SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 27 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 28 /X/
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MORGAN STANLEY
U.S. GOVERNMENT MONEY MARKET TRUST
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 869-6397
AMY R. DOBERMAN, ESQ.
1221 AVENUE OF THE AMERICAS
NEW YORK, NY 10020
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
CARL FRISCHLING, ESQ. STUART M. STRAUSS, ESQ.
KRAMER LEVIN NAFTALIS & FRANKEL LLP CLIFFORD CHANCE US LLP
1177 AVENUE OF THE AMERICAS 31 WEST 52ND STREET
NEW YORK, NY 10036 NEW YORK, NY 10019
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX):
/ / Immediately upon filing pursuant to paragraph (b) /X/ On May 27, 2005 pursuant to paragraph (b) / / 60 days after filing pursuant to paragraph (a)(1) / / On pursuant to paragraph (a)(1) / / 75 days after filing pursuant to paragraph (a)(2) / / On (date) pursuant to paragraph (a)(2) of Rule 485.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a previously filed post-effective amendment.
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
U.S. GOVERNMENT
MONEY MARKET TRUST
A MONEY MARKET FUND THAT SEEKS TO PROVIDE SECURITY OF PRINCIPAL, HIGH CURRENT INCOME AND LIQUIDITY
[MORGAN STANLEY LOGO]
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS
MAY 27, 2005
CONTENTS
THE FUND
Investment Objectives 1
Principal Investment Strategies 1
Principal Risks 2
Past Performance 3
Fees and Expenses 3
Portfolio Holdings 4
Fund Management 5
SHAREHOLDER INFORMATION
Pricing Fund Shares 6
How To Buy Shares 6
Limited Portability 8
How To Exchange Shares 8
How To Sell Shares 10
Distributions 12
Frequent Purchases and Redemptions of Fund Shares 13
Tax Consequences 13
Additional Information 13
FINANCIAL HIGHLIGHTS 14
MORGAN STANLEY FUNDS Inside Back Cover
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This PROSPECTUS contains important information about the Fund. Please read it carefully and keep it for future reference.
THE FUND
INVESTMENT OBJECTIVES
[GRAPHIC]
Morgan Stanley U.S. Government Money Market Trust is a money market fund that seeks to provide security of principal, high current income and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
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The Fund will invest in high quality, short-term U.S. government securities. The Fund's "Investment Adviser," Morgan Stanley Investment Advisors Inc., seeks to maintain the Fund's share price at $1.00. The share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
The U.S. government securities that the Fund may purchase include:
- U.S. Treasury bills, notes and bonds, all of which are direct obligations of the U.S. Government.
- Securities issued by agencies and instrumentalities of the U.S. Government which are backed by the full faith and credit of the United States. Among the agencies and instrumentalities issuing these obligations are the Government National Mortgage Association and the Federal Housing Administration.
- Securities issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies and instrumentalities are the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Federal Home Loan Banks.
- Securities issued by agencies and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality. Among these agencies and instrumentalities is the Federal Farm Credit System.
The Fund also may invest up to 10% of its net assets in FDIC insured certificates of deposit of banks and savings and loan institutions.
The Fund's policies discussed above are fundamental. These policies may not be changed without shareholder approval. In addition to the fundamental investment policies, the Fund may invest in repurchase agreements. Repurchase agreements are contracts in which a financial institution sells a
[SIDENOTE]
MONEY MARKET
A MUTUAL FUND HAVING THE GOAL TO SELECT SECURITIES TO PROVIDE CURRENT INCOME WHILE SEEKING TO MAINTAIN A STABLE SHARE PRICE OF $1.00.
YIELD
THE FUND'S YIELD REFLECTS THE ACTUAL INCOME THE FUND PAYS TO YOU EXPRESSED AS A PERCENTAGE OF THE FUND'S SHARE PRICE. BECAUSE THE FUND'S INCOME FROM ITS PORTFOLIO SECURITIES WILL FLUCTUATE, THE INCOME IT IN TURN DISTRIBUTES TO YOU AND THE FUND'S YIELD WILL VARY.
security and agrees to buy it back on a specific date (usually within seven days) and at a higher price, which reflects an agreed-upon interest rate.
PRINCIPAL RISKS
[GRAPHIC]
There is no assurance that the Fund will achieve its investment objectives. Although the Fund seeks to preserve the value of your investment at $1.00 per share, if it is unable to do so, it is possible to lose money by investing in the Fund.
CREDIT AND INTEREST RATE RISKS. A principal risk of investing in the Fund is associated with its U.S. government securities investments, which are subject to two types of risks: credit risk and interest rate risk. Credit risk refers to the possibility that the issuer of a security will be unable to make interest payments and repay the principal on its debt. Interest rate risk, another risk of debt securities, refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates.
Credit risk is minimal with respect to the Fund's U.S. government securities investments. Repurchase agreements involve a greater degree of credit risk. The Investment Adviser, however, actively manages the Fund's assets to reduce the risk of losing any principal investment as a result of credit or interest rate risks. In addition, federal regulations require money market funds, such as the Fund, to invest only in debt obligations of high quality and short maturities.
Shares of the Fund are not bank deposits and are not insured or guaranteed by the FDIC or any other government agency.
PAST PERFORMANCE
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The bar chart and table below provide some indication of the risks of investing
in the Fund. For the Fund's most recent 7-day annualized yield, you may call
(800) 869-NEWS. The Fund's past performance does not indicate how the Fund will
perform in the future.
ANNUAL TOTAL RETURNS--CALENDAR YEARS
[CHART]
1995 5.02% 1996 4.47% 1997 4.63% 1998 4.71% 1999 4.38% 2000 5.69% 2001 3.67% 2002 1.12% 2003 0.47% 2004 0.68% |
During the periods shown in the bar chart, the highest return for a calendar quarter was 1.48% (quarter ended December 31, 2000) and the lowest return for a calendar quarter was 0.09% (quarter ended June 30, 2004). The year-to-date total return as of March 31, 2005 was 0.43%.
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 2004)
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
U.S. Government Money Market Trust 0.68% 2.30% 3.47%
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FEES AND EXPENSES
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The Fund is a no-load fund. The Fund does not impose any sales charges and does not impose account or exchange fees. The table below briefly describes the fees and expenses that you may pay if you buy and hold shares of the Fund. However, certain shareholders may be charged an order processing fee by the broker-dealer through which shares are purchased, as described on the next page.
[SIDENOTE]
ANNUAL TOTAL RETURNS
THIS CHART SHOWS HOW THE PERFORMANCE OF THE FUND'S SHARES HAS VARIED FROM YEAR TO YEAR OVER THE PAST 10 CALENDAR YEARS.
AVERAGE ANNUAL TOTAL RETURNS
THIS TABLE SHOWS THE FUND'S AVERAGE ANNUAL TOTAL RETURNS.
ANNUAL FUND OPERATING EXPENSES(1)
Advisory Fee* 0.38% Distribution and service (12b-1) fees(1) 0.10% Other expenses* 0.25% Total annual Fund operating expenses(2) 0.73% |
* Expense information in the table has been restated to reflect current fees (see "Fund Management").
(1) The Fund has adopted a Rule 12b-1 Distribution Plan pursuant to which it
reimburses the distributor for distribution-related expenses (including
personal services to shareholders) incurred on behalf of the Fund shares in
an amount each month up to an annual rate of 0.15%.
(2) The Investment Adviser has undertaken, through April 30, 2006, to assume
the Fund's other expenses and/or waive the compensation provided for in its
Investment Advisory Agreement to the extent necessary to maintain such
other expenses and compensation at 0.75% of the Fund's daily net assets on
an annualized basis. For the fiscal year ended January 31, 2005, the annual
operating expenses did not exceed 0.75% of the Fund's daily net assets on
an annualized basis.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund, your investment has a 5% return each year and the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, the table below shows your costs at the end of each period based on these assumptions.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $ 75 $ 233 $ 406 $ 906 |
ORDER PROCESSING FEE. Morgan Stanley DW Inc. ("Morgan Stanley DW") charges clients an order processing fee of $5.25 (except in certain circumstances, including, but not limited to, activity in fee-based accounts, exchanges, dividend reinvestments and systematic investment and withdrawal plans) when a client buys or redeems shares of the Fund. Please consult your Morgan Stanley Financial Advisor for more information regarding this fee.
PORTFOLIO HOLDINGS
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A description of the Fund's policies and procedures with respect to the disclosure of the Fund's portfolio securities is available in the Fund's STATEMENT OF ADDITIONAL INFORMATION.
[SIDENOTE]
ANNUAL FUND OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS.
FUND MANAGEMENT
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The Fund has retained the Investment Adviser--Morgan Stanley Investment Advisors Inc.--to provide investment advisory services. The Investment Adviser is a wholly-owned subsidiary of Morgan Stanley, a preeminent global financial services firm that maintains leading market positions in each of its three primary businesses: securities, asset management and credit services. Morgan Stanley is a full service securities firm engaged in securities trading and brokerage activities, as well as providing investment banking, research and analysis, financing and financial advisory services. The Investment Adviser's address is 1221 Avenue of the Americas, New York, NY 10020.
Prior to November 1, 2004, the Fund had retained the Investment Adviser to provide administrative services and to manage the investment of the Fund's assets pursuant to an investment management agreement (the "Management Agreement") pursuant to which the Fund paid the Investment Adviser a monthly management fee as full compensation for the services and facilities furnished to the Fund, and for Fund expenses assumed by the Investment Adviser at the annual rate of 0.50% of the portion of the daily net assets not exceeding $500 million; 0.425% of the portion of the daily net assets exceeding $500 million but not exceeding $750 million; 0.375% of the portion of the daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% of the portion of the daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.325% of the portion of the daily net assets exceeding $1.5 billion but not exceeding $2 billion; 0.30% of the portion of the daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.275% of the portion of the daily net assets exceeding $2.5 billion but not exceeding $3 billion; and 0.25% of the portion of the daily net assets exceeding $3 billion. For the fiscal year ended January 31, 2005, the Fund paid total compensation to the Investment Adviser amounting to 0.42% of the Fund's average daily net assets.
Effective November 1, 2004, the Board of Trustees approved an amended and restated investment advisory agreement to remove the administrative services component from the Management Agreement and to reduce the investment advisory fee to the annual rate of 0.45% of the portion of the daily net assets not exceeding $500 million; 0.375% of the portion of the daily net assets exceeding $500 million but not exceeding $750 million; 0.325% of the portion of the daily net assets exceeding $750 million but not exceeding $1 billion; 0.30% of the portion of the daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.275% of the portion of the daily net assets exceeding $1.5 billion but not exceeding $2 billion; 0.25% of the portion of the daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.225% of the portion of the daily net assets exceeding $2.5 billion but not exceeding $3 billion; and 0.20% of the portion of the daily net assets exceeding $3 billion. The administrative services previously provided to the Fund by the Investment Adviser are being provided by Morgan Stanley Services Company Inc. ("Administrator") pursuant to a separate administration agreement entered into by the Fund with the Administrator. Such change resulted in a 0.05% reduction in the advisory fee concurrent with the implementation of a 0.05% administration fee pursuant to the new administration agreement. The Investment Adviser has undertaken, through April 30, 2006, to continue to assume operating expenses and/or waive the compensation provided for in its Management Agreement to the extent necessary to maintain such expenses and compensation at 0.75% of the Fund's daily net assets on an annualized basis.
[SIDENOTE]
MORGAN STANLEY INVESTMENT ADVISORS INC.
THE INVESTMENT ADVISER IS WIDELY RECOGNIZED AS A LEADER IN THE MUTUAL FUND INDUSTRY AND HAD APPROXIMATELY $105 BILLION IN ASSETS UNDER MANAGEMENT OR ADMINISTRATION AS OF APRIL 30, 2005.
SHAREHOLDER INFORMATION
PRICING FUND SHARES
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The price of Fund shares, called "net asset value," is based on the amortized cost of the Fund's portfolio securities. The amortized cost valuation method involves valuing a debt obligation in reference to its cost, rather than market forces.
The net asset value per share of the Fund is determined once daily at 4:00 p.m. Eastern time on each day that the New York Stock Exchange is open (or, on days when the New York Stock Exchange closes prior to 4:00 p.m., at such earlier time). Shares will not be priced on days that the New York Stock Exchange is closed.
HOW TO BUY SHARES
[GRAPHIC]
You may open a new account to buy Fund shares or buy additional Fund shares for an existing account by contacting your Morgan Stanley Financial Adviser or other authorized financial representative. Your Financial Adviser will assist you, step-by-step, with the procedures to invest in the Fund. The Fund's transfer agent, Morgan Stanley Trust ("Transfer Agent"), in its sole discretion, may allow you to purchase shares directly by calling and requesting an application.
To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. What this means to you: when you open an account, we will ask your name, address, date of birth and other information that will allow us to identify you. If we are unable to verify your identity, we reserve the right to restrict additional transactions and/or liquidate your account at the next calculated net asset value after your account is closed (less any applicable sales/account charges and/or tax penalties) or take any other action required by law.
When you buy Fund shares, the shares are purchased at the next share price calculated after we receive your purchase order in proper form accompanied by federal or other immediately available funds. You begin earning dividends the business day after the shares are purchased. The Fund, in its sole discretion, may waive the minimum initial and additional investment amounts in certain cases. We reserve the right to reject any order for the purchase of the Fund shares for any reason.
[SIDENOTE]
CONTACTING A FINANCIAL ADVISOR
IF YOU ARE NEW TO THE MORGAN STANLEY FUNDS AND WOULD LIKE TO CONTACT A MORGAN STANLEY FINANCIAL ADVISOR, CALL TOLL-FREE 1-866-MORGAN8 FOR THE TELEPHONE NUMBER OF THE MORGAN STANLEY OFFICE NEAREST YOU. YOU MAY ALSO ACCESS OUR OFFICE LOCATOR ON OUR INTERNET SITE AT: www.morganstanley.com/funds
ORDER PROCESSING FEE. Morgan Stanley DW charges clients an order processing fee of $5.25 (except in certain circumstances, including, but not limited to, activity in fee-based accounts, exchanges, dividend reinvestments and systematic investment and withdrawal plans) when a client buys or redeems shares of the Fund. Please consult your Morgan Stanley Financial Advisor for more information regarding this fee.
MINIMUM INVESTMENT AMOUNTS
MINIMUM INVESTMENT
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INVESTMENT OPTIONS INITIAL ADDITIONAL
Regular Accounts: $ 1,000 $ 50
Individual Retirement Account $ 1,000 $ 50
Coverdell Education Savings Account $ 500 $ 50
EasyInvest(R)
(Automatically from your checking or savings account or Money Market Fund) not available $ 100
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There is no minimum investment amount if you purchase Fund shares through: (1) the Investment Adviser's mutual fund asset allocation program; (2) a program, approved by the Fund's distributor, in which you pay an asset-based fee for advisory, administrative and/or brokerage services; (3) certain programs approved by the Fund's distributor that do not charge an asset-based fee; (4) employer-sponsored employee benefit plan account; or (5) the reinvestment of dividends in additional Fund shares. In addition, the Fund will waive the minimum initial investment for the automatic reinvestment of distributions from certain unit investment trusts.
SUBSEQUENT INVESTMENTS SENT DIRECTLY TO THE FUND. In addition to buying additional Fund shares for an existing account by contacting your Morgan Stanley Financial Advisor, you may send a check directly to the Fund. To buy additional shares in this manner:
- Write a "letter of instruction" to the Fund specifying the name(s) on the accounts, the account number, the social security or tax identification number, and the investment amount. The letter must be signed by the account owner(s).
- Mail the letter and check to Morgan Stanley Trust at P.O. Box 1040, Jersey City, NJ 07303.
ADDITIONAL PURCHASE INFORMATION. If you are a customer of Morgan Stanley DW or another authorized dealer of Fund shares, you may upon request: (a) have the proceeds from the sale of listed securities invested in Fund shares the day after you receive the proceeds; and (b) pay for the purchase of certain listed securities by automatic sale of Fund shares that you own. If you are a customer of Morgan Stanley DW or another authorized dealer of the Fund's shares, you may have cash balances in your securities account of $1,000 or more automatically invested in shares of the Fund on the next business day after the balance is accrued in your account. Cash balances of less than $1,000 may be automatically invested in Fund shares on a weekly basis.
PLAN OF DISTRIBUTION. The Fund has adopted a Plan of Distribution in accordance with Rule 12b-1 under the Investment Company Act of 1940. The Plan allows the Fund to pay distribution fees of up to 0.15% of its average daily net assets for the sale and distribution of Fund shares. It also allows the Fund to pay for services to shareholders. Because these fees are paid out of the Fund's assets on an ongoing basis, over time these fees will increase the cost of your investment and reduce your return and may cost you more than paying other types of sales charges.
LIMITED PORTABILITY
[GRAPHIC]
Most Fund shareholders hold their shares with Morgan Stanley DW. Please note that your ability to transfer your Fund shares to a brokerage account at another securities dealer may be limited. Fund shares may only be transferred to accounts held at a limited number of securities dealers or financial intermediaries that have entered into agreements with the Fund's distributor. After a transfer, you may purchase additional shares of the Morgan Stanley Funds you owned before the transfer, but you may not be able to purchase shares of any other Morgan Stanley Funds or exchange shares of the Fund(s) you own for shares of other Morgan Stanley Funds (as described below under "How to Exchange Shares"). If you wish to transfer Fund shares to a securities dealer or other financial intermediary that has not entered into an agreement with the Fund's distributor, you may request that the securities dealer or financial intermediary maintain the shares in an account at the Transfer Agent registered in the name of such securities dealer or financial intermediary for your benefit. You may also hold your Fund shares in your own name directly with the Transfer Agent. Other options may also be available; please check with the respective securities dealer or financial intermediary. If you choose not to hold your shares with the Transfer Agent, either directly or through a securities dealer or other financial intermediary, you must redeem your shares and pay any applicable contingent deferred sales charge.
HOW TO EXCHANGE SHARES
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PERMISSIBLE FUND EXCHANGES. You may only exchange shares of the Fund for shares of other continuously offered Morgan Stanley Funds if the Fund shares were acquired in an exchange of shares initially purchased in a Multi-Class Fund. In that case, the shares may be subsequently re-exchanged for shares of the same Class of any Multi-Class Fund or for shares of another Money Market Fund, a No-Load Fund or the Limited Duration U.S. Treasury Trust. Of course, if an exchange is not permitted, you may sell shares of the Fund and buy another fund's shares with the proceeds.
See the inside back cover of this PROSPECTUS for each Morgan Stanley Fund's designation as a Multi-Class Fund, No-Load Fund or Money Market Fund. If a Morgan Stanley Fund is not listed, consult the inside back cover of that fund's current prospectus for its designation.
The current prospectus for each fund describes its investment objective(s), policies and investment minimums, and should be read before investing. Since exchanges are available only into continuously offered Morgan Stanley Funds, exchanges are not available into any new Morgan Stanley Fund during its initial offering period, or when shares of a particular Morgan Stanley Fund are not being offered for purchase.
EXCHANGE PROCEDURES. You can process an exchange by contacting your Morgan Stanley Financial Advisor or other authorized financial representative. Otherwise, you must forward an exchange privilege authorization form to the Transfer Agent and then write the Transfer Agent or call (800) 869-NEWS to place an exchange order. You can obtain an exchange privilege authorization form by contacting your Morgan Stanley Financial Advisor or other authorized financial representative or by calling (800) 869-NEWS.
An exchange to any Morgan Stanley Fund (except a Money Market Fund) is made on the basis of the next calculated net asset values of the funds involved after the exchange instructions, as described above, are recieved. When exchanging into a Money Market Fund, the Fund's shares are sold at their next calculated net asset value and the Money Market Fund's shares are purchased at their net asset value on the following business day.
The Fund may terminate or revise the exchange privilege upon required notice or in certain cases without notice. See "Limitations on Exchanges." The check writing privilege is not available for Money Market Fund shares you acquire in an exchange.
TELEPHONE EXCHANGES. For your protection when calling Morgan Stanley Trust, we will employ reasonable procedures to confirm that exchange instructions communicated over the telephone are genuine. These procedures may include requiring various forms of personal identification such as name, mailing address, social security or other tax identification number. Telephone instructions also may be recorded.
Telephone instructions will be accepted if received by the Transfer Agent between 9:00 a.m. and 4:00 p.m. Eastern time on any day the New York Stock Exchange is open for business. During periods of drastic economic or market changes, it is possible that the telephone exchange procedures may be difficult to implement, although this has not been the case with the Fund in the past.
MARGIN ACCOUNTS. If you have pledged your Fund shares in a margin account, contact your Morgan Stanley Financial Advisor or other authorized financial representative regarding restrictions on the exchange of such shares.
EXCHANGING SHARES OF ANOTHER FUND SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE ("CDSC"). There are special considerations when you exchange shares subject to a CDSC of another Morgan Stanley Fund for shares of the Fund. When determining the length of time you held the shares and the corresponding CDSC rate, any period (starting at the end of the month) during which you held shares of the Fund WILL NOT BE COUNTED. Thus, in effect the "holding period" for purposes of calculating the CDSC is frozen upon exchanging into the Fund. Nevertheless, if shares subject to a CDSC are exchanged for shares of the Fund, you will receive a credit when you sell the shares equal to the distribution (12b-1) fees, if any, you paid on those shares while in the Fund up to the amount of any applicable CDSC. See the prospectus of the fund that charges the CDSC for more details.
LIMITATIONS ON EXCHANGES. Certain patterns of past exchanges and/or purchase or sale transactions involving the Fund or other Morgan Stanley Funds may result in the Fund rejecting, limiting or prohibiting, at its sole discretion, and without prior notice, additional purchases and/or exchanges and may result in a shareholder's account being closed. Determinations in this regard may be based on the frequency or dollar amount of previous exchanges or purchase or sale transactions. The Fund reserves the right to reject an exchange request for any reason.
For further information regarding exchange privileges, you should contact your Morgan Stanley Financial Advisor or call (800) 869-NEWS.
HOW TO SELL SHARES
[GRAPHIC]
You can sell some or all of your Fund shares at any time. Your shares will be sold at the next share price calculated after we receive your order to sell as described below.
OPTIONS PROCEDURES
CONTACT YOUR To sell your shares, simply call your Morgan Stanley
FINANCIAL ADVISOR Financial Advisor or other authorized financial
representative. Payment will be sent to the address to which
the account is registered or deposited in your brokerage
account.
CHECK-WRITING You may order a supply of blank checks by requesting them by
OPTION contacting your Morgan Stanley Financial Advisor or (800)
869-NEWS.
