<PAGE>
================================================================================
THE MEXICO FUND, INC.
- --------------------------------------------------------------------------------
DIRECTORS:
Juan Gallardo T. -- Chairman
Philip Caldwell
Ernesto Fernandez Hurtado
Jose Luis Gomez Pimienta
Claudio X. Gonzalez
Robert L. Knauss
Agustin Santamarina V.
OFFICERS:
Jose Luis Gomez Pimienta -- President
Samuel Garcia-Cuellar -- Secretary
Allan S. Mostoff -- Assistant Secretary
Sander M. Bieber -- Assistant Secretary
Carlos H. Woodworth -- Treasurer
INVESTMENT ADVISER --
Impulsora del Fondo Mexico, S.A. de C.V.
CUSTODIAN --
Bancomer, S.A.
TRANSFER AGENT AND REGISTRAR --
American Stock Transfer
& Trust Company
COUNSEL --
Dechert Price & Rhoads
Creel, Garcia-Cuellar y Muggenburg, S.C.
This report, including the
financial statements herein, is
transmitted to shareholders of
The Mexico Fund, Inc. for their
information. It is not a
prospectus, circular or
representation intended for use
in the purchase of shares of the
Fund or any securities mentioned
in the report.
================================================================================
--------------------------------
-----------------------------
---------------------------
[LOGO OF THE MEXICO FUND, INC. APPEARS HERE]
THE MEXICO
FUND, INC.
(Unaudited)
---------------------
Quarterly Report
July 31, 1996
---------------------------
-----------------------------
--------------------------------
================================================================================
<PAGE>
================================================================================
THE MEXICO FUND, INC.
QUARTERLY REPORT
JULY 31, 1996
HIGHLIGHTS
- --------------------------------------------------------------------------------
.. The Fund's third 1996 fiscal . The Fund's net asset value (NAV)
quarter ended July 31, 1996. and price per share ended this
fiscal quarter at $17.15 and
$14.50, respectively, reflecting
a discount of 15.5%.
.. After falling 6.2% in 1995, the
Mexican gross domestic product
(GDP) increased 7.2% during the
second quarter of calendar 1996.
. During the first eight months of
calendar 1996, a total of 49.8
million Fund shares changed hands
on all US consolidated markets.
.. At the end of August 1996, the
12-month inflation rate regis-
tered 30.6%, compared with 52% at
the end of 1995.
. The Bolsa index decreased 7.6% in
US dollar terms during this fis-
cal quarter, while the Fund's NAV
decreased 4.7%.
.. During the first seven months of
1996, the Mexican trade balance
registered a surplus of $4.57
billion, compared with a surplus
of $3.86 billion one year earli-
er.
. A dividend of 17 cents per share
is payable on October 31, 1996,
to shareholders of record on Sep-
tember 30, 1996.
.. The 28-day Cetes rates ended this
fiscal quarter at 30%, slightly
lower than at the end of the pre-
vious fiscal quarter.
.. At the end of this fiscal quar-
ter, the rate of exchange of the
peso against the US dollar closed
at P7.583, compared with P7.59 at
the end of 1995.
<PAGE>
===============================================================================
THE MEXICO FUND, INC.
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
ECONOMIC COMMENTS.
After a recession in which the nation's GDP declined 6.2% in 1995, the Mexi-
can economy now shows signs of recovery. During the second quarter of 1996,
the GDP increased by 7.2% and its three main sectors registered positive vari-
ations. The industrial sector of the economy registered the highest increase,
almost 12%, and within this sector, manufacturing output grew by almost 14%.
Positive GDP growth is expected to continue for the rest of the year and into
1997.
Inflation rates, measured by the consumer price index (CPI), have continued
declining. At the end of August 1996, the 12-month inflation rate registered
30.6% compared with 52% at the end of 1995. This declining trend is expected
to continue and by the end of the year annual inflation is estimated to be
around 28%.
Domestic interest rates were impacted by the volatile performance of US in-
terest rates during July. The interest rate of the 28-day Cetes has been fluc-
tuating in recent months around the 30% level. However, at the beginning of
September, the 28-day Cetes rate registered 23.5%, its lowest level since the
devaluation of the peso at the end of 1994. At the same time, the Mexican peso
continues to show stability compared with the US dollar. The rate of exchange
of the peso against the US dollar ended this fiscal quarter at P7.583,
slightly lower than the rate of exchange registered at the end of 1995.
Mexican exports continue to perform dynamically and to be the main driving
force of the economic recovery. During the first seven months of 1996, total
exports amounted to $53.52 billion, while total imports amounted to $48.96
billion. For this seven-month period, the Mexican trade balance registered a
surplus of $4.57 billion, 18% higher than that registered during the same pe-
riod of 1995.
On July 26, 1996, the Mexican government issued a record $6 billion eurobond.
