

[Federal Register: December 13, 2006 (Volume 71, Number 239)]
[Notices]               
[Page 74961-74962]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13de06-73]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27592; 812-13294]

 
The Mexico Equity and Income Fund, Inc.; Notice of Application

December 7, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').


Applicant: The Mexico Equity and Income Fund, Inc. (the ``Fund'').

Actions: Notice of application for an order under sections 6(c) and 
17(b) of the Investment Company Act of 1940 (the ``Act'') for an 
exemption from section 17(a) of the Act.

Summary of Application: Applicant seeks an order that would permit in-
kind repurchases of shares of preferred stock of the Fund held by 
certain affiliated shareholders of the Fund.

Filing Dates: The application was filed on May 16, 2006, and amended on 
November 17, 2006.

Hearing or Notification of Hearing: An order granting the requested 
relief 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 January 2, 2007, 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. Applicant, c/o U.S. Bancorp Fund 
Services, LLC, 615 East Michigan Street, 2nd Floor, Milwaukee, WI 
53202.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 551-6817, or Julia Kim Gilmer, Branch Chief, at (202) 551-6821 
(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 
Commission's Public Reference Desk, 100 F Street, NE., Washington, DC 
20549-0102 (tel. 202-551-5850).

Applicant's Representations

    1. The Fund, a Maryland corporation, is registered under the Act as 
a closed-end management investment company. The Fund's investment 
objective is to seek high total return through capital appreciation and 
current income by investing at least 80% of the Fund's assets in 
equity, convertible and debt securities of Mexican companies and 
issuers. Applicant states that substantially all of its assets are 
invested in Mexican securities that are listed on the Bolsa Mexicana de 
Valores, S.A. de C.V. (the ``Mexican Stock Exchange'').\1\ The Fund has 
issued shares of common stock and preferred stock, both of which are 
listed and trade on the New York Stock Exchange. The preferred stock 
has the same rights and qualifications as the Fund's common stock, with 
exceptions pertaining to liquidation, voting rights, conversion and the 
right to participate in the In-Kind Tender Offers (as defined below). 
Pichardo Asset Management, S.A. de C.V. is registered under the 
Investment Advisers Act of 1940 and serves as the investment manager to 
the Fund.
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    \1\ Applicant states that as of September 30, 2006, 
approximately 95.7% of its portfolio was trading on the Mexican 
Stock Exchange with the balance trading on securities markets in the 
United States.
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    2. The Fund proposes to repurchase all of its outstanding shares of 
preferred stock, through a series of semi-annual in-kind tender offers, 
which, in each case, will be for up to 25% of the Fund's issued and 
outstanding shares of preferred stock (the ``In-Kind Tender Offers''). 
Each preferred stock shareholder participating in an In-Kind Tender 
Offer may tender their preferred stock for repurchase in-kind for a pro 
rata share of the Fund's portfolio securities (with exceptions 
generally for odd lots, fractional shares and cash items) at a price 
equal to 99% of net asset value per share of the preferred stock. The 
In-Kind Tender Offers will be conducted in accordance with section 
23(c)(2) of the Act and rule 13e-4 under the Securities Exchange Act of 
1934.
    3. Applicant states that the In-Kind Tender Offers are designed to 
accommodate the needs of both participating and non-participating 
shareholders. Under the In-Kind Tender Offers, only participating 
preferred stock shareholders will pay taxes on the gain on appreciated 
securities distributed in the In-Kind Tender Offers. Non-participating 
shareholders (both common and preferred) would avoid the imposition of 
a significant tax liability, which would occur if the Fund sold the 
appreciated securities to make payments in cash. Applicant further 
states that the In-Kind Tender Offers' in-kind payments will minimize 
market disruption, while allowing the Fund to avoid a cascade of 
distributions, required to preserve its tax status, that would reduce 
the size of the Fund drastically. Applicant also states that the In-
Kind Tender Offers will benefit both the common and preferred 
shareholders by helping to preserve the value of the portfolio 
securities received by a participating preferred stockholder and the 
Fund's common stock shareholders by helping to minimize any disruption 
to the Fund's net asset value. Applicant requests relief to permit any 
preferred stock shareholder of the Fund who is an ``affiliated person'' 
of the Fund solely by reason of owning, controlling, or holding with 
the power to vote, 5% or more of the Fund's outstanding voting 
securities (``Affiliated Shareholder'') to participate in the proposed 
In-Kind Tender Offers.