Checks may be written in any amount not less than $500. You
must sign checks exactly as their shares are registered. If
the account is a joint account, the check may contain one
signature unless the joint owners have specified that all
owners are required to sign checks.
Payment of check proceeds normally will be made on the next
business day after we receive your check in proper form.
Shares purchased by check (including a certified or bank
cashier's check) are not normally available to cover
redemption checks until 15 days after the Transfer Agent
receives the check used for investment. A check will not be
honored in an amount exceeding the value of the account at
the time the check is presented for payment.
SYSTEMATIC If your investment in all of the Morgan Stanley Funds has a
WITHDRAWAL PLAN total market value of at least $10,000, you may elect to
withdraw amounts of $25 or more, or in any whole percentage
of a fund's balance (provided the amount is at least $25), on
a monthly, quarterly, semi-annual or annual basis, from any
fund with a balance of at least $1,000. Each time you add a
fund to the plan, you must meet the plan requirements.
To sign up for the systematic withdrawal plan, contact your
Morgan Stanley Financial Advisor or call (800) 869-NEWS. You
may terminate or suspend your plan at any time. Please
remember that withdrawals from the plan are sales of shares,
not Fund "distributions," and ultimately may exhaust your
account balance. The Fund may terminate or revise the plan at
any time.
When you sell Fund shares through the Systematic Withdrawal
Plan, the shares may be subject to a CDSC if they were
obtained in exchange for shares subject to a CDSC of another
Morgan Stanley Fund. The CDSC, however, will be waived in an
amount up to 12% annually of the Fund's value, although Fund
shares with no CDSC will be sold first, followed by those
with the lowest CDSC. As such, the waiver benefit will be
reduced by the amount of your shares that are not subject to
a CDSC. See the prospectus of the fund that charges the CDSC
for more details.
10
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OPTIONS PROCEDURES
BY LETTER You may also sell your shares by writing a "letter of
instruction" that includes:
- your account number;
- the name of the Fund;
- the dollar amount or the number of shares you wish to
sell; and
- the signature of each owner as it appears on the account.
If you are requesting payment to anyone other than the
registered owner(s) or that payment be sent to any address
other than the address of the registered owner(s) or
pre-designated bank account, you will need a signature
guarantee. You can obtain a signature guarantee from an
eligible guarantor acceptable to Morgan Stanley Trust. (You
should contact Morgan Stanley Trust at (800) 869-NEWS for a
determination as to whether a particular institution is an
eligible guarantor.) A notary public cannot provide a
signature guarantee. Additional documentation may be required
for shares held by a corporation, partnership, trustee or
executor.
Mail the letter to Morgan Stanley Trust at P.O. Box 983,
Jersey City, NJ 07303.
A check will be mailed to the name(s) and address in which
the account is registered, or otherwise according to your
instructions.
BY TELEPHONE To sell shares by telephone or wire, first complete a
OR WIRE telephone redemption application designating a bank account.
Redemptions for more than $1,000 will be wired to your bank
account (your bank may charge a fee for this service). For
redemptions for less than $1,000, a check will be mailed to
your bank account. For more information or to request a
telephone redemption application, call Morgan Stanley Trust
at (800) 869-NEWS.
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PAYMENT FOR SOLD SHARES. After we receive your complete instructions to sell as described above, a check will be mailed to you within seven days, although we will attempt to make payment within one business day. Payment may also be sent to your brokerage account.
Payment may be postponed or the right to sell your shares suspended under unusual circumstances. If you request to sell shares that were recently purchased by check, your sale will not be effected until it has been verified that the check has been honored.
ORDER PROCESSING FEE. Morgan Stanley DW charges clients an order processing fee of $5.25 (except in certain circumstances, including, but not limited to, activity in fee-based accounts, exchanges, dividend reinvestments and systematic investment and withdrawal plans) when a client buys or redeems shares of the Fund. Please consult your Morgan Stanley Financial Advisor for more information regarding this fee.
INVOLUNTARY SALES. The Fund reserves the right, on 60 days' notice, to sell the shares of any shareholder (other than shares held in an IRA or 403(b) Custodial Account) whose shares, due to sales by the shareholder, have a value below $500. However, before the Fund sells your shares in this manner, we will notify you and allow you 60 days to make an additional investment in an amount that will increase the value of your account to at least the required amount before the sale is processed.
MONEY MARKET FUND AUTOMATIC SALE PROCEDURES. If you maintain a brokerage account with Morgan Stanley DW or another authorized dealer of Fund shares, you may elect to have your Fund shares automatically sold from your account to satisfy amounts you owe as a result of purchasing securities or other transactions in your brokerage account.
If you elect to participate by notifying Morgan Stanley DW or another authorized dealer of Fund shares, your brokerage account will be scanned each business day prior to the close of business (4:00 p.m. Eastern time). After any cash balances in the account are applied, a sufficient number of Fund shares may be sold to satisfy any amounts you are obligated to pay to Morgan Stanley DW or another authorized dealer of fund shares.
Sales will be effected on the business day before the date you are obligated to make payment, and Morgan Stanley DW or another authorized dealer of Fund shares will receive the sale proceeds on the following day.
EASYINVEST(R). You may invest in shares of certain other Morgan Stanley Funds by subscribing to EASYINVEST(R), an automatic purchase plan that provides for the automatic investment of any amount from $100 to $5,000 in shares of the specified fund. Under EASYINVEST(R), you may direct that a sufficient number of shares of the Fund be automatically sold and the proceeds transferred to the Transfer Agent, on a semi-monthly, monthly or quarterly basis, for investment in shares of the specified fund. Sales of your Fund shares will be made on the business day preceding the investment date and the Transfer Agent will receive the proceeds for investment on the day following the sale date.
MARGIN ACCOUNTS. If you have pledged your Fund shares in a margin account, contact your Morgan Stanley Financial Advisor or other authorized financial representative regarding restrictions on the sale of such shares.
DISTRIBUTIONS
[GRAPHIC]
The Fund passes substantially all of its earnings along to its investors as "distributions." The Fund earns interest from fixed-income investments. These amounts are passed along to Fund shareholders as "income dividend distributions." The Fund realizes capital gains whenever it sells securities for a higher price than it paid for them. These amounts may be passed along as "capital gain distributions." The Investment Adviser does not anticipate that there will be significant capital gain distributions.
The Fund declares income dividends payable on each day the New York Stock Exchange is open for business, of all of its daily net income to shareholders of record as of the close of business the preceding business day. Capital gains, if any, are distributed periodically.
Distributions are reinvested automatically in additional shares of the Fund (rounded to the last 1/100 of a share) and automatically credited to your account unless you request in writing that distributions be paid in cash. If you elect the cash option, the Fund will reinvest the additional shares and credit your account during the month, then redeem the credited amount no later than the last business day
[SIDENOTE]
TARGETED DIVIDENDS(SM)
YOU MAY SELECT TO HAVE YOUR FUND DISTRIBUTIONS AUTOMATICALLY INVESTED IN ANOTHER MORGAN STANLEY FUND THAT YOU OWN. CONTACT YOUR MORGAN STANLEY FINANCIAL ADVISOR FOR FURTHER INFORMATION ABOUT THIS SERVICE.
of the month, and mail a check to you no later than seven business days after the end of the month. No interest will accrue on uncashed checks. If you wish to change how your distributions are paid, your request should be received by the Transfer Agent at least five business days prior to the record date of the distributions.
FREQUENT PURCHASES AND REDEMPTIONS
[GRAPHIC]
Because, as a money market fund, the Fund's principal investment strategy is to maintain a stable share price, frequent purchases and redemptions of shares by Fund shareholders generally do not present risks for other shareholders of the Fund. Therefore, the policies and procedures regulating frequent purchases and redemptions adopted by the Fund's Board of Trustees applicable to other Morgan Stanley funds are not applicable with respect to frequent purchases and redemptions of Fund shares. However, frequent trading by Fund shareholders can disrupt management of the Fund and raise its expenses. Therefore, we may not accept any request for a purchase when we believe that it is being used as a tool for market timing and we may bar shareholders who trade excessively from making further purchases for an indefinite period.
TAX CONSEQUENCES
[GRAPHIC]
As with any investment, you should consider how your Fund investment will be taxed. The tax information in this PROSPECTUS is provided as general information. You should consult your own tax professional about the tax consequences of an investment in the Fund.
Unless your investment in the Fund is through a tax-deferred retirement account, such as a 401(k) plan or IRA, you need to be aware of the possible tax consequences when the Fund makes distributions.
Your distributions are normally subject to federal and state income tax when they are paid, whether you take them in cash or reinvest them in Fund shares. A distribution also may be subject to local income tax. Any income dividend distributions and any short-term capital gain distributions are taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you have owned shares in the Fund.
Every January, you will be sent a statement (IRS Form 1099-DIV) showing the taxable distributions paid to you in the previous year. The statement provides information on your dividends and capital gains for tax purposes.
When you open your Fund account, you should provide your social security or tax identification number on your investment application. By providing this information, you will avoid being subject to a federal backup withholding tax on taxable distributions and redemption proceeds (as of the date of this PROSPECTUS this rate is 28%). Any withheld amount would be sent to the IRS as an advance payment of your taxes due on your income.
ADDITIONAL INFORMATION
[GRAPHIC]
The Investment Adviser and/or the distributor may pay compensation (out of their own funds and not as an expense of the Fund) to certain affiliated or unaffiliated brokers, dealers or other financial intermediaries or service providers in connection with the sale or retention of Fund shares and/or shareholder servicing. Such compensation may be significant in amount and the prospect of receiving any such additional compensation may provide such affiliated or unaffiliated entities with an incentive to favor sales of shares of the Fund over other investment options. Any such payments will not change the net asset value or the price of the Fund's shares. For more information, please see the Fund's STATEMENT OF ADDITIONAL INFORMATION.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share throughout each period. The total returns in the table represent the rate an investor would have earned or lost on an investment in the Fund (assuming reinvestment of all dividends and distributions).
The information has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, are incorporated by reference in the STATEMENT OF ADDITIONAL INFORMATION from the Fund's annual report, which is available upon request.
FOR THE YEAR ENDED JANUARY 31, 2005 2004 2003 2002 2001
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Net investment income from investment operations 0.008 0.004 0.011 0.032 0.056
Less dividends from net investment income (0.008) (0.004) (0.011) (0.032) (0.056)
-------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------------------------------------------
TOTAL RETURN 0.78% 0.45% 1.06% 3.25% 5.80%
---------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.73% 0.71%(1) 0.74%(1) 0.74%(1) 0.78%
Net investment income 0.74% 0.43%(1) 1.03%(1) 3.14%(1) 5.61%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $ 1,123 $ 1,269 $ 1,340 $ 1,257 $ 1,243
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(1) If the Fund had borne all its expenses that were reimbursed or waived by the Investment Adviser, the annualized expense and net investment income ratios would have been as follows:
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
---------------- ------- -------------
January 31, 2004 0.71% 0.43%
January 31, 2003 0.76% 1.01%
January 31, 2002 0.81% 3.07%
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NOTES
NOTES
MORGAN STANLEY FUNDS
EQUITY
BLEND/CORE
Dividend Growth Securities
Total Return Trust
Fund of Funds - Domestic Portfolio
DOMESTIC HYBRID
Allocator Fund
Balanced Growth Fund
Balanced Income Fund
Income Builder Fund
Strategist Fund
GLOBAL/INTERNATIONAL
European Equity Fund
Global Advantage Fund
Global Dividend Growth Securities
International Fund
International SmallCap Fund
International Value Equity Fund
Japan Fund
Pacific Growth Fund
GROWTH
Aggressive Equity Fund
American Opportunities Fund
Capital Opportunities Trust
Developing Growth Securities Trust
Growth Fund
Special Growth Fund
INDEX
Equally-Weighted S&P 500 Fund
KLD Social Index Fund
Nasdaq-100 Index Fund
S&P 500 Index Fund
Total Market Index Fund
SPECIALTY
Biotechnology Fund
Convertible Securities Trust
Financial Services Trust
Global Utilities Fund
Health Sciences Trust
Information Fund
Natural Resource Development Securities
Real Estate Fund
Utilities Fund
VALUE
Fundamental Value Fund
Mid-Cap Value Fund
Small-Mid Special Value Fund
Special Value Fund
Value Fund
FIXED INCOME
TAXABLE SHORT TERM
Limited Duration Fund*+
Limited Duration U.S. Treasury Trust*
TAXABLE INTERMEDIATE TERM
Federal Securities Trust
Flexible Income Trust
High Yield Securities
Income Trust
U.S. Government Securities Trust
TAX-FREE
California Tax-Free Income Fund
Limited Term Municipal Trust*+
New York Tax-Free Income Fund
Tax-Exempt Securities Trust
MONEY MARKET*
TAXABLE
Liquid Asset Fund
U.S. Government Money Market
TAX-FREE
California Tax-Free Daily Income Trust
New York Municipal Money Market Trust
Tax-Free Daily Income Trust
There may be funds created or terminated after this PROSPECTUS was published. Please consult the inside back cover of a new fund's prospectus for its designations, e.g. Multi-Class Fund or Money Market Fund.
Unless otherwise noted, each listed Morgan Stanley Fund is a Multi-Class Fund. A Multi-Class Fund is a mutual fund offering multiple classes of shares.
* Single-Class Fund(s)
+ No-Load (Mutual) Fund
Additional information about the Fund's investments is available in the Fund's ANNUAL and SEMI-ANNUAL REPORTS TO SHAREHOLDERS. The Fund's STATEMENT OF ADDITIONAL INFORMATION also provides additional information about the Fund. The STATEMENT OF ADDITIONAL INFORMATION is incorporated herein by reference (legally is part of this PROSPECTUS). For a free copy of any of these documents, to request other information about the Fund, or to make shareholder inquiries, please call (800) 869-NEWS. Free copies of these documents are also available from our Internet site at: www.morganstanley.com/funds.
You also may obtain information about the Fund by calling your Morgan Stanley Financial Advisor or by visiting our Internet site.
Information about the Fund (including the STATEMENT OF ADDITIONAL INFORMATION) can be viewed and copied at the Securities and Exchange Commission's (the "SEC") Public Reference Room in Washington, DC. Information about the Reference Room's operations may be obtained by calling the SEC at (202) 942-8090. Reports and other information about the Fund are available on the EDGAR Database on the SEC's Internet site (www.sec.gov) and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the Public Reference Section of the SEC, Washington, DC 20549-0102.
(The Fund's Investment Company Act File No. is 811-3326)
Investments and services offered through Morgan Stanley DW Inc., member SIPC. Morgan Stanley Distributors Inc., member NASD.
(C) 2005 Morgan Stanley
[MORGAN STANLEY LOGO]
[MORGAN STANLEY FUNDS LOGO]
MORGAN STANLEY
U.S. GOVERNMENT
MONEY MARKET TRUST
37960 05/05
[MORGAN STANLEY LOGO]
PROSPECTUS
MAY 27, 2005
CLF NO. 37960PRO-00
STATEMENT OF ADDITIONAL INFORMATION MORGAN STANLEY
U.S. GOVERNMENT
MAY 27, 2005 MONEY MARKET TRUST
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This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus. The PROSPECTUS (dated May 27, 2005) for Morgan Stanley U.S. Government Money Market Trust may be obtained without charge from the Fund at its address or telephone number listed below or from Morgan Stanley DW Inc. at any of its branch offices.
The Fund's audited financial statements for the fiscal year ended January 31, 2005, including notes thereto and the report of Deloitte & Touche LLP, are herein incorporated by reference from the Fund's annual report. A copy of the Fund's ANNUAL REPORT TO SHAREHOLDERS must accompany the delivery of this STATEMENT OF ADDITIONAL INFORMATION.
Morgan Stanley
U.S. Government Money Market Trust
1221 Avenue of the Americas
New York, NY 10020
(800) 869-NEWS
TABLE OF CONTENTS
I. Fund History 4
II. Description of the Fund and Its Investments and Risks 4
A. Classification 4
B. Investment Strategies and Risks 4
C. Fund Policies/Investment Restrictions 6
D. Disclosure of Portfolio Holdings 7
III. Management of the Fund 11
A. Board of Trustees 11
B. Management Information 11
C. Compensation 19
IV. Control Persons and Principal Holders of Securities 21
V. Investment Advisory and Other Services 21
A. Investment Adviser and Administrator 21
B. Principal Underwriter 22
C. Services Provided by the Investment Adviser and the Administrator 22
D. Rule 12b-1 Plan 23
E. Other Service Providers 25
F. Codes of Ethics 25
G. Proxy Voting Policy and Proxy Voting Record 25
H. Revenue Sharing 27
VI. Brokerage Allocation and Other Practices 28
A. Brokerage Transactions 28
B. Commissions 28
C. Brokerage Selection 28
D. Directed Brokerage 29
E. Regular Broker-Dealers 29
VII. Capital Stock and Other Securities 29
VIII. Purchase, Redemption and Pricing of Shares 30
A. Purchase/Redemption of Shares 30
B. Offering Price 30
IX. Taxation of the Fund and Shareholders 32
X. Underwriters 33
XI. Performance Data 33
XII. Financial Statements 34
XIII. Fund Counsel 34
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GLOSSARY OF SELECTED DEFINED TERMS
The terms defined in this glossary are frequently used in this STATEMENT OF ADDITIONAL INFORMATION (other terms used occasionally are defined in the text of the document).
"ADMINISTRATOR" OR "MORGAN STANLEY SERVICES" -- Morgan Stanley Services Company Inc., a wholly-owned fund services subsidiary of the Investment Adviser.
"CUSTODIAN" -- The Bank of New York.
"DISTRIBUTOR" -- Morgan Stanley Distributors Inc., a wholly-owned broker-dealer subsidiary of Morgan Stanley.
"FINANCIAL ADVISORS" -- Morgan Stanley authorized financial services representatives.
"FUND" -- Morgan Stanley U.S. Government Money Market Trust, a registered open-end investment company.
"INDEPENDENT TRUSTEES" -- Trustees who are not "interested persons" (as defined by the Investment Company Act of 1940, as amended ("Investment Company Act")) of the Fund.
"INVESTMENT ADVISER" -- Morgan Stanley Investment Advisors Inc., a wholly-owned investment adviser subsidiary of Morgan Stanley.
"MORGAN STANLEY & CO." -- Morgan Stanley & Co. Incorporated, a wholly-owned broker-dealer subsidiary of Morgan Stanley.
"MORGAN STANLEY DW" -- Morgan Stanley DW Inc., a wholly-owned broker-dealer subsidiary of Morgan Stanley.
"MORGAN STANLEY FUNDS" -- Registered investment companies for which the Investment Adviser serves as the investment adviser and that hold themselves out to investors as related companies for investment and investor services.
"TRANSFER AGENT" -- Morgan Stanley Trust, a wholly-owned transfer agent subsidiary of Morgan Stanley.
"TRUSTEES" -- The Board of Trustees of the Fund.
I. FUND HISTORY
The Fund was organized as a Massachusetts business trust, under a Declaration of Trust, on November 18, 1981, with the name Sears U.S. Government Money Market Trust. Effective March 21, 1983, the Fund's name was changed to Dean Witter/Sears U.S. Government Money Market Trust. On February 19, 1993, the Fund's name was changed to Dean Witter U.S. Government Money Market Trust. Effective June 22, 1998, the Fund's name was changed to Morgan Stanley Dean Witter U.S. Government Money Market Trust. Effective June 18, 2001, the Fund's name was changed to Morgan Stanley U.S. Government Money Market Trust.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
A. CLASSIFICATION
The Fund is an open-end, diversified management investment company whose investment objectives are security of principal, high current income and liquidity.
B. INVESTMENT STRATEGIES AND RISKS
The following discussion of the Fund's investment strategies and risks should be read with the sections of the Fund's PROSPECTUS titled "Principal Investment Strategies" and "Principal Risks."
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements. When cash may be available for only a few days, it may be invested by the Fund in repurchase agreements until such time as it may otherwise be invested or used for payments of obligations of the Fund. These agreements, which may be viewed as a type of secured lending by the Fund, typically involve the acquisition by the Fund of debt securities from a selling financial institution such as a bank, savings and loan association or broker-dealer. The agreement provides that the Fund will sell back to the institution, and that the institution will repurchase, the underlying security serving as collateral at a specified price and at a fixed time in the future, usually not more than seven days from the date of purchase. The Fund will accrue interest from the institution until the time when the repurchase is to occur. Although this date is deemed by the Fund to be the maturity date of a repurchase agreement, the maturities of securities subject to repurchase agreements are not subject to any limits.
While repurchase agreements involve certain risks not associated with direct investments in debt securities, the Fund follows procedures approved by the Trustees that are designed to minimize such risks. These procedures include effecting repurchase transactions only with large, well-capitalized and well-established financial institutions, whose financial condition will be continuously monitored by the Investment Adviser. In addition, the value of the collateral underlying the repurchase agreement will always be at least equal to the resale price which consists of the acquisition price paid to the seller of the securities plus the accrued resale premium which is defined as the amount specified in the repurchase agreement or the daily amortization of the difference between the acquisition price and the resale price specified in the repurchase agreement. Such collateral will consist entirely of securities that are direct obligations of, or that are fully guaranteed as to principal and interest by, the United States or any agency thereof, and/or certificates of deposit, bankers' acceptances which are eligible for acceptance by a Federal Reserve Bank, and, if the seller is a bank, mortgage related securities (as such term is defined in section 3(a)(41) of the Securities Exchange Act of 1934 that, at the time the repurchase agreement is entered into, are rated in the highest rating category by the Requisite NRSROs (as defined under Rule 2a-7 of the Investment Company Act). Additionally, Upon an Event of Insolvency (as defined under Rule 2a-7) with respect to the seller, the collateral must qualify the repurchase agreement for preferential treatment under a provision of applicable insolvency law providing an exclusion from any automatic stay of creditors' rights against the seller. In the event of a default or bankruptcy by a selling financial institution, the Fund will seek to liquidate such collateral. However, the exercising of the Fund's right to liquidate such collateral could involve certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase were less than the repurchase price, the Fund could suffer a loss. It is the current policy of the Fund not to invest in repurchase agreements that do not mature within seven days if any such investment, together with any other illiquid assets held by the Fund, amount to more than 10% of
its total assets. The Fund's investments in repurchase agreements may at times be substantial when, in the view of the Fund's investment manager, liquidity or other considerations warrant.
