UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(RULE 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934 (AMENDMENT NO.     )

 

Filed by the Registrant x

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

x  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.

 

Morgan Stanley Income Securities Inc.
Morgan Stanley Municipal Income Opportunities Trust
Morgan Stanley Municipal Premium Income Trust

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MORGAN STANLEY INCOME SECURITIES INC.
MORGAN STANLEY MUNICIPAL INCOME OPPORTUNITIES TRUST
MORGAN STANLEY MUNICIPAL PREMIUM INCOME TRUST

 

c/o Morgan Stanley Investment Advisors Inc.
522 Fifth Avenue, New York, New York 10036

 

NOTICE OF ANNUAL MEETINGS OF SHAREHOLDERS
TO BE HELD DECEMBER 11, 2009

 

The Annual Meetings of Shareholders (“Meeting(s)”) of Morgan Stanley Income Securities Inc., a corporation organized under the laws of Maryland, Morgan Stanley Municipal Income Opportunities Trust and Morgan Stanley Municipal Premium Income Trust, unincorporated business trusts organized under the laws of the Commonwealth of Massachusetts (individually, a “Fund” and, together, the “Funds”), will be held jointly in Conference Room R, 3rd Floor, 522 Fifth Avenue, New York, New York 10036, on December 11, 2009 at 9:00 a.m., New York City time, for the following purposes:

 

Matters to be Voted on By All Shareholders:

 

1. For Morgan Stanley Income Securities Inc., to elect three Directors to serve until the year 2010 Annual Meeting, three Directors to serve until the year 2011 Annual Meeting and four Directors to serve until the year 2012 Annual Meeting, for Morgan Stanley Municipal Income Opportunities Trust, to elect four Trustees to serve until the year 2012 Annual Meeting and for Morgan Stanley Municipal Premium Income Trust, to elect three Trustees to serve until the year 2012 Annual Meeting or, in each case, until their successors shall have been elected and qualified.

 

2. To transact such other business as may properly come before the Meetings or any adjournments thereof.

 

Matter to be Voted on only by Preferred Shareholders:

 

1. For Morgan Stanley Municipal Premium Income Trust, to elect one Trustee to serve until the year 2012 Annual Meeting or until his successor shall have been elected and qualified.

 

Shareholders of record of each Fund as of the close of business on October 13, 2009 are entitled to notice of and to vote at the Meeting. If you cannot be present in person, your management would greatly appreciate your filling in, signing and returning the enclosed Proxy promptly in the envelope provided for that purpose. Alternatively, if you are eligible to vote telephonically by touchtone telephone or electronically on the Internet (as discussed in the enclosed Joint Proxy Statement) you may do so in lieu of attending the Meetings in person.

 

In the event that holders of a majority of each Fund’s shares issued and outstanding and entitled to vote (a “Quorum”) are not present at the Meeting of any Fund in person or by Proxy, or the vote required to approve or reject any proposal is not obtained at the Meeting of any Fund, the persons named as proxies may propose one or more adjournments of the Meeting to permit further solicitation of proxies. Any such adjournment will require the affirmative vote of the holders of a majority of the applicable Fund’s shares present in person or by Proxy at the Meeting. The persons named as Proxies will vote in favor of such adjournment those Proxies which have been received by the date of the Meetings.

 

Mary E. Mullin

     Secretary

November 3, 2009

New York, New York

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETINGS OF SHAREHOLDERS TO BE HELD ON DECEMBER 11, 2009:

 

The Joint Proxy Statement for the Annual Meetings of Shareholders is available on the Internet at the website address located on the enclosed Proxy Card(s).

MORGAN STANLEY INCOME SECURITIES INC.

MORGAN STANLEY MUNICIPAL INCOME OPPORTUNITIES TRUST

MORGAN STANLEY MUNICIPAL PREMIUM INCOME TRUST

 

c/o Morgan Stanley Investment Advisors Inc.

522 Fifth Avenue, New York, New York 10036

 

 

JOINT PROXY STATEMENT

 

 

Annual Meetings of Shareholders

 

December 11, 2009

 

This Joint Proxy Statement is furnished in connection with the solicitation of proxies by the Boards of Trustees/Directors (the “Board(s)”) of Morgan Stanley Income Securities Inc. (“ICB”), Morgan Stanley Municipal Income Opportunities Trust (“OIA”) and Morgan Stanley Municipal Premium Income Trust (“PIA”) (individually, a “Fund” and, collectively, the “Funds”) for use at the Annual Meetings of Shareholders of the Funds to be held jointly on December 11, 2009 (the “Meeting(s)”), and at any adjournments thereof. The first mailing of this Joint Proxy Statement is expected to be made on or about November 10, 2009.

 

If the enclosed form of Proxy is properly executed and returned in time, or is submitted by telephone or Internet, to be voted at the Meetings, the proxies named therein will vote the shares of beneficial interest with respect to OIA and PIA and common stock with respect to ICB (“Shares”) represented by the Proxy in accordance with the instructions marked thereon. Unmarked proxies submitted by shareholders of a Fund (“Shareholders”) will be voted for each of the nominees for election as Trustee/Director to be elected by all Shareholders of that Fund and, if the Shareholder holds preferred shares of PIA, for the nominee for election as Trustee to be elected by only the preferred shareholders (“Preferred Shareholders”), with respect to that Fund set forth in the attached Notice of Annual Meetings of Shareholders. A Proxy may be revoked at any time prior to its exercise by any of the following: written notice of revocation to the Secretary of the Funds, execution and delivery of a later dated Proxy to the Secretary of the Funds (whether by mail or, as discussed below, by touchtone telephone or the Internet) (if returned and received in time to be voted), or attendance and voting at the Meetings. Attendance at the Meetings will not in and of itself revoke a proxy.

 

Shareholders of record of each Fund as of the close of business on October 13, 2009, the record date for the determination of Shareholders entitled to notice of and to vote at the Meetings (the “Record Date”), are entitled to one vote for each share held and a fractional vote for a fractional share. The percentage ownership of Shares of each Fund changes from time to time depending on purchases and sales by Shareholders and the total number of Shares outstanding.

