[Federal Register Volume 88, Number 236 (Monday, December 11, 2023)]
[Notices]
[Pages 85918-85931]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27082]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Prohibited Transaction Exemption 2023-21; Exemption Application No. D-
11955]


Exemption From Certain Prohibited Transaction Restrictions 
Involving Morgan Stanley & Co. LLC, and Current and Future Affiliates 
and Subsidiaries (Morgan Stanley or the Applicant) Located in New York, 
New York

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of exemption.

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SUMMARY: This document contains a notice of exemption issued by the 
Department of Labor (the Department) from certain of the prohibited 
transaction restrictions of the Employee Retirement Income Security Act 
of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986 
(the Code).

DATES: The exemption will be in effect on the date that this grant 
notice is published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. Joseph Brennan of the Department 
at (202) 693-8456. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: On November 18, 2021, the Department 
published a notice of proposed exemption in the Federal Register at 86 
FR 64695, permitting Morgan Stanley & Co. LLC, or an affiliate of 
Morgan Stanley & Co. LLC (together, Morgan Stanley) to engage in 
certain transactions with Mitsubishi UFJ Financial Group, Inc., or an 
affiliate of Mitsubishi UFJ Financial Group, Inc. (together 
Mitsubishi).
    Under the exemption, certain restrictions of ERISA sections 406(a) 
and 406(b) and certain sanctions resulting from the application of Code 
section 4975,\1\ shall not apply to transactions involving Morgan 
Stanley and Mitsubishi (described below) that are modeled after the 
following class exemptions: Prohibited Transaction Exemption (PTE) 75-
1, Part III and Part IV, PTE 77-3, PTE 77-4, PTE 79-13, PTE 86-128, and 
PTE 2002-12, provided the conditions of this exemption are met.\2\ This 
exemption provides only the relief specified in its text and does not 
provide relief from violations of any law other than the prohibited 
transaction provisions of ERISA expressly stated herein. Accordingly, 
affected parties should be aware that the conditions incorporated in 
this exemption are, taken as a whole, necessary for the Department to 
grant the relief requested by the Applicant. Absent these or similar 
conditions, the Department would not have granted this exemption.
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    \1\ For purposes of this proposed exemption reference to 
specific provisions of Title I of ERISA, unless otherwise specified, 
should be read to refer as well to the corresponding Code 
provisions.
    \2\ Part III and Part IV of Prohibited Transaction Exemption 75-
1 (PTE 75-1 Parts III and IV)(40 FR 50845, October 31, 1975); 
Prohibited Transaction Exemption 77-3 (PTE 77-3) (42 FR 18734, April 
8, 1977); Prohibited Transaction Exemption 77-4 (PTE 77-4) (42 FR 
18732, April 8, 1977); Prohibited Transaction Exemption 79-13 (PTE 
79-13) (44 FR 25533, May 1, 1979); Prohibited Transaction Exemption 
86-128 (PTE 86-128) (51 FR 41686, November 18, 1986), as amended by 
(67 FR 64137, October 17, 2002); Prohibited Transaction Exemption 
2002-12 (PTE 2002-12)(67 FR 9483, March 1, 2002).
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    The Applicant requested an individual exemption pursuant to ERISA 
section 408(a) in accordance with the Department's procedures set forth 
in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).

Background

    Currently, Mitsubishi is the largest investor in Morgan Stanley, 
holding 24.5 percent of Morgan Stanley's outstanding common stock. 
Mitsubishi also currently nominates two directors to Morgan Stanley's 
board of directors. Despite this ownership interest, the Applicant 
states that Mitsubishi does not have sufficient control over Morgan 
Stanley to warrant treatment of Mitsubishi and Morgan Stanley as 
``affiliates'' within the meaning of certain Applicable Class 
Exemptions, which are described below.\3\
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    \3\ For example, Section I(b) of PTE 86-128 defines an 
``affiliate'' as, in relevant part, ``any person directly 
controlling, controlled by, or under common control with the person 
. . .'' where ``[t]he term `control' means the power to exercise a 
controlling influence over the management or policies of a person 
other than an individual.'' By granting this exemption, the 
Department does not express any view on whether Mitsubishi and 
Morgan Stanley are or are not ``affiliates'' within the meaning of 
the Applicable Exemptions.
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    The Department has granted a wide variety of class exemptions that 
permit affiliated parties to engage in specified plan-related 
transactions, provided that certain protective conditions are met. The 
following seven class exemptions (the Applicable Class Exemptions) are 
relevant to this exemption:
    PTE 75-1, Part III permits a fiduciary to cause a plan to purchase 
securities from a member of an underwriting syndicate, when the 
fiduciary is also a member of such syndicate, and the member selling 
the securities to the plan is not affiliated with the fiduciary. The

[[Page 85919]]

class exemption defines the term ``fiduciary'' to include 
``affiliates'' of the fiduciary.
    PTE 75-1, Part IV permits a plan to purchase or sell securities in 
a principal transaction with a fiduciary that is also a ``market-
maker'' with respect to such securities. For purposes of the exemption, 
the term ``fiduciary'' includes ``affiliates'' of the fiduciary.
    PTE 77-3 permits the acquisition or sale of shares of a registered 
open-end investment company (a mutual fund) by a plan that covers only 
employees of the mutual fund, the mutual fund's investment adviser, the 
mutual fund's underwriter, or an affiliate thereof.
    PTE 77-4 permits the purchase or sale by a plan of shares of a 
mutual fund, where the mutual fund's investment adviser is a plan 
fiduciary, or is affiliated with a plan fiduciary, but is not an 
employer of employees covered by the plan.
    PTE 79-13 permits the purchase, ownership, and sale of shares of a 
closed-end mutual fund by a plan, where such plan covers only employees 
of the closed-end mutual fund, employees of an investment adviser to 
the closed-end mutual fund, or employees of an affiliate of the closed-
end mutual fund or investment adviser.
    PTE 86-128 provides an exemption for certain fiduciaries and their 
affiliates to receive a fee from a plan or IRA for effecting or 
executing securities transactions as an agent on behalf of the plan or 
IRA. PTE 86-128 also allows a fiduciary (or an affiliate of a 
fiduciary) to act as an agent in an ``agency cross transaction'' for 
both a plan (or IRA) and for another party to the transaction, and to 
receive reasonable compensation from another party to the transaction.
    PTE 2002-12 permits the cross-trading of securities by and between 
certain index and model-driven funds managed by investment 
``managers,'' and among index and model-driven funds, and certain large 
accounts, that engage such ``managers.'' For purposes of PTE 2002-12, 
the term ``manager'' includes affiliates of the ``manager.''
    Assuming that Morgan Stanley and Mitsubishi are not affiliates for 
the purposes of the Applicable Class Exemptions, as they indicate,\4\ 
they could not engage in the affiliated transactions described above 
without violating ERISA Section 406. Morgan Stanley, therefore, 
requested an exemption that, in general terms, would allow Morgan 
Stanley and Mitsubishi to treat the other as an ``affiliate'' for 
purposes of the Applicable Class Exemptions when engaging in 
transactions that would otherwise mirror the affiliated transactions 
described above.
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    \4\ As previously stated, the Department does not express any 
view on whether Mitsubishi and Morgan Stanley are or are not 
``affiliates'' within the meaning of the Applicable Exemptions.
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    The Applicant represents that the exemption would enhance plans 
investment and service provider options. According to Morgan Stanley, 
plan participants would have access to more counterparties and 
investment products in the market. In addition, the plans would have 
access to more efficient and less expensive brokerage services.
    This exemption contains certain new conditions that are not 
otherwise found in the Applicable Class Exemptions (the New 
Conditions). One New Condition requires the Morgan Stanley/Mitsubishi 
Entities to comply with a new ``Impartial Conduct Standard'' and act in 
the Best Interest of plans. Another New Condition requires the Morgan 
Stanley/Mitsubishi Entity to provide plans with written notice that 
discloses (a) the ownership relationship between Morgan Stanley and 
Mitsubishi, and (b) that the transactions will provide a benefit to 
Morgan Stanley and/or Mitsubishi, and/or involve a conflict of 
interest.
    The Department granted each Applicable Class Exemption after 
determining on the record that each exemption was administratively 
feasible and in the interest of and protective of affected plans. Given 
that the transactions in this exemption are substantially similar to 
those permitted by the Applicable Class Exemptions, subject to not only 
essentially the same suite of conditions, but also to the New 
Conditions, the Department has determined that this exemption is 
administratively feasible and in the interest of, and protective of, 
affected plans and their participants and beneficiaries.

Written Comments

    In the proposed exemption, the Department invited all interested 
persons to submit written comments and/or requests for a public hearing 
with respect to the notice of proposed exemption. All comments and 
requests for a hearing were due to the Department by January 18, 2022. 
The Department received one written comment from the Applicant. The 
Department did not receive any requests for a public hearing.