REVERSE REPURCHASE AGREEMENTS. The Fund may also use reverse repurchase agreements as part of its investment strategy. Reverse repurchase agreements involve sales by the Fund of portfolio assets concurrently with an agreement by the Fund to repurchase the same assets at a later date at a fixed price. Generally, the effect of such a transaction is that the Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while it will be able to keep the interest income associated with those portfolio securities. Such transactions are only advantageous if the interest cost to the Fund of the reverse repurchase transaction is less than the cost of obtaining the cash otherwise. Opportunities to achieve this advantage may not always be available, and the Fund intends to use the reverse repurchase technique only when it will be to its advantage to do so. The Fund will establish a segregated account with its custodian bank in which it will maintain cash or cash equivalents or other portfolio securities equal in value to its obligations in respect of reverse repurchase agreements. Reverse repurchase agreements are considered borrowings by the Fund and for purposes other than meeting redemptions may not exceed 5% of the Fund's total assets.
LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities to brokers, dealers and other financial institutions, provided that the loans are callable at any time by the Fund, and are at all times secured by cash or cash equivalents, which are maintained in a segregated account pursuant to applicable regulations and that are equal to at least 100% of the market value, determined daily, of the loaned securities. The advantage of these loans is that the Fund continues to receive the income on the loaned securities while at the same time earning interest on the cash amounts deposited as collateral, which will be invested in short-term obligations. The Fund will not lend its portfolio securities if such loans are not permitted by the laws or regulations of any state in which its shares are qualified for sale and will not lend more than 10% of the value of its total assets.
As with any extensions of credit, there are risks of delay in recovery and, in some cases, even loss of rights in the collateral should the borrower of the securities fail financially. However, these loans of portfolio securities will only be made to firms deemed by the Fund's management to be creditworthy and when the income which can be earned from such loans justifies the attendant risks. Upon termination of the loan, the borrower is required to return the securities to the Fund. Any gain or loss in the market price during the loan period would inure to the Fund.
When voting or consent rights which accompany loaned securities pass to the borrower, the Fund will follow the policy of calling the loaned securities, to be delivered within one day after notice, to permit the exercise of the rights if the matters involved would have a material effect on the Fund's investment in the loaned securities. The Fund will pay reasonable finder's, administrative and custodial fees in connection with a loan of its securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. From time to time, the Fund may purchase securities on a when-issued or delayed delivery basis. When these transactions are negotiated, the price is fixed at the time of the commitment, but delivery and payment can take place a month or more after the date of commitment. While the Fund will only purchase securities on a when-issued or delayed delivery basis with the intention of acquiring the securities, the Fund may sell the securities before the settlement date, if it is deemed advisable. The securities so purchased or sold are subject to market fluctuation and no interest or dividends accrue to the purchaser prior to the settlement date.
At the time the Fund makes the commitment to purchase or sell securities on a when-issued, delayed delivery, it will record the transaction and thereafter reflect the value, each day, of such security purchased, or if a sale, the proceeds to be received, in determining its net asset value. At the time of delivery of the securities, their value may be more or less than the purchase or sale price. An increase in the percentage of the Fund's assets committed to the purchase of securities on a when-issued, delayed delivery may increase the volatility of its net asset value. The Fund will also establish a segregated account on the Fund's books in which it will continually maintain cash or cash equivalents or other liquid portfolio securities equal in value to commitments to purchase securities on a when-issued or delayed delivery basis.
C. FUND POLICIES/INVESTMENT RESTRICTIONS
The investment objectives, policies and restrictions listed below have been adopted by the Fund as fundamental policies. Under the Investment Company Act, a fundamental policy may not be changed without the vote of a majority of the outstanding voting securities of the Fund. The Investment Company Act defines a majority as the lesser of (a) 67% or more of the shares present at a meeting of shareholders, if the holders of 50% of the outstanding shares of the Fund are present or represented by proxy; or (b) more than 50% of the outstanding shares of the Fund. For purposes of the following restrictions: (i) all percentage limitations apply immediately after a purchase or initial investment, except in the case of borrowing and investments in illiquid securities; and (ii) any subsequent change in any applicable percentage resulting from market fluctuations or other changes in total or net assets does not require elimination of any security from the portfolio.
The Fund will:
1. Seek to provide security of principal, high current income and liquidity.
The Fund MAY not:
1. Purchase common stocks, preferred stocks, warrants, other equity securities, corporate bonds, municipal bonds or industrial revenue bonds.
2. Borrow money, except from banks for temporary or emergency purposes, including the meeting of redemption requests which might otherwise require the untimely disposition of securities; or through its transactions in reverse repurchase agreements. Borrowing in the aggregate, including reverse repurchase agreements, may not exceed 20%, and borrowing for purposes other than meeting redemptions may not exceed 5% of the value of the Fund's total assets (including the amount borrowed), less liabilities (not including the amount borrowed) at the time the borrowing is made. Borrowings in excess of 5% will be repaid before additional investments are made.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in an amount up to 10% of the value of its net assets, but only to secure borrowings for temporary or emergency purposes.
4. Sell securities short or purchase securities on margin.
5. Write or purchase put or call options.
6. Underwrite the securities of other issuers or purchase restricted securities except insofar as the Fund may enter into any repurchase or reverse repurchase agreements.
7. Purchase or sell real estate, real estate investment trust securities, commodities or commodity contracts or oil and gas interests.
8. Make loans to others, except: (a) by the purchase of qualified debt obligations; (b) lending portfolio securities; and (c) by investment in repurchase agreements referred to above and in the Prospectus.
9. Issue senior securities as defined in the Act except insofar as the Fund may be deemed to have issued a senior security by reason of: (a) entering into any repurchase or reverse repurchase agreement; (b) borrowing money in accordance with restrictions described above; or (c) lending portfolio securities.
10. Purchase securities of other investment companies, except in connection with a merger, consolidation, reorganization or acquisition of assets.
11. Lend its portfolio securities in excess of 10% of its total assets. Any loans of portfolio securities will be made according to guidelines established by the Trustees, including maintenance of cash collateral of the borrower equal at all times to the current market value of the securities loaned.
Notwithstanding any other investment policy or restriction, the Fund may seek to achieve its investment objectives by investing all or substantially all of its assets in another investment company having substantially the same investment objectives and policies as the Fund.
D. DISCLOSURE OF PORTFOLIO HOLDINGS
The Fund's Board of Trustees and the Investment Adviser have adopted policies and procedures regarding disclosure of portfolio holdings (the "Policy"). Pursuant to the Policy, the Investment Adviser may disclose information concerning Fund portfolio holdings only if such disclosure is consistent with the antifraud provisions of the federal securities laws and the Fund's and the Investment Adviser's fiduciary duties to Fund shareholders. The Investment Adviser may not receive compensation or any other consideration in connection with the disclosure of information about the portfolio securities of the Fund. Consideration includes any agreement to maintain assets in the Fund or in other investment companies or accounts managed by the Investment Adviser or by any affiliated person of the Investment Adviser. Non-public information concerning portfolio holdings may be divulged to third parties only when the Fund has a legitimate business purpose for doing so and the recipients of the information are subject to a duty of confidentiality. Under no circumstances shall current or prospective Fund shareholders receive non-public portfolio holdings information, except as described below.
The Fund makes available on its public website complete portfolio holdings information quarterly on a calendar quarter basis with a minimum 30 business day lag.
The Fund provides a complete schedule of portfolio holdings for the second and fourth fiscal quarters in its semiannual and annual reports, and for the first and third fiscal quarters in its filings with the SEC on Form N-Q.
All other portfolio holdings information that has not been disseminated in a manner making it available to investors generally as described above is non-public information for purposes of the Policy.
The Fund may make selective disclosure of non-public portfolio holdings. Third parties eligible to receive such disclosures currently include fund rating agencies, information exchange subscribers, consultants and analysts, portfolio analytics providers and service providers provided that the third party expressly agrees to maintain the disclosed information in confidence and not to trade portfolio securities based on the non-public information. Non-public portfolio holdings information may not be disclosed to a third party unless and until the arrangement has been reviewed and approved pursuant to the requirements set forth in the Policy. Subject to the terms and conditions of any agreement between the Investment Adviser or the Fund and the third party recipient, if these conditions for disclosure are satisfied, there shall be no restriction on the frequency with which Fund non-public portfolio holdings information is released, and no lag period shall apply (unless otherwise indicated below).
The Investment Adviser may provide interest lists to broker-dealers who execute securities transactions for the Fund without entering into a nondisclosure agreement with the broker-dealers, provided that the interest list satisfies all of the following criteria: (1) the interest list must contain only the CUSIP numbers and/or ticker symbols of securities held in all registered management investment companies advised by the Investment Adviser or any affiliate of the Investment Adviser (the "MSIM Funds") on an aggregate, rather than a fund-by-fund basis; (2) the interest list must not contain information about the number or value of shares owned by a specified MSIM Fund; (3) the interest list may identify the investment strategy, but not the particular MSIM Funds, to which the list relates; and (4) the interest list may not identify the portfolio manager or team members responsible for managing the MSIM Funds.
Fund shareholders may elect in some circumstances to redeem their shares of the Fund in exchange for their pro rata share of the securities held by the Fund. Under such circumstances, Fund shareholders may receive a complete listing of the holdings of the Fund up to seven calendar days prior to making the redemption request provided that they represent orally or in writing that they agree not to disclose or trade on the basis of the portfolio holdings information.
The Fund may discuss or otherwise disclose performance attribution analyses (i.e., mention the effects of having a particular security in the portfolio(s)) where such discussion is not contemporaneously made public, provided that the particular holding has been disclosed publicly. Additionally, any discussion of the analyses may not be more current than the date the holding was disclosed publicly.
The Fund may disclose portfolio holdings to transition managers, provided that the Fund has entered into a non-disclosure or confidentiality agreement with the party requesting that the information be provided to the transition manager and the party to the non-disclosure agreement has, in turn, entered into a non-disclosure or confidentiality agreement with the transition manager.
The Investment Adviser and/or the Fund have entered into ongoing arrangements to make available public and/or non-public information about the Fund's portfolio securities. Provided that the recipient of the information falls into one or more of the categories listed below, and the recipient has entered into a nondisclosure agreement with the Fund, or owes a duty of trust or confidence to the Investment Adviser or the Fund, the recipient may receive portfolio holdings information pursuant to such agreement without obtaining pre-approval from either the Portfolio Holdings Review Committee ("PHRC") or the Fund's Board of Trustees. In all such instances, however, the PHRC will be responsible for reporting to the Fund's Board of Trustees, or designated Committee thereof, material information concerning the ongoing arrangements at each Board's next regularly scheduled Board meeting. Categories of parties eligible to receive information pursuant to such ongoing arrangements include fund rating agencies, information exchange subscribers, consultants and analysts, portfolio analytics providers and service providers.
The Investment Adviser and/or the Fund currently have entered into ongoing arrangements with the following parties:
NAME INFORMATION DISCLOSED FREQUENCY(1) LAG TIME
---------------------------------------- ----------------------------- ---------------------- ---------------------------
SERVICE PROVIDERS
Institutional Shareholder Services (ISS) Complete portfolio Twice a month (2)
(proxy voting agent)(*) holdings
Morgan Stanley Trust(*) Complete portfolio As needed (2)
holdings
The Bank of New York(*) Complete portfolio As needed (2)
holdings
FT Interactive Data Pricing Service Complete portfolio As needed (2)
Provider(*) holdings
FUND RATING AGENCIES
Lipper(*) Top Ten and Complete Quarterly basis Approximately 15 days
portfolio holdings after quarter end and
approximately 30 days after
quarter end
Morningstar(**) Top Ten and Complete Quarterly basis Approximately 15 days
portfolio holdings after quarter end and
approximately 30 days after
quarter end
Standard & Poor's(*) Complete portfolio Quarterly basis Approximately 15 day lag
holdings
Investment Company Institute(**) Top Ten portfolio holdings Quarterly basis Approximately 15 days
after quarter end
CONSULTANTS AND ANALYSTS
Americh Massena & Associates, Inc.(*) Top Ten and Complete Quarterly basis(5) Approximately 10-12 days
portfolio holdings after quarter end
Bloomberg(**) Complete portfolio Quarterly basis Approximately 30 days
holdings after quarter end
Callan Associates(*) Top Ten and Complete Monthly and quarterly Approximately 10-12 days
portfolio holdings basis, respectively(5) after month/quarter end
Cambridge Associates(*) Top Ten and Complete Quarterly basis(5) Approximately 10-12 days
portfolio holdings after quarter end
Citigroup(*) Complete portfolio holdings Quarterly basis(5) At least one day after
quarter end
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NAME INFORMATION DISCLOSED FREQUENCY(1) LAG TIME
---------------------------------------- ----------------------------- ---------------------- ---------------------------
CTC Consulting, Inc.(**) Top Ten and Complete Quarterly basis Approximately 15 days
portfolio holdings after quarter end and
approximately 30 days after
quarter end, respectively
Evaluation Associates(*) Top Ten and Complete Monthly and quarterly Approximately 10-12 days
portfolio holdings basis, respectively(5) after month/quarter end
Fund Evaluation Group(**) Top Ten portfolio holdings(3) Quarterly basis At least 15 days after
quarter end
Jeffrey Slocum & Associates(*) Complete portfolio Quarterly basis(5) Approximately 10-12 days
holdings(4) after quarter end
Hammond Associates(**) Complete portfolio Quarterly basis At least 30 days after
holdings(4) quarter end
Hartland & Co.(**) Complete portfolio Quarterly basis At least 30 days after
holdings(4) quarter end
Hewitt Associates(*) Top Ten and Complete Monthly and quarterly Approximately 10-12 days
portfolio holdings basis, respectively(5) after month/quarter end
Top Ten and Complete Monthly and quarterly Approximately 10-12 days
portfolio holdings basis, respectively(5) after month/quarter end
Mobius(**) Top Ten portfolio holdings(3) Monthly basis At least 15 days after
month end
Nelsons(**) Top Ten portfolio holdings(3) Quarterly basis At least 15 days after
quarter end
Prime Buchholz & Associates, Inc.(**) Complete portfolio Quarterly basis At least 30 days after
holdings(4) quarter end
PSN(**) Top Ten portfolio holdings(3) Quarterly basis At least 15 days after
quarter end
PFM Asset Management LLC(*) Top Ten and Complete Quarterly basis(5) Approximately 10-12 days
portfolio holdings after quarter end
Russell Investment Group/Russell/ Top Ten and Complete Monthly and quarterly At least 15 days after
Mellon Analytical Services, Inc.(**) portfolio holdings basis month end and at least 30
days after quarter end,
repectively
Strafford Advisory Group, Inc.(*) Top Ten portfolio holdings(6) Quarterly basis(5) Approximately 10-12 days
after quarter end
Thompson Financial(**) Complete portfolio Quarterly basis At least 30 days after
holdings(4) quarter end
Watershed Investment Consultants, Top Ten and Complete Quarterly basis(5) Approximately 10-12 days
Inc.(*) portfolio holdings after quarter end
Yanni Partners(**) Top Ten portfolio holdings(3) Quarterly basis At least 15 days after
quarter end
PORTFOLIO ANALYTICS PROVIDERS
Fact Set(*) Complete portfolio holdings Daily One day
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In addition, persons who owe a duty of trust or confidence to the Investment Adviser or the Fund may receive non-public portfolio holdings information without entering into a non-disclosure agreement. Currently these persons include (i) the Fund's independent registered public accounting firm (as of the Fund's fiscal year end and on an as needed basis), (ii) counsel to the Fund (on an as needed basis), (iii) counsel to the independent trustees (on an as needed basis) and (iv) members of the Board of Trustees (on an as needed basis).
All selective disclosures of non-public portfolio holdings information
made to third parties pursuant to the exemptions set forth in the Policy must be
pre-approved by both the PHRC and the Fund's Board of Trustees (or a designated
Committee thereof), except for (i) disclosures made to third parties pursuant to
ongoing arrangements (discussed above); (ii) disclosures made to third parties
pursuant to Special Meetings of the PHRC; (iii) broker-dealer interest lists;
(iv) shareholder in-kind distributions; (v) attribution analyses; or (vi) in
connection with transition managers. The Investment Adviser shall report
quarterly to the Board of Trustees (or a designated Committee thereof)
information concerning all parties receiving non-public portfolio holdings
information pursuant to an exemption. Procedures to monitor the use of such
non-public portfolio holdings information may include requiring annual
certifications that the recipients have utilized such information only pursuant
to the terms of the agreement between the recipient and the Investment Adviser
and, for those recipients receiving information electronically, acceptance of
the information will constitute reaffirmation that the third party expressly
agrees to maintain the disclosed information in confidence and not to trade
portfolio securities based on the material nonpublic information.
In no instance may the Investment Adviser or the Fund receive any compensation or consideration in exchange for the portfolio holdings information.
The PHRC is responsible for creating and implementing the Policy and, in this regard, has expressly adopted it. The following are some of the functions and responsibilities of the PHRC:
(a) The PHRC, which will consist of executive officers of the Fund and the Investment Adviser or their designees, is responsible for establishing portfolio holdings disclosure policies and guidelines and determining how portfolio holdings information will be disclosed on an ongoing basis.
(b) The PHRC will periodically review and have the authority to amend as necessary the Fund's portfolio holdings disclosure policies and guidelines (as expressed by the Policy).
(c) The PHRC will meet at least quarterly to (among other matters):
(1) address any outstanding issues relating to the Policy, including matters
relating to (i) disclosures to third parties pursuant to ongoing arrangements
(described above); (ii) broker-dealer interest lists; (iii) Shareholder
in-kind distributions; (iv) attribution analysis; or (v) in connection with
transition managers; (2) review non-disclosure agreements that have been
executed with third parties and determine whether the third parties will
receive portfolio holdings information; and (3) generally review the
procedures that the Investment Adviser employs to ensure that disclosure of
information about portfolio securities is in the best interests of Fund
shareholders, including procedures to address conflicts between the interests
of Fund shareholders, on the one hand, and those of the Investment Adviser,
the Distributor or any affiliated person of the Fund, the Investment Adviser
or the Distributor, on the other.
(d) Any member of the PHRC may call a Special Meeting of the PHRC to consider whether a third-party that is not listed in (c) above may receive non-public portfolio holdings information pursuant to a validly executed nondisclosure agreement. At least three members of the PHRC, or their designees, and one member of the Funds Audit Committee, or his or her designee, shall be present at the Special Meeting in order to constitute a quorum. At any Special Meeting at which a quorum is present, the decision of a majority of the PHRC members present and voting shall be determinative as to any matter submitted to a vote; provided, however, that the Audit Committee member, or his or her designee, must concur in the determination in order for it to become effective.
(e) The PHRC, or its designee(s), will document in writing all of their decisions and actions, which documentation will be maintained by the PHRC, or its designee(s) for a period of at least six years. The PHRC, or its designee(s), will report their decisions to the Board of Trustees at each Board's next regularly scheduled Board meeting. The report will contain information concerning decisions made by the PHRC during the most recently ended calendar quarter immediately preceding the Board meeting.
III. MANAGEMENT OF THE FUND
A. BOARD OF TRUSTEES
The Board of Trustees of the Fund oversees the management of the Fund, but does not itself manage the Fund. The Trustees review various services provided by or under the direction of the Investment Adviser to ensure that the Fund's general investment policies and programs are properly carried out. The Trustees also conduct their review to ensure that administrative services are provided to the Fund in a satisfactory manner.
Under state law, the duties of the Trustees are generally characterized as a duty of loyalty and a duty of care. The duty of loyalty requires a Trustee to exercise his or her powers in the interest of the Fund and not the Trustee's own interest or the interest of another person or organization. A Trustee satisfies his or her duty of care by acting in good faith with the care of an ordinarily prudent person and in a manner the Trustee reasonably believes to be in the best interest of the Fund and its shareholders.
B. MANAGEMENT INFORMATION
TRUSTEES AND OFFICERS. The Board of the Fund consists of nine Trustees. These same individuals also serve as directors or trustees for all of the funds advised by the Investment Adviser (the "Retail Funds") and certain of the funds advised by Morgan Stanley Investment Management Inc. and Morgan Stanley AIP GP LP (the "Institutional Funds"). Seven Trustees have no affiliation or business connection with the Investment Adviser or any of its affiliated persons and do not own any stock or other securities issued by the Investment Adviser's parent company, Morgan Stanley. These are the "non-interested" or "Independent" Trustees. The other two Trustees (the "Management Trustees") are affiliated with the Investment Adviser.
The Independent Trustees of the Fund, their age, address, term of office and length of time served, their principal business occupations during the past five years, the number of portfolios in the Fund Complex (defined below) overseen by each Independent Trustee (as of December 31, 2004) and other directorships, if any, held by the Trustees, are shown below. The Fund Complex includes all open-end and closed-end funds (including all of their portfolios) advised by the Investment Adviser and any funds that have an investment adviser that is an affiliated person of the Investment Adviser (including, but not limited to, Morgan Stanley Investment Management Inc.).
NUMBER OF
PORTFOLIOS
IN FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN OTHER DIRECTORSHIPS HELD
INDEPENDENT TRUSTEE REGISTRANT SERVED* PAST 5 YEARS** BY TRUSTEE BY TRUSTEE
--------------------------- ----------- ---------- --------------------------------------- ---------- -------------------------
Michael Bozic (64) Trustee Since Private investor; Director or Trustee 197 Director of various
c/o Kramer Levin April 1994 of the Retail Funds (since April 1994) business organizations.
Naftalis & Frankel LLP and the Institutional Funds (since July
Counsel to the 2003); formerly Vice Chairman of Kmart
Independent Trustees Corporation (December 1998- October
1177 Avenue of the 2000), Chairman and Chief Executive
Americas Officer of Levitz Furniture Corporation
New York, NY 10036 (November 1995- November 1998) and
President and Chief Executive Officer
of Hills Department Stores (May 1991-
July 1995); formerly variously Chairman,
Chief Executive Officer, President and
Chief Operating Officer (1987-1991) of
the Sears Merchandise Group of Sears,
Roebuck & Co.
Edwin J. Garn (72) Trustee Since Consultant; Director or Trustee of the 197 Director of Franklin
1031 N. Chartwell Court January Retail Funds (since January 1993) and Covey (time management
Salt Lake City, UT 84103 1993 the Institutional Funds (since July systems), BMW Bank of
2003); member of the Utah Regional North America, Inc.
