SEC Division of Investment Management staff letter: Templeton Vietnam Opportunities Fund, Inc.

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PRICEN PI CORPRATE CE
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(609) 520320
,lISS SA DEaT 2 SE' IN LONDNECY lLT, FNGL
(44171) 583-5353
September 6, , 1996
Office of Chief Counsel
Division of Investment Management
Judiciary Plaza
450 Fifth street, N. W.
Washin~on, D. C. 20549
Re: Templeton vietnam Opportunities Fund. Inc.
ACT (c.A
BEOlK
RutE
PUBTT,-' e\ 1 ~_ ff\I.1 AvAitABILITY~
151, BOULAR HAUS 75008 PAR FRCE
(33-1) 53 83 84 70
¡l1~)ci\ 71J~)
Ladies and Gentlemen:
We are counsel to T~pleton Vietnam Opportùni ties Fund, Inc.
(the "Fund"). The Fund respectfully requests confirmation that the Division of Investment Management will not recommend that the Commission take any enforcement action pursuant to Section 7 (d) or 12 (d) (1) of the Investment Company Act of 1940, as amended (the "1940 Aèt") if the Fund invGsts in Vietnamese companies, investment in which would not otherWise be practicable under vietnamese law, through the Fund i s purchase of 100% of the voting securi ties of holding companies organized for this purpose.. BACKGROUND The Fund, a Maryland corporation, is a closed-end management investment company registered under the 1940 Act which was formed to permit u. S . investors and others to participate in the economy of vietnam primarily through investment in equity securities of . vietnam companies. The investment obj ecti ve of the Fund is long￾term capital appreciation, which it seeks to achieve by investing primarily in the equity securities of vietnam companies. The Fund i s investment manager is Templeton Asset Management Ltd. (the "Investment Manager"), a Singapore company formerly known as Templeton Investment Management (Singapore) Pte. Ltd., which is an indirect wholly owned SUbsidiary of Franklin Resources, Inc. The Investment Manager is registered as an investment adviser under the Investment Advisers Act of 1940.

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The Fund's prospectus dated September 15,1994 stated that, under normal conditions, at least 65% of the Fund's total assets will be invested in securities of vietnam companies. At the time the Fud's registration statement became effective, although securi ties ~arkets were in the process of being established in Vietnam, there existed an extremely limited numer of Vietnam companies available to the Fund for investment. Accordingly, the prospectus stated that, as a non-fundamental investment policy, the Fund could invest up to 35% of its total assets in direct (i.e., not publicly traded) equity investments. In addition, the Fund undertook in its registration statement "that if, by October 1, 1997, at least 65% of the value of the Fund's total assets are not invested in securities of vietnam companies, management of the Fund wiii call a shareholders' meeting to vote on a proposal either to modify the Fud's investment policies or to liquidate the Fund's assets and distribute the proceeds to shareholders. The development of a securities market in vietnam has progressed slowly and the timing for the establishment of a stock exchange is uncertain and subj ect to the control of the vietnam governent. The Investment Manager believes that vietnam may not have a functioning stock exchange by October 1, 1997, and that publicly traded securities of vietnam companies may not be available to the Fund to any significant extent for some time to come. Accordingly, in October 1995, to facilitate the Fund's investment program, the Board approved a change to the Fund's non~fundamental investment policies to increase the percentage of the Fund's assets that may be invested in direct equity investments from 35% to 65% of the Fund's total assets. The Investment Manager believes that the Fund will be able to pUrsue its investment objective pursuant to its stated investment policies only if direct investments comprise a. significant portion of the portfolio. As of March 31, 1996, 51.9% of the Fund IS assets were invested in short-term obligations and other temporary investments outside Vietnam, with the remainder held in equity securities of companies in countries such as Hong Kong, Singapore, Indonesia and Thailand, which do hot qualify as vietnam companies but which the Investment Manager believes will experience growth in revenue or income from participation in the development of the economy of vietnam ("Vietnam-related companies").11 11 As stated .in the prospectus, the Fund considers the term "vietnam company" to mean a company (i) that is organized under the laws of, or with a principal office in, Vietnam, (ii) for which the principal equity securities trading market is in Vietnam, or (iii) that derives at least 50% of ( continued. . . )

