[Federal Register Volume 61, Number 84 (Tuesday, April 30, 1996)]
[Notices]
[Pages 19100-19102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10583]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 21913; International Series Rel. No.
973; 812-9846]
The Mexico Equity and Income Fund, Inc.; Notice of Application
April 24, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (``Act'').
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APPLICANT: The Mexico Equity and Income Fund, Inc. (``Fund'').
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 it
to purchase securities in underwritten public offerings in Mexico in
which an affiliated person of its Mexican investment adviser or U.S.
co-adviser participates as a principal underwriter.
FILING DATES: The application was filed on November 8, 1995, and
amended on March 29, 1996.
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 May 20, 1996,
and should be accompanied by proof of service on 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 such notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicant, 200 Liberty Street, New York, New York 10281.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Counsel, at (202) 942-0583, or Robert A.
Robertson, Branch Chief, at (202) 942-0564 (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 from
the SEC's Public Reference Branch.
Applicant's Representations
1. The Fund, a Maryland corporation, is a closed-end management
investment company registered under the Act. The
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Fund's investment objective is to seek high total return through
capital appreciation and current income through investment in equity
and debt securities of Mexican issuers, including, to the extent
available, convertible debt securities issued by Mexican companies. The
Fund's fundamental policy requires it to invest at least 50% of its
assets in equity and convertible debt securities issued by Mexican
companies. The remainder of the Fund's assets must be invested in
Mexican issuer debt securities (other than convertible debt securities)
and, for cash management or temporary defensive purposes, in certain
high quality short-term debt instruments.
2. The Fund's Mexican investment adviser is Acci Worldwide, S.A. de
C.V. (``Acci''), a limited liability company organized under the laws
of Mexico. The Fund's U.S. co-adviser is Advantage Advisers, Inc.
(``Advantage''), a Delaware corporation that is a wholly-owned
subsidiary of Oppenheimer & Co., Inc. Both Acci and Advantage are
registered as investment advisers under the Investment Advisers Act of
1940. Acci is responsible for the management of the Fund's portfolio,
subject to direct participation by Advantage in all investment
decisions with respect to the Fund's portfolio of convertible debt
securities. In the case of other securities transactions, Acci receives
advice from, and consults with, Advantage regarding the Fund's overall
investment strategy and decisions to buy, sell, or hold particular
securities.
3. Acci is a wholly-owned subsidiary of Acciones y Valores de
Mexico, S.A. de C.V. (``AVM''), one of the leading brokerage firms in
Mexico. AVM is a controlled subsidiary of Grupo Financiero Banamex/
Accival, a holding company formed for the purpose of owning over 99% of
the voting stock of AVM and Banco Nacional de Mexico, S.A.
(``Banamex''), Mexico's largest commercial bank. During the period 1991
through August 1995, AVM was lead manager or co-manager for 21 of the
74 initial public offerings of equity securities in Mexico
(approximately 28.4% of total offerings). AVM-managed transactions
raised approximately 58.5% of the U.S. $16.8 billion raised in such
offerings.
4. Because AVM-managed transactions constitute such a significant
portion of new publicly offered Mexican securities, the Fund believes
that its inability to purchase and hold such securities may be
disadvantageous to its shareholders. Accordingly, the Fund seeks an
exemption from the prohibition contained in section 10(f) to permit it
to purchase securities in underwritten public offerings in Mexico in
which an affiliated person of Acci or Advantage participates as a
principal underwriter (as defined in section 2(a)(29) of the Act).
Applicant's Legal Analysis
1. Section 10(f) of the Act prohibits a registered investment
company from purchasing securities during the existence of any
underwriting syndicate if a principal underwriter of those securities
is either (a) an officer, director, member of an advisory board,
investment adviser, or employee of the investment company, or (b) a
person of which any such officer, director, member of an advisory
board, investment adviser, or employee is an affiliated person. By
virtue of having investment advisers whose affiliated persons often act
as a principal underwriter in underwritten Mexican public offerings,
the Fund is prohibited by section 10(f) from purchasing securities from
any member of any underwriting syndicate in such offerings.