 

The table below sets forth the total number of Common Shares and Preferred Shares outstanding for each Fund as of the Record Date:

 

Morgan Stanley announced on October 19, 2009 that it has entered into a definitive agreement to sell substantially all of its retail asset management business to Invesco Ltd. (“Invesco”), a leading global investment management company. As a result, Morgan Stanley Investment Advisors Inc. (“Morgan Stanley Investment Advisors” or the “Investment Adviser”) expects to propose to the Board of Trustees of each of Morgan Stanley Municipal Income Opportunities Trust and Morgan Stanley Municipal Premium Income Trust that the Boards approve, among other things, a new investment advisory agreement for each Fund with an affiliate of Invesco. If approved by the Boards, the new respective agreements would be submitted to the shareholders of Morgan Stanley Municipal Income Opportunities Trust and Morgan Stanley Municipal Premium Income Trust for their approval.

 

The cost of soliciting proxies for the Meeting of each Fund, consisting principally of printing and mailing expenses, will be borne by each respective Fund. The solicitation of proxies will be by mail, telephone or otherwise through Trustees/Directors, officers of the Funds, or officers and employees of the Investment Adviser, Morgan Stanley Trust, Morgan Stanley Services Company Inc. (“Morgan Stanley Services” or the “Administrator”) and/or Morgan Stanley & Co. Incorporated and/or Morgan Stanley Smith Barney LLC, without special compensation therefor. In addition, each Fund may employ Computershare Fund Services, Inc. (“Computershare”) to make telephone calls to Shareholders to remind them to vote. Each Fund may also employ Computershare as Proxy solicitor if it appears that the required number of votes to achieve a Quorum will not be received. The transfer agent services for the Funds are currently provided by Computershare Trust Company, N.A. (the “Transfer Agent”).

 

Shareholders may be able to vote their Shares by touchtone telephone or by Internet by following the instructions on the Proxy Card or on the Voting Instruction Card accompanying this Joint Proxy Statement. The Internet procedures are designed to authenticate a Shareholder’s identity to allow Shareholders to vote their Shares and confirm that their instructions have been properly recorded. To vote by touchtone telephone or by Internet, Shareholders can access the website or call the toll-free number listed on the Proxy Card or noted in the enclosed voting instructions. To vote by touchtone telephone or by Internet, Shareholders will need the number that appears on the Proxy Card in the shaded box.

 

In certain instances, Computershare may call Shareholders to ask if they would be willing to have their votes recorded by telephone. The telephone voting procedure is designed to authenticate Shareholders’ identities, to allow Shareholders to authorize the voting of their Shares in accordance with their instructions and to confirm that their instructions have been recorded properly. No recommendation will be made as to how a Shareholder should vote on any proposal other than to refer to the recommendations of the Boards. The Funds have been advised by counsel that these procedures are consistent with the requirements of applicable law. Shareholders voting by telephone in this manner will be asked for their social security number or other identifying information and will be given an opportunity to authorize proxies to vote their Shares in accordance with their instructions. To ensure that the Shareholders’ instructions have been recorded correctly, they will receive a confirmation of their instructions in the mail. A special toll-free number set forth in the confirmation will be available in case the information contained in the confirmation is incorrect. Although a Shareholder’s vote may be taken by telephone, each Shareholder will receive a copy of this Joint Proxy Statement and may vote by mail using the enclosed Proxy Card or by touchtone telephone or the Internet as set forth above. The last Proxy vote received in time to be voted, whether by Proxy Card, touchtone telephone or Internet, will be the vote that is counted and will revoke all previous votes by the Shareholder. In the event that Computershare is retained as Proxy solicitor, Computershare will be paid a project management fee as well as telephone solicitation expenses incurred for reminder calls, outbound telephone voting, confirmation of telephone votes,

inbound telephone contact, obtaining Shareholders’ telephone numbers, and providing additional materials upon Shareholder request, at an estimated cost of $2,000, which would be borne by each respective Fund.

 

This Joint Proxy Statement is being used in order to reduce the preparation, printing, handling and postage expenses that would result from the use of a separate proxy statement for each Fund and, because Shareholders may own Shares of more than one Fund, to potentially avoid burdening Shareholders with more than one proxy statement. Shares of a Fund are entitled to one vote each at the respective Fund’s Meeting. To the extent information relating to common ownership is available to the Funds, a Shareholder that owns record Shares in two or more of the Funds will receive a package containing a Joint Proxy Statement and Proxy Cards for the Funds in which such Shareholder is a record owner. If the information relating to common ownership is not available to the Funds, a Shareholder that beneficially owns Shares in two or more Funds may receive two or more packages each containing a Joint Proxy Statement and a Proxy Card for each Fund in which such Shareholder is a beneficial owner. If the proposed election of Trustees/Directors is approved by Shareholders of one Fund and disapproved by Shareholders of other Funds, the proposal will be implemented for the Fund that approved the proposal and will not be implemented for any Fund that did not approve the proposal. Thus, it is essential that Shareholders complete, date, sign and return each enclosed Proxy Card or vote by touchtone telephone or Internet as indicated in each Fund’s Proxy Card.

 

Only one copy of this Joint Proxy Statement will be delivered to multiple Shareholders sharing an address unless we have received contrary instructions from one or more of the Shareholders. Upon written or oral request, we will deliver a separate copy of this Joint Proxy Statement to a Shareholder at a shared address to which a single copy of this Joint Proxy Statement was delivered. Should any Shareholder wish to receive a separate Proxy Statement or should Shareholders sharing an address wish to receive a single Proxy Statement in the future, please contact (888) 421-4015 (toll-free).