Applicant's Legal Analysis

    1. Section 17(a) of the Act prohibits an affiliated person of a 
registered investment company, or any affiliated person of the person, 
acting as principal, from knowingly purchasing or selling any security 
or other property from or to the company. Section 2(a)(3) of the Act 
defines an ``affiliated person''

[[Page 74962]]

of another person to include any person who directly or indirectly 
owns, controls, or holds with power to vote 5% or more of the 
outstanding voting securities of the other person. Applicant states 
that to the extent that the In-Kind Tender Offers would constitute the 
purchase or sale of securities by an Affiliated Shareholder, the 
transactions would be prohibited by section 17(a). Accordingly, 
applicant requests an exemption from section 17(a) of the Act to the 
extent necessary to permit the participation of Affiliated Shareholders 
in the In-Kind Repurchase Offers.
    2. Section 17(b) of the Act authorizes the Commission to exempt any 
transaction from the provisions of section 17(a) if the terms of the 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, and the transaction is consistent with the policy of 
each registered investment company and with the general purposes of the 
Act. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction or any class or classes of 
persons, securities, or transactions, from any provision of the Act or 
rule thereunder, if and to the extent that such 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. Applicant asserts that the terms of the In-Kind Tender Offers 
meet the requirements of sections 17(b) and 6(c) of the Act. Applicant 
asserts that neither the Fund nor an Affiliated Shareholder has any 
choice as to the portfolio securities to be received as proceeds from 
the In-Kind Tender Offers. Instead, shareholders will receive their pro 
rata portion of each of the Fund's portfolio securities, excluding (a) 
securities which, if distributed, would have to be registered under the 
Securities Act of 1933 (``Securities Act''); (b) securities issued by 
entities in countries that restrict or prohibit the holdings of 
securities by non-residents other than through qualified investment 
vehicles, or whose distribution would otherwise be contrary to 
applicable local laws, rules or regulations; and (c) certain portfolio 
assets (such as forward currency exchange contracts and repurchase 
agreements) that although they may be liquid and marketable, include 
the assumption of contractual obligations, require special trading 
facilities, or can only be traded with the counterparty to the 
transaction in order to effect a change in beneficial ownership. 
Moreover, applicant states that the portfolio securities to be 
distributed in the In-Kind Tender Offer will be valued according to an 
objective, verifiable standard, and the In-Kind Tender Offers are 
consistent with the investment policies of the Fund. Applicant also 
believes that the In-Kind Tender Offers are consistent with the general 
purposes of the Act because the interests of all shareholders are 
equally protected and no Affiliated Shareholder would receive an 
advantage or special benefit not available to any other shareholder 
participating in the In-Kind Tender Offers.

Applicant's Conditions

    Applicant agrees that any order granting the requested relief will 
be subject to the following conditions:
    1. Applicant will distribute to shareholders participating in the 
In-Kind Tender Offers an in-kind pro rata distribution of portfolio 
securities of applicant. The pro rata distribution will not include: 
(a) Securities that, if distributed, would be required to be registered 
under the Securities Act; (b) securities issued by entities in 
countries that restrict or prohibit the holdings of securities by non-
residents other than through qualified investment vehicles, or whose 
distribution would otherwise be contrary to applicable local laws, 
rules or regulations; and (c) certain portfolio assets (such as forward 
currency exchange contracts and repurchase agreements) that although 
they may be liquid and marketable, include the assumption of 
contractual obligations, require special trading facilities or can only 
be traded with the counterparty to the transaction in order to effect a 
change in beneficial ownership. Cash will be paid for any portion of 
applicant's assets represented by cash and cash equivalents (such as 
certificates of deposit, commercial paper and repurchase agreements) 
and other assets which are not readily distributable (including 
receivables and prepaid expenses), net of all liabilities (including 
accounts payable). In addition, applicant may pay cash for fractional 
shares and/or odd lots of securities and/or amounts attributable to any 
cash positions (including short-term non-equity securities); distribute 
odd lots and any cash position to shareholders; or round off (up or 
down) fractional shares so as to eliminate them prior to distribution. 
Applicant may also distribute a higher pro rata percentage of other 
portfolio securities to represent such items.
    2. The securities distributed to stockholders pursuant to the In-
Kind Tender Offers will be limited to securities that are traded on a 
public securities market or for which quoted bid and asked prices are 
available.
    3. The securities distributed to stockholders pursuant to the In-
Kind Tender Offers will be valued in the same manner as they would be 
valued for purposes of computing applicant's net asset value, which, in 
the case of securities traded on a public securities market for which 
quotations are available, is their last reported sales price on the 
exchange on which the securities are primarily traded or at the last 
sales price on a public securities market, or, if the securities are 
not listed on an exchange or a public securities market or if there is 
no such reported price, the average of the most recent bid and asked 
price (or, if no such asked price is available, the last quoted bid 
price).
    4. Applicant will maintain and preserve for a period of not less 
than six years from the end of the fiscal year in which any In-Kind 
Tender Offer occurs, the first two years in an easily accessible place, 
a written record of such In-Kind Repurchase Offer, that includes the 
identity of each shareholder of record that participated in such In-
Kind Repurchase Offer, whether that shareholder was an Affiliated 
Shareholder, a description of each security distributed, the terms of 
the distribution, and the information or materials upon which the 
valuation was made.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6-21166 Filed 12-12-06; 8:45 am]

BILLING CODE 8011-01-P