The bonds will mature in August 2001 and will pay a floating-rate coupon of
three-month Libor rate plus 200 basis points. Because the bonds are guaranteed
by Mexico's oil revenues, Standard & Poor's Corp. and Moody's Investors Serv-
ice, Inc. awarded the bonds an investment grade rating, the first such rating
for dollar-denominated Mexican government bonds. Initially, the Mexican gov-
ernment intended to sell approximately $3 billion of these bonds. However, the
amount was increased in view of the strong demand for the bonds. The proceeds
were used to make an early payment to the US Treasury and to the International
Monetary Fund (IMF), resulting in a longer-term maturity and lower-interest
rate debt for the Mexican government.
In political matters, on July 25, 1996, the four main Mexican political par-
ties submitted to the Congress an initiative to modify the country's Electoral
Law. The bill would invest the Electoral Tribunal with judicial powers, making
it an independent body from both the executive and legislative branch. The
proposal also defines the referendum as a legal vehicle for changing the Con-
stitution, and intends to give residents of Mexico City the right to elect
their governor, who previously was appointed by the President. in addition,
the proposal deals with campaign financing limits, access to Mexico's media
and control of political parties' budgets.
At the end of August, a new rebel force attacked several police and army fa-
cilities, mostly in the southern states of Tabasco, Guerrero and Michoacan.
Recent armed and judicial actions against this group have already resulted in
several arrests and further investigations are being conducted. In spite of
these violent actions, the regular activities of the country, including the
operation
<PAGE>
===============================================================================
of the Bolsa and economic activity in general, have not been affected.
THE BOLSA AND FUND PERFORMANCE.
The Fund's NAV and price per share ended this fiscal quarter at $17.15 and
$14.50, respectively, reflecting a discount of 15.5%. As of the end of this
period, approximately 95% of the Fund's total net assets were invested in eq-
uity securities, compared with 77% immediately after the rights offering
transaction concluded at the end of October 1995.
The volatile performance of US financial markets negatively impacted the per-
formance of the Bolsa index during July. However, positive economic and polit-
ical news on Mexico, previously discussed in this report, pushed the Bolsa in-
dex to reach a new historical level on August 27, 1996. During the first eight
months of calendar 1996, the Bolsa index has increased 21% in US dollar terms,
while the Fund's NAV has increased 25% over the same period.
The Fund continues to register high levels of liquidity. During the third
fiscal quarter, a total of 13.2 million shares were traded on all US consoli-
dated markets, and for the first eight months of the year, the total trading
volume amounted to 49.8 million shares, compared with 49.7 million shares out-
standing.
The Board of Directors has declared a dividend of 17 cents per share payable
on October 31, 1996, to shareholders of record on September 30, 1996. This
dividend is comprised entirely of net investment income and is subject to ap-
plicable Mexican withholding taxes. Non-US shareholders generally will be sub-
ject to a US withholding tax at a maximum rate of 30%. Shareholders are ad-
vised to consult with their own tax adviser about this and other taxes. This
distribution is reportable by US taxpayers on their US Federal income tax
return.
DIVIDEND REINVESTMENT PLAN.
The Fund's Dividend Reinvestment Plan ("Plan") was amended by the Board of
Directors at the December 7, 1994, Board Meeting. This new Plan became effec-
tive April 1, 1995. UNDER THE TERMS OF THE AMENDED PLAN, FUND SHAREHOLDERS ARE
AUTOMATICALLY ENROLLED AS PARTICIPANTS IN THE PLAN. IF YOU DO NOT WISH TO PAR-
TICIPATE IN THE PLAN, PLEASE CONTACT THE PLAN AGENT. The Plan provides a con-
venient way to increase your holdings in the Fund's common stock through the
reinvestment of net investment income and capital gains distributions. If you
have any questions concerning the Plan or would like a copy of the Plan bro-
chure, please contact the Plan Agent:
American Stock Transfer & Trust Company
Attention: Dividend Reinvestment Department
40 Wall Street
New York, NY 10005
(212) 936-5100
COMMUNICATIONS WITH SHAREHOLDERS.
The Adviser distributes, free of charge, a Monthly Summary Report with infor-
mation relating to the Fund, as well as other indicators of the Mexican econ-
omy and the Bolsa. If you are interested in receiving a copy of this Report,
please request that your name be included on the mailing list by writing to
the Adviser at:
Impulsora del Fondo Mexico, S.A. de C.V.
77 Aristoteles St., 3rd Floor
11560, Mexico, D.F.
MEXICO
The Fund has made arrangements to improve communications with the Fund's
shareholders and
<PAGE>
================================================================================
the investing public through a liaison office in New York City. Upon request,
this office will be pleased to provide you with the Fund's current NAV, quar-
terly reports and other materials available from the Fund. They will also be
able to direct your inquiries regarding other Fund matters to the appropriate
firms or individuals. Please refer your information requests to:
GEORGESON & COMPANY INC.
