions similar to those contained in Section 17. However, such prohibitions are limited to
transactions involving first-tier affiliated persons and do not extend to
remote second-tier affiliations of the type that may be deemed to exist between
the MS Funds, the MS Advisers and the Citi Trading Entity or between the Citi
Fund, the Citi Adviser and the MS Trading Entity. Accordingly, the Applicants request no relief
from such provisions. Applicants also
are not requesting that this Order extend to the Citi Trading Entity or the MS
Trading Entity being able to act as securities lending agent or to borrow
securities from the MS Funds or the Citi Fund, respectively.
33
in this Application. The Order
would apply only where the Citi Trading Entity is deemed to be a second-tier
affiliate of a MS Fund, and the MS Trading Entity is deemed to be a second-tier
affiliate of a Citi Fund, solely because of Citigroups and Morgan Stanleys
direct or indirect ownership interest in MSSB.
VIII.
Rationale for Relief
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, 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. As a result, no Trading
Entity is in a position to engage in self-dealing or otherwise cause any Fund
to enter into transactions that are not in the best interests of its
shareholders. Moreover, Applicants
submit that the circumstances under which the Securities Transactions would be
conducted, including in particular the proposed conditions for the Order, satisfy
the statutory standards for relief.
Applicants note, in particular, the requirement that each Funds Board,
including a majority of its disinterested directors or trustees, as applicable,
approve procedures governing all Securities Transactions pursuant to the Order,
which transactions will be reviewed no less frequently than quarterly.
(i)
The Securities Transactions are
Reasonable and Fair and Do Not Involve the Risk of Overreaching
The independence of the Citi Trading Entity from the
MS Advisers and all MS Entities and of the MS Trading Entity from the Citi
Adviser and all Citi Entities demonstrates that no risk
34
of overreaching or self-dealing by the Citi Trading Entity or the MS
Trading Entity would be present if the MS Funds and the Citi Trading Entity or
the Citi Fund and the MS Trading Entity engaged in Securities
Transactions. Citigroup and Morgan
Stanley operate and, after the Joint Venture will continue to operate,
independently. The MS Trading Entity
will operate independently of the Citi Adviser and all Citi Entities. The Citi Adviser will operate independently
of the MS Trading Entity and all MS Entities.
The MS Advisers will operate independently of the Citi Trading Entity
and all Citi Entities. The Citi Trading
Entity will operate independently of the MS Adviser and all MS Entities. Similarly, as relevant to this Application,
the Citi Entities and the MS Entities will each operate separately from
MSSB. As a condition to the relief
requested by this Application, none of Citigroup, the Citi Trading Entity or
MSSB will control (within the meaning of Section 2(a)(9) of the Act),
directly or indirectly, the MS Advisers or the MS Funds. Similarly, none of Morgan Stanley, the MS
Trading Entity or MSSB will control (within the meaning of Section 2(a)(9) of
the Act), directly or indirectly, the Citi Adviser or the Citi Funds. Further, there is not, and will not be, any
express or implied understanding between Citigroup and Morgan Stanley, the
Trading Entities or any Adviser that the Adviser will cause a Fund to enter
into Securities Transactions or give preference to a Trading Entity in
effecting such transactions between the Fund and the Trading Entity.
The Joint Venture will not effect any substantial
change in the personnel or operations of the Advisers. The Citi Trading Entity and the MS Advisers,
and the MS Trading Entity and the Citi Adviser, respectively, have and will
have their own separate officers and employees, each has been and will continue
to be separately capitalized and each has maintained and will maintain its own
separate books and records and physically separate offices. Thus, the formation of MSSB will not
substantially affect the operations of the Advisers or influence the decisions
of
35
the Advisers on behalf of the Funds to engage in Securities
Transactions with the Trading Entities.
If an MS Adviser or a Citi Adviser were to purchase
securities on behalf of a MS Fund or a Citi Fund, respectively, in a
transaction involving the Citi Trading Entity or the MS Trading Entity,
respectively, the benefits afforded the Trading Entities by engaging in such
transactions would differ from, and would not be shared by, the Advisers. That is, the Adviser benefits from a
transaction only where such transaction is beneficial to the Fund (by
increasing the assets under management by the Adviser and therefore, the
Advisers fee, and by positively affecting the Advisers performance record). Further, personnel of the MS Advisers and the
Citi Adviser will be compensated based on the performance of the MS Funds and
the Citi Fund, respectively, managed by them and profitability of the MS
Advisers and the Citi Adviser will not be affected in any way by the
profitability of the Citi Trading Entity and the MS Trading Entity,
respectively.
(ii)
The Funds Participation in Joint
Transactions Will Be on a Basis No Less Advantageous Than That of Similarly
Situated Trading Entities
The complete separation of the MS Advisers from the
Citi Trading Entity and the Citi Adviser from the MS Trading Entity, and the
inability of the Trading Entities to influence the Advisers prevents each party
in a Joint Transaction from obtaining an unfair advantage. Moreover, for any Joint Transaction effected
pursuant to the Order, the Applicants will follow procedures, described in
further detail in section X below, designed to ensure the fairness of such
transactions. For example, in a Joint
Transaction involving ABS or MBS that are newly issued by special purpose
entities sponsored by the Citi Trading Entity (or an affiliate) or the MS
Trading Entity (or an affiliate), respectively, under circumstances in which
both (i) the residual interest in the special purpose entity is owned
directly or indirectly by the respective Trading
36
Entity (or an affiliate) and (ii) the Trading Entity (or an affiliate)
acts as the servicer of assets, a Fund will purchase such ABS or MBS only where
unaffiliated third parties purchase greater than 50% of the dollar amount of
securities of each class acquired by the Fund, and the Fund participates in
each such class on the same terms as such other purchasers of that class.(21) Such a condition will reflect the arms-length
nature of the terms upon which the Fund will participate. In addition, the power of the Trading Entity
to collapse the trust in a transaction involving TOBs would be limited to the
occurrence of certain events.(22) In all
other Joint Transactions, the terms of the Funds participation (to the extent
within the knowledge or control of the relevant Trading Entity) must be on a
basis no less advantageous than that of other similarly situated participants,
including such Trading Entity, except to the extent any difference related to
services performed or to such Trading Entitys role in the transaction.
(iii)
The Order Would be Appropriate in
the Public Interest and Consistent with the Policies of the Funds
Prohibiting the MS Funds from engaging in Securities
Transactions involving the Citi Trading Entity (and the Citi Funds with the MS
Trading Entity) can harm the interests of the shareholders of the Funds by
preventing the Adviser from investing in a way which is most beneficial to the
shareholders, policies which Sections 17(a) and 17(d) of the Act were
meant to further. Given that the
Securities Transactions do not involve the threat of overreaching, it would be
contrary to the interests of the Funds shareholders to prohibit them.