PROPOSED INVSTMNT
The Investment Manager proposes to invest Fund aspets in one or more Vietnam limited liability companies ("LLs,,).U In this regard, ,the Investment Manager, with the 'advice of vietnam counsel, has determined that the most advantageous method for the Fud to invest in a vietnam LLC is through a Hong Kong or other foreign holding company, the reasons for which are sumarized below. Accordingly, it is proposed that, with respect to LL investments of the Fud, the Fund would acquire 100% of the equity interest in one or more holding companies (each, a "Holding Company"), each of which would purchase securities of a vietnamese LLC.~ The Fund thereafter would make capital contributions to the Holding Companies, which would, in turn, invest in equity and debt securities issued by the LLCs. ~ The 11 ( . . . continued) its revenues or profits from goods produced or sold, investments made, or services performed in vietnam or that has at least 50% of its assets situated in vietnam. In addition, during the initial investment period ending October 1, 1997, the Fund is authorized to invest without limit (and thereafter up to 35% of its total assets) in Vietnam-related companies. 'l LLCs in which the Fund proposes to invest may also have vietnamese investors, or may be owned entirely by non- vietnamese investors. 'J It is expected that, in view of various legal and tax considerations, the holding companies will be organized under the laws of Hong Kong. However, other jurisdictions may be chosen if deemed advisable by the Investment Manager., g Under Vietnamese law, at least 30% of the funding for a "foreign invested enterprise" (Le.,a business enterprise in which non-Vietnamese persons invest) must consist of equity capital from the enterprise participants, and up to 70% may consist of loans either ,from the enterprise participants o~ from third parties. We understand that, for various reasons including vietnamese withholding taxes on dividends, a large percentage of LLC financing often takes the form of loans. The Fund is currently subj ect to an investment restriction whereby it may not make loans, except that the Fund may purchase and hold debt instruents, enter into'repurchase agreements and make loans of portfolio ( continued. . . )

Fund i S Investment Manager would manage each Holding Company IS assets, subj ect to the supervision of the Fud's Board of Directors. The reasons for the Fud's proposed investment in vietnam LLCs through foreign Holding Companies can be sumarized as follows. First, a Holding Company provides necessary liquidity. Under Article 30 of De,cree 18-CP 'dated April 16, 1993 ("Decree Providing Regulations for Foreign Investments in Vietnam"), a sale of any interest in an LLC requires the approval of the Ministry of Planning and Investment, the vietnamese regulatory authorities with regard to investments. Additional restrictions apply to transfers of interests in LLCs with vietnamese investors. Specifically, the interest must first be offered to the other parties to the LLC, ~nd no transfer of an interest in this type of LL is effective wi thoutthe 'unanimous approval of the governing board of the enterprise. None of these conditions would 9-PPlY to the transfer of an interest in a HOlding Company., Second~ t~esale or transfer to another investor of an interest in.a Holding Company would not be subj ect to vietnamese capital gains tax. In contrast, gains from the sale of an interest in a vietnam LL would be taxed at the current rate of 25%. In addition, the United states currently does not have a double taxation treaty with vietnam. The use of the HOlding Company strUcture would allow the Fud to invest through a￾juriSdiction that has a tax treaty with the United States. Finally, a Holding Company would limit the Fund i s liability to the extent of its investment. In vietnam the principles of limited liability for investors in an enterprise are not settled, and the liability of a foreign investor may not otherwise be limited to the amount of the investment. It is proposed that the Fund will own 100% of the equity interest in each HOlding Company. The HOlding Companies will not issue debt securities. A Holding Company will not have any g ( . . . continued) securities. It is expected that the Board of Directors will approve, and recommend that shareholders approve, a proposal that this investment restriction be eliminated. That proposal is expected to be submitted to shareholders at the next annual meeting, scheduled for October, ,1996. As a condition to the requested no-action relief, the Fund undertakes that all investments by a Holding Company, when aggregated with the Fundls other holdings, would comply with the Fund i s then-current investment restrictions.