Wall Street Plaza
New York, NY 10005
(800) 224-4134
Sincerely yours:
[SIGNATURE OF JOSE LUIS GOMEZ PIMENTA [SIGNATURE OF JUAN GALLARDO T.
APPEARS HERE] APPEARS HERE]
JOSE LUIS GOMEZ PIMIENTA JUAN GALLARDO T.
President Chairman of the Board
September 10, 1996
<PAGE>
================================================================================
SHAREHOLDER INFORMATION
Weekly comparative NAV and market price information about Mexico Fund
shares is published each Monday in The Wall Street Journal, The New York
Times, and other newspapers in a table called "Closed-End Funds". Daily
market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transactions section of newspapers under the designations
"MexFd" or "MexicoFd". The Fund's New York Stock Exchange trading symbol is
MXF. The Fund's shares are traded on the Third Section ("Freiverkehr") of
the Stuttgart Stock Exchange.
For current NAV information or copies of reports, call (800) 224-4134. For
information about dividends and shareholder accounts, call Shareholder
Services (212) 936-5100.
<PAGE>
- --------------------------------------------------------------------------------
THE MEXICO FUND, INC.
SCHEDULE OF INVESTMENTS AS OF JULY 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRIES DIV HELD COMMON STOCK (94.67%) SERIES (NOTE 1) NET ASSETS
- --------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
CEMENT
INDUSTRY 6,088,043 Apasco, S.A. de C.V. ... * $ 34,000,873 3.99%
19,016,958 Cemex, S.A. de C.V. .... A 62,696,024 7.35
------------ -----
96,696,897 11.34
- --------------------------------------------------------------------------------------------
COMMUNICATIONS (a) Carso Global Telecom,
6,975,994 S.A. de C.V. .......... A1 20,238,938 2.37
(a) Grupo Televisa, S.A. de
1,268,200 C.V. .................. CPO 16,858,046 1.98
Telefonos de Mexico,
10,000,000 S.A. de C.V. .......... *A 15,402,875 1.80
Telefonos de Mexico,
13,095,000 S.A. de C.V. .......... *L 20,100,989 2.36
------------ -----
72,600,848 8.51
- --------------------------------------------------------------------------------------------
CONSTRUCTION (a) Corporacion Geo, S.A. de
1,500,000 C.V. .................. B 6,438,745 0.76
(a) Empresas ICA, Sociedad
Controladora, S.A. de
1,496,332 C.V. .................. * 20,304,967 2.38
------------ -----
26,743,712 3.14
- --------------------------------------------------------------------------------------------
CONSUMER GOODS Coca-Cola Femsa, S.A. de
4,430,000 C.V. .................. L 10,644,151 1.25
Fomento Economico
Mexicano, S.A. de
7,842,000 C.V. .................. B 20,372,860 2.39
Grupo Continental,
3,053,000 S.A. .................. *CP 11,474,416 1.35
Grupo Industrial Bimbo,
7,802,474 S.A de C.V. ........... A 36,218,790 4.25
Grupo Industrial Maseca,
27,097,000 S.A. de C.V. .......... B 30,731,135 3.60
Grupo Modelo, S.A. de
9,275,000 C.V. .................. C 42,442,635 4.97
(a) Jugos del Valle, S.A. de
818,000 C.V. .................. B 1,596,519 0.19
Sistema Argos, S.A. de
1,275,000 C.V. .................. A 998,747 0.12
Sistema Argos, S.A. de
5,805,000 C.V. .................. B 4,547,237 0.53
------------ -----
159,026,490 18.65
- --------------------------------------------------------------------------------------------
FINANCIAL (a) Grupo Financiero Banamex
GROUPS Accival, S.A. de
6,478,450 C.V. .................. B 12,302,477 1.44
(a) Grupo Financiero Banamex
Accival, S.A. de
470,944 C.V. .................. L 840,905 0.10
(a) Grupo Financiero
Bancomer, S.A de
25,000,009 C.V. .................. B 10,846,635 1.27
(a) Grupo Financiero
Bancomer, S.A de
555,556 C.V. .................. L 183,158 0.02
(a) Grupo Financiero GBM
Atlantico, S.A. de
366,000 C.V. .................. B 227,332 0.03
Grupo Financiero
Inbursa, S.A. de
3,112,675 C.V. .................. B 12,314,420 1.44
(a)(b) Grupo Financiero
Inverlat, S.A. de
-- C.V. .................. B -- 0.00
(a) Grupo Financiero
InverMexico, S.A. de
9,985,554 C.V. .................. BCP 1,461,686 0.17
(a) Grupo Financiero
InverMexico, S.A. de
998,555 C.V. .................. LCP 138,268 0.02
(a) Grupo Financiero BBV-
33,500,000 Probursa, S.A. de C.V. B 2,606,488 0.31
(a) Grupo Financiero Serfin,
1,663,283 S.A. de C.V. .......... B4 855,440 0.10
(a) Grupo Financiero Serfin,
2,507,941 S.A. de C.V. .......... BCP 1,289,855 0.15
------------ -----
43,066,664 5.05
- --------------------------------------------------------------------------------------------
HOLDINGS 10,752,094 Alfa, S.A. de C.V. ..... A 42,821,210 5.02
5,126,284 Cydsa, S.A. ............ A 11,898,009 1.40
(a) 1,789,190 Desc, S.A. de C.V. ..... A 8,494,111 1.00
(a) 6,393,190 Desc, S.A. de C.V. ..... B 30,351,423 3.56
(a) 348,946 Desc, S.A. de C.V. ..... C 1,675,014 0.20
(a) Grupo Carso, S.A. de
6,975,994 C.V. .................. A1 27,736,545 3.25
(a) Invercorporacion, S.A.