 

ELECTION OF TRUSTEES/DIRECTORS FOR EACH FUND

 

The number of Trustees/Directors of each Fund has been fixed by the Trustees/Directors, pursuant to each Fund’s Articles of Incorporation or Declaration of Trust, at ten. There are presently ten Trustees/Directors of each Fund. At the Meetings, the following nominees are to be elected to each Fund’s Board of Trustees/

Directors to serve for the following terms, in accordance with each Fund’s Articles of Incorporation or Declaration of Trust, as applicable, as set forth below:

 

 

Nine of the current ten Trustees/Directors (Frank L. Bowman, Michael Bozic, Kathleen A. Dennis, Manuel H. Johnson, Joseph J. Kearns, Michael F. Klein, Michael E. Nugent, W. Allen Reed and Fergus Reid) are “Independent Trustees” or “Independent Directors,” that is, Trustees or Directors who are not “interested persons” of the Funds, as that term is defined in the Investment Company Act of 1940, as amended (the “1940 Act”). The other current Trustee/Director, James F. Higgins, is an “interested trustee/director,” that is, a Trustee/Director who is an “interested person” (as that term is defined in the 1940 Act) of the Funds and Morgan Stanley Investment Advisors and thus, is not an Independent Trustee or Independent Director. The nominees for election as Trustee or Director have been proposed by the Trustees or Directors now serving or, in the case of the nominees for positions as Independent Trustee or Independent Director, by the Independent Trustees or Independent Directors now serving. All of the members of each Board have previously been elected by the shareholders of each respective Fund.

 

The nominees of the Boards of Trustees/Directors for election as Trustee/Director of each Fund are listed below. It is the intention of the persons named in the enclosed form of Proxy, unless instructed by Proxy to withhold authority to vote for the nominees, to vote all validly executed proxies for the election of the following nominees: for ICB — Frank L. Bowman, Michael Bozic, Kathleen A. Dennis, James F. Higgins, Manuel H. Johnson, Joseph J. Kearns, Michael F. Klein, Michael E. Nugent, W. Allen Reed and Fergus Reid, and for OIA and PIA — Kathleen A. Dennis, Joseph J. Kearns, Fergus Reid and Manuel H. Johnson (with regard to PIA, Manuel H. Johnson with respect to Preferred Shareholder proxies only). Should any of the nominees become unable or unwilling to accept nomination or election, the persons named in the Proxy will exercise their voting power in favor of such person or persons as the Boards may recommend or, in the case of an Independent Trustee/Director nominee, as the Independent Trustees/Directors of each Fund may recommend. All of the nominees have consented to being named in this Joint Proxy Statement and to serve if elected. The Funds know of no reason why any of the said nominees would be unable or unwilling to accept nomination or election. With

respect to each Fund, the election of the nominees listed above to be elected by all Shareholders requires the approval of a majority of the Shares of the Fund represented and entitled to vote at the Meeting (Common Shares and Preferred Shares voting together as a single class). The election of the nominee listed above to be elected by only the Preferred Shareholders of PIA requires the approval of a majority of the Preferred Shares of the Fund represented and entitled to vote at the Meeting (voting separately as a single class).

 

The Trustees/Directors are divided into three separate classes, each class having a term of three years. The term of office of one of each of the three classes will expire each year. At a meeting of ICB held on June 18-19, 2009, the Board approved an amendment to the By-Laws of ICB providing for three separate classes of Directors. In accordance with this amendment, all Directors of ICB are standing for election at this Meeting with terms to expire in 2010, 2011 and 2012, or until their successors shall have been elected and qualified.

 

The Boards have previously determined that any nominee for election as Trustee/Director of each Fund will stand for election as Trustee/Director and serve as Trustee/Director in one of the three classes of Trustees/Directors as follows: Class I — Messrs. Bowman, Bozic and Higgins; Class II — Ms. Dennis and Messrs. Johnson, Kearns and Reid; and Class III — Messrs. Klein, Nugent and Reed. Each nominee will, if elected, serve a term of up to approximately three years running for the period assigned to that class and terminating at the date of the Annual Meeting of Shareholders so designated by the Boards, or any adjournment thereof. In addition, pursuant to the Declaration of Trust of PIA and the 1940 Act, the Board of PIA previously determined that one of each of the Class II Trustees and Class III Trustees will be designated to be elected by the Preferred Shareholders voting separately. In this regard, Manuel H. Johnson and Michael E. Nugent serve as Trustees of the Board of Trustees of PIA on behalf of the Preferred Shareholders, the terms of each to expire with his designated Class. As a consequence of this method of election, the replacement of a majority of the Boards could be delayed for up to two years. In accordance with the above, with respect to OIA and PIA, four Trustees in Class II are standing for election at this Meeting and will, if elected, serve until the 2012 Annual Meeting for each Fund as set forth above or, in each case, until their successors shall have been elected and qualified. With respect to ICB, three Directors in Class I are standing for election at this Meeting and will, if elected, serve until the year 2011 meeting, four Directors in Class II are standing for election at this Meeting and will, if elected, serve until the year 2012 meeting and three Directors in Class III are standing for election at this Meeting and will, if elected, serve until the year 2010 meeting or, in each case, until their successors shall have been elected and qualified.

 

The current Trustees/Directors of the Funds also serve as directors or trustees for certain 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”). The table below sets forth the following information regarding the nominees for election as Trustee/Director, and each of the other Trustees/Directors (both the Independent Trustees/Directors and the Interested Trustee/Director), as well as the executive officers of the Funds: 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 Trustee/Director or nominee Trustee/Director (as of December 31, 2008) and other directorships, if any, held by the Trustees/Directors. 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.).

 

INDEPENDENT TRUSTEES/DIRECTORS:

 

 

 

 

 

 

 

 

 

The Trustee/Director who is affiliated with the Investment Adviser or affiliates of the Investment Adviser (as set forth below) and executive officers of the Funds, 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 the Interested Trustee/Director (as of December 31, 2008) and the other directorships held by the Interested Trustee/Director, are shown below.

 

INTERESTED TRUSTEE/DIRECTOR:

 

 

 

 

EXECUTIVE OFFICERS OF THE FUNDS:

 

 

 

 

 

 

For each Trustee/Director, the dollar range of equity securities beneficially owned by the Trustees/ Directors in the Funds 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, 2008 is shown below.

 

 

 

 

As to each Independent Trustee/Director and his or her immediate family members, no person owned beneficially or of record securities in an investment adviser or principal underwriter of the Funds, 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 Funds as of the record date.

