SEC Division of Investment Management staff letter: Pasadena Investment Trust

JAN 221993

Our Ref. No. 92-569-CC

Pasadena Investment

RESPONSE OF THE OFFICE OF CHIEF COUNSEL Trust

DIVISION OF INVESTMENT MANAGEMENT File No. 811-4506

By letter dated September 25, 1992, you seek our assurance

that we would not recommend any enforcement action to the

Commission under section 7 (d) of the Investment Company Act of

1940 ("1940 Act") if, as more fully described in your letter, a

non-united states investment company (the "Offshore Fund") offers

and sells its securities outside the United states and invests

substantially all of its assets in a single series (the "Fund")

of the Pasadena Investment Trust, a registered investment company

whose shares are registered under the Seçurities Act of 1933. 1/

You state that you will organize the Offshore Fund under the

laws of a foreign jurisdiction, which will enable foreign

investors to invest indirectly in the Fund while also enabling

the Offshore Fund to comply with certain foreign tax and

regulatory requirements. £I Individual and institutional United

States investors also may invest in the Fund. The proposed

arrangement will comply with the requirements of section

12 (d) (1) (E) of the 1940 Act. 1/ You also represent that the Fund 1/ The Pasadena Investment Trust is an open-end management

investment company currently consisting of three series.

~/ Foreign investors will receive full disclosure regarding the nature of their investment in the Offshore Fund, including

that the Offshore Fund ip' not registered with the Commission

under the 1940 Act, and thus not subject to United states

regulation and oversight. Telephone conversation between

Mitchell E. Nichter and Amy R. Doberman, dated November 9,

1992.
11 Section 12 (d) (1) eE) provides a safe harbor from Section 12 (d) (1), which generally limits the pyramiding of investment companies. To qualify for the Section

12 (d) (1) (E) safe harbor, you represent that: (1) the principal underwriter for the Offshore Fund will be a

registered broker or dealer, or a person controlled by a

registered broker or dealer; (2) the shares issued by the

Fund will be the only investment security held by the

Offshore Fund; and (3) the Offshore Fund will enter into an

arrangement with the Fund, or its principal underwriter,

whereby the Offshore Fund will be required (a) either to

seek instructions from its shareholders with regard to

voting proxies received from the Fund and to vote the

proxies only in accordance with these instructions, or to

vote Fund shares held by the Offshore Fund in the same

proportion as the vote of all other holders of Fund shares,

and (b) to refrain from substituting the Fund shares it

will disclose in its prospectus the Offshore Fund i s investment in

the Fund, and the risks, if any, to other Fund shareholders this

arrangement poses. !/

section 7 (d) of the 1940 Act prohibits a non-United states investment company from using the means and instrumentalities of

United states interstate commerce to publicly offer its

securities unless the Commission issues an order permitting the

investment company to register and offer its securities. The

Commission has interpreted Section 7 (d) to prohibit a foreign

investment company from using the means and instrumentalities of

Uni ted States interstate commerce to make a private offering of

its securities if the offering causes its shares to be

beneficially owned by more than 100 united states residents. 2/

You represent that the Offshore Fund will not, at any time, have

more than 100 beneficial owners who are united States residents,

and that the Offshore Fund will not offer its securities publicly

or privately to any united States residents.

Al though the Offshore Fund i s offering of securities to non- united states residents falls outside the scope of section 7 (d) , you raise the question of whether this offering should be ii integrated" with the Fund i s public offering of securities within the United states, thus subj ecting the Offshore Fund i s offering

holds for other securities unless the Commission approves

the substitution in advance pursuant to section 26 (b) of the

1940 Act. iJ Telephone conversations between Mitchell E. Nichter and

Amy R. Doberman, dated October 14, and October 28, 1992.

In addition, Item 6 eb) of Form N-1A requires the Fund to

disclose in its prospectus if the Offshore Fund, or any

other person, acquires a controlling interest in the Fund.