6,975,994 de C.V. ............... A1 1,131,541 0.13
SanLuis Corporacion,
1,513,000 S.A. de C.V. .......... CPO 8,858,921 1.04
3,998,237 Vitro, S.A. ............ * 8,014,401 0.94
------------ -----
140,981,175 16.54
- --------------------------------------------------------------------------------------------
IRON & STEEL (a) Altos Hornos de Mexico,
INDUSTRY 2,254,826 S.A. de C.V ........... * 16,770,696 1.97
(a) Grupo Simec, S.A. de
4,500,000 C.V. .................. B 985,098 0.12
Hylsamex, S.A. de
6,398,000 C.V. .................. BCP 23,540,050 2.76
(a) Industrias CH, S.A. de
1,540,000 C.V. .................. B 4,012,976 0.47
(a) Tubos de Acero de
696,000 Mexico, S.A. de C.V. .. * 6,948,068 0.81
------------ -----
52,256,888 6.13
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
THE MEXICO FUND, INC.
SCHEDULE OF INVESTMENTS AS OF JULY 31, 1996 (UNAUDITED) -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES COMMON STOCK (94.67%) VALUE PERCENT OF
INDUSTRIES DIV HELD (CONTINUED) SERIES (NOTE 1) NET ASSETS
- -------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
MINING (a) Grupo Mexico, S.A. de
INDUSTRY 8,700,000 C.V. .................. B $ 28,166,293 3.30%
Industrias Penoles, S.A
6,299,000 de C.V. ............... * 26,166,227 3.07
------------ ------
54,332,520 6.37
- -------------------------------------------------------------------------------------------
PAPER Kimberly-Clark de
4,258,400 Mexico, S.A. de C.V. .. A 71,656,579 8.40
- -------------------------------------------------------------------------------------------
RETAIL TRADE (a) ACER Computec Latino
America, S.A. de
720,000 C.V. .................. * 2,150,600 0.25
(a) 38,698,422 Cifra, S.A. de C.V. .... B 52,462,057 6.15
(a) 16,232,807 Cifra, S.A. de C.V. .... C 22,006,232 2.58
(a) Controladora Comercial
Mexicana, S.A. de
13,800,000 C.V. .................. B 12,557,036 1.48
------------ ------
89,175,925 10.46
- -------------------------------------------------------------------------------------------
SERVICE (a) Videoprima, S.A. de
256,700 C.V. .................. * 693,947 0.08
- -------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (identified
cost -- $527,960,447).......... 807,231,645 94.67
- -------------------------------------------------------------------------------------------
<CAPTION>
FACE VALUE PERCENT OF
SECURITIES VALUE SHORT-TERM SECURITIES (5.50%) (NOTE 1) NET ASSETS
- -------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
TIME DEPOSITS $46,950,868 Bancomer, S.A., 29.70% due
08/01/96....................... 46,950,868 5.50
- -------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(identified cost --
$46,950,868).................. 46,950,868 5.50
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (identified
cost -- $574,911,315).......... 854,182,513 100.17
LIABILITIES IN EXCESS OF OTHER
ASSETS......................... (1,473,908) (0.17)
------------ ------
NET ASSETS (Equivalent to
$17.15 Per Share on 49,715,907
Shares of Capital Stock
Outstanding)................... $852,708,605 100.00%
------------ ------
</TABLE>
(a) Shares of these securities are currently non-income producing. Equity
investments that have not paid dividends within the last twelve months are
considered to be non-income producing.
(b) Grupo Financiero Inverlat, S.A. de C.V. is going through a reorganization
and recapitalization program. See Note 7 to Financial Statements.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
THE MEXICO FUND, INC.
