
[Federal Register: July 24, 2008 (Volume 73, Number 143)]
[Notices]               
[Page 43270-43274]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24jy08-101]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28332; 812-13454]

 
The Mexico Fund, Inc., et al.; Notice of Application

 July 17, 2008.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 19(b) of 
the Act and rule 19b-1 under the Act.

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    Summary of Application: Applicants request an order to permit The 
Mexico Fund, Inc., a closed-end investment company, to make periodic 
distributions of long-term capital gains with respect to its 
outstanding common stock as frequently as twelve times each year.
    Applicants: The Mexico Fund, Inc. (``Fund'') and Impulsora del 
Fondo Mexico, S.C. (``Adviser'').
    Filing Dates: November 21, 2007, June 26, 2008, and July 14, 2008. 
Applicants have agreed to file an amendment during the notice period, 
the substance of which is reflected in the notice.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on August 11, 2008, and should be accompanied by proof of 
service on applicants, 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 Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090; Applicants, Sander Bieber, Esq., 
Dechert LLP, 1775 I Street, NW., Washington, DC 20006.

FOR FURTHER INFORMATION CONTACT: Wendy Friedlander, Senior Counsel, at 
(202) 551-6837, or James M. Curtis,

[[Page 43271]]

Branch Chief, at (202) 551-6825 (Division of Investment Management, 
Office of Chief Counsel).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Room, 100 F Street, NE., Washington, DC 
20549-1520 (telephone (202) 551-5850).

Applicants' Representations

    Applicants represent that they will comply with the representations 
and conditions in this Application before they rely on the order 
requested.
    1. Applicants represent that the Fund is a registered closed-end 
investment company registered under the Act. The Fund's investment 
objective is long-term capital appreciation. The common stock issued by 
the Fund is listed on the New York Stock Exchange. The Fund has not 
issued preferred stock. Applicants believe that the Fund's stockholders 
include investors who desire steady distributions of cash and who will 
appreciate that the Fund wishes to implement a practice of providing 
regular distributions pursuant to a plan of distribution as described 
below.
    2. Applicants represent that the Adviser, which is organized as a 
Mexican ``sociedad civil'' governed by the Federal Civil Code of 
Mexico, is registered under the Investment Advisers Act of 1940. The 
Adviser is responsible for the overall management of the Fund and 
currently has no investment advisory clients other than the Fund.
    3. Applicants represent that the Fund's Board of Directors 
(``Board''), including a majority of the directors who are not 
interested persons, as defined in section 2(a)(19) of the Act (each an 
``Independent Director''), will adopt a plan (``Plan'') to make 
periodic level distributions with respect to its common stock, based 
upon a fixed percentage of the Fund's net asset value (``NAV'') or 
market price per share of its common stock or at least a minimum fixed 
dollar amount per year. Applicants represent that the Board will 
request, and the Adviser will provide, such information as is 
reasonably necessary to an informed determination of whether the Board 
should adopt the Plan. In particular, the Board and the Independent 
Directors will review information regarding the purpose and terms of 
the Plan, the likely effects of the Plan on the Fund's long-term total 
return (in relation to market price and NAV per common share) and the 
relationship between the Fund's distribution rate on its common stock 
under the Plan and the Fund's total return (in relation to NAV per 
share); whether the rate of distribution would exceed the Fund's 
expected total return in relation to its NAV per share; and any 
foreseeable material effects of such Plan on the Fund's long-term total 
return (in relation to market price and NAV per share). The Independent 
Directors also will consider what conflicts of interest the Adviser and 
the affiliated persons of the Adviser and the Fund might have with 
respect to the adoption or implementation of such Plan. Applicants 
represent that after considering such information the Board, including 
the Independent Directors, will approve the Plan with respect to the 
Fund's common stock provided that the Board, including the Independent 
Directors, determine that the Plan is consistent with the Fund's 
investment objectives and in the best interests of the Fund's common 
stockholders.
    4. Applicants represent that the purpose of the Plan would be to 
permit the Fund to provide its stockholders with a level, periodic 
distribution. Applicants represent that under the Plan, the Fund would 
distribute to its common stockholders a fixed percentage of the market 
price of the Fund's common stock or a fixed percentage of NAV per share 
or a fixed amount per share which percentage or amount may be adjusted 
from time to time. Applicants state that the minimum annual 
distribution rate with respect to the Fund's common stock under the 
Plan would be independent of the Fund's performance during any 
particular period but would be expected to correlate with the Fund's 
performance over time. Applicants explain that each distribution on the 
common stock would be at the stated rate then in effect, except for 
extraordinary distributions and potential increases or decreases in the 
final dividend periods in light of the Fund's performance for the 
entire calendar year and to enable the Fund to comply with the 
distribution requirements of subchapter M of the Internal Revenue Code 
of 1986 (the ``Code'') for the calendar year. Applicants expect that 
over time the NAV distribution rate with respect to the Fund's common 
stock will approximately equal the Fund's total return on NAV.
    5. Applicants state that the Board also will adopt policies and 
procedures under rule 38a-1 under the Act that are reasonably designed 
to ensure that all notices sent to Fund stockholders with distributions 
under the Plan (``Notices'') comply with condition II below, and that 
all other written communications by the Fund or its agents regarding 
distributions under the Plan will include the disclosure required by 
condition III below. Applicants state that the Board also will adopt 
policies and procedures that will require the Fund to keep records that 
demonstrate the Fund's compliance with all of the conditions of the 
requested order and that are necessary for the Fund to form the basis 
for, or demonstrate the calculation of, the amounts disclosed in its 
Notice.