Comments From the Applicant

    Factual Clarification 1: Representation 3 of the proposed exemption 
states as follows: ``Immediately after the conversion, Mitsubishi-owned 
shares of Morgan Stanley Common Stock represented approximately 22.56% 
of the outstanding shares of Morgan Stanley Common Stock. Subsequently, 
Mitsubishi's ownership percentage of Morgan Stanley common stock 
gradually increased because of Morgan Stanley's ongoing repurchases of 
stock from other investors.'' \5\
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    \5\ 86 FR 64696.
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    The Applicant states: (a) Mitsubishi's ownership interest in Morgan 
Stanley has decreased since Morgan Stanley agreed to convert all 
Mitsubishi-owned Morgan Stanley Series B Preferred Stock into Morgan 
Stanley common stock; (b) it cannot represent that Mitsubishi's 
ownership interest has decreased because of stock repurchases from 
others; and (c) it cannot confirm the 22.56% ownership interest 
referenced in the proposed exemption, as that was not a fact that the 
Applicant provided to the Department.
    Department's Response: The Department accepts the clarifications 
noted by the Applicant.
    Factual Clarification 2: Representation 3 of the proposed exemption 
states as follows: ``Mitsubishi is currently the largest investor in 
Morgan Stanley, holding 24.5 percent of Morgan Stanley's outstanding 
common stock.'' The Applicant states that, while Mitsubishi did hold 
24.5 percent of Morgan Stanley's outstanding common stock on the date 
of the Applicant's application to the Department (June 4, 2018), 
Mitsubishi's investment in Morgan Stanley had decreased to 20.2% as of 
March 22, 2021.
    Department's Response: The Department accepts Applicant's requested 
clarification but notes that, as of June 30, 2023, Mitsubishi's 
investment in Morgan Stanley equaled 22.76 percent. The Department also 
notes that, as of June 30, 2023, Mitsubishi remained the largest 
investor in Morgan Stanley.
    Department's Note: The summary to the proposed exemption stated 
that relief granted in PTE 77-4 was limited to ERISA section 
406(a)(1)(B) and ERISA section 406(b). Part IV of the proposed 
exemption, which extends exemptive relief for PTE 77-4-type 
transactions, erroneously included exemptive relief from ERISA section 
406(a)(1)(D). The Department has revised Part IV of this exemption for 
consistency with the proposed exemption's summary, and limited 
exemptive relief for PTE 77-4-type transactions to ERISA sections 
406(a)(1)(B) and 406(b). Further, the Department revised some of the

[[Page 85920]]

language in the sections below for clarity.
    The complete application file (D-11955) is available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, Room N-1515, U.S. Department of Labor, 200 
Constitution Avenue NW, Washington, DC 20210. For a more complete 
statement of the facts and representations supporting the Department's 
decision to grant this exemption, please refer to the notice of 
proposed exemption published in the Federal Register on November 18, 
2021, at 86 FR 64695.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under ERISA section 408(a) does not relieve a fiduciary or other party 
in interest from requirements of other ERISA provisions, including any 
prohibited transaction provisions to which the exemption does not apply 
and the general fiduciary responsibility provisions of ERISA section 
404, which, among other things, require fiduciaries to discharge their 
duties respecting the plan solely in the interest of the plan's 
participants and beneficiaries and in a prudent fashion in accordance 
with ERISA section 404(a)(1)(B).
    (2) As required by ERISA section 408(a), the Department hereby 
finds that the exemption is: (a) administratively feasible; (b) in the 
interests of affected plans and of their participants and 
beneficiaries; and (c) protective of the rights of participants and 
beneficiaries of such plans.
    (3) This exemption is supplemental to, and not in derogation of, 
any other ERISA provisions, including statutory or administrative 
exemptions and transitional rules. Furthermore, the fact that a 
transaction is subject to an administrative or statutory exemption is 
not dispositive of determining whether the transaction is in fact a 
prohibited transaction.
    (4) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describe all material terms of the transactions 
that are the subject of the exemption.
    Accordingly, after considering the entire record developed in 
connection with the Applicant's exemption application, the Department 
has determined to grant the following exemption under the authority of 
ERISA section 408(a), and in accordance with the procedures set forth 
in 29 CFR part 2570, subpart B: \6\
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    \6\ 76 FR 66637, 66644 (October 27, 2011).
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Exemption

Section II. Covered Transactions

Part I. Proposed Exemption From the Prohibitions Respecting Certain 
Classes of Transactions Involving Plans and Certain Underwriters 
(Modeled After PTE 75-1, Part III)

    The restrictions of ERISA section 406 and the taxes imposed Code 
section 4975 (a) and (b), by reason of Code section 4975(c)(1), shall 
not apply to the purchase or other acquisition of certain securities by 
a plan during the existence of an underwriting or selling syndicate 
with respect to such securities, from any person other than Morgan 
Stanley or Mitsubishi, when a Morgan Stanley/Mitsubishi Entity is a 
fiduciary with respect to such plan, and a Related Entity is a member 
of such syndicate, provided that the following conditions are met:
    (a) No Morgan Stanley/Mitsubishi Entity or Related Entity that is 
involved in causing a plan to make the purchase is a manager of such 
underwriting or selling syndicate. The term ``manager'' means any 
member of an underwriting or selling syndicate who, either alone or 
together with other members of the syndicate, is authorized to act on 
behalf of the members of the syndicate in connection with the sale and 
distribution of the securities being offered or who receives 
compensation from the members of the syndicate for its services as a 
manager of the syndicate.
    (b) The securities to be purchased or otherwise acquired are:
    (1) Part of an issue registered under the Securities Act of 1933 
(the 1933 Act) or, if exempt from such registration requirement, are:
    (i) Issued or guaranteed by the United States or by any person 
controlled or supervised by and acting as an instrumentality of the 
United States, pursuant to authority granted by the Congress of the 
United States,
    (ii) Issued by a bank,
    (iii) Issued by a common or contract carrier, if such issuance is 
subject to the provisions of section 20a of the Interstate Commerce 
Act, as amended,
    (iv) Exempt from such registration requirement, pursuant to a 
Federal statute other than the 1933 Act, or are
    (v) The subject of a distribution and are of a class which is 
required to be registered under section 12 of the Securities Exchange 
Act of 1934 (15 U.S.C. 781) (the 1934 Act), and the issuer of which has 
been subject to the reporting requirements of section 13 of the 1934 
Act (15 U.S.C. 78m) for a period of at least ninety (90) days 
immediately preceding the sale of securities and has filed all the 
reports required to be filed thereunder with the SEC during the 
preceding twelve (12) months.
    (2) Purchased at not more than the public offering price before the 
end of the first full business day after the final terms of the 
securities have been fixed and announced to the public, except that:
    (i) If such securities are offered for subscription upon exercise 
of rights, they are purchased on or before the fourth day preceding the 
day on which the rights offering terminates; or
    (ii) If such securities are debt securities, they may be purchased 
at a public offering price on a day after the end of such first full 
business day, provided that the interest rates on comparable debt 
securities offered to the public after such first full business day and 
before the purchase are less than the interest rate of the debt 
securities being purchased.
    (3) Offered pursuant to an underwriting agreement under which the 
members of the syndicate are committed to purchase all securities being 
offered, except if:
    (i) Such securities are purchased by others pursuant to a rights 
offering; or
    (ii) Such securities are offered pursuant to an over-allotment 
option.
    (c) The issuer of such securities has been in continuous operation 
for not less than three (3) years, including the operations of any 
predecessors, unless
    (1) Such securities are non-convertible debt securities rated in 
one of the four (4) highest rating categories by at least one (1) of 
the Rating Agencies, as defined below in Part IX (e);
    (2) Such securities are issued or fully guaranteed by a person 
described above in subparagraph (b)(1)(i) of this Part I; or
    (3) Such securities are fully guaranteed by a person who has issued 
securities described above in subparagraph (b)(1)(ii), (iii), (iv), or 
(v) of Part I, and in this subparagraph (c) of Part I.
    (d) The amount of such securities to be purchased or otherwise 
acquired by a plan, pursuant to this exemption and PTE 75-1, Part III, 
does not exceed 3 percent (3%) of the total amount of such securities 
being offered.
    (e) The consideration to be paid by a plan in purchasing or 
otherwise acquiring such securities pursuant to this exemption and PTE 
75-1, Part III, does not exceed 3 percent (3%) of the

[[Page 85921]]

fair market value of the total assets of such plan as of the last day 
of the most recent fiscal quarter of such plan before to such 
transaction, provided that if such consideration exceeds $1 million, it 
does not exceed one percent (1%) of such fair market value of the total 
assets of such plan.
    If such securities are purchased by a plan from a party in interest 
or disqualified person with respect to such plan, such party in 
interest or disqualified person shall not be subject to the civil 
penalty which may be assessed under ERISA section 502(i) or the taxes 
imposed by Code section 4975(a) and (b) if the conditions of this 
exemption are not met. However, if such securities are purchased from a 
party in interest or disqualified person with respect to a plan, the 
restrictions of ERISA section 406(a) shall apply to any Morgan Stanley/
Mitsubishi Entity acting as fiduciary with respect to such plan, and 
the taxes imposed by Code section 4975(a) and (b) by reason of Code 
section 4975(c)(1)(A) through (D), shall apply to such party in 
interest or disqualified person, unless the conditions for exemption of 
PTE 75-1 (40 FR 50845, October 31, 1975), Part II (relating to certain 
principal transactions) are met.

Part II. Proposed Exemption From Prohibitions Respecting Certain 
Classes of Transactions Involving Plans and Market-Makers (Modeled 
After PTE 75-1, Part IV)

    The restrictions of ERISA section 406, and the taxes imposed by 
Code section 4975 (a) and (b), by reason of Code section 4975(c)(1), 
shall not apply to any purchase or sale of any securities by a plan 
from or to a Related Entity which is a market-maker with respect to 
such securities, when a Morgan Stanley/Mitsubishi Entity is a fiduciary 
with respect to such plan, provided that the following conditions are 
met:
    (a) The issuer of such securities has been in continuous operation 
for not less than three (3) years, including the operations of any 
predecessors, unless such securities are:
    (1) non-convertible debt securities rated in one of the four (4) 
highest rating categories by at least one (1) of the Rating Agencies;
    (2) issued or guaranteed by the United States or by any person 
controlled or supervised by and acting as an instrumentality of the 
United States pursuant to authority granted by the Congress of the 
United States; or
    (3) fully guaranteed by a person described in this subparagraph 
(a).
    (b) As a result of purchasing such securities:
    (1) The fair market value of the aggregate amount of securities 
owned, directly or indirectly, by a plan and with respect to which a 
Morgan Stanley/Mitsubishi Entity is a fiduciary, pursuant to this 
exemption and PTE 75-1, Part IV, does not exceed three percent (3%) of 
the fair market value of the plan's assets with respect to which the 
Morgan Stanley/Mitsubishi Entity is a fiduciary, as of the last day of 
the most recent fiscal quarter of such plan before the transaction, 
provided that if the fair market value of such securities exceeds $1 
million, it does not exceed one percent (1%) of the fair market value 
of the plan's assets, except that this subparagraph shall not apply to 
securities described in subparagraph (a)(2) of this Part II, above; and
    (2) The fair market value of the aggregate amount of all securities 
for which any Related Entity is a market-maker, which are owned, 
directly or indirectly, by a plan and with respect to which a Morgan 
Stanley/Mitsubishi Entity is a fiduciary, pursuant to this exemption 
and PTE 75-1, Part IV, does not exceed 10 percent (10%) of the fair 
market value of the plan's assets with respect to which the Morgan 
Stanley/Mitsubishi Entity is a fiduciary, as of the last day of the 
most recent fiscal quarter of such plan before such transaction, except 
that this subparagraph shall not apply to securities described in 
subparagraph (a)(2) of this Part II.
    (c) At least one (1) person other than a Related Entity is a 
market-maker with respect to such securities.
    (d) The transaction is executed at a net price to a plan for the 
number of shares or other units to be purchased or sold in the 
transaction that is more favorable to such plan than that which the 
Morgan Stanley/Mitsubishi Entity, acting as fiduciary and acting in 
good faith, reasonably believes to be available at the time of such 
transaction from all other market-makers with respect to the 
securities.
    For purposes of this Part II, the term ``market-maker'' shall mean 
any specialist permitted to act as a dealer, and any dealer who, with 
respect to a security, holds themselves out as being willing to buy and 
sell such security for their own account on a regular or continuous 
basis by entering quotations in an inter-dealer communications system 
or otherwise.

