SEC Company Response from Morgan Stanley China A Share Fund, Inc. (CAF) (CIK 0001368493) (CAF) — Sep 26, 2022
Morgan Stanley China A Share Fund, Inc. (CAF) (CIK 0001368493)
Date: Sept. 26, 2022 · CIK: 0001368493 · Accession: 0001133228-22-006659
AI Filing Summary & Sentiment
File numbers found in text: 333-03013, 333-104972, 811-03980, 811-04917, 811-05624, 811-06515, 811-07377, 811-07607, 811-21339, 811-21926, 811-3870
Letter
Securities and Exchange Commission F Street, NE Washington, D.C. 20549 Attention: Lauren Hamilton, Division of Investment Management Re: Morgan Stanley Institutional Liquidity Funds (File Nos. 333-104972; 811-21339), Morgan Stanley Institutional Fund, Inc. (File Nos. 033-23166; 811-05624), Morgan Stanley Mortgage Securities Trust (File Nos. 033-10363; 811-04917), Morgan Stanley U.S. Government Securities Trust (File Nos. 2-86966; 811-3870), Morgan Stanley Global Fixed Income Opportunities Fund (File Nos. 033-44782; 811-06515), Morgan Stanley Variable Insurance Fund, Inc. (File Nos. 333-03013; 811-07607), Morgan Stanley Insight Fund (File Nos. 033-63685; 811-07377), Morgan Stanley China A Share Fund, Inc. (File Nos. 811-21926; 005-82786) and Morgan Stanley Institutional Fund Trust (File Nos. 2-89729; 811-03980) (each, a “Registrant” and, collectively, the “Registrants”)
Dear Ms. Hamilton:
Thank you for your telephonic comments received on August 25, 2022 with respect to your review pursuant to the Sarbanes-Oxley Act of 2002 of various filings made by the Registrants on behalf of their respective series or portfolios, as applicable (each Registrant, or series or portfolio thereof (as applicable), may be referred to as a “Fund” and, collectively, the “Funds”). The Registrants have considered the Staff’s comments and have authorized us to make the responses and acknowledgements discussed below on each of their behalf. Below, we provide our responses to the Staff’s comments and describe any changes to be made to future filings in response to those comments and provide any responses to or any supplemental explanations of such comments, as requested. These changes will be reflected in the next such filing, except to the extent otherwise noted.
COMMENTS
Comment 1. With respect to the Morgan Stanley Institutional Fund, Inc.—Global Sustain Portfolio, we believe that use of the term “Sustain” in the Fund’s name suggests a particular type of investment and, as a result, the Fund should adopt a corresponding 80% investment policy pursuant to Rule 35d-1 under
the Investment Company Act of 1940 (“1940 Act”) suggested by this name. Please supplementally explain the basis for concluding that the use of the term “Sustain” in the Fund’s name is not subject to an 80% investment policy under Rule 35d-1.
Response 1. The Registrant believes that the use of the term “Sustain” in the Fund’s name is not subject to the 80% investment policy requirement pursuant to Rule 35d-1 under the 1940 Act.
Rule 35d-1 currently requires, in pertinent part, that a fund with a “name suggesting that the [f]und focuses its investments in a particular type of investment or investments, or in investments in a particular industry or group of industries” adopt a policy “to invest, under normal circumstances, at least 80% of the value of its [net assets, plus the amount of any borrowings for investment purposes] in the particular type of investments, or in investments in the particular industry or industries, suggested by the [f]und’s name[.]”
In adopting Rule 35d-1, the Securities and Exchange Commission (“SEC”) stated that the rule does not apply to fund names that incorporate terms that connote types of investment strategies (such as the terms ‘growth’ and ‘value’) as opposed to types of investments. Investment Company Names, SEC Rel. No. IC-24828 (Jan. 17, 2001). Moreover, in a set of “Frequently Asked Questions about Rule 35d-1 (Investment Company Names),” the Staff further distinguished certain terms that suggest an investment objective or strategy, rather than a type of investment, and noted that such terms do not require an 80% investment policy pursuant to Rule 35d-1.1 Frequently Asked Questions about Rule 35d-1 (Investment Company Names), modified Dec. 4, 2001.
Consistent with the foregoing, the Registrant believes that the term “Sustain” in the Fund’s name connotes an investment strategy that, as further described in the Fund’s prospectus, is used to construct a portfolio of securities that the investment team believes have the potential to generate sustainably high returns on operating capital and achieve the Fund’s objective of long-term capital appreciation by identifying high quality issuers with dominant franchises due to powerful hard-to-replicate-intangible assets (e.g., brands, networks, licenses and patents) and pricing power, resulting in high gross margins, as well as management teams able to allocate capital effectively to grow the franchise, maintain the intangible assets and sustain and/or improve returns on operating capital. Furthermore, the
The Registrant acknowledges that the SEC has recently proposed, but not yet adopted, amendments to Rule 35d-1 that would expand the scope of fund names subject to the 80% investment policy requirement. Investment Company Names, SEC Rel. No. IC-34593 (May 25, 2022).
