Before the
SECURITIES AND EXCHANGE
COMMISSION
THIRD AMENDED AND RESTATED
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
1
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.
2
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
3
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. 812-13656
October 9, 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
89 pages (including Exhibits),
which have been numbered sequentially.
4
TABLE
OF CONTENTS
I.
|
Summary of Application
|
9
|
|
|
|
|
II.
|
Description of the Applicants
|
12
|
|
|
|
|
|
A.
|
The Funds
|
12
|
|
|
|
|
|
B.
|
The Advisers
|
13
|
|
|
|
|
|
C.
|
The Trading Entities
|
14
|
|
|
|
|
III.
|
The Joint Venture
|
15
|
|
|
|
|
|
A.
|
Ownership of the Joint Venture
|
15
|
|
|
|
|
|
B.
|
The Contributed Businesses
|
16
|
|
|
|
|
|
C.
|
Governance of the Joint Venture
|
17
|
|
|
|
|
IV.
|
Separation Between the MS Entities and the Citi Entities
|
18
|
|
|
|
|
V.
|
Consolidation in the Financial Services Industry
|
22
|
|
|
|
|
VI.
|
The Securities Transactions
|
26
|
|
|
|
|
|
A.
|
The Securities Transactions
Generally
|
26
|
|
|
|
|
|
B.
|
Joint Transactions
|
27
|
|
|
|
|
VII.
|
Relevant Provisions and Relief Requested
|
33
|
|
|
|
|
|
A.
|
Relevant Provisions
|
33
|
|
|
|
|
|
B.
|
Authority for the Order
|
36
|
|
|
|
|
|
C.
|
Relief Requested
|
37
|
|
|
|
|
VIII.
|
Rationale for Relief
|
38
|
|
|
|
|
IX.
|
Precedent
|
45
|
|
|
|
|
X.
|
Applicants Conditions
|
49
|
|
|
|
|
|
A.
|
Structural
|
49
|
|
|
|
|
|
B.
|
Transactional
|
52
|
|
|
|
|
XI.
|
Conclusion
|
59
|
|
|
|
XII.
|
Procedural Matters
|
60
|
5
UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION
|
x
|
|
In
the Matter of
|
:
|
|
|
:
|
|
Morgan
Stanley Investment Management Inc.
|
:
|
Application
for an order pursuant to Sections 6(c) and 17(b)
|
Morgan
Stanley Investment Advisors Inc.
|
:
|
of
the Investment Company Act of 1940 exempting certain
|
Van
Kampen Asset Management
|
:
|
transactions
from the provisions of Sections 17(a) of the Act
|
Morgan
Stanley & Co. Incorporated
|
:
|
and
pursuant to Section 17(d) of the Act and Rule 17d-1
|
Morgan
Stanley Balanced Fund
|
:
|
thereunder
permitting certain transactions
|
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
|
:
|
|
6
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.
|
:
|
|
7
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
|
:
|
|
8
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.
|
|
|
|
|
|
|
:
|
|
|
x
|
|
I.
Summary
of Application
This Third Amended and Restated Application (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 under the Act 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
9
Loan Fund Inc. (the LMP
Fund) for which the Citi Adviser 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 Citi Funds (defined below) to engage in the Securities Transactions
with the MS Trading Entity. The
Securities Transactions that are the subject of the requested order (the
Order) are: (1) primary and secondary market transactions in
fixed-income securities executed on a principal basis (as discussed in section
VI below) between the MS Funds and the Citi Trading Entity and between the Citi
Funds and the MS Trading Entity(1) and (2) certain types of
transactions (as discussed in section VI below) in which the Citi Trading
Entity or the MS Trading Entity and the MS Funds or the Citi Funds,
respectively, might each participate jointly or have a joint interest
(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 a Citi 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
(1) Fixed-income
securities for purposes of the Order include interests in syndicated loans
(including loans made directly as a syndicate member, or the acquisition of a
loan interest in the form of an assignment or participation), as well as
convertible bonds and convertible preferred stock.
10
MS Trading Entity (Morgan
Stanley), have contributed certain businesses.
The Order requested herein is subject to certain conditions, as more
fully described below.
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 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 and
(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, 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 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
(2) Pursuant to a Joint
Venture Contribution and Formation Agreement (the JV Agreement), Morgan
Stanley contributed 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 contributed to the
Joint Venture its retail brokerage and futures business operated under the name
Smith Barney in the United States and Australia and operated under the name
Quilter in the United Kingdom, Ireland and the Channel Islands.
11
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 MS Fund involving the Citi Trading Entity or
by such Citi Fund involving the MS 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 MS 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.
12
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 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.
13
Such policies have
been extended to prevent unnecessary information sharing between MSSB and each
of the MS Advisers and the Citi Adviser.
For example, the MS Advisers and the Citi Adviser have each adopted
policies designed to keep information about client holdings and transactions on
a confidential basis, prior to any public disclosure. Pursuant to these policies, information
regarding investment advisory and portfolio execution matters relating to the
MS Funds and the Citi Funds are considered by the MS Advisers and the Citi
Adviser, respectively, as information that may not be communicated outside of
such Adviser except as necessary (
e.g.
, to a
potential executing broker or dealer on an actual trade), including to
MSSB. In general, prior to any public
disclosure and consistent with an Advisers fiduciary duty to the Fund,
information concerning Fund portfolio holdings is considered confidential and
may only be shared by a Funds Adviser for a legitimate business purpose with
certain types of parties and then, upon prior approval by the Funds Board or
by a committee set up to evaluate such circumstances. Additionally, information barriers are in
place to prevent the dissemination of confidential information between
affiliates, such as between the MS Advisers and other MS Entities (as defined
below) or between the Citi Adviser and other Citi Entities (as defined below),
respectively.
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. As described below, each of
MS & Co. and CGMI are leading dealers and underwriters in respect of a
variety of fixed-income securities.
14
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
consists 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 conducts most of the Joint Ventures domestic
operations as a dual-registered broker-dealer and investment adviser. On June 1, 2009, the Joint Venture
closed in accordance with the terms of the JV Agreement.
A.
Ownership of the Joint
Venture
Pursuant to the
terms of the JV Agreement, Morgan Stanley has contributed 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 has contributed
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).
(6) The JV Agreement is included with Morgan Stanleys
filing on Form 8-K dated January 13, 2009.