Advisory Board of Pacific Corp.; (industrial loan
formerly Managing Director of Summit corporation), Esrow Bank
Ventures LLC (2000-2004), United States USA (industrial loan
Senator (R-Utah) (1974-1992) and corporation), United
Chairman, Senate Banking Committee Space Alliance (joint
(1980-1986), Mayor of Salt Lake City, venture between Lockheed
Utah (1971-1974), Astronaut, Space Martin and the Boeing
Shuttle Discovery (April 12-19, 1985), Company) and Nuskin Asia
and Vice Chairman, Huntsman Corporation Pacific (multilevel
(chemical company). marketing); member of the
board of various civic
and charitable
organizations.
Wayne E. Hedien (71) Trustee Since Retired; Director or Trustee of the 197 Director of The PMI Group
c/o Kramer Levin September Retail Funds (since September 1997) and Inc. (private mortgage
Naftalis & Frankel LLP 1997 the Institutional Funds (since July insurance); Trustee and
Counsel to the 2003); formerly associated with the Vice Chairman of The
Independent Trustees Allstate Companies (1966-1994), most Field Museum of Natural
1177 Avenue of the recently as Chairman of The Allstate History; director of
Americas Corporation (March 1993-December 1994) various other business
New York, NY 10036 and Chairman and Chief Executive and charitable
Officer of its wholly-owned subsidiary, organizations.
Allstate Insurance Company (July
1989-December 1994).
|
NUMBER OF
PORTFOLIOS
IN FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN OTHER DIRECTORSHIPS HELD
INDEPENDENT TRUSTEE REGISTRANT SERVED* PAST 5 YEARS** BY TRUSTEE BY TRUSTEE
--------------------------- ----------- ---------- ---------------------------------------- ---------- -------------------------
Dr. Manuel H. Johnson (56) Trustee Since Senior Partner, Johnson Smick 197 Director of NVR, Inc.
c/o Johnson Smick July 1991 International, Inc., a consulting firm; (home construction);
Group Inc. Chairman of the Audit Committee and Director of KFX Energy;
888 16th Street, N.W. Director or Trustee of the Retail Funds Director of RBS Greenwich
Suite 740 (since July 1991) and the Institutional Capital Holdings
Washington, D.C. 20006 Funds (since July 2003); Co-Chairman and (financial holding
a founder of the Group of Seven Council company).
(G7C), an international economic
commission; formerly Vice Chairman of
the Board of Governors of the Federal
Reserve System and Assistant Secretary
of the U.S. Treasury.
Joseph J. Kearns (62) Trustee Since President, Kearns & Associates LLC 198 Director of Electro Rent
c/o Kearns & Associates July 2003 (investment consulting); Deputy Chairman Corporation (equipment
LLC of the Audit Committee and Director or leasing), The Ford Family
PMB754 Trustee of the Retail Funds (since July Foundation, and the UCLA
23852 Pacific 2003) and the Institutional Funds Foundation.
Coast Highway (since August 1994); previously Chairman
Malibu, CA 90265 of the Audit Committee of the
Institutional Funds (October 2001-July
2003); formerly CFO of the J. Paul Getty
Trust.
Michael E. Nugent (69) Trustee Since General Partner of Triumph Capital, 197 Director of various
c/o Triumph Capital, L.P. July 1991 L.P., a private investment partnership; Business organizations.
445 Park Avenue Chairman of the Insurance Committee and
New York, NY 10022 Director or Trustee of the Retail Funds
(since July 1991) and the Institutional
Funds (since July 2001); formerly Vice
President, Bankers Trust Company and BT
Capital Corporation (1984-1988).
Fergus Reid (72) Trustee Since Chairman of Lumelite Plastics 198 Trustee and Director of
c/o Lumelite Plastics July 2003 Corporation; Chairman of the Governance certain investment
Corporation Committee and Director or Trustee of companies in the JP
85 Charles Colman Blvd. the Retail Funds (since July 2003) and Morgan Funds complex
Pawling, NY 12564 the Institutional Funds (since June managed by J.P. Morgan
1992). Investment Management
Inc.
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The Trustees who are affiliated with the Investment Adviser or affiliates of the Investment Adviser (as set forth below) and executive officers of the Fund, their age, address, term of office and length of time served, their principal business occupations during the past five years, the number of portfolios in the Fund Complex overseen by each Management Trustee (as of December 31, 2004) and the other directorships, if any, held by the Trustee, are shown below.
NUMBER OF
PORTFOLIOS
IN FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY OTHER DIRECTORSHIPS HELD
MANAGEMENT TRUSTEE REGISTRANT SERVED* PAST 5 YEARS** TRUSTEE BY TRUSTEE
--------------------------- ----------- --------- --------------------------------------- ----------- -------------------------
Charles A. Fiumefreddo (71) Chairman Since Chairman and Director or Trustee of the 197 None.
c/o Morgan Stanley Trust of the July 1991 Retail Funds (since July 1991) and the
Harborside Financial Board Institutional Funds (since July
Center, and 2003); formerly Chief Executive Officer
Plaza Two, Trustee of the Retail Funds (until September
Jersey City, NJ 07311 2002).
James F. Higgins (57) Trustee Since Director or Trustee of the Retail Funds 197 Director of AXA
c/o Morgan Stanley Trust June (since June 2000) and the Institutional Financial, Inc. and The
Harborside Financial 2000 Funds (since July 2003); Senior Advisor Equitable Life Assurance
Center, of Morgan Stanley (since August 2000); Society of the United
Plaza Two, Director of the Distributor and Dean States (financial
Jersey City, NJ 07311 Witter Realty Inc.; previously services).
President and Chief Operating Officer
of the Private Client Group of Morgan
Stanley (May 1999-August 2000), and
President and Chief Operating Officer
of Individual Securities of Morgan
Stanley (February 1997-May 1999).
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POSITION(S) LENGTH OF
NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) DURING
EXECUTIVE OFFICER REGISTRANT SERVED* PAST 5 YEARS**
------------------------------- -------------- ------------------ ------------------------------------------------------
Mitchell M. Merin (51) President Since May 1999 President and Chief Operating Officer of Morgan
1221 Avenue of the Americas Stanley Investment Management Inc.; President,
New York, NY 10020 Director and Chief Executive Officer of the Investment
Adviser and the Administrator; Chairman and Director
of the Distributor; Chairman and Director of the
Transfer Agent; Director of various Morgan Stanley
subsidiaries; President of the Institutional Funds
(since July 2003) and President of the Retail Funds
(since May 1999); Trustee (since July 2003) and
President (since December 2002) of the Van Kampen
Closed-End Funds; Trustee (since May 1999) and
President (since October 2002) of the Van Kampen
Open-End Funds.
Ronald E. Robison (66) Executive Vice Since April 2003 Principal Executive Officer of funds in the Fund
1221 Avenue of the Americas President and Complex (since May 2003); Managing Director of Morgan
New York, NY 10020 Principal Stanley & Co. Incorporated, Morgan Stanley Investment
Executive Management Inc. and Morgan Stanley; Managing Director,
Officer Director of the Investment Adviser and the
Administrator; Director of the Transfer Agent;
Managing Director and Director of the Distributor;
Executive Vice President and Principal Executive
Officer of the Institutional Funds (since July 2003)
and the Retail Funds (since April 2003); Director of
Morgan Stanley SICAV (since May 2004); previously
President and Director of the Institutional Funds
(March 2001-July 2003) and Chief Global Operations
Officer and Managing Director of Morgan Stanley
Investment Management Inc.
Joseph J. McAlinden (62) Vice President Since July 1995 Managing Director and Chief Investment Officer of the
1221 Avenue of the Americas Investment Adviser and Morgan Stanley Investment
New York, NY 10020 Management Inc.; Director of the Transfer Agent; Chief
Investment Officer of the Van Kampen Funds; Vice
President of the Institutional Funds (since July 2003)
and the Retail Funds (since July 1995).
Barry Fink (50) Vice President Since February 1997 General Counsel (since May 2000) and Managing Director
1221 Avenue of the Americas (since December 2000) of Morgan Stanley Investment
New York, NY 10020 Management; Managing Director (since December 2000),
Secretary (since February 1997) and Director of the
Investment Adviser and the Administrator; Vice
President of the Retail Funds; Assistant Secretary of
Morgan Stanley DW; Vice President of the Institutional
Funds (since July 2003); Managing Director, Secretary
and Director of the Distributor; previously Secretary
(February 1997-July 2003) and General Counsel
(February 1997-April 2004) of the Retail Funds; Vice
President and Assistant General Counsel of the
Investment Adviser and the Administrator (February
1997-December 2001).
Amy R. Doberman (43) Vice President Since July 2004 Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas Management; Managing Director of Morgan Stanley
New York, NY 10020 Investment Management Inc. and the Investment Adviser;
Vice President of the Institutional and Retail Funds
(since July 2004); Vice President of the Van Kampen
Funds (since August 2004); previously, Managing
Director and General Counsel -- Americas, UBS Global
Asset Management (July 2000-July 2004) and General
Counsel, Aeltus Investment Management, Inc. (January
1997-July 2000).
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POSITION(S) LENGTH OF
NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) DURING
EXECUTIVE OFFICER REGISTRANT SERVED* PAST 5 YEARS**
------------------------------- -------------- ------------------ ------------------------------------------------------
Carsten Otto (41) Chief Since October 2004 Executive Director and U.S. Director of Compliance for
1221 Avenue of the Americas Compliance Morgan Stanley Investment Management (since October
New York, NY 10020 Officer 2004); Executive Director of the Investment Adviser
and Morgan Stanley Investment Management Inc.;
formerly Assistant Secretary and Assistant General
Counsel of the Morgan Stanley Retail Funds.
Stefanie V. Chang (38) Vice President Since July 2003 Executive Director of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated, Morgan Stanley Investment Management
New York, NY 10020 Inc. and the Investment Adviser; Vice President of the
Institutional Funds (since December 1997) and the
Retail Funds (since July 2003); formerly practiced law
with the New York law firm of Rogers & Wells (now
Clifford Chance US LLP).
Francis J. Smith (39) Treasurer and Treasurer since Executive Director of the Investment Adviser and the
c/o Morgan Stanley Trust Chief July 2003 and Administrator (since December 2001); previously, Vice
Harborside Financial Center, Financial Chief Financial President of the Retail Funds (September 2002-July
Plaza Two, Officer Officer since 2003), Vice President of the Investment Adviser and
Jersey City, NJ 07311 September 2002 the Administrator (August 2000-November 2001) and
Senior Manager at PricewaterhouseCoopers LLP (January
1998-August 2000).
Thomas F. Caloia (59) Vice President Since July 2003 Executive Director (since December 2002) and Assistant
c/o Morgan Stanley Trust Treasurer of the Investment Adviser, the Distributor
Harborside Financial Center, and the Administrator; previously Treasurer of the
Plaza Two, Retail Funds (April 1989-July 2003); formerly First
Jersey City, NJ 07311 Vice President of the Investment Adviser, the
Distributor and the Administrator.
Mary E. Mullin (38) Secretary Since July 2003 Executive Director of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated, Morgan Stanley Investment Management
New York, NY 10020 Inc. and the Investment Adviser; Secretary of the
Institutional Funds (since June 1999) and the Retail
Funds (since July 2003); formerly practiced law with
the New York law firms of McDermott, Will & Emery and
Skadden, Arps, Slate, Meagher & Flom LLP.
|
In addition, the following individuals who are officers of the Investment Adviser or its affiliates serve as assistant secretaries of the Fund: Lou Anne D. McInnis, Joseph Benedetti, Joanne Antico, Daniel Burton, Marilyn K. Cranney, Joanne Doldo, Tara A. Farrelly, Alice J. Gerstel, Edward J. Meehan, Elisa Mitchell, Elizabeth Nelson, Debra Rubano, Rita Rubin and Julien Yoo.
For each Trustee, the dollar range of equity securities beneficially owned by the Trustee in the Fund and in the Family of Investment Companies (Family of Investment Companies includes all of the registered investment companies advised by the Investment Adviser, Morgan Stanley Investment Management Inc. and Morgan Stanley AIP GP LP) for the calendar year ended December 31, 2004 is shown below.
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN
ALL REGISTERED INVESTMENT COMPANIES OVERSEEN
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND BY TRUSTEE IN FAMILY OF INVESTMENT COMPANIES
NAME OF TRUSTEE (AS OF DECEMBER 31, 2004) (AS OF DECEMBER 31, 2004)
------------------------ --------------------------------------------- ----------------------------------------------
INDEPENDENT:
Michael Bozic None over $100,000
Edwin J. Garn None over $100,000
Wayne E. Hedien None over $100,000
Dr. Manuel H. Johnson None over $100,000
Joseph J. Kearns(1) None over $100,000
Michael E. Nugent None over $100,000
Fergus Reid(1) None over $100,000
INTERESTED:
Charles A. Fiumefreddo None over $100,000
James F. Higgins None over $100,000
|
(1) Includes the total amount of compensation deferred by the Trustee at his election pursuant to a deferred compensation plan. Such deferred compensation is placed in a deferral account and deemed to be invested in one or more of the Retail Funds or Institutional Funds (or portfolio thereof) that are offered as investment options under the plan. As of December 31, 2004, the value (including interest) of the deferral accounts for Messrs. Kearns and Reid was $584,856 and $667,002, respectively, pursuant to the deferred compensation plan.
As to each Independent Trustee and his immediate family members, no person owned beneficially or of record securities in an investment adviser or principal underwriter of the Fund, or a person (other than a registered investment company) directly or indirectly controlling, controlled by or under common control with an investment adviser or principal underwriter of the Fund.
INDEPENDENT TRUSTEES AND THE COMMITTEES. Law and regulation establish both general guidelines and specific duties for the Independent Trustees. The Retail Funds seek as Independent Trustees individuals of distinction and experience in business and finance, government service or academia; these are people whose advice and counsel are in demand by others and for whom there is often competition. To accept a position on the Retail Funds' boards, such individuals may reject other attractive assignments because the Retail Funds make substantial demands on their time. All of the Independent Trustees serve as members of the Audit Committee. In addition, three Trustees, including two Independent Trustees, serve as members of the Insurance Committee, and three Independent Trustees serve as members of the Governance Committee.
The Independent Trustees are charged with recommending to the full Board approval of management, advisory and administration contracts, Rule 12b-1 plans and distribution and underwriting agreements; continually reviewing fund performance; checking on the pricing of portfolio securities, brokerage commissions, transfer agent costs and performance, and trading among funds in the same complex; and approving fidelity bond and related insurance coverage and allocations, as well as other matters that arise from time to time. The Independent Trustees are required to select and nominate individuals to fill any Independent Trustee vacancy on the board of any fund that has a Rule 12b-1 plan of distribution. Most of the Retail Funds have a Rule 12b-1 plan.
The Board of Trustees has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit Committee is charged with recommending to the full Board the engagement or discharge of the Fund's independent registered public accounting firm; directing investigations into matters within the scope of the independent registered public accounting firm's duties, including the power to retain outside specialists; reviewing with the independent registered public accounting firm the audit plan and results of the auditing engagement; approving professional services provided by the independent registered public accounting firm and other accounting firms prior to the performance of the services; reviewing the independence of the independent registered public accounting firm; considering the range of audit and non-audit fees; reviewing the adequacy of the Fund's system of internal controls; and preparing and submitting Committee meeting minutes to the full Board. The Fund has adopted a formal, written Audit Committee Charter. During the Fund's fiscal year ended January 31, 2005, the Audit Committee held ten meetings.
The members of the Audit Committee of the Fund are currently Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Joseph J. Kearns, Michael E. Nugent and Fergus Reid. None of the members of the Fund's Audit Committee is an "interested person" of the Fund, as defined under
the Investment Company Act. Each Independent Trustee is also "independent" from the Fund under the listing standards of the New York Stock Exchange, Inc. (NYSE). The current Chairman of the Audit Committee of the Fund is Dr. Manuel H. Johnson.
The Board of Trustees of the Fund also has a Governance Committee. The Governance Committee identifies individuals qualified to serve as Independent Trustees on the Fund's Board and on committees of such Board and recommends such qualified individuals for nomination by the Fund's Independent Trustees as candidates for election as Independent Trustees, advises the Fund's Board with respect to Board composition, procedures and committees, develops and recommends to the Fund's Board a set of corporate governance principles applicable to the Fund, monitors and makes recommendations on corporate governance matters and policies and procedures of the Fund's Board of Trustees and any Board committees and oversees periodic evaluations of the Fund's Board and its committees. The members of the Governance Committee of the Fund are currently Michael Bozic, Edwin J. Garn and Fergus Reid, each of whom is an Independent Trustee. The current Chairman of the Governance Committee is Fergus Reid. During the Fund's fiscal year ended January 31, 2005, the Governance Committee held three meetings.
The Fund does not have a separate nominating committee. While the Fund's Governance Committee recommends qualified candidates for nominations as Independent Trustees, the Board of Trustees of the Fund believes that the task of nominating prospective Independent Trustees is important enough to require the participation of all current Independent Trustees, rather than a separate committee consisting of only certain Independent Trustees. Accordingly, each current Independent Trustee (Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Joseph J. Kearns, Michael E. Nugent and Fergus Reid) participates in the election and nomination of candidates for election as Independent Trustees for the Fund. Persons recommended by the Fund's Governance Committee as candidates for nomination as Independent Trustees shall possess such knowledge, experience, skills, expertise and diversity so as to enhance the Board's ability to manage and direct the affairs and business of the Fund, including, when applicable, to enhance the ability of committees of the Board to fulfill their duties and/or to satisfy any independence requirements imposed by law, regulation or any listing requirements of the NYSE. While the Independent Trustees of the Fund expect to be able to continue to identify from their own resources an ample number of qualified candidates for the Fund's Board as they deem appropriate, they will consider nominations from shareholders to the Board. Nominations from shareholders should be in writing and sent to the Independent Trustees as described below.
There were 22 meetings of the Board of Trustees of the Fund held during the fiscal year ended January 31, 2005. The Independent Trustees of the Fund also met four times during that time, in addition to the 22 meetings of the full Board.
Finally, the Board has formed an Insurance Committee to review and monitor the insurance coverage maintained by the Fund. The Insurance Committee currently consists of Messrs. Nugent, Fiumefreddo and Hedien. Messrs. Nugent and Hedien are Independent Trustees. During the Fund's fiscal year ended January 31, 2005, the Insurance Committee held seven meetings.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS TRUSTEES FOR THE RETAIL FUNDS AND INSTITUTIONAL FUNDS. The Independent Trustees and the Funds' management believe that having the same Independent Trustees for each of the Retail Funds and Institutional Funds avoids the duplication of effort that would arise from having different groups of individuals serving as Independent Trustees for each of the Funds or even of sub-groups of Funds. They believe that having the same individuals serve as Independent Trustees of all the Retail Funds and Institutional Funds tends to increase their knowledge and expertise regarding matters which affect the Fund Complex generally and enhances their ability to negotiate on behalf of each Fund with the Fund's service providers. This arrangement also precludes the possibility of separate groups of Independent Trustees arriving at conflicting decisions regarding operations and management of the Funds and avoids the cost and confusion that would likely ensue. Finally, having the same Independent Trustees serve on all Fund boards enhances the ability of each Fund to obtain, at modest cost to each separate Fund, the services of Independent Trustees, of the caliber, experience and business acumen of the individuals who serve as Independent Trustees of the Retail Funds and Institutional Funds.
TRUSTEE AND OFFICER INDEMNIFICATION. The Fund's Declaration of Trust provides that no Trustee, Officer, employee or agent of the Fund is liable to the Fund or to a shareholder, nor is any Trustee, Officer, employee or agent liable to any third persons in connection with the affairs of the Fund, except as such liability may arise from his/her or its own bad faith, willful misfeasance, gross negligence or reckless
disregard of his/her or its duties. It also provides that all third persons shall look solely to Fund property for satisfaction of claims arising in connection with the affairs of the Fund. With the exceptions stated, the Declaration of Trust provides that a Trustee, Officer, employee or agent is entitled to be indemnified against all liability in connection with the affairs of the Fund.
SHAREHOLDER COMMUNICATIONS. Shareholders may send communications to the Fund's Board of Trustees. Shareholders should send communications intended for the Fund's Board by addressing the communications directly to the Board (or individual Board members) and/or otherwise clearly indicating in the salutation that the communication is for the Board (or individual Board members) and by sending the communication to either the Fund's office or directly to such Board member(s) at the address specified for each Trustee previously noted. Other shareholder communications received by the Fund not directly addressed and sent to the Board will be reviewed and generally responded to by management, and will be forwarded to the Board only at management's discretion based on the matters contained therein.
C. COMPENSATION
Each Independent Trustee receives an annual retainer fee of $168,000 for serving the Retail Funds and the Institutional Funds. In addition, each Independent Trustee receives $2,000 for attending each of the four quarterly board meetings and two performance meetings that occur each year so that an Independent Trustee who attended all six meetings would receive total compensation of $180,000 for serving the funds. The Chairman of the Audit Committee receives an additional annual retainer fee of $60,000. Other Committee Chairmen and the Deputy Chairman of the Audit Committee receive an additional annual retainer fee of $30,000. The aggregate compensation paid to each Independent Trustee is paid by the Retail Funds and the Institutional Funds, and is allocated on a pro rata basis among each of the operational funds/portfolios of the Retail Funds and the Institutional Funds based on the relative net assets of each of the funds/portfolios. Mr. Fiumefreddo receives an annual fee for his services as Chairman of the Boards of the Retail Funds and the Institutional Funds and for administrative services provided to each Board.
The Fund also reimburses such Trustees for travel and other out-of-pocket expenses incurred by them in connection with attending such meetings. Trustees of the Fund who are employed by the Investment Adviser or an affiliated company receive no compensation or expense reimbursement from the Fund for their services as Trustee.
Effective April 1, 2004, the Fund began a Deferred Compensation Plan (the "DC Plan"), which allows each Independent Trustee to defer payment of all, or a portion, of the fees he or she receives for serving on the Board of Trustees throughout the year. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Retail Funds or Institutional Funds (or portfolios thereof) that are offered as investment options under the Plan. At the Trustee's election, distributions are either in one lump sum payment, or in the form of equal annual installments over a period of five years. The rights of an eligible Trustee and the beneficiaries to the amounts held under the DC Plan are unsecured and such amounts are subject to the claims of the creditors of the Fund.
Prior to April 1, 2004, the Institutional Funds maintained a similar Deferred Compensation Plan (the "Prior DC Plan"), which also allowed each Independent Trustee to defer payment of all, or a portion, of the fees he or she received for serving on the Board of Trustees throughout the year. The DC Plan amends and supersedes the Prior DC Plan and all amounts payable under the Prior DC Plan are now subject to the terms of the Plan (except for amounts paid during the calendar year 2004, which remain subject to the terms of the Prior DC Plan).
