<PAGE>
- --------------------------------------------------------------------------------
THE MEXICO FUND, INC.
- --------------------------------------------------------------------------------
DIRECTORS:
Juan Gallardo T. -- Chairman
Philip Caldwell
Jose Luis Gomez Pimienta
Claudio X. Gonzalez
Robert L. Knauss
Agustin Santamarina V.
Jaime Serra Puche*
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 AND TRUSTEE --
Bancomer, S.A.
TRANSFER AGENT AND REGISTRAR --
American Stock Transfer & Trust Company
COUNSEL --
Dechert Price & Rhoads
Creel, Garcia-Cuellar y Muggenburg, S.C.
*Elected on February 28, 1997.
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
THE MEXICO
FUND, INC.
(Unaudited)
----------------------
Quarterly Report
January 31, 1997
- --------------------------------------------------------------------------------
<PAGE>
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- --------------------------------------------------------------------------------
THE MEXICO FUND, INC.
QUARTERLY REPORT
JANUARY 31, 1997
HIGHLIGHTS
.. The Fund's first quarter of fiscal 1997 ended January 31, 1997.
.. During this first fiscal quarter, the Fund's net asset value (NAV) and price
per share increased 14%, to close at $19.73 and $16.125, respectively.
.. The Fund's discount between market price and NAV ended January 1997 at a
level of 18%, compared with 8% one year earlier.
.. Total volume of Fund shares traded on all US consolidated markets during this
fiscal quarter amounted to 16.8 million, compared with 49.7 million outstand-
ing.
.. During calendar 1996, Mexico's gross domestic product (GDP) increased 5.1% in
real terms, and reached a level of approximately $324 billion.
.. The annual inflation rate in Mexico registered 27.7% at the end of December
1996, compared with 52% one year earlier.
.. During calendar 1996, the Mexican current account registered a preliminary
deficit of $1.8 billion, compared with a deficit of $1.6 billion one year
earlier.
.. The rate of exchange of the Mexican peso against the US dollar continued to
perform in a stable manner during this fiscal quarter, and ended at a level
of Ps. 7.807.
.. Interest rates of the 28-day Cetes (Treasury Bills) declined from 29% at the
end of October 1996, to 21% at the end of the first fiscal quarter.
.. The Mexican Stock Exchange (Bolsa) index increased 16% in US dollar terms
during this fiscal quarter, to close at a level of 3,647 points.
NO FOLIO
<PAGE>
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THE MEXICO FUND, INC.
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ECONOMIC COMMENTS.
During calendar 1996, the Mexican GDP increased 5.1% in real terms, and
reached a level of approximately $324 billion. The three sectors that comprise
the GDP, and almost all of its branches, registered positive rates of growth.
Industrial production, which represented 22% of total GDP, increased 10.4% and
had a significant impact on the GDP performance. The data clearly demonstrate
the recovery of the Mexican economy, a trend which is expected to continue
during 1997, when the government anticipates a GDP growth of at least 4%.
Domestic inflation has continued to decline. At the end of calendar 1996, the
annual inflation rate, measured by the increase of the consumer price index
(CPI), calculated by Banco de Mexico (central bank), registered a level of
27.7%. Even though this inflation rate was higher than the government's goal
of 22%, it is almost half of the 52% inflation level registered one year ear-
lier. This declining trend of inflation rates is expected to continue during
1997.
As a result of this positive performance of inflation rates and of a reduced
country-risk perception of Mexico, domestic interest rates have continued de-
clining. The 28-day Cetes ended January 1997 at 21%, compared with 29% at the
end of the previous fiscal quarter. Further declines have occurred, and at the
end of February 1997, the 28-day Cetes registered a level of 18.7%. However,
by mid-March, this interest rate indicator increased to levels of around 21%.
During the first quarter, the Mexican peso traded in a stable manner and its
relative value showed signs of strength. At the end of January 1997, the rate
of exchange of the peso against the US dollar ended at a level of Ps. 7.807,
2% lower than the exchange rate of Ps. 7.998 recorded three months earlier.