purpose other ,than serving as a vehicle for the Fund IS investments, and will not have an autonomous investment program. A HOlding Company will pay no investment advisory, administration or custody fees in connection with the management of its portfolio, and will charge no sales load or transfer agency fees in connection with the Fud's investment in a UOldingcompany. Each Holding Company i s assets will be managed by the Investment Manager under the supervision of the Fund i s Board of Directors. All investments of the Holding Company will be made in accordance with' the Fud~p stated investment objective, policies and restrictions.~ Each Holding Company will constitute a "Vietnam company, II as defined in the Fund i s prospectus,' for purposes of the Fundls policy of investing at l~ast 65% of its total assets in securities of vietnam companies.&
SECTION 12 (d) (1)
rnvestments by the Fund in securities issued by the Hong. Kong or other Holding Companies that are the subj ect of this . letter may be regarded as investments in investment companies within the meaning of Sections 3 (a)(3) and 12 (d) (1) of the 1940 Act. The reason for this is that the Holding Companies themselves would invest in securities -- those issued by the LLs -- and the LLs would not be majority-owned subsidiaries of the Holding Companies. Accordingly, the securities issued by some of the LLCs would, be "investment securities" in the hands of the Holding Companies within the meaning of Section 3 (a) (3) of the 1940 Act. . For the reasons set forth below, we believe that the restrictions of Section 12 (d) (1) should not be construed as applicable to the Fund's investments in the Holding Companies because they would merely be alter egos of the Fund and conduits ,through which the Fund would make investments in vietnam. Subparagraph (A) of Section 12 (d) (1) makes it unlawful for any registered investment company to purchase or, ,otherwise acquire any security issued by any other investment company if, as a result of such transaction, (i) the acquiring company would, own more than 3% of the total outstanding voting stock of the acquired company, (ii) the acquiring company would have more than 5% of its assets invested in the acquired company, or (iii) the acquiring company would hav~ more than 10% of its assets invested in the acquired company and all other investment companies. ~ See, The Thai Fund, (pub. avail. Nov. 3, 1987). & See footnote 1 supra.

Page 6 '
Each Holding Company could be viewed as an investment company, as defined. in Section 3(a) (3) òf the 1940 Act, because up to 100% of its assets would consist of equity and debt securities issued by, and loans made to, LLs. Accordingly, absent the requested no-action relief, the Fund could be .prohibited by Section 1~ (d) (1) from investing in Holding Companies to an extent greater than the percentage limitations set forth above.
Section 12 (d) (1) was amended by Congress in the 1970 amendments to strengten the regulation of "fund of funds"
situations and prescribe specific restrictions that m~st be met by such funds. The legislative history of the 1970 amendments suggest they were intended to address four potential abuses. See Report of the House Committee on Interstate and Foreign Commerce (H. Rep. No. 1382 at 10-11: 23-25 (Aug. 7, 1970)): Pulic Policv Im'Dlications of Investment Company Growth (Report of the. Securities and Exchange Commission, reprinted in H. Rep. No. 2337 at 311:"324 (Dec. 2, 1966) ("PPI")):
A. the pyramiding of voting control of the investment company in a manner that puts control in the hands of an individual or group of individuals that have only a nominal financial stake in the constituent companies (PPI at 317):
B. undue influence 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 of the investment company through the maintenance of large cash balances to meet potential redemptions (PPI at 316):
C. the complexity of the structure with the resultant
difficulty on the part of the uninitiated stockholder in ' appraising the true value of his, security. Cf, "The Investment Company Act of 1940," Wash. U. Law Quarterly, 303, 325 (.1941):
and
D. the layering of sales charges, advisory fees, and administrative costs (PPI at 318-20). As more fully discussed below, none of the potential dangers of fund holding companies, which Congress sought to eliminate., when enacting the 1970 amendments to Section 12 (d) (1), would be present if the Fund were to invest in an LLC through an investment in a HOlding Company. A. Pyramiding of Voting Control