The following table shows aggregate compensation payable to the Fund's Trustees from the Fund for the fiscal year end January 31, 2005 and the aggregate compensation payable to each of the Fund's Trustees by the Fund Complex (which includes all of the Retail and Institutional Funds) for the calendar year ended December 31, 2004.
COMPENSATION
NUMBER OF PORTFOLIOS
IN THE FUND COMPLEX
TOTAL FROM WHICH TOTAL COMPENSATION
COMPENSATION THE TRUSTEE RECEIVED FROM THE FUND
NAME OF TRUSTEE FROM FUND COMPENSATION(5) COMPLEX(5)
--------------- ------------ --------------------- ------------------
Independent:
Michael Bozic(1)(3) $ 1,517 197 $ 178,000
Edwin J. Garn(1) 1,517 197 178,000
Wayne E. Hedien(1)(2) 1,517 197 178,000
Dr. Manuel H. Johnson(1) 2,025 197 238,000
Joseph J. Kearns(1)(4) 1,747 198 211,000
Michael E. Nugent(1)(2) 1,771 197 208,000
Fergus Reid(1)(3) 1,771 198 213,000
Interested:
Charles A. Fiumefreddo*(2) 3,050 197 360,000
James F. Higgins* 0 197 0
|
* Messrs. Fiumefreddo and Higgins are deemed to be "interested persons" of
the Fund as that term is defined in the Investment Company Act.
(1) Member of the Audit Committee. Dr. Johnson is the Chairman of the Audit
Committee and Mr. Kearns is the Deputy Chairman of the Audit Committee.
(2) Member of the Insurance Committee. Mr. Nugent is the Chairman of the
Insurance Committee.
(3) Member of the Governance Committee. Mr. Reid is the Chairman of the
Governance Committee.
(4) Includes amounts deferred at the election of the Trustee under the DC
Plan.
(5) Because the funds in the Fund Complex have different fiscal year ends, the
amounts shown in these columns are presented on a calendar-year basis.
Prior to December 31, 2003, 49 of the Retail Funds (the "Adopting Funds"), including the Fund, had adopted a retirement program under which an Independent Trustee who retired after serving for at least five years as an Independent Trustee of any such fund (an "Eligible Trustee") would have been entitled to retirement payments, based on factors such as length of service, upon reaching the eligible retirement age. On December 31, 2003, the amount of accrued retirement benefits for each Eligible Trustee was frozen, and will be payable, together with a return of 8% per annum, at or following each such Eligible Trustee's retirement as shown in the table below.
The following table illustrates the retirement benefits accrued to the Fund's Independent Trustees by the Fund for the fiscal year ended January 31, 2005 and by the the Adopting Funds for the calendar year ended December 31, 2004, and the estimated retirement benefits for the Independent Trustees from the Fund as of the fiscal year ended January 31, 2005 and from the the Adopting Funds for each calendar year following retirement. Messrs. Kearns and Reid did not participate in the retirement program.
RETIREMENT BENEFITS ACCRUED AS ESTIMATED ANNUAL
FUND EXPENSES BENEFITS UPON RETIREMENT(1)
------------------------------ --------------------------------
BY ALL ADOPTING FROM ALL ADOPTING
NAME OF INDEPENDENT TRUSTEE BY THE FUND FUNDS FROM THE FUND FUNDS
--------------------------- ----------- --------------- ------------- -----------------
Michael Bozic $ 404 $ 19,437 $ 967 $ 46,871
Edwin J. Garn 515 28,779 967 46,917
Wayne E. Hedien 790 37,860 823 40,020
Dr. Manuel H. Johnson 399 19,701 1,420 68,630
Michael E. Nugent 709 35,471 1,269 61,377
|
In addition, Messrs. Bozic, Garn, Hedien, Johnson and Nugent received a lump sum benefit payment from the liquidation of a fund in the Plan in 2004 in the amount of $3,639, $6,935, $5,361, $2,915 and $6,951, respectively.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of May 2, 2005, no shareholder was known to own beneficially or of record as much as 5% of the outstanding shares of the Fund. The percentage ownership of shares of the Fund changes from time to time depending on purchases and redemptions by shareholders and the total number of shares outstanding.
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, the aggregate number of shares of beneficial interest of the Fund owned by the Fund's officers and Trustees as a group was less than 1% of the Fund's shares of beneficial interest outstanding.
V. INVESTMENT ADVISORY AND OTHER SERVICES
A. INVESTMENT ADVISER AND ADMINISTRATOR
The Investment Adviser to the Fund is Morgan Stanley Investment Advisors Inc., a Delaware corporation, whose address is 1221 Avenue of the Americas, New York, NY 10020. The Investment Adviser is a wholly-owned subsidiary of Morgan Stanley, a Delaware corporation. Morgan Stanley is a preeminent global financial services firm that maintains leading market positions in each of its three primary businesses: securities, asset management and credit services.
Prior to November 1, 2004, pursuant to an Investment Management Agreement (the "Management Agreement") with the Investment Adviser, the Fund had retained the Investment Adviser to provide administrative services and to manage the investment of the Fund's assets, including the placing of orders for the purchase and sale of portfolio securities. The Fund paid the Investment Adviser monthly compensation calculated daily by applying the following annual rates to the net assets of the Fund, determined as of the close of business on every business day: 0.50% of the portion of the daily net assets not exceeding $500 million; 0.425% of the portion of the daily net assets exceeding $500 million but not exceeding $750 million; 0.375% of the portion of the daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% of the portion of the daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.325% of the portion of the daily net assets exceeding $1.5 billion but not exceeding $2 billion; 0.30% of the portion of the daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.275% of the portion of the daily net assets exceeding $2.5 billion but not exceeding $3 billion; and 0.25% of the portion of the daily net assets exceeding $3 billion.
The Board of Trustees of the Fund approved an amended and restated investment advisory agreement (the "Investment Advisory Agreement") to remove the administration services component from the Management Agreement and to reduce the investment advisory fee to the annual rate of 0.45% of the portion of the daily net assets not exceeding $500 million; 0.375% of the portion of the daily net assets exceeding $500 million but not exceeding $750 million; 0.325% of the portion of the daily net assets exceeding $750 million but not exceeding $1 billion; 0.30% of the portion of the daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.275% of the portion of the daily net assets exceeding $1.5 billion but not exceeding $2 billion; 0.25% of the portion of the daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.225% of the portion of the daily net assets exceeding $2.5 billion but not exceeding $3 billion; and 0.20% of the portion of the daily net assets exceeding $3 billion. The administration services previously provided to the Fund by the Investment Adviser will be provided by Morgan Stanley Services Company Inc. ("Administrator"), a wholly-owned subsidiary of the Investment Adviser, pursuant to a separate administration agreement ("Administration Agreement") entered into by the Fund with the Administrator. Such change resulted in a 0.05% reduction in the advisory fee concurrent with the implementation of a 0.05% administration fee pursuant to the new administration agreement. Under the terms of the Administration Agreement, the Administrator will provide the same administrative services previously provided by the Investment Adviser.
For the fiscal years ended January 31, 2003, 2004 and 2005, the Investment Adviser accrued total compensation under the Management Agreement and the Investment Advisory Agreement in the amounts of $5,541,567, $5,595,801 and $5,086,337, respectively. However, during these periods the Investment Adviser had undertaken to assume operating expenses and/or waive the compensation provided for in its advisory agreements to the extent necessary to maintain such expenses and compensation at 0.75%
of the Fund's daily net assets on an annualized basis. Taking into account this waiver/assumption of expenses, the total compensation paid under the Management Agreement during the fiscal years ended January 31, 2003 and 2004 were $5,275,915 and $5,593,845, respectively. For the fiscal year ended January 31, 2005, the annual operating expenses did not exceed 0.75% of the Fund's daily net assets on an annualized basis.
In approving the advisory agreements, the Board of Trustees, including the Independent Trustees, considered the nature, quality and scope of the services provided by the Investment Adviser, the performance, fees and expenses of the Fund compared to other similar investment companies, the Investment Adviser's expenses in providing the services, the profitability of the Investment Adviser and its affiliated companies and other benefits they derive from their relationship with the Fund and the extent to which economies of scale are shared with the Fund. The Independent Trustees met with and reviewed reports from third parties about the foregoing factors and changes, if any, in such items since the preceding year's deliberations.
In evaluating the reasonableness of the management fee, the Independent Trustees noted that the Fund's effective advisory/administrative fee (the "management fee"), at the level of assets on November 30, 2004, and its total expense ratio were higher than the Fund's peer group average. They also noted that the management fee schedule included several breakpoints. The Independent Trustees evaluated the Fund's performance and noted that it was slightly lower than its peer group average for one, three and five year periods while its yield was slightly higher for each of those periods.
The Independent Trustees noted their confidence in the capability and integrity of the senior management and staff of the Investment Adviser and the financial strength of the Investment Adviser and its affiliated companies. The Independent Trustees weighed the foregoing factors in light of the advice given to them by their legal counsel as to the law applicable to the review of investment advisory contracts. Based upon its review, the Board of Trustees, including all of the Independent Trustees, determined, in the exercise of its business judgment, that approval of the advisory agreements was in the best interests of the Fund and its shareholders.
B. PRINCIPAL UNDERWRITER
The Fund's principal underwriter is the Distributor (which has the same address as the Investment Adviser). In this capacity, the Fund's shares are distributed by the Distributor. The Distributor has entered into a selected dealer agreement with Morgan Stanley DW, which through its own sales organization sells shares of the Fund. In addition, the Distributor may enter into similar agreements with other selected broker-dealers. The Distributor, a Delaware corporation, is a wholly-owned subsidiary of Morgan Stanley.
The Distributor bears all expenses it may incur in providing services under the Distribution Agreement. These expenses include the payment of commissions for sales of the Fund's shares and incentive compensation to Financial Advisors, the cost of educational and/or business-related trips, and educational and/or promotional and business-related expenses. The Distributor also pays certain expenses in connection with the distribution of the Fund's shares, including the costs of preparing, printing and distributing advertising or promotional materials, and the costs of printing and distributing prospectuses and supplements thereto used in connection with the offering and sale of the Fund's shares. The Fund bears the costs of initial typesetting, printing and distribution of prospectuses and supplements thereto to shareholders. The Fund also bears the costs of registering the Fund and its shares under federal and state securities laws and pays filing fees in accordance with state securities laws.
The Fund and the Distributor have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. Under the Distribution Agreement, the Distributor uses its best efforts in rendering services to the Fund, but in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations, the Distributor is not liable to the Fund or any of its shareholders for any error of judgment or mistake of law or for any act or omission or for any losses sustained by the Fund or its shareholders.
C. SERVICES PROVIDED BY THE INVESTMENT ADVISER AND THE ADMINISTRATOR
The Investment Adviser manages the investment of the Fund's assets, including the placing of orders for the purchase and sale of portfolio securities. The Investment Adviser obtains and evaluates the information and advice relating to the economy, securities markets, and specific securities as it considers
necessary or useful to continuously manage the assets of the Fund in a manner consistent with its investment objectives.
Under the terms of the Administration Agreement, the Administrator maintains certain of the Fund's books and records and furnishes, at its own expense, the office space, facilities, equipment, clerical help and bookkeeping and certain legal services as the Fund may reasonably require in the conduct of its business. The Administrator also assists in the preparation of prospectuses, proxy statements and reports required to be filed with federal and state securities commissions (except insofar as the participation or assistance of independent registered public accounting firm and attorneys is, in the opinion of the Administrator, necessary or desirable). The Administrator also bears the cost of telephone service, heat, light, power and other utilities provided to the Fund.
Expenses not expressly assumed by the Investment Adviser under the Investment Advisory Agreement or by the Administrator under the Administration Agreement or by the Distributor will be paid by the Fund. These expenses include, but are not limited to: expenses of the Plan of Distribution pursuant to Rule 12b-1; charges and expenses of any registrar, custodian, stock transfer and dividend disbursing agent; brokerage commissions; taxes; engraving and printing share certificates; registration costs of the Fund and its shares under federal and state securities laws; the cost and expense of printing, including typesetting, and distributing prospectuses of the Fund and supplements thereto to the Fund's shareholders; all expenses of shareholders' and Trustees' meetings and of preparing, printing and mailing of proxy statements and reports to shareholders; fees and travel expenses of Trustees or members of any advisory board or committee who are not employees of the Investment Adviser or any corporate affiliate of the Investment Adviser; all expenses incident to any dividend, withdrawal or redemption options; charges and expenses of any outside service used for pricing of the Fund's shares; fees and expenses of legal counsel, including counsel to the Trustees who are not interested persons of the Fund or of the Investment Adviser (not including compensation or expenses of attorneys who are employees of the Investment Adviser); fees and expenses of the Fund's independent registered public accounting firm; membership dues of industry associations; interest on Fund borrowings; postage; insurance premiums on property or personnel (including officers and Trustees) of the Fund which inure to its benefit; extraordinary expenses (including, but not limited to, legal claims and liabilities and litigation costs and any indemnification relating thereto); and all other costs of the Fund's operation.
The Investment Advisory Agreement provides that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations thereunder, the Investment Adviser is not liable to the Fund or any of its investors for any act or omission by the Investment Adviser or for any losses sustained by the Fund or its investors.
The Investment Advisory Agreement will remain in effect from year to year, provided continuance of the Investment Advisory Agreement is approved at least annually by the vote of the holders of a majority, as defined in the Investment Company Act, of the outstanding shares of the Fund, or by the Trustees; provided that in either event such continuance is approved annually by the vote of a majority of the Independent Trustees.
The Administration Agreement provides that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations thereunder, the Administrator is not liable to the Fund or any of its investors for any act or omission by the Administrator or for any losses sustained by the Fund or its investors. The Administration Agreement will continue unless terminated by either party by written notice delivered to the other party within 30 days.
D. RULE 12b-1 PLAN
In accordance with a Plan of Distribution pursuant to Rule 12b-1 under the Investment Company Act between the Fund and the Distributor, the Distributor provides certain services in connection with the promotion of sales of Fund shares (the "Plan").
The Plan provides that the Distributor bears the expense of all promotional and distribution related activities on behalf of the Fund, except for expenses that the Trustees determine to reimburse, as described below. The following activities and services may be provided by the Distributor under the Plan: (1) compensation to and expenses of Morgan Stanley DW's and other selected Broker-Dealers' Financial Advisors and
other employees, including overhead and telephone expenses; (2) sales incentives and bonuses to sales representatives and to marketing personnel in connection with promoting sales of the Fund's shares; (3) expenses incurred in connection with promoting sales of the Fund's shares; (4) preparing and distributing sales literature; and (5) providing advertising and promotional activities, including direct mail solicitation and television, radio, newspaper, magazine and other media advertisements.
Morgan Stanley DW's Financial Advisors are paid an annual residual commission, currently a residual of up to 0.10% of the current value of the respective accounts for which they are the Financial Advisors of record. The residual is a charge which reflects residual commissions paid by Morgan Stanley DW to its Financial Advisors and Morgan Stanley DW's expenses associated with the servicing of shareholders' accounts, including the expenses of operating Morgan Stanley DW's branch offices in connection with the servicing of shareholders' accounts, which expenses include lease costs, the salaries and employee benefits of operations and sales support personnel, utility costs, communications costs and the costs of stationery and supplies and other expenses relating to branch office serving of shareholder accounts.
The Fund is authorized to reimburse specific expenses incurred or to be incurred in promoting the distribution of the Fund's shares. Reimbursement is made through payments at the end of each month. The amount of each monthly payment may in no event exceed an amount equal to a payment at the annual rate of 0.15 of 1% of the Fund's average daily net assets during the month. No interest or other financing charges will be incurred for which reimbursement payments under the Plan will be made. In addition, no interest charges, if any, incurred on any distribution expense incurred by the Distributor or other selected dealers pursuant to the Plan, will be reimbursable under the Plan. In the case of all expenses other than expenses representing a residual to Financial Advisors, such amounts shall be determined at the beginning of each calendar quarter by the Trustees, including a majority of the Independent 12b-1 Trustees. Expenses representing a residual to Financial Advisors may be reimbursed without prior Board determination. In the event that the Distributor proposes that monies shall be reimbursed for other than such expenses, then in making quarterly determinations of the amounts that may be expended by the Fund, the Investment Adviser provides and the Trustees review a quarterly budget of projected incremental distribution expenses to be incurred on behalf of the Fund, together with a report explaining the purposes and anticipated benefits of incurring such expenses. The Trustees determine which particular expenses, and the portions thereof, that may be borne by the Fund, and in making such a determination shall consider the scope of the Distributor's commitment to promoting the distribution of the Fund's shares.
The Fund reimbursed $1,188,929 to the Distributor pursuant to the Plan
which amounted to 0.10% of the Fund's average daily net assets for the fiscal
year ended January 31, 2005, based upon the total amounts spent by the
Distributor during the period, it is estimated that the amount paid by the Fund
to the Distributor for distribution was spent in approximately the following
ways: (i) advertising -- $-0-; (ii) printing and mailing prospectuses to other
than current shareholders -- $-0-; (iii) compensation to underwriters -- $-0-;
(iv) compensation to dealers -- $-0-; (v) compensation to sales personnel --
$-0-; and (vi) other, which includes payments to Morgan Stanley DW for expenses
substantially all of which relate to compensation of sales personnel and
associated overhead expenses -- $1,188,929. No payments under the Plan were made
for interest, carrying or other financing charges.
Under the Plan, the Distributor uses its best efforts in rendering services to the Fund, but in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations, the Distributor is not liable to the Fund or any of its shareholders for any error of judgment or mistake of law or for any act or omission or for any losses sustained by the Fund or its shareholders.
Under the Plan, the Distributor provides the Fund, for review by the
Trustees, and the Trustees review, promptly after the end of each calendar
quarter, a written report regarding the incremental distribution expenses
incurred on behalf of the Fund during such calendar quarter, which report
includes (1) an itemization of the types of expenses and the purposes therefore;
(2) the amounts of such expenses; and (3) a description of the benefits derived
by the Fund.
No interested person of the Fund nor any Independent Trustee has any direct financial interest in the operation of the Plan except to the extent that the Distributor, the Investment Adviser, Morgan Stanley DW, Morgan Stanley Services or certain of their employees may be deemed to have such an interest as a result of benefits derived from the successful operation of the Plan or as a result of receiving a portion of the amounts expended thereunder by the Fund.
On an annual basis, the Trustees, including a majority of the Independent Trustees, consider whether the Plan should be continued. Prior to approving the most recent continuation of the Plan, the Trustees requested and received from the Distributor and reviewed all the information which they deemed necessary to arrive at an informed determination. In making their determination to continue the Plan, the Trustees considered: (1) the Fund's experience under the Plan and whether such experience indicates that the Plan is operating as anticipated; (2) the benefits the Fund had obtained, was obtaining and would be likely to obtain under the Plan, including that: (a) the Plan is essential in order to implement the Fund's method of distribution and to enable the Fund to continue to grow and avoid a pattern of net redemptions which, in turn, are essential for effective investment management; and (b) without the reimbursement of distribution and account maintenance expenses of Morgan Stanley DW's branch offices made possible by the 12b-1 fees, Morgan Stanley DW could not establish and maintain an effective system for distribution, servicing of Fund shareholders and maintenance of shareholder accounts; and (3) what services had been provided and were continuing to be provided under the Plan to the Fund and its shareholders. Based upon their review, the Trustees, including each of the Independent Trustees, determined that continuation of the Plan would be in the best interest of the Fund and would have a reasonable likelihood of continuing to benefit the Fund and its shareholders.
The Plan may not be amended to increase materially the amount to be spent for the services described therein without approval by the shareholders of the Fund, and all material amendments to the Plan must also be approved by the Trustees. The Plan may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Trustees or by a vote of a majority of the outstanding voting securities of the Fund (as defined in the Investment Company Act) on not more than 30 days' written notice to any other party to the Plan. So long as the Plan is in effect, the election and nomination of Independent Trustees shall be committed to the discretion of the Independent Trustees.
E. OTHER SERVICE PROVIDERS
(1) TRANSFER AGENT/DIVIDEND-PAYING AGENT
Morgan Stanley Trust is the transfer agent for the Fund's shares and the Dividend Disbursing Agent for payment of dividends and distributions on Fund shares and Agent for shareholders under various investment plans. The principal business address of the Transfer Agent is Harborside Financial Center, Plaza Two, 2nd Floor, Jersey City, NJ 07311.
(2) CUSTODIAN AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Bank of New York, 100 Church Street, New York, NY 10286, is the Custodian for the Fund's assets. Any of the Fund's cash balances with the Custodian in excess of $100,000 are unprotected by federal deposit insurance. These balances may, at times, be substantial.
Deloitte & Touche LLP, Two World Financial Center, New York, NY 10281, is the independent registered public accounting firm of the Fund. The Fund's independent registered public accounting firm is responsible for auditing the annual financial statements.
(3) AFFILIATED PERSONS
The Transfer Agent is an affiliate of the Investment Adviser and the Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer Agent's responsibilities include maintaining shareholder accounts, disbursing cash dividends and reinvesting dividends, processing account registration changes, handling purchase and redemption transactions, mailing prospectuses and reports, mailing and tabulating proxies, processing share certificate transactions, and maintaining shareholder records and lists. For these services, the Transfer Agent receives a per shareholder account fee from the Fund and is reimbursed for its out-of-pocket expenses in connection with such services.
F. CODES OF ETHICS
The Fund, the Investment Adviser and the Distributor have each adopted a Code of Ethics pursuant to Rule 17j-1 under the Investment Company Act. The Codes of Ethics are designed to detect and prevent improper personal trading. The Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased, sold or held by the Fund, subject to a number of restrictions and controls including prohibitions against purchases of securities in an Initial Public Offering and a preclearance requirement with respect to personal securities transactions.
G. PROXY VOTING POLICY AND PROXY VOTING RECORD
The Board of Trustees believe that the voting of proxies on securities held by the Fund is an important element of the overall investment process. As such, the Trustees have delegated the responsibility to vote such proxies to the Investment Adviser. The following is a summary of the Investment Adviser's Proxy Voting Policy ("Proxy Policy").
The Investment Adviser uses its best efforts to vote proxies on securities held in the Fund as part of its authority to manage, acquire and dispose of Fund assets. In this regard, the Investment Adviser has formed a Proxy Review Committee ("Committee") comprised of senior investment professionals that is responsible for creating and implementing the Proxy Policy. The Committee meets monthly but may meet more frequently as conditions warrant. The Proxy Policy provides that the Investment Adviser will vote proxies in the best interests of clients consistent with the objective of maximizing long-term investment returns. The Proxy Policy provides that the Investment Adviser will generally vote proxies in accordance with pre-determined guidelines contained in the Proxy Policy. The Investment Adviser may vote in a manner that is not consistent with the pre-determined guidelines, provided that the vote is approved by the Committee.