For purposes of this requirement, "control" is defined in

Item 15 eb) of Form N-1A as the beneficial ownership of more

than 25% of the voting securities of a company, the

acknowledgment or assertion by either the controlled or the

controlling party of the existence of control, or a final

adjudication under section 2 ea) (9) of the 1940 Act that control exists. Item 15 (b) of Form N-1A also requires the

Fund to disclose in its statement of additional information

if the Offshore Fund, or any other person, acquires 5% or

more of any class of the Fund i s outstanding equity securities. 2/ Securities Act ReI. No. 6862 (Apr. 23, 1990) e adopting Rule

144A under the Securities Act of 1933). See also Touche

Remnant & Co. (pub. avail. Aug. 27, 1984).

to regulation under the 1940 Act. The staff considers several

factors in determining whether integration is appropriate, and

generally will require integration if a reasonable purchaser

qualified to invest in both offerings would view an interest in one offering as not materially different from another. £I In making this determination, the staff will consider whether the enti ties share the same investment obj ecti ves, investment

portfolios, and portfolio risk/return characteristics. 1/ The

staff also may consider whether two funds are intended for two distinct groups of investors. ~ With respect to the Offshore Fund and the Fund, differing

tax laws, among other regulatory disparities, create materially

different investment opportunities for foreign and united states

investors. For example, united states funds generally must

distribute substantially all of their income and capital gains to

shareholders each year to avoid taxation at the fund level. In

contrast, many foreign jurisdictions do not require investment

companies to make such distributions, permitting shareholders to enj oy a tax-free buildup of earnings. Moreover, united states tax law generally requires United states funds to withhold a

substantial percentage of certain foreign investors'

distributions . United states tax law also contains significant

disincentives for united states residents to invest in offshore

investment companies. 2/ Therefore, although the Fund and the

Offshore Fund share the same investment objectives and

risk/return characteristics, we believe that a reasonable

Q/ See,~, Equitable Capital Management Corp. epub. avail.

Jan. 6, 1992); PBT Covered Option Fund epub. avail. Feb. 17,

1979) ("PBT").
V Id.
~ See,~, Rogers, Casey & Associates, Inc. epub. avail. June 16, 1989). In examining this factor, however, we will

not consider two offerings to be separate where investor

distinctions are artificial, arbitrary or immaterial.

See PBT, supra ("The legislative history of section 3ec)(1)

evidences a serious concern with technical avoidance of the

1940 Actls jurisdiction."). See also section 48(a) of the

1940 Act eprohibiting a person from doing indirectly any acti vi ty that could not be done directly). 2/ In certain circumstances, for example, united States

investors must pay taxes annually on their proportionate

share of a foreign investment company's realized and

unrealized capital gains.

investor would view these investments as materially different.

Accordingly, we would not integrate the offerings of the two

investment companies and thus the Offshore Fund would not violate
Section 7 (d) under the circumstances you describe.
Al though we concur in your view that the Offshore Fund would

not violate section 7 (d) if it offered its securities to non-

Uni ted States investors, the Offshore Fund i s investment in the

Fund raises concerns regarding the risks to united States

investors that may occur if the Offshore Fund redeems a

significant percentage of Fund securities. A request for a

substantial redemption may force the Fund to liquidate portfolio

securities quickly to meet the redemption request, and thus

obtain a less favorable price than the Fund might otherwise

receive in an orderly liquidation. Such action, if necessary,

may decrease the net asset value of Fund shares to the detriment

of remaining shareholders. lQ We are satisfied that these

concerns are addressed by (1) the Offshore Fund's agreement to comply with section 12 (d) (1) (E), including section 26 (b) with respect to the substitution of the Fund i s securities 11/, and

(2) the Fund's ability to redeem its shares in kind. 12 1Q Moreover, a request for a substantial redemption may disrupt the portfolio manager's investment strategy. See generally,

SEC Report on the Public Policy Implications of Investment

Company Growth, H.R. Rep. No. 2337, 89th Cong., 2d Sess.

