# PULIO ' 'J \ ~i1~~ ­

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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

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SECTON,

RUL 1o_

PULIO ' 'J \ ~i1~~ ­
AV.A
un.- 1 :" 1..
RESPONSE OF THE OFFICE OF "CHIEF COUNSEL

DIVISION OF INVESTMENT MANAGEMENT

Ref. No. 97-134-CC

South Asia Portfolio

File No. 811-8340

By letter dated January 10, 1997, you seek assuce tht the staff wil not

recommend enforcement action to the Commssion under Sections 12(d)(I) or 7(d) of the
Investment Company Act of 1940 (the "Investment Company Act"), if the South Asia
Portolio (the "Fund") establishes a wholly-owned subsidiar in the Republic of Mauritius
("Mauritius") for the purpose of makg
investments in equity securities of companes
organied and traded in India ("tndian companies"), as described inyour letter. 1

Background
The Fund is a New York trst tht is registered with the Commission under the

Investment Company Act as a diversified, open-end management investment company. The
Fund is a "master fund" in a "master-feeder" strcture, and thus has not registered its shares
under the Securities Act of 1933 (the "Securities Act"). Rather, the Fund has issued
beneficial interests to other registered investment companes ("feeder funds"):md intitutional
investors.' The feeder funds, in turn, publicly offer shares to retail investors. "
The Fund's investment objective is long-term capital appreciation. The Fund was

permit United States and other investors to participate in the South Asian economy

'formed to

priarly though investment in equity securties of Indian companes;" Under normal

conditions, at least 50% of the Fund's tota assets wil be Invested in equity securities of
Indian companes. The Fund's investment adviser is Lloyd George Investment Mangement

of 1940.2 "

(Bermuda) LInted (the"Adviser")~ a Hong

Act

mangement company
adviser under the InvestmeIit Advisers

KoIig-based investment

that is registered in the United States as an

investment

You state that under a double-taation treaty curently in effect between India and
Maurtius, corpOrate.-residents

of

Maurtius

are exempt

from 'Indian capital gain' ta, 3 and

pay a redlièeddividend witholding ta;.4 . YoU state tht no double taation treaty is 1n ,"

the United States and India.
Therefore, direct investients by the Fund in
Indian companes would be subject, to these Indian taes, whie investments by a" Mauritius
effect between

company would not.
1 'Telephone conversation between

Marh 7, 1997.

Edward J,Rubenstein and Eric ,G. Woodbury on

2 The Adviser's parent is Lloyd George Investment Management

V.I.)
Eaton Vance Management ("Eaton Vance"), a Boston-based firm, owns(B.24%
ofLimited.
the Class A
shares of the Adviser's parent. Eaton Vance also serves as the Fund's adminstrator.

3 You state that these taes are 30% for short-term gain and 10% for long-term gain.
4 You represent that these taxes are reduced from 20 % to 15 % .

Proposal
The Fund proposes that, rather than investing directly in securities of Indian '

companes, it wil estahlish and invest in a wholly-owned subsidiary in Mauritius (the
"Company"), which, in turn, wil invest in Indian companies.s You state that you have been
advised by Indian ta advisers that such a strctue would enable the Fund's investments in

India to qualify for the favorable ta treatment aforded by the Mauritius-India double
taation treaty.6 You also represent tht (i) neither the Company nor its investments would
be subject to any other Indian or Mauritius taes, and(ii) the Fund would not be subject to

the Fund's future investments in Indian

any Indian Or Mauritius taes. You state. tht all of

companes would be made though the' Company, with the exception of depository receipts
7

traded elsewhere.

control the Company by vire of being its sole

You represent tht the Fund wil
shareholder and

having a majority of

Company's directors selected from the FUnd's

the

Board of Trustees. 8 You also state tht the Adviser would manage the Company's
investments, subject to the supervision

of the Fund's Board

of Trustees, without any charge.

for advisory services other than the investment advisory fee it currently receives from the

Fund, and that the Company wil, not chage a sales load to the Fund. You furter state that
a Mauritius bank (the "Custodian"), meeting the requirements applicable to foreign
cuStodians pursUant to Rule 17f-5 under the Investment Company Act would hold record title
to the securities of Indian companes in the'nae of the Company. You represent that there
wil not be material duplicative costs asso.ciated with custodial services to the Fund, and no
extra dividend disbursement or shareholder communication costs. All of the profits (Le.,
S You represent tht the Companyw'ould be a Mauritius limited life company, which
you describe

as the substatial equivalent of a U.S. corporation with a term of fift

years.
6 You state that ths favorable~treatment is contigent on receipt of a certfication

the Compan's residency, for taatipn',puroses,. in
Mauritius, which yOl! expect to receive.' .