The Proxy Policy provides that, unless otherwise determined by the Committee, votes will be cast in the manner described below:
- Routine proposals will be voted in support of management.
- With regard to the election of directors, where no conflict exists and where no specific governance deficiency has been noted, votes will be cast in support of management's nominees.
- The Investment Adviser will vote in accordance with management's recommendation with respect to certain non-routine proposals (i.e., reasonable capitalization changes, stock repurchase programs, stock splits, certain compensation-related matters, certain anti-takeover measures, etc.), which potentially may have a substantive financial or best interest impact on a shareholder.
- The Investment Adviser will vote against certain non-routine proposals (i.e., unreasonable capitalization changes, establishment of cumulative voting rights for the election of directors, requiring supermajority shareholder votes to amend by-laws, indemnification of auditors, etc.), which potentially may have a substantive financial or best interest impact on a shareholder (notwithstanding management support).
- The Investment Adviser will vote in its discretion with respect to certain non-routine proposals (i.e., mergers, acquisitions, take-overs, spin-offs, etc.), which may have a substantive financial or best interest impact on an issuer.
- The Investment Adviser will vote for certain shareholder proposals it believes call for reasonable charter provisions or corporate governance practices (i.e., requiring auditors to attend annual shareholder meetings, requiring that members of compensation, nominating and audit committees be independent, requiring diversity of board membership relating to broad based social, religious or ethnic groups, reducing or eliminating supermajority voting requirements, etc).
- The Investment Adviser will vote against certain shareholder proposals it believes call for unreasonable charter provisions or corporate governance practices (i.e., proposals to declassify boards, proposals to require a company to prepare reports that are costly to provide or that would require duplicative efforts or expenditure that are of a non-business nature or would provide no pertinent information from the perspective of institutional shareholders, proposals requiring inappropriate endorsements or corporate actions, etc.)
- Certain other shareholder proposals (i.e., proposals that limit the tenure of directors, proposals that limit golden parachutes, proposals requiring directors to own large amounts of company stock to be eligible for election, proposals that limit retirement benefits or executive compensation, etc.) generally are evaluated by the Committee based on the nature of the proposal and the likely impact on shareholders.
CONFLICTS OF INTEREST
If the Committee determines that an issue raises a material conflict of interest, or gives rise to a potential material conflict of interest, the Committee will request a special committee to review, and recommend
a course of action with respect to, the conflict in question and that the Committee will have sole discretion to cast a vote.
THIRD PARTIES
To assist the Investment Adviser in its responsibility for voting proxies, Institutional Shareholder Services ("ISS") has been retained as experts in the proxy voting and corporate governance area. The services provided to the Investment Adviser include in-depth research, global issuer analysis, and voting recommendations. While the Investment Adviser may review and utilize the ISS recommendations in making proxy voting decisions, it is in no way obligated to follow the ISS recommendations. In addition to research, ISS provides vote execution, reporting, and recordkeeping. The Committee carefully monitors and supervises the services provided by the proxy research services.
FURTHER INFORMATION
A copy of the Proxy Policy, as well as the Fund's proxy voting record
for the most recent twelve-month period ended June 30, are available
(i) without charge by visiting the Mutual Fund Center on our web site at
www.morganstanley.com/funds and (ii) on the SEC's web site at www.sec.gov.
H. REVENUE SHARING
The Investment Adviser and/or Distributor may pay compensation, out of their own funds and not as an expense of the Fund, to Morgan Stanley DW and certain unaffiliated brokers, dealers or other financial intermediaries ("Intermediaries") in connection with the sale or retention of Fund shares and/or shareholder servicing. For example, the Investment Adviser or the Distributor may pay additional compensation to Morgan Stanley DW and to Intermediaries for the purpose of promoting the sale of Fund shares, maintaining share balances and/or for sub-accounting, administrative or shareholder processing services. Such payments are in addition to any distribution fees, service fees and/or transfer agency fees that may be payable by the Fund. The additional payments may be based on factors, including level of sales (based on gross or net sales or some specified minimum sales or some other similar criteria related to sales of the Fund and/or some or all other Morgan Stanley Funds), amount of assets invested by the Intermediary's customers (which could include current or aged assets of the Fund and/or some or all other Morgan Stanley Funds), the Fund's advisory fees, some other agreed upon amount, or other measures as determined from time to time by the Investment Adviser and/or Distributor. The amount of these payments, as determined from time to time by the Investment Adviser or the Distributor, may be different for different Intermediaries.
Morgan Stanley DW also has an arrangement with Morgan Stanley Funds concerning the sale of money market funds whereby Morgan Stanley Funds' investment adviser pays, out of its own assets, to Morgan Stanley DW an amount of up to 0.20% annually of the value of the shares of its money market funds held in Morgan Stanley DW accounts. Moreover, Morgan Stanley DW receives an additional .025% annually from Morgan Stanley Funds' investment adviser for assets held for at least a year in the following funds (other than those held in variable annuities or purchased through 401k plans), provided that they were acquired by an exchange that began with a non-money market, open-end Morgan Stanley fund: Morgan Stanley New York Municipal Money Market Trust; Morgan Stanley Tax-Free Daily Income Trust; Morgan Stanley U.S. Government Money Market Trust; Morgan Stanley Liquid Asset Fund Inc. and Morgan Stanley California Tax-Free Daily Income Trust. For the following funds, Morgan Stanley Funds' investment adviser pays Morgan Stanley DWan additional 0.03% annually of the value of shares held in Morgan Stanley DW accounts: Active Assets Institutional Government Securities Trust; and Active Assets Institutional Money Trust.
The prospect of receiving, or the receipt of, additional compensation, as described above, by Morgan Stanley DW or other Intermediaries may provide Morgan Stanley DW or other Intermediaries and/or Financial Advisors and other salespersons with an incentive to favor sales of shares of the Fund over other investment options with respect to which Morgan Stanley DW or an Intermediary does not receive additional compensation (or receives lower levels of additional compensation). These payment arrangements, however, will not change the price that an investor pays for shares of the Fund. Investors may wish to take such payment arrangements into account when considering and evaluating any recommendations relating to Fund shares.
You should review carefully any disclosure by such brokers, dealers or other Intermediaries as to their compensation.
In addition to the payments described above, Morgan Stanley reports its business segment results utilizing an allocation methodology which reflects the economics of each business segment by representing
transactions as if conducted between a Morgan Stanley business segment and an external party. Accordingly, for sales of Money Market Funds, an amount equal to a portion of the Fund's advisory fee is reflected, for financial reporting purposes only, as paid by the Investment Adviser to a Morgan Stanley business segment.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
A. BROKERAGE TRANSACTIONS
Subject to the general supervision of the Trustees, the Investment Adviser is responsible for decisions to buy and sell securities for the Fund, the selection of brokers and dealers to effect the transactions, and the negotiation of brokerage commissions, if any. Purchases and sales of portfolio securities are normally transacted through issuers, underwriters or major dealers in U.S. government securities acting as principals. Such transactions are made on a net basis and do not involve payment of brokerage commissions. The cost of securities purchased from an underwriter usually includes a commission paid by the issuer to the underwriters; transactions with dealers normally reflect the spread between bid and asked prices.
During the fiscal years ended January 31, 2003, 2004 and 2005, the Fund paid no such brokerage commissions or concessions.
B. COMMISSIONS
Pursuant to an order of the SEC, the Fund may effect principal transactions in certain money market instruments with Morgan Stanley DW. The Fund will limit its transactions with Morgan Stanley DW to U.S. government and Government Agency Securities. The transactions will be effected with Morgan Stanley DW only when the price available from Morgan Stanley DW is better than that available from other dealers.
During the fiscal years ended January 31, 2003, 2004 and 2005, the Fund did not effect any principal transactions with Morgan Stanley DW.
Brokerage transactions in securities listed on exchanges or admitted to unlisted trading privileges may be effected through Morgan Stanley DW, Morgan Stanley & Co. and other affiliated brokers and dealers. In order for an affiliated broker or dealer to effect any portfolio transactions on an exchange for the Fund, the commissions, fees or other remuneration received by the affiliated broker or dealer must be reasonable and fair compared to the commissions, fees or other remuneration paid to other brokers in connection with comparable transactions involving similar securities being purchased or sold on an exchange during a comparable period of time. This standard would allow the affiliated broker or dealer to receive no more than the remuneration which would be expected to be received by an unaffiliated broker in a commensurate arm's-length transaction. Furthermore, the Trustees, including the Independent Trustees, have adopted procedures which are reasonably designed to provide that any commissions, fees or other remuneration paid to an affiliated broker or dealer are consistent with the foregoing standard. The Fund does not reduce the management fee it pays to the Investment Adviser by any amount of the brokerage commissions it may pay to an affiliated broker or dealer.
During the fiscal years ended January 31, 2003, 2004 and 2005, the Fund paid no brokerage commissions to an affiliated broker or dealer.
C. BROKERAGE SELECTION
The policy of the Fund regarding purchases and sales of securities for its portfolio is that primary consideration will be given to obtaining the most favorable prices and efficient executions of transactions. The Investment Adviser is prohibited from directing brokerage transactions on the basis of the referral of clients or the sale of shares of advised investment companies.
In seeking to implement the Fund's policies, the Investment Adviser effects transactions with those brokers and dealers who the Investment Adviser believes provide the most favorable prices and are capable of providing efficient executions. If the Investment Adviser believes the prices and executions are obtainable from more than one broker or dealer, it may give consideration to placing portfolio transactions with those brokers and dealers who also furnish research and other services to the Fund or the Investment Adviser. The services may include, but are not limited to, any one or more of the following: information as to the availability of securities for purchase or sale; statistical or factual information or opinions pertaining to investment; wire services; and appraisals or evaluations of portfolio securities. The information and services received by the Investment Adviser from brokers and dealers may be of benefit to them and any of
their asset management affiliates in the management of accounts of some of their other clients and may not in all cases benefit the Fund directly. While the receipt of such information and services is useful in varying degrees and would generally reduce the amount of research or services otherwise performed by the Investment Adviser and thereby reduce its expenses, it is of indeterminable value and the Fund does not reduce the management fee it pays to the Investment Adviser by any amount that may be attributable to the value of such services.
The Investment Adviser and certain of its affiliates currently serves as investment adviser to a number of clients, including other investment companies, and may in the future act as investment adviser or advisor to others. It is the practice of the Investment Adviser and its affiliates to cause purchase and sale transactions to be allocated among clients whose assets they manage (including the Fund) in such manner as they deem equitable. In making such allocations among the Fund and other client accounts, various factors may be considered, including the respective investment objectives, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment, the size of investment commitments generally held and the opinions of the persons responsible for managing the portfolios of the Fund and other client accounts. The Investment Adviser and its affiliates may operate one or more order placement facilities and each facility will implement order allocation in accordance with the procedures described above. From time to time, each facility may transact in a security at the same time as other facilities are trading in that security.
D. DIRECTED BROKERAGE
During the fiscal year ended January 31, 2005, the Fund did not pay any brokerage commissions to brokers because of research services provided.
E. REGULAR BROKER-DEALERS
During the fiscal year ended January 31, 2005, the Fund did not purchase securities issued by brokers or dealers that were among the ten brokers or the ten dealers which executed transactions for or with the Fund in the largest dollar amounts during the year. At January 31, 2005, the Fund did not own any securities issued by any of such issuers.
VII. CAPITAL STOCK AND OTHER SECURITIES
The shareholders of the Fund are entitled to a full vote for each full share of beneficial interest held. The Fund is authorized to issue an unlimited number of shares of beneficial interest. All shares of beneficial interest of the Fund are of $0.01 par value and are equal as to earnings, assets and voting privileges.
The Fund's Declaration of Trust permits the Trustees to authorize the creation of additional series of shares (the proceeds of which would be invested in separate, independently managed portfolios) and additional Classes of shares within any series. The Trustees have not presently authorized any such additional series or Classes of shares other than as set forth in the PROSPECTUS.
The Fund is not required to hold annual meetings of shareholders and in ordinary circumstances the Fund does not intend to hold such meetings. The Trustees may call special meetings of shareholders for action by shareholder vote as may be required by the Investment Company Act or the Declaration of Trust. Under certain circumstances, the Trustees may be removed by the actions of the Trustees. In addition, under certain circumstances, the shareholders may call a meeting to remove the Trustees and the Fund is required to provide assistance in communicating with shareholders about such a meeting. The voting rights of shareholders are not cumulative, so that holders of more than 50% of the shares voting can, if they choose, elect all Trustees being selected, while the holders of the remaining shares would be unable to elect any Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain limited circumstances, be held personally liable as partners for the obligations of the Fund. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Fund, requires that notice of such Fund obligations include such disclaimer, and provides for indemnification out of the Fund's property for any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund itself would be unable to meet its obligations. Given the above limitations on shareholder personal liability, and the nature of the Fund's assets and operations, the possibility of the Fund being unable to
meet its obligations is remote and thus, in the opinion of Massachusetts counsel to the Fund, the risk to Fund shareholders of personal liability is remote.
All of the Trustees, except for James F. Higgins, Joseph J. Kearns and Fergus Reid, have been elected by the shareholders of the Fund, most recently at a Special Meeting of Shareholders held on May 21, 1997. The Trustees themselves have the power to alter the number and the terms of office of the Trustees (as provided for in the Declaration of Trust), and they may at any time lengthen or shorten their own terms or make their terms of unlimited duration and appoint their own successors, provided that always at least a majority of the Trustees has been elected by the shareholders of the Fund.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
A. PURCHASE/REDEMPTION OF SHARES
Information concerning how Fund shares are offered to the public (and how they are redeemed and exchanged) is provided in the Fund's PROSPECTUS.
TRANSFER AGENT AS AGENT. With respect to the redemption or repurchase of Fund shares, the application of proceeds to the purchase of new shares in the Fund or any other Morgan Stanley Funds and the general administration of the exchange privilege, the Transfer Agent acts as agent for the Distributor and for the shareholder's authorized broker-dealer, if any, in the performance of such functions. With respect to exchanges, redemptions or repurchases, the Transfer Agent shall be liable for its own negligence and not for the default or negligence of its correspondents or for losses in transit. The Fund is not liable for any default or negligence of the Transfer Agent, the Distributor or any authorized broker-dealer.
The Distributor and any authorized broker-dealer have appointed the Transfer Agent to act as their agent in connection with the application of proceeds of any redemption of Fund shares to the purchase of shares of any other Morgan Stanley Fund and the general administration of the exchange privilege. No commission or discounts will be paid to the Distributor or any authorized broker-dealer for any transaction pursuant to the exchange privilege.
REDEMPTIONS. A check drawn by a shareholder against his or her account in the Fund constitutes a request for redemption of a number of shares sufficient to provide proceeds equal to the amount of the check. Payment of the proceeds will normally be made on the next business day after receipt by the Transfer Agent of the check in proper form. If a check is presented for payment to the Transfer Agent by a shareholder or payee in person, the Transfer Agent will make payment by means of a check drawn on the Fund's account or, in the case of a shareholder payee, to the shareholder's predesignated bank account, but will not make payment in cash.
OUTSIDE BROKERAGE ACCOUNTS. If a shareholder wishes to maintain his or her fund account through a brokerage company other than Morgan Stanley DW, he or she may do so only if the Distributor has entered into a selected dealer agreement with that brokerage company. Accounts maintained through a brokerage company other than Morgan Stanley DW may be subject to certain restrictions on subsequent purchases and exchanges. Please contact your brokerage company or the Transfer Agent for more information.
B. OFFERING PRICE
The price of Fund shares, called "net asset value," is based on the value of the Fund's portfolio securities.
The Fund utilizes the amortized cost method in valuing its portfolio securities for purposes of determining the net asset value of its shares. The Fund utilizes the amortized cost method in valuing its portfolio securities even though the portfolio securities may increase or decrease in market value, generally in connection with changes in interest rates. The amortized cost method of valuation involves valuing a security at its cost at the time of purchase adjusted by a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. While this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price the Fund would receive if it sold the investment. During such periods, the yield to investors in the Fund may differ somewhat from that obtained in a similar company which uses market-to-market values for all of its portfolio securities. For example, if the use of amortized cost resulted in a lower (higher) aggregate portfolio value on a particular day, a prospective investor in the Fund would be able to obtain a somewhat higher (lower) yield than would result from investment in such a similar
company and existing investors would receive less (more) investment income. The purpose of this method of calculation is to facilitate the maintenance of a constant net asset value per share of $1.00.
The use of the amortized cost method to value the portfolio securities of the Fund and the maintenance of the per share net asset value of $1.00 is permitted pursuant to Rule 2a-7 of the Act (the "Rule") and is conditioned on its compliance with various conditions contained in the Rule including: (a) the Trustees are obligated, as a particular responsibility within the overall duty of care owed to the Fund's shareholders, to establish procedures reasonably designed, taking into account current market conditions and the Fund's investment objectives, to stabilize the net asset value per share as computed for the purpose of distribution and redemption at $1.00 per share; (b) the procedures include (i) calculation, at such intervals as the Trustees determine are appropriate and as are reasonable in light of current market conditions, of the deviation, if any, between net asset value per share using amortized cost to value portfolio securities and net asset value per share based upon available market quotations with respect to such portfolio securities; (ii) periodic review by the Trustees of the amount of deviation as well as methods used to calculate it; and (iii) maintenance of written records of the procedures, and the Trustees' considerations made pursuant to them and any actions taken upon such consideration; (c) the Trustees should consider what steps should be taken, if any, in the event of a difference of more than 1/2 of 1% between the two methods of valuation; and (d) the Trustees should take such action as they deem appropriate (such as shortening the average portfolio maturity, realizing gains or losses, withholding dividends or, as provided by the Declaration of Trust, reducing the number of outstanding shares of the Fund) to eliminate or reduce to the extent reasonably practicable material dilution or other unfair results to investors or existing shareholders which might arise from differences between the two method of valuation.
Generally, for purposes of the procedures adopted under the Rule, the maturity of a portfolio security is deemed to be the period remaining (calculated from the trade date or such other date on which the Fund's interest in the instrument is subject to market action) until the date on which in accordance with the terms of the security the principal amount must unconditionally be paid, or in the case of a security called for redemption, the date on which the redemption payment must be made.
A variable rate security that is subject to a demand feature is deemed to have a maturity equal to the period remaining until the principal amount can be recovered through demand. A floating rate security that is subject to a demand feature is deemed to have a maturity equal to the period remaining until the principal amount can be recovered through demand.
An "NRSRO" is a nationally recognized statistical rating organization. The term "Requisite NRSROs" means (i) any two NRSROs that have issued a rating with respect to a security or class of debt obligations of an issuer, or (ii) if only one NRSRO has issued a rating with respect to such security or issuer at the time a fund purchases or rolls over the security, that NRSRO.
An Eligible Security is generally defined in the Rule to mean (i) a rated security with a remaining maturity of 397 calendar days or less that has received a rating from the Requisite NRSROs in one of the two highest short-term rating categories (within which there may be sub-categories or gradations indicating relative standing); or (ii) An Unrated Security that is of comparable quality to a security meeting the requirements of (1) above, as determined by Trustees. In addition, in the case of a security that is subject to a Demand Feature or Guarantee: (A) The Guarantee has received a rating from an NRSRO or the Guarantee is issued by a guarantor that has received a rating from an NRSRO with respect to a class of debt obligations (or any debt obligation within that class) that is comparable in priority and security to the Guarantee, unless: (1) the Guarantee is issued by a person that directly or indirectly, controls, is controlled by or is under a common control with the issuer of the security subject to the Guarantee (other than a sponsor or a Special Purpose Entity with respect to an Asset Backed Security: (2) the security subject to the Guarantee is a repurchase agreement that is Collateralized Fully; or (3) the Guarantee itself is a Government Security and (B) the issuer of the Demand Feature, or another institution, has undertaken promptly to notify the holder of the security in the event the Demand Feature or Guarantee is substituted with another Demand Feature or Guarantee (if such substitution is permissible under the terms of the
Demand Feature or Guarantee). The Fund will limit its investments to securities that meet the requirements for Eligible Securities.
As permitted by the Rule, the Trustees have delegated to the Fund's Investment Adviser the authority to determine which securities present minimal credit risks and which unrated securities are comparable in quality to rated securities.
Also, as required by the Rule, the Fund will limit its investments in
securities, other than Government securities, so that, at the time of purchase:
(a) except as further limited in (b) below with regard to certain securities, no
more than 5% of its total assets will be invested in the securities of any one
issuer; and (b) with respect to Eligible Securities that have received a rating
in less than the highest category by any one of the NRSROs whose ratings are
used to qualify the security as an Eligible Security, or that have been
determined to be of comparable quality: (i) no more than 5% in the aggregate of
the Fund's total assets in all such securities, and (ii) no more than the
greater of 1% of total assets, or $1 million, in the securities on any one
issuer.
The Rule further requires that the Fund limit its investments to U.S. dollar-denominated instruments which the Trustees determine present minimal credit risks and which are Eligible Securities. The Rule also requires the Fund to maintain a dollar-weighted average portfolio maturity (not more than 90 days) appropriate to its objective of maintaining a stable net asset value of $1.00 per share and precludes the purchase of any instrument with a remaining maturity of more than 397 days. Should the disposition of a portfolio security result in a dollar-weighted average portfolio maturity of more than 90 days, the Fund will invest its available cash in such a manner as to reduce such maturity to 90 days or less a soon as is reasonably practicable.
If the Trustees determine that it is no longer in the best interests of the Fund and its shareholders to maintain a stable price of $1 per share or if the Trustees believe that maintaining such price no longer reflects a market-based net asset value per share, the Trustees have the right to change from an amortized cost basis of valuation to valuation based on market quotations. The Fund will notify shareholders of the Fund of any such change.
IX. TAXATION OF THE FUND AND SHAREHOLDERS
The Fund intends to distribute all of its daily net investment income (and net short-term capital gains, if any) to shareholders of record as of the close of business the preceding business day. Net income, for dividend purposes, includes accrued interest and amortization of acquisition, original issue and market discount, plus or minus any short-term gains or losses realized on sales of portfolio securities, less the amortization of market premium and the estimated expenses of the Fund. Net income will be calculated immediately prior to the determination of net asset value per share of the Fund.