Registrant believes that the term “Sustain” in the Fund’s name does not connote a “particular type of investment or investments.” Accordingly, the Registrant believes that the term “Sustain” in the Fund’s name is not within the scope of the 80% investment policy requirement as currently set forth in Rule 35d-1.
Comment 2. The response to Item B.2.d in the Form N-PORT filing for the Morgan Stanley Mortgage Securities Trust for the period ended October 31, 2021, and the Form N-PORT filing for the Morgan Stanley U.S. Government Securities Trust for the period ended December 31, 2021, indicates a significant amount of liability for investments purchased either on a delayed delivery, when-issued or other firm-commitment basis. Please supplementally explain the basis for concluding that the risks associated with these investments are not principal risks of either Fund that should be disclosed in the summary section of the Morgan Stanley Mortgage Securities Trust’s prospectus dated February 28, 2022 and the Morgan Stanley U.S. Government Securities Trust’s prospectus dated April 29, 2022, respectively. Please apply this comment globally, as applicable.
Response 2. Based on each such Registrant’s exposure to investments purchased either on a delayed delivery, when-issued or other firm-commitment basis as of the date of its registration statement filing and reasonably anticipated exposures to such investments in the next year, the risks associated with these investments were deemed not to be principal risks. Each such Registrant notes that corresponding risk disclosures were present in their respective statements of additional information dated February 28, 2022 or April 29, 2022, as applicable. These Registrants will consider whether the risks associated with these investments are principal risks of the Fund in connection with their next annual update.
Comment 3. The Financial Highlights in the Annual Reports with respect to the Morgan Stanley Global Fixed Income Opportunities Fund and the Morgan Stanley Mortgage Securities Trust for the period ended October 31, 2021, contain a footnote indicating that total returns are calculated “using the NAV for US GAAP financial reporting purposes and as such differ[-s] from the total return presented in the Fund Report and Performance Summary.” Please supplementally explain the basis for the varying return calculations and how this discrepancy is not misleading for investors.
Response 3. The total return shown in the Fund Report and Performance Summary for both Funds was calculated based on the net asset value (“NAV”)
determined as of the last business day of the period. Based on the results of standard reconciliation protocols when preparing year-end financial statements, adjustments to each Fund’s NAV for financial reporting purposes were identified which resulted in the NAV for financial reporting purposes (i.e., net of the adjustments) differing from the NAV of the last business day of the period (i.e., exclusive of the adjustments). The Financial Highlights are prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and, in contrast to the total return calculation in the Fund Report and Performance Summary, require the use of the NAV for financial reporting purposes in calculating total return. The footnote referenced above was added to alert investors to the difference in return calculations. Going forward, the Registrant will consider adding a footnote to both the Performance Summary as well as the Financial Highlights to provide an additional alert for investors on the methodology used for each return calculation should this situation arise again.
Comment 4. The Financial Highlights in the Annual Report with respect to the Morgan Stanley Institutional Fund, Inc.—Global Endurance Portfolio, for the period ended December 31, 2021, present positive total return figures for the Fund. However, the Statement of Operations showed a net decrease in assets resulting from operations. Please supplementally explain this difference.
Response 4. Consistent with Item 13(a) of Form N-1A and the instructions thereunder, total return in the Financial Highlights was calculated by adding dividends that are distributed during the period to the absolute change in NAV and dividing that sum by the NAV at the beginning of the period. By contrast, the Statement of Operations — including the components thereof, such as the Net Increase (Decrease) in Net Assets Resulting from Operations line item — does not reflect all the information needed to calculate total return.
Comment 5. With respect to the Morgan Stanley Institutional Fund, Inc.—International Opportunities Portfolio, the section of the prospectus dated April 29, 2022, titled “Principal Investment Strategies” states: “The Fund may also invest in securities of companies located in the United States to a limited extent.” At December 31, 2021, the Fund had greater than 22% of its net assets invested in the United States and, at March 31, 2022, that percentage was
approximately 19% per the Fund’s website. Please explain the basis for concluding that these exposures are consistent with the Principal Investment Strategies of the Fund as disclosed in the prospectus dated April 29, 2022.