., fr()m Maurtius, ta

'authorities as to

.7 You represent that if
a comparable double
United States were to. pecome effective,
Company

taation treaty between India and the

and to cause all.the securities then held by it to

(assug no adverse ta
then would

intention of the Fund to liquidate the
be distrbuted to the Fund
Future purchases of securities of Indian
companes

it is. the

consequences).

be made directly by the Fund.

8 You represent that
the

Compan's offiCers and directors wlio are not

United service
States of
citizns or residents w.il (a) irevocably designte the Fund as their agent to accept
proceeding to enforce the provisions of the United States

process in any suit, action, or

securities laws, and (b) not raise an objections to the assertion of U.S. jurisdiction in any
such suit, action, or proceeding. Telephone conversation between Edward J. .
Eric G. Woodbury on

March 7, 1997. . ;.Rubenstein and
2

distributions of interest and dividends net of Indian witholding ta, and of capital gain on

, ,

sales of secties) of the Company would, after payment of certin expenses, be distrbuted
to the Fund. The Fund would be able at any time to liquidate and wind up the Company
and, after payment of any expenses, receive all of its assets in such liquidation.

You also represent that the Company's accounts, books, and other records wil :be
maintained by or on behaf of the Fund at
,the offices of the Adviser or Eaton Vance as
adminstrtor (although copies of

certin corporate records may also be maintained in

Mauritius), and wil be made, available to the Commission staff fQr inpection

on request. ~n
addition, you represent tht all m~terial legal and ta considerations applicable to the. '

prospectuses of the feeder funds investing in the Fund,

Company wi be fully set fort in the

or in a supplement thereto, as well as in the Fund's registrtion statement.

Analysis
Section 12(d)(1)

Becae the Company wil invest up to 100% of its assets in equity securities issued
by Indian companes, the Company could be viewed as an investment company as defined
Section 3(a) of the Investment Company Act. 9

If

in
ths were the case, Section 12(d)(I) could

be constred to prohibit the Fund from holding the proposed interest in the Company. 10

9 Secon 3(a)(I)
defines an

"investment company" to include any issuer tht

is or holds itself out as being engaged' priary ,or proposes to engage
priarily~ in the business of investig, reinvestig, or trading in sectintîes.

include any issuer that

~e.n 3(a)(3) defines an "investment company" to

is engaged or proposes to engage in the business of investig, reinvestig,
ownig~ holdiig, or trding

in securties, and owns. or proposes to acquire

investment securties having a value exceeding 40 per centu of the value of

such issuer's tota assets (exclusive of Governent securities and cash items)
on an unconsolidated basis.

10 Secn 12(d)(1)(A) makes it unlawful for an registered Învestmentcompany to
purcha or otherWise acquire any securty issued by any other investment company if, as a
result of suh traction, (i) the acquirg company would own more th 3% of the

total

outstading voting stock of the ,acquired company, (ii), the acquirg company would have
more than 5% of its assets
would have more than

invested in the acquired company, or (ii) the acquirg company
10% of its assets invested in the acquired company and all other

investment compales.
3

Congress included Section 12(d)(1) in the Investment Company Act to prevent a
registered investment company from controlling other investment companies and creating
complicated pyramid strctures. Congress believed that a fund holding company's exercise

of control over another investment company could result in a number of abuses, including:

(1) the pyraiding of voting control in a mamer that puts control in the hands of those
having only a nominl stae in the controlled investment company, to the disadvantage of the

. .

controlled investment company's minority owners; (2)

the adviser

the . undue inuence over

of the controlled company though the theat of large scale redemptions and loss of advisory
fees to the adviser, resulting' in the disruption of the orderly mangement of the, company ,
potential redemptions; (3) the

though the maintenace of large cash balances to meet
difficulty on the par of

an unophisticatedshaièholder.inäppraising the tre value of

investment due to the complex
charges, advisory fees, and admstrative

his

strcture; and (4) the layerig of sales

holding company

11

costs.