Banco de Mexico recently announced, among other currency-related issues, the
implementation of a program designed to eliminate currency market volatility.
Under this program, the central bank may intervene in the currency market, if
the exchange rate between the peso and the dollar increases more than 2% dur-
ing one trading day. As of January 31, 1997, gross international reserves at
the central bank amounted to approximately $19 billion, and to $9 billion in
net terms/1/. As of the writing of this Letter, mid-March 1997, the value of
the peso in relation to the US dollar had declined to levels of approximately
Ps. 8.00.
The Mexican trade balance continued to register surpluses. During calendar
1996, total exports increased 21% to $95.95 billion, while total imports in-
creased 24% to $89.53 billion. The result was a trade balance surplus of $6.42
billion, compared with $7.1 billion one year earlier. The Mexican current ac-
count registered a preliminary deficit of $1.8 billion during 1996, compared
with a deficit of $1.6 billion during 1995.
THE BOLSA AND THE FUND PERFORMANCE.
The Bolsa Index reached new historical levels and increased 16% in dollar
terms during this fiscal quarter, to close at a level of 3,647 points. Im-
proved financial results of listed companies, reduced interest rates and the
recovery of the economy, were some of the factors that stimulated the perfor-
mance of the Bolsa. The price-earnings and price-book value ratios ended Janu-
ary 1997 at multiples of 14.41 and 1.86, respectively, while the market capi-
talization amounted to $113.5 billion.
- -------
/1Net/international reserves are the difference between gross international
reserves and the net amount of foreign exchange denominated liabilities of
Banco de Mexico, with a term of six months or less.
<PAGE>
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- -------------------------------------------------------------------------------
The Fund's price and NAV per share increased 14% during this three-month pe-
riod. The closing price per share and NAV at the end of January were $16.125
and $19.73, respectively, reflecting a discount of approximately 18%.
The Fund continued to register high levels of liquidity. During the first
quarter, a total of 16.8 million shares traded on all US consolidated markets,
and for the last 12 months, the volume amounted to 63.4 million, equivalent to
1.3 times the total number of outstanding shares.
ANNUAL SHAREHOLDERS MEETING.
The Annual Shareholders Meeting of the Fund was held on February 28, 1997, in
New York City. Approximately 79% of the outstanding shares were present at the
meeting in person and by proxy. Messrs. Philip Caldwell and Jaime Serra Puche
were elected Class I Directors of the Board for a three year term expiring in
2000. Dr. Serra Puche took the seat left by Mr. Fernandez Hurtado after his
resignation effective December 31, 1996, and Mr. Caldwell was reelected to the
Board. In addition, the proposal to ratify the selection of Arthur Andersen
LLP as independent auditors for the 1997 fiscal year was approved by the
shareholders.
The specific results of the meeting were as follows:
<TABLE>
<CAPTION>
VOTES VOTES
VOTES FOR AGAINST ABSTAINED UNVOTED
---------- --------- --------- -------
<S> <C> <C> <C> <C>
1. Election of Directors
Philip Caldwell 38,147,644 1,113,016 -- --
Jaime Serra Puche 38,248,529 1,012,131 -- --
2. Ratify selection of
Arthur Andersen LLP 38,327,891 724,414 208,353 2
</TABLE>
The Fund's remaining directors, Messrs. Juan Gallardo T, Jose Luis Gomez
Pimienta, Claudio X. Gonzalez, Robert L. Knauss and Agustin Santamarina V.
continue to serve as directors of the Fund.
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 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, quarterly reports and other materials available from the Fund.
They will also be able to direct your
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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:
LOGO LOGO
JOSE LUIS GOMEZ PIMIENTA JUAN GALLARDO T.