The Trading Entities typically are leading
broker-dealers (or banks) in transactions involving a wide variety of asset
classes, including the types of securities in which the Funds
(21) Though Applicants do not necessarily concede that such
transactions fall under Section 17(d) of the Act, and Rule 17d-1
thereunder, such transactions could arguably fall under those provisions due to
the various roles played by the Trading Entity (or an affiliate) as compared to
the more straightforward purchase or sale of a third-party sponsored ABS or MBS
from the Trading Entity.
(22)
See
note 16,
supra
.
37
seek to invest. Further,
consolidation in the financial services industry has led funds and their advisers
to rely increasingly on a smaller number of institutions for reliable
information and access to the securities markets. Permitting the Securities Transactions that
would be prohibited or restricted by Section 17 of the Act would enlarge
the universe of securities dealers with which the Funds may transact, making it
easier for the Funds to achieve better terms and to provide their portfolios
with greater diversification and liquidity.
Prohibiting the Securities Transactions would significantly narrow this
universe and potentially impair the ability to diversify and to achieve better
terms or best price and execution, resulting in potential harm to shareholders
of the Funds. Finally, as noted earlier,
each of the Funds may engage in transactions in fixed-income securities and,
consequently, granting the Order would further the policies of the Funds.
(iv)
The Securities Transactions Are
Consistent With the Purposes of the Act and the Protection of Investors
As noted above, the independence of the businesses of
Morgan Stanley and Citigroup generally, and the remoteness of the affiliation,
will provide protection to investors, and transactions will be conducted on
essentially the same arms-length basis as existed prior to the closing of the
Joint Venture. Moreover, the Advisers
and the Funds will adopt and monitor procedures designed to ensure that the
terms of particular Securities Transactions involving the relevant Trading
Entities are fair and reasonable and do not involve overreaching. For example, before a Fund and a Trading
Entity enter into any principal transaction, the Adviser will obtain
competitive quotations for the same securities (or in the case of securities
for which quotations for the same securities are not available, competitive quotations
for Comparable Securities)(23) from at least one other dealer that is in a
position to quote favorable prices. For
each such
(23) The term Comparable
Securities refers to securities with substantially identical maturities,
credit ratings and repayment terms as the securities to be purchased or sold.
38
Securities Transaction, the Adviser will determine, based upon the
information reasonably available to the Fund and the Adviser and deemed relevant
by it, that the price available from the Trading Entity is at least as
favorable as that available from other sources.
In addition, each Funds Board, including a majority of its
disinterested Directors/Trustees, will approve procedures governing all
Securities Transactions, including principal transactions between the
applicable Trading Entity and the Funds, which transactions will be reviewed on
at least a quarterly basis. Similarly,
in a TOBs transaction, the relevant Funds Board will adopt procedures designed
to assure that such transaction is in the best interests of the Fund, taking
into consideration aspects unique to such arrangement.
IX.
Precedent
Applicants submit that the policy considerations that
supported the Commissions grant of relief from Section 17(a) of the
Act and permitting certain transactions pursuant to Section 17(d) of
the Act and Rule 17d-1 thereunder in
Keeper Holdings, LLC, et
al.
(
Keeper
), Investment Company Act
Release Nos. 25145 (August 29, 2001) (Notice) and 25171 (Sept. 25, 2001)
(Order), are particularly relevant to Applicants request for relief. In
Keeper
, as
discussed further below, the Commission required few conditions for the relief
sought, presumably because it determined that the risks of self-dealing and
overreaching that Section 17 is designed to prevent were sufficiently
de minimis
in covered transactions between two entities
which were second-tier affiliates solely by virtue of a joint venture between
the parent company of each such entity.
Of the relevant exemptive orders,
Keeper
is the
most structurally similar to Applicants situation. Applicants note that
Keeper
contained far fewer and less burdensome conditions than
American
Century
(described below); however, Applicants have included in section
X below conditions based on
American Century
(and certain other precedent) to establish fully the basis
39
for exemption due to the nature and scope of the Joint Venture. In contrast, the Joint Venture in
Keeper
provided primarily recordkeeping and administrative
services to retirement plans and health and welfare benefit plans, and, to a
lesser extent, provided investment advisory, broker-dealer and outsourcing
services to such plans.
Applicants also refer the Commission to the order
granted in
American Century Companies, Inc., et al.
(
American Century
), Investment Company
Act Release Nos. 25449 (March 1, 2002) (Notice) and 25501 (March 27,
2002) (Order). In
American
Century
, in effect, the Commission determined that the risks of
self-dealing and overreaching that Section 17 is designed to prevent were
mitigated sufficiently in transactions between certain funds and certain
broker-dealer entities, where the funds and the broker-dealer entities were second-tier
affiliates solely by virtue of the interest of the parent company of the
broker-dealer entities in the parent company of the funds advisers.
The applicants in
Keeper
and
American Century
were able to avoid self-dealing and
overreaching in large part due to the separation maintained between each entity
desiring to engage in the relevant transactions and the implementation of
procedures designed to prevent conflicts of interest. Similarly, as addressed above, the MS
Advisers will operate independent of the Citi Trading Entity, and the Citi
Adviser of the MS Trading Entity, and Applicants have proposed conditions for
relief that will ensure ample separation, prevent self-dealing and overreaching
and avoid conflicts of interest. In
addition, the affiliation between the broker-dealer entities and the advisers
in
American Century
was more direct than
will be the second-tier affiliation between MS Funds and MS Advisers and the
Citi Trading Entity (and the Citi Fund and Citi Adviser and the MS Trading
Entity) after the closing of the Joint Venture.
In
American Century
, the parent of the
broker-dealer entities held a 45% economic interest (approximately
40
8.7% of the voting interests) in the parent of the advisers, which
parent was controlled by the Stowers family.
By contrast, the affiliation between the MS Funds, the MS Advisers and
the Citi Trading Entity (and the Citi Funds, the Citi Adviser and the MS Trading
Entity) will result solely from the interests of the Citi Trading Entity, and
the parent of the MS Advisers, Morgan Stanley, in an independently operated
entity, the Joint Venture. The Citi
Trading Entity will have no interest in Morgan Stanley and Morgan Stanley will
have no interest in the Citi Trading Entity.