314-18 (1966).
11 section 12 (d) (1) (E) (iii) (bb) permits an unregistered investment company to rely on the Section 12 ed) (1) (E) safe harbor only if, among other things, it complies with Section

26 eb). Section 26 eb) generally prohibits the trustee of a

uni t investment trust holding the security of a single

issuer to substitute another security for that security

without prior Commission approval. The Commission is

required to issue an order granting approval of the

substitution if the evidence establishes that it is

consistent with the protection of investors and the purposes

fairly intended by the policy and provisions of the 1940

Act.
1£ Section 2 ea) (32) of the 1940 Act defines a redeemable security in relevant part as "any security . . . under the

terms of which the holder is entitled . . . to receive approximately his proportionate share of the issuer i s current net assets, or the cash equivalent thereof." The

Fund i s ability to redeem its shares in kind is limited only

by its election under Rule 18f-1 under the 1940 Act, which

requires the Fund to redeem in cash requests by any

shareholder during any 90-day period in an amount that is

the lesser of $250,000, or 1% of the net asset value of the

Accordingly, we would not recommend any enforcement action

to the Commission under section 7 (d) if the Offshore Fund offers

and sells its securities outside the United states and invests

substantially all of its assets in the Fund. Our position is

based on all the facts and representations in your letter and the

telephone conversations, particularly that the Offshore Fund will

comply with Section 12 (d) (1) (E). You should note that any different facts or representations might require a different

conclusion.
: --"..7
, . a (' ~j K. t!t- i..i,1...~
Amy tR. Do15erman

Senf-tr Counsel

Fund at the beginning of that period. The Fund may not

enter into any arrangement with the Offshore Fund to

increase these limits without violating, among other provisions, section 18 (f) of the 1940 Act. Accordingly, the Fund would have the option of meeting a substantial

redemption request by the Offshore Fund in kind, if

appropriate.

'l(y'~ ' "ci \t-'~
525 UNIVERSITY AVENUE
HELLER, EHRMAN, WHITE & MCA~È--_'/'/~'v-i\q3 ATTORNEYS ~$ ,/' A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIO~\j", ~.. FIFTH AVENUE PALO ALTO, CALIFORNIA 94301~løOe FACSIMIL.E (415) 324-0l53B TELEPHONE (415) 326-7600 ~,~.iC -n-i'iAT LE, WASHINGTON 96104-7098 333 BUSH STREET. SAN FRANCISCO CALIFORNIA 941~l)iie.,l.P' FACSIMILE (206) 447-0849 , .. "\ j)).." TELEPHONE (20e) 447-0900 CA6LE HELPOW. TELEX 164-996' FACSIMILE (41SI 772-62W TELEPHONE (415) 772-6000 801 SOUTH FIGUEROA STREET 1201 PACIFIC AVENUE LOS ANGELES. CALIFORNIA 80017-5758 TACOMA, WASHINGTON 98402-4308 FACSIMILE (213) 614-1866 FACSIMILE (206) 572-8743 TELEPHONE 1213) 689-0200 TELEPHONE (206) 572-6666 September 25, 1992 1300 S. W. FIFTH AVENUE 550 WEST 7TH AVENUE PORTLAND, OREGON 97201-sea6 ANCHORAGE, ALASKA 99501-3571 FACSIMILE (503) 241-0950 FACSIMILE (907) 277-1920 TELEPHONE 1503) 227-7400 TELEPHONE (907) 277- 1900 1940 Act/57 (d) VIA FEDERAL EXPRESS

Office of the Chief Counsel

Division of Investment Management

Securities and Exchange Commission

450 Fifth Street, N. W.

stop 10-6

Washington, D.C. 20549-1004

Attention: Thomas S. Harman, Esq.
Re: Pasadena Investment Trust - Investment Company Act of 1940,
section 7 (d)
Dear Mr. Harman:

On behalf of our client, Pasadena Investment Trust (the

"Trust"), we request your concurrence that the staff (the

"Staff") of the Securities and Exchange Commission (the

"Commission") will not recommend any enforcement action to the

Commission under section 7 (d) of the Investment Company Act of

1940, as amended (the " 1940 Act"), under the circumstances

described below.