Under the', proposed structure, there would be no possibility that the Holding Companies could be employed as a device for placing control in the hands of an individual or group of individuals who have' only a nominal financial stake in all the constituent companies of the group. The Fud would be the only legal and beneficial owner of the shares of each Holding , company.V There would be no' other shareholders who could potentially be harmed by the Fund i s investment in the Holding' Company. The threat of pyramiding is therefore not present under the proposed arrangement. B. Undue Influence on Adviser There is no possibility that the proposed structure would result in "undue influence" on the adviser of any Holding Company. The historical concern that the acquired company iS management will be unduly influenced has focused principally upon the potential liquidity dangers to an acquired investment company from the threat of large-scale redemptions. This in turn could' have an adverse impact on. the investment adviser to the acquired company due to possible constraints in managing the company iS portfolio and the threatened loss of advisory fees. In this case, the investment adviser for the assets held by each Holding Company would be the same as the Investment Manager for the Fund. Given this identity of management, there would be no concern that portfolio management will be "unduly influenced" by the Fund. Moreover, the loss of advisory fees to the investment adviser is not a concern in this case, again because there is no investment adviser of the Holding Company that is separate or distinct from the Investmènt Manager of the Fund and no additional advisory fees at the Holding Company level. Moreover, as stated above, each Holding Company would be merely an alter ego of the Fund and a conduit through which the Fund would make investments.', Because tlie Fùnd would own all the outstanding securities of each Holding Company, if the Fud wished for any purpose to cause a Holding Company to liquidate the securities of that HOlding Company and own . its assets directly, it would be only a structural change that would not adversely affect any shareholder of the Holding Company. Finally, because the Fund is a closed-end investment company which has no need to'maintain sufficient liquidity to honor Y Although the Fund may, in the future, find it advisable to invest in a Holding Company in which the Fund is not the sole investor, it will not do so without first obtaining further no-action assurance from the staff or exemptive relief from the Commission.

redemption requests, it is extremely unlikely that the Fund would have any reason to acquire direct ownership of the assets of any Holding Company. C . Complexity of structure The legal and beneficial owners of each Holding Company (i. e., shareholders of the Fund), will have no difficulty in understanding the nature of their investment. The Holding Companies will be used only as a vehicle for the Fundls, investment in vietnam LLCs. Investors in the Fund can essentially disregard the Holding Companies in 'considering the value of their investments in the Fud. For all practical purposes, including the calculation the Fudls 'net asset value, the investments owned by each HOlding Company will be treated as. if they were owned directly by the Fund. Thus, there will be no complexity of structure of significance to investors in the Fund. D. Layering of Fees The final concern in connection with S,ection 12 (d) (1) relates to the' duplication of costs., Costs may be duplicated where there are two layers of advisory fees , administrative fees and 'expenses, custodial fees, transfer agency and related fees and expenses, or a double sales load. There would be no significant duplicative costs associated with the existence of a Holding Company. There would be no separate investment advisory or administration fees. There would be no separate custody arrangements with respect to the Holding Company's assets, which wöuld be held by the Fund i s custodian or a subcustodian appointed by the Fud i S Board of Directors in accordance with Rule 17f-5 under the 1940 Act. In addition~ there would be no extra transfer agency fees or costs, including dividend disbursement or shareholder communication costs associated with the proposed structure, and the Holding Company would not charge a sales load to the Fund. Moreover, the ' proposed structure is expected to result in a net savings in taxes and administrative costs for the Fund.
SECTION 7 (d)
Section 7 (d) of the 1940 Act prohibits certain transactions by foreign investment companies. Specifically,
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 underwriter for such a company not so