Thus, while
American Century
required board approval for each joint transaction involving material
negotiation between the relevant parties, Applicants submit that such a
requirement in this case would place an unfair burden on a Funds Board given
the breadth of transactions in which the Funds are expected to engage, and,
moreover, is unnecessary given that the affiliation here is more remote. Similarly, though
American
Century
required two quotations for a principal transaction, Applicants
require only one quotation in order to more efficiently facilitate the
documentation of such quotations.
Applicants submit that a second quotation is unnecessary in this case
due to the more remote affiliation between the parties and the inability of any
Trading Entity to influence any Adviser.
Applicants note also that no requirement to obtain a competitive
quotation was imposed in
Keeper
, and the
nature of the affiliations in
Keeper
more
closely resembles the nature of the affiliations here.
In addition to
Keeper
and
American Century
, for reasons discussed above relating to
the underlying purpose of Section 17(a) and the absence of the
potential for self-dealing, Applicants submit that the policy considerations
that supported the Commissions issuances of other orders granting relief from Section 17(a) apply
equally here, including:
Morgan Stanley Investment Management Inc., et al.
,
Investment Company Act Release Nos. 28125 (Jan. 18, 2008) (Notice) and 28150
(Feb. 13, 2008) (Order);
Lehman Brothers Asset
Management LLC, et al.
, Investment
41
Company Act
Release Nos. 27920 (Aug. 1, 2007) (Notice) and 27957 (Aug. 28, 2007) (Order);
J.P. Morgan Investment Management Inc., et al.
, Investment
Company Act Release Nos. 26446 (May 10, 2004) (Notice) and 26466 (June 8, 2004)
(Order);
J.P. Morgan Fleming Asset Management (USA), Inc.,
et al.
, Investment Company Act Release Nos. 25574 (May 15, 2002)
(Notice) and 25608 (June 11, 2002) (Order);
Goldman Sachs Trust, et
al.
, Investment Company Act Release Nos. 24834 (Jan. 23, 2001) and
24877 (Feb. 21, 2001) (Order); and
MONY Life Insurance
Company, et al.
, Investment Company Act Release Nos. 24073 (October
5, 1999) (Notice) and 24120 (November 2, 1999) (Order). Applicants note that the Commission has
granted relief in the above orders for transactions between both second- and
first-tier affiliates. While Applicants
recognize that the conditions in such orders may be more strict in certain
respects, the affiliation between the parties was also more direct. By contrast, Applicants request relief to
engage in Securities Transactions between remote second-tier affiliates only.
For reasons discussed above relating to the underlying
purpose of Section 17(d) and the absence of the potential for
self-dealing, Applicants submit that the policy considerations that supported
the Commissions issuances of the
Keeper
and
American Century
orders granting relief from Section 17(d) also
apply here.
See also
Massachusetts Mutual Life Insurance Company, et al.
(
MassMutual
), Investment Company Act
Release Nos. 24557 (July 13, 2000) (Notice) and 24595 (August 8,
2000) (Order), permitting coinvestments by certain registered and unregistered
funds and their investment advisers. Applicants
note that
MassMutual
contained more conditions
than in this Application, however, the affiliation in that situation was more
direct than the second-tier affiliations involved here.
42
X.
Applicants Conditions
Applicants refer the Commission to the
conditions listed below in order to establish more fully the basis for the
requested relief. References to
Citigroup and Morgan Stanley below also include each of their respective
subsidiaries, unless the context otherwise requires. Applicants proposed conditions are:
A.
Structural
(1)
Citigroup will control none of the MS
Advisers or the MS Funds or any principal underwriter for the MS Funds,(24)
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.
(2)
Morgan Stanley will control none of the Citi
Adviser or the Citi Funds or any principal underwriter for the Citi Funds,(25)
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.
(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
(24) Other than with respect to
certain newly organized closed-end funds, described
supra
at note 3.
(25) Other than with respect to
certain newly organized closed-end funds, described
supra
at note 3.
43
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
seek to influence in any way the terms of any Securities Transaction covered by
the Order. 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 policies that have the effect of prohibiting the
Citi Trading Entity from (i) 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 (ii) 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
44
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.
(6)
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 policies that have the effect of prohibiting the MS Trading Entity from (i) 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 (ii) 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.
(7)
Citigroup will not adopt any compensation
scheme any component of which is based on (i) a factor that treats the MS
Funds differently than unaffiliated
45
counterparties or (ii) 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.
(8)
Morgan Stanley will not adopt any compensation
scheme any component of which is based on (i) a factor that treats the
Citi Funds differently than unaffiliated counterparties or (ii) 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.
(9)
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.
Transactiona
l
With respect to each Securities Transaction
entered into or effected pursuant to the Order:
(1)
Each Funds Board, including a majority of
its disinterested directors/trustees (the Required Majority) or their
designee, shall approve procedures governing all transactions pursuant to the
Order and shall no less frequently than quarterly review all such transactions.
46
(2)
For each transaction, the MS Advisers will
consider only the interests of the MS Funds and will not take into account the
impact of a MS Funds investment decision on the Citi Trading Entity or its
affiliates. For each transaction, the
Citi Adviser will consider only the interests of the Citi Funds and will not
take into account the impact of a Citi Funds 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 bests interests of the Fund and its shareholders.
(3)
Each Fund will (i) 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 (ii) maintain and preserve for a period of
not less than six years from the end of the fiscal year in which any
transaction in which the Funds 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 Entitys 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 set forth above and conditions in this 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 Funds Adviser must obtain a
competitive quotation for the same securities (or
47
in the case of securities for
which quotations for the same securities are not available, a competitive
quotation for Comparable Securities) from at least one unaffiliated dealer that
is in a position to quote favorable market prices. For each such transaction, the Adviser will
determine, based upon the quotation and such other information as is reasonably
available to the Adviser and deemed relevant by it, that the price available
from the Trading Entity is at least as favorable as that available from other
sources.
(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 the information reasonably available to the
Adviser and deemed relevant by it, that the income to be earned from the
repurchase agreement is at least equal to that available from other sources.
(b)
With respect to each such transaction
involving variable rate demand notes for which dealer bids are not ordinarily
available, a Fund will only undertake purchases and sales where the Adviser has
determined, based on information reasonably available to the Adviser and deemed
relevant by it, 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 the
information reasonably available to the
48
Adviser and deemed relevant by
it, 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 owns an interest and acts
as a liquidity provider or remarketing agent:
(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 Required Majority of the Funds Board, based on a finding that
it is in the best interests of the Fund to continue such arrangement, as
proposed to be modified; and
(b)
in
the case of such arrangements proposed to be structured after the closing of
the Joint Venture, the Required Majority of the Funds 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 (including any fees to be paid to the Trading Entity
as liquidity provider or remarketing agent, or otherwise, in a manner similar
to condition B(4) above), the nature of the respective interests in the
trusts that may be held
49
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.