Backaround
The Trust is a Massachusetts business trust registered

wi th the Commission under the 1940 Act as an open-end management

investment company. The Trust is a series company currently

Off ice of the Chief Counsel

Division of Investment Management

Securi ties and Exchange Commission

September 25, 1992

consisting of three series (each a "Fund,,).1 units of

beneficial interest ("shares") of the Trust are registered under

the 1940 Act and under the Securities Act of 1933, as amended

(the "1933 Act").

The following arrangement is currently under

consideration. An offshore investment fund (referred to herein

as the "Offshore Fund") will be organized or otherwise created

under the laws of a foreign jurisdiction (~, the CaYman

Islands) . It has not yet been determined whether the Offshore

Fund will be a trust, partnership, corporation or other entity.

The Offshore Fund will be formed for the purpose of gathering

offshore assets from individual and institutional investors who

are not United States residents, and will invest substantially

all of its assets in a single Fund. The Offshore Fund will have

the same investment objective as the Fund in which it will

invest. The proposed arrangement will be set up as a feeder

fund-master fund structure, and will comply with the requirements

The three Funds are: The Pasadena Growth Fund (which seeks

to achieve long-term capital appreciation by emphasizing

investments in companies with rapidly growing earnings per

share, some of which may be smaller emerging growth

companies), The Pasadena Nifty Fifty Fund (which seeks to

achieve long-term capital appreciation by investing in

approximately 50 different securities which are believed to

offer the best potential for long-term growth of capital),

and The Pasadena Balanced Return Fund (which seeks to

maximize a total investment return consistent with

reasonable risk through a balanced approach using moderate

asset allocation). The Funds invest primarily in securities

issued by United States entities, and no more than 15% of

each Fund i s total assets will be invested in foreign

securities. Although this letter specifically discusses the

proposed arrangements with respect to a single Offshore Fund

investing in a single Fund, it is possible that one or more

addi tional offshore funds may be formed in the future for

the purpose of investing substantially all of their assets

in a single series of the Trust, including additional series

of the Trust which may be formed in the future.

Accordingly, this request is intended to cover such

additional arrangements if and when they are implemented.

Off ice of the Chief Counsel

Division of Investment Management

Securities and Exchange Commission

September 25, 1992

set forth in 1940 Act Section 12 (d) (1) (E).2 The purpose of this

structure is to enable the Offshore Fund to comply with certain

foreign tax and regulatory requirements while allowing it

effectively to invest, through the Fund, in a portfolio of assets

managed in the united states. Shares of the Offshore Fund will

be offered and sold outside of the united States to persons who

are not United States residents. At no time will more than 100

United states residents beneficially own shares of the Offshore

Fund, and it is not contemplated that the Offshore Fund will

offer its shares to any United States residents.

Discussion
Section 7 ed) of the 1940 Act provides, in relevant

part, as follows:

No investment company, unless organized or

otherwise created under the laws of the

United states or of a state, and no depositor

or trustee of or underwiter for such a

company not so organized or created, shall

make use of the mails or any means or

Section 12 (d) (1) (E) of the 1940 Act provides a safe harbor
from certain restrictions set forth in Section 12 (d) (1) of the 1940 Act. To qualify for the Section 12 (d) (1) (E) safe harbor, the proposed arrangement would satisfy the following requirements: (1) the depositor of, or principal underwriter for, the Offshore Fund will be a broker or