Applicants' Legal Analysis

    1. Section 19(b) generally makes it unlawful for any registered 
investment company to make long-term capital gains distributions more 
than once each year. Rule 19b-1 limits the number of capital gains 
dividends, as defined in section 852(b)(3)(C) of the Code 
(``distributions''), that a fund may make with respect to any one 
taxable year to one, plus a supplemental ``clean up'' distribution made 
pursuant to section 855 of the Code not exceeding 10% of the total 
amount distributed for the year, plus one additional capital gain 
dividend made in whole or in part to avoid the excise tax under section 
4982 of the Code.
    2. Section 6(c) provides that the Commission may, by order upon 
application, conditionally or unconditionally exempt any person, 
security, or transaction, or any class or classes of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.
    3. Applicants state that the one of the concerns underlying section 
19(b) and rule 19b-1 is that stockholders might be unable to 
differentiate between regular distributions of capital gains and 
distributions of investment income. Applicants state, however, that 
rule 19a-1 effectively addresses this concern by requiring that a 
separate statement showing the sources of a distribution (e.g., 
estimated net income, net short-term capital gains, net long-term 
capital gains and/or return of capital) accompany any distributions (or 
the confirmation of the reinvestment of distributions) estimated to be 
sourced in part from capital gains or capital. Applicants state that 
the same information also is included in the Fund's annual reports to 
stockholders and on its IRS Form 1099-DIV, which is sent to each 
stockholder who received distributions during the year.

[[Page 43272]]