The Trustees of the Fund may revise the dividend policy, or postpone the payment of dividends, if the Fund should have or anticipate any large unexpected expense, loss or fluctuation in net assets which, in the opinion of the Trustees, might have a significant adverse effect on shareholders. On occasion, in order to maintain a constant $1.00 per share net asset value, the Trustees may direct that the number of outstanding shares be reduced in each shareholder's account. Such reduction may result in taxable income to a shareholder in excess of the net increase (i.e., dividends, less such reductions), if any, in the shareholder's account for a period of time. Furthermore, such reduction may be realized as a capital loss when the shares are liquidated.
It has been and remains the Fund's policy and practice that, if checks for dividends or distributions paid in cash remain uncashed, no interest will accrue on amounts represented by such uncashed checks.
INVESTMENT COMPANY TAXATION. The Fund has qualified and intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. As such, the Fund will not be subject to federal income tax on its net investment income and capital gains, if any, to the extent that it timely distributes such income and capital gains to its shareholders.
The Fund generally intends to distribute sufficient income and gains so that the Fund will not pay corporate income tax on its earnings. The Fund also generally intends to distribute to its shareholders in
each calendar year a sufficient amount of ordinary income and capital gains to avoid the imposition of a 4% excise tax.
Gains or losses on sales of securities held by the Fund will generally be long-term capital gains or losses if the securities have a tax holding period of more than one year at the time of such sale. Gains or losses on the sale of securities with a tax holding period of one year or less will be short-term capital gains or losses.
TAXATION OF DIVIDENDS AND DISTRIBUTIONS. Shareholders normally will be subject to federal income taxes, and any state and local income taxes, on dividends paid from interest income derived from taxable securities and on distributions of realized net short-term capital gains and long-term capital gains. Interest and realized net short-term capital gains distributions are generally taxable to the shareholder as ordinary dividend income regardless of whether the shareholder receives such distributions in additional shares or in cash. Since the Trust's income is expected to be derived entirely from interest rather than dividends, none of such distributions will be eligible for the federal dividends received deduction available to corporations. Realized net long-term capital gains distributions, if any, are taxable as long-term capital gains, regardless of how long the shareholder has held the Fund shares and regardless of whether the distribution is received in additional shares or in cash. Realized net long-term capital gains distributions are not eligible for the dividends received deduction.
Shareholders are generally taxed on any ordinary dividend or capital gain distributions from the Fund in the year they are actually distributed. However, if any such dividends or distributions are declared in October, November or December and paid in January then such amounts will be treated for tax purposes as received by the shareholder on December 31, to shareholder of record of such month.
Shareholders who are not citizens or residents of the United States and certain foreign entities may be subject to withholding of United States tax on distributions made by the Fund of any taxable interest income and short-term capital gains. Recently enacted legislation amends certain rules relating to regulated investment companies. This legislation, among other things, modifies the federal income tax treatment of certain distributions to foreign investors. The Fund will no longer be required to withhold any amounts with respect to distributions to foreign shareholders that are properly designated by the Fund as "interest-related dividends" or "short-term capital gain dividends," provided that the income would not be subject to federal income tax if earned directly by the foreign shareholder. Distributions attributable to gains from "U.S. real property interests" (including certain U.S. real property holding corporations) will generally be subject to federal withholding tax and may will give rise to an obligation on the part of the foreign shareholder to file a U.S. tax return. Also, such gain may be subject to a 30% branch profit tax in the hands of a foreign shareholder that is a corporation. The provisions contained in the legislation relating to distributions to foreign persons generally would apply to distributions with respect to taxable years of regulated investment companies beginning after December 31, 2004 and before January 1, 2008. Prospective investors are urged to consult their tax advisors regarding the specific tax consequences relating to the legislation.
After the end of each calendar year, shareholders will be sent information on their dividends and capital gain distributions for tax purposes, including the portion taxable as ordinary income and the portion taxable as long-term capital gains.
Shareholders are urged to consult their own tax advisors regarding specific questions as to federal, state or local taxes.
X. UNDERWRITERS
The Fund's shares are offered to the public on a continuous basis. The Distributor, as the principal underwriter of the shares, has certain obligations under the Distribution Agreement concerning the distribution of the shares. These obligations and the compensation the Distributor receives are described above in the sections titled "Principal Underwriter" and "Rule 12b-1 Plan."
XI. PERFORMANCE DATA
The Fund's current yield for the seven days ended January 31, 2005 was 1.66% and the seven day effective yield was 1.68%, assuming daily compounding. During this period, the Investment Adviser had undertaken to assume operating expenses and/or waive the compensation provided for in its Investment Advisory Agreement to the extent necessary to maintain such expenses and compensation at 0.75% of the Fund's daily net assets on an annualized basis. For the fiscal year ended January 31, 2005 the annual operating expenses did not exceed 0.75% of the Fund's daily net assets on an annualized basis.
XII. FINANCIAL STATEMENTS
The Fund's audited financial statements for the fiscal year ended January 31, 2005, including notes thereto and the report of Deloitte & Touche LLP, are herein incorporated by reference from the Fund's annual report. A copy of the Fund's ANNUAL REPORT TO SHAREHOLDERS must accompany the delivery of this STATEMENT OF ADDITIONAL INFORMATION.
XIII. FUND COUNSEL
Clifford Chance US LLP, located at 31 West 52nd Street, New York, NY 10019, acts as the Fund's legal counsel.
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This STATEMENT OF ADDITIONAL INFORMATION and the PROSPECTUS do not contain all of the information set forth in the REGISTRATION STATEMENT the Fund has filed with the SEC. The complete REGISTRATION STATEMENT may be obtained from the SEC.
MORGAN STANLEY U.S. GOVERNMENT MONEY MARKET TRUST
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
a(1). Declaration of Trust of the Registrant, dated November 18, 1981, is
incorporated by reference to Exhibit 1(a) of Post-Effective Amendment
No. 16 to the Registration Statement on Form N-1A, filed on March 15,
1996.
(2). Amendment to the Declaration of Trust of the Registrant, dated January
18, 1983, is incorporated by reference to Exhibit 1(b) of
Post-Effective Amendment No. 16 to the Registration Statement on Form
N-1A, filed on March 15, 1996.
(3). Amendment to the Declaration of Trust of the Registrant, dated May 18,
1984, is incorporated by reference to Exhibit 1(c) of Post-Effective
Amendment No. 16 to the Registration Statement on Form N-1A, filed on
March 15, 1996.
(4). Amendment to the Declaration of Trust of the Registrant, dated June
22, 1984, is incorporated by reference to Exhibit 1(d) of
Post-Effective Amendment No. 16 to the Registration Statement on Form
N-1A, filed on March 15, 1996.
(5). Amendment to the Declaration of Trust of the Registrant, dated
February 19, 1993, is incorporated by reference to Exhibit 1(e) of
Post-Effective Amendment No. 16 to the Registration Statement on Form
N-1A, filed on March 15, 1996.
(6). Amendment to the Declaration of Trust of the Registrant, dated June
22, 1998, is incorporated by reference to Exhibit 1 of Post-Effective
Amendment No. 19 to the Registration Statement on Form N-1A, filed on
January 27, 1999.
(7). Amendment to the Declaration of Trust of the Registrant, dated June
18, 2001, is incorporated by reference to Exhibit 1(g) of
Post-Effective Amendment No. 23 to the Registration Statement on Form
N-1A, filed on March 28, 2002.
b. Amended and Restated By-Laws of the Registrant, dated April 24, 2003,
is incorporated by reference to Exhibit b of Post-Effective Amendment
No. 25 to the Registration Statement on Form N-1A, filed on March 18,
2004.
c. Not applicable.
d. Amended and Restated Investment Advisory Agreement, dated November 1,
2004, is incorporated by reference to Exhibit (d) of Post-Effective
Amendment No. 26 to the Registration Statement on Form N-1A, filed on
March 29, 2005.
e(1). Form of Distribution Agreement between the Registrant and Morgan
Stanley Distributors Inc., dated May 31, 1997, is incorporated by
reference to Exhibit 6 of Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A, filed on March 2, 1998.
(2). Form of Selected Dealers Agreement between Morgan Stanley Distributors
Inc. and Morgan Stanley DW Inc., dated January 4, 1993, is
incorporated by reference to Exhibit 6(b) of Post-Effective Amendment
No. 14 to the Registration Statement on Form N-1A, filed on March 11,
1994.
f. Second Amended and Restated Retirement Plan for Non-Interested
Trustees or Directors, dated May 8, 1997, is incorporated by reference
to Exhibit 6 of Post-Effective Amendment No. 20 to the Registration
Statement on Form N-1A, filed on March 29, 1999.
g(1). Form of Custody Agreement between The Bank of New York and the
Registrant, dated September 20, 1991, is incorporated by reference to
Exhibit 8 of Post-Effective Amendment No. 16 to the Registration
Statement on Form N-1A, filed on March 15, 1996.
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(2). Amendment to the Custody Agreement between The Bank of New York and
the Registrant, dated April 17, 1996, is incorporated by reference to
Exhibit 8 of Post-Effective Amendment No. 17 to the Registration
Statement on Form N-1A, filed on March 18, 1997.
(3). Amendment dated June 15, 2001 to the Custody Agreement of the
Registrant, is incorporated by reference to Exhibit 7(c) of
Post-Effective Amendment No. 23 to the Registration Statement on Form
N-1A, filed on March 28, 2002.
(4). Foreign Custody Manager Agreement between The Bank of New York and the
Registrant, dated June 15, 2001, is incorporated by reference to
Exhibit 7(d) of Post-Effective Amendment No. 23 to the Registration
Statement on Form N-1A, filed on March 28, 2002.
h(1). Amended and Restated Transfer Agency Agreement, dated November 1,
2004, between the Registrant and Morgan Stanley Trust, is incorporated
by reference to Exhibit (h)(1) of Post-Effective Amendment No. 26 to
the Registration Statement on Form N-1A, filed on March 29, 2005.
(2). Administration Agreement, dated November 1, 2004, between Morgan
Stanley Services Company Inc. and the Registrant, is incorporated by
reference to Exhibit (h)(2) of Post-Effective Amendment No. 26 to the
Registration Statement on Form N-1A, filed on March 29, 2005.
i(1). Opinion and Consent of Clifford Chance US LLP, filed herein.
(2). Opinion of Dechert LLP, Massachusetts Counsel, filed herein.
j. Consent of Independent Registered Public Accounting Firm, filed
herein.
k. Not applicable.
l. Not applicable.
m. Amended and Restated Plan of Distribution pursuant to Rule 12b-1
between the Registrant and Morgan Stanley Distributors Inc., dated
July 28, 1997, is incorporated by reference to Exhibit 15 of
Post-Effective Amendment No. 18 to the Registration Statement on Form
N-1A, filed on March 2, 1998.
n. Amended and Restated Multi-Class Plan pursuant to Rule 18f-3, dated
March 12, 2001, is incorporated by reference to Exhibit 14 of
Post-Effective Amendment No. 23 to the Registration Statement on Form
N-1A, filed on March 28, 2002.
o. Not Applicable
p(1). Code of Ethics of Morgan Stanley Investment Management, is
incorporated by reference to Exhibit (p)(1) of Post-Effective
Amendment No. 26 to the Registration Statement on Form N-1A, filed on
March 29, 2005.
(2). Code of Ethics of Morgan Stanley Funds, is incorporated by reference
to Exhibit (p)(2) of Post-Effective Amendment No. 26 to the
Registration Statement on Form N-1A, filed on March 29, 2005.
q. Power of Attorneys of Trustees, dated May 1, 2005, is filed herein.
|
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
None
ITEM 25. INDEMNIFICATION
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
addition, indemnification is permitted only if it is determined that the actions
in question did not
render them liable by reason of willful misfeasance, bad faith or gross negligence in the performance of their duties or by reason of reckless disregard of their obligations and duties to the Registrant. Trustees, officers, employees and agents will be indemnified for the expense of litigation if it is determined that they are entitled to indemnification against any liability established in such litigation. The Registrant may also advance money for these expenses provided that they give their undertakings to repay the Registrant unless their conduct is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust, neither the Investment Adviser nor any trustee, officer, employee or agent of the Registrant shall be liable for any action or failure to act, except in the case of bad faith, willful misfeasance, gross negligence or reckless disregard of duties to the Registrant. Pursuant to Section 9 of the Registrant's Investment Advisory Agreement, in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations under the Agreement, the Investment Adviser shall not be liable to the Registrant or any of its investors for any error of judgment or mistake of law or for any act or omission by the Investment Adviser or for any losses sustained by the Registrant or its investors. Pursuant to Section 7 of the Registrant's Administration Agreement, the Administrator will use its best efforts in the performance of administrative activities on behalf of each fund, but in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations hereunder, the Administrator shall not be liable to the Fund or any of its investors for any error of judgment or mistake of law or for any act or omission by the Administrator or for any losses sustained by the Fund or its investors.
Pursuant to Section 7 of the Registrant's Underwriting Agreement, the Registrant shall indemnify and hold harmless the Underwriter and each person, if any, who controls the Underwriter against any loss, liability, claim, damage or expense (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damage or expense and reasonable counsel fees incurred in connection therewith) arising by reason of any person acquiring any Shares, which may be based upon the 1933 Act, or on any other statute or at common law, on the grounds that the Registration Statement or related Prospectus and Statement of Additional Information, as from time to time amended and supplemented, or the annual or interim reports to shareholders of the Registrant, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, unless such statement or omission was made in reliance upon, and in conformity with, information furnished to the Registrant in connection therewith by or on behalf of the Underwriter; provided, however, that in no case (i) is the indemnity of the Registrant in favor of the Underwriter and any such controlling persons to be deemed to protect the Underwriter or any such controlling persons thereof against any liability to the Registrant or its security holders to which the Underwriter or any such controlling persons would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of reckless disregard of its obligations and duties under this Agreement; or (ii) is the Registrant to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Underwriter or any such controlling persons, unless the Underwriter or any such controlling persons, as the case may be, shall have notified the Registrant in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon the Underwriter or such controlling persons (or after the Underwriter or such controlling persons shall have received notice of such service on any designated agent), but failure to notify the Registrant of any such claim shall not relieve it from any liability which it may have to the person against whom such action is brought otherwise than on account of its indemnity agreement contained in this paragraph.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer, or controlling person of the Registrant in connection with the successful defense of any action, suit or proceeding) is asserted against the Registrant by such trustee, officer or controlling person in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act, and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification provision of its by-laws in a manner consistent with Release 11330 of the Securities and Exchange Commission under the Investment Company Act of 1940, so long as the interpretation of Sections 17(h) and 17(i) of such Act remains in effect.
The Registrant, in conjunction with the Investment Adviser, the Registrant's Trustees, and other registered investment management companies managed by the Investment Adviser, maintains insurance on behalf of any person who is or was a Trustee, officer, employee, or agent of the Registrant, or who is or was serving at the request of the Registrant as a trustee, director, officer, employee or agent of another trust or corporation, against any liability asserted against him and incurred by him or arising out of his position. However, in no event will Registrant maintain insurance to indemnify any such person for any act for which the Registrant itself is not permitted to indemnify him.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Fund Management" in the Prospectus regarding the business of the investment adviser. The following information is given regarding directors and officers of Morgan Stanley Investment Advisors Inc. ("Morgan Stanley Investment Advisors"). Morgan Stanley Investment Advisors is a wholly-owned subsidiary of Morgan Stanley & Co. Incorporated. Set forth below is the name and principal business address of each company for which each director or officer of Morgan Stanley Investment Advisors serves as a director, officer or employee.
MORGAN STANLEY SERVICES COMPANY INC. ("MORGAN STANLEY SERVICES")
c/o Morgan Stanley Trust, Harborside Financial Center, Plaza Two, Jersey City,
New Jersey 07311
MORGAN STANLEY DISTRIBUTORS INC. ("MORGAN STANLEY DISTRIBUTORS")
MORGAN STANLEY DW INC. ("MORGAN STANLEY DW")
MORGAN STANLEY FUNDS
MORGAN STANLEY INVESTMENT ADVISORS INC.
MORGAN STANLEY INVESTMENT MANAGEMENT
MORGAN STANLEY INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas, New York, New York 10020
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT LTD.
MORGAN STANLEY & CO. INTERNATIONAL LIMITED ("MORGAN STANLEY & CO.
INTERNATIONAL")
25 Cabot Square, London, England
VAN KAMPEN INVESTMENT ASSET MANAGEMENT INC. ("VAN KAMPEN")
1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181
MORGAN STANLEY TRUST ("MORGAN STANLEY TRUST")
Harborside Financial Center, Plaza Two, Jersey City, New Jersey 07311
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION OR EMPLOYMENT,
MORGAN STANLEY INVESTMENT ADVISORS INCLUDING NAME, PRINCIPAL ADDRESS AND NATURE OF CONNECTION
----------------------------------- --------------------------------------------------------------------
Mitchell M. Merin President and Chief Operating Officer of Morgan Stanley Investment
President, Chief Executive Officer Management; Chairman and Director of Morgan Stanley Distributors;
and Director Chairman and Director of Morgan Stanley Trust; President, Chief
Executive Officer and Director of Morgan Stanley Services; President
of the Morgan Stanley Retail Funds and the Institutional Funds;
Director of Morgan Stanley Investment Management Inc.; Director of
various Morgan Stanley subsidiaries; Trustee, President and Chief
Executive Officer of the Van Kampen Open-End Funds; President and
Chief Executive Officer of the Van Kampen Closed-End Funds.
Barry Fink Managing Director and General Counsel of Morgan Stanley Investment
Managing Director, Management; Managing Director and Director of Morgan Stanley
and Director Services; Managing Director, Secretary, and Director of Morgan
Stanley Distributors; Vice President of the Morgan Stanley Funds.
|
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION OR EMPLOYMENT,
MORGAN STANLEY INVESTMENT ADVISORS INCLUDING NAME, PRINCIPAL ADDRESS AND NATURE OF CONNECTION
----------------------------------- --------------------------------------------------------------------
Joseph J. McAlinden Chief Investment Officer and Managing Director of Morgan Stanley
Managing Director and Investment Management Inc.; Director of Morgan Stanley Trust.
Chief Investment Officer
Ronald E. Robison Principal Executive Officer of Funds in the Fund Complex; Managing
Managing Director, Chief Director, Chief Administrative Officer and Director of Morgan
Administrative Officer and Stanley Services; Chief Executive Officer and Director of Morgan
Director Stanley Trust; Managing Director of Morgan Stanley Distributors;
Executive Vice President and Principal Executive Officer of the
Morgan Stanley Funds; Director of Morgan Stanley SICAV.
P. Dominic Caldecott Managing Director of Morgan Stanley Investment Management Inc. and
Managing Director Morgan Stanley Dean Witter Investment Management Limited; Vice
President and Investment Manager of Morgan Stanley & Co.
International.
Rajesh K. Gupta Managing Director and Chief Administrative Officer-Investments of
Managing Director and Morgan Stanley Investment Management Inc.
Chief Administrative Officer-
Investments
John B. Kemp, III President and Chief Executive Officer of Morgan Stanley Distributors.
Executive Director
Francis J. Smith Executive Director of Morgan Stanley Services; Vice President and
Executive Director Chief Financial Officer of the Morgan Stanley Funds.
|
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Morgan Stanley Distributors Inc., a Delaware corporation, is the principal underwriter of the Registrant. Morgan Stanley Distributors is also the principal underwriter of the following investment companies:
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Institutional Government Securities Trust
(4) Active Assets Institutional Money Trust
(5) Active Assets Money Trust
(6) Active Assets Tax-Free Trust
(7) Morgan Stanley Aggressive Equity Fund
(8) Morgan Stanley Allocator Fund
(9) Morgan Stanley American Opportunities Fund
(10) Morgan Stanley Balanced Growth Fund
(11) Morgan Stanley Balanced Income Fund
(12) Morgan Stanley Biotechnology Fund
(13) Morgan Stanley California Tax-Free Daily Income Trust
(14) Morgan Stanley California Tax-Free Income Fund
(15) Morgan Stanley Capital Opportunities Trust
(16) Morgan Stanley Convertible Securities Trust
(17) Morgan Stanley Developing Growth Securities Trust
(18) Morgan Stanley Dividend Growth Securities Inc.
(19) Morgan Stanley Equally-Weighted S&P 500 Fund
(20) Morgan Stanley European Equity Fund Inc.
(21) Morgan Stanley Federal Securities Trust
(22) Morgan Stanley Financial Services Trust
(23) Morgan Stanley Flexible Income Trust
(24) Morgan Stanley Fund of Funds
(25) Morgan Stanley Fundamental Value Fund
(26) Morgan Stanley Global Advantage Fund
(27) Morgan Stanley Global Dividend Growth Securities
(28) Morgan Stanley Global Utilities Fund
(29) Morgan Stanley Growth Fund
(30) Morgan Stanley Health Sciences Trust
(31) Morgan Stanley High Yield Securities Inc.
(32) Morgan Stanley Income Builder Fund
(33) Morgan Stanley Income Trust
(34) Morgan Stanley Information Fund
(35) Morgan Stanley International Fund
(36) Morgan Stanley International SmallCap Fund
(37) Morgan Stanley International Value Equity Fund
(38) Morgan Stanley Japan Fund
(39) Morgan Stanley KLD Social Index Fund
(40) Morgan Stanley Limited Duration Fund
(41) Morgan Stanley Limited Duration U.S. Treasury Trust
(42) Morgan Stanley Limited Term Municipal Trust
(43) Morgan Stanley Liquid Asset Fund Inc.
(44) Morgan Stanley Mid-Cap Value Fund
(45) Morgan Stanley Nasdaq-100 Index Fund
(46) Morgan Stanley Natural Resource Development Securities Inc.
(47) Morgan Stanley New York Municipal Money Market Trust
(48) Morgan Stanley New York Tax-Free Income Fund
(49) Morgan Stanley Pacific Growth Fund Inc.
(50) Morgan Stanley Prime Income Trust
(51) Morgan Stanley Real Estate Fund
(52) Morgan Stanley S&P 500 Index Fund
(53) Morgan Stanley Select Dimensions Investment Series
(54) Morgan Stanley Small-Mid Special Value Fund
(55) Morgan Stanley Special Growth Fund
(56) Morgan Stanley Special Value Fund
(57) Morgan Stanley Strategist Fund
(58) Morgan Stanley Tax-Exempt Securities Trust
(59) Morgan Stanley Tax-Free Daily Income Trust
(60) Morgan Stanley Total Market Index Fund
(61) Morgan Stanley Total Return Trust
(62) Morgan Stanley U.S. Government Money Market Trust
(63) Morgan Stanley U.S. Government Securities Trust
(64) Morgan Stanley Utilities Fund
(65) Morgan Stanley Value Fund
(66) Morgan Stanley Variable Investment Series
(b) The following information is given regarding directors and officers of Morgan Stanley Distributors not listed in Item 25 above. The principal address of Morgan Stanley Distributors is 1221 Avenue of the Americas, New York, New York 10020. None of the following persons has any position or office with the Registrant.