15
Morgan Stanley now
owns indirectly through subsidiaries 51% of the Interests, and Citigroup owns,
indirectly through CGMI 49% of the Interests.
In addition, under the JV Agreement, Morgan Stanley has the option to
purchase an additional 14% of the Interests following the third anniversary of
the closing, an additional 15% of the Interests after the fourth anniversary,
and any remaining Interests held by Citigroup after the fifth anniversary.
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.
Formerly, Smith
Barney was a division of CGMI and Quilter was operated through several separate
legal entities under the control of Citigroup.
Currently, the Citi Contributed Businesses form part of MSSB, operating
separately from CGMI and any other Citigroup entity. Prior to the closing of the Joint Venture,
Morgan Stanleys global wealth management businesses formed part of
MS & Co. Such businesses are
currently, as part of MSSB, operated separately from MS & Co., which
remains an investment bank and broker-dealer.
MSSB provides
retail brokerage and a variety of wealth management services, including as an
investment adviser, insurance broker, insurance agency and futures broker. MSSB conducts its own businesses, operating
separately from the non-MSSB business units of Citigroup and Morgan Stanley
(although they may perform certain functions, such as clearing, for MSSB for a
certain period of time following the closing of the Joint Venture). Citigroup and Morgan Stanley have preserved
their distinct brands and continue to offer independently a wide range of
financial services. Citigroup has no
interest in, and will not control (within the meaning of
Section 2(a)(9) of the Act) directly or indirectly, Morgan Stanley,
the MS Advisers, or any other Morgan Stanley entity that is not a MS
Contributed Business (together with the MS Advisers, the MS Entities). Morgan Stanley has no interest in, and will
not control (within the
16
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 is governed
by a newly formed Board of Directors controlled by Morgan Stanley. Currently, the Board consists of four Morgan
Stanley designees and two Citigroup designees (as long as Citigroup owns 10% or
more of the Interests) and the president of MSSB. The Chairman of MSSB is the Co-President of
Morgan Stanley. Morgan Stanley designees
constitute a majority of each committee of the MSSB Board, which also includes
at least one Citigroup designee.(7)
All matters with
regard to MSSB generally will be determined by a majority vote of the MSSB
Board, although the Joint Venture also includes certain other specified
governance and approval rights. These
rights require the approval of Morgan Stanley and, for so long as Citigroup
owns at least 20% of MSSB, of Citigroup, with respect to certain specified
major decisions, including (but not limited to), generally: (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 is
(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.
17
required for amendment to MSSBs limited liability
company 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 may put its
Interests to Morgan Stanley, in the event of a change of control of Morgan
Stanley or after the sixth anniversary of the closing of the Joint Venture
transaction if Morgan Stanley has exercised its first two call rights.
IV.
Separation Between the MS
Entities and the Citi Entities
Subsequent to the
closing of the Joint Venture, the Citi Trading Entity and the MS Advisers (and
the MS Trading Entity and the Citi Adviser) continue to operate as separate,
independent businesses. The Citi Trading
Entity and the MS Advisers (and the MS Trading Entity and the Citi Adviser) continue
to have separate ownership, their own separate officers and employees, and each
continues to be separately capitalized and each maintains its own separate
books and records and physically separate offices.(8) In addition, the MS
Advisers operate as distinct entities and independent profit centers under the
umbrella of Morgan Stanley. Further,
Morgan Stanley will not have any involvement with respect to proposed
transactions pursuant to the Order and will not attempt to influence or control
in any way the placing by the MS Funds or the MS Advisers of orders. Furthermore, officers and employees of the MS
Advisers may not communicate confidential and non-public investment-related
information to Morgan Stanley employees outside of the MS Advisers and their
mutual fund service provider affiliates, except in connection with a conflicts
clearing process set up for that purpose.
Such information barriers are designed to control and prevent the
dissemination of confidential and material nonpublic
(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 Citigroup and Morgan
Stanley has the right to designate members of the Board of Directors of MSSB.
Currently, the Chairman of MSSB is the Co-President of Morgan Stanley.
18
information by employees who receive such nonpublic
information during the course of their employment. Similarly, the Citi Adviser operates as a
distinct entity and independent profit center and also employs information barriers
to prevent the dissemination of confidential and nonpublic information outside
the Citi Adviser.
The Funds and
their investors are also protected from any undue influence, among other
things, by the substantial separation and independent operation of the Trading
Entities from each other and from MSSB.
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 (for example, no Trading
Entity will provide any additional compensation to any employee solely based on
such employees transacting business with a Fund that would not generally be
provided to employees performing similarly with respect to transactions with
unaffiliated parties) 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 (such as where Securities Transactions result in higher profits to a
Fund that increase the net asset value of such Fund, based upon which an
Adviser generally receives a percentage fee).(9) None of the Funds will
engage in portfolio transactions with MSSB.
Further, the information barriers described above with respect the
Advisers and their affiliates will prevent the exchange of confidential
information between the Advisers and MSSB.
In light of the
entity separation described above, the Applicants submit that neither the Citi
Trading Entity nor the MS Trading Entity will be in a position to cause any
Securities
(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.
19
Transaction by the MS Funds or the Citi Funds,
respectively. That separation is in
effect required to be maintained for so long as the Order is relied upon by the
Structural Conditions described in section X below. Further, among other things, those conditions
prohibit the Citi Trading Entity or its affiliates from consulting with the MS
Advisers regarding potential transactions beyond the extent normally carried
out with unaffiliated parties in the normal course of business. In addition, the Citi Trading Entity must
adopt and implement policies prohibiting it from (i) linking approvals
regarding MSSB to actions by a MS Adviser or MS Fund, or (ii) using MSSB
to seek business with the MS Advisers or MS Funds, nor will Citigroup adopt any
compensation scheme that treats such business differently from business with
unaffiliated partners. Similarly, such
conditions prohibit the MS Trading Entity or its affiliates from consulting
with the Citi Adviser regarding potential transactions beyond the extent
normally carried out with unaffiliated parties in the normal course of
business. In addition, the MS Trading
Entity must adopt and implement policies prohibiting it from (i) linking
approvals regarding MSSB to actions by a Citi Adviser or Citi Fund, or
(ii) using MSSB to seek business with the Citi Adviser or Citi Funds, nor
will Morgan Stanley adopt any compensation scheme that treats such business
differently from business with unaffiliated partners. 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
20
give preference to the MS Trading Entity in effecting
such transactions between the Citi Fund and the MS Trading Entity.