(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 (i) the
residual interest in the special purpose entity is owned directly or indirectly
by the Trading Entity (or an affiliate), and (ii) the Trading Entity (or
an affiliate) acts as the servicer of assets, purchases of such securities will
be made by a Fund only where unaffiliated third-parties purchase greater than
50% of the dollar amount of securities of each class acquired by the Funds in
the aggregate, and the Funds participate in each such class on the same terms
as such other purchasers of that class.
(8)
With respect to all other arrangements or
transactions in which the MS Funds or the Citi Fund might be viewed as
participating jointly or having a joint interest within the meaning of Section 17(d) of
the Act with the Citi Trading Entity or the MS Trading Entity, respectively,
the arrangement or transaction (a) must involve no coordination between
the Trading Entity and the Funds beyond that of a type engaged in with other
unaffiliated participants in such transaction or arrangement, and (b) the
terms of the Funds participation (to the extent within the knowledge and
control of the Trading Entity) must be on a basis no less advantageous than
that of other similarly situated participants, including the Trading Entity,
except to the extent such difference is related to services performed by such
participant or its role in the transaction.
50
XI.
Conclusion
Applicants submit that the Securities
Transactions described in this Application satisfy the standards of Sections 6(c) and
17(b) and Rule 17d-1. 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 Advisers decision
to engage in a Securities Transaction with a Trading Entity on behalf of a
Fund. Moreover, 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 absent any influence by the Trading Entities. Finally, 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.(26)
Based upon the foregoing, Applicants
respectfully submit that it is appropriate in the public interest and
consistent with the protection of investors and the purposes and policies
underlying the Act to issue an Order pursuant to Sections 6(c) and 17(b) of
the Act exempting Securities Transactions from the provisions of Section 17(a) of
the Act and, in the case of Joint Transactions, permitting such Securities
Transactions pursuant to Section 17(d) and Rule 17d-1 of the Act
on the basis also that the Funds participation is no less advantageous than
the Trading Entitys unless such difference is justified by services performed
or role in the transaction.
(26)
See
Section 1(b)(2) of the Act,
supra
.
51
XII.
Procedural Matters
Pursuant to Rule 0-2(f) under the
Act, Applicants state that written or oral communications regarding this
Application should be directed to the names and addresses indicated on the
cover page of this Application.
The address of each Applicant is as
follows: The principal offices of each
of the MS Funds are currently located at 522 Fifth Avenue, New York, New York
10036. The principal offices of each of
the MS Advisers are currently located at 522 Fifth Avenue, New York, New York
10036. The principal office of MS &
Co. is currently located at 1585 Broadway, New York, New York 10036. The principal office of LMP Corporate Loan
Fund Inc. is currently located at 55 Water Street, New York, New York 10041. The principal office of Citigroup Alternative
Investments LLC is located at 399 Park Avenue, New York, New York 10043. The principal office of CGMI is located at
388 Greenwich Street, New York, New York 10013.
The principal office of Citibank, N.A. is located at 399 Park Avenue,
New York, New York 10043. The principal
office of Citibank Canada is located at 123 Front Street West, Toronto, Ontario
M5J 2M3. The principal office of Citibank
International plc is located at Citigroup Centre, Canada Square, Canary Wharf,
London E14 5LB. The principal office of
Citigroup Global Markets Limited is located at Citigroup Centre, Canada Square,
Canary Wharf, London E14 5LB. The
principal office of Citigroup Financial Products Inc. is located at 388
Greenwich Street, New York, New York 10013.
Applicants desire that the Commission issue
the Order pursuant to Rule 0-5 under the Act without conducting a hearing.
All requirements of the charter documents of
each Applicant have been complied with in connection with the execution and
filing of this Application. Each person
signing the
52
Application is fully authorized to do so. The verifications on behalf of each Applicant
required by Rule 0-2(d) are attached hereto as Exhibits A-1 to
A-13. A statement of authorization with
respect to the filing of this Application by each Applicant and accompanying
resolutions by each Funds Board required by Rule 0-2(c)(1) are
attached hereto as Exhibits B-1 to B-2.
53
The parties have executed this
Application in one or more counterparts.
|
Signed on behalf of each of the funds listed in Schedule A
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|
|
|
|
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Date: April 30, 2009
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By:
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/s/ Stefanie V. Chang Yu
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|
Name:
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Stefanie V. Chang Yu
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Title:
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Vice President
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MORGAN STANLEY INVESTMENT MANAGEMENT INC.
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Date: April 30, 2009
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By:
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/s/ Stefanie V. Chang Yu
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|
Name:
|
Stefanie V. Chang Yu
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|
Title:
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Managing Director
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MORGAN STANLEY INVESTMENT ADVISORS INC.
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Date: April 30, 2009
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By:
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/s/ Stefanie V. Chang Yu
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Name:
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Stefanie V. Chang Yu
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Title:
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Managing Director
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VAN KAMPEN ASSET MANAGEMENT
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Date: April 30, 2009
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By:
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/s/ Stefanie V. Chang Yu
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|
Name:
|
Stefanie V. Chang Yu
|
|
Title:
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Managing Director
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MORGAN STANLEY & CO. INCORPORATED
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Date: April 30, 2009
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By:
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/s/ Roger Gilbert
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Name:
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Roger Gilbert
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Title:
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Managing Director
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54
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LMP CORPORATE LOAN FUND INC.
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Date: April 30, 2009
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By:
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/s/ Robert Frenkel
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Name:
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Robert Frenkel
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Title:
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Secretary and Chief Legal Officer
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CITIGROUP ALTERNATIVE INVESTMENTS
LLC
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Date: April 30, 2009
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By:
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/s/ Millie Kim
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Name:
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Millie Kim
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Title:
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Secretary
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CITIGROUP GLOBAL MARKETS INC.
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Date: April 30, 2009
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By:
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/s/ Scott L. Flood
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Name:
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Scott L. Flood
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Title:
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Co-General Counsel
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CITIGROUP GLOBAL MARKETS LIMITED
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Date: April 30, 2009
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By:
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/s/ J D Robson & N J Menditta
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Name:
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J D Robson & N J Menditta
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Title:
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Delegated Signatories
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CITIGROUP FINANCIAL PRODUCTS INC.
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Date: April 30, 2009
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By:
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/s/ Scott L. Flood
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Name:
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Scott L. Flood
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Title:
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Co-General Counsel
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55
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CITIBANK, N.A.