President
Chairman of the Board
March 18, 1997
<PAGE>
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- --------------------------------------------------------------------------------
GERMAN INVESTORS ARE ADVISED THAT THE FUND HAS A GERMAN DOMESTIC TAX
REPRESENTATIVE:
degab
Gesellschaft fur Anlageberatung mbH
Guiollettstr. 48
D-60325 Frankfurt am Main
Tel: 069-910-31830 (Herr Symmank)
069-910-31831 (Frau Meilinger-Gresser)
Fax: 069-910-31877
SHAREHOLDER INFORMATION
Weekly comparative NAV and market price information about 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 Compos-
ite 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 also listed and 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>
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THE MEXICO FUND, INC.
SCHEDULE OF INVESTMENTS AS OF JANUARY 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
SHARES VALUE OF NET
INDUSTRIES DIV HELD COMMON STOCK (95.77%) SERIES (NOTE 1) ASSETS
- ----------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
CEMENT
INDUSTRY 6,800,000 Apasco, S.A. de C.V. ... * $ 49,038,043 5.00%
12,931,958 Cemex, S.A.de C.V. ..... CPO 48,699,829 4.97
------------ -----
97,737,872 9.97
- ----------------------------------------------------------------------------------------
Carso Global Telecom,
COMMUNICATIONS (a) 10,036,994 S.A. de C.V. .......... A1 29,569,727 3.02
Grupo Televisa, S.A. de
(a) 1,268,200 C.V. .................. CPO 16,569,284 1.69
Telefonos de Mexico,
10,000,000 S.A. de C.V. .......... A 18,829,256 1.92
Telefonos de Mexico,
10,000,000 S.A. de C.V. .......... L 18,931,728 1.93
------------ -----
83,899,995 8.56
- ----------------------------------------------------------------------------------------
Corporacion Geo, S.A. de
CONSTRUCTION (a) 1,900,000 C.V. .................. B 9,369,796 0.96
Empresas ICA, Sociedad
Controladora, S.A. de
(a) 1,791,332 C.V. .................. * 27,304,792 2.78
------------ -----
36,674,588 3.74
- ----------------------------------------------------------------------------------------
Coca-Cola Femsa, S.A. de
CONSUMER GOODS 4,430,000 C.V. .................. L 13,448,316 1.37
Fomento Economico
Mexicano, S.A. de
8,342,000 C.V. .................. B 29,224,247 2.98
Grupo BAFAR, S.A. de
(a) 940,000 C.V. .................. B 1,695,299 0.17
Grupo Continental,
3,053,000 S.A. .................. *CP 16,150,749 1.65
Grupo Industrial Bimbo,
8,103,000 S.A de C.V. ........... A 48,937,678 4.99
Grupo Industrial Maseca,
27,097,000 S.A. de C.V. .......... B 35,749,853 3.64
Grupo Modelo, S.A. de
9,275,000 C.V. .................. C 55,718,906 5.68
Jugos del Valle, S.A. de
(a) 818,000 C.V. .................. B 1,242,664 0.13
Sistema Argos, S.A. de
1,275,000 C.V. .................. A 1,368,579 0.14
Sistema Argos, S.A. de
5,000,000 C.V. .................. B 5,379,787 0.55
------------ -----
208,916,078 21.30
- ----------------------------------------------------------------------------------------
FINANCIAL Grupo Financiero Banamex
GROUPS (a) 7,078,450 Accival, S.A. de C.V. . B 14,579,413 1.49
Grupo Financiero Banamex
(a) 470,944 Accival, S.A. de C.V. . L 900,024 0.09
Grupo Financiero
(a) 25,000,009 Bancomer, S.A de C.V. . B 9,158,451 0.93
Grupo Financiero
(a) 555,556 Bancomer, S.A de C.V. . L 183,596 0.02
Grupo Financiero BBV-
Probursa, S.A. de
(a) 54,327,000 C.V. .................. B 2,992,265 0.30
Grupo Financiero
3,356,074 Inbursa, S.A. de C.V. . B 12,036,643 1.23
Grupo Financiero
Inverlat Recovery
(a)(b) -- Trust.................. -- 0.00
Grupo Financiero
InverMexico, S.A. de
(a) 9,985,554 C.V. .................. BCP 882,545 0.09
Grupo Financiero
InverMexico, S.A. de
(a) 998,555 C.V. .................. LCP 83,138 0.01
------------ -----
40,816,075 4.16
- ----------------------------------------------------------------------------------------
HOLDINGS 10,245,094 Alfa, S.A. de C.V. ..... A 53,541,672 5.46
4,200,000 Cydsa, S.A. ............ A 10,651,979 1.09
(a) 1,789,190 Desc, S.A. de C.V. ..... A 10,542,172 1.07
(a) 6,506,190 Desc, S.A. de C.V. ..... B 38,002,083 3.87
(a) 200,000 Desc, S.A. de C.V. ..... C 1,163,059 0.12