dealer registered as such with the Commission, or will be a

person controlled by such a registered broker or dealer,

(2) the shares issued by the Fund will be the only

investment securities held by the Offshore Fund, and (3) the

Offshore Fund will enter into an arrangement with the Fund,

or its principal underwriter, whereby the Offshore Fund will

be required (a) either to seek instructions from its

security holders with regard to the voting of all proxies

wi th respect to the Fund shares it holds and to vote such proxies only in accordance with such instructions, or to

vote the Fund shares held by it in the same proportion as

the vote of all other holders of such shares, and (b) to

refrain from substituting the Fund shares held by it unless

the Commission approves the substitution in advance pursuant

to Section 26 of the 1940 Act.

Office of the Chief Counsel

Division of Investment Management

Securities and Exchange Commission

September 25, 1992 Page 4

instrumentality 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 is the issuer.

Congress enacted Section 7 (d) to enable the Commission to enforce

the investor protections of the 1940 Act against foreign funds operating in the United States. See Protectino Investors: A Half Century of Investment Company Reaulation, 189 (SEC Div. Inv. Mgit. May 1992) ("Protectino Investors"). The issue presented by the proposed arrangement that is

the subj ect of this request is whether the concurrent offering of

shares of the Offshore Fund outside of the united States to non-

united states residents would be integrated with the public

offering of shares of the Fund in the united States such that the

Offshore Fund would be deemed to be engaged in a public offering

in violation of section 7 (d) of the 1940 Act.

The concept of integration under the 1940 Act allows

the Commission to look through apparently separate issuers to

determine if they really constitute the same issuer. See

Joseph H. Moss (January 27, 1984). Under this concept, for

example, two or more similar funds, one or more of which seeks to

be excluded from the definition of an investment company pursuant

to 1940 Act Section 3 (c) (1), could be combined into one fund for purposes of determining whether the 100 beneficial owner

limitation of that exclusion has been exceeded. See Underwood.

Neuhaus & Co. (September 6, 1974). If such integration were to

occur, tben the Offshore Fund could be viewed as conducting a

public offering in the United States in violation of

Section 7 (d). We are seeking hereby the Staff i s confirmation
that it will not recommend any enforcement action to the

Commission under section 7 (d) of the 1940 Act if the Offshore

Fund (1) invests substantially all of its assets in a Fund,

(2) concurrently conducts a public offering of its shares

offshore to non-United States residents, and (3) is at no time

beneficially owned by more than 100 united States residents.

Definitive guidelines on integration under the 1940 Act do not exist. See Lemke , Private Investment Companies Under Section 3 (cl (ll, 44 Bus. Law. 401, 424 (February 1989). The Staff has, however, issued a series of no-action letters addressing the issue of 1940 Act integration in various contexts,

Office of the Chief Counsel

Division of Investment Management

Securities and Exchange Commission

September 25, 1992 Page 5

none of which directly addresses the proposed arrangement that is

the subject of this request. See,~, Monument Capital

Management. Inc. (July 12, 1990); Rogers. Casey and Associates.

Incorporated (June 16, 1989); Frontier Capital Manaqement Company

Incorporated (May 6, 1988). Under this line of authority, the

Staff may require the integration of two funds if a reasonable

purchaser qualified to invest in both would view an interest in

one as not materially different from an interest in the other.

See, ~, Monument Capital Manaqement. Inc. (July 12, 1990).

Among the factors that the Staff has considered in determining

whether integration is appropriate are the following:

(1) similarity of investment objective, (2) similarity of

investment portfolios, and (3) similarity of risk/return 3 In view of this line of no-action responses, characteristics. use of the proposed structure may entail a risk that the offshore

offering by the Offshore Fund might be integrated with the public

offering in the United States by the Fund, and thereby could

cause the offering by the Offshore Fund to violate 1940 Act

Section 7 (d) .
In our opinion, the proposed offer and sale of shares

of the Offshore Fund and the operation of the Offshore Fund in

the manner described above should not be deemed violative of

Section 7 (d) of the 1940 Act because the primary conduct and

effects of such offer, sale and operation will occur outside of

the United States and will not affect a sufficient number of united states residents to warrant application of section 7 (d) . Furthermore, the primary conduct and effect of the proposed

arrangement in the united States (i. e., the operation of the

If those criteria were to be applied inflexibly to the

proposed arrangement, the Staff could conclude that

integration may be appropriate because (a) the investment

objectives of the Offshore Fund and the Fund will be

identical, (b) the underlying investment portfolios of both

funds will be, at least indirectly, identical, and (c) the

investment risk/return characteristics of the two funds are

expected to be substantially identical. However, the two

funds will hold different securities (the Offshore Fund will

own shares of the Fund; the Fund owns individual portfolio

securities), and each will be offered to a different

investor group (the Offshore Fund will be offered to

non-united States residents; the Fund is offered primarily

to United States residents).

Office of the Chief Counsel

Division of Investment Management

Securities and Exchange Commission

September 25, 1992 Page 6

Fund) would be regulated by the 1940 and 1933 Acts through the

registration of the Fund and its shares thereunder. See

Protectinq Investors at pp. 221-236 (discussing conduct and

effects approach in context of investment adviser regulation);

Unibanco-Uniao de Bancos de Brasileiros S.A. (July 28, 1992)

(adopting conduct and effects approach in context of investment adviser regulation). The Staff has acknowledged that section 7 (d) is

intended to protect United States investors. See Protecting

Investors at p. 202. The Commission, through interpretations of

the 1940 Act, has "married" Section 7 (d) to the Section 3 (c) (1) private investment company exclusion, Protectinq Investors at

p. 200, and takes the position that Congress has determined that

the point at which an investment company has more than 100

benef icial owners reasonably reflects when public interest

concerns arise, and therefore when section 7 (d) should be

implicated. See Protectinq Investors at p. 200. See also,

Fonlvser. S.A. de C.V. (August 14, 1991); Win Global Fund

(May 14, 1991); G.T. Global Financial Services. Inc. (August 2,

1988); Touche Remnant & Co. (August 27, 1984); SEC ReI. 33-6862

(April 24, 1990) (adopting release for 1933 Act Rule 144A in

which the Commission interpreted Touche Remnant & Co. as standing

for the proposition that the term "public offering" in

Section 7 (d) includes an offer by United States jurisdictional

means that causes the shares of a foreign investment company to

be beneficially owned by more than 100 United States residents);

Protectinq Investors at p. 201 (states that Commission in

Rule 144A adopting release "endorsed" the Staff's position in

Touche Remnant & Co.).
Clearly, the focus of the Touche Remnant & Co. line of

authority is on whether a foreign investment company has a

sufficient nexus with the United States to trigger application of

Section 7 (d). The sufficiency of the nexus is tested by the

number of united States residents who beneficially own the

foreign investment company's shares. See,~, Fonlyser. S.A.

de C. V. (August 14, 1991); Touche Remnant & Co. (August 27,

1984) . In our view, the proposed arrangement is entirely

consistent with that precedent because at no time will shares of

the Offshore Fund be beneficially owned by more than 100 United

States residents (in fact, we anticipate no such ownership

because shares of the Offshore Fund will not be offered to any

United States residents), and therefore its operations should not

have a sufficient nexus with the united States to trigger the

Off ice of the Chief Counsel

Division of Investment Management

Securities and Exchange Commission

September 25, 1992 Page 7

application of the 1940 Act through Section 7 (d) thereof.

Conversely, the operation of the Fund, which offers and sells its

shares to the public primarily in the united States, directly and

primarily affects United States residents, but such shares and

the Fund are registered under the 1940 Act and the 1933 Act, and

therefore the safeguards imposed by those regimes fully apply to

the operation of the Fund.