 

Independent Trustees/Directors and the Committees

 

Law and regulation establish both general guidelines and specific duties for the Independent Trustees/Directors. The Retail Funds seek as Independent Trustees/Directors 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. The Board of each Fund has four Committees: (1) Audit Committee, (2) Governance Committee, (3) Compliance and Insurance Committee and (4) Investment Committee. Three of the Independent Trustees/Directors serve as members of the Audit Committee, three Independent Trustees/Directors serve as members of the Governance Committee, four Trustees/Directors, including three Independent Trustees/Directors, serve as members of the Compliance and Insurance Committee and all of the Trustees/Directors serve as members of the Investment Committee.

The Independent Trustees/Directors are charged with recommending to the full Board approval of management, advisory and administration contracts, 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 Board of Trustees/Directors of each Fund 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 (“Exchange Act”). Each Audit Committee is charged with recommending to the full Board the engagement or discharge of the Funds’ 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 such 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 Funds’ system of internal controls and reviewing the valuation process.

 

The members of the Audit Committee of each Fund are Joseph J. Kearns, Michael E. Nugent and W. Allen Reed. None of the members of the Funds’ Audit Committee is an “interested person,” as defined under the 1940 Act, of any of the Funds (with such disinterested Trustees/Directors being “Independent Trustees/Directors” or individually, “Independent Trustee/Director”). Each Independent Trustee/Director is also “independent” from each Fund under the listing standards of the New York Stock Exchange, Inc. (“NYSE”). The Chairperson of the Audit Committee of each of the Funds is Joseph J. Kearns. The Board of Trustees/Directors of each Fund has adopted a formal written charter for the Audit Committee which sets forth the Audit Committee’s responsibilities. A copy of the Audit Committee Charter is attached to this Joint Proxy Statement as Exhibit A.

 

The Board of Trustees/Directors of each Fund also has a Governance Committee. The Governance Committee identifies individuals qualified to serve as Independent Trustees/Directors on each Fund’s Board and on committees of such Board and recommends such qualified individuals for nomination by the Funds’ Independent Trustees/Directors as candidates for election as Independent Trustees/Directors, advises each Fund’s Board with respect to Board composition, procedures and committees, develops and recommends to each Fund’s Board a set of corporate governance principles applicable to the Funds, monitors and makes recommendations on corporate governance matters and policies and procedures of each Fund’s Board of Trustees/Directors and any Board committees and oversees periodic evaluations of each Fund’s Board and its committees. The members of the Governance Committee of each Fund are Kathleen A. Dennis, Michael F. Klein and Fergus Reid, each of whom is an Independent Trustee/Director. The Chairperson of the Governance Committee is Fergus Reid. The Board of Trustees/Directors of each Fund has adopted a formal written charter for the Governance Committee which sets forth the Governance Committee’s responsibilities. A copy of the Governance Committee Charter is attached to the 2007 Joint Proxy Statement filed for the Funds with the Securities and Exchange Commission (the “SEC”) on November 5, 2007.

 

The Funds do not have a separate nominating committee. While each Fund’s Governance Committee recommends qualified candidates for nominations as Independent Trustees/Directors, the Board of Trustees/Directors of each Fund believes that the task of nominating prospective Independent Trustees/Directors is important enough to require the participation of all current Independent Trustees/Directors, rather than a separate committee consisting of only certain Independent Trustees/Directors. Accordingly, each current

Independent Trustee/Director (Frank L. Bowman, Michael Bozic, Kathleen A. Dennis, Manuel H. Johnson, Joseph J. Kearns, Michael F. Klein, Michael E. Nugent, W. Allen Reed and Fergus Reid) for all Funds participates in the election and nomination of candidates for election as Independent Trustees/Directors for the respective Funds for which the Independent Trustee/Director serves. Persons recommended by each of the Fund’s Governance Committee as candidates for nomination as Independent Trustees/Directors shall possess such knowledge, experience, skills, expertise and diversity so as to enhance the Boards’ ability to manage and direct the affairs and business of the Funds, including, when applicable, to enhance the ability of committees of the Boards 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/Directors of the Funds expect to be able to continue to identify from their own resources an ample number of qualified candidates for each Fund’s Boards 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/Directors as described below under the caption “Shareholder Communications.”

 

The Board of Trustees/Directors of each Fund formed the Compliance and Insurance Committee to address insurance coverage and oversee the compliance function for each Fund and its Board. The Compliance and Insurance Committee consists of Frank L. Bowman, Michael Bozic, James F. Higgins and Manuel H. Johnson. Frank L. Bowman, Michael Bozic and Manuel H. Johnson are Independent Trustees/Directors. The Chairperson of the Compliance and Insurance Committee is Michael Bozic. The Compliance and Insurance Committee has an Insurance Sub-Committee to review and monitor the insurance coverage maintained by each Fund. The Chairperson of the Insurance Sub-Committee is Frank L. Bowman.

 

The Investment Committee oversees the portfolio investment process for and reviews the performance of each Fund. The Investment Committee also recommends to the Boards to approve or renew the respective Fund’s Investment Advisory and Administration Agreements. The members of the Investment Committee are Frank L. Bowman, Michael Bozic, Kathleen A. Dennis, James F. Higgins, Manuel H. Johnson, Joseph Kearns, Michael F. Klein, Michael E. Nugent, W. Allen Reed and Fergus Reid. The Chairperson of the Investment Committee is Manuel H. Johnson.

 

The Investment Committee has three Sub-Committees, each with its own Chairperson. Each Sub-Committee focuses on the Funds’ primary areas of investment, namely equities, fixed income and money market/alternatives. The Sub-Committees and their members are as follows:

 

(1) Equity – W. Allen Reed (Chairperson), Frank L. Bowman and Michael E. Nugent.

 

(2) Fixed Income – Michael F. Klein (Chairperson), Michael Bozic and Fergus Reid.

 

(3) Money Market and Alternatives – Kathleen A. Dennis (Chairperson), James F. Higgins and Joseph J. Kearns.