    4. Applicants further state that the Fund will make the additional 
disclosures required by the conditions set forth below, and the Fund 
will adopt compliance policies and procedures in accordance with rule 
38a-1 to ensure that all required Notices and disclosures are sent to 
stockholders. Applicants argue that by providing the information 
required by section 19(a) and rule 19a-1, and by complying with the 
procedures adopted under the Plan and the conditions listed below, the 
Fund would ensure that its stockholders are provided sufficient 
information to understand that their periodic distributions are not 
tied to the Fund's net investment income (which for this purpose is the 
Fund's taxable income other than from capital gains) and realized 
capital gains to date, and may not represent yield or investment 
return. Applicants also state that compliance with the Fund's 
compliance procedures and condition III set forth below will ensure 
that prospective stockholders and third parties are provided with the 
same information. Accordingly, applicants assert that continuing to 
subject the Fund to section 19(b) and rule 19b-1 would afford 
stockholders no extra protection.
    5. Applicants note that section 19(b) and rule 19b-1 also were 
intended to prevent certain improper sales practices, including, in 
particular, the practice of urging an investor to purchase shares of a 
fund on the basis of an upcoming capital gains dividend (``selling the 
dividend''), where the dividend would result in an immediate 
corresponding reduction in NAV and would be in effect a taxable return 
of the investor's capital. Applicants assert that the ``selling the 
dividend'' concern should not apply to closed-end investment companies, 
such as the Fund, which do not continuously distribute shares. 
According to Applicants, if the underlying concern extends to secondary 
market purchases of stock of closed-end funds that are subject to a 
large upcoming capital gains dividend, adoption of a plan actually 
helps minimize the concern by avoiding, through periodic distributions, 
any buildup of large end-of-the-year distributions.
    6. Applicants assert that the application of rule 19b-1 to a Plan 
actually could have an undesirable influence on portfolio management 
decisions. Applicants state that, in the absence of an exemption from 
rule 19b-1, the implementation of a Plan imposes pressure on management 
(i) not to realize any net long-term capital gains until the point in 
the year that the fund can pay all of its remaining distributions in 
accordance with rule 19b-1, and (ii) not to realize any long-term 
capital gains during any particular year in excess of the amount of the 
aggregate pay-out for the year (since as a practical matter excess 
gains must be distributed and accordingly would not be available to 
satisfy pay-out requirements in following years), notwithstanding that 
purely investment considerations might favor realization of long-term 
gains at different times or in different amounts. Applicants thus 
assert that the limitation on the number of capital gain distributions 
that a fund may make with respect to any one year imposed by rule 19b-
1, may prevent the efficient operation of a Plan whenever that fund's 
realized net long-term capital gains in any year exceed the total of 
the periodic distributions that may include such capital gains under 
the rule.
    7. In addition, Applicants assert that rule 19b-1 may cause fixed 
regular periodic distributions under the Plan to be funded with returns 
of capital \1\ (to the extent net investment income and realized short-
term capital gains are insufficient to fund the distribution), even 
though realized net long-term capital gains otherwise could be 
available. To distribute all of a fund's long-term capital gains within 
the limits in rule 19b-1, a fund may be required to make total 
distributions in excess of the annual amount called for by its Plan, or 
to retain and pay taxes on the excess amount. Applicants thus assert 
that the requested order would minimize these effects of rule 19b-1 by 
enabling the Fund to realize long-term capital gains as often as 
investment considerations dictate without fear of violating rule 19b-1.
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    \1\ Returns of capital as used in the application means return 
of capital for financial accounting purposes and not for tax 
accounting purposes.
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    8. Applicants request an order under section 6(c) granting an 
exemption from the provisions of section 19(b) and rule 19b-1 to permit 
each fund's common stock to distribute periodic capital gains dividends 
(as defined in section 852(b)(3)(C) of the Code) as often as monthly in 
any one taxable year in respect of its common stock.

Applicants' Conditions

    Applicants agree that the order will be subject to the following 
conditions:
    I. Compliance Review and Reporting. The Fund's chief compliance 
officer will: (a) Report to the Fund's Board, no less frequently than 
once every three months or at the next regularly scheduled quarterly 
board meeting, whether (i) the Fund and the Adviser have complied with 
the conditions to the requested order, and (ii) a Material Compliance 
Matter, as defined in rule 38a-1(e)(2), has occurred with respect to 
compliance with such conditions; and (b) review the adequacy of the 
policies and procedures adopted by the Fund no less frequently than 
annually.
    II. Disclosures to Fund Stockholders:
    A. Each Notice to the holders of the Fund's common stock, in 
addition to the information required by section 19(a) and rule 19a-1:
    1. Will provide, in a tabular or graphical format:
    (a) The amount of the distribution, on a per common share basis, 
together with the amounts of such distribution amount, on a per common 
share basis and as a percentage of such distribution amount, from 
estimated: (A) Net investment income; (B) net realized short-term 
capital gains; (C) net realized long-term capital gains; and (D) return 
of capital or other capital source;
    (b) The fiscal year-to-date cumulative amount of distributions, on 
a per common share basis, together with the amounts of such cumulative 
amount, on a per common share basis and as a percentage of such 
cumulative amount of distributions, from estimated: (A) Net investment 
income; (B) net realized short-term capital gains; (C) net realized 
long-term capital gains; and (D) return of capital or other capital 
source;
    (c) The average annual total return in relation to the change in 
NAV for the 5-year period ending on the last day of the month prior to 
the most recent distribution declaration date compared to the current 
fiscal period's annualized distribution rate expressed as a percentage 
of NAV as of the last day of the month prior to the most recent 
distribution declaration date; and
    (d) The cumulative total return in relation to the change in NAV 
from the last completed fiscal year to the last day of the month prior 
to the most recent distribution declaration date compared to the fiscal 
year-to-date cumulative distribution rate expressed as a percentage of 
NAV as of the last day of the month prior to the most recent 
distribution declaration date. Such disclosure shall be made in a type 
size at least as large and as prominent as the estimate of the sources 
of the current distribution; and
    2. will include the following disclosure:
    (a) ``You should not draw any conclusions about the fund's 
investment performance from the amount of this distribution or from the 
terms of the Fund's Plan'';
    (b) ``The Fund estimates that it has distributed more than its 
income and net realized capital gains; therefore, a