STATEMENT OF OPERATIONS (UNAUDITED) FOR THE NINE MONTHS ENDED JULY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
NET INVESTMENT INCOME:
Income (Note 1):
Dividends......................................... $ 7,960,058
Interest and discount earned...................... 19,741,482
------------
Total income...................................... $ 27,701,540
Expenses:
Investment advisory fee (Note 2).................. 4,247,009
Administrative services (Note 3).................. 262,499
Trustee fee (Note 3).............................. 67,992
Value-added taxes (Note 1)........................ 697,769
Printing, distribution and mailing of shareholder
reports.......................................... 337,563
Legal fees expense................................ 164,499
Directors' fees................................... 105,554
Directors' expenses............................... 16,671
Accounting and audit fees expense................. 79,300
Custodian fees.................................... 33,750
Transfer agent and dividend disbursing fees....... 15,786
Shareholders' information......................... 69,936
Stock exchange fees............................... 27,023
Miscellaneous..................................... 205,969
------------
Operating expenses................................ 6,331,320
------------
Net investment income (Note 1).................... 21,370,220
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVEST-
MENTS AND FOREIGN CURRENCY:
Realized gain (loss) on investments and foreign
currency transactions (Notes 1 and 4):
Proceeds from sales............................... 29,727,230
Cost of securities sold........................... 48,346,380
------------
Net realized gain (loss) on investments........... (18,619,150)
Net realized gain (loss) from foreign currency
transactions...................................... 147,184
------------
Net realized gain (loss) on investments and for-
eign currency transactions....................... (18,471,966)
Unrealized gain (loss) on investments and transla-
tion of assets and liabilities in foreign curren-
cy:
End of period (Note 4)............................ 279,271,198
Beginning of period............................... 102,222,345
------------
Net increase (decrease) in unrealized gain on in-
vestments........................................ 177,048,853
Net unrealized gain (loss) on translation of assets
and liabilities in foreign currency............... (243,836)
------------
Net unrealized gain (loss) on investments and
translation of assets and liabilities in foreign
currency......................................... 176,805,017
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERA-
TIONS............................................. $179,703,271
============
</TABLE>
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
THE MEXICO FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES AS OF JULY 31,1996 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments:
Mexican securities, at value (Note 1):
Common stock (identified cost $527,960,447)......... $807,231,645
Short-term securities (identified cost
$46,950,868)....................................... 46,950,868
------------
Total investments (identified cost $574,911,315)... $854,182,513
Interest receivable.................................. 38,735
------------
Total assets........................................ 854,221,248
------------
LIABILITIES:
Payables:
Investment adviser (Note 2)......................... 647,073
Trustee (Note 3).................................... 9,441
------------
Total payables.................................... 656,514
Accrued expenses and other liabilities............... 718,472
Payables for offering expenses....................... 137,657
------------
Total liabilities................................. 1,512,643
------------
NET ASSETS -- Equivalent to $17.15 Per Share on
49,715,907 shares of capital stock outstanding
(Note 5)............................................ $852,708,605
============
</TABLE>
See Notes to Financial Statements.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE
THE MEXICO FUND, INC. JULY 31, 1996 YEAR ENDED
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) OCTOBER 31, 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income....................... $ 21,370,220 $ 21,970,230
Net realized gain (loss) on investments and
foreign currency transactions.............. (18,471,966) (45,716,330)
Net unrealized gain (loss) on investments
and translation of assets and
liabilities in foreign currency............ 176,805,017 (670,000,040)
------------ --------------
Net increase (decrease) in net assets re-
sulting from operations.................... 179,703,271 (693,746,140)
Dividends to shareholders from net invest-
ment income................................ (12,890,974) (257,221)
Dividends to shareholders from net realized
gain on investments........................ -- (517,898)
Tax return of capital (Note 1).............. -- (1,726,529)
Net increase in capital stock (Note 5)...... -- 134,050,437
------------ --------------
Total increase (decrease) in net assets.... 166,812,297 (562,197,351)
NET ASSETS:
Beginning of period......................... 685,896,308 1,248,093,659
------------ --------------
End of period............................... $852,708,605(A) $ 685,896,308(A)
============ ==============
</TABLE>
See Notes to Financial Statements.
(A) Including undistributed net investment income and net realized gain on
investments of $6,495,802 and $0 (B), respectively, as of July 31, 1996
and undistributed net investment income and net realized gain on
investments of $0 and $0(B), respectively, as of October 31, 1995.