Grupo Carso, S.A. de
7,375,994 C.V. .................. A1 45,019,356 4.59
Grupo Imsa, S.A. de
(a) 1,482,000 C.V. .................. UBC 3,625,746 0.37
San Luis Corporacion,
2,666,000 S.A. de C.V. .......... CPO 15,196,234 1.55
3,998,237 Vitro, S.A. ............ * 9,146,729 0.93
------------ -----
186,889,030 19.05
- ----------------------------------------------------------------------------------------
IRON & STEEL Altos Hornos de Mexico,
INDUSTRY (a) 5,250,000 S.A. de C.V ........... * 10,759,575 1.10
Grupo Simec, S.A. de
(a) 4,500,000 C.V. .................. B 962,598 0.10
5,000,000 Hylsamex, S.A. de C.V. . BCP 20,494,428 2.09
Industrias CH, S.A. de
(a) 1,540,000 C.V. .................. B 5,266,812 0.54
Tubos de Acero de
(a) 889,000 Mexico, S.A. de C.V. .. * 15,532,164 1.58
------------ -----
53,015,577 5.41
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
THE MEXICO FUND, INC.
SCHEDULE OF INVESTMENTS AS OF JANUARY 31, 1997 (UNAUDITED) -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
SHARES VALUE OF NET
INDUSTRIES DIV HELD COMMON STOCK (CONTINUED) SERIES (NOTE 1) ASSETS
- ----------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
MINING Grupo Mexico, S.A. de
INDUSTRY (a) 7,950,000 C.V. .................. B $ 26,679,903 2.72%
Industrias Penoles, S.A
4,500,000 de C.V. ............... * 19,021,392 1.94
------------ ------
45,701,295 4.66
- ----------------------------------------------------------------------------------------
Kimberly-Clark de
PAPER 4,357,400 Mexico, S.A. de C.V. .. A 90,418,701 9.22
- ----------------------------------------------------------------------------------------
ACER Computec Latino
RETAIL TRADE (a) 1,330,000 America, S.A. de C.V. . * 5,298,194 0.54
(a) 38,698,422 Cifra, S.A. de C.V. .... B 52,146,458 5.32
(a) 16,232,807 Cifra, S.A. de C.V. .... C 21,582,751 2.20
Controladora Comercial
Mexicana, S.A. de
(a) 14,990,000 C.V. .................. UBC 13,709,312 1.40
Grupo Corvi, S.A. de
(a) 3,000,000 C.V. .................. UBL 2,374,792 0.24
------------ ------
95,111,507 9.70
- ----------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Identified Cost --
$552,387,832)......... 939,180,718 95.77
- ----------------------------------------------------------------------------------------
<CAPTION>
PERCENT
FACE SHORT- VALUE OF NET
SECURITIES VALUE TERM SECURITIES (4.36%) (NOTE 1) ASSETS
- ----------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
REPURCHASE $42,807,034 Bancomer, S.A., 21.80%,
AGREEMENTS dated 01/31/97, due
02/03/97, repurchase
price $42,840,900,
collateralized by
Ajustabonos............ $ 42,807,034 4.36%
- ----------------------------------------------------------------------------------------
TOTAL SHORT-TERM
SECURITIES (Identified
Cost -- $42,807,034)... 42,807,034 4.36
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Identified Cost --
$595,194,866)......... 981,987,752 100.13
LIABILITIES IN EXCESS OF
OTHER ASSETS........... (1,281,696) (0.13)
------------ ------
NET ASSETS (Equivalent
to $19.73 Per Share on
49,715,907 Shares of
Capital Stock
Outstanding)........... $980,706,056 100.00%
------------ ------
</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) See Note 8 to Financial Statements.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
THE MEXICO FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES AS OF JANUARY 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments:
Mexican securities, at value (Note 1):
Common stock (identified cost -- $552,387,832)...... $939,180,718
Short-term securities (identified cost --
$42,807,034) 42,807,034
------------
Total investments (identified cost --
$595,194,866).................................... $981,987,752
Interest receivable.................................. 25,922
------------
Total assets....................................... 982,013,674
------------
LIABILITIES:
Payables:
Investment adviser (Note 2)......................... 671,281
Trustee (Note 4).................................... 10,157
------------
Total payables..................................... 681,438