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 and the Advisers will continue to adhere to a best
execution standard. 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 any research
provided by broker-dealers, including unaffiliated broker-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
21
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
A.
The Impact of
Consolidation
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 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
(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).
22
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 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.
B.
Consolidation has Increased
the Applicants Need for Relief
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
(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.
(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.
23
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. Such preclusion from trading with a major broker-dealer
in a wide variety of securities already puts the Funds and their Advisers at a
disadvantage as compared to funds not subject to such restrictions when seeking
to obtain competitive pricing and achieve best execution. The few other dealers available to the Funds
may be less inclined to provide competitive pricing or more favorable terms
knowing that the Advisers choices of a dealer are limited.
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 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. Preventing the Funds from trading with the
Citi Trading Entity or the MS Trading Entity, as applicable, could materially
limit the ability of the Funds to obtain the pricing, terms and quality of
service available from a major dealer.
For example, the Citi Trading Entity can be responsible for more than
10% of the dollar trading volume of primary offerings and more than 20% of the
dollar trading volume of secondary market trading in certain types of fixed
income securities. That effect is
compounded, as noted above, by the MS Funds already existing inability to
trade with the MS Trading Entity which, especially in the aggregate, could
affect the ability to obtain best execution.
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
(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).
24
provided, particularly, market liquidity. For example, certain MS Funds have used the Citi
Trading Entity for more than 20% of their dollar trading volume in certain
types of fixed-income securities. Due to
the absence of a centralized reporting mechanism for completed transactions,
the precise impact of not having available a counterparty of this importance is
difficult to measure. Specifically,
fixed-income markets are often subject to limited transparency, which in turn
limits an investment advisers ability to measure best execution on a trade-by-trade
basis.(15) However, it has been (and is
expected to be) frequently the case that only a limited number of dealers,
often including the Citi Trading Entity, have been willing to trade with a Fund
in a particular fixed-income security in the quantities specified by the Fund
at a given time. As the MS Trading
Entity and the Citi Trading Entity are major participants in the fixed-income
securities markets, as described above, a Funds inability to trade with each
Trading Entity could impair the Funds ability to trade in a particular
fixed-income security, at the time and in the quantities specified by the Fund,
where the relevant Trading Entity is one of few dealers willing to trade in
such fixed-income security at such time and in such quantities. Therefore, precluding a Fund from trading with
a Trading Entity may harm the Fund by preventing it from obtaining what would
be best execution if the Fund were allowed to trade with the Trading
Entity. Finally, the rapid pace of
consolidation in the financial services industry over the past two years
portends future consolidation which could even further increase the need for
the Funds to trade with the Trading Entities, as such Trading Entities could be
among the few remaining major financial institutions which provide competitive
pricing and high-quality service for the relevant transactions.
(15)
See Best Execution Guidelines for Fixed-Income
Securities,
Securities Industry and Financial Markets Association,
Asset Management Group (September 2008).
25
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 fixed-income 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 fixed-income securities
from the Citi Trading Entity, or a Citi Fund purchases underwritten
fixed-income securities from the MS Trading Entity; (ii) the purchase by a
MS Fund or a Citi Fund of fixed-income securities from, or the sales of
fixed-income 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 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 (as
described in section VI(B) below) are
26
tender option bond trust structures (TOBs), certain
asset-backed or mortgage-backed securitization structures, loan syndicates, and
investments in the same company.
If the Citi
Trading Entity were considered to be a second-tier affiliate of the MS Funds
(or the MS Trading Entity were considered to be a second-tier affiliate of 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 from engaging in Securities Transactions with a
broker-dealer with which such Funds had engaged in transactions in fixed-income
securities 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 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 (i) TOBs
transactions involving municipal bonds, (ii) asset-backed or
mortgage-backed securities transactions, (iii) syndicated loan
transactions, and (iv) investments in the same company.
(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
27
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 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 such MS 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. Situations could also arise in which a Citi
Trading
(16) For example, a termination event may encompass a wide variety of
circumstances, certain of which may be objectively determined and certain of
which involve an element of subjectivity.
For example, such an event may include (i) the inability of the
remarketing agent to sell all or a specified percentage of the floating rate
securities after a specified amount of time has passed; (ii) a downgrade
in the rating of the underlying bond or the insurer of the bond; (iii) a
determination by the liquidity provider that the financial condition of the
issuer of the underlying bond has deteriorated to an extent that is in the
judgment of the liquidity provider materially adverse to the trust; or (iv) certain
changes in laws or regulations that, in the judgment of the liquidity provider,
may increase its costs or reduce its returns.
In the event the liquidity provider determines to terminate the trust,
the liquidity provider will be required to make payments on the floating rate
securities.
28
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
In a typical
asset-backed securities (ABS) or mortgage-backed securities (MBS) transaction,
a financial institution which sponsors the ABS or MBS sells a pool of loans
(which may have been originated by the sponsor or its affiliates) to a special
purpose entity, which in turn sells such loans to a trust. The trust issues interest-bearing notes or
pass-through certificates (of which the sponsor or its affiliate may serve as
underwriter) backed by the trusts assets; the sponsor or its affiliate may
retain an equity or residual interest in the trust. The assets continue to be serviced, and the
income received from such assets is used to make distributions to the holders
of the ABS or MBS and the holder of the residual interest.
The MS Funds, as
consistent with their investment policies, may enter into transactions
involving ABS or MBS, including those that are 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 under
Section 17(d) of the Act and Rule 17d-1 thereunder, such
transactions could arguably fall under those
29
provisions due to the various roles played by the
respective Trading Entity (or an affiliate).
(17) The Applicants submit, however, that there is
little opportunity or, indeed, economic incentive to overreach a Fund when
acting in those capacities.
Nevertheless, the scenario is more complicated than a straightforward
purchase or sale of a third-party sponsored ABS or MBS from the Trading
Entity. Thus, to the extent an
independent check may be necessary, a Fund will only engage in ABS or MBS
transactions in which (i) the residual interest in the special purpose
entity sponsored by a Trading 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, if, based on
relevant information that is reasonably available to the Funds Adviser, the
Adviser believes that, upon the close of the transaction, Funds (and other
discretionary advisory accounts) managed by the Adviser will purchase less than
50% of the dollar amount of securities of each class acquired by the Fund in
the aggregate and the Fund participates in each such class on the same terms as
other purchasers of that class.