You argue that Section 12(d)(I) should hot be conStred to prohibit the Fund's
investments in the Company blfcause Congress did not intend for the prohibitions of Section
12(d)(1) to apply to whoiIy-owned investment vehicles, such as the Company, and because
none of .the abuses that Section 12(d)(I) was designed to address are implicated by ths
structure.

since the Fund wil be the sole legal and beneficial owner of

First, you maintain that

the Company ,there is no possibilty tht the Company could be employed as a device for

pyramiding control in the hands öf~n individual or group of individuals with a nominl

interest in all the constituent companes of the group. Secnd,
Adviser,

and

. .
,- ,.. . .

you assert .thtbecusethe Fund and the Company wil have the same
because the Company.exits solely

as a

wil

be unduly inuencedbya theat of

conduit to enable the

Fund to iIvest its

be no concern that portolio management

assets ina more ta-efficient maner, there. should

the loss of

advisory

fees to

the Adviser. '

., . Thd,youargue that:the sole legalandbeneficialownet of

Funp.,
which wil-havè-ìio difculty understadiIg the natue öf itsinvestient. TheCompanywil
the Company is the

be used only as a.,vehicle for

the Fund's investment in securitlès of Indian companes, and

investors in feeer fuds of the Fundcaessenthilly disregard the Company in considerig
the value

be deemed to own

of their investments.l You also represent that the Fund wil

11 See.~, Templeton Vietn Opportnities Fund,Inc. (pub. avail. Sept. 10, 1996);
7, 1995); ThePhoenI Funds (pub. avaiL. Oct,2,
Publit Policy Implications of Investment Company Growt; reprinted in H.R. Rep..

Mutual Series Fund Inc. (pub. avaiL. Nov.
1991);

No. 2337, 89th Cong., 2d Sess. 314-24 (1966).
12 You represent that the Fund's auditors have advised that under United States generally
(continued.. .)

4

holdings of the Company for purposes of compliance with the Fund's diversification

requirements and investment policies. Therefore, you argue that there wil be no complexity
of significance to investors in the Fund or its feeder funds.

of structue

Finlly, you represent that your proposed strcture wil not entail the layerig of sales
charges, advisory fees, and admstrative costs. Although there wil be some adminstrative
expenses incured in, Mauritius associated with the organiation and maintenance of the
the proposed plan is expected to result in a substatial net

Company, you represent tht

savings for Fund shareholders because of the reduction in Indian taxes. You represent tht if
net savings do not arse,the Mauritius entitY wil be dissolved.

Section 7 (d)

You asseIt that the Fund's investment in the Company should not be viewed as an
indirect

offerig of the Company's shaes in

7(d)Y Yourepresent that: (1) the Fund wil be the sole beneficial owner of theSection
Company,
the United States, invi6lation of

and wil liquidate the Company, should any

other ,person acquire a beneficial interest in it; (2)

the Fund controls the decision-makg process of the Company,. and the Fund's Adviser wil
make all of the Company's inveßtment decisions; (3) the

purpose of the proposed strcture is

to create an entity thOligh which the Fund wil invest in equity securities of Indian

companies, rather than to create a foreign investment vehicle to be marketed to U. S.
r

investors; (4) the U.S. offerig of feeder fund shares would continue to have all of the

characteristics of an offering, by a United States. investment compan and none that would

normally be expected for a direct or indirect offering by a foreign investmeiit company; and .
(5) the U.S~ feeder fund
issuer wil remain fully subject to the provisions of the Securties
Act, aid,"along with.the,'Fund, the Investment

'Company Act.

12(.. ;contiDued), " . "'. _ .
accepted

accountig principlesand'Regulation S-X, ,the Fund's fincia'statements'wil.be

prepared, and the Fund's net asset value wil be ca1culated,as though the investments owned .

by the Company were owned directly by the Fund.
13 Section 7(d)

, of the Investment Company Act provides in par that
No investient compan, unless organed
under

or otherwise created

the làws of the United States or of a State, and no

depositor or tntee of ot underwriter for such a company not so

orgaidorcn~ated, shall make use of the mails or any mean
or intrmentality of interstate commerce, directly or indirectly,

. l.

to offer for sale, sell, or deliver after sale, in connection with a
public offering, any security of which such company js the
issuer.
5

Based on the facts and representations in your letter, and the telephone conversation
referenced herein, and provided that the Mauritius tax authorities grant the necessary
certification for the Company to receive favorable ta treatment, we would not recommend
. that the Commssion commence enforcement action under Sections 12(d)(I) or 7(d) of the
Investment Company Act if the Fund establishes a wholly-owned subsidiar in Mauritius for
the purose of makg
investments inequity securities of Indian companes, as described in
your letter.