 

The following chart sets forth the number of meetings of the Board, the Audit Committee, the Compliance and Insurance Committee, the Governance Committee and the Investment Committee of each Fund during its most recent fiscal year. During the fiscal year ended September 30, 2009 (for ICB) and the fiscal year ended May 31, 2009 (for OIA and PIA), each Trustee/Director attended at least seventy-five percent of the aggregate number of meetings of the Boards and any committee on which he or she served held during the time such Trustee/Director was a member of the Boards.

Number of Board and Committee Meetings Held During Last Fiscal Year

 

During each Fund’s fiscal year ended September 30, 2009 (ICB) and May 31, 2009 (OIA and PIA), the Board of Trustees/Directors held the following meetings:

 

 

For annual or special shareholder meetings, Trustees/Directors may, but are not required to, attend the meetings; and for each Fund’s last annual shareholder meeting, no Trustees/Directors attended the meeting.

 

Shareholder Communications

 

Shareholders may send communications to each Fund’s Board of Trustees/Directors. Shareholders should send communications intended for each Fund’s Board by addressing the communications directly to that 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/Director previously noted. Other shareholder communications received by each Fund not directly addressed and sent to that Fund’s 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.

 

Each of the nominees for Trustee/Director has consented to be named in this Joint Proxy Statement and to serve as a Trustee/Director of the Funds if elected. The Board of Trustees/Directors of each Fund has no reason to believe that any of the nominees named above will become unavailable for election as a Trustee/Director, but if that should occur before the Meeting for that Fund, the persons named as proxies on the Proxy Card will vote for such persons as the Board of Trustees/Directors of the Fund may recommend.

 

Share Ownership by Trustees/Directors

 

The Trustees/Directors have adopted a policy pursuant to which each Trustee/Director and/or his or her spouse is required to invest at least $100,000 in any of the funds in the Morgan Stanley Retail and Institutional Funds on whose boards the Trustee/Director serves. In addition, the policy contemplates that the Trustees/Directors will, over time, increase their aggregate investment in the funds above the $100,000 minimum requirement. The Trustees/Directors may allocate their investments among specific funds in any manner they determine is appropriate based on their individual investment objectives. Any future Trustee/Director will be given a one-year period following his or her election within which to comply with the foregoing. As of the date of this Joint Proxy Statement, each Trustee/Director is in compliance with the policy.

As of the Record Date for these Meetings, the aggregate number of Shares of ICB, OIA and PIA owned by the Funds’ officers and Trustees/Directors as a group was less than one percent of each Fund’s outstanding Shares.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires that each Fund’s executive officers and Trustees/Directors, and beneficial owners of more than 10% of its shares, make certain filings on a timely basis under Section 16(a) of the Exchange Act. Based solely on a review of copies of such reports of ownership furnished to the Funds, due to an administrative oversight, Mr. Francis J. Smith did not file an initial form of ownership on Form 3 on a timely basis.

 

Compensation of Trustees/Directors

 

Each Trustee/Director (except for the Chairperson of the Boards) receives an annual retainer fee of $200,000 for serving the Retail Funds and the Institutional Funds. The Chairperson of the Audit Committee receives an additional annual retainer fee of $75,000 and the Investment Committee Chairperson receives an additional annual retainer fee of $60,000. Other Committee Chairpersons receive an additional annual retainer fee of $30,000 and the Investment Sub-Committee Chairpersons receive an additional annual retainer fee of $15,000. The aggregate compensation paid to each Trustee/Director 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. Michael E. Nugent receives a total annual retainer fee of $400,000 for his services as Chairperson of the Boards of the Retail Funds and the Institutional Funds and for administrative services provided to each Board.

 

The Funds also reimburse the Trustees/Directors for travel and other out-of-pocket expenses incurred by them in connection with attending such meetings. Trustees/Directors of the Funds who are employed by the Investment Adviser receive no compensation or expense reimbursement from the Funds for their services as Trustee/Director.

 

Effective April 1, 2004, the Funds began a Deferred Compensation Plan (the “DC Plan”), which allows each Trustee/Director to defer payment of all, or a portion, of the fees he or she receives for serving on the Board of Trustees/Directors throughout the year. Each eligible Trustee/Director 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 DC Plan. At the Trustee/Director’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/Director 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 Funds.

 

Prior to April 1, 2004, the Institutional Funds maintained a similar Deferred Compensation Plan (the “Prior DC Plan”), which also allowed each Independent Trustee/Director to defer payment of all, or a portion, of the fees he or she received for serving on the Board of Trustees/Directors 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 DC Plan (except for amounts paid during the 2004 calendar year which remain subject to the terms of the Prior DC Plan).

The following table shows aggregate compensation payable to each of the Trustees/Directors from each Fund for the fiscal year ended September 30, 2009 (ICB) and May 31, 2009 (OIA and PIA) and the aggregate compensation payable to each of the Fund’s Trustees/Directors by the Fund Complex (which includes all of the Retail Funds and Institutional Funds) for the calendar year ended December 31, 2008.

 

Compensation⁽¹⁾

 

 

 

 

Prior to December 31, 2003, 49 of the Retail Funds (the “Adopting Funds”), including the Funds, had adopted a retirement program under which an Independent Trustee/Director who retired after serving for at least five years as an Independent Trustee/Director of any such fund (an “Eligible Trustee/Director”) 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/Director was frozen, and will be payable, together with a return of 8% per annum, at or following each such Eligible Trustee/Director’s retirement as shown in the table below.

 

The following tables illustrate the retirement benefits accrued to the Funds’ Independent Trustees/Directors by the Funds for the fiscal year ended September 30, 2009 (ICB) and May 31, 2009 (OIA and PIA) and by the Adopting Funds for the calendar year ended December 31, 2008, and the estimated retirement benefits for the Independent Trustees/Directors from the Funds as of each Fund’s fiscal year and from the

Adopting Funds for each calendar year following retirement. Only the Trustees/Directors listed below participated in the retirement program.