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Date: April 30, 2009
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By:
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/s/ Scott L. Flood
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Name:
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Scott L. Flood
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Title:
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Vice President
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CITIBANK CANADA
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Date: April 30, 2009
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By:
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/s/ Charles Alexander
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Name:
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Charles Alexander
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Title:
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General Counsel
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CITIBANK INTERNATIONAL PLC
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Date: April 30, 2009
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By:
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/s/ Robert Stemmons
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Name:
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Robert Stemmons
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Title:
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Delegated Signatory
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56
Schedule A
MORGAN STANLEY
RETAIL AND INSTITUTIONAL FUNDS
AS OF APRIL 30, 2009
RETAIL FUNDS
OPEN-END RETAIL FUNDS
TAXABLE
MONEY MARKET FUNDS
Active
Assets Government Securities Trust
Active
Assets Institutional Government Securities Trust
Active
Assets Institutional Money Trust
Active
Assets Money Trust
Morgan
Stanley Liquid Asset Fund Inc.
Morgan
Stanley U.S. Government Money Market Trust
TAX-EXEMPT
MONEY MARKET FUNDS
Active
Assets California Tax-Free 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
EQUITY
FUNDS
Morgan
Stanley Capital Opportunities Trust
Morgan
Stanley Dividend Growth Securities Inc.
Morgan
Stanley Equally-Weighted S&P 500 Fund
Morgan
Stanley European Equity Fund Inc.
Morgan
Stanley Focus Growth Fund
Morgan
Stanley Fundamental Value Fund
Morgan
Stanley Global Advantage Fund
Morgan
Stanley Global Dividend Growth Securities
Morgan
Stanley Global Infrastructure Fund
Morgan
Stanley Health Sciences Trust
Morgan
Stanley International Fund
Morgan
Stanley International Value Equity Fund
Morgan
Stanley Mid Cap Growth Fund
Morgan
Stanley Mid-Cap Value Fund
Morgan
Stanley Natural Resource Development Securities Inc.
Morgan
Stanley Pacific Growth Fund Inc.
Morgan
Stanley Real Estate Fund
57
Morgan
Stanley S&P 500 Index Fund
Morgan
Stanley Series Funds
·
Morgan Stanley Commodities Alpha Fund
·
Morgan Stanley Alternative Opportunities Fund
·
Morgan Stanley U.S. Multi-Cap Alpha Fund
Morgan
Stanley Small-Mid Special Value Fund
Morgan
Stanley Special Growth Fund
Morgan
Stanley Special Value Fund
Morgan
Stanley Technology Fund
Morgan
Stanley Value Fund
BALANCED
FUND
Morgan
Stanley Balanced Fund
ASSET
ALLOCATION FUND
Morgan
Stanley Strategist Fund
TAXABLE
FIXED-INCOME FUNDS
Morgan
Stanley Convertible Securities Trust
Morgan
Stanley Flexible Income Trust
Morgan
Stanley FX Series Funds
·
Morgan Stanley FX Alpha Plus Strategy
Portfolio
·
Morgan Stanley FX Alpha Strategy Portfolio
Morgan
Stanley High Yield Securities Inc.
Morgan
Stanley Limited Duration U.S. Government Trust
Morgan
Stanley Mortgage Securities Trust
Morgan
Stanley U.S. Government Securities Trust
TAX-EXEMPT
FIXED-INCOME FUNDS
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
SPECIAL
PURPOSE FUNDS
Morgan
Stanley Select Dimensions Investment Series, on behalf of its series
·
Balanced Portfolio
·
Capital Growth Portfolio
·
Capital Opportunities Portfolio
·
Dividend Growth Portfolio
·
Equally-Weighted S&P 500 Portfolio
·
Flexible Income Portfolio
·
Focus Growth Portfolio
58
·
Global Infrastructure Portfolio
·
Mid Cap Growth Portfolio
·
Money Market Portfolio
Morgan
Stanley Variable Investment Series
·
Aggressive Equity Portfolio
·
Capital Opportunities Portfolio
·
Dividend Growth Portfolio
·
European Equity Portfolio
·
Global Dividend Growth Portfolio
·
Global Infrastructure Portfolio
·
High Yield Portfolio
·
Income Builder Portfolio
·
Income Plus Portfolio
·
Limited Duration Portfolio
·
Money Market Portfolio
·
S&P 500 Index Portfolio
·
Strategist Portfolio
CLOSED-END RETAIL FUNDS
TAXABLE
FIXED-INCOME CLOSED-END FUNDS
Morgan
Stanley Income Securities Inc.
Morgan
Stanley Prime Income Trust
TAX-EXEMPT
FIXED-INCOME CLOSED-END FUNDS
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
59
INSTITUTIONAL FUNDS
OPEN-END INSTITUTIONAL FUNDS
Morgan
Stanley Institutional Fund, Inc., on behalf of its series
·
Active International Allocation Portfolio
·
Capital Growth Portfolio
·
Emerging Markets Debt Portfolio
·
Emerging Markets Portfolio
·
Focus Growth Portfolio
·
Global Franchise Portfolio
·
Global Real Estate Portfolio
·
Global Value Equity Portfolio
·
International Equity Portfolio
·
International Growth Equity Portfolio
·
International Real Estate Portfolio
·
International Small Cap Portfolio
·
Large Cap Relative Value Portfolio
·
Small Company Growth Portfolio
·
U.S. Real Estate Portfolio
·
U.S. Small/Mid Cap Value Portfolio
Morgan
Stanley Institutional Fund Trust, on behalf of its series
·
Advisory Portfolio
·
Advisory Portfolio II
·
Balanced Portfolio
·
Core Fixed Income Portfolio
·
Core Plus Fixed Income Portfolio
·
Intermediate Duration Portfolio
·
International Fixed Income Portfolio
·
Investment Grade Fixed Income Portfolio
·
Limited Duration Portfolio
·
Long Duration Fixed Income Portfolio
·
Mid Cap Growth Portfolio
·
Municipal Portfolio
·
U.S. Mid Cap Value Portfolio
·
U.S. Small Cap Value Portfolio
·
Value Portfolio
Morgan
Stanley Institutional Liquidity Funds, on behalf of its series
·
Government Portfolio
·
Money Market Portfolio
·
Prime Portfolio
·
Tax-Exempt Portfolio
·
Treasury Portfolio
·
Government Securities Portfolio
·
Treasury Securities Portfolio
The
Universal Institutional Funds, Inc., on behalf of its series
·
Core Plus Fixed Income Portfolio
60
·
Emerging Markets Debt Portfolio
·
Emerging Markets Equity Portfolio
·
Equity and Income Portfolio
·
Capital Growth Portfolio
·
Global Franchise Portfolio
·
Global Real Estate Portfolio
·
Global Value Equity Portfolio
·
High Yield Portfolio
·
International Growth Equity Portfolio
·
International Magnum Portfolio
·
Mid Cap Growth Portfolio
·
Small Company Growth Portfolio
·
U.S. Mid Cap Value Portfolio
·
U.S. Real Estate Portfolio
·
Value Portfolio
CLOSED-END INSTITUTIONAL FUNDS
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 Domestic Debt Fund, Inc.