(iii)
Syndicated Loan Facilities
A Fund may also
participate as a member of a syndicated loan facility (
i.e.
,
as a lender to the borrower under the facility) in which a Trading Entity is
also (i) an agent with responsibility (either solely or with one or more
co-agents) for structuring, arranging, placing, or administering the loan
facility or for other functions related to the loan syndicate, (ii) a
syndicate member or (iii) both. As
such an agent, a Trading Entity might, among other things, negotiate with the
Fund over its initial participation in the syndicate or over its subsequent
approval of a waiver or other amendments to the loan facility requested by the
borrower. A Trading Entity would likely
receive fees from the borrower under the loan facility for acting as an agent,
which the Fund, as a
(17) The Applicants note that a Trading Entity (or its affiliate) may
act in other capacities with respect to an ABS or MBS vehicle. For example, the Trading Entity (or an
affiliate) might serve as custodian, trustee, hedging counterparty, paying
agent or administrator for the vehicle.
30
non-agent member of the loan syndicate would not
receive. Similarly, where a Trading
Entity and a Fund took different actions as members of a loan syndicate (e.g.,
one approving a requested amendment and the other not) or committed to fund
different amounts of the loan, they might receive different levels of fees in
respect of the loan. Though Applicants
do not necessarily concede that all such syndicated loan transactions fall
under Section 17(d) of the Act and Rule 17d-1 thereunder, such
transactions could arguably come within the scope of those provisions in light
of the fact that a Fund and a Trading Entity could have an interest in the same
loan facility.
As a condition to
the requested relief for syndicated loan facilities in which a Fund and a
Trading Entity participate and that might otherwise be prohibited by
Section 17(d) of the Act and Rule 17d-1 thereunder, (a) the
participation by the Fund and the Trading Entity would involve no coordination
between the Fund and the Trading Entity beyond that of a type the Trading
Entity engages in with other unaffiliated participants in such facility,
(b) the terms of the Funds participation in the facility (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 (
i.e.
, the Fund will receive the same priority, security,
interest rate and fees as other participants in the same tranche or other
portion of the loan in which the Fund is a participant), except to the extent
such difference is related to services performed with respect to the facility
or their role in the facility and (c) in the case of the primary
syndication of a loan facility where the Trading Entity is lead agent with
primary responsibility for structuring, arranging or placing such facility, the
Fund will participate in the facility only where, based on relevant information
that is reasonably available to the Adviser, the Adviser believes that, upon
conclusion of allocations to holders of
31
record in the primary syndication of the facility,
less than 50% of the participations will be held by Funds (and other
discretionary advisory accounts) managed by the Adviser.
(iv)
Investments in the Same Company
.
It is also possible that a Fund could make an
investment in a company (or other issuer) in which a Trading Entity also has
invested. In such a situation, the Fund
and the Trading Entity might hold the same securities issued by the company or
one could hold securities of a different class or even a different type (e.g.,
debt vs. equity) than the other. Again,
while the Applicants do not necessarily concede that all such situations fall
under Section 17(d) of the Act and Rule 17d-1 thereunder, some
situations where a Fund and a Trading Entity have invested in the same company
could arguably come within the scope of those provisions, given the fact that
the Fund and the Trading Entity would have an interest in the same company.
As a condition to
the requested relief for investments by a Fund and a Trading Entity in the same
company (or other issuer) that might otherwise be prohibited by
Section 17(d) of the Act and Rule 17d-1 thereunder (except in
the case of syndicated loan transactions, which, as discussed above, will be
subject to a separate condition), (a) the Funds and the Trading Entitys
investment will involve no coordination between the Trading Entity and the Fund
beyond that of a type the Trading Entity engages in with other unaffiliated
investors in such company and (b) the Fund will participate or invest in a
type or class of securities (
e.g.
, equity
securities) of the company only where, based on relevant information that is
reasonably available to the Adviser, the Adviser believes that, upon the close
of the investment transaction, less than 50% of the dollar amount of the
securities of such type or class will be owned by Funds (and other
discretionary advisory accounts) managed by the Adviser.
32
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.
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 CGMIs 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
33
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.
(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
(18)
See, e.g.,
S.
Rep. No. 1775,
76
th
Cong. 3d Sess. 6 (1940).
34
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 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
(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).
35
or the MS Trading Entity, respectively, would be on a
basis similar to the Citi Trading Entity or the MS Trading Entity, respectively,
unless any difference is related to the differing nature of their participation
in the transaction.(20)
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
(20) For example, in a syndicated loans transaction, the participation
of various parties may differ where a party plays an additional role, such as
lead agent, in the transaction.
36
Act and the extent to which such participation is on a
basis different from or less advantageous than that of the other applicants.
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 Funds involving the MS Trading Entity,
would be subject to Section 17(a) of the Act where it constitutes a
principal transaction between them, and for Joint Transactions,
Section 17(d) of the Act and Rule 17d-1 thereunder.
The inability of
the MS Funds and the Citi Funds to execute Securities Transactions involving
the Citi Trading Entity and the MS Trading Entity, respectively (solely as a
result of 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. 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. 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.
37
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 of the relevant Funds to enter into transactions that are
not in the best interests of its shareholders.
In addition, there is an existing separation and information barrier
between the MS Advisers and the MS Funds on the one hand and other units of
Morgan Stanley on the other (and between the Citi Adviser and the Citi Funds on
the one hand and other units of Citigroup on the other).
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. The proposed conditions will be of two
general types, and are reflected in the proposed conditions for the Order. The Applicants refer to the first type of
conditions as structural, and they are intended to assure that the MS
Advisers and the MS Funds continue to operate independently of, and free of any
undue influence by, Citigroup and the Citi Trading Entity and similarly, that
the Citi Adviser and the Citi Funds continue to operate independently of, and
free of any undue influence by, Morgan Stanley and the MS Trading Entity.