Because ths response is based on the facts and representations

in your lettr,
and the telephone conversation referenced herein, you should note tht different
facts or

representatiom may require a diferent conclusion. Furter, ths response expresses the
Division's

postion on enforcement.action only _and does not purport to express any legal

conclusioDs on the' issues ptesented. '

~(\~

Edward J .~)nstein ' .

Senior Counsl

.l.

6

p. (J,)(ì) €1.\.Ca

Am-­

Eaton Vance Management

q-r d )

SJJCT0N'

RID.J-m i ..~..~~~

24 Federal Street
Boston, MA 02110

~~O 5~it'êf~',.

(617) 482-8260

AV,d;'~. ..:-1,,1 1 "1
1940 Act/Sections 7(d) and 12(d)(1)
Januar 10, 1997

Securties and Exchange Commission

Office of Chief Counsel
Division of Investment Management
Judiciar Plaza "
450 Fifth Street, N. W.

Washington, D.C. 20549
Re; South Asia Portfolio (the "Fund")
Gentlemen and Mesdames;
On behalf of
the Fund, we respectfully request your advice that the Division of
Investment Management would not recommend that the Securties and Exchange
Commission (the "Commission") take any enforcement action by alleging violations of
Sections 7(d) orJ2(d)(I) of
the Investment Company A-ç(öf 194Q?as amended, (the
"1940 Act~) if
entity of

the .Fundwere to
which the Fund

create in The Republic of
Would be the sole

Maurtius ("Maurtius") an

shareholder and though which the Fund

would make its inves.tments in securties of
Indian

companes. Based upon advice
of
tax
that the formation of such an entity would make the
Fund's investments in India
eligible
for
full exemption from Indian capital gais taX and
paral exemption from dividend witholding ta under provisions, of the tax treaty
advisers. in

India, the Fund

believes

curently in effect between India andM::nirtius.

. BACKGROUN

i. The Fund
The

Fund is a New York trst

registered with the Commssion as a diversified,

open-end management investment company under
the 1940 Act. The
registeroo its shares

Fund has not'

under the Securties Act of 1933. Rather, the

Fund haS issued
beneficial interests to other registered Investmeiit companies and institutional
investors,
thereby servng

as amaster fud in amaster-feeder structue.

The Fund was formed to permit United States and other investors to paricipate in
the South Asian economy primarly through investment in equity securities of Indian
companies. The investment objective of

the Fund is to seek long-term capital

Office of Chief Counsel
Division of Investment Management
Janua 10, 1997
Page 2

appreciation. Under normal conditions, at least 50% ofthe Fund's total assets wil be
invested in equity securties of
Indian companes.
The Fund's investment adviser is Lloyd George Investment Management
"Adviser"), a Hong Kong based investment management
(Bermuda) Limted (the
company with offices in Bombay and London.
Eaton Vance Management ("Eaton
VanCe''), a Boston based firm, owns 24%
of
the Class
A shares ofthe Adviser's parent
company, Lloyd George Investment Management (B.V.I.) Limited. The Adviser is
registered as -.an investment adviser under the Investient Advisers Act of 1940 and as a
Foreign Institutional Investor in India.

Given the Fund's investment mandate, it proposes to establish a Maurtius limited
life company, as discussed below, in
order to protect the Fund's shareholders from the
imposition of Indian capital gains tax of 30% for short-tenn gains and 10% fodong-term
gains(securties held more than 1 year), and to obtain a reduction. in dividend

witholding from 20% to 15%. Under a double taxation treaty curently in effect
between India and Maurtius, corporate residents of

Maurtius are exempt from such

Indian taxes. A double taxation treaty is not curently in effect between India and the
United States. If a comparable double taation treaty between India aId the United States
were to become effective, it is the intention of the Fund to liquidate the subsidiar and to
cause all the securties then held by it to be distrbuted to the Fund (assumg no adverse
tax ~nSequeiices) 'and then to have futue purchases of Indian securties again be made

Fund.

directly by the

II. The Mauritius Company

. ." .. . ."."