organized or created, shall make use of the mails or any means or instruentality 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. . . . We are of the opinion that Section 7 (d) does not apply to the proposed structure and that a no-action position with respect to the issues raised by Section 7 Cd) in connection with the proposed structure is, appropriate and consistent with the purposes and policies of the 1940 Act and the protection of investors for the reasons discussed below. First, the Fund will be the sole beneficial owner of interests in each Holding Company. As noted above, the Fund will not invest in a Holding Company in which it is not. the sole investor without first obtaining further no-action assurance f~om the stäff or exemptive relief from the Commission. Second, the Fund would control th~ decision-making processes of each Holding Company. The Investment Manager making the investment decisions on behalf of the Fund will also make investment decisions reg~ding the assets held through each Holding Company. Finally, the investment in a Holding Company will not result in any of the potential abuses that Section 7 Cd) was designed to address. The purpose of the proposed structure is merely to use the Holding Companies as entities through which the Fund will invest in and hold vietnamese securities rather than to create a foreign investment vehicle to be marketed to' u. S. investors (Which was the activity intended to be regulated under Section 7 (d) ) . Interests in the Holding Companies will not, be offered or' sold in the United States. ' The proposed investments involve none of the characteristics normally associated with a direct or' indirect offering by a foreign investment company. There will be an actua~ United states issuer (the Fund) that will be fully sUbject to the provisions of the Securities Act of 1933 (if it offers additional shares) and the 1940 .Act, as well as the Securities Exchange Act of 1934, as applicable. Specifically, matters relating ,to the custody of the Fund's investments, investment advisory acti vi ties and other aspects of the Fund's investments 'in securities of companies will be governed by the 1940 Act. ~ In addition, as a condition to the relief requested, the Fund will undertake to make the accounts, books and other records

september 6, 1996 of each Holding. Company available for inspection by the staff of the Commission and, if requested, to furnish copies of those records to the staff.

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In light of the foregoing, weare of the opinion that Sections 12 (d) (1) and 7(d) should not be construed to prohibit the proposed arrangement. The potential abuses associated with "fund of funds" situations, which section 12 (d) (1) is designed to eliminate, and the offering' in the united States of an unregistered foreign investment company, which Section 7 (d) is designed to eliminate, are not present or relevant as applied to the proposed structure. A no-action position by the Commission staff would therefore be consistent with the protection of investors and the purposes of Sections 12 Cd) (1) and 7 (d) . The proposed no-action relief is also consistent with applicable precedent. See The Scandinavia Fund. Inc. (pub. avail. November 24, 1986), The Thai Fund. Inc. (pub. avail. NovembV 30,1987), The Spain Fund. Inc. (pub. avail. March 28, 1988) . ~ ~ The arrangement proposed by the Fund differs from those described in the letters cited above in that the Fund may ihvest in more than one Holding Company, and those letters contemplated a single investment vehicl~. The difference is based on the fact that the Investment Manager has identified at least one existing Holding Company which it is considering as an investment for the Fund, and may seek to purchase or organize others in the future. Accordingly, the ability to invest in more than one Holding Company could prove to be important to the Fund in that it could eliminate unnecessary administrative burdens of reorganizing existing entities into a single Holding Company. We do not believe that the possibility of more than one Holding Company should be considered a significant difference between the instant request and the relevant precedents. As discussed above, each Holding Company woui~ be an alter ego for the Fund, functioning exclusively as a conduit through which the Fund would invest in Vietnamese securities.

Conclusion
The proposed investment will not result in any of the abuses that Sections 12 Cd) (1) and 7 (d) were designed to protect against. A Holding Company is merely a vehicle which will enable the Fund to make investments otherwise unavailable, from a practical standpoint, to non-Vietnamese nationals under vietnam law. We believe, therefore, that a no-action position regarding the investment by the Fud in Holding Companies for the purpose of acquiring interests in vietnam LLs as described herein is appropriate, in accord with precedent, and consistent with the purposes and policies of the 1940 Act and the protection of investors. Under the circumstances described, we request confirmation from the Division that it will not recommend that the Commission take any enforcement action pursuant to Section? (d) or 12 (d) (1) if a Holding Company is used as a vehicle through which the Fund would 'purchase an interest in a Vietnam LL. . In accordance witn Relea~e No. 33-6269 (December 5, 1980), seven additional copies of this letter are enclosed herewith. If you should have any questions or require any additional information concerning tpis request, please call me at (202) 626- 3310, Alan Rosenblat at (202) 626-3332 or William J. Kotapish at (202) 626-3409. 66955.1~