 

 

 

 

 

Assuming a Quorum is present, approval of the Proposal with respect to each Fund will require the affirmative vote of a majority of each Fund’s shares represented in person or by proxy at the Meetings and entitled to vote at the Meetings.

 

The Board of Trustees/Directors of each Fund unanimously recommends that Shareholders vote FOR the election for each of the Trustees/Directors nominated for election.

Security Ownership of Certain Beneficial Owners

 

To the knowledge of the management of each Fund, the following persons owned beneficially more than 5% of the noted Fund’s outstanding shares at the Record Date. This information is based on publicly available Schedule 13D and 13G disclosures filed with the SEC.

 

 

 

 

 

The Investment Adviser

 

Morgan Stanley Investment Advisors serves as each Fund’s investment adviser pursuant to an investment advisory agreement. Morgan Stanley Investment Advisors maintains its offices at 522 Fifth Avenue, New York, New York 10036. Morgan Stanley Investment Advisors is a wholly-owned subsidiary of Morgan Stanley, a Delaware corporation. Morgan Stanley is a preeminent global financial services firm engaged in securities trading and brokerage activities, as well as providing investment banking, research and analysis, financing and financial advisory services.

 

Morgan Stanley Services, a wholly-owned subsidiary of the Investment Adviser, serves as the Administrator of each Fund pursuant to an administration agreement. The Investment Adviser and the Administrator serve in various investment management, advisory, management and administrative capacities to investment companies and pension plans and other institutional and individual investors. The address of the Administrator is the same as that of the Investment Adviser set forth above.

 

Morgan Stanley has its offices at 1585 Broadway, New York, New York 10036. There are various lawsuits pending against Morgan Stanley involving material amounts which, in the opinion of its management, will be resolved with no material effect on the consolidated financial position of the company.

 

Audit Committee Report

 

At meetings held on September 24, 2009 (ICB) and June 19, 2009 (OIA and PIA), the Board of Trustees/Directors of each Fund, including a majority of the Trustees/Directors who are not “interested persons” of the

Funds as defined under the 1940 Act, acting on the recommendation of the Audit Committee of each Fund, selected Deloitte & Touche LLP to act as the independent registered public accounting firm for each Fund for the fiscal years ending September 30, 2010 (ICB) and May 31, 2010 (OIA and PIA).

 

The Audit Committee of each Fund has reviewed and discussed the financial statements of each Fund with management as well as with Deloitte & Touche LLP, the independent registered public accounting firm for each Fund. In the course of its discussions, the Audit Committee also discussed with Deloitte & Touche LLP any relevant matters required to be discussed under Statement on Auditing Standards No. 61. Based on this review, the Audit Committee recommended to the Board of Trustees/Directors of each Fund that each Fund’s audited financial statements be included in each Fund’s Annual Report to Shareholders for the most recent fiscal year for filing with the SEC. The Audit Committee has received the written disclosures and the letter from Deloitte & Touche LLP required under Public Company Accounting Oversight Board’s Ethics & Independence Rule 3526 and has discussed with the independent registered public accounting firm their independence with respect to each Fund. Each Fund knows of no direct financial or material, indirect financial interest of Deloitte & Touche LLP in the Fund.

 

The Audit Committee

 

Joseph J. Kearns (Chairperson)
Michael E. Nugent

W. Allen Reed

 

Representatives from Deloitte & Touche LLP are not expected to be present at the Meetings but are expected to be available by telephone. Representatives from Deloitte & Touche LLP will have the opportunity to make a statement if they desire to do so and will respond to appropriate questions from Shareholders.

 

FEES BILLED BY THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Audit Fees

 

The aggregate fees for professional services billed by Deloitte & Touche LLP in connection with the annual audit and review of financial statements of ICB for its fiscal years ended September 30, 2008 and September 30, 2009, and in connection with the annual audit and review of financial statements of OIA and PIA for the fiscal years ended May 31, 2008 and May 31, 2009 are set forth below.

 

Audit-Related Fees

 

The aggregate audit-related fees billed by Deloitte & Touche LLP related to the annual audit of each Fund’s financial statements for their respective fiscal years ended September 30, 2008 and September 30, 2009 (for ICB) and May 31, 2008 and May 31, 2009 (for OIA and PIA), for the translation of financial statements for data verification and agreed-upon procedures related to asset securitizations and agreed-upon procedures engagements are set forth below.

 

 

Tax Fees

 

The aggregate fees billed by Deloitte & Touche LLP in connection with tax compliance, tax advice and tax planning for each Fund for their respective fiscal years ended September 30, 2008 and September 30, 2009 (for ICB) and May 31, 2008 and May 31, 2009 (for OIA and PIA), which represent fees paid for the review of the Federal, state and local tax returns for each Fund, are set forth below.

 

 

All Other Fees

 

There were no fees billed by Deloitte & Touche LLP for any other products and services not set forth above for each Fund for their respective fiscal years ended September 30, 2008 and September 30, 2009 (for ICB) and May 31, 2008 and May 31, 2009 (for OIA and PIA).

 

Audit Committee Pre-approval

 

Each Fund’s Audit Committee’s policy is to review and pre-approve all auditing and non-auditing services to be provided to the Fund by the Fund’s independent registered public accounting firm. The Audit Committee Audit and Non-Audit Pre-Approval Policy and Procedures requires each Fund’s Audit Committee to either generally pre-approve certain services without consideration of specific case-by-case services or requires the specific pre-approval of services by the Audit Committee or its delegate. Under the Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee if it is to be provided by the independent registered public accounting firm. Any services that are generally pre-approved may require specific pre-approval by the Audit Committee if the services exceed pre-approved cost levels or budgeted amounts. All of the audit and the tax services described above for which Deloitte & Touche LLP billed each of the Fund’s fees for the respective fiscal year ended September 30, 2009 (for ICB) and May 31, 2009 (for OIA and PIA) were pre-approved by each Fund’s Audit Committee.