Morgan
Stanley Emerging Markets Fund, Inc.
Morgan
Stanley Frontier Emerging Markets Fund, Inc.
Morgan
Stanley Global Opportunity Bond Fund, Inc.
Morgan
Stanley High Yield Fund, Inc.
Morgan
Stanley India Investment Fund, Inc.
The
Latin American Discovery Fund, Inc.
The
Malaysia Fund, Inc.
The
Thai Fund, Inc.
The
Turkish Investment Fund, Inc.
61
VAN KAMPEN FUNDS
AS OF APRIL 30, 2009
OPEN-END FUNDS
Van
Kampen Capital Growth Fund
Van
Kampen Comstock Fund
Van
Kampen Corporate Bond Fund
Van
Kampen Enterprise Fund
Van
Kampen Equity and Income Fund
Van
Kampen Equity Trust, on behalf of its series
·
Van Kampen Asset Allocation Conservative Fund
·
Van Kampen Asset Allocation Growth Fund
·
Van Kampen Asset Allocation Moderate Fund
·
Van Kampen Core Equity Fund
·
Van Kampen Global Growth Fund
·
Van Kampen Leaders Fund
·
Van Kampen Mid Cap Growth Fund
·
Van Kampen Small Cap Growth Fund
·
Van Kampen Small Cap Value Fund
·
Van Kampen Utility Fund
·
Van Kampen Value Opportunities Fund
Van
Kampen Equity Trust II, on behalf of its series
·
Van Kampen American Franchise Fund
·
Van Kampen Equity Premium Income Fund
·
Van Kampen International Growth Fund
·
Van Kampen International Advantage Fund
·
Van Kampen Technology Fund
·
Van Kampen Core Growth Fund
Van
Kampen Exchange Fund
Van
Kampen Government Securities Fund
Van
Kampen Growth and Income Fund
Van
Kampen Harbor Fund
Van
Kampen High Yield Fund
Van
Kampen Life Investment Trust, on behalf of its series
·
LIT Capital Growth Portfolio
·
LIT Comstock Portfolio
·
LIT Global Tactical Asset Allocation
Portfolio
·
LIT Government Portfolio
·
LIT Growth and Income Portfolio
·
LIT Mid Cap Growth Portfolio
·
LIT Money Market Portfolio
Van
Kampen Limited Duration Fund
Van
Kampen Money Market Fund
Van
Kampen Pennsylvania Tax Free Income Fund
Van
Kampen Real Estate Securities Fund
62
Van
Kampen Retirement Strategy Trust, on behalf of its series
·
Van Kampen 2010 Retirement Strategy Fund
·
Van Kampen 2015 Retirement Strategy Fund
·
Van Kampen 2020 Retirement Strategy Fund
·
Van Kampen 2025 Retirement Strategy Fund
·
Van Kampen 2030 Retirement Strategy Fund
·
Van Kampen 2035 Retirement Strategy Fund
·
Van Kampen 2040 Retirement Strategy Fund
·
Van Kampen 2045 Retirement Strategy Fund
·
Van Kampen 2050 Retirement Strategy Fund
·
Van Kampen In Retirement Strategy Fund
Van
Kampen Senior Loan Fund
Van
Kampen Series Fund, Inc., on behalf of its series
·
Van Kampen American Value Fund
·
Van Kampen Emerging Markets Fund
·
Van Kampen Equity Growth Fund
·
Van Kampen Global Equity Allocation Fund
·
Van Kampen Global Franchise Fund
·
Van Kampen Global Value Equity Fund
Van
Kampen Tax-Exempt Trust
Van
Kampen Tax Free Money Fund
Van
Kampen Tax Free Trust, on behalf of its series
·
Van Kampen California Insured Tax Free Fund
·
Van Kampen Insured Tax Free Income Fund
·
Van Kampen Intermediate Term Municipal Income
Fund
·
Van Kampen Municipal Income Fund
·
Van Kampen New York Tax Free Income Fund
·
Van Kampen Strategic Municipal Income Fund
Van
Kampen Trust
Van
Kampen Trust II, on behalf of its series
·
Van Kampen Global Bond Fund
·
Van Kampen Global Tactical Asset Allocation
Fund
Van
Kampen Partners Trust, on behalf of its series
·
Van Kampen OShaughnessy All Cap Core Fund
·
Van Kampen OShaughnessy Enhanced Dividend
Fund
·
Van Kampen OShaughnessy Global Fund
·
Van Kampen OShaughnessy International Fund
·
Van Kampen OShaughnessy Large Cap Growth
Fund
·
Van Kampen OShaughnessy Small/Mid Cap Growth
Fund
Van
Kampen U.S. Government Trust
CLOSED-END FUNDS
Van
Kampen Advantage Municipal Income Trust II
Van
Kampen Bond Fund
Van
Kampen California Value Municipal Income Trust
Van
Kampen Dynamic Credit Opportunities Fund
63
Van
Kampen High Income Trust II
Van
Kampen Massachusetts Value Municipal Income Trust
Van
Kampen Municipal Opportunity Trust
Van
Kampen Municipal Trust
Van
Kampen Ohio Quality Municipal Trust
Van
Kampen Pennsylvania Value Municipal Income Trust
Van
Kampen Select Sector Municipal Trust
Van
Kampen Senior Income 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
64
Exhibit A-1
VERIFICATION
STATE OF NEW YORK
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)
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)
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COUNTY OF NEW YORK
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)
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The undersigned states that she has duly
executed the attached application for an order pursuant to Sections 17(a) and 17(e)
of the Investment Company Act of 1940 (the Act), and pursuant to Section 17(d) of
the Act and Rule 17d-1 thereunder, dated April 30, 2009, for and on
behalf of each of the funds listed in Schedule A (each, a Fund); that she is
the Vice President of each Fund; and that all actions necessary to authorize the
undersigned to execute and file such instrument have been taken. The undersigned further says that she is
familiar with such instrument, and the contents thereof, and that the facts
therein set forth are true to the best of her knowledge, information and
belief.