p ~ , t~. SEP I 0 199
~ --.~1'..-.-",.... .~. rlL.e . . t,~!.i ;¡,'r:~' ~~"';''"'¡.:~.~ ,.:; ,I" ....~. !...0 .. . . . Ref. No. 96454-CC Templeton Vietn Opportnities Fund, Inc. File No. 811-8632 REPONSE OF TH OFFCE OF CID COUNSEL DIVSION OF INTM MAAGEM By letter dated September 6, 1996, you seek assurace tht the sta wil not remmend enforcment action to the Commsion under Secons 12(d)(1) or 7(d) of the Investment Company Act of 1940 (the "Investment Company Act"),if the Templeton Vietnam Opportnities Fund, Inc. (the lIFund") purchases 100% of the secunties of holdig companes tht invest in Vietnamese lited libilty companes (ii Vietamese LLs"), as descnbed in your letter. Background The Fund is a closed-end management investent company registere under the Investment Company Act. The Fund's investment objecve is long-term capita appreiation, which it seeks to achieve by investig priany in the equity seunties of Vietam Companes. i The Fund's investment adviser is Templeton Asset Magement Ud. (formerly mown as Templeton Investment Magement (Singapore) Pt. Ud.) (the "Adviser"), a Singapore company that is an indit wholly-owned subsidi of Fra, Resources, Inc.2 You reresent that the Fund's prospectus, date September 15, 1994, states that, under normal conditions, at leat 65 % of the Fund's tota asse would be invested in secunties of Vietn Companes. The prosptus alo state tht, as a: non-fundaenta investment policy, the Fund' could iÌvest up to 35 % of its tota assets indit (i.e. ,not publicly trded) equity investments. The Fund alo undertk in its regitrtion statement that if at leat 65 % of the value of the Fund's tota assets were not invested in secunties of Vietnam Companes by October 1, 1997, the Fund's management would ca a shaholders' meeting to vote on a proposa either to modi the Fund's investment policies or to liquidate i The Fund's prospectus dermes a "Vietn Company" asa ~mpany (i) that is organ under the laws of, or with a pricipal offce in, 'Vietn, (ii) for which the pricipal equity secunties trdig market is Vietn, or (il) tht denves at least 50 % of its revenues or profits frm goo produce or sold, investments made, or services performed in Vietnam, or that has at least 50 % of its assets situted in Vietnam. Durig the intial investment penod endig October 1, 1997, the Fund is authori to invest without lit (and therer up to 35 % of its tota assets) in equity secunties of cOinpanes that do not..qual as Vietnam Companes (such as Hong Kong, Singapore, Indonesia, and Thaiand companes), but which the' Adviser believes wil'expenence growth in revenue or income from paricipation in the development of the economy of Vietnam. 2 The Adviser is registered with the Commission under the Investment Advisers Act of 1940.

the Fund's assets and distnbute the pros to sharholderS. You state that the Advier believes'that there may not be a functonig stock exchage in Vietnam, nor a suffcient number of publicly-trded Vietnes issuers avaible for investment by the Fund, by October 1, 1997. Thus, in October 1995, the Boar aproved a change to the Fund's non￾fundaenta investment policies to incree the percntage of Fund assets tht may be invested in dit equity investments frm 35% to 65% of the Fund's tota assets. You state that the Adviser believes tht the Fund wil be able to achieve its investent objective only if a signcat porton of the Fund's portolio consists of dit investments. Proposal The Adviser proposes to invest Fund assets in one or more Vietese LLs. For reons summar below , the Adviser ha detrmed that the most advantageous method for the Fund to make ths investment is by acquirg 100 % of the equity interest in one or more Hong Kong or other foreign holdig companes (each a "Holdig Company"), each of which would purchae securities of a Vietese LL.3 The Adviser would mange each Holdig Company's assets, subject to the supervision of the Fund's Board of Ditors. You reresent fuat use of Holdig Companes to invest in the Vietnese LLs wil provide necssa liquidity;4 reult in ta savings for the Fund and its investors;5 and lit 3 You state tht it is expte tht, in view of varous legal and ta considerations, the Holdig-Companes wil be organ under the laws of Hong Kong. Oter jurisdictions may, however, be chosen if the Adviser deems it advible. You also state tht although the Fund'" may fid it advisble to invest in a Holdig Company in which the Fund is not the sole investor, it wil not do so without fit obtag further no-action assurace frm the' sta or exemptive relief frm the Commssion. We do not express any view whether the sta would grt such no-action relief, or support any such exemptive application. 4 You state that under Vietnese law, the sae of any interest in a Vietnamese LL requires governent approval. Additiona restnctions apply to trsfers of interets in Vietnamese LLs with Vietese investors. Specifcay, the' interet must fit be offere to the other pares to the Vietnamese LL, and no trsfer of an interet ina Vietnamese LLis effective without the unanous aproval of the governg boar of the enteiprise. None of thes conditions would apply to the trsfer of an interest in a Holdig Company. 5 You state that the sae or trsfer to another investor of an interest in a Holdig Company would not be subject to Vietnamese capita gais ta. In contrst, gais from the sale, of an interest in a Vietnamese LL would be taed at the current rate of 25 % . In addition, the United States currntly does not have a double tation trty with Vietnam, wheres the use of the Holdig Company stncture would alow the Fund .to invest through a jurisdiction that has such a ta treaty. 2