Aggregate Non-Audit Fees paid by the Investment Adviser and Affiliated Entities

 

The aggregate fees billed for professional services rendered by Deloitte & Touche LLP for all other services provided to the Investment Adviser and to any entities controlling, controlled by or under common control with the Investment Adviser for the fiscal years ended September 30, 2008 and 2009 (for ICB) amounted to approximately $5.3 million and $7.3 million, respectively; and for the fiscal years ended May 31, 2008 and 2009 (for OIA and PIA) amounted to $5.1 million and $7.1 million, respectively.

 

The Audit Committee of each Fund has considered whether the provision of non-audit services and the provision of services to affiliates of the Investment Adviser are compatible with maintaining the independence of Deloitte & Touche LLP.

 

ADDITIONAL INFORMATION

 

In the event that the necessary Quorum to transact business or the vote required to approve or reject any proposal for any Fund is not obtained at the Meeting of any Fund, the persons named as proxies may propose one or more adjournments of the Meeting of the applicable Fund to permit further solicitation of proxies. Any such adjournment will require the affirmative vote of the holders of a majority of the applicable Fund’s shares present in person or by Proxy at the Meeting. The persons named as proxies will vote in favor of such adjournment those proxies which have been received by the date of the Meeting. Abstentions and broker “non-votes” will not count in favor of or against any such vote for adjournments.

 

Abstentions and, if applicable, broker “non-votes” will not count as votes in favor of any proposal, but will be deemed to be present at the Meeting of any Fund for purposes of determining a Quorum. Broker “non-votes” are shares held in street name for which the broker indicates that instructions have not been received from the beneficial owners or other persons entitled to vote and for which the broker does not have discretionary voting authority.

 

SHAREHOLDER PROPOSALS

 

A shareholder’s proposal intended to be presented at the Fund’s Annual Meeting of Shareholders in 2010 must be received by the Fund on or before January 14, 2010 in order to be included in the Fund’s Proxy Statement and Proxy Card relating to that meeting. Any shareholder who desires to bring a proposal at the Fund’s Annual Meeting of Shareholders in 2010, without including such proposal in the Fund’s Proxy Statement, must deliver written notice thereof to the Secretary of the Fund not before March 27, 2010 and not later than April 26, 2010, in the manner and form required by the Fund’s By-Laws. The Fund will furnish, without charge, a copy of its By-Laws to any shareholder of the Fund requesting the By-Laws. Requests for the Fund’s By-Laws should be made in writing to the Fund, c/o Morgan Stanley Investment Advisors Inc., 522 Fifth Avenue, Legal Department — 19^th Floor, New York, New York 10036.

REPORTS TO SHAREHOLDERS

 

Each Fund’s most recent Annual Report for that Fund’s most recent fiscal year end and the most recent Semi-Annual Report succeeding the Annual Report have been previously sent to Shareholders and are available without charge upon request from Morgan Stanley’s Client Relations Department, 2800 Post Oak Blvd., 44th Floor, Houston, Texas 77056, (888) 421-4015 (toll-free) or by visiting www.morganstanley.com/im.

 

OTHER BUSINESS

 

The management of the Funds knows of no other matters which may be presented at the Meetings. However, if any matters not now known properly come before the Meetings, it is the intention of the persons named in the enclosed form of Proxy, or their substitutes, to vote all shares that they are entitled to vote on any such matter, utilizing such Proxy in accordance with their best judgment on such matters.

 

By Order of the Boards of Trustees/Directors

 

Mary E. Mullin

Secretary

 

EXHIBIT A

 

CHARTER
OF THE
AUDIT COMMITTEE
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS

 

ADOPTED ON JULY 31, 2003
AND
AS AMENDED AND RESTATED ON FEBRUARY 20, 2007
AND
AS FURTHER AMENDED ON FEBRUARY 24, 2009

 

The Boards of Directors/Trustees (collectively, the “Board”) of the investment companies (each a “Fund” and collectively, the “Funds”) advised or managed by Morgan Stanley Investment Advisors Inc., Morgan Stanley Investment Management Inc. and Morgan Stanley AIP GP LP (collectively the “Adviser”) listed on the attached Exhibit A has adopted and approved this charter for the audit committee of the Board (the “Audit Committee”).¹

 

 

Independent Directors and Trustees

 

Each member of the Audit Committee shall be an independent director or trustee. A person shall be considered to be independent if he or she: (a) is independent as defined in New York Stock Exchange Listed Company Standard 303.01 (2) and (3); (b) is not an “interested person” as defined in Section 2(a)(19) of the Investment Company Act of 1940; and (c) does not accept, directly or indirectly, any consulting, advisory or other compensatory fee from any of the Funds or their investment advisor or any affiliated person of the advisor, other than fees from the Funds for serving as a member of the Board or Committees of the Board.

 

The Audit Committee shall consist of not less than two members of the Board.

 

The Audit Committee shall have a Chairperson. The Chairperson or his/her designee shall set the agenda for, and preside at, each meeting of the Audit Committee and shall engage in such other activities on behalf of the Audit Committee as shall be determined from time to time by the Audit Committee.

 

The Chairperson and members of the Audit Committee shall be appointed by the Governance Committee of the Funds in consultation with the Board.

 

 

¹     Solely for the sake of clarity and simplicity, this Charter has been drafted as if there is a single Committee and a single Board. The terms “Committee,” “Directors/Trustees” and “Board” mean the Committee, Directors/Trustees and the Board of each Fund, respectively, unless the context otherwise requires. The Committee, Directors/Trustees and the Board of each Fund, however, shall act separately and in the best interests of its respective Fund.

Financially Literate

 

Each member of the Audit Committee shall be “financially literate,” as such term is interpreted by the Board in its business judgment.

 

Audit Committee Financial Expert

 

The Audit Committee shall determine whether at least one member of the Audit Committee is an “audit committee financial expert,” as that term is defined in the General Instructions of Form N-SAR, sub-item 102P3(b)(6).