Accordingly, applicant believes that compliance with section 10(f)
undermines the Fund's investment objectives.
2. Rule 10f-3 under the Act permits a registered investment company
to make a purchase of securities otherwise prohibited by section 10(f)
provided certain conditions are met. Paragraph (a)(1) of the rule
requires the securities purchased to be part of an issue registered
under the Securities Act of 1933 (``Securities Act''). The Fund is
unable to comply with the provisions of paragraph (a)(1) because the
Mexican securities in which it invests are not required to be
registered under the Securities Act, and the Fund lacks the ability to
cause Mexican issuers to register these securities under the Securities
Act. Applicant therefore proposes that the public offering rules of the
Mexican authorities be substituted for the U.S. public offering
requirement of rule 10f-3(a)(1), and represents that all purchases of
Mexican securities otherwise prohibited by section 10(f) will comply
with all other provisions of rule 10f-3. Applicant also represents that
audited financial statements for at least the last two years will be
available with respect to the issuers of all securities covered by the
requested order.
3. Before an issuer can make a public offering of its securities in
Mexico, it must file a registration statement with the Comision
Nacional Bancaria y de Valores (``CNBV''). The registration statement
requests 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 a record maintained by the CNBV. The registration
statement must contain all the information the CNBV considers material
to an evaluation of the securities to be offered, and requires an
issuer to submit the prospectus to be delivered to all prospective
investors for CNBV approval. In addition, the issuer seeking approval
must represent that (a) 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;
(b) the securities possess, or have the potential for, broad
circulation in relation to the size of the market or the issuer; and
(c) 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 an offering, it
does require that every public offering be large enough, in the opinion
of the CNBV, to assure investors of the liquidity of the securities. As
a result, securities in a public offering must be issued in sufficient
quantity to be available to a wide group of offerees, thereby assuring
investors and the CNBV that a market for the securities will develop.
4. Where underwriters make a ``firm commitment'' in a Mexican
public offering, their commitment to purchase the securities being
offered is firm, and the obligations of the various underwriters are
several and not joint. In the underwriting agreement, each underwriter
is obligated to purchase securities from the issuer at a fixed price,
and the issuer receives proceeds based on this net price regardless of
the marketing results of the underwriting group. The price of the issue
is determined by negotiation between the issuer and the underwriters.
5. Once the offering price for a security is set, underwriters
offer the securities to the public at the offering price disclosed in
the prospectus. Pursuant to the policies of the CNBV, the securities
thereafter may be publicly offered only at the disclosed price, which
may not vary during the offering period. This helps guarantee that
publicly offered securities are offered to and purchased by affiliated
and unaffiliated persons on the same terms. Although Mexican law does
permit securities to be publicly offered at a premium to market price
under certain circumstances, this situation rarely occurs. The Fund
will not purchase Mexican securities at such a premium.
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6. Applicant believes that the terms of the requested order are
consistent with the protection of investors and the intention of the
SEC in exempting transactions from section 10(f) pursuant to rule 10f-
3. The requested order 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 (a)(1) of rule 10f-3.
7. Applicant states that adherence to the conditions contained in
the application 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 believes that it 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.
Applicant therefore believes that exemption from the provisions of
section 10(f) in accordance with the conditions set forth in the
application is consistent with the protection of investors and the
purposes intended by the passage of section 10(f) of the Act and rule
10f-3 thereunder.
Applicant's Conditions
Applicant agrees that any order of the SEC granting the requested
relief will 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 the Fund
invests pursuant to the requested order will have available to
prospective purchasers, including the Fund, financial statements,
audited in accordance with Mexican accounting standards, for at least
the two years prior to purchase.
3. All purchases made by the Fund pursuant to the requested order
will comply with all provisions of rule 10f-3 except for the
registration requirement set forth in rule 10f-3(a)(1).
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-10583 Filed 4-29-96; 8:45 am]
BILLING CODE 8010-01-M