[[Page 43273]]

portion of your distribution may be a return of capital. A return of 
capital may occur for example, when some or all of the money that you 
invested in the Fund is paid back to you. A return of capital 
distribution does not necessarily reflect the Fund's investment 
performance and should not be confused with `yield' or `income' ''; and
    (c) ``The amounts and sources of distributions reported in this 
Notice are only estimates and are not being provided for tax reporting 
purposes. The actual amounts and sources of the amounts for [accounting 
and] tax reporting purposes will depend upon the Fund's investment 
experience during the remainder of its fiscal year and may be subject 
to changes based on tax regulations. The Fund will send you a Form 
1099-DIV for the calendar year that will tell you how to report these 
distributions for federal income tax purposes.'' Such disclosure shall 
be made in a type size at least as large as and as prominent as any 
other information in the Notice and placed on the same page in close 
proximity to the amount and the sources of the distribution.
    B. On the inside front cover of each report to stockholders under 
rule 30e-1 under the Act, the Fund will:
    1. describe the terms of the Plan (including the fixed amount or 
fixed percentage of the distributions and the frequency of the 
distributions);
    2. include the disclosure required by condition II.A.2.a above;
    3. state, if applicable, that the Plan provides that the Board may 
amend or terminate the Plan at any time without prior notice to Fund 
stockholders; and
    4. describe any reasonably foreseeable circumstances that might 
cause the Fund to terminate the Plan and any reasonably foreseeable 
consequences of such termination.
    C. Each report provided to stockholders under rule 30e-1 and in 
each prospectus filed with the Commission on Form N-2 under the Act, 
will provide the Fund's total return in relation to changes in NAV in 
the financial highlights table and in any discussion about the Fund's 
total return.
    III. Disclosure to Stockholders, Prospective Stockholders and Third 
Parties:
    A. The Fund will include the information contained in the relevant 
Notice, including the disclosure required by condition II.A.2 above, in 
any written communication (other than a Form 1099) about the Plan or 
distributions under the Plan by the Fund, or agents that the Fund has 
authorized to make such communication on the Fund's behalf, to any Fund 
common stockholder, prospective common stockholder or third-party 
information provider;
    B. The Fund will issue, contemporaneously with the issuance of any 
Notice, a press release containing the information in the Notice and 
will file with the Commission the information contained in such Notice, 
including the disclosure required by condition II.A.2 above, as an 
exhibit to its next filed Form N-CSR; and
    C. The fund will post prominently a statement on its Web site 
containing the information in each Notice, including the disclosure 
required by condition II.A.2 above, and will maintain such information 
on such Web site for at least 24 months.
    IV. Delivery of 19(a) Notices to Beneficial Owners: If a broker, 
dealer, bank or other person (``financial intermediary'') holds common 
stock issued by the Fund in nominee name, or otherwise, on behalf of a 
beneficial owner, the Fund: (a) Will request that the financial 
intermediary, or its agent, forward the Notice to all beneficial owners 
of the Fund's shares held through such financial intermediary; (b) will 
provide, in a timely manner, to the financial intermediary, or its 
agent, enough copies of the Notice assembled in the form and at the 
place that the financial intermediary, or its agent, reasonably 
requests to facilitate the financial intermediary's sending of the 
Notice to each beneficial owner of the fund's stock; and (c) upon the 
request of any financial intermediary, or its agent, that receives 
copies of the Notice, will pay the financial intermediary, or its 
agent, the reasonable expenses of sending the Notice to such beneficial 
owners.
