SEC Division of Investment Management staff letter: Eaton Vance South Asia Portfolio

AJ~"
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. . ;.

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.

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.. .)

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.

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 .

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)

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 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

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

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

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

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

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

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
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