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SECTON, \~~~ RUL 1o_ 

PULIO ' 'J \ ~i1~~ ­ AV.A un.- 1 :" 1..
 

Ref. No. 97-134-CC
 RESPONSE OF THE OFFICE OF "CHIEF COUNSEL South Asia Portfolio DIVISION OF INVESTMENT MANAGEMENT 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 

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

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 

(Bermuda) LInted (the"Adviser")~ a Hong KoIig-based investment mangement company that is registered in the United States as an investment adviser under the InvestmeIit Advisers Act of 1940.2 " 

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 ," 

effect between 
 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 

company would not. 

1 'Telephone conversation between 
 Edward J,Rubenstein and Eric ,G. Woodbury on Marh 7, 1997. 

2 The Adviser's parent is Lloyd George Investment Management 


(B. V.I.) Limited. Eaton Vance Management ("Eaton Vance"), a Boston-based firm, owns 24% of 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
 

any Indian Or Mauritius taes. You state. tht all of 
 the Fund's future investments in Indian 

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

7 traded elsewhere. 


You represent tht the Fund wil 
 control the Company by vire of being its sole shareholder and 
 having a majority of 
 the Company's directors selected from the FUnd's 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 

., fr()m Maurtius, ta 
 'authorities as to 
 the Compan's residency, for taatipn',puroses,. in Mauritius, which yOl! expect to receive.' .
 

.7 You represent that if 

a comparable double taation treaty between India and the 

United States were to. pecome effective, it is. the intention of the Fund to liquidate the Company and to cause all.the securities then held by it to be distrbuted to the Fund (assug no adverse ta consequences). Future purchases of securities of Indian 
 companes then would 
 be made directly by the Fund. 

8 You represent that 

the Compan's offiCers and directors wlio are not United States citizns or residents w.il (a) irevocably designte the Fund as their agent to accept service of 

process in any suit, action, or 
 proceeding to enforce the provisions of the United States 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. . 


Rubenstein and Eric G. Woodbury on 
 March 7, 1997. . ;.
 

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. '
 

Company wi be fully set fort in the 
 prospectuses of the feeder funds investing in the Fund, 

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 
 in Section 3(a) of the Investment Company Act. 9 
 If 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.
 

~e.n 3(a)(3) defines an "investment company" to 
 include any issuer that 

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 
 invested in the acquired company, or (ii) the acquirg company would have more than 
 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 . undue inuence over 
 the adviser 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 , . .
 though the maintenace of large cash balances to meet 
 potential redemptions; (3) the difficulty on the par of 
 an unophisticatedshaièholder.inäppraising the tre value of 
 his investment due to the complex 
 holding company strcture; and (4) the layerig of sales
 

charges, advisory fees, and admstrative 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. 

First, you maintain that 
 since the Fund wil be the sole legal and beneficial owner of 

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, you assert .thtbecusethe Fund and the Company wil have the same 

Adviser, and because the Company.exits solely 
 . .
 as a conduit to enable the
 Fund to iIvest its assets ina more ta-efficient maner, there. should 
 be no concern that portolio management wil be unduly inuencedbya theat of the loss of - . . . advisory fees to 
 the Adviser. '

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


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

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 of their investments.l You also represent that the Fund wil 
 be deemed to own 

11 See.~, Templeton Vietn Opportnities Fund,Inc. (pub. avail. Sept. 10, 1996); 

Mutual Series Fund Inc. (pub. avaiL. Nov. 
 7, 1995); ThePhoenI Funds (pub. avaiL. Oct,2, 1991); Publit Policy Implications of Investment Company Growt; reprinted in H.R. Rep.. 

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 structue 
 of significance to investors in the Fund or its feeder funds. 

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 

Company, you represent tht 
 the proposed plan is expected to result in a substatial net 

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

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. 

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

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 


or otherwise created
 

under 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,
 

to offer for sale, sell, or deliver after sale, in connection with a 

public offering, any security of which such company js the

issuer. . l.


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
 SJJCT0N' q-r d ) 24 Federal Street 

Boston, MA 02110 RID.J-m i ..~..~~~ 

(617) 482-8260 ~~O 5~it'êf~',. 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 
 the .Fundwere to 
 create in The Republic of 
 Maurtius ("Maurtius") an
 entity of 
 which the Fund 
 Would be the sole 
 shareholder and though which the Fund would make its inves.tments in securties of 


Indian companes. Based upon advice 


advisers. in 
 of tax India, the Fund 
 believes 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 

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 
 Fund has not' registeroo its shares 
 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 

directly by the Fund. 

