[Federal Register Volume 59, Number 61 (Wednesday, March 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7447]
[[Page Unknown]]
[Federal Register: March 30, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20156; International Series Rel. No. 643; 812-8794]
The Mexico Fund, Inc., et al.; Application
March 23, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANT: The Mexico Fund, Inc. (the ``Fund'') and any registered
investment companies formed in the future for which Impulsora del Fando
Mexico, S.A. de C.V. (the ``Adviser'' or Impulsora'') serves as an
investment adviser and that has one or more directors that also serve
as a director or directors of a company that itself or through a
company controlled by, under common control, or controlling such
company, acts as principal underwriter of an underwriting or selling
syndicate selling a security in Mexico.
RELEVANT ACT SECTIONS: Order requested under section 10(f) granting an
exemption from that section.
SUMMARY OF APPLICATION: Applicant seeks an order that would permit
applicant to purchase securities in public offerings in Mexico in which
a company that has the same director or directors as an applicant, or a
company controlled by, under common control, or controlling such
company, participates as a principal underwriter.
FILING DATES: The application was filed on January 25, 1994, and
applicant's counsel has stated in a letter dated March 18, 1994 that an
amendment, the substance of which is incorporated herein, will be filed
during the notice period.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on April 18, 1994,
and should be accompanied by proof of service on the applicant, in the
form of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street NW., Washington, DC 20549.
Applicant, c/o Impulsora del Fondo Mexico, S.A. de C.V., 77 Aristoteles
Street, 3rd Floor, Col. Polanco, Mexico, D.F. 11560, Mexico.
FOR FURTHER INFORMATION CONTACT: James M. Curtis, Senior Counsel, at
(202) 504-2406 or Barry D. Miller, Senior Special Counsel, at (202)
272-3023 (Division of Investment Management, Office of Investment
Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicant's Representations
1. The Fund, a Maryland corporation, is a diversified closed-end
management investment company registered under the Act. The Fund's
investment objective is long-term capital appreciation through
investment in securities, primarily equity, listed on the Bolsa
Mexicana de Valores. The Fund may invest in Mexican fixed-income
securities, bank deposits, and floating rate notes of Mexican banks.
Impulsora serves as investment adviser to the Fund.
2. Two members of the Fund's Board of Directors, Juan Gallardo and
Mr. Claudio Gonzalez, are affiliated with certain Mexican brokerage
firms.\1\ Mr. Gallardo also is a director of Bursamex Casa de Bolsa,
S.A. de C.V., a Mexican brokerage firm, and of Grupo Financiero
Inverlat-Comermex, a financial group holding company with interests in
several companies engaged in the banking, brokerage and other financial
services activities. This financial group controls, among other
companies, the brokerage firm Casa de Bolsa Inverlat, S.A. de C.V. Mr.
Gonzalez is a director of Groupo Financiero Banamex Accival, S.A. de
C.V., also a financial group holding company with interest in several
companies engaged in financial services activities. This financial
group controls, among other companies, the brokerage firm Acciones y
Valores de Mexico, S.A. de C.V.
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\1\Messrs. Gallardo and Gonzalez are currently relying on the
exception from the definition of ``interested person'' provided by
rule 2a19-1.
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Applicant's Legal Analysis
1. Section 10(f) of the Act generally prohibits an investment
company registered under the Act from knowingly purchasing or otherwise
acquiring securities during the existence of any underwriting or
selling syndicates if a principal underwriter of the securities is
either an officer, director, member of an advisory board, investment
adviser, or employee of the investment company, or is an affiliated
person of an officer, director, member of an advisory board, investment
adviser or employee of the investment company. By virtue of having
members of its Board of Directors that are also members of the board of
dirctors of Mexican brokerage firms, or financial groups that have
brokerage affiliates, which often act as principal underwriters in the
Mexican securities market, applicant is prohibited by section 10(f)
from purchasing securities from any member of any underwriting
syndicate in which such entities with interlocking directors or their
affiliates participate as principal underwriters. Applicant requests an
exemptive order to permit, subject to the conditions set forth herein,
applicant to purchase securities through any underwriting syndicate in
which Casa de Bolsa Inverlat, S.A. de C.V., Bursamex Casa de Bolsa,
S.A. de C.V., or Acciones y Valores de Mexico, S.A. de C.V., or any
other company that has the same director or directors as an applicant,
or a company controlled by, under common control, or controlling such
company, participates as principal underwriter.
2. Under rule 10f-3 under the Act, a registered investment company
may make a purchase of securities otherwise prohibited under section
10(f) as long as certain conditions are met. Subsection (a)(1) of rule
10f-3 requires that the securities purchased be part of an issue
registered under the Securities Act of 1933 (the ``Securities Act'').