38
The Applicants
refer to the second type of conditions as transactional conditions. Those conditions are designed to assure that
the terms of the individual transactions are fair from the perspective of the
Funds. At the outset, the conditions
require each Funds Board, including a majority of its disinterested directors
or trustees, as applicable, to approve, and the Fund to implement, procedures
governing all Securities Transactions pursuant to the Order. Pursuant to such procedures, among other
things, the Securities Transactions will be subject to ongoing review by each
Funds Chief Compliance Officer, and will be reviewed by its Board, including a
majority of the disinterested directors/trustees, on a quarterly basis. The Funds Adviser will provide a report to
the Board, subject to review and approval by the Funds Chief Compliance
Officer, that will indicate that the conditions of the Order have been
satisfied and, to the extent there have been any changes in the volume, type or
terms of such transactions between the relevant Fund and Trading Entity, the
reasons for these changes, and a determination that such changes are
legitimate. Such reasons might include,
for example, an increase in the volume of transactions involving fixed-income
securities due to interest rate changes or a change in the number of dealers in
a fixed-income security, or changes in the number and/or type of issuers the
securities of which the Trading Entity acts as underwriter or dealer. Further, the Advisers adhere to a best
execution standard. In the case of each
Securities Transaction, the relevant Adviser will make a determination that
such transaction is consistent with the investment objectives of the relevant
Fund and in the best interests of such Funds shareholders. The conditions also require price quotes from
unaffiliated sources to assure fairness of price. Particular types of transactions, including
possible joint transactions, will be subject to additional controls, as
described in section X(B), in order to ensure that such transactions are not
entered into on terms disadvantageous to the Funds.
39
(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 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 Funds and the MS Trading Entity engaged in Securities
Transactions. Citigroup and Morgan
Stanley 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
40
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. Similarly, the MS
Advisers operate as distinct entities and independent profit centers under the
umbrella of Morgan Stanley, and the Citi Adviser operates as a distinct entity
and independent profit center under the umbrella of Citigroup. Thus, the Advisers will have no economic
incentive to place orders with an opposing Trading Entity unless it is in a
Funds best interests to do so. In sum,
the formation of MSSB will not affect the operations of the Advisers or
influence the decisions of 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 Funds, 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. In
41
addition, the entity separation and the information barriers in place
between the Advisers and the Trading Entities assures that no Adviser will have
an economic incentive to trade with an opposing Trading Entity unless it is in the
best interest of a Fund. 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 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 Funds
(and other discretionary advisory accounts) managed by the Adviser purchase
less 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 other
purchasers of that class. 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.(21)
With respect to
investments in a company or syndicated loan facility in which a Fund and a
Trading Entity participate in a manner that may be prohibited by Section 17(d) of
the Act, the terms of the Funds investment or participation, respectively,
will involve no coordination between the Trading Entity and the Fund beyond
that of a type the Trading Entity engages in with other unaffiliated investors
in the company or participants in the facility, respectively. With respect to participation in a syndicated
loan facility, the terms of the Funds participation in the
(21)
See
note 16,
supra
.
42
facility (to the extent within the knowledge and control of the Trading
Entity) will be on a basis no less advantageous than that of other similarly
situated participants (
i.e.
, the Fund
will receive the same priority, security, interest rate and fees as other
participants in the same tranche or other portion of the loan in which the Fund
is a participant), except to the extent such difference is related to services
performed with respect to the facility or their role in the facility;
(22)
and in the case of the primary syndication of a loan facility where the Trading
Entity is lead agent with primary responsibility for structuring, arranging or
placing such facility, the Fund will participate in the facility only where,
based on relevant information that is reasonably available to the Adviser, the
Adviser believes that, upon conclusion of allocations to holders of record in
the primary syndication of the facility, less than 50% of the participations
will be held by Funds (and other discretionary advisory accounts) managed by
the Adviser. With respect to investments
in the same company (other than syndicated loan transactions), the Fund will
invest in a type or class of securities (
e.g.
, equity
securities) of the company only where, based on relevant information that is
reasonably available to the Adviser, the Adviser believes that, upon the close
of the investment transaction, less than 50% of the dollar amount of the
securities of such type or class will be owned by Funds (and other
discretionary advisory accounts) managed by the Adviser.
(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
(22)
See, e.g.
, note 20,
supra.
43
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 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 enable the Funds to continue to
engage in transactions with the same universe of securities dealers as prior to
formation of the Joint Venture, allowing the Funds to achieve better
transaction terms and portfolio diversification and liquidity than if relief
were not granted. Prohibiting the
Securities Transactions would significantly narrow this universe and
potentially impair the ability to diversify and to achieve favorable 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
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
44
(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 two other unaffiliated dealers that are in a
position to quote favorable prices. For
each such 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, and the Fund will implement,
procedures governing all Securities Transactions, including principal
transactions between the applicable Trading Entity and the Funds. In a TOBs transaction structured after the
closing of the Joint Venture, 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
(23) The term Comparable Securities refers to securities with substantially
identical maturities, credit risk and repayment terms (including floating or
fixed-rate coupons, attached options, or any other provisions that affect the
expected size or timing of the payments from the securities) as the securities
to be purchased or sold.
45
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 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
46
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 the second-tier affiliation between MS Funds and MS
Advisers and the Citi Trading Entity (and the Citi Funds and Citi Adviser and
the MS Trading Entity) created by the closing of the Joint Venture. In
American Century
,
the parent of the broker-dealer entities held a 45% economic interest
(approximately 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 CGMI, 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 the other conditions imposed on the Funds, the
Advisers and the Trading Entities in order to prevent the Funds and their
Advisers from engaging in any trades as a result of an incentive based on the
existence of the Joint Venture.
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)
47
and 28150 (Feb. 13, 2008) (Order);
Lehman
Brothers Asset Management LLC, et al.
, Investment 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 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.
48
X.
Applicants Conditions
Applicants agree that the Order granting the requested relief will be
subject to the following conditions:
A.
Structural
(1)
Citigroup will control none of the MS
Advisers or the MS Funds or any principal underwriter for the MS Funds,(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) MSSB may act as principal underwriter with respect to certain
newly organized closed-end MS Funds; however, such role will cease at the time
the syndicate terminates and prior to any transactions by such MS Funds
involving the Citi Trading Entity.
(25) MSSB may act as principal underwriter with respect to certain
newly organized closed-end Citi Funds; however, such role will cease at the
time the syndicate terminates and prior to any transactions by such Citi Funds
involving the MS Trading Entity.
49
influence the
choice of broker or dealer for any Securities Transaction by a MS Fund other
than in the normal course of sales activities of the same nature that are being
carried out during the same time period with respect to unaffiliated
institutional clients of the Citi Trading Entity, or that existed between the
Citi Trading Entity and the MS Advisers prior to consummation of the Joint
Venture.