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By:
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/s/
Stefanie V. Chang Yu
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Name:
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Stefanie
V. Chang Yu
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65
Exhibit A-2
VERIFICATION
STATE OF NEW YORK
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)
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)
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COUNTY OF NEW YORK
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)
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The undersigned states that she has duly
executed the attached application for an order pursuant to Sections 17(a) and 17(e)
of the Investment Company Act of 1940 (the Act), and pursuant to Section 17(d) of
the Act and Rule 17d-1 thereunder, dated April 30, 2009, for and on
behalf of Morgan Stanley Investment Management Inc. (the Company); that she
is Managing Director of the Company; and that all actions necessary to
authorize the undersigned to execute and file such instrument have been
taken. The undersigned further says that
she is familiar with such instrument, and the contents thereof, and that the
facts therein set forth are true to the best of her knowledge, information and
belief.
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By:
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/s/
Stefanie V. Chang Yu
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Name:
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Stefanie
V. Chang Yu
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66
Exhibit A-3
VERIFICATION
STATE OF NEW YORK
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)
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)
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COUNTY OF NEW YORK
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)
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The undersigned states that she has duly
executed the attached application for an order pursuant to Sections 17(a) and
17(e) of the Investment Company Act of 1940 (the Act), and pursuant
to Section 17(d) of the Act and Rule 17d-1 thereunder, dated April 30,
2009, for and on behalf of Morgan Stanley Investment Advisors Inc. (the
Company); that she is Managing Director of the Company; and that all actions
necessary to authorize the undersigned to execute and file such instrument have
been taken. The undersigned further says
that she is familiar with such instrument, and the contents thereof, and that
the facts therein set forth are true to the best of her knowledge, information
and belief.
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By:
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/s/
Stefanie V. Chang Yu
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Name:
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Stefanie
V. Chang Yu
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67
Exhibit A-4
VERIFICATION
STATE OF NEW YORK
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)
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)
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COUNTY OF NEW YORK
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)
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The undersigned states that she has duly executed
the attached application for an order pursuant to Sections 17(a) and
17(e) of the Investment Company Act of 1940 (the Act), and pursuant
to Section 17(d) of the Act and Rule 17d-1 thereunder, dated April 30,
2009, for and on behalf of Van Kampen Asset Management (the Company); that
she is Managing Director of the Company; and that all actions necessary to
authorize the undersigned to execute and file such instrument have been
taken. The undersigned further says that
she is familiar with such instrument, and the contents thereof, and that the
facts therein set forth are true to the best of her knowledge, information and
belief.
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By:
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/s/
Stefanie V. Chang Yu
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Name:
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Stefanie
V. Chang Yu
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68
Exhibit A-5
VERIFICATION
STATE OF NEW YORK
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)
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)
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COUNTY OF NEW YORK
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)
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The undersigned states that he has duly
executed the attached application for an order pursuant to Sections 17(a) and
17(e) of the Investment Company Act of 1940 (the Act), and pursuant
to Section 17(d) of the Act and Rule 17d-1 thereunder, dated April 30,
2009, for and on behalf of Morgan Stanley & Co. Incorporated (the
Company); that he is a Managing Director of the Company; and that all actions
necessary to authorize the undersigned to execute and file such instrument have
been taken. The undersigned further says
that he is familiar with such instrument, and the contents thereof, and that
the facts therein set forth are true to the best of his knowledge, information
and belief.
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By:
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/s/
Roger Gilbert
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Name:
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Roger
Gilbert
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69
Exhibit A-6
VERIFICATION
STATE OF NEW YORK
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)
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)
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COUNTY OF NEW YORK
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)
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The undersigned states that he has duly
executed the attached application for an order pursuant to Sections 17(a) and
17(e) of the Investment Company Act of 1940 (the Act), and pursuant
to Section 17(d) of the Act and Rule 17d-1 thereunder, dated April 30,
2009, for and on behalf of LMP Corporate Loan Fund Inc. (the Fund); that he
is Secretary and Chief Legal Officer of the Fund; and that all actions
necessary to authorize the undersigned to execute and file such instrument have
been taken. The undersigned further says
that he is familiar with such instrument, and the contents thereof, and that
the facts therein set forth are true to the best of his knowledge, information
and belief.
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By:
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/s/
Robert Frenkel
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Name:
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Robert
Frenkel
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70
Exhibit A-7
VERIFICATION
STATE OF NEW YORK
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)
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|
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)
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COUNTY OF NEW YORK
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)
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The undersigned states that she has duly
executed the attached application for an order pursuant to Sections 17(a) and
17(e) of the Investment Company Act of 1940 (the Act), and pursuant
to Section 17(d) of the Act and Rule 17d-1 thereunder, dated April 30,
2009, for and on behalf of Citigroup Alternative Investments LLC (the
Company); that she is Secretary of the Company; and that all actions
necessary to authorize the undersigned to execute and file such instrument have
been taken. The undersigned further says
that she is familiar with such instrument, and the contents thereof, and that
the facts therein set forth are true to the best of her knowledge, information
and belief.
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By:
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/s/
Millie Kim
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Name:
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Millie
Kim
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71
Exhibit A-8
VERIFICATION
STATE OF NEW YORK
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)
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|
|
)
|
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COUNTY OF NEW YORK
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)
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The undersigned states that he has duly
executed the attached application for an order pursuant to Sections 17(a) and
17(e) of the Investment Company Act of 1940 (the Act), and pursuant
to Section 17(d) of the Act and Rule 17d-1 thereunder, dated April 30,
2009, for and on behalf of Citigroup Global Markets Inc. (the Company); that
he is Co-General Counsel of the Company; and that all actions necessary to
authorize the undersigned to execute and file such instrument have been
taken. The undersigned further says that
he is familiar with such instrument, and the contents thereof, and that the
facts therein set forth are true to the best of his knowledge, information and
belief.
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By:
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/s/
Scott L. Flood
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Name:
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Scott
L. Flood
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72
Exhibit A-9
VERIFICATION
STATE OF NEW YORK
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)
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|
|
)
|
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COUNTY OF NEW YORK
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)
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The undersigned state that they have duly
executed the attached application for an order pursuant to Sections 17(a) and
17(e) of the Investment Company Act of 1940 (the Act), and pursuant
to Section 17(d) of the Act and Rule 17d-1 thereunder, dated April 30,
2009, for and on behalf of Citigroup Global Markets Limited (the Company);
that they are Delegated Signatories of the Company; and that all actions
necessary to authorize the undersigned to execute and file such instrument have
been taken. The undersigned further say
that they are familiar with such instrument, and the contents thereof, and that
the facts therein set forth are true to the best of their knowledge,
information and belief.