POSITIONS AND OFFICE WITH
NAME MORGAN STANLEY DISTRIBUTORS
---- ------------------------------------------------------
Fred Gonfiantini Executive Director and Financial Operations
Principal of Morgan Stanley Distributors
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(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Books or other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, and the rules promulgated thereunder, are maintained as follows:
The Bank of New York 100 Church Street New York, New York 10286
(records relating to its function as custodian)
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
(records relating to its function as investment adviser)
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
2nd Floor
Jersey City, New Jersey 07311
(records relating to its function as transfer agent and
dividend disbursing agent)
Morgan Stanley Services Company Inc.
Harborside Financial Center, Plaza Two
7th Floor
Jersey City, New Jersey 07311
(records relating to its function as administrator)
ITEM 29. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service contract.
ITEM 30. UNDERTAKINGS
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York on the 27th day of May, 2005.
MORGAN STANLEY U.S. GOVERNMENT MONEY
MARKET TRUST
By: /S/ AMY R. DOBERMAN
--------------------------------------
Amy R. Doberman
VICE PRESIDENT AND SECRETARY
|
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 27 has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
(1) Principal Executive Officer Executive Vice President and
Principal Executive Officer
By: /s/ RONALD E. ROBISON
-----------------------------------
Ronald E. Robison May 27, 2005
(2) Principal Financial Officer Chief Financial Officer
By: /s/ FRANCIS J. SMITH
-----------------------------------
Francis Smith May 27, 2005
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
James F. Higgins
By: /s/ BARRY FINK
-----------------------------------
Barry Fink May 27, 2005
Attorney-in-Fact
Michael Bozic Joseph J. Kearns
Edwin J. Garn Michael E. Nugent
Wayne E. Hedien Fergus Reid
Manuel H. Johnson
By: /s/ CARL FRISCHLING
-----------------------------------
Carl Frischling May 27, 2005
Attorney-in-Fact
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MORGAN STANLEY U.S. GOVERNMENT MONEY MARKET TRUST
EXHIBIT INDEX
(i)(1). -- Opinion and Consent of Clifford Chance US LLP, filed herein.
(2). -- Opinion of Dechert LLP, Massachusetts Counsel, filed herein.
(j). -- Consent of Independent Registered Public Accounting Firm, filed herein.
(q). -- Power of Attorney of Trustees, dated May 1, 2005.
[Clifford Chance US LLP Letterhead]
May 25, 2005
Morgan Stanley U.S. Government Money Market Trust
1221 Avenue of the Americas
New York, New York 10020
Re: Opinion of Counsel regarding Post-Effective Amendment No. 27 to the Registration Statement filed on Form N-1A under the Securities Act of 1933
(File Nos. 2-74980, 811-3326)
Dear Ladies and Gentlemen:
We have acted as counsel to Morgan Stanley U.S. Government Money Market Trust, a Massachusetts business trust (the "Fund"), in connection with the above-referenced Registration Statement (as amended, the "Registration Statement") which relates to the Fund's shares of beneficial interest, $0.01 par value (collectively, the "Shares"). This opinion is being delivered to you in connection with the Fund's filing of Post-Effective Amendment No. 27 to the Registration Statement (the "Amendment") to be filed with the Securities and Exchange Commission pursuant to Rule 485(b) of the Securities Act of 1933 (the "1933 Act") and Amendment No. 28 pursuant to the Investment Company Act of 1940, as amended. With your permission, all assumptions and statements of reliance herein have been made without any independent investigation or verification on our part except to the extent otherwise expressly stated, and we express no opinion with respect to the subject matter or accuracy of such assumptions or items relied upon. We have reviewed the Fund's Declaration of Trust, as amended, and such other documents and matters as we have deemed necessary to enable us to render this opinion.
Based upon, and subject to, the foregoing, we are of the opinion that the Shares to which the Registration Statement relates will be legally and validly issued and fully paid and non-assessable by the Fund (except for the potential liability of shareholders described in the Fund's current Statement of Additional Information under the caption "Capital Stock and Other Securities") upon receipt by the Fund of consideration determined by the Trustees in compliance with the Declaration of Trust and the Fund's issuance of the Shares pursuant to the Declaration of Trust.
As to matters of Massachusetts law contained in the foregoing opinions, we have relied upon the opinion of Dechert LLP, dated May 25, 2005.
We have consented to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the heading "Fund Counsel" in the Statement of Additional Information forming a part of the Registration Statement. In giving this consent, we do not concede that we are in the category of persons whose consent is required under Section 7 of the 1933 Act.
Very truly yours,
/s/ Clifford Chance US LLP Clifford Chance US LLP |
[Dechert LLP Letterhead]
May 25, 2005
Clifford Chance US LLP
31 West 52nd Street
New York, NY 10019
Ladies and Gentlemen:
We understand that the Board of Trustees (the "Trustees") of Morgan Stanley U.S. Government Money Market Trust, a Massachusetts business trust (the "Trust"), intend, on or about May 25, 2005, to cause to be filed on behalf of the Trust a Post-effective Amendment No. 27 (the "Amendment") to the Trust's Registration Statement on Form N-1A (File No. 2-74980) (the "Registration Statement").
We act as special counsel to the Trust regarding certain matters of Massachusetts law respecting the organization of the Trust, and in such capacity we are furnishing you with this opinion.
The Trust is organized under a written declaration of trust finally executed and filed in Boston, Massachusetts (the "Declaration of Trust"). The Trustees (as defined in the Declaration of Trust) have the powers set forth in the Declaration of Trust, subject to the terms, provisions and conditions therein provided.
In connection with the opinions set forth herein, the Trust, or you on behalf of the Trust, has provided to us originals, copies or facsimile transmissions of, and we have reviewed and relied upon, among other things: a copy of the Amendment; the By-Laws of the Trust Amended and Restated as of April 24, 2003 (the "By-Laws"); and a Certificate of the Secretary of the Trust dated May 10, 2005 with respect to certain resolutions of the Board of Trustees and certain other factual matters. In addition, we have reviewed and relied upon originals or copies, certified or otherwise identified to our satisfaction, of: the Declaration of Trust, certified by the Secretary of the Commonwealth of Massachusetts; and a certificate of the Secretary of the Commonwealth of Massachusetts dated May 19, 2005 with respect to the Trust. We have assumed that the By-Laws have been duly adopted by the Trustees.
In rendering this opinion we have assumed, without independent verification, (i) the due authority of all individuals signing in representative capacities and the genuineness of signatures, (ii) the authenticity, completeness and continued effectiveness of all documents or copies furnished to us, (iii) that any resolutions provided have been duly adopted by the Trustees, (iv) that the facts contained in the instruments and certificates or statements of public officials, officers and representatives of the Trust on which we have relied for the purposes of this opinion are true and correct, and (v) that no amendments, agreements, resolutions or actions have been approved, executed or adopted which would limit, supersede or modify the items described above. We have also examined such documents
and questions of law as we have concluded are necessary or appropriate for purposes of the opinions expressed below. Where documents are referred to in resolutions approved by the Trustees, or in the Amendment, we assume such documents are the same as in the most recent form provided to us, whether as an exhibit to the Amendment or otherwise. The opinions set forth below are based entirely upon and are limited by the items referred to above, and we understand that the foregoing assumptions, limitations and qualifications are acceptable to you.
Based upon the foregoing, and with respect to Massachusetts law only (except that no opinion is herein expressed with respect to compliance with the securities, or "blue-sky," laws of Massachusetts), to the extent that Massachusetts law may be applicable, and without reference to the laws of any of the other several states or of the United States of America, including state and federal securities laws, we are of the opinion that:
1. The Trust has been duly formed under the laws of the Commonwealth of Massachusetts as a voluntary association with transferable shares of the type commonly referred to as a Massachusetts business trust; and
2. the shares of beneficial interest proposed to be sold pursuant to the Amendment, when effective, will have been duly authorized and, when sold in accordance with the terms of the Amendment and the requirements of applicable federal and state law and delivered by Trust against receipt of the net asset value of the shares, as described in the Amendment, will have been legally issued, fully paid and non-assessable by the Trust (except for the potential liability of shareholders described in the Trust's Statement of Additional Information contained in the Amendment under the caption "Capital Stock and Other Securities").
The opinions expressed herein are limited to the laws of the Commonwealth of Massachusetts as described above. We express no opinion herein with respect to the effect or applicability of the law of any other jurisdiction. We express no opinion as to any other matter other than as expressly set forth above and no other opinion is intended or may be inferred herefrom. The opinions expressed herein are given as of the date hereof and we undertake no obligation and hereby disclaim any obligation to advise you of any change after the date of this opinion pertaining to any matter referred to herein. We hereby consent to such use of and reference to this opinion and to us in the Amendment.
Very truly yours,
/s/ Dechert LLP |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this Post-Effective Amendment No. 27 to Registration Statement No. 2-74980 of Morgan Stanley U.S. Government Money Market Trust (the "Fund"), on Form N-1A of our report dated March 15, 2005, appearing in the January 31, 2005 Annual Report of the Fund, which is incorporated by reference in the Prospectus and the Statement of Additional Information both of which are part of such Registration Statement, and to the references to us on the cover page of the Statement of Additional Information and under the captions "Financial Highlights" in the Prospectus and "Custodian and Independent Registered Public Accounting Firm" and "Financial Statements" in the Statement of Additional Information.
Deloitte & Touche LLP
New York, New York
May 24, 2005
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Charles A. Fiumefreddo, whose signature appears below, constitutes and appoints Barry Fink, Amy R. Doberman, Ronald E. Robison, Stefanie V. Chang Yu and Mary E. Mullin, or any of them, his true and lawful attorneys-in-fact and agents, with full power of substitution among himself and each of the persons appointed herein, for him and in his name, place and stead, in any and all capacities to sign, any Form N-14, amendments to any Form N-14, any registration statement or amendments to any registration statement of ANY OF THE MORGAN STANLEY FUNDS SET FORTH IN APPENDX A HERETO, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof.
Dated: May 1, 2005 /s/ Charles A. Fiumefreddo
--------------------------
Charles A. Fiumefreddo
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Manuel H. Johnson, whose signature appears below, constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay Baris and Jules Buchwald, or any of them, his true and lawful attorneys-in-fact and agents, with full power of substitution among himself and each of the persons appointed herein, for him and in his name, place and stead, in any and all capacities, to sign any Form N-14, amendments to any Form N-14, any registration statement or amendments to any registration statement of ANY OF THE MORGAN STANLEY FUNDS SET FORTH IN APPENDX A HERETO, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, may lawfully do or cause to be done by virtue hereof.
Dated: May 1, 2005
/s/ Manuel H. Johnson
---------------------
Manuel H. Johnson
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Michael E. Nugent, whose signature appears below, constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay Baris and Jules Buchwald, or any of them, his true and lawful attorneys-in-fact and agents, with full power of substitution among himself and each of the persons appointed herein, for him and in his name, place and stead, in any and all capacities, to sign any Form N-14, amendments to any Form N-14, any registration statement or amendments to any registration statement of ANY OF THE MORGAN STANLEY FUNDS SET FORTH IN APPENDX A HERETO, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, may lawfully do or cause to be done by virtue hereof.
Dated: May 1, 2005
/s/ Michael E. Nugent
---------------------
Michael E. Nugent
|
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Edwin J. Garn, whose signature appears below, constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay Baris and Jules Buchwald, or any of them, his true and lawful attorneys-in-fact and agents, with full power of substitution among himself and each of the persons appointed herein, for him and in his name, place and stead, in any and all capacities, to sign any Form N-14, amendments to any Form N-14, any registration statement or amendments to any registration statement of ANY OF THE MORGAN STANLEY FUNDS SET FORTH IN APPENDX A HERETO, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, may lawfully do or cause to be done by virtue hereof.
Dated: May 1, 2005
/s/ Edwin J. Garn
-----------------
Edwin J. Garn
|
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Michael Bozic, whose signature appears below, constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay Baris and Jules Buchwald, or any of them, his true and lawful attorneys-in-fact and agents, with full power of substitution among himself and each of the persons appointed herein, for him and in his name, place and stead, in any and all capacities, to sign any Form N-14, amendments to any Form N-14, any registration statement or amendments to any registration statement of ANY OF THE MORGAN STANLEY FUNDS SET FORTH IN APPENDX A HERETO, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, may lawfully do or cause to be done by virtue hereof.
Dated: May 1, 2005
/s/ Michael Bozic
-----------------
Michael Bozic
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Joseph J. Kearns, whose signature appears below, constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay Baris and Jules Buchwald, or any of them, his true and lawful attorneys-in-fact and agents, with full power of substitution among himself and each of the persons appointed herein, for him and in his name, place and stead, in any and all capacities, to sign any Form N-14, amendments to any Form N-14, any registration statement or amendments to any registration statement of ANY OF THE MORGAN STANLEY FUNDS SET FORTH IN APPENDX A HERETO, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, may lawfully do or cause to be done by virtue hereof.
Dated: May 1, 2005
/s/ Joseph J. Kearns
--------------------
Joseph J. Kearns
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Wayne E. Hedien, whose signature appears below, constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay Baris and Jules Buchwald, or any of them, his true and lawful attorneys-in-fact and agents, with full power of substitution among himself and each of the persons appointed herein, for him and in his name, place and stead, in any and all capacities, to sign any Form N-14, amendments to any Form N-14, any registration statement or amendments to any registration statement of ANY OF THE MORGAN STANLEY FUNDS SET FORTH IN APPENDX A HERETO, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, may lawfully do or cause to be done by virtue hereof.
Dated: May 1, 2005
/s/ Wayne E. Hedien
-------------------
Wayne E. Hedien
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Fergus Reid, whose signature appears below, constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay Baris and Jules Buchwald, or any of them, his true and lawful attorneys-in-fact and agents, with full power of substitution among himself and each of the persons appointed herein, for him and in his name, place and stead, in any and all capacities, to sign any Form N-14, amendments to any Form N-14, any registration statement or amendments to any registration statement of ANY OF THE MORGAN STANLEY FUNDS SET FORTH IN APPENDX A HERETO, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, may lawfully do or cause to be done by virtue hereof.
Dated: May 1, 2005
/s/ Fergus Reid
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Fergus Reid
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that James F. Higgins, whose signature appears below, constitutes and appoints Barry Fink, Amy R. Doberman, Ronald E. Robison, Stefanie V. Chang Yu and Mary E. Mullin, or any of them, his true and lawful attorneys-in-fact and agents, with full power of substitution among himself and each of the persons appointed herein, for him and in his name, place and stead, in any and all capacities, to sign any Form N-14, amendments to any Form N-14, any registration statement or amendments to any registration statement of ANY OF THE MORGAN STANLEY FUNDS SET FORTH IN APPENDX A HERETO, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof.
Dated: May 1, 2005
/s/ James F. Higgins
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James F. Higgins
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APPENDIX A
MORGAN STANLEY
RETAIL AND INSTITUTIONAL FUNDS
AT
MAY 1, 2005
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 Aggressive Equity Fund
Morgan Stanley Allocator Fund
Morgan Stanley American Franchise Fund
Morgan Stanley American Opportunities Fund
Morgan Stanley Biotechnology Fund
Morgan Stanley Capital Opportunities Trust
Morgan Stanley Developing Growth Securities Trust
Morgan Stanley Dividend Growth Securities Inc.
Morgan Stanley Equally-Weighted S&P 500 Fund
Morgan Stanley European Equity Fund Inc.
Morgan Stanley Financial Services Trust
Morgan Stanley Fund of Funds
- Domestic Portfolio
Morgan Stanley Fundamental Value Fund
Morgan Stanley Global Advantage Fund
Morgan Stanley Global Dividend Growth Securities
Morgan Stanley Global Utilities Fund
Morgan Stanley Growth Fund
Morgan Stanley Health Sciences Trust
Morgan Stanley Income Builder Fund
Morgan Stanley Information Fund
Morgan Stanley International Fund
Morgan Stanley International SmallCap Fund
Morgan Stanley International Value Equity Fund
Morgan Stanley Japan Fund
Morgan Stanley KLD Social Index Fund
Morgan Stanley Mid-Cap Value Fund
Morgan Stanley Nasdaq-100 Index Fund
Morgan Stanley Natural Resource Development Securities Inc.
Morgan Stanley Pacific Growth Fund Inc.
Morgan Stanley Real Estate Fund
Morgan Stanley S&P 500 Index Fund
Morgan Stanley Small-Mid Special Value Fund
Morgan Stanley Special Growth Fund
Morgan Stanley Special Value Fund
Morgan Stanley Total Market Index Fund
Morgan Stanley Total Return Trust
Morgan Stanley Utilities Fund
Morgan Stanley Value Fund
BALANCED FUNDS
Morgan Stanley Balanced Growth Fund
Morgan Stanley Balanced Income Fund
ASSET ALLOCATION FUND
Morgan Stanley Strategist Fund
TAXABLE FIXED-INCOME FUNDS
Morgan Stanley Convertible Securities Trust
Morgan Stanley Federal Securities Trust
Morgan Stanley Flexible Income Trust
Morgan Stanley High Yield Securities Inc.
Morgan Stanley Income Trust
Morgan Stanley Limited Duration Fund
Morgan Stanley Limited Duration U.S. Treasury Trust
Morgan Stanley Total Return Income Securities Fund
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
- American Opportunities Portfolio
- Balanced Growth Portfolio
- Capital Opportunities Portfolio
- Developing Growth Portfolio
- Dividend Growth Portfolio
- Equally-Weighted S&P 500 Portfolio
- Flexible Income Portfolio
- Global Equity Portfolio
- Growth Portfolio
- Money Market Portfolio
- Utilities Portfolio
Morgan Stanley Variable Investment Series
- Aggressive Equity Portfolio
- Dividend Growth Portfolio
- Equity Portfolio
- European Equity Portfolio
- Global Advantage Portfolio
- Global Dividend Growth Portfolio
- High Yield Portfolio
- Income Builder Portfolio
- Information Portfolio
- Limited Duration Portfolio
- Money Market Portfolio
- Income Plus Portfolio
- S&P 500 Index Portfolio
- Strategist Portfolio
- Utilities Portfolio
CLOSED-END RETAIL FUNDS
TAXABLE FIXED-INCOME CLOSED-END FUNDS
Morgan Stanley Government Income Trust
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
INSTITUTIONAL FUNDS
OPEN-END INSTITUTIONAL FUNDS
1. Morgan Stanley Institutional Fund, Inc.
Active Portfolios:
- Active International Allocation Portfolio
- Emerging Markets Portfolio
- Emerging Markets Debt Portfolio
- Equity Growth Portfolio
- European Real Estate Portfolio
- Focus Equity Portfolio
- Global Franchise Portfolio
- Global Value Equity Portfolio
- International Equity Portfolio
- International Magnum Portfolio
- International Small Cap Portfolio
- Money Market Portfolio
- Municipal Money Market Portfolio
- Small Company Growth Portfolio
- Technology Portfolio
- U.S. Real Estate Portfolio
- Value Equity Portfolio
Inactive Portfolios*:
- Asian Equity Portfolio
- China Growth Portfolio
- Gold Portfolio
- Micro-Cap Portfolio
- Mortgage Backed Securities Portfolio
- Municipal Bond Portfolio
- U.S. Equity Portfolio
Morgan Stanley Institutional Fund Trust
Active Portfolios:
- Advisory Foreign Fixed Income II Portfolio
- Advisory Foreign Fixed Income Portfolio
- Advisory Mortgage Portfolio
- Balanced Portfolio
- Core Plus Fixed Income Portfolio
- Equity Portfolio
- High Yield Portfolio
- Intermediate Duration Portfolio
- International Fixed Income Portfolio
- Investment Grade Fixed Income Portfolio
- Limited Duration Portfolio
- Mid-Cap Growth Portfolio
- Municipal Portfolio
- U.S. Core Fixed Income Portfolio
* Have not commenced or have ceased operations
- U.S. Mid-Cap Value Portfolio
- U.S. Small-Cap Value Portfolio
- Value Portfolio
Inactive Portfolios*:
- Balanced Plus Portfolio
- Growth Portfolio
- New York Municipal Portfolio
- Targeted Duration Portfolio
- Value II Portfolio
3. The Universal Institutional Funds, Inc.
Active Portfolios:
- Core Plus Fixed Income Portfolio
- Emerging Markets Debt Portfolio
- Emerging Markets Equity Portfolio
- Equity and Income Portfolio
- Equity Growth Portfolio
- Global Franchise Portfolio
- Global Value Equity Portfolio
- High Yield Portfolio
- International Magnum Portfolio
- Mid-Cap Growth Portfolio
- Money Market Portfolio
- Small Company Growth Portfolio
- Technology Portfolio
- U.S. Mid-Cap Value Portfolio
- U.S. Real Estate Portfolio
- Value Portfolio
Inactive Portfolios*:
- Asian Equity Portfolio
- Balanced Portfolio
- Capital Preservation Portfolio
- Core Equity Portfolio
- International Fixed Income Portfolio
- Investment Grade Fixed Income Portfolio
- Latin American Portfolio
- Multi-Asset Class Portfolio
- Targeted Duration Portfolio
Morgan Stanley Institutional Liquidity Funds
- Government Portfolio
- Government Securities Portfolio
- Money Market Portfolio
- Prime Portfolio
- Tax-Exempt Portfolio
- Treasury Portfolio
- Treasury Securities Portfolio
CLOSED-END INSTITUTIONAL FUNDS
Morgan Stanley Asia-Pacific Fund, Inc.
Morgan Stanley Eastern Europe Fund, Inc.
Morgan Stanley Emerging Markets Debt Fund, Inc.
Morgan Stanley Emerging Markets Fund, Inc.
Morgan Stanley Global Opportunity Bond Fund, Inc.
Morgan Stanley High Yield Fund, Inc.
The Latin American Discovery Fund, Inc.
The Malaysia Fund, Inc.
The Thai Fund, Inc.
The Turkish Investment Fund, Inc.
CLOSED-END HEDGE FUND
Morgan Stanley Institutional Fund of Hedge Funds Morgan Stanley Institutional Fund of Hedge Funds II Alternative Investment Partners Absolute Return Fund