(B) Including $4,143,234 of capital gains, net of income taxes paid in 1991,
which will not be distributed.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS FOR THE
ENDED FIVE MONTHS
JULY 31, FOR THE YEAR ENDED OCTOBER 31, ENDED
THE MEXICO FUND, INC. 1996 ------------------------------------------ OCTOBER 31,
FINANCIAL HIGHLIGHTS (UNAUDITED) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PER-
FORMANCE:
Net asset value, begin-
ning of period......... $ 13.80 $ 33.48** $ 28.88** $ 24.91** $ 25.60** $ 24.07
-------- ------- --------- --------- ------- --------
Net investment income
(loss) (Note 1)....... 0.17 0.59** 0.21** 0.58** 0.50** (0.02)
Net gain (loss) on
investments and
translation of foreign
currency (Note1)...... 3.44 (19.21)** 4.89** 8.77** 3.85** 1.81
-------- ------- --------- --------- ------- --------
Total from investments
operations............. 3.61 (18.62)** 5.10** 9.35** 4.35** 1.79
-------- ------- --------- --------- ------- --------
Less dividends and dis-
tributions:
Dividends to common
shareholders from net
investment income..... (0.26) -- (0.27) (0.49) (0.48) (0.26)
Distributions to common
shareholders from net
capital gains......... -- (0.01) (0.23) (2.48) (1.03) --
-------- ------- --------- --------- ------- --------
Total dividends and dis-
tributions............. (0.26) (0.01) (0.50) (2.97) (1.51) (0.26)
-------- ------- --------- --------- ------- --------
Tax return of capital.. -- (0.05) -- -- -- --
-------- ------- --------- --------- ------- --------
Capital charge result-
ing from issuance of
fund shares........... -- (1.00) -- (2.41) (3.53) --
-------- ------- --------- --------- ------- --------
Net asset value, end of
period................ $ 17.15 $ 13.80 $ 33.48 $ 28.88 $ 24.91 $ 25.60
======== ======= ========= ========= ======= ========
Market value per share,
end of period......... $ 14.50 $ 12.25 $ 31.38 $ 27.00 $ 23.25 $ 22.88
======== ======= ========= ========= ======= ========
TOTAL INVESTMENT RETURN
BASED ON MARKET VALUE
PER SHARE.............. 20.48% (60.79%) 15.39% 27.41% 8.12% (1.52%)
RATIOS TO AVERAGE NET
ASSETS
Expenses............... 1.02%* 1.14% 0.92% 1.08% 1.08% 1.25%*
Net investment income
(loss)................ 3.46%* 3.24% 0.63% 2.27% 1.89% (0.23%)*
SUPPLEMENTAL DATA:
Net assets at end of
period (in 000's)..... $852,709 $685,896 $1,248,094 $1,075,948 $654,917 $504,849
Portfolio turnover
rate.................. 4.00% 10.61% 3.89% 5.14% 15.59% 3.34%*
</TABLE>
- --------
*Annualized
**Amounts were computed based on average shares outsanding during the period.
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------------------
QUARTER ENDED QUARTER ENDED QUARTER ENDED
07/31/1996 04/30/1996 01/31/1996
------------------- ------------------- -------------------
TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment Income....... $ 6,983 $ 0.14 $ 11,757 $ 0.24 $ 8,962 $ 0.18
Net Investment Income... $ 4,838 $ 0.10 $ 9,586 $ 0.19 $ 6,946 $ 0.14
Net realized gain (loss)
on investments......... $ (1,174) $(0.02) $ (1,273) $(0.03) $(16,172) $(0.33)
Net realized gain (loss)
from foreign currency
transactions........... $ 136 $ 0.00 $ (18) $(0.00) $ 29 $ 0.00
Net increase (decrease)
in unrealized gain on
investments............ $(44,745) $(0.90) $ 61,273 $ 1.23 $160,521 $ 3.23
Net unrealized gain
(loss) on translation
of assets and
liabilities in foreign
currency............... $ (1,387) $(0.03) $ (190) $(0.00) $ 1,333 $ 0.03
Net asset value......... $852,709 $17.15 $902,497 $18.15 $837,097 $16.84
</TABLE>
- -------
See Notes to Financial Statements.
THE MEXICO FUND, INC.
NOTES TO FINANCIAL STATEMENTS --
JULY 31, 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940 as a diversi-
fied, closed-end management investment company. The investment objective of
the Fund is to seek long term capital appreciation through investment in secu-
rities, primarily equity but also fixed income securities, listed on the Mexi-
can Stock Exchange. On July 17, 1991, the Board of Directors voted to change
the year-end of the Fund from May 31 to October 31.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses for the
period. Actual results could differ from those estimates. The following is a
summary of significant accounting policies followed by the Fund.
Valuation of investments -- Investments traded on the Mexican Stock Exchange
are valued at the last sale price. Short-term securities are carried at cost,
plus accrued interest, which approximates market value.
Foreign Currency -- The Fund has adopted the provisions of Statement of Posi-
tion 93-4, Foreign Currency Accounting and Financial Statement Presentation
for Investment Companies ("SOP") effective for the period ended October 31,
1995. The Fund has elected not to restate prior periods. The adoption of this
SOP results in the reclassification of net realized gain (loss) from foreign
currency transactions, previously included as a component of net investment
income, to net realized gain (loss) on investments and foreign currency trans-
actions, and the inclusion of unrealized gain (loss)
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
on translation of currency into unrealized appreciation (depreciation) of in-
vestments and translation of assets and liabilities in foreign currencies.