 

 

An independent public accounting firm may serve as a Fund’s auditor (the “Auditor”) only if it complies with all of the independence requirements set forth in Regulation S-X under the Securities Act of 1933 and the Public Company Accounting Oversight Board’s (“PCAOB”) Ethics and Independence Rule 3526, subject to such exceptions, not prohibited by law, as the Audit Committee may allow. The Auditor shall: (i) at least annually, submit to the Audit Committee a certification of its independence, delineating all relationships between the Auditor and the Fund, consistent with Rule 2-01 of Regulation S-X under the Securities Act of 1933 and the PCAOB’s Ethics and Independence Rule 3526, and (ii) actively engage in a dialogue with the Audit Committee with respect to any disclosed relationships or services that may affect the objectivity and independence of such independent accountants, including relationships with or services provided to the Fund’s other service providers.

 

 

The Auditor must be registered with the PCAOB.

 

 

Promptly upon initiation against it of any inquiry or investigation by a governmental authority the Auditor shall provide information to the Audit Committee regarding any material issues raised in such inquiry or investigation and any steps taken to deal with them.

 

 

The Audit Committee shall have the duty and power to:

 

 

 

 

 

Valuation

 

 

Authority to Engage Independent Counsel and Advisers

 

The Audit Committee is authorized to: (a) engage independent counsel, which may also be counsel to the Funds’ independent Directors/Trustees, and other advisers, as it determines to be necessary to carry out its duties; and (b) require the Funds to provide appropriate funding, as determined by the Audit Committee, for payment of compensation to the Auditor, the independent counsel and other advisers.

 

Scope of Audit Committee Responsibility

 

In fulfilling their responsibilities under this Audit Committee Charter, it is recognized that members of the Audit Committee are not full-time employees of the Fund. As such, it is not the duty or responsibility of the Audit Committee or its members to conduct “field work” or other types of auditing or accounting reviews or

procedures. Each member of the Audit Committee shall be entitled to rely on (i) the integrity of those persons and organizations inside and outside the Fund from which the Audit Committee receives information and (ii) the accuracy of the financial, valuation and other information provided to the Audit Committee by such persons or organizations, absent actual knowledge to the contrary (which actual knowledge shall be promptly reported to the Board).

 

Fund management is responsible for maintaining appropriate systems for accounting. The Auditor is responsible for conducting a proper audit of each Fund’s financial statements and is ultimately accountable to the Audit Committee.

 

 

The Audit Committee shall meet independently at each regularly scheduled Board meeting and at such other times as deemed appropriate by the Audit Committee but no less frequently than quarterly, including to approve the scope of the proposed audit of a Fund’s financial statements by the Auditors and to review the report of the Auditors following such audit. Members of the Audit Committee may participate in a meeting of the Audit Committee by means of conference call or similar communications equipment by means of which all persons participating in such meeting can hear each other.

 

 

From time to time, the Audit Committee may delegate to the Chairperson or other designated Audit Committee member the responsibility to act, on an interim basis between meetings of the Audit Committee or Board, on audit and valuation related matters, including specifically, approval of annual financial statements, provided that the Audit Committee or Board is not required by this Charter or law to take such actions or is not prevented by this Charter or law from delegating such actions. Interim actions may be taken by written consent of the Audit Committee. All other interim actions by the Chairperson or his/her designee will be submitted for ratification at the next meeting of the Audit Committee.

 

 

The Audit Committee shall cause to be made and kept minutes of its meetings. The Audit Committee shall report to the Board its activities, findings and recommendations.

 

 

The Audit Committee shall review this Audit Committee Charter at least annually, and shall recommend any changes to the Board. This Audit Committee Charter may be amended only by the Board, with the approval of a majority of the independent Directors/Trustees.

 

 

[Exhibit A to the Audit Committee Charter has been intentionally omitted]

APPENDIX B

 

AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS

AS ADOPTED AND AMENDED JULY 23, 2004²

 

Statement of Principles

 

The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor’s independence from the Fund.

 

The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee’s administration of the engagement of the independent auditor. The SEC’s rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee (“general pre-approval”); or require the specific pre-approval of the Audit Committee or its delegate (“specific pre-approval”). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee.

 

The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations.

 

The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee’s responsibilities to pre-approve services performed by the Independent Auditors to management.

 

The Fund’s Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors’ independence.

 

 

²     This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the “Policy”), adopted as of the date above, supersedes and replaces all prior versions that may have been adopted from time to time.

 

Delegation

 

As provided in the Act and the SEC’s rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.

 

Audit Services

 

The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund’s financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items.

 

In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.

 

The Audit Committee has pre-approved the Audit services in Appendix B.1. All other Audit services not listed in Appendix B.1 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).

 

Audit-related Services

 

Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund’s financial statements and, to the extent they are Covered Services, the Covered Entities or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC’s rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “Audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Forms N-SAR and/or N-CSR.

 

The Audit Committee has pre-approved the Audit-related services in Appendix B.2. All other Audit-related services not listed in Appendix B.2 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).

 

Tax Services

 

The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor’s independence, and the SEC has stated that the Independent Auditors may provide such services.

 

Pursuant to the preceding paragraph, the Audit Committee has pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).

 

All Other Services

 

The Audit Committee believes, based on the SEC’s rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC’s rules on auditor independence.

 

The Audit Committee has pre-approved the All Other services in Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).

 

Pre-Approval Fee Levels or Budgeted Amounts

 

Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services.

 

Procedures

 

All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund’s Chief Financial Officer and must include a detailed description of the services to be rendered. The Fund’s Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the Independent Auditors and the Fund’s Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC’s rules on auditor independence.

 

The Audit Committee has designated the Fund’s Chief Financial Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund’s Chief Financial Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Fund’s Chief Financial Officer and management will immediately report to

the chairman of the Audit Committee any breach of this Policy that comes to the attention of the Fund’s Chief Financial Officer or any member of management.

 

Additional Requirements

 

The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor’s independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with the PCAOB’s Ethics and Independence Rule 3526, and discussing with the Independent Auditors its methods and procedures for ensuring independence.

 

Covered Entities

 

Covered Entities include the Fund’s investment adviser(s) and any entity controlling, controlled by or under common control with the Fund’s investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund’s audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include:

 

Morgan Stanley Retail Funds
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB

 

Morgan Stanley Institutional Funds
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
Morgan Stanley Services Co.