Part III. Proposed Exemption Involving Mutual Fund In-House Plans 
(Modeled After PTE 77-3)

    The restrictions of ERISA sections 406 and 407(a) and the taxes 
imposed by Code section 4975(a) and (b), by reason of Code section 
4975(c)(1), shall not apply to the acquisition or sale of shares of an 
open end investment company registered under the Investment Company Act 
of 1940 (the 1940 Act) by an benefit plan covering only employees of a 
Morgan Stanley/Mitsubishi Entity where a Related Entity is an 
investment adviser or principal underwriter with respect to the open-
end investment company, provided the following conditions are met 
(whether or not such investment company, investment adviser, principal 
underwriter or any affiliated person thereof is a fiduciary with 
respect to the plan):
    (a) The plan does not pay any investment management, investment 
advisory or other fees or compensation to any Morgan Stanley/Mitsubishi 
Entity or Related Entity, except to the extent expressly permitted 
herein. This condition does not preclude the payment of investment 
advisory fees by the investment company under the terms of its 
investment advisory agreement adopted in accordance with section 15 of 
the 1940 Act.
    (b) The plan does not pay a redemption fee in connection with the 
sale by the plan to the investment company of such shares, unless (1) 
such redemption fee is paid only to the investment company, and (2) the 
existence of such redemption fee is disclosed in the investment company 
prospectus in effect both at the time of the acquisition of such shares 
and at the time of such sale.
    (c) The plan does not pay a sales commission in connection with 
such acquisition or sale.
    (d) All dealings between the plan and the investment company, the 
Related Entity, any other investment adviser or principal underwriter 
for the investment company, or any affiliated person (as defined in 
section 2(a)(3) of the 1940 Act) of the Related Entity, other 
investment adviser, or principal underwriter, are on a basis no less 
favorable to the plan than such dealings are with other shareholders of 
the investment company.

Part IV. Proposed Exemption for Certain Transactions Between Investment 
Companies and Plans (Modeled After PTE 77-4)

    The restrictions of ERISA section 406(a)(1)(B) and 406(b) and the 
taxes imposed by Code section 4975(a) and (b), by reason of Code 
section 4975(c)(1)(B), (D), (E) and (F), shall not apply to the 
purchase or sale by a plan of shares of an open-end investment company 
registered under the 1940 Act, where a Related Entity is the investment 
adviser of the investment company and a Morgan Stanley/Mitsubishi 
Entity is a

[[Page 85922]]

fiduciary with respect to the plan, but not an employer of employees 
covered by the plan, provided that the following conditions are met:
    (a) The plan does not pay a sales commission in connection with 
such purchase or sale.
    (b) The plan does not pay a redemption fee in connection with the 
sale by the plan to the investment company of such shares unless:
    (1) The redemption fee is paid only to the investment company, and
    (2) The existence of the redemption fee is disclosed in the 
investment company prospectus in effect both at the time of the 
purchase of the shares and at the time of the sale.
    (c) The plan does not pay an investment management, investment 
advisory or other fee or compensation, with respect to the plan assets 
invested in the shares for the entire period of the investment, except 
to the extent expressly permitted herein. This condition does not 
preclude the payment of investment advisory fees by the investment 
company under the terms of its investment advisory agreement adopted in 
accordance with section 15 of the 1940 Act. This condition also does 
not preclude payment of an investment advisory fee by the plan based on 
the total plan assets from which a credit has been subtracted 
representing the plan's pro rata share of the investment advisory fees 
paid by the investment company. If, during any fee period for which the 
plan has prepaid its investment management, investment advisory or 
similar fee, the plan purchases shares of the investment company, the 
requirement of this subparagraph (c) shall be deemed met with respect 
to such prepaid fee if, by a method reasonably designed to accomplish 
the same, the amount of the prepaid fee that constitutes the fee with 
respect to the plan assets invested in the investment company shares: 
(1) is anticipated and subtracted from the prepaid fee at the time of 
payment of the fee; (2) is returned to the plan no later than during 
the immediately following fee period; or (3) is offset against the 
prepaid fee for the immediately following fee period or for the fee 
period immediately following thereafter. For purposes of this 
subparagraph (c), a fee shall be deemed to be prepaid for any fee 
period if the amount of the fee is calculated as of a date no later 
than the first day of such period.
    (d) A second fiduciary with respect to the plan, who is independent 
of and unrelated to Morgan Stanley and Mitsubishi, receives a current 
prospectus issued by the investment company, and full and detailed 
written disclosure of the investment advisory and other fees charged to 
or paid by such plan and the investment company, including the nature 
and extent of any differential between the rates of such fees, the 
reasons why the Morgan Stanley/Mitsubishi Entity may consider such 
purchases to be appropriate for the plan, and whether there are any 
limitations on the Morgan Stanley/Mitsubishi Entity with respect to 
which plan assets may be invested in shares of the investment company 
and, if so, the nature of such limitations. For purposes of this 
subparagraph (d), the second fiduciary will not be deemed to be 
independent of and unrelated to Morgan Stanley and Mitsubishi if:
    (1) The second fiduciary directly or indirectly controls, is 
controlled by, or is under common control with Morgan Stanley or 
Mitsubishi;
    (2) The second fiduciary, or any officer, director, partner, 
employee or relative of such second fiduciary is an officer, director, 
partner or employee of Morgan Stanley or Mitsubishi; or
    (3) The second fiduciary directly or indirectly receives any 
compensation or other consideration for their own personal account in 
connection with any transaction described in this Part IV.
    Subparagraph (d)(2) of this Part IV shall not apply If an officer, 
director, partner, employee or relative of any Morgan Stanley or 
Mitsubishi entity is a director of such second fiduciary, and if they 
abstain from participation in:
    (i) The choice of the plan's investment adviser,
    (ii) The approval of any purchase or sale between the plan and the 
investment company, and
    (iii) The approval of any change of fees charged to or paid by such 
plan.
    For purposes of subparagraph (d)(1) above, the term ``control'' 
means the power to exercise a controlling influence over the management 
or policies of a person other than an individual, and the term 
``relative'' means a ``relative'' as that term is defined in ERISA 
section 3(15) (or a ``member of the family'' as that term is defined in 
Code section 4975(e)(6)), or a brother, a sister, or a spouse of a 
brother or a sister.
    (e) On the basis of the prospectus and disclosure referred to in 
subparagraph (d), the second fiduciary referred to in subparagraph (d) 
approves such purchases and sales consistent with the responsibilities, 
obligations, and duties imposed on fiduciaries by Part 4 of Title I of 
ERISA. Such approval may be limited solely to the investment advisory 
and other fees paid by the mutual fund in relation to the fees paid by 
such plan and need not relate to any other aspects of such investments. 
In addition, such approval must be either:
    (1) Set forth in such plan's plan documents or in the investment 
management agreement between the plan and the Morgan Stanley/Mitsubishi 
Entity,
    (2) Indicated in writing before each purchase or sale, or
    (3) Indicated in writing before commencement of a specified 
purchase or sale program in the shares of such investment company.
    (f) The second fiduciary referred to in subparagraph (d) above, or 
any successor thereto, is notified of any change in any of the rates 
and fees referred to in subparagraph (d) and approves in writing the 
continuation of such purchases or sales and the continued holding of 
any investment company shares acquired by such plan prior to such 
change and still held by such plan. Such approval may be limited solely 
to the investment advisory and other fees paid by the mutual fund in 
relation to the fees paid by such plan and need not relate to any other 
aspects of such investment.
    (g) Each Morgan Stanley/Mitsubishi Entity and Related Entity must 
satisfy ERISA section 408(b)(2) or Code section 4975(d)(2), as 
applicable.

Part V. Proposed Exemption Involving Closed-End Investment Company and 
In-House Plans (Modeled After PTE 79-13)

    The restrictions of ERISA sections 406 and 407(a), and the taxes 
imposed by Code section 4975(a) and (b), by reason of Code section 
4975(c)(1), shall not apply to the acquisition, ownership, or sale of 
shares of a closed-end investment company which is registered under the 
Investment Company Act of 1940 Act (1940 Act) and is not a ``small 
business investment company,'' as defined in section 103 of the Small 
Business Investment Company Act of 1958, with respect to which a 
Related Entity is an investment adviser, by an employee benefit plan 
covering only employees of a Morgan Stanley/Mitsubishi Entity, provided 
that the following conditions are met (whether or not such investment 
company, investment adviser or any affiliated person thereof is a 
fiduciary with respect to the plan):
    (a) The plan does not pay any investment management, investment 
advisory, or other fee or compensation to any Morgan Stanley/Mitsubishi 
Entity or Related Entity, except as expressly permitted herein. This 
condition does not preclude the payment of investment advisory fees by

[[Page 85923]]

the investment company under the terms of its investment advisory 
agreement adopted in accordance with section 15 of the 1940 Act.
    (b) The plan does not pay a sales commission in connection with 
such acquisition or sale to any such investment company, or investment 
adviser, or any Morgan Stanley/Mitsubishi Entity or Related Entity; and
    (c) All dealings between the plan and such investment company, the 
investment adviser, or any Morgan Stanley/Mitsubishi Entity or Related 
Entity, are on a basis no less favorable to the plan than such dealings 
are with other shareholders of the investment company.