Response 5. The Registrant utilizes a test disclosed in the Fund’s SAI to assign and aggregate the country of an issuer for purposes of applicable disclosed investment policies. The Registrant confirms that, as of December 31, 2021 and March 31, 2022, based on these assignments and aggregations, using the test disclosed in the Fund’s SAI, the composition of the Fund’s portfolio was consistent with the statement contained in the Principal
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CORRESP
1
filename1.htm
Three
Bryant Park
1095 Avenue of the Americas
New York, NY 10036-6797
+1
212 698 3500 Main
+1
212 698 3599 Fax
www.dechert.com
ALLISON
M FUMAI
allison.fumai@dechert.com
+1 212 698 3526 Direct
+1 212 698 3599 Fax
September
26, 2022
Securities
and Exchange Commission
Judiciary
Plaza
100
F Street, NE
Washington,
D.C. 20549
Attention:
Lauren Hamilton, Division of Investment Management
Re: Morgan
Stanley Institutional Liquidity Funds (File Nos. 333-104972; 811-21339), Morgan Stanley Institutional
Fund, Inc. (File Nos. 033-23166; 811-05624), Morgan Stanley Mortgage Securities Trust (File
Nos. 033-10363; 811-04917), Morgan Stanley U.S. Government Securities Trust (File Nos. 2-86966;
811-3870), Morgan Stanley Global Fixed Income Opportunities Fund (File Nos. 033-44782; 811-06515),
Morgan Stanley Variable Insurance Fund, Inc. (File Nos. 333-03013; 811-07607), Morgan Stanley
Insight Fund (File Nos. 033-63685; 811-07377), Morgan Stanley China A Share Fund, Inc. (File
Nos. 811-21926; 005-82786) and Morgan Stanley Institutional Fund Trust (File Nos. 2-89729;
811-03980) (each, a “Registrant” and, collectively, the “Registrants”)
Dear
Ms. Hamilton:
Thank
you for your telephonic comments received on August 25, 2022 with respect to your review pursuant to the Sarbanes-Oxley Act of 2002 of
various filings made by the Registrants on behalf of their respective series or portfolios, as applicable (each Registrant, or series
or portfolio thereof (as applicable), may be referred to as a “Fund” and, collectively, the “Funds”). The Registrants
have considered the Staff’s comments and have authorized us to make the responses and acknowledgements discussed below on each
of their behalf. Below, we provide our responses to the Staff’s comments and describe any changes to be made to future filings
in response to those comments and provide any responses to or any supplemental explanations of such comments, as requested. These changes
will be reflected in the next such filing, except to the extent otherwise noted.
COMMENTS
Comment 1. With
respect to the Morgan Stanley Institutional Fund, Inc.—Global Sustain Portfolio, we
believe that use of the term “Sustain” in the Fund’s name suggests a particular
type of investment and, as a result, the Fund should adopt a corresponding 80% investment
policy pursuant to Rule 35d-1 under
the
Investment Company Act of 1940 (“1940 Act”) suggested by this name. Please supplementally
explain the basis for concluding that the use of the term “Sustain” in the Fund’s
name is not subject to an 80% investment policy under Rule 35d-1.
Response
1. The Registrant believes that the use of the term “Sustain” in the Fund’s
name is not subject to the 80% investment policy requirement pursuant to Rule 35d-1 under
the 1940 Act.
Rule
35d-1 currently requires, in pertinent part, that a fund with a “name suggesting that
the [f]und focuses its investments in a particular type of investment or investments, or
in investments in a particular industry or group of industries” adopt a policy “to
invest, under normal circumstances, at least 80% of the value of its [net assets, plus the
amount of any borrowings for investment purposes] in the particular type of investments,
or in investments in the particular industry or industries, suggested by the [f]und’s
name[.]”
In
adopting Rule 35d-1, the Securities and Exchange Commission (“SEC”) stated that
the rule does not apply to fund names that incorporate terms that connote types of
investment strategies (such as the terms ‘growth’ and ‘value’) as
opposed to types of investments. Investment Company Names, SEC Rel. No. IC-24828 (Jan. 17,
2001). Moreover, in a set of “Frequently Asked Questions about Rule 35d-1 (Investment
Company Names),” the Staff further distinguished certain terms that suggest an investment
objective or strategy, rather than a type of investment, and noted that such terms do not
require an 80% investment policy pursuant to Rule 35d-1.1 Frequently Asked Questions
about Rule 35d-1 (Investment Company Names), modified Dec. 4, 2001.
Consistent
with the foregoing, the Registrant believes that the term “Sustain” in the Fund’s
name connotes an investment strategy that, as further described in the Fund’s prospectus,
is used to construct a portfolio of securities that the investment team believes have the
potential to generate sustainably high returns on operating capital and achieve the Fund’s
objective of long-term capital appreciation by identifying high quality issuers with dominant
franchises due to powerful hard-to-replicate-intangible assets (e.g., brands, networks, licenses
and patents) and pricing power, resulting in high gross margins, as well as management teams
able to allocate capital effectively to grow the franchise, maintain the intangible assets
and sustain and/or improve returns on operating capital. Furthermore, the
1
The Registrant acknowledges that the SEC has recently proposed, but not yet adopted,
amendments to Rule 35d-1 that would expand the scope of fund names subject to the 80% investment policy requirement. Investment Company
Names, SEC Rel. No. IC-34593 (May 25, 2022).