. UndertlieprOposedplan,the Fund would estaplish a Maurtius limited life
company substatially equivalent to a
U.s.
corporation with a tenn of 50 years (the
"Company") of
which the Fund would
be the
sole shareholder. Two Maurtius citizens
will ~e às diectors (which is requied by law),
but a majority-of directors of
the
Company would
be selected from the Fund's Board of
Trustees. As sole shareholder the
Fund \Vould control the Company. All of
securties (except depository

the Fund's futue investments in Indian
receipts trded elsewhere) would be made though the

Compå:y. The Adviser would manage the investments. òfthe Company, subject to the
supervsion of
the Fund's Board of
TrusteeS,
without any charge for advisory services
other than the investment advisory fee it curently receives from
the Fund. A Maurtius
ban (the "Custodian") meeting the requirements applicable to foreign custodians

;;

Office of Chief Counsel
Investment Management

Division of

Januar 10, 1997
Page 3

pursuant to Rule 17f-5 under the 1940 Act would hold record title to the Indian securities

interest and
dividends net of Indian witholding tax; and of capital gai on sales of securties) of the
in the name of

the Company. All of

the profits (i.e., distrbutions of

Company would, after payment of certai

expenses (mentioned below), be distrbuted to

the Fund. The Fund would be able at any time to liquidate and wind up the Company

and, after payment of any expenses, receive all of its assets in such liquidation.
The Fund has been advised by Indian tax a(jvisers that the Company's
investments mIndia would be subject to Indian tax at a reduced rate (15%

instead of,

its taxable income and such investments would be exempt from capital
gaiIs tax. Neither the Company nor its investment
would be subject to. any other Indian
20%) on all of

(or Maurtius) taxes. In addition, the Fund would not be subject to any Indian or

Maurtius taxes. Indian tax treatment is predicated on receipt of certification from
Maurtius tax authorities
as to the Company's residency (for taxation puroses) in

Maurtius which we expect to obtain.
Those officers and directors of
the Company who are not United States citizens or
residents will irrevocably designate the Fund as their agent to accept servce of process in
any suit, action or proceeding to
enforce the provisions of the United States securities .

laws.
The accounts, books
on behalf of

the

admstrator '

Fund atthe offcesoftheAdviseror Eatoii Vance as

(although copies of certai corporate records may also

.

or

and other records òfthe' Company wil be maintained by

and

be maitaed in Maurtius),

will be subj ect to inspection by the Commssion; Ifrequested, Eaton Vance will fush
copies of such records to the staff.
All of
will-be fuly set

the material legal and ta considerations applicable to use of the Company
fort

the feederfuds investing in the FlId,or a

in the prospectues of

. supplement therèto,as w~ll as the Fund's registration

statement.

DISCUSSION
i. Section l2( d)(1)

Subparagraph (A) ofSection12(d)(I) ofthe1940 Act makes it
registered investment company to purchase or otherwse

unawful for any
acquire any securty issued by

any other investment company, and for any investment company to purchase or otherwise
acquire any securty issued by a registered investment company, if, as a result of such
trsaction, the limitations set fort in that subparagraph would be exceeded.

Offce of Chief Counsel
Division of
Investment Management
Januar 10, 1997

Page 4

As indicated above, all securties of Indian issuers wil be held on behalf of the
Fund by the Company. Such securties are expected at most times to constitute most of
the investments of the Fund. Whle the exclusion from the prohibitions of Section
that Section
would not techncally be available
because the Fund's investment in the Company would not constitute the only investment
12(d)(1) provided by subparagraph (E) of

securty held, the exclusion indicates a Congressional intention not to apply the

prohibitions of the Section to wholly-owned irivestment vehicles, such as the Company.

Section 12(d)(1) was amended by Congress in the 1970 Amendments to
strengten the regulation ot"fuds of fuds" situations
that

and prescribe specific restrctions

must be met by suchfuda. The

legislative

history of

the 1970 amendments suggest

they were intended to address four potential abuses: A. the pyramiding of
of

voting control

the investment company; B. undue inuence over portfolio management through the

"threat.. of large scale redemptions" and "loss of advisory fees" to the adviser, and the
disruption of the orderly management ofthe investment company through the
maintenance of large cash balances
to meet potential redemptions; C. the complexity of
the strctue with the resultant diffculty on the par of
the unnitiated stockholder in
appraising the tre value of
his securty;
and D. the layerig of sales charges, advisory
fees and administrative costs. See Public Policy Implications oflnvestment Company
Growth (Commssion Report pub.