Part VI. Proposed Exemption for Securities Transactions Involving Plans 
and Broker-Dealers (Modeled After PTE 86-128)

Section I: Definition and Special Rules
    The following definitions and special rules apply to this Part VI:
    (a) The term ``Morgan Stanley/Mitsubishi Entity'' means Morgan 
Stanley & Co. LLC (MS) or one of its ``affiliates,'' or Mitsubishi UFJ 
Financial Group, Inc. (Mitsubishi UFJ) or one of its ``affiliates,'' 
acting as the plan fiduciary authorizing a transaction covered by this 
Part.
    (b) An ``affiliate'' of a Morgan Stanley/Mitsubishi Entity or a 
Related Entity, which is defined below, includes the following:
    (1) Any person directly or indirectly controlling, controlled by, 
or under common control with, MS or with Mitsubishi UFJ;
    (2) Any officer, director, partner, employee, relative (as defined 
in ERISA section 3(15)), brother, sister, or spouse of a brother or 
sister, of a Morgan Stanley/Mitsubishi Entity or a Related Entity; and
    (3) Any corporation or partnership of which a Morgan Stanley/
Mitsubishi Entity or a Related Entity is an officer(s), director(s), or 
partner(s).
    A person is not an affiliate of another person solely because such 
person has investment discretion over the other's assets. The term 
``control'' means the power to exercise a controlling influence over 
the management or policies of a person other than an individual.
    (c) An ``agency cross transaction'' is a securities transaction in 
which the same Related Entity acts as agent for both any seller and any 
buyer for the purchase or sale of a security.
    (d) The term ``covered transaction'' means an action described in 
Section II (a), (b), or (c) of this Part VI.
    (e) The term ``effecting or executing a securities transaction'' 
means the execution of a securities transaction as agent for another 
person and/or the performance of clearance, settlement, custodial, or 
other functions ancillary thereto.
    (f) A plan fiduciary is independent of a Morgan Stanley/Mitsubishi 
Entity and a Related Entity only if the fiduciary has no relationship 
to and no interest in MS and no interest in Mitsubishi UFJ that might 
affect the exercise of such fiduciary's best judgment as a fiduciary.
    (g) The term ``profit'' includes all charges relating to effecting 
or executing securities transactions, less reasonable and necessary 
expenses including reasonable indirect expenses (such as overhead 
costs) properly allocated to the performance of these transactions 
under generally accepted accounting principles.
    (h) The term ``securities transaction'' means the purchase or sale 
of securities.
    (i) The term ``nondiscretionary trustee'' of a plan means a trustee 
or custodian whose powers and duties with respect to any assets of the 
plan are limited to:
    (1) The provision of nondiscretionary trust services to the plan, 
and
    (2) Duties imposed on the trustee by any provision or provisions 
ERISA or the Code. The term ``nondiscretionary trust services'' means 
custodial services and services ancillary to custodial services, none 
of which services are discretionary. For purposes of this Part VI, a 
person does not fail to be a nondiscretionary trustee solely by reason 
of having been delegated, by the sponsor of a master or prototype plan, 
the power to amend such plan.
    (j) The term ``Related Entity'' means MS or one of its 
``affiliates,'' or Mitsubishi UFJ or one of its ``affiliates,'' where 
the entity is not the plan fiduciary authorizing a transaction covered 
by this Part.
Section II: Covered Transactions
    If each condition in Section III below is either satisfied or not 
applicable under Section IV, the restrictions of ERISA section 406(b) 
and the taxes imposed by Code section 4975(a) and (b) by reason of Code 
section 4975(c)(1)(E) and (F) shall not apply to:
    (a) a Morgan Stanley/Mitsubishi Entity, as a plan fiduciary, using 
its authority to cause the plan to pay a fee to a Related Entity, for 
effecting or executing securities transactions on behalf of the plan, 
but only to the extent that such transactions are not excessive, under 
the circumstances, in either amount or frequency;
    (b) a Related Entity, as the agent in an agency cross transaction, 
acting on behalf of: (1) a plan with a Morgan Stanley/Mitsubishi Entity 
as the plan fiduciary that used its authority to cause the transaction; 
and (2) one or more other parties to the agency cross transaction; and
    (c) the receipt of reasonable compensation by a Related Entity for 
effecting or executing an agency cross transaction on behalf of a plan 
with a Morgan Stanley/Mitsubishi Entity as the plan fiduciary that used 
its authority to cause the transaction, where the reasonable 
compensation is received from one or more other parties to the agency 
cross transaction.
Section III: Conditions
    Except to the extent otherwise provided in Section IV below, 
Section II applies only if the following conditions are satisfied:
    (a) The Morgan Stanley/Mitsubishi Entity or Related Entity engaging 
in the covered transaction is not an administrator of the plan, or an 
employer any of whose employees are covered by the plan.
    (b) The covered transaction is performed under a written 
authorization executed in advance by a fiduciary of each plan whose 
assets are involved in the transaction that is independent of MS and 
Mitsubishi UFJ.
    (c) The authorization referred to above in subparagraph (b) of this 
Section III is terminable at will by the plan, without penalty to the 
plan, upon receipt by the authorized Morgan Stanley/Mitsubishi Entity 
of written notice of termination. A form expressly providing an 
election to terminate the authorization described in subparagraph (b) 
of this Section III with instructions on the use of the form must be 
supplied to the authorizing plan fiduciary no less than annually. The 
instructions for such form must include the following information:
    (1) The authorization is terminable at will by the plan, without 
penalty to the plan, upon receipt by the authorized Morgan Stanley/
Mitsubishi Entity of written notice from the authorizing plan fiduciary 
or other plan official having authority to terminate the authorization; 
and
    (2) Failure to return the form will result in the continued 
authorization of the authorized Morgan Stanley/Mitsubishi Entity to 
engage in the covered transactions on behalf of the plan.
    (d) Within three (3) months before an authorization is made, the 
authorizing plan fiduciary is furnished with any reasonably available 
information that the Morgan Stanley/Mitsubishi Entity

[[Page 85924]]

seeking authorization reasonably believes is necessary for the 
authorizing plan fiduciary to determine whether the authorization 
should be made, including (but not limited to) (i) a copy of this 
proposed exemption and the associated granted exemption, (ii) the form 
for termination of authorization described in Section III(c) of this 
Part VI, (iii) a description of the Morgan Stanley/Mitsubishi Entity's 
brokerage placement practices, and (iv) any other reasonably available 
information regarding the matter that the authorizing plan fiduciary 
requests.
    (e) The authorizing plan fiduciary is furnished with either:
    (1) A confirmation slip for each securities transaction underlying 
a covered transaction within ten (10) business days after the 
securities transaction containing the information described in Rule 
10b-10(a)(1-7) under the Securities and Exchange Act of 1934 (1934 
Act), 17 CFR 240.10b-10; or
    (2) At least once every three (3) months and not later than forty-
five (45) days following the period to which it relates, a report 
disclosing:
    (i) A compilation of the information that would be provided to a 
plan pursuant to subparagraph (e)(1) of this Section III during the 
three-month period covered by the report;
    (ii) The total of all securities transaction-related charges 
incurred by the plan during such period in connection with such covered 
transactions; and
    (iii) The amount of the securities transaction-related charges 
retained by the Related Entity and the amount of such charges paid to 
other persons for execution or other services.
    For purposes of this subparagraph (e), the words ``incurred by the 
plan'' shall be construed to mean ``incurred by the pooled fund'' with 
respect to covered transactions engaged in on behalf of a pooled fund 
in which the plan participates.
    (f) The authorizing plan fiduciary is furnished with a summary of 
the information required under subparagraph (e)(1) of this Section III 
at least once per year. The summary must be furnished within forty-five 
(45) days after the end of the period to which it relates, and must 
contain the following:
    (1) The total of all securities transaction-related charges 
incurred by the plan during the period in connection with covered 
securities transactions.
    (2) The amount of the securities transaction-related charges 
retained by the authorized Related Entity and the amount of these 
charges paid to other persons and their affiliates for execution or 
other services.
    (3) A description of the Morgan Stanley/Mitsubishi Entity's 
brokerage placement practices, if such practices have materially 
changed during the period covered by the summary.
    (4) (i) A portfolio turnover ratio, calculated in a manner which is 
reasonably designed to provide the authorizing plan fiduciary with the 
information needed to assist in discharging its duty of prudence. The 
requirements of this subparagraph (f)(4)(i) will be met if the 
``annualized portfolio turnover ratio'', calculated in the manner 
described in subparagraph (f)(4)(ii), is contained in the summary.
    (ii) The ``annualized portfolio turnover ratio'' must be calculated 
as a percentage of the plan assets consisting of securities or cash 
over which the authorized Morgan Stanley/Mitsubishi Entity had 
discretionary investment authority, or with respect to which such 
Morgan Stanley/Mitsubishi Entity rendered, or had any responsibility to 
render, investment advice (the portfolio) at any time or times 
(management period(s)) during the period covered by the report. First, 
the ``portfolio turnover ratio'' (not annualized) is obtained by 
dividing:
    (A) The lesser of the aggregate dollar amounts of purchases or 
sales of portfolio securities during the management period(s) by
    (B) The monthly average of the market value of the portfolio 
securities during all management period(s). Such monthly average is 
calculated by totaling the market values of the portfolio securities as 
of the beginning and ending of each management period and as of the end 
of each month that ends within such period(s) and dividing the sum by 
the number of valuation dates so used. For purposes of this 
calculation, all debt securities whose maturities at the time of 
acquisition were one (1) year or less are excluded from both the 
numerator and the denominator. The ``annualized portfolio turnover 
ratio'' is then derived by multiplying the ``portfolio turnover ratio'' 
by an annualizing factor. The annualizing factor is obtained by 
dividing (C) the number twelve (12) by (D) the aggregate duration of 
the management period(s) expressed in months (and fractions thereof).
    (iii) The information described in this subparagraph (f)(4) is not 
required to be furnished in any case where the authorized Morgan 
Stanley/Mitsubishi Entity acting as plan fiduciary has not exercised 
discretionary authority over trading in the plan's account during the 
period covered by the report.
    For purposes of this subparagraph (f), the words, ``incurred by the 
plan,'' shall be construed to mean ``incurred by the pooled fund'' with 
respect to covered transactions engaged in on behalf of a pooled fund 
in which the plan participates.
    (g) For an agency cross transaction with respect to which Section 
IV(a) of this Part VI does not apply, the following conditions must 
also be satisfied:
    (1) The information required under Section III(d) or Section 
IV(c)(1)(ii) of this Part VI includes a statement to the effect that 
with respect to agency cross transactions, the entity effecting or 
executing the transactions will have a potentially conflicting division 
of loyalties and responsibilities regarding the parties to the 
transactions;
    (2) The summary required under Section III(f) of this Part VI 
includes a statement identifying the total number of agency cross 
transactions during the period covered by the summary and the total 
amount of all commissions or other remuneration received or to be 
received from all sources by the Related Entity engaging in the 
transactions in connection with those transactions during the period;
    (3) The Morgan Stanley/Mitsubishi entity has the discretionary 
authority to act on behalf of, and/or provide investment advice to, 
either:
    (i) One or more sellers, or
    (ii) One or more buyers with respect to the transaction, but not 
both.
    (4) The agency cross transaction is a purchase or sale for no 
consideration other than cash payment against prompt delivery of a 
security for which market quotations are readily available; and
    (5) The agency cross transaction is executed or effected at a price 
that is at or between the independent bid and independent ask prices 
for the security prevailing at the time of the transaction.
    (h) A Morgan Stanley/Mitsubishi Entity serving as trustee (other 
than a nondiscretionary trustee) may only engage in a covered 
transaction with a plan that has total net assets with a value of at 
least $50 million. In the case of a pooled fund, the $50 million net 
asset requirement will be met, if 50 percent or more of the units of 
beneficial interest in such pooled fund are held by plans each of which 
has total net assets with a value of at least $50 million.
    For purposes of the net asset tests described above, where a group 
of plans is maintained by a single employer or controlled group of 
employers, as defined in ERISA section 407(d)(7), the $50 million net 
asset requirement may be met by aggregating the assets of such