Accrued expenses and other liabilities............... 626,180
------------
Total liabilities.................................. 1,307,618
------------
NET ASSETS -- Equivalent to $19.73 Per Share on
49,715,907 shares of capital stock outstanding (Note
6).................................................. $980,706,056
============
</TABLE>
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
THE MEXICO FUND, INC.
STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
NET INVESTMENT INCOME:
Income (Note 1):
Dividends.......................................... $ 927,249
Interest and discount earned....................... 2,858,023
------------
Total income....................................... $ 3,785,272
Expenses:
Investment advisory fee (Note 2)................... 1,580,774
Administrative services (Note 3)................... 87,500
Trustee fee (Note 4)............................... 25,669
Value-added taxes (Note 1)......................... 259,453
Printing, distribution and mailing of shareholder
reports........................................... 103,342
Legal fees......................................... 60,494
Directors' fees.................................... 35,288
Directors' expenses................................ 6,153
Accounting and audit fees.......................... 25,962
Custodian fees..................................... 8,967
Transfer agent and dividend disbursing fees........ 5,250
Shareholders' information.......................... 13,107
Stock exchange fees................................ 10,081
Miscellaneous...................................... 50,517
------------
Operating expenses................................. 2,272,557
------------
Net investment income (Note 1)..................... 1,512,715
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY:
Realized gain (loss) on investments and foreign
currency transactions (Notes 1 and 5):
Proceeds from sales................................ 13,568,717
Cost of securities sold............................ 5,691,252
------------
Net realized gain (loss) on investments............ 7,877,465
Net realized gain (loss) from foreign currency
transactions...................................... 1,006,113
------------
Net realized gain (loss) on investments and foreign
currency transactions............................. 8,883,578
Unrealized gain (loss) on investments and
translation of assets and liabilities in foreign
currency:
End of period (Note 5)............................. 386,792,886
Beginning of period................................ 276,165,119
------------
Net increase (decrease) in unrealized gain on
investments....................................... 110,627,767
Net unrealized gain (loss) on translation of assets
and liabilities in foreign currency............... (79,020)
------------
Net unrealized gain (loss) on investments and
translation of assets and liabilities in foreign
currency.......................................... 110,548,747
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS......................................... $120,945,040
============
</TABLE>
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
THE MEXICO FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED FOR THE
JANUARY 31, 1997 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income................... $ 1,512,715 $ 24,968,180
Net realized gain (loss) on investments
and foreign currency transactions...... 8,883,578 (722,805)
Net unrealized gain (loss) on
investments and translation of assets
and liabilities in foreign currency.... 110,548,747 172,950,648
------------ ------------
Net increase in net assets resulting
from operations........................ 120,945,040 197,196,023
Dividends to shareholders from net
investment income...................... (1,988,636) (21,342,679)
------------ ------------
Total increase in net assets........... 118,956,404 175,853,344
NET ASSETS:
Beginning of period..................... 861,749,652 685,896,308
------------ ------------
End of period........................... $980,706,056 (A) $861,749,652 (A)
============ ============
</TABLE>
See Notes to Financial Statements.