Effective January 1, 1996, the name of the Mexican currency unit is "Peso
(P)", which prior to 1996 was referred to as "New Peso (NP)". The market value
of Mexican securities, currency holdings and other assets and liabilities de-
nominated in "Peso (P)" were recorded in the financial statements after trans-
lation into U.S. dollars based on the open market exchange rate prevailing in
Mexico City at the end of the period. The open market exchange rate at July
31, 1996 was P 7.583 to $1.00.
The identified cost of portfolio holdings is translated at approximate rates
prevailing when acquired. Income and expense amounts are translated at approx-
imate rates prevailing when earned or incurred.
As a consequence of the exchange rate policy modification adopted by Banco de
Mexico as of December 20, 1994, which resulted in a significant devaluation
during 1995, there has been significant volatility in the interest rates and
portfolio value. The accompanying financial statements reflect the financial
condition of the Fund at July 31, 1996 and the results of operations for the
nine months then ended.
Given the aforementioned conditions, the finan- cial condition and results of
operations of the Fund during 1996 could vary significantly from that in 1995.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, currency gains or losses realized between
the trade and settlement dates on securities transactions, the difference be-
tween the amounts of dividends, interest, and foreign withholding taxes re-
corded on the Fund's books, and the U.S. dollar equivalent of the amount actu-
ally received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
Since the net assets of the Fund are determined based on the currency ex-
change rate and market values at the close of each business day, it is not
practicable to isolate that portion of the results of operations arising as a
result of changes in the foreign exchange rates from the fluctuations arising
from changes in the market prices of securities during the year. Accordingly,
the net realized and unrealized gain on investments presented in the accompa-
nying financial statements include the effects of both such changes.
Security transactions and investment income --Security transactions are re-
corded on the date which the transactions are entered into (the trade date).
Dividend income is recorded on the ex-dividend date and interest income is re-
corded as it is earned.
Realized gains and losses on investments -- Realized gains and losses on in-
vestments are determined on the identified cost basis.
Taxes -- No provision has been made for U.S. income taxes for the nine months
ended July 31,
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1996 on net investment company taxable income or net long-term capital gains
as defined by the Internal Revenue Code (the "Code"), since the Fund intends
to comply with the requirements of the Code applicable to regulated investment
companies and to distribute substantially all of such income to its sharehold-
ers.
The Fund is not subject to Mexican income taxes. The provision for value-
added taxes represents Mexican value-added tax on certain services rendered by
Mexican corporations to the Fund.
Dividends to shareholders -- Cash dividends are recorded by the Fund on the
ex-dividend date. Dividends paid to shareholders are subject to Mexican with-
holding taxes if applicable.
A tax return of capital generally occurs when distributions exceed current
and accumulated tax earnings and profits. The Fund had no current earnings and
profits for the year ended October 31, 1995. This has had the effect of
recharacterizing a portion of the Fund's prior year distributions as a tax re-
turn of capital.
2. INVESTMENT ADVISORY AGREEMENT:
The Fund has a management contract with Impulsora del Fondo Mexico, S.A. de
C.V. (the "Adviser"), a Mexican corporation registered under the U.S. Invest-
ment Advisers Act of 1940. The Adviser furnishes investment research and port-
folio management services consistent with the Fund's stated investment poli-
cies. The Fund pays to the Adviser a monthly fee at the annual rate of 0.85%
on the first $200 million of average daily net assets, 0.70% on the excess
over $200 million up to $400 million and 0.60% on the excess over $400 mil-
lion.
3. TRUST AGREEMENT AND TRUSTEE:
Pursuant to a Trust Agreement which provides for the Fund's assets to be held,
invested and reinvested for the benefit of the Fund, a trust was created be-
tween the Fiduciary Department of Nacional Financiera, S.N.C. ("NAFIN") and
the Series A stockholders of the Adviser. At the closing of the initial offer-
ing of the Fund, in June 1981, NAFIN reimbursed the Series A stockholders of
the Adviser the amounts each one had contributed to the creation of the trust
and they ceased to be parties thereto.
Effective April 1, 1994, the Fund entered into an Administrative Services
Agreement with the Adviser, which provides for certain administrative services
previously performed by NAFIN to be performed by the Adviser, including the
determination and publication of the net asset value of the Fund, the mainte-
nance of the Fund's books and records in accordance with applicable U.S. and
Mexican Laws and the provision of assistance to the Fund's auditors in the
preparation and filing of annual reports and tax returns. The initial term of
this agreement runs until August 31, 1996. The annual fee payable to the Ad-
viser under this agreement is $350,000.