1966). None of

, companes, which Congress sought to

elimate

Section 12(d)(1) ofthe 1940

Act, would

A. Pyramiding

of

when

fud holding

enacting the 1970 amendments to

be presentiftheproposed plän were effectuted.

Votig Control

, Under the Fund~s prop"osed strctue,
beneficial owner of

the potential dangers of

the Fund will

be the only legal aid ,

the Conipany.:, Accon:lin.gly, th~re is no possibilty that a

fud

holdig company could be employed as a device for pyraidig control in the hands of
an individual or group of individuas whose ficialstae in all the constituent
companes of the group is compartively nomiaL.
The theat of pyramding is therefore
not present.

B. Undue Influence on Adviser
The concern that the investment company's management wil be unduly
inuenced focuses pricipally upon
the potential
liquidity dangèrs to the Company and
some of
its shareholders
from the theat oflarge scale redemptions by one shareholder
(i.e., the fud holding company) and the impact that ths would have on the Adviser to the
Company due to possible constraints in managing the portfolio and the threatened loss of

advisory fees to the Adviser. ' .

Offce of Chief Counsel
Division of
Investment Management
Januar 10, 1997
Page 5

In ths case, the Adviser for the assets held through the Company is the same as
the Adviser for the Fund and the Company exists solely as a conduit to enable the Fund to
invest its assets in a more ta-efficient maner. Given this identity ofmanagement and
the Company's purose, there should be no concern that portfolio management will be

advisory fees to the Adviser.

unduly inuenced by the loss of

Strctue

of

C. Complexity

The sole legal and beneficial owner of

the Company (i.e., the Fund) wil have no

difficulty in understanding the natue ofitsinvestment. The Company wil be used only

as a vehicle forthe Fund's investment in Indian securties. Investors in feeder fuds of
the Fund can essentially disregard the Company in considering the value of their
investments. The Fund's
auditors have advised that under United States generally
accepted accounting
principles and. Regulation S-X of
the Commission, the Fund's
statements of
income, net assets and changes in net assets will be prepared,andthe
Fund's net value wil be calculated, as though the investments owned by the Company
were owned directly by the Flid. '(Simlarly, the Fund will include holdings of
the
Company for puroses of compllance with its diversification and other investment
policies.) Thus, there wil be no complexity of strctue of signficance to investors in

the Fund orits feeder fuds. '
of

D. Layering

Admstrative Expenses, Sales

Load and Advisory

Fees

The fial concern relates to the duplication of costs. Costs may be duplicated
where there are (i)

two layers of admstrtive expenses, including duplication of stock

cost of shareholder
cormui~tton.s,(ii) a' double 'sales.load,. or (iii) 'duplicative advisory fees.

tranfer,. diviaend disbursements, custodial fees and the

contemplates that a Maurtius ban would hold title to the
Indian secûrties;. There would be, therefore, no material duplicative costs associated
The proposed plan

with cust()dial'servicesto the

Fund as a result offormatiön of

the Company. There would

be noextr dividend disburements or shareholder communcation costs associated with
the proposed plan and the Company would not charg~ a sales load to the Fund.
Although there wil be soine adminstrative expenses mcured in Maurtius (for

. .

orgaization and maitenance of the Company), the proposed plan is expected to result in
a substantial net savigs for Fund shareholders because of the reduction in Indian taxes.

If net savigs do not arse, the Maurtius entity wil be dissolved. Finally, there wil not
investing the Fuid's assets through the
be any extra advisory fees collected as a

Company.

;-.

result of

Office of Chief Counsel
Investment Management

Division of

Januar 10, 1997
Page 6

In light of

the foregoing, we are of

the opinion that Section 12(d)(1) should not

apply because the potential abuses associated with "fuds of fuds" situations, which

(1 ) is designed to eliminate, are not relevant as applied to the proposed plan.