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By:
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/s/
J D Robson & N J Menditta
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Name:
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J
D Robson & N J Menditta
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73
Exhibit A-10
VERIFICATION
STATE OF NEW YORK
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)
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)
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COUNTY OF NEW YORK
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)
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The undersigned states that he has duly
executed the attached application for an order pursuant to Sections 17(a) and
17(e) of the Investment Company Act of 1940 (the Act), and pursuant to Section 17(d) of
the Act and Rule 17d-1 thereunder, dated April 30, 2009, for and on
behalf of Citigroup Financial Products Inc. (the Company); that he is
Co-General Counsel of the Company; and that all actions necessary to authorize
the undersigned to execute and file such instrument have been taken. The undersigned further says that he is
familiar with such instrument, and the contents thereof, and that the facts
therein set forth are true to the best of his knowledge, information and belief.
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By:
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/s/
Scott L. Flood
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Name:
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Scott
L. Flood
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74
Exhibit A-11
VERIFICATION
STATE OF NEW YORK
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)
|
|
)
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COUNTY OF NEW YORK
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)
|
The undersigned states that he has duly
executed the attached application for an order pursuant to Sections 17(a) and
17(e) of the Investment Company Act of 1940 (the Act), and pursuant to Section 17(d) of
the Act and Rule 17d-1 thereunder, dated April 30, 2009, for and on
behalf of Citibank, N.A. (the Company); that he is a Vice President of the
Company; and that all actions necessary to authorize the undersigned to execute
and file such instrument have been taken.
The undersigned further says that he is familiar with such instrument,
and the contents thereof, and that the facts therein set forth are true to the
best of his knowledge, information and
belief.
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By:
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/s/
Scott L. Flood
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Name:
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Scott
L. Flood
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75
Exhibit A-12
VERIFICATION
STATE OF NEW YORK
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)
|
|
)
|
COUNTY OF NEW YORK
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)
|
The undersigned states that he has duly
executed the attached application for an order pursuant to Sections 17(a) and
17(e) of the Investment Company Act of 1940 (the Act), and pursuant to Section 17(d) of
the Act and Rule 17d-1 thereunder, dated April 30, 2009, for and on
behalf of Citibank Canada (the Company); that he is General Counsel &
Corporate Secretary of the Company; and that all actions necessary to authorize
the undersigned to execute and file such instrument have been taken. The undersigned further says that he is
familiar with such instrument, and the contents thereof, and that the facts
therein set forth are true to the best of his knowledge, information and
belief.
|
By:
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/s/
Charles Alexander
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Name:
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Charles
Alexander
|
76
Exhibit A-13
VERIFICATION
The undersigned states that he has duly
executed the attached application for an order pursuant to Sections 17(a) and
17(e) of the Investment Company Act of 1940 (the Act), and pursuant to Section 17(d) of
the Act and Rule 17d-1 thereunder, dated April 30, 2009, for and on
behalf of Citibank International plc (the Company); that he is Delegated
Signatory of the Company; and that all actions necessary to authorize the
undersigned to execute and file such instrument have been taken. The undersigned further says that he is
familiar with such instrument, and the contents thereof, and that the facts
therein set forth are true to the best of his knowledge, information and
belief.
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By:
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/s/
Robert Stemmons
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Name:
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Robert
Stemmons
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77
Exhibit B-1
OFFICERS
CERTIFICATE
The undersigned, being duly elected Vice
President of each fund listed on Schedule A (each, a Fund), DOES HEREBY
CERTIFY that the attached resolutions were adopted by the Board of Directors or
Trustees of such Fund at a meeting duly held on April 17, 2009 with
respect to the Van Kampen Funds and on April 23, 2009 with respect to the
Morgan Stanley Funds, and that such resolutions have not been amended, modified
or superseded in any way as of the date of this Certificate.
IN WITNESS WHEREOF, I have set my hand this
30
th
day of April, 2009.
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By:
|
|
/s/
Stefanie V. Chang Yu
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|
Name:
|
Stefanie
V. Chang Yu
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Title:
|
Vice
President
|
78
The
Funds Listed on Schedule A
RESOLVED, that this Board hereby authorizes
the funds listed on Schedule A (the Funds) to file an application for an
order from the Securities and Exchange Commission to permit the Funds to engage
in securities transactions with Citigroup Global Markets Inc. or an affiliate
(collectively, the Citi Trading Entity), including (i) the purchase of
securities from, or the sales of securities to, the Citi Trading Entity in both
primary market (including underwritten) and secondary market transactions in
which the Citi Trading Entity is acting as a principal and (ii) participation
in arrangements or transactions that the Funds presently participate in with
the Citi Trading Entity, subject to such terms and conditions as are agreed to
by the Securities and Exchange Commission; and further
RESOLVED, that all officers of these Funds
are, and each hereby is, authorized from time to time to do, or cause to be
done, all such other acts and things, and to execute and deliver all such
instruments and documents, as each officer shall deem necessary or appropriate,
to carry out the purpose and intent of the foregoing resolution.
79
Exhibit B-2
OFFICERS
CERTIFICATE
The undersigned, being duly elected Chief
Legal Officer of LMP Corporate Loan Fund Inc. (the Fund), DOES HEREBY CERTIFY
that the attached resolutions were adopted by the Board of Directors of the
Fund at a meeting duly held on April 23, 2009, and that such resolutions
have not been amended, modified or superseded in any way as of the date of this
Certificate.
IN WITNESS WHEREOF, I have set my hand this
30
th
day of April, 2009.
|
By:
|
|
/s/
Robert Frenkel
|
|
Name:
|
Robert
Frenkel
|
|
Title:
|
Secretary
and Chief Legal Officer
|
80
LMP
Corporate Loan Fund Inc.
RESOLVED, that the Board of Directors of LMP
Corporate Loan Fund Inc. (the Fund) hereby authorize the filing of an
application for an order from the Securities and Exchange Commission to permit
the Fund to engage in securities transactions (including for this purpose,
loans and interests therein) with Morgan Stanley & Co. Incorporated or
an affiliate (collectively, the MS Trading Entity), including (i) the
purchase of securities from, or the sales of securities to, the MS Trading
Entity in both primary market (including underwritten) and secondary market
transactions in which the MS Trading Entity is acting as a principal and (ii) participation
in arrangements or transactions that the Fund presently participates in with
the MS Trading Entity, subject to such terms and conditions as are agreed to by
the Securities and Exchange Commission and which shall not be objectionable to
counsel to the Fund; and further
RESOLVED, that all officers of the Fund are, and
each hereby is, authorized from time to time in consultation with counsel to
the Fund to do, or cause to be done, all such other acts and things, and to
execute and deliver all such instruments and documents, as each officer shall
deem necessary or appropriate, to carry out the purpose and intent of the
foregoing resolution.
81
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