[[Page 85925]]

plans, if the assets are pooled for investment purposes in a single 
master trust.
    (i) The Morgan Stanley/Mitsubishi Entity serving as trustee (other 
than a nondiscretionary trustee) engaging in a covered transaction 
furnishes, at least annually, to the authorizing plan fiduciary of each 
plan the following:
    (1) The aggregate brokerage commissions, expressed in dollars, paid 
by the plan to brokerage firms affiliated with such trustee;
    (2) The aggregate brokerage commissions, expressed in dollars, paid 
by the plan to brokerage firms not affiliated with such trustee;
    (3) The average brokerage commissions, expressed as cents per 
share, paid by the plan to brokerage firms affiliated with such 
trustee; and
    (4) The average brokerage commissions, expressed as cents per 
share, paid by the plan to brokerage firms not affiliated with such 
trustee.
    For purposes of this subparagraph (i), the words, ``paid by the 
plan,'' should be construed to mean ``paid by the pooled fund'' when 
the trustee engages in covered transactions on behalf of a pooled fund 
in which the plan participates.
Section IV: Exceptions From Conditions
    (a) Certain agency cross transactions. Section III of this Part VI 
does not apply in the case of an agency cross transaction, provided 
that the Morgan Stanley/Mitsubishi Entity and/or Related Entity:
    (1) Does not render investment advice to any plan for a fee within 
the meaning of ERISA section 3(21)(A)(ii) with respect to the 
transaction;
    (2) Is not otherwise a fiduciary who has investment discretion with 
respect to any plan assets involved in the transaction, see 29 CFR 
2510.3-21(d); and
    (3) Does not have the authority to engage, retain or discharge any 
person who is or is proposed to be a fiduciary regarding any such plan 
assets.
    (b) Recapture of profits. Section III(a) of this Part VI does not 
apply in any case where the entity engaging in a covered transaction 
returns or credits to the plan all profits earned by the entity in 
connection with the securities transactions associated with the covered 
transaction.
    (c) Special rules for pooled funds. In the case of a covered 
transaction involving an account or fund for the collective investment 
of the assets of more than one plan (pooled fund):
    (1) Section III (b), (c), and (d) of this Part VI do not apply if:
    (i) The arrangement under which the covered transaction is 
performed is subject to the prior and continuing authorization, in the 
manner described in this subparagraph (c)(1), of an authorizing plan 
fiduciary with respect to each plan whose assets are invested in the 
pooled fund who is independent of the Morgan Stanley/Mitsubishi Entity 
and the Related Entity. The requirement that the authorizing plan 
fiduciary be independent shall not apply in the case of a plan covering 
only employees of a Morgan Stanley/Mitsubishi Entity, if the 
requirements of Section IV(c)(2)(i) and (ii) of this Part VI are met.
    (ii) The authorizing plan fiduciary is furnished with any 
reasonably available information that the Morgan Stanley/Mitsubishi 
Entity engaging or proposing to engage in the covered transactions 
reasonably believes to be necessary for the authorizing plan fiduciary 
to determine whether the authorization should be given or continued, 
not less than thirty (30) days prior to implementation of the 
arrangement or material change thereto, including (but not limited to) 
a description of the Morgan Stanley/Mitsubishi Entity's brokerage 
placement practices, and, where requested, any reasonably available 
information regarding the matter upon the reasonable request of the 
authorizing plan fiduciary at any time.
    (iii) In the event an authorizing plan fiduciary submits a notice 
in writing to the Morgan Stanley/Mitsubishi Entity engaging in or 
proposing to engage in the covered transaction objecting to the 
implementation of, material change in, or continuation of, the 
arrangement, the plan on whose behalf the objection was tendered is 
given the opportunity to terminate its investment in the pooled fund, 
without penalty to the plan, within such time as may be necessary to 
effect the withdrawal in an orderly manner that is equitable to all 
withdrawing plans and to the non-withdrawing plans. In the case of a 
plan that elects to withdraw under this subparagraph (c)(1)(iii), the 
withdrawal shall be effected prior to the implementation of, or 
material change in, the arrangement; but an existing arrangement need 
not be discontinued by reason of a plan electing to withdraw.
    (iv) In the case of a plan whose assets are proposed to be invested 
in the pooled fund after the implementation of the arrangement and that 
has not authorized the arrangement in the manner described in 
subparagraphs (c)(1)(ii) and (c)(1)(iii) of this Section IV, such 
plan's investment in the pooled fund is subject to the prior written 
authorization of an authorizing fiduciary who satisfies the 
requirements of subparagraph (c)(1)(i).
    (2) To the extent that Section III(a) of this Part VI prohibits any 
Morgan Stanley/Mitsubishi Entity or Related Entity from being the 
employer of employees covered by a plan investing in a pool managed by 
the Morgan Stanley/Mitsubishi Entity, Section III(a) of this Part VI 
does not apply if:
    (i) The Morgan Stanley/Mitsubishi Entity is an ``investment 
manager'' as defined in ERISA section 3(38), and
    (ii) Either
    (A) The Morgan Stanley/Mitsubishi Entity returns or credits to the 
pooled fund all profits earned by the Related Entity in connection with 
all covered transactions engaged in by the Related Entity on behalf of 
the fund, or
    (B) The pooled fund satisfies the requirements of Section IV(c)(3) 
of this Part VI.
    (3) A pooled fund satisfies the requirements of this subparagraph 
for a fiscal year of the fund if:
    (i) On the first day of such fiscal year, and immediately following 
each acquisition of an interest in the pooled fund during the fiscal 
year by any plan covering employees of any Morgan Stanley/Mitsubishi 
Entity or Related Entity, the aggregate fair market value of the 
interests in such fund of all plans covering employees of any Morgan 
Stanley/Mitsubishi Entity and Related Entity, acquired under this 
exemption and PTE 86-128, does not exceed 20 percent (20%) of the fair 
market value of the total assets of the fund; and
    (ii) The aggregate brokerage commissions received by any Related 
Entity, in connection with covered transactions engaged under this 
exemption and PTE 86-128, on behalf of all pooled funds in which a plan 
covering employees of any Morgan Stanley/Mitsubishi Entity or Related 
Entity participates, do not exceed five percent (5%) of the total 
brokerage commissions received by any Related Entity from all sources 
in such fiscal year.

Part VII. Proposed Exemption for Cross-Trades of Securities by Index 
and Model-Driven Funds (Modeled After PTE 2002-12)

Section I. Proposed Exemption for Cross-Trading of Securities by Index 
and/or Model-Driven Funds
    The restrictions of ERISA sections 406(a)(1)(A) and 406(b)(2), and 
the sanctions resulting from the application of Code section 4975, by 
reason of Code section 4975(c)(1)(A), shall not apply to the 
transactions described below, if the

[[Page 85926]]