Effective May 1, 1994, the Fund amended its agreement with NAFIN, establish-
ing a fixed annual fee of $350,000 for the remaining services to be provided
by NAFIN.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
At its June 7, 1995 meeting, the Board of Directors approved the appointment
of Bancomer, S.A. ("Bancomer") as the trustee for the Mexican Trust through
which the Fund invests. The Fund also obtained the approval of the Comision
Nacional Bancaria y de Valores and the Mexican Foreign Investment Commission
to permit Bancomer to become the trustee. Under this new arrangement, effec-
tive October 5, 1995, Bancomer receives P 600,000 (aproximately $79,000) per
year for three years, subject to a monthly increase linked to the Mexican Con-
sumer Price Index, monthly cumulative basis. This fee arrangement will result
in significantly lower trustee fees to the Fund. In this regard, the Fund en-
tered into a definitive arrangement on October 5, 1995 with Bancomer and
NAFIN, the previous trustee, which provided for the succession of Bancomer as
the trustee.
4. PURCHASES AND SALES OF INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the
nine months ended July 31, 1996 were as follows:
<TABLE>
<S> <C>
Purchases
- -------------------------------------------------------------------------------
Common Stock...................................................... $148,340,594
Fixed Income Securities........................................... --
------------
Total Purchases................................................. $148,340,594
============
Proceeds from Investments Sold....................................
- -------------------------------------------------------------------------------
Common Stock...................................................... $ 29,727,230
Fixed Income Securities........................................... --
------------
Total Sales..................................................... $ 29,727,230
============
</TABLE>
As of July 31, 1996, net unrealized gain on investments for Federal income
tax purposes aggregated to approximately $279 million, of which approximately
$359 million related to appreciated
securities and approximately $80 million related to depreciated securities.
The aggregate cost of investments at July 31, 1996 for Federal income tax pur-
poses was approximately $575 million.
5. CAPITAL STOCK:
On January 27, 1995, the Annual Shareholders Meeting of the Fund approved an
increase in the number of authorized shares from 50,000,000 to 150,000,000. At
July 31, 1996, there were 150,000,000 shares of $1.00 par value common stock
authorized, of which 49,967,732 shares were issued, 49,715,907 shares were
outstanding and 251,825 shares were held in treasury.
Starting with the distribution made to shareholders on July 30, 1993, the
Fund offered a Dividend Reinvestment Plan ("Plan"). Under this Plan, the Com-
pany sold, in fiscal year 1995, 4,571 shares of common stock held in treasury
which amounted to $89,706.
The Plan was amended by the Board of Directors at the December 7, 1994 Board
Meeting. The new Plan became effective April 1, 1995. Under the terms of the
amended Plan, Fund shareholders automatically will be enrolled as participants
in the Plan unless they notify the Fund otherwise.
On October 13, 1995, the Company issued rights to suscribe to an aggregate of
12,428,977 shares of common stock. The Company issued all of the common stock
offered, and received net proceeds of $133,960,731.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
As of July 31, 1996, net assets were comprised of the following:
<TABLE>
<S> <C>
Common Stock..................................................... $ 49,715,907
Additional paid-in capital....................................... 562,178,531
Undistributed net investment income.............................. 6,495,802
Accumulated net realized loss on investments..................... (36,348,609)
Unrealized appreciation of investments and depreciation on
translation of assets and liabilities in foreign currency....... 270,666,974
------------
$852,708,605
============
</TABLE>
Accumulated net realized losses from foreign currency transactions have been
netted against undistributed net investment income to be consistent with the
tax treatment for distributions from net investment income per the Code.
6. CAPITAL GAINS:
Net realized gains from security transactions, if any, are distributed annu-
ally to shareholders. Capi- tal loss carryforwards will be used to offset fu-
ture capital gains available for distribution. The Fund had net capital loss
carryforwards at July 31,
1996 of approximately $40,489,000 of which $21,870,000 and $18,619,000 expire
in 2003 and 2004, respectively.
7. INVESTMENTS:
As a result of significant losses incurred by Grupo Financiero Inverlat, S.A.
de C.V. ("Inverlat"), certain significant shareholders, together with the fi-
nancial authorities, developed a recapitalization program. On July 23, 1996
after the absorption of accumulated losses through the total reduction of cap-
ital stock, the shareholders of Inverlat approved a cash contribution by
FOBAPROA (Banking Fund for Savings Protection) to cover such losses. As a con-
sequence, all shares outstanding prior to July 23, 1996 were cancelled and
some eligible shareholders may receive shares equal to 9% and up to 36% of
their ownership interest as of that date, through a trust agreement. Manage-
ment has assigned the market value of the Company's holdings in Inverlat at $0
as of July 31, 1996 due to the uncertainty regarding its ultimate realization.