(A) Including undistributed net investment income and net realized gain on
investments of $379,833 and $0(B), respectively, as of January 31, 1997
and accumulated net investment loss and net realized gain on investments
of $(150,359) and $0(B), respectively, as of October 31,1996.
(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
THREE MONTHS
ENDED
JANUARY 31, FOR THE YEAR ENDED OCTOBER 31,
THE MEXICO FUND, INC. 1997 ---------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $ 17.33 $ 13.80 $ 33.48** $ 28.88** $ 24.91** $ 25.60**
-------- -------- --------- ---------- ---------- --------
Net investment income
(loss) (Note 1)....... 0.03 0.50 0.59** 0.21** 0.58** 0.50**
Net gain (loss) on
investments and
translation of foreign
currency (Note1)...... 2.41 3.46 (19.21)** 4.89** 8.77** 3.85**
-------- -------- --------- ---------- ---------- --------
Total from investments
operations............. 2.44 3.96 (18.62)** 5.10** 9.35** 4.35**
Less dividends and
distributions:
Dividends to common
shareholders from net
investment income..... (0.04) (0.43) -- (0.27) (0.49) (0.48)
Distributions to common
shareholders from net
capital gains......... -- -- (0.01) (0.23) (2.48) (1.03)
-------- -------- --------- ---------- ---------- --------
Total dividends and
distributions......... (0.04) (0.43) (0.01) (0.50) (2.97) (1.51)
-------- -------- --------- ---------- ---------- --------
Tax return of capital.. -- -- (0.05) -- -- --
-------- -------- --------- ---------- ---------- --------
Capital charge
resulting from
issuance of fund
shares................ -- -- (1.00) -- (2.41) (3.53)
-------- -------- --------- ---------- ---------- --------
Net asset value, end of
period................ $ 19.73 $ 17.33 $ 13.80 $ 33.48 $ 28.88 $ 24.91
======== ======== ========= ========== ========== ========
Market value per share,
end of period......... $ 16.13 $ 14.13 $ 12.25 $ 31.38 $ 27.00 $ 23.25
======== ======== ========= ========== ========== ========
TOTAL INVESTMENT RETURN
BASED ON MARKET VALUE
PER SHARE.............. 14.44% 18.77% (60.79%) 15.39% 27.41% 8.12%
RATIOS TO AVERAGE NET
ASSETS
Expenses............... 0.97%* 1.00% 1.14% 0.92% 1.08% 1.08%
Net investment income
(loss)................ 0.65%* 2.93% 3.24% 0.63% 2.27% 1.89%
SUPPLEMENTAL DATA:
Net assets at end of
period (in 000's)..... $980,706 $861,750 $ 685,896 $1,248,094 $1,075,948 $654,917
Portfolio turnover
rate.................. 1.00% 9.57% 10.61% 3.89% 5.14% 15.59%
Average Commission Rate
Paid.................. $ 0.0034 $ 0.0026
</TABLE>
- --------
*Annualized
**Amounts were computed based on average shares outstanding during the period.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED 01/31/1997
-------------------------------------------
TOTAL PER SHARE
-------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income....... $ 3,785 $ 0.08
Net Investment Income... $ 1,513 $ 0.03
Net realized gain (loss)
on investments......... $ 7,877 $ 0.16
Net realized gain (loss)
from foreign currency
transactions........... $ 1,006 $ 0.02
Net increase (decrease)
in unrealized gain on
investments............ $110,628 $ 2.23
Net unrealized gain
(loss) on translation
of assets and
liabilities in foreign
currency............... $ (79) $ 0.00
Net asset value......... $980,706 $19.73
</TABLE>
- --------
See Notes to Financial Statements.
<PAGE>
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- -------------------------------------------------------------------------------
THE MEXICO FUND, INC.