(4)
Morgan Stanley will not directly or
indirectly consult with Citigroup, the Citi Adviser or any portfolio manager of
the Citi Adviser concerning securities purchases or sales or the selection of a
broker or dealer for any Securities Transaction placed or to be placed on
behalf of a Citi Fund, or otherwise seek to influence the choice of broker or
dealer for any Securities Transaction by a Citi Fund other than in the normal
course of sales activities of the same nature that are being carried out during
the same time period with respect to unaffiliated institutional clients of the
MS Trading Entity, or that existed between the MS Trading Entity and the Citi
Adviser prior to consummation of the Joint Venture.
(5)
No officer, director or employee of MSSB
will directly or indirectly seek to influence in any way the terms of any
Securities Transaction covered by the Order.
(6)
The MS Advisers and the Citi Trading
Entity will operate as separate organizations, with separate capitalization,
separate books and records, separate officers and employees, and physically
separate offices. The Citi Trading
Entity will adopt, and implement, policies that prohibit the Citi Trading
Entity from (i) linking any approval or action relating to MSSB to any
action by any MS Fund or
50
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 Trading Entity. The MS Advisers
have adopted policies designed to keep information about client holdings and
transactions on a confidential basis, prior to any public disclosure. Pursuant to these policies, the MS Advisers
will designate information regarding investment advisory and portfolio
execution matters relating to the MS Funds as information that may not be
communicated between MSSB, on one hand, and the MS Advisers, on the other hand,
prior to any public disclosure.
(7)
The Citi Adviser and the MS Trading
Entity will operate as separate organizations, with separate capitalization,
separate books and records, separate officers and employees, and physically
separate offices. The MS Trading Entity
will adopt, and implement, policies that prohibit the MS Trading Entity from (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.
51
(8)
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 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.
(9)
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.
(10)
The respective legal/compliance
departments of the MS Advisers and the Citi Trading Entity, and of the Citi
Adviser and the MS Trading Entity, will prepare guidelines for their respective
personnel to make certain that Securities Transactions effected pursuant to the
Order comply with its conditions, and that the respective Advisers and Trading
Entities maintain an arms-length relationship.
The respective compliance departments of the Advisers and Trading
Entities will monitor periodically the activities of the Advisers and Trading
Entities, respectively, to make certain that the conditions to the Order are
met.
B.
Transactional
With respect to
each Securities Transaction entered into or effected pursuant to the Order:
(1)
Each Funds Board, including a majority
of its disinterested directors/trustees (the Necessary Majority), shall approve,
and the Fund shall implement, procedures
52
governing all
transactions pursuant to the Order and the Funds Board shall no less
frequently than quarterly review all such transactions and receive and review a
report of those transactions. Such
report, which will be prepared by the Funds Adviser, and reviewed and approved
by the Funds Chief Compliance Officer, will indicate for each transaction that
the conditions of the Order have been satisfied, and will include a discussion
of any significant changes in the volume, type or terms of transactions between
the relevant Fund and Trading Entity, the reasons for these changes, and a
determination that such changes are legitimate.
(2)
For each transaction, the MS Advisers
will adhere to a best execution standard and will consider only the interests
of the MS Funds and will not take into account the impact of a MS Funds
investment decision on the Citi Trading Entity or its affiliates. For each transaction, the Citi Adviser will
adhere to a best execution standard and will consider only the interests of
the Citi Funds and will not take into account the impact of a Citi 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 best 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 Securities
Transaction in which the Funds Adviser knows that both a
53
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 in the case of securities for
which quotations for the same securities are not available, a competitive
quotation for Comparable Securities) from at least two unaffiliated dealers
that are in a position to quote favorable market prices. For each such transaction, the Adviser will
determine, based upon the quotations and such other relevant information (such
as available transaction prices and any other information regarding the value
of the securities) as is reasonably available to the Adviser, that the price
available from the Trading Entity is at least as favorable as that available
from other sources.
(a)
With respect to each such transaction involving
repurchase agreements, a Fund will enter into such agreements only where the
Adviser has determined, based upon relevant information reasonably available to
the Adviser, that the income to be earned from the repurchase agreement is at
least equal to that available from other sources. Before any repurchase
54
agreements are entered
into pursuant to the exemption, the Fund or the Adviser must obtain competitive
quotations from at least two unaffiliated dealers with respect to repurchase
agreements comparable to the type of repurchase agreement involved, except that
if quotations are unavailable from two such dealers, only one other competitive
quotation is required.
(b)
With respect to each such transaction involving
variable rate demand notes for which dealer quotes are not ordinarily
available, a Fund will only undertake purchases and sales where the Adviser has
determined, based on relevant information reasonably available to the Adviser,
that the income earned from the variable rate demand note is at least equal to
that of variable rate demand notes of comparable quality that are available
from other sources.
(5)
With respect to securities offered in a
primary market underwritten transaction, a Fund will undertake such purchase
from the Trading Entity only where the Adviser has determined, based upon
relevant information reasonably available to the Adviser, that the securities
were purchased at a price that is no more than the price paid by each other
purchaser of securities from the Trading Entity or other members of the
underwriting syndicate in that offering or in any concurrent offering of the
securities, and on the same terms as such other purchasers (except in the case
of an offering conducted under the laws of a country other than the United
States, for any rights to purchase that are required by law to be granted to
existing securities holders of the issuer).
55
(6)
In the case of an arrangement regarding a
tender option bond trust for which a Trading Entity acts as a liquidity
provider or remarketing agent and owns an interest (or may own an interest as a
result of such capacity):
(a)
where such arrangement was structured
prior to the closing of the Joint Venture, the terms of such arrangement will
not change after such closing without the approval of the Necessary Majority of
the 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; provided that if
the Trading Entity owns the residual interest and a Fund owns the floating rate
interest, such Board approval will not be required if: (i) the Fund is eligible to participate
in any discretionary tender on the same basis as any similarly situated holder
of floating rate interests, (ii) the Fund must participate in any
mandatory tender on the same basis as each similarly situated holder and (iii) less
than 50% of the floating rate interests are owned by Funds (and other
discretionary accounts) managed by the Funds Adviser.