the Fund's libilty to the extent of its · investment. 6 A Holdig Company wil not have any puipse other than serving as a vehicle for the Fund's investments, and wil not have an autonomous investment progr. A Holdig Company wil pay no investment advisory, admstrtion, or custoy fees in connection with the management of its portolio, and wil charge no saes load or trsfer agency fees in connection with the Fund's investment in a Holdig Company. The Fund's Adviser wil mane each Holdig Company's asset, under the supervision of the Fund's Boar of Dirrs, in accrdce with the Fund's state investment objectives, policies, and restrctons. You state tht each Holdig Company wil constitute a "Vietnam Company," as defied in the Fund's prosptus, for puipses of the . Fund' s policy of investig at leat 65 % of its tota asset in seurities of Vietn Companes. 7 You rereent tht a Holdig Company wil not issue debt securities, and wil not issue any securities in the ùnite States. Analysis
Section 12(d)(l)
You acknowledge that becuse each Holdig Company wil invest up to l00%'of its assets in equity and debt securities issued by, and loans made to, Vietnamese LLs, each Holdig Company could be viewed as an investment company as defied in Secon 3(a)(3).8 .. 6 You assert that in Vietn, the priciples of lite libilty for investors in an enteiprise ar not setted, and the libilty of a foreign investor may not otherwise be lited to the amount of the investment. 7 As a condition to the requested no-action relief, the Fund undertes that al investments by a Holdig Cpmpany, when aggrgate with the Fund's other holdigs, would comply with the Fund's then-currnt investment restrctions. 8 Section 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, holdig, or trdig in securities, and owns or proposes to acquir investment securities having a value exceg 40 per centum of the value of such issuer's tota assets (exclusive of Governent securities and cash items) on an unconsolidated basis. "Investment securities" do not include securities issued by majority-owned subsidies of the owner that ar not investment companes. You state ßiat Vietnamese LLCs would not be majority-owned subsidiares of the Holdig Companes. 3

If this were the case, Section 12(d)(1) could be constned to prohibit the Fund from holdig the proposed interest in each Holdig Company. 9 , Congrss included Section 12(d)(1) in the Investment Company Act to prevent a registere investment company from contrllg other investment companes and cretig complicate pyradal stnctures. Congrss believed that a fund holdig company's exercise of contrl over another investment company could result in a number of abuses, includig:
(1) the pyraidig of votig contrl in a maner that puts contrl in the hands of those having only a nomial stae in the contrlled investment company, to .the disadvantage of the controlled investment company's miority owners; (2) the undue inuence over the adviser of the contrlled company thugh the tht of lae scae remptions and loss of advisory fees to the adviser, resultig in'the disruption of the orderly mangement of the company though the maitenace of lae cah balces to mee potenti reemptions; (3) the diculty on the par of an unsophiticate sharholder in appraing thetne value of his security due to the complex holdig company stncture; and (4) the layerig of saes charges, advisory fees, and admstrtive costs.10 You argue that Section 12(d)(1) should not be constned to apply to the Fund's investments in the Holdig Companes beuse the Holdig Companes would merely be alter egos of the Fund and conduits thugh which the Fund would make investments in Vietnam. n' You assert that none of the abuses tht Section 12(d)(1) is designed to addrss would be implicate if the ,Fund were to invest in a Vietnese LL thugh a 100 % investment in a Holdig Company. 9 Section 12(d)(1)(A) makes it .unlwfl for any registre investent company to purchase or otherwise acquir any security issued by any other investment company if, as a result of such trsaction, (i) the acquirg company would own more than 3 % of the tota outstadig votig stock of the acquir company, (ü) the acquirg company would have more than 5 % of its assets invested in the acquir company, or (il) the acquirg company would have more than 10% of its assets invested in the acquir company and al other investment companes. 10 See,~, Mutu Series Fund Inc. (pub. avai. Nov. 7, 1995); The Phoeni FUnds (pub. avai. Oct. 2, 1991); Public Policy Implications of Investment Company Growt, rqrite in H.R. Rep. No. 2337, 89t Cong., 2d Sess. 314-24 (1966). 11 See,~, The Spai Fund, Inc. (pub. avai. Mar. 28, 1988); The Thai Fund, Inc. (pub. avai. Nov. 30, 1987); and The Scadivia Fund, Inc. (pub. avai. Nov. 24, 1986). The argement proposed by the Fund diers frm those describe in the letters cite above in that the Fund may invest in more than one . Holdig Company, and those letters contemplated a single investment vehicle. You state that this dierence results from the fact that the Adviser has identied at least one existig Holdig Company which it is considerig as an investment for the Fund, and may seek to purchase or organ others in the future. 4