Registrant
believes that the term “Sustain” in the Fund’s name does not connote a
“particular type of investment or investments.” Accordingly, the Registrant believes
that the term “Sustain” in the Fund’s name is not within the scope of the
80% investment policy requirement as currently set forth in Rule 35d-1.
Comment 2. The
response to Item B.2.d in the Form N-PORT filing for the Morgan Stanley Mortgage Securities
Trust for the period ended October 31, 2021, and the Form N-PORT filing for the Morgan Stanley
U.S. Government Securities Trust for the period ended December 31, 2021, indicates a significant
amount of liability for investments purchased either on a delayed delivery, when-issued or
other firm-commitment basis. Please supplementally explain the basis for concluding that
the risks associated with these investments are not principal risks of either Fund that should
be disclosed in the summary section of the Morgan Stanley Mortgage Securities Trust’s
prospectus dated February 28, 2022 and the Morgan Stanley U.S. Government Securities Trust’s
prospectus dated April 29, 2022, respectively. Please apply this comment globally, as applicable.
Response
2. Based on each such Registrant’s exposure to investments purchased either
on a delayed delivery, when-issued or other firm-commitment basis as of the date of its registration
statement filing and reasonably anticipated exposures to such investments in the next year,
the risks associated with these investments were deemed not to be principal risks. Each such
Registrant notes that corresponding risk disclosures were present in their respective statements
of additional information dated February 28, 2022 or April 29, 2022, as applicable. These
Registrants will consider whether the risks associated with these investments are principal
risks of the Fund in connection with their next annual update.
Comment 3. The
Financial Highlights in the Annual Reports with respect to the Morgan Stanley Global Fixed
Income Opportunities Fund and the Morgan Stanley Mortgage Securities Trust for the period
ended October 31, 2021, contain a footnote indicating that total returns are calculated “using
the NAV for US GAAP financial reporting purposes and as such differ[-s] from the total return
presented in the Fund Report and Performance Summary.” Please supplementally explain
the basis for the varying return calculations and how this discrepancy is not misleading
for investors.
Response
3. The total return shown in the Fund Report and Performance Summary for both Funds
was calculated based on the net asset value (“NAV”)
determined
as of the last business day of the period. Based on the results of standard reconciliation
protocols when preparing year-end financial statements, adjustments to each Fund’s
NAV for financial reporting purposes were identified which resulted in the NAV for financial
reporting purposes (i.e., net of the adjustments) differing from the NAV of the last business
day of the period (i.e., exclusive of the adjustments). The Financial Highlights are prepared
in accordance with U.S. generally accepted accounting principles (“US GAAP”)
and, in contrast to the total return calculation in the Fund Report and Performance Summary,
require the use of the NAV for financial reporting purposes in calculating total return.
The footnote referenced above was added to alert investors to the difference in return calculations.
Going forward, the Registrant will consider adding a footnote to both the Performance Summary
as well as the Financial Highlights to provide an additional alert for investors on the methodology
used for each return calculation should this situation arise again.
Comment 4. The
Financial Highlights in the Annual Report with respect to the Morgan Stanley Institutional
Fund, Inc.—Global Endurance Portfolio, for the period ended December 31, 2021, present
positive total return figures for the Fund. However, the Statement of Operations showed a
net decrease in assets resulting from operations. Please supplementally explain this difference.
Response
4. Consistent with Item 13(a) of Form N-1A and the instructions thereunder, total
return in the Financial Highlights was calculated by adding dividends that are distributed
during the period to the absolute change in NAV and dividing that sum by the NAV at the beginning
of the period. By contrast, the Statement of Operations — including the components
thereof, such as the Net Increase (Decrease) in Net Assets Resulting from Operations line
item — does not reflect all the information needed to calculate total return.
Comment 5. With
respect to the Morgan Stanley Institutional Fund, Inc.—International Opportunities
Portfolio, the section of the prospectus dated April 29, 2022, titled “Principal Investment
Strategies” states: “The Fund may also invest in securities of companies located
in the United States to a limited extent.” At December 31, 2021, the Fund had greater
than 22% of its net assets invested in the United States and, at March 31, 2022, that percentage
was
approximately
19% per the Fund’s website. Please explain the basis for concluding that these exposures
are consistent with the Principal Investment Strategies of the Fund as disclosed in the prospectus
dated April 29, 2022.
Response
5. The Registrant utilizes a test disclosed in the Fund’s SAI to assign and
aggregate the country of an issuer for purposes of applicable disclosed investment policies.
The Registrant confirms that, as of December 31, 2021 and March 31, 2022, based on these
assignments and aggregations, using the test disclosed in the Fund’s SAI, the composition
of the Fund’s portfolio was consistent with the statement contained in the Principal