    V. Additional Board Determinations if the Fund's Common Stock 
Trades at a Premium:
    If:
    A. The Fund's common stock has traded on the exchange it primarily 
trades on at the time in question at an average premium to NAV equal to 
or greater than 10%, as determined on the basis of the average of the 
discount or premium to NAV of the Fund's common shares as of the close 
of each trading day over a 12-week rolling period (each such 12-week 
rolling period ending on the last trading day of each week); and
    B. The Fund's annualized distribution rate for such 12-week rolling 
period, expressed as a percentage of NAV as of the ending date of such 
12-week rolling period, is greater than the Fund's average annual total 
return in relation to the change in NAV over the 2-year period ending 
on the last day of such 12-week rolling period; then:
    1. At the earlier of the next regularly scheduled meeting or within 
four months of the last day of such 12-week rolling period, the Board 
including a majority of the Independent Directors:
    (a) Will request and evaluate, and the Adviser will furnish, such 
information as may be reasonably necessary to make an informed 
determination of whether the Plan should be continued or continued 
after amendment;
    (b) Will determine whether continuation, or continuation after 
amendment, of the Plan is consistent with the Fund's investment 
objective(s) and policies and in the best interests of the Fund and its 
stockholders, after considering the information in condition V.B.1.a 
above; including, without limitation:
    (1) Whether the Plan is accomplishing its purpose(s);
    (2) The reasonably foreseeable effects of the Plan on the Fund's 
long-term total return in relation to the market price and NAV of the 
Fund's common shares; and
    (3) The Fund's current distribution rate, as described in condition 
V.B above, compared to with the Fund's average annual total return over 
the 2-year period, as described in condition V.B, or such longer period 
as the Board deems appropriate; and
    (c) Based upon that determination, will approve or disapprove the 
continuation, or continuation after amendment, of the Plan; and
    2. The Board will record the information considered by it and the 
basis for its approval or disapproval of the continuation, or 
continuation after amendment, of the Plan in its meeting minutes, which 
must be made and preserved for a period of not less than six years from 
the date of such meeting, the first two years in an easily accessible 
place.
    VI. Public Offerings: The Fund will not make a public offering of 
the Fund's common stock other than:
    A. A rights offering below net asset value to holders of the Fund's 
common stock;
    B. An offering in connection with a dividend reinvestment plan, 
merger, consolidation, acquisition, spin-off or reorganization of the 
Fund; or
    C. An offering other than an offering described in conditions VI.A 
and VI.B above, unless, with respect to such other offering:
    1. The fund's average annual distribution rate for the six months 
ending on the last day of the month ended immediately prior to the most 
recent distribution declaration date, expressed as a percentage of NAV 
per share as of such date, is no more than

[[Page 43274]]

1 percentage point greater than the fund's average annual total return 
for the 5-year period ending on such date; and
    2. The transmittal letter accompanying any registration statement 
filed with the Commission in connection with such offering discloses 
that the Fund has received an order under section 19(b) to permit it to 
make periodic distributions of long-term capital gains with respect to 
its common stock as frequently as twelve times each year.
    VII. Amendments to Rule 19b-1: The requested relief will expire on 
the effective date of any amendment to rule 19b-1 that provides relief 
permitting certain closed-end investment companies to make periodic 
distributions of long-term capital gains with respect to their 
outstanding common stock as frequently as twelve times each year.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-16867 Filed 7-23-08; 8:45 am]

BILLING CODE 8010-01-P