Firt, you maita tht there would be no possibilty that the Holdig Companes I could be employed as a device for placing control in the hands of an individua or grup of individua who have only a nomial fmancia stae in the contflled companes, beuse the Fund would be the only lega and beneficial owner of the equity securities of each Holdig Company. Secnd, you state tht beuse each Holdig Company is essentiy a pass￾though vehicle and the alter ego of the Fuiid, there is no tht of undue inuence over the Holdig Company. Thd, you are tht the Fund's sharholders wil have no diculty understadig the nature of their investment beuse the Holdig Companes ar, in effect, pass-thugh vehicles that Fund investors ca essentiy diregard. Finy, you state that there would be no signcat duplicative costs associate with the existence of a Holdig . Company becuse there would be no separte investment advisory or admistrtion fees, no separte custody argements, no ext trsfer agency fee or costs, includig dividend disbursement or sharholder communication costs associated with the proposed strcture, and the Holdig Company would not charge a saes load to the Fund. Morever, the proposed ta strcture is expted to result in a net savings in taes and admistrtive cost for the Fund.
Section 7 (d)
, Y ouassert that the Fund's investment in the Holdig Companes should not be view,ed as an indit offerig of the Holdig Companes' shars in the Unite States, in violation of
Section 7 (d). 12 You state that the purpose of the proposed strcture. is to use the Holdig
i Companes as entties thrugh which the Fund wil invest in and hold Vietnamese securities, rather th to crete a foreign investment vehicle to be mareted to U.S. investors. , Morever, you state that the proposed investments involve none of the charcteristics normaly associate with a dit or indit offerig by a foreign investment company. 13 12 Section 7( d) of the Investment Company Act provides in par that No investment company, unless organ or otherwise creted under the laws of the United States or of a State, and no depsitor or trste of or underwriter for such a company not so organ or creted, shal make use of the mais or any meas or instrumentaty of interstate commerce, diectly or inditly, to offer for sae~ sell, or deliver afer sale, in connection with a public offerig, any security of which such company is the issuer. 13 You state that the Fund wil undeI1e to make the accunts, books,and other records of each Holdig Company avaiable for inspectlon by the Commission sta and, if reuested, to furnsh copies of tllose records to the sta. ) ; 5 )

Based on the facts and reresentations in your letter, we would not remmend that the Commission commence enforcement action under Sections 12(d)(1) or 7(d) of the Investment Company Act if the Fund purchases 100 % of the securities of Holdig Companes that invest in Vietnamese LLs, as describe in your letter. Becuse ths response is based on the facts and reresentations in your letter, you should note that dierent facts or reresentations may reuir a dierent conclusion. Further, ths respnse expresses the Division's position on enforcement action only and does not purprt to express any legal conclusions on the issues presented. ' ~8~ Edward J. R nstein Senior Counsel r- ! 6