(b)
in the case of such arrangements
structured after the closing of the Joint Venture:
(i)
the Necessary 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, the nature of the respective
interests in the trusts that may be held by the Trading Entity and the Funds,
and the
56
circumstances under which the Trading Entity may cause
termination of the trust and the transfer of the underlying bonds back to the
Fund; and
(ii)
where a Trading Entity owns the residual
interest and a Fund owns a floating rate interest: (1) the Fund must be eligible to
participate in any discretionary tender on the same basis as any similarly
situated holder of floating rate interests, (2) the Fund must participate
in any mandatory tender on the same basis as each similarly situated holder and
(3) less than 50% of the floating rate interests must be owned by Funds
(and other discretionary accounts) managed by the Funds Adviser.
(c)
before any such arrangements are entered
into pursuant to the exemption, where the Fund holds the residual interest, the
Fund or the Adviser must obtain competitive quotations from at least two
unaffiliated institutions with respect to fees charged by such institutions for
acting as liquidity provider or remarketing agent, except that if quotations
are unavailable from two such institutions, only one other competitive
quotation is required. Any fees paid to
the Trading Entity as liquidity provider or remarketing agent will be no
greater than the lowest of such quotations, unless the Board finds that such
difference is justified by a corresponding difference in the nature of the
services provided.
(7)
With respect to ABS or MBS that are newly
issued by special purpose entities sponsored by a Trading Entity (or an
affiliate) under circumstances in which both
57
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, based on relevant information that is reasonably available to
the Adviser, the Adviser believes that, upon the close of the transaction,
Funds (and other discretionary advisory accounts) managed by the Adviser will
purchase less than 50% of the dollar amount of securities of each class
acquired by the Fund in the aggregate, and the Fund participates in each such
class on the same terms as other purchasers of that class.
(8)
With respect to a syndicated loan
facility in which a Fund and a Trading Entity participate in a manner that
might otherwise be prohibited by Section 17(d) of the Act and Rule 17d-1
thereunder, (a) the participation by the Fund and the Trading Entity will
involve no coordination between the Fund and the Trading Entity beyond that of
a type the Trading Entity engages in with other unaffiliated participants in
such facility, (b) the terms of the Funds participation in the facility
(to the extent within the knowledge and control of the Trading Entity) will be
on a basis no less advantageous than that of other similarly situated
participants (
i.e.
, the Fund will receive the
same priority, security, interest rate and fees as other participants in the
same tranche or other portion of the loan in which the Fund is a participant),
except to the extent such difference is related to services performed with
respect to the facility or their role in the facility and (c) in the case
of the primary syndication of a loan facility where the Trading Entity is lead
agent with primary responsibility for structuring, arranging or placing such
facility, the Fund
58
will participate
in the facility only where, based on relevant information that is reasonably
available to the Adviser, the Adviser believes that, upon conclusion of
allocations to holders of record in the primary syndication of the facility,
less than 50% of the participations will be held by Funds (and other
discretionary advisory accounts) managed by the Adviser.
(9)
With respect to situations in which a
Fund and a Trading Entity have invested in the same company and that might
otherwise be prohibited by Section 17(d) of the Act and Rule 17d-1
thereunder (other than a syndicated loan transaction, which is subject to
Transactional Condition (8) above), (a) the Funds and the Trading
Entitys investment will involve no coordination between the Trading Entity and
the Fund beyond that of a type the Trading Entity engages in with other
unaffiliated investors in such company and (b) the Fund will participate
or invest in a type or class of securities (
e.g.
, equity
securities) of the company only where, based on relevant information that is
reasonably available to the Adviser, the Adviser believes that, upon the close
of the investment transaction, less than 50% of the dollar amount of the
securities of such type or class will be owned by Funds (and other
discretionary advisory accounts) managed by the Adviser.
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
59
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 and without 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.
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
(26)
See
Section 1(b)(2) of the Act,
supra.
60
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 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.
61
The
parties have executed this Third Amended and Restated Application in one or
more counterparts.
|
Signed
on behalf of each of the funds listed in Schedule A
|
|
|
|
|
|
Date: October 9, 2009
|
By:
|
/s/ Stefanie V. Chang Yu
|
|
Name:
|
Stefanie V. Chang Yu
|
|
Title:
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Vice President
|
|
|
|
|
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|
|
MORGAN STANLEY INVESTMENT MANAGEMENT
INC.
|
|
|
|
|
|
Date: October 9, 2009
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By:
|
/s/ Stefanie V. Chang Yu
|
|
Name:
|
Stefanie V. Chang Yu
|
|
Title:
|
Managing Director
|
|
|
|
|
|
|
|
MORGAN STANLEY INVESTMENT ADVISORS
INC.
|
|
|
|
|
|
Date: October 9, 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:
|
Managing Director
|
|
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|
|
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VAN KAMPEN ASSET
MANAGEMENT
|
|
|
|
|
|
|
Date: October 9, 2009
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By:
|
/s/ Stefanie V. Chang Yu
|
|
Name:
|
Stefanie V. Chang Yu
|
|
Title:
|
Managing Director
|
|
|
|
|
|
|
|
MORGAN STANLEY &
CO. INCORPORATED
|
|
|
|
Date: October 9, 2009
|
By:
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/s/ Roger Gilbert
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|
Name:
|
Roger Gilbert
|
|
Title:
|
Managing Director
|
62
|
LMP CORPORATE LOAN FUND
INC.
|
|
|
|
|
|
Date: October 9, 2009
|
By:
|
/s/ Robert Frenkel
|
|
Name:
|
Robert Frenkel
|
|
Title:
|
Secretary and Chief Legal
Officer
|
|
|
|
|
|
|
|
CITIGROUP ALTERNATIVE INVESTMENTS
LLC
|
|
|
|
|
|
|
Date: October 9, 2009
|
By:
|
/s/ Millie Kim
|
|
Name:
|
Millie Kim
|
|
Title:
|
Secretary
|
|
|
|
|
|
|
|
CITIGROUP GLOBAL MARKETS
INC.
|
|
|
|
|
|
Date: October 9, 2009
|
By:
|
/s/ Scott L. Flood
|
|
Name:
|
Scott L. Flood
|
|
Title:
|
Co-General Counsel
|
|
|
|
|
|
|
|
CITIGROUP GLOBAL MARKETS
LIMITED
|
|
|
|
|
|
Date: October 9, 2009
|
By:
|
/s/ JD Robson &
SJ Cumming
|
|
Name:
|
JD Robson & SJ
Cumming
|
|
Title:
|
Delegated Signatories
|
|
|
|
|
|
|
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CITIGROUP FINANCIAL
PRODUCTS INC.