NOTES TO FINANCIAL STATEMENTS--
JANUARY 31, 1997 (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) on translation of cur-
rency into unrealized appreciation (depreciation) of investments and transla-
tion of assets and liabilities in foreign currencies.
The market value of Mexican securities, currency holdings and other assets
and liabilities denominated in "Peso (P)" were recorded in the financial
statements after translation into U.S. dollars based on the open market ex-
change rate prevailing in Mexico City at the end of the period. The open mar-
ket exchange rate at January 31, 1997 was P 7.807 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.
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
<PAGE>
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- -------------------------------------------------------------------------------
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 accompanying financial state-
ments 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.
Repurchase Agreements -- The repurchase agreements are traded with approved
institutions, and are collateralized by Mexican Government securities. The
Fund takes possession of the collateral and monitors the credit standing of
counterparties with whom it enters repurchase agreements.
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 three
months ended January 31, 1997 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 shareholders.
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.
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. ADMINISTRATIVE SERVICES AGREEMENT:
Effective April 1, 1994, the Fund entered into an Administrative Services
Agreement with the Adviser, which provides for certain administrative services
to be performed by the Adviser, including the determination and publication of
the net asset value of the Fund, the maintenance of the Fund's books and rec-
ords 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 re-
ports and tax returns. The term of this agreement was renewed until August 31,
1997. The annual fee payable to the Adviser under this agreement is $350,000.
4. TRUST AGREEMENT AND TRUSTEE:
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
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Bancaria y de Valores and the Mexican Foreign Investment Commission to permit
Bancomer to become the trustee. Under this new arrangement, effective October
5, 1995, Bancomer receives an amount denominated in Mexican pesos per year for
three years, subject to a monthly increase linked to the Mexican Consumer
Price Index, monthly cumulative basis, which for the three months ended Janu-
ary 31, 1997 amounted to $25,669.
5. PURCHASES AND SALES OF INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the
three months ended January 31, 1997 were as follows:
<TABLE>
<S> <C>
Purchases
- -------------------------------------------------------------------------------
Common Stock....................................................... $ 8,789,583
Fixed Income Securities............................................ --
-----------
Total Purchases.................................................. $ 8,789,583
===========
Proceeds from Investments Sold
- -------------------------------------------------------------------------------
Common Stock....................................................... $13,568,717
Fixed Income Securities............................................ --
-----------
Total Sales...................................................... $13,568,717
===========
</TABLE>
As of January 31, 1997, net unrealized gain on investments for Federal income
tax purposes aggregated to approximately $ 387 million, of which approximately
$ 456 million related to appreciated securities and approximately $ 69 million
related to depreciated securities. The aggregate cost of investments at Janu-
ary 31, 1997 for Federal income tax purposes was approximately $ 595 million.
6. CAPITAL STOCK:
At January 31, 1997, 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.
As of January 31, 1997, 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.............................. 379,833
Accumulated net realized loss on investments..................... (8,929,567)
Unrealized appreciation of investments and depreciation on
translation of assets and liabilities in foreign currency....... 377,361,352
------------
$980,706,056
============
</TABLE>
Accumulated net realized gains (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.
7. CAPITAL GAINS:
Net realized gains from security transactions, if any, are distributed annu-
ally to shareholders. Capital loss carryforwards will be used to offset future
capital gains available for distribution. The Fund had net capital loss
carryforwards at January 31,
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1997 of approximately $13,075,000 expiring in 2003.
8. INVESTMENTS:
As a result of significant losses incurred by Grupo Financiero Inverlat, S.A
.. de C.V. ("Inverlat"), certain significant shareholders, together with the
financial 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 . The
company has received an interest in a Recovery Trust set up to manage the re-
covery assets of Inverlat. Through the trust agreement the Company may receive
shares equal to 9% and up to 36% of their ownership interest. Management has
assigned the market value of the Company's holdings in the Recovery Trust at
$0 as of January 31, 1997 due to the uncertainty regarding its ultimate reali-
zation.