The Mexican listed securities in which the Fund invests are not
required to be so registered, and the Fund lacks the ability to cause
Mexican issuers that conduct public offerings of securities in Mexico,
not otherwise subject to registration in the United States, to register
these securities under the Securities Act. Applicant represents,
however, that all purchases made by applicant pursuant to an order of
exemption will comply with all provisions of rule 10f-3 except for the
registration requirements set forth in rule 10f-3(a)(1). In addition,
applicant represent that all securities purchased in Mexico under
circumstances subject to section 10(f) of the Act will be purchased in
public offerings conducted in Mexico and that foreign issuers of
securities in which applicant invests pursuant to the order of
exemption will have available to prospective purchasers, including
applicant, financial statements, audited in accordance with Mexican
accounting standards, for at least two years prior to the offering.
3. In order to make a public offering in Mexico, an issuer must
file an application with the Comision Nacional de Valores (the ``CNV'')
requesting approval of the offering and registration of the securities
in the securities section of the Registro Nacional de Valores e
Intermediarios, the National Registry of Securities and Securities
Brokers, which is part of the CNV. In addition, the issuer seeking
approval must represent that (i) the characteristics of the securities
and the terms of the offering are such that the securities will have
significant circulation and will cause no dislocation of the market;
(ii) the securities possess, or have the potential for, broad
circulation in relation to the size of the market or the issuer; and
(iii) the issuer is solvent and has liquidity. Although the Ley del
Mercado de Valores, the Mexican securities law, does not set any
specific quantitative standards regarding the size of the offering, it
does require that every public offering be large enough, in the opinion
of the CNV, to assure investors of the liquidity of the securities. As
a result, securities must be issued in sufficient quantity to be
available to a wide group of offerees.
4. Once the offering price for a security is set, underwriters
offer the securities to the public at a public offering price disclosed
in the prospectus. Pursuant to the policies of the CNV, the securities
may thereafter only be publicly offered at the disclosed price. This
helps guaranty that publicly offered securities are offered to and
purchased by affiliated and unaffiliated persons on the same terms.
Although Mexican law does permit, under certain circumstances,
securities to be publicly offered at a premium to market price, this
situation rarely occurs. Applicant will not purchase securities at a
premium to the prevailing market price.
5. In ``firm commitment'' public offerings in Mexico, the
obligations of the various underwriters are several and not joint, and
each underwriter is obligated to purchase shares from the issuer at a
fixed price regardless of the marketing results of the underwriting
group. The CNV, however, can object to the price set by the issuer and
underwriters.
6. Applicant submit that the terms of the order for exemption
requested are consistent with the protection of investors and the
intention of the Commission in exempting transactions from section
10(f) pursuant to rule 10f-3. The requested order for exemption departs
from rule 10f-3. The requested order for exemption departs from rule
10f-3 only in that the offerings will not be subject to registration
under section 5 of the Securities Act as required by subsection rule
10f-3(a)(1). The purpose of subsection 10f-3(a)(1) is to ensure that
investment companies purchase the subject securities at the public
offering price (which ordinarily might not exist absent registration).
It also tends to indicate that the securities were issued more or less
in the ordinary course of business. Subparagraph (a) of rule 10f-3, by
requiring subject securities to be purchased in a firm commitment
underwriting, on the first day of the public offering, and for no more
than the public offering price, further suggests that the registration
requirement is closely related to these policy objectives.
7. Applicant submit that adherence to the conditions (as set forth
below) will provide an adequate substitute for the registration
requirement of rule 10f-3. In addition, the nature of a public offering
and a firm commitment underwriting in Mexico make it highly likely that
a wide group of offerees will take part in the offering and that the
securities will be offered to and purchased by affiliated and
unaffiliated persons on the same terms. Furthermore, where an issuer's
financial statements are available for the last two years, applicant
will be assured of having the basic financial information needed to
evaluate the security. Together with the public offering requirement,
such statements also provide assurance that the securities were issued
in the ``ordinary course'' of business. It is therefore submitted that
exemption from the provisions of section 10(f) in accordance with the
conditions set forth herein is consistent with the protection of
investors and the purposes intended by the passage of section 10(f) of
the Act and the promulgation of rule 10f-3 thereunder.
Applicant's Conditions
Applicant agrees that the order granting the requested relief shall
be subject to the following conditions:
1. All securities purchased in Mexico under circumstances subject
to section 10(f) of the Act will be purchased in public offerings
conducted in accordance with the laws of Mexico.
2. All subject foreign issuers of securities in which applicant
invests pursuant to the order of exemption will have available to
prospective purchasers, including applicant, financial statements,
audited in accordance with Mexican accounting standards, for at least
the two years prior to purchase.
3. All purchases made by applicant pursuant to the order of
exemption will comply with all provisions of rule 10f-3 except for the
registration requirement set forth in rule 10f-3(a)(1).
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-7447 Filed 3-29-94; 8:45 am]
BILLING CODE 8010-01-M