Furthermore, there is no intent in the proposed

arrangement to use multiple entities to take advantage of an

exception from the 1940 Act definitions of investment company

(and thereby circumvent the protections afforded by 1940 Act

registration to United states residents), as is the case in most

1940 Act integration situations. See,~, Frontier Capital

(July 13, 1988) (involving three 1940 Act Section 3(c) (1) funds); Protectinq Investors at p. 202 (notes that the Commission's

position set forth in Touche Remnant & Co. and its progeny

prevents foreign funds from circumventing the point at which a

valid United States regulatory interest arises). The Fund and

its shares are already registered under the 1940 Act and 1933

Act, and such shares are available for purchase by United States

residents and non-residents alike. The proposed structure is

simply intended to make available to foreign investors a vehicle

that is designed to comply with certain foreign tax and

regulatory requirements (which the Fund is not able to do

directly) and that invests in a portfolio of assets managed in

the united States. The Staff has indicated that this is a

legitimate objective. See Hub-and-Spoke Funds: A Report

Prepared By The Division of Investment Management 2 (April 1992)

( "IM Report") .
Finally, the Staff has not applied the doctrine of

integration generally to the operation of master and feeder

funds. In fact, the IM Report, at pages 2 and 8, and Exhibit B,

appears to contemplate a feeder fund-master fund structure in

which the feeder fund is not registered under the 1940 Act and is offered and sold to foreign investors. 4 The proposed arrangements are also similar to the foreign

fund-mirror fund structure suggested by the Commission in

its 1983 "mirror funds" release. See SEC ReI. No. IC-13691

(December 23, 1983) ("Mirror Funds Release"). In that

release, the Commission advised prospective foreign

( continued. . . )

Off ice of the Chief Counsel

Division of Investment Management

Securities and Exchange Commission

september 25, 1992

Posi tion Requested
In view of the foregoing, we would appreciate

confirmation that the Staff will concur in our opinion and will

not recommend any enforcement action to the Commission under
Section 7 (d) of the 1940 Act if the Offshore Fund (1) invests
substantially all of its assets in a Fund engaged in a registered public offering in the United states, (2) concurrently conducts a public offering of its shares offshore to non-United states residents, and (3) is at no time beneficially owned by more than 100 united States residents.

---

In the event that you reach a preliminary conclusion

that you will be unable to take the no-action position we are

requesting, we would appreciate you so advising us so that we may

discuss this matter with you further. Please confirm your

receipt of this request by returning a file-stamped copy in the

self-addressed, stamped envelope enclosed for your convenience.

4 ( . . . continued) investment company applicants to consider forming a mirror

fund registered under the 1940 Act to offer its securities

in the united States rather than attempting to obtain an

order from the Commission under Section 7 (d) . By organizing

a United States registered investment company that would

"mirror" the investments of a foreign fund, a foreign money

manager would be able to offer its services to United States

investors without needing to register the foreign investment

company under section 7 e d) . See Protectinq Investors at

pp. 196-97. In proposing this method of legitimately

avoiding the application of Section 7 (d) in the Mirror Funds

Release, the Commission apparently concluded that under

those circumstances integration of the foreign fund with the

registered United States mirror fund would not be

appropriate. The primary difference between our proposed

arrangement and the mirror fund structure appears to be that

the Offshore Fund will invest substantially all of its

assets in the Fund, whereas under the mirror fund structure

the foreign fund would not so invest in the domestic mirror

fund. As discussed above, however, this difference should not trigger the application of Section 7 (d) .

Office of the Chief Counsel

Division of Investment Management

Securities and Exchange Commission

september 25, 1992 Page 9

In accordance with Securities Act Release No. 6269, we

have submitted one original and seven copies of this letter to your attention. Should you have any questions regarding the matters

referred to in this letter, please telephone the undersigned at

415-772-6082, or Julie Allecta of this office at 415-772-6980.

Very truly yours, ~
~E~~
Mitchell E. Nichter

Enclosures