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 the Fund's futue investments in Indian 

securties (except depository 
 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 

Division of 
 Investment Management 

Januar 10, 1997
 

Page 3
 

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

in the name of the Company. All of 
 the profits (i.e., distrbutions of 
 interest and 

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

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,
 

20%) on all 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 

(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 
 and other records òfthe' Company wil be maintained by 
 or on behalf of the Fund atthe offcesoftheAdviseror Eatoii Vance as admstrator ' (although copies of certai corporate records may also 
 be maitaed in Maurtius), 
 and will be subj ect to inspection by the Commssion; Ifrequested, Eaton Vance will fush 

. copies of such records to the staff. 

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

will-be fuly set fort in the prospectues of the feederfuds investing in the FlId,or a
 

. 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 
 unawful for any registered investment company to purchase or otherwse 
 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 

12(d)(1) provided by subparagraph (E) of that Section 
 would not techncally be available 

because the Fund's investment in the Company would not constitute the only investment 

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 and prescribe specific restrctions 

that 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 voting control 

of 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 the potential dangers of fud holding
 

, companes, which Congress sought to 
 elimate when enacting the 1970 amendments to 

Section 12(d)(1) ofthe 1940 Act, would be presentiftheproposed plän were effectuted.
 

A. Pyramiding of Votig Control 

, Under the Fund~s prop"osed strctue, 
 the Fund will 
 be the only legal aid , beneficial owner of 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 

unduly inuenced by the loss of advisory fees to the Adviser. 

C. Complexity of Strctue 

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. ' 

D. Layering of 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
 

tranfer,. diviaend disbursements, custodial fees and the 
 cost of shareholder 

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

The proposed plan 
 contemplates that a Maurtius ban would hold title to the 

Indian secûrties;. There would be, therefore, no material duplicative costs associated 

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 

. .
 be any extra advisory fees collected as a result of 
 investing the Fuid's assets through the 

Company. ;-. 
Office of Chief Counsel 

Division of 
 Investment Management 

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
 

Section 12( d) 
 (1 ) is designed to eliminate, are not relevant as applied to the proposed plan. 

A no-action 
 position by the Commssion staff would therefore be consistent with the 

protection of 
 investors and the puroses of curent Section 12(d)(1). We also note that 

the enactment of the National Securties Markets Improvement Act of 1996 permits' 

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

legislation. 

greater 

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 
 State... shall make use of 
 the mails or any mean of instruentality of 
 interstate commerce, directly or indirectly, to offer for 

sale, sell, or deliver after sale, 
 in connection with a public offerig, any security of 
 which 

such company is the issuer." 

We are of the opinon that Section 7(d) 
 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 

with the proposed plan is appropriate and consistentwitl the puroses and policies of the 

1940 ACt and the protectioriòf investors for the reasons discussed below. 

1. The Fund will be the sole beneficial owner of 
 the Company. In the event any person other than the Fimd should acquie a 
 beneficial interest in the Company, the 

Fund will cause the ,Company to be liquidated~ .In addttion, the Fund can withdraw its 

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 

that Section 'led) was designed to áddress. .The.pùroses of 
 the proposed plan is merely to establish the Company 
 as an entity though which the Fund will invest in and hold 

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)). 

The U.S. offering of feeder fud shares after the 
 plan is implemented would continue to have all the characteristics of an offerig by 
 a United States investment 

company and none that would normally be expected for a direct or indirect offering by 
Offce of Chief Counsel
 

Division of 
 InvestIent Management 

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. investments, investnent advisory activities and other aspects of 
 the Fund's investments in securties of 
 Indian companes wil continue to be governed by the 1940 Act. 

CONCLUSION 

We believe the creation of 
 the Company and the implementation of 
 the proposed plan wil not result in any of 
 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 

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 

puroses and policies of the 1940 Act and the protection of 
 investors. 

REQUEST FOR NO-ACTION POSITION 

Under the, circumstances described herein, we hereby request confrmation from
 

the DivisionofInv~stient Management that it would not recommend anyeiiorcement
 

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


(1 ) uf thê 1940 Act thereunder if the Company were organzed under the laws of Maurtius in the maner 

described above and used 
 as a vehicle though which the Fund would invest in and hold
 

Indian secUrties.
 
Office of Chief Counsel 

Division of 
 Investment Management 

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. 

Very trly yours, . 

(617)482-8260x540 or Philip J. Fina, Esq. of 


EGW/eh 

SECSAP2.LTR 

; .