|
|
|
|
|
|
Date: October 9, 2009
|
By:
|
/s/ Scott L. Flood
|
|
Name:
|
Scott L. Flood
|
|
Title:
|
Co-General Counsel
|
63
|
CITIBANK, N.A.
|
|
|
|
|
|
|
Date: October 9, 2009
|
By:
|
/s/ Scott L. Flood
|
|
Name:
|
Scott L. Flood
|
|
Title:
|
Vice President
|
|
|
|
|
|
|
|
CITIBANK CANADA
|
|
|
|
|
|
Date: October 8, 2009
|
By:
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/s/ Charles Alexander
|
|
Name:
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Charles Alexander
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|
Title:
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General Counsel
|
|
|
|
|
|
|
|
CITIBANK INTERNATIONAL PLC
|
|
|
|
|
|
Date: October 9, 2009
|
By:
|
/s/ JD Robson &
SJ Cumming
|
|
Name:
|
JD Robson & SJ
Cumming
|
|
Title:
|
Delegated Signatories
|
64
Schedule A
MORGAN STANLEY
RETAIL AND INSTITUTIONAL FUNDS
AS OF OCTOBER 9, 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
65
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
66
·
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
67
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
·
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 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
68
·
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.
69
VAN KAMPEN FUNDS
AS OF OCTOBER 9, 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
70
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 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 Flexible Opportunities 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
71
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
72
Exhibit A-1
VERIFICATION
STATE OF NEW YORK
|
)
|
|
)
|
COUNTY OF NEW YORK
|
)
|
The undersigned states that
she has duly executed the attached third amended and restated 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 October 9, 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.
|
By:
|
/s/ Stefanie V. Chang Yu
|
|
Name:
|
Stefanie V. Chang Yu
|
73
Exhibit A-2
VERIFICATION
STATE OF NEW YORK
|
)
|
|
)
|
COUNTY OF NEW YORK
|
)
|
The undersigned states that
she has duly executed the attached third amended and restated 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 October 9, 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.
|
By:
|
/s/ Stefanie V. Chang Yu
|
|
Name:
|
Stefanie V. Chang Yu
|
74
Exhibit A-3
VERIFICATION
STATE OF NEW YORK
|
)
|
|
)
|
COUNTY OF NEW YORK
|
)
|
The undersigned states that
she has duly executed the attached third amended and restated 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 October 9, 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.
|
By:
|
/s/ Stefanie V. Chang Yu
|
|
Name:
|
Stefanie V. Chang Yu
|
75
Exhibit A-4
VERIFICATION
STATE OF NEW YORK
|
)
|
|
)
|
COUNTY OF NEW YORK
|
)
|
The undersigned states that
she has duly executed the attached third amended and restated 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 October 9, 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.
|
By:
|
/s/ Stefanie V. Chang Yu
|
|
Name:
|
Stefanie V. Chang Yu
|
76
Exhibit A-5
VERIFICATION
STATE OF NEW YORK
|
)
|
|
)
|
COUNTY OF NEW YORK
|
)
|
The undersigned states that
he has duly executed the attached third amended and restated 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 October 9, 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.
|
By:
|
/s/ Roger Gilbert
|
|
Name:
|
Roger Gilbert
|
77
Exhibit A-6
VERIFICATION
STATE OF CONNECTICUT
|
)
|
|
)
|
COUNTY OF FAIRFIELD
|
)
|
The undersigned states that
he has duly executed the attached third amended and restated 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 October 9, 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.
|
By:
|
/s/ Robert Frenkel
|
|
Name:
|
Robert Frenkel
|
78
Exhibit A-7
VERIFICATION
STATE OF NEW YORK
|
)
|
|
)
|
COUNTY OF NEW YORK
|
)
|
The undersigned states that
she has duly executed the attached third amended and restated 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 October 9, 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.
|
By:
|
/s/ Millie Kim
|
|
Name:
|
Millie Kim
|
79
Exhibit A-8
VERIFICATION
STATE OF NEW YORK
|
)
|
|
)
|
COUNTY OF NEW YORK
|
)
|
The undersigned states that
he has duly executed the attached third amended and restated 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 October 9, 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.
|
By:
|
/s/ Scott L. Flood
|
|
Name:
|
Scott L. Flood
|
80
Exhibit A-9
VERIFICATION
The undersigned state that
they have duly executed the attached third amended and restated 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 October 9, 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.
|
By:
|
/s/ JD Robson &
SJ Cumming
|
|
Name:
|
JD Robson & SJ
Cumming
|
81
Exhibit A-10
VERIFICATION
STATE OF NEW YORK
|
)
|
|
)
|
COUNTY OF NEW YORK
|
)
|
The undersigned states that
he has duly executed the attached third amended and restated 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 October 9, 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.
|
By:
|
/s/ Scott L. Flood
|
|
Name:
|
Scott L. Flood
|
82
Exhibit A-11
VERIFICATION
STATE OF NEW YORK
|
)
|
|
)
|
COUNTY OF NEW YORK
|
)
|
The undersigned states that
he has duly executed the attached third amended and restated 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 October 9, 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.
|
By:
|
/s/ Scott L. Flood
|
|
Name:
|
Scott L. Flood
|
83
Exhibit A-12
VERIFICATION
STATE OF NEW YORK
|
)
|
|
)
|
COUNTY OF NEW YORK
|
)
|
The undersigned states that
he has duly executed the attached third amended and restated 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 October 9, 2009, for and on
behalf of Citibank Canada (the Company); that he is the 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:
|
/s/ Charles Alexander
|
|
Name:
|
Charles Alexander
|
84
Exhibit A-13
VERIFICATION
The undersigned state that
they have duly executed the attached third amended and restated 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 October 9, 2009, for and on
behalf of Citibank International plc (the Company); that they are Attorneys
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.
|
By:
|
/s/ JD Robson &
SJ Cumming
|
|
Name:
|
JD Robson & SJ
Cumming
|
85
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 9
th
day of October, 2009.
|
By:
|
/s/ Stefanie V. Chang Yu
|
|
Name:
|
Stefanie V. Chang Yu
|
|
Title:
|
Vice President
|
86
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.
87
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 9
th
day of October, 2009.
|
By:
|
/s/ Robert Frenkel
|
|
Name:
|
Robert Frenkel
|
|
Title:
|
Secretary and Chief Legal
Officer
|
88
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.
89
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