applicable conditions set forth in Sections II and III of this 
exemption, below, are satisfied.
    (a) The purchase and sale of securities between an Index Fund or a 
Model-Driven Fund, as defined in Section IV(a) and (b), below, and 
another Index Fund or Model-Driven Fund (hereinafter, either referred 
as a Fund), at least one of which holds ``plan assets'' subject to the 
Act; or
    (b) The purchase and sale of securities between a Fund and a Large 
Account, as defined in Section IV(e) of this Part VII, at least one of 
which holds ``plan assets'' subject to the Act, pursuant to a portfolio 
restructuring program, as defined in Section IV(f) of this Part VII, of 
the Large Account, where a Morgan Stanley entity is the Manager on one 
side of the cross-trade and a Mitsubishi entity is the Manager on the 
other side of the cross-trade. Each Manager must comply with each 
condition below and is deemed a Morgan Stanley/Mitsubishi Entity for 
purposes of Parts VIII and IX below.
    Notwithstanding the foregoing, this Part VII shall apply to cross-
trades between two (2) or more Large Accounts pursuant to a portfolio 
restructuring program, if such cross-trades occur as part of a single 
cross-trading program involving both Funds and Large Accounts for which 
securities are cross-traded solely because of the objective operation 
of the program.
Section II. Specific Conditions
    (a) The cross-trade is executed at the closing price, as defined 
below in Section IV(h) of this Part VII.
    (b) Any cross-trade of securities by a Fund occurs as a direct 
result of a ``triggering event,'' as defined in Section IV(d), and is 
executed no later than the close of the third business day following 
such ``triggering event.''
    (c) If the cross-trade involves a Model-Driven Fund, the cross-
trade does not take place within three (3) business days following any 
change made by the Manager to the model underlying the Fund.
    (d) The Manager has allocated the opportunity for all Funds or 
Large Accounts to engage in the cross-trade on an objective basis which 
has been previously disclosed to the authorizing fiduciaries of plan 
investors, and which does not permit the exercise of discretion by the 
Manager (e.g., a pro rata allocation system).
    (e) No more than 20 percent (20%) of the assets of the Fund or 
Large Account at the time of the cross-trade is comprised of assets of 
plans maintained by the Manager for its own employees (the Manager 
Plan(s)) for which the Manager exercises investment discretion.
    (f)(1) Cross-trades of equity securities involve only securities 
that are widely held, actively traded, and for which market quotations 
are readily available from independent sources that are engaged in the 
ordinary course of business of providing financial news and pricing 
information to institutional investors and/or to the general public, 
and are widely recognized as accurate and reliable sources for such 
information. For purposes of this requirement, the terms, ``widely-
held'' and ``actively-traded,'' shall be deemed to include any security 
listed in an Index, as defined in Section IV(c); and
    (2) Cross-trades of fixed-income securities involve only securities 
for which market quotations are readily available from independent 
sources that are engaged in the ordinary course of business of 
providing financial news and pricing information to institutional 
investors and/or to the general public and are widely recognized as 
accurate and reliable sources for such information.
    (g) The Manager receives no brokerage fees or commissions because 
of the cross-trade.
    (h) A plan's participation in the cross-trading program of a 
Manager, as a result of investments made in any Index or Model-Driven 
Fund that holds plan assets is subject to a written authorization 
executed in advance of such investment by a fiduciary of such plan that 
is independent of Morgan Stanley and Mitsubishi (the independent plan 
fiduciary).
    For purposes of this Part VII, the requirement that the authorizing 
fiduciary be independent of the Manager shall not apply in the case of 
a Manager Plan.
    (i) With respect to existing plan investors in any Index or Model-
Driven Fund that holds plan assets as of the date this proposed 
exemption is granted, the independent fiduciary is furnished with a 
written notice, not less than forty-five (45) days before the 
implementation of the cross-trading program, that describes the Fund's 
participation in the cross-trading program of the Manager, provided 
that:
    (1) Such notice allows each plan an opportunity to object to such 
plan's participation in the cross-trading program as a Fund investor by 
providing such plan with a special termination form;
    (2) The notice instructs the independent plan fiduciary that 
failure to return the termination form to the Manager, by a specified 
date (which shall be at least thirty (30) days following such plan's 
receipt of the form) shall be deemed to be an approval by such plan of 
its participation in the Manager's cross-trading program as a Fund 
investor; and
    (3) If the independent plan fiduciary objects to a plan's 
participation in the cross-trading program as a Fund investor by 
returning the termination form to the Manager by the specified date, 
such plan is given the opportunity to withdraw from each Index or 
Model-Driven Fund without penalty before the implementation of the 
cross-trading program, within such time as may be reasonably necessary 
to effectuate the withdrawal in an orderly manner.
    (j) Prior to obtaining the authorization described in Section II(h) 
the notice described in Section II(i) of this Part VII, the following 
statement must be provided by the Manager to the independent plan 
fiduciary:
    Investment decisions for the Fund (including decisions regarding 
which securities to buy or sell, how much of a security to buy or sell, 
and when to execute a sale or purchase of securities for the Fund) will 
not be based in whole or in part by the Manager on the availability of 
cross-trade opportunities and will be made prior to the identification 
and determination of any cross-trade opportunities. In addition, all 
cross-trades by a Fund will be based solely upon a ``triggering event'' 
as set forth in this Part VII. Records documenting each cross-trade 
transaction will be retained by the Manager.
    (k) Before any authorization set forth in Section II(h) of this 
Part VII, and at the time of any notice described in Section II(i) of 
this Part VII, the independent plan fiduciary must be furnished with 
any reasonably available information necessary for the fiduciary to 
determine whether the authorization should be given, including (but not 
limited to) (i) a copy of this proposed exemption and the final 
exemption, if granted, (ii) an explanation of how the authorization may 
be terminated, (iii) detailed disclosure of the procedures to be 
implemented under the Manager's cross-trading practices (including the 
``triggering events'' that will create the cross-trading opportunities, 
the independent pricing services that will be used by the Manager to 
price the cross-traded securities, and the methods that will be used 
for determining closing price), and (iv) any other reasonably available 
information regarding the matter that the authorizing plan fiduciary 
requests. The independent plan fiduciary must also be provided with a 
statement that the Manager will have a potentially conflicting division 
of

[[Page 85927]]

loyalties and responsibilities to the parties to any cross-trade 
transaction and must explain how the Manager's cross-trading practices 
and procedures will mitigate such conflicts.
    With respect to Funds that are added to the Manager's cross-trading 
program or changes to, or additions of, triggering events regarding 
Funds, following the authorizations described in Section II(h) or 
Section II(i) of this Part VII, the Manager shall provide a notice to 
each relevant independent plan fiduciary of each plan invested in the 
affected Funds before, or within ten (10) days following, such addition 
of Funds or change to, or addition of, triggering events, which 
contains a description of such Fund(s) or triggering event(s). Such 
notice will also include a statement that such plan has the right to 
terminate its participation in the cross-trading program and its 
investment in any Index Fund or Model-Driven Fund without penalty at 
any time, as soon as is necessary to effectuate the withdrawal in an 
orderly manner.
    (l) At least annually, the Manager notifies the independent 
fiduciary for each plan that has previously authorized participation in 
the Manager's cross-trading program as a Fund investor, that such plan 
has the right to terminate its participation in the cross-trading 
program and its investment in any Index Fund or Model-Driven Fund that 
holds plan assets without penalty at any time, as soon as is necessary 
to effectuate the withdrawal in an orderly manner. This notice shall 
also provide each independent plan fiduciary with a special termination 
form and instruct the fiduciary that failure to return the form to the 
Manager by a specified date (which shall be at least thirty (30) days 
following such plan's receipt of the form) shall be deemed an approval 
of the subject plan's continued participation in the cross-trading 
program as a Fund investor. In lieu of providing a special termination 
form, the notice may permit the independent plan fiduciary to utilize 
another written instrument by the specified date to terminate a plan's 
participation in the cross-trading program; provided that in such case 
the notification explicitly discloses that a termination form may be 
obtained from the Manager upon request. Such annual re-authorization 
must provide information to the relevant independent plan fiduciary 
regarding each Fund in which a plan is invested, as well as explicit 
notification that such plan fiduciary may request and obtain 
disclosures regarding any new Funds in which such plan is not invested 
that are added to the cross-trading program, or any new triggering 
events (as defined in Section IV(d) of this Part VII) that may have 
been added to any existing Funds in which such plan is not invested, 
since the time of the initial authorization described in Section II(h) 
of this Part VII, or the time of the notification described in Section 
II(i) of this Part VII.
    (m) With respect to a cross-trade involving a Large Account:
    (1) The cross-trade is executed in connection with a portfolio 
restructuring program, as defined in Section IV(f) of this Part VII, 
with respect to all or a portion of the Large Account's investments 
which an independent fiduciary of the Large Account (other than in the 
case of any assets of a Manager Plan) has authorized the Manager to 
carry out or to act as a ``trading adviser,'' as defined in Section 
IV(g) of this Part VII, in carrying out a Large Account-initiated 
liquidation or restructuring of its portfolio;
    (2) Before the cross-trade, a fiduciary of the Large Account who is 
independent of Morgan Stanley and Mitsubishi (other than in the case of 
any assets of a Manager Plan) \7\ has been fully informed of the 
Manager's cross-trading program, has been provided with the information 
required in Section II(k) of this Part VII, and has provided the 
Manager with advance written authorization to engage in cross-trading 
in connection with the restructuring, provided that:
---------------------------------------------------------------------------

    \7\ However, for the Manager Plan to participate in a specific 
portfolio restructuring program as part of a Large Account, proper 
disclosures must be made to, and written authorization must be made 
by, an appropriate plan fiduciary.
---------------------------------------------------------------------------

    (i) Such authorization may be terminated at will by the Large 
Account upon receipt by the Manager of written notice of termination.
    (ii) A form expressly providing an election to terminate the 
authorization, with instructions on the use of the form, is supplied to 
the authorizing Large Account fiduciary concurrent with the receipt of 
the written information describing the cross-trading program. The 
instructions for such form must specify that the authorization may be 
terminated at will by the Large Account, without penalty to the Large 
Account, upon receipt by the Manager of written notice from the 
authorizing Large Account fiduciary;
    (3) All cross-trades made in connection with the portfolio 
restructuring program must be completed by the Manager within sixty 
(60) days of the initial authorization (or initial receipt of assets 
associated with the restructuring, if later) to engage in such 
restructuring by the Large Account's independent fiduciary, unless such 
fiduciary agrees in writing to extend this period for another thirty 
(30) days; and,
    (4) No later than thirty (30) days after completion of the Large 
Account's portfolio restructuring program, the Large Account's 
independent fiduciary must be fully apprised in writing of all cross-
trades executed in connection with the restructuring. Such writing 
shall include a notice that the Large Account's independent fiduciary 
may obtain, upon request, the information described in Section III(a) 
of this Part VII, subject to the limitations described in Section 
III(b) of this Part VII. However, if the program takes longer than 
sixty (60) days to complete, interim reports containing the transaction 
results must be provided to the Large Account fiduciary no later than 
fifteen (15) days following the end of the initial sixty (60) day 
period and the succeeding thirty (30) day period.
Section III. General Conditions
    (a) The Manager maintains or causes to be maintained for a period 
of six (6) years from the date of each cross-trade the records 
necessary to enable the persons described below in subparagraph (b) of 
this Section III to determine whether the conditions of this Part VII 
have been met, including records which identify:
    (1) On a Fund-by-Fund basis, the specific triggering events which 
result in the creation of the model prescribed output or trade list of 
specific securities to be cross-traded;
    (2) On a Fund-by-Fund basis, the model prescribed output or trade 
list which describes:
    (i) Which securities to buy or sell; and
    (ii) How much of each security to buy or sell; in detail sufficient 
to allow an independent plan fiduciary to verify that each of the above 
decisions for the Fund was made in response to specific triggering 
events; and
    (3) On a Fund-by-Fund basis, the actual trades executed by the Fund 
on a particular day and which of those trades resulted from triggering 
events.
    Such records must be readily available to assure accessibility and 
maintained so that an independent fiduciary, or other persons 
identified below in subparagraph (b) of this Section III, may obtain 
them within a reasonable period of time. However, a prohibited 
transaction will not be considered to have occurred if, due to 
circumstances beyond the control of the Manager, the records are lost 
or destroyed prior to the end of the six-year period, and no party in 
interest other than the Manager shall be subject

