[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