Section 12( d)

position by the Commssion staff would therefore be consistent with the

A no-action
protection of
the enactment

investors and the puroses of curent Section 12(d)(1). We also note that
of
the National Securties Markets Improvement Act of 1996 permits'

of fuds" and the proposed plan is not inconsistent with such

use of "fud

greater

legislation.
n. Section 7(d)
Section 7(d) of
the 1940 Act prohibits certain transactions by foreign investment
compaies. Specifically, "No investment company, unless organzed or otherwise
created under the laws ofthe United Statesorof a
any mean of

instruentality of

sale, sell, or deliver after sale,

such company is the issuer."

State... shall make use of
the mails or
interstate commerce, directly or indirectly, to offer for
in connection with a public offerig, any security of
which

does not apply to the proposed plan and
that a no-action position with respect to the issues raised by Section 7 (d) in connection
We are of

with

the opinon that Section 7(d)

the proposed plan

is appropriate and consistentwitl the puroses and policies of

1940 ACt and the protectioriòf investors for the reasons discussed below.
1. The Fund
any person other than
Fund

will cause the

the

the Company. In the event
beneficial interest in the Company, the
,Company to be liquidated~ .In addttion, the Fund can
withdraw its
will be the sole beneficial owner of

the Fimd should acquie a

investment ID:-kiÇiOr" teriate the C()mpany- ãtany tie.

2. _ The Fund controls t1edecision;.makg process ofthe Company. The

Adviser makg the ,investient decisions on behalfof the Fund wil also make
investment decisions regarding the assets held through the Company.
. :3. The

creation of the Company wil not result in any of the potential abusès
the proposed plan is merely
as an entity though which the Fund will invest in and hold

that Section 'led) was designed to áddress. .The.pùroses of
to establish the Company

Indian securties rather than to create a foreign investment vehicle to be marketed to U.S.

investors (which was the purose intended to be regulated under Section 7(d)).
plan is implemented would
a United States investment
company and none that would normally be expected for a direct or indirect offering by
The U.S. offering of

feeder fud shares after the

continue to have all the characteristics of an offerig by

Offce of Chief Counsel

InvestIent Management

Division of

Januar 10, 1997
Page 7

a foreign investment company. The United States feeder fund issuer will remain fully,
subject to the provisions ofthe Securties Act of 1933 and, most importantly along with
the Fund, the 1940 Act. For example, matters relating to the custody of

the Fund's.
the Fund's investments in
Indian companes wil continue to be governed by the 1940 Act.

investments, investnent advisory activities and other aspects of
securties of

CONCLUSION
We believe the creation of

the Company and the implementation of
the proposed
the abuses addressed by Sections 7(d) and 12(d)(1) ofthe
1940 Act. The Company wil be a legal entity designed to enable the Fund to make

plan wil not result in any of

investments in Indian securties without the imposition of double taxation by authorities

in the absence of an effective United Statestax treaty.
The Commission staffhas taken

no-action positions with respect to arangements

simlar to the proposed plan for the Fund in prior no-action letter requests. See
Templeton Vietnam Opportnities Fund, Inc. (pub. avaiL. Sept. 1 å, 1996); The Spain
, Fund, ln. (pub.

avaiL. May 28, 1988).

Webelieve, therefore, that a no-action position regarding the creation by the Fund
ofa vehicle though which it may make investments in Indian securties, in light of the
unque facts and circumstaces described.
herein, is appropriate and consistent with the
policies of

puroses and

the 1940 Act and the protection of

investors.

REQUEST FOR NO-ACTION POSITION

the, circumstances described herein, we hereby request confrmation from
the DivisionofInv~stient Management that it would not recommend anyeiiorcement
Under

. action to the Corission for alleged violations of Section 7 (d) or 12( d)

(1 ) ufinthê
Act thereunder if the Company were organzed under the laws of Maurtius
the1940
maner
described above and used
as a vehicle though which the Fund would invest in and hold
Indian secUrties.

Office of

Counsel
Investment Management

Chief

Division of

Januar 10, 1997
Page 8

In accordance with Release No. IC-6330 (Januar 25, 1971), three additional
copies of

ths letter are enclosed herewith. If

you should have any questions

,or require

any additional information concernng this request, please call the undersigned ~t
Kikpatrck & Lockhar at (617)261~3156.
(617)482-8260x540 or Philip J. Fina, Esq. of

Very trly yours, .

EGW/eh
SECSAP2.LTR

;.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3A0e4db77dd44d97b3. Public record. Not legal advice.