[[Page 85928]]

to the civil penalty that may be assessed under ERISA section 502(i) or 
to the taxes imposed by Code section 4975(a) and (b) if the records are 
not maintained or are not available for examination as required by 
subparagraph (b)below of this Section III.
    (b)(1) Except as provided below in subparagraph (b)(2) of this 
Section III and notwithstanding any provisions of ERISA sections 
504(a)(2) and (b), the records referred to in subparagraph (a) of this 
Section III are unconditionally available at their customary location 
for examination during normal business hours by:
    (i) Any duly authorized employee or representative of the 
Department or the IRS,
    (ii) Any fiduciary of a plan participating in a cross-trading 
program who has the authority to acquire or dispose of the assets of 
such plan, or any duly authorized employee or representative of such 
fiduciary,
    (iii) Any contributing employer with respect to any plan 
participating in a cross-trading program or any duly authorized 
employee or representative of such employer, and
    (iv) Any participant or beneficiary of any Manager Plan 
participating in a cross-trading program, or any duly authorized 
employee or representative of such participant or beneficiary.
    (2) If, in the course of seeking to inspect records maintained by a 
Manager pursuant to this Section III, any person described below in 
subparagraph (b)(1)(ii) through (iv) of this Section III seeks to 
examine trade secrets, or commercial or financial information of the 
Manager that is privileged or confidential, and the Manager is 
otherwise permitted by law to withhold such information from such 
person, the Manager may refuse to disclose such information provided 
that, by the close of the thirtieth (30th) day following the request, 
the Manager gives a written notice to such person advising the person 
of the reasons for the refusal and that the Department of Labor may 
request such information.
    (3) The information required to be disclosed to persons described 
above in subparagraph (b)(1)(ii) through (iv) of this Section III shall 
be limited to information that pertains to cross-trades involving a 
Fund or Large Account in which they have an interest.
Section IV. Definitions
    The following definitions apply for purposes of this Part VII:
    (a) ``Index Fund''--Any investment fund, account or portfolio 
sponsored, maintained, trusteed, or managed by a Manager or an 
Affiliate, in which one or more investors invest, and:
    (1) Which is designed to track the rate of return, risk profile and 
other characteristics of an Index, as defined in Section IV(c) of this 
Part VII, by either
    (i) Replicating the same combination of securities which compose 
such Index, or
    (ii) Sampling the securities which compose such Index based on 
objective criteria and data;
    (2) For which the Manager does not use its discretion, or data 
within its control, to affect the identity or amount of securities to 
be purchased or sold;
    (3) That either contains ``plan assets'' subject to ERISA, is an 
investment company registered under the 1940 Act, or contains assets of 
one or more institutional investors, which may include, but not be 
limited to, such entities as an insurance company separate account or 
general account, a governmental plan, a university endowment fund, a 
charitable foundation fund, a trust, or other fund which is exempt from 
taxation under Code section 501(a); and,
    (4) That involves no agreement, arrangement, or understanding 
regarding the design or operation of the Index Fund which is intended 
to benefit a Manager or an Affiliate, or any party in which a Manager 
or an Affiliate may have an interest.
    (b) ``Model-Driven Fund''--Any investment fund, account or 
portfolio sponsored, maintained, trusteed, or managed by the Manager or 
an Affiliate in which one or more investors invest, and:
    (1) Which is composed of securities the identity of which and the 
amount of which are selected by a computer model that is based on 
prescribed objective criteria using independent third-party data, not 
within the control of the Manager, to transform an Index, as defined in 
Section IV(c) of this Part VII;
    (2) Which either contains ``plan assets'' subject to ERISA, is an 
investment company registered under the 1940 Act, or contains assets of 
one or more institutional investors, which may include, but not be 
limited to, such entities as an insurance company separate account or 
general account, a governmental plan, a university endowment fund, a 
charitable foundation fund, a trust, or other fund which is exempt from 
taxation under Code section 501(a); and
    (3) That involves no agreement, arrangement, or understanding 
regarding the design or operation of the Model-Driven Fund or the 
utilization of any specific objective criteria which is intended to 
benefit a Manager or an Affiliate, or any party in which a Manager or 
an Affiliate may have an interest.
    (c) ``Index''--A securities index that represents the investment 
performance of a specific segment of the public market for equity or 
debt securities in the United States and/or foreign countries, but only 
if--
    (1) The organization creating and maintaining the index is:
    (i) Engaged in the business of providing financial information, 
evaluation, advice, or securities brokerage services to institutional 
clients,
    (ii) A publisher of financial news or information, or
    (iii) A public securities exchange or association of securities 
dealers; and,
    (2) The index is created and maintained by an organization 
independent of the Manager, as defined in Section IV(i) of this Part 
VII; and,
    (3) The index is a generally accepted standardized index of 
securities which is not specifically tailored for the use of the 
Manager.
    (d) ``Triggering Event'':
    (1) A change in the composition or weighting of the Index 
underlying a Fund by the independent organization creating and 
maintaining the Index;
    (2) A material amount of net change in the overall level of assets 
in a Fund, as a result of investments in and withdrawals from the Fund, 
provided that:
    (i) Such material amount has either been identified in advance as a 
specified amount of net change relating to such Fund and disclosed in 
writing as a ``triggering event'' to an independent fiduciary of each 
plan having assets held in the Fund prior to, or within ten (10) days 
following, its inclusion as a ``triggering event'' for such Fund or the 
Manager has otherwise disclosed in the description of its cross-trading 
practices, pursuant to Section II(k) of this Part VII, the parameters 
for determining a material amount of net change, including any amount 
of discretion retained by the Manager that may affect such net change, 
in sufficient detail to allow the independent fiduciary to determine 
whether the authorization to engage in cross-trading should be given; 
and
    (ii) Investments or withdrawals as a result of the Manager's 
discretion to invest or withdraw assets of a Manager Plan, other than a 
Manager Plan which is a defined contribution plan under which 
participants direct the investment of their accounts among various 
investment options, including such Fund, will not be taken into

[[Page 85929]]

account in determining the specified amount of net change;
    (3) An accumulation in the Fund of a material amount of either:
    (i) Cash which is attributable to interest or dividends on, and/or 
tender offers for, portfolio securities; or
    (ii) Stock attributable to dividends on portfolio securities; 
provided that such material amount has either been identified in 
advance as a specified amount relating to such Fund and disclosed in 
writing as a ``triggering event'' to an independent fiduciary of each 
plan having assets held in the Fund prior to, or within ten (10) days 
after, its inclusion as a ``triggering event'' for such Fund, or the 
Manager has otherwise disclosed in the description of its cross-trading 
practices, pursuant to Section II(k) of this Part VII the parameters 
for determining a material amount of accumulated cash or securities, 
including any amount of discretion retained by the Manager that may 
affect such accumulated amount, in sufficient detail to allow the 
independent fiduciary to determine whether the authorization to engage 
in cross-trading should be given;
    (4) A change in the composition of the portfolio of a Model-Driven 
Fund mandated solely by operation of the formulae contained in the 
computer model underlying the Model-Driven Fund where the basic factors 
for making such changes (and any fixed frequency for operating the 
computer model) have been disclosed in writing to an independent 
fiduciary of each plan having assets held in the Model-Driven Fund, 
prior to, or within ten (10) days after, its inclusion as a 
``triggering event'' for such Model-Driven Fund; or
    (5) A change in the composition or weighting of a portfolio for an 
Index Fund or a Model-Driven Fund which results from an independent 
fiduciary's direction to exclude certain securities or types of 
securities from the Fund, notwithstanding that such securities are part 
of the index used by the Fund.
    (e) ``Large Account''--Any investment fund, account or portfolio 
that is not an Index Fund or a Model-Driven Fund sponsored, maintained, 
trusteed (other than a Fund for which the Manager is a nondiscretionary 
trustee), or managed by the Manager, which holds assets of either:
    (1) An employee benefit plan within the meaning of ERISA section 
3(3) that has $50 million or more in total assets (for purposes of this 
requirement, the assets of one or more employee benefit plans 
maintained by the same employer, or controlled group of employers, may 
be aggregated provided that such assets are pooled for investment 
purposes in a single master trust);
    (2) An institutional investor that has total assets in excess of 
$50 million, such as an insurance company separate account or general 
account, a governmental plan, a university endowment fund, a charitable 
foundation fund, a trust, or other fund which is exempt from taxation 
under Code section 501(a); or
    (3) An investment company registered under the 1940 Act (e.g., a 
mutual fund) other than an investment company advised or sponsored by 
the Manager; provided that the Manager has been authorized to 
restructure all or a portion of the portfolio for such Large Account or 
to act as a ``trading adviser'' (as defined in Section IV(g) of this 
Part VII in connection with a portfolio restructuring program (as 
defined in Section IV(f) of this Part VII for the Large Account.
    (f) ``Portfolio restructuring program''--Buying and selling the 
securities on behalf of a Large Account in order to produce a portfolio 
of securities which will be an Index Fund or a Model-Driven Fund 
managed by the Manager or by another investment manager, or in order to 
produce a portfolio of securities the composition of which is 
designated by a party independent of the Manager, without regard to the 
requirements of Section IV(a)(3) or (b)(2) of this Part VII, or to 
carry out a liquidation of a specified portfolio of securities for the 
Large Account.
    (g) ``Trading adviser''--A Morgan Stanley or Mitsubishi entity 
whose role is limited with respect to a Large Account to the 
disposition of a securities portfolio in connection with a portfolio 
restructuring program that is a Large Account-initiated liquidation or 
restructuring within a stated period of time in order to minimize 
transaction costs. The Morgan Stanley or Mitsubishi Entity does not 
have discretionary authority or control with respect to any underlying 
asset allocation, restructuring or liquidation decisions for the 
account in connection with such transactions and does not render 
investment advice [within the meaning of 29 CFR 2510.3-21(c)] with 
respect to such transactions.
    (h) ``Closing price''--The price for a security on the date of the 
transaction, as determined by objective procedures disclosed to 
investors in advance and consistently applied with respect to 
securities traded in the same market, which procedures shall indicate 
the independent pricing source (and alternates, if the designated 
pricing source is unavailable) used to establish the closing price and 
the time frame after the close of the market in which the closing price 
will be determined.
    (i) ``Manager''--A Morgan Stanley entity acting as manager of a 
Fund or Large Account involved in one side of a cross-trade transaction 
involving a Mitsubishi entity acting as manager of a Fund or Large 
Account involved in the other side of the same cross-trade transaction; 
or a Mitsubishi entity acting as manager of a Fund or Large Account 
involved in one side of a cross-trade transaction involving a Morgan 
Stanley entity acting as manager of a Fund or Large Account involved in 
the other side of the same cross-trade transaction, where the Morgan 
Stanley entity and the Mitsubishi entity is:
    (1) A bank or trust company, or any Affiliate thereof, which is 
supervised by a state or federal agency; or
    (2) An investment adviser or any Affiliate thereof which is 
registered under the Investment Advisers Act of 1940.
    (j) ``Affiliate''--An affiliate of a Manager is:
    (1) Any person, directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
the Manager:
    (2) Any officer, director, employee, or relative of such Manager, 
or partner of any such Manager; or
    (3) Any corporation or partnership of which such Manager is an 
officer, director, partner, or employee.
    (k) ``Control''--The power to exercise a controlling influence over 
the management or policies of a person other than an individual.
    (l) ``Relative''--A relative is a person that is defined in ERISA 
section 3(15) (or a ``member of the family'' as that term is defined in 
Code section 4975(e)(6)), or a brother, a sister, or a spouse of a 
brother or sister).
    (m) ``Nondiscretionary trustee''--A plan trustee whose powers and 
duties with respect to any assets of a plan are limited to:
    (1) The provision of nondiscretionary trust services to such plan, 
and
    (2) Duties imposed on the trustee by any provision or provisions of 
ERISA or the Code. The term ``nondiscretionary trust services'' means 
custodial services and services ancillary to custodial services, none 
of which services are discretionary. For purposes of this Part VII, a 
person who is otherwise a nondiscretionary trustee will not fail to be 
a nondiscretionary trustee solely by reason of having been delegated, 
by the sponsor of a master or prototype plan, the power to amend such 
plan.

[[Page 85930]]

Part VIII. New Global Conditions Applicable to All Transactions Covered 
by This Exemption

    (a) Notwithstanding the requirements above, the applicable Morgan 
Stanley/Mitsubishi Entity maintain(s) or cause(s) to be maintained for 
a period of six (6) years from the date of any transaction described 
herein, such records as are necessary to enable the persons described 
below in subparagraph (b) to determine whether the conditions of this 
proposed exemption were met, except that:
    (1) If the records necessary to enable the persons described below 
in subparagraph (b)(1)(i)-(iv) to determine whether the conditions of 
the proposed exemption have been met are lost or destroyed, due to 
circumstances beyond the control of the Morgan Stanley/Mitsubishi 
Entity, then no prohibited transaction will be considered to have 
occurred solely on the basis of the unavailability of those records; 
and
    (2) No party in interest with respect to a plan which engages in 
the covered transactions, other than Morgan Stanley and Mitsubishi, 
shall be subject to the civil penalty that may be assessed under ERISA 
section 502(i) Act or to the taxes imposed by Code section 4975(a) and 
(b) if the records have not been maintained or are not available for 
examination as required by subparagraph (b) below.
    (b)(1) Except as provided below in subparagraph (b)(2), and 
notwithstanding the provisions of subsections (a)(2) and (b) of ERISA 
section 504, the records referred to above in subparagraph (a) are 
unconditionally available for examination during normal business hours 
at their customary location to the following persons or an authorized 
representative thereof:
    (i) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service (IRS), or the SEC; or
    (ii) Any fiduciary of any plan that engages in the covered 
transactions, or any duly authorized employee or representative of such 
fiduciary; or
    (iii) Any employer of participants and beneficiaries and any 
employee organization whose members are covered by any plan that 
engages in the transactions covered herein, or any authorized employee 
or representative of these entities; or
    (iv) Any participant or beneficiary of any plan that engages in the 
transactions covered herein, or duly authorized representative of such 
participant or beneficiary;
    (2) None of the persons described above in subparagraph (b)(1)(ii)-
(iv) shall be authorized to examine the trade secrets of a Morgan 
Stanley/Mitsubishi Entity, or commercial or financial information, 
which is privileged or confidential; and
    (3) Should a Morgan Stanley/Mitsubishi entity refuse to disclose 
information on the basis that such information is exempt from 
disclosure, pursuant to subparagraph (b)(2) above such Morgan Stanley/
Mitsubishi Entity shall, by the thirtieth (30th) day following the 
request, provide a written notice advising that person of the reasons 
for the refusal and that the Department may request such information.
    (c) If an Applicable Class Exemption is amended, revised or 
revoked, or is subject to a new interpretation by the Department 
following the grant of this exemption, such change or interpretation 
will apply to the relevant transactions, conditions and/or terms in the 
relevant exemption herein.
    (d) Disclosure of Conflicts: The Morgan Stanley/Mitsubishi Entity 
engaging in a transaction covered by any Part of this exemption (with 
the exception of transactions described in Parts III and V) must 
provide a written notice to a fiduciary of that plan that is 
independent of both Mitsubishi and Morgan Stanley. The notice must 
clearly, and in plain English: (i) describe the ownership relationship 
between Morgan Stanley and Mitsubishi; (ii) describe the transactions 
that Morgan Stanley and Mitsubishi will engage in under this exemption 
on behalf of the plan or IRA; and (iii) alert the independent plan 
fiduciary that, as a result of the ownership relationship between 
Morgan Stanley and Mitsubishi, the previously identified transactions 
will provide a benefit to Morgan Stanley or Mitsubishi (i.e., the party 
that is not exercising discretion over the assets involved in the 
transaction) and/or involve a conflict of interest;
    (e) When relying on the relief in any Part of this exemption, the 
Morgan Stanley/Mitsubishi Entity must comply with the following 
``Impartial Conduct Standards'': (1) The Morgan Stanley/Mitsubishi 
Entity, at the time of the transaction, must act in the Best Interest 
of the plan. In this regard, acting in the Best Interest means acting 
with the care, skill, prudence, and diligence under the circumstances 
then prevailing that a prudent person acting in a like capacity and 
familiar with such matters would use in the conduct of an enterprise of 
a like character and with like aims, based on the investment 
objectives, risk tolerance, financial circumstances, and needs of 
affected plan, and not place the financial or other interests of the 
Morgan Stanley/Mitsubishi Entity, Related Entity, or other party ahead 
of the interests of the affected plan, or subordinate the plan's 
interests to their own; (2)(A) The compensation received, directly or 
indirectly, by the Morgan Stanley/Mitsubishi Entity and Related 
Entities for their services may not exceed reasonable compensation 
within the meaning of ERISA section 408(b)(2) and Code section 
4975(d)(2); and (B) As required by the federal securities laws, the 
Morgan Stanley/Mitsubishi Entity must obtain the best execution of the 
investment transaction reasonably available under the circumstances; 
and (3) The Morgan Stanley/Mitsubishi Entity's statements to the plan 
about the covered transaction and other relevant matters must not be 
materially misleading at the time statements are made.
    (f) All Morgan Stanley/Mitsubishi Entities utilizing the exemption 
will have policies and procedures in place that are prudently designed 
to ensure that the conditions of the exemption are met. The policies 
and procedures must be in place prior to the occurrence of the 
transaction that is the subject of the relevant relief.

Part IX. General Definitions

    (a) The term ``Morgan Stanley/Mitsubishi Entity'' means an entity 
acting as a plan fiduciary in a transaction described in Parts I 
through VII:
    (1) That meets the definition of Morgan Stanley, as defined below; 
or
    (2) That meets the definition of Mitsubishi, as defined below; or
    (b) The term ``Related Entity'' means an entity that meets the 
definition of ``Morgan Stanley/Mitsubishi Entity,'' except that the 
entity is not acting as a fiduciary with respect to the transaction 
that is the subject of the exemptive relief described in Parts I 
through VII of the exemption, if granted.
    (c) The term ``Morgan Stanley'' means Morgan Stanley & Co. LLC and 
any person, directly or indirectly, through one or more intermediaries, 
controlling, controlled by, or under common control with Morgan Stanley 
& Co.
    (d) The term ``Mitsubishi'' means Mitsubishi UFJ Financial Group, 
Inc., and any person, directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with Mitsubishi UFJ Financial Group, Inc.
    (e) For purposes of Part IX (c) and (d) above, the term ``control'' 
means the power to exercise a controlling influence over the management 
or

[[Page 85931]]

policies of a person other than an individual.
    (f) The term ``Rating Agency'' or collectively, ``Rating Agencies'' 
means a credit rating agency that:
    (1) Is currently recognized by the Securities and Exchange 
Commission (SEC) as a nationally recognized statistical ratings 
organization (NRSRO);
    (2) Has indicated on its most recently filed SEC Form NRSRO that it 
rates ``issuers of asset-backed securities;'' and
    (3) Has had, within a period not exceeding twelve (12) months prior 
to the initial issuance of the securities, at least three (3) 
``qualified ratings engagements.'' A ``qualified ratings engagement'' 
is one:
    (i) Requested by an issuer or underwriter of securities in 
connection with the initial offering of the securities;
    (ii) For which the credit rating agency is compensated for 
providing ratings;
    (iii) Which is made public to investors generally; and
    (iv) Which involves the offering of securities of the type that 
would be granted relief by the certain underwriter exemptions (the 
Underwriter Exemptions).\8\
---------------------------------------------------------------------------

    \8\ The Underwriter Exemptions are a group of individual 
exemptions granted by the Department to provide relief for the 
origination and operation of certain asset pool investment trusts 
and the acquisition, holding, and disposition by plans of certain 
asset-backed pass-through certificates representing undivided 
interests in those investment trusts. The most recent amendment to 
the Underwriter Exemptions is the Amendment to Prohibited 
Transaction Exemption 2007-05, 72 FR 13130 (March 20, 2007), 
Involving Prudential Securities Incorporated, et al., To Amend the 
Definition of ``Rating Agency,'' [Prohibited Transaction Exemption 
2012-08, 78 FR 41090 (July 9, 2013); Exemption Application No. D-
11718].
---------------------------------------------------------------------------

    (g) The term ``Applicable Class Exemption'' means PTE 75-1, Part 
III; PTE 75-1, Part IV; PTE 77-3; PTE 77-4; PTE 79-13; PTE 86-128; or 
PTE 2002-12.
    Applicability Date: This exemption will be in effect on the date 
that this grant notice is published in the Federal Register.

    Signed at Washington, DC.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2023-27082 Filed 12-8-23; 8:45 am]
BILLING CODE 4510-29-P