<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE MEXICO FUND, INC.
HIGHLIGHTS
- --------------------------------------------------------------------------------
.. The Fund's 1996 fiscal year ended October 31, 1996.
.. During this fiscal year, the Fund's net asset value (NAV) per share increased
28.6%, while the Bolsa index increased 24.7% in US dollar terms.
.. The market price of Fund shares ended this fiscal year at $14 1/8, reflecting
a discount of 18.5% with respect to NAV.
.. The total number of Fund shares traded on all US consolidated markets was 82
million, equivalent to 1.6 times the total number of outstanding shares.
.. On October 26, 1996, representatives of the main sectors of the Mexican econ-
omy signed the Alliance for Economic Growth (ACE for its spanish initials).
.. The Mexican gross domestic product (GDP) increased 7.4% during the third cal-
endar quarter of 1996.
.. Mexico's inflation rate registered 29% for the year ended October 31, 1996.
.. The Mexican trade balance registered a surplus of $5.8 billion during the
first ten months of 1996.
.. Interest rates for the 28-day Cetes ended this fiscal year at a level of
29.34%, compared with 42.23% at the end of fiscal 1995.
.. The rate of exchange of the peso against the US dollar ended October 1996 at
a level of Ps. 7.998, compared with Ps. 7.690 at the end of 1995.
.. A dividend of 4 cents per share is payable on January 31, 1997, to sharehold-
ers of record on December 30, 1996.
.. We regret to inform our shareholders that Mr. Ernesto Fernandez Hurtado has
resigned from the Fund's Board of Directors, effective December 31, 1996.
.. The Fund's Annual Shareholders Meeting will be held on February 28, 1997, at
2:00 pm, at the RIHGA Royal Hotel located at 151 W. 54th Street, New York,
NY, 10019.
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
THE MEXICO FUND, INC.
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THE BOLSA AND FUND PERFORMANCE.
The Bolsa index, which began the fiscal year at a level of 2,302 points,
ended this fiscal year at 3,213 points, representing an increase of 24.7% in
US dollar terms. The Bolsa index was as high as 3,434 points at the end of Au-
gust 1996. The price/book value ratio closed at 1.73:1, while the 12-month
trailing price/earnings ratio closed at 12.95:1. Total market capitalization
of the Bolsa at the end of October 1996 was $104.7 billion, compared with
$89.5 billion one year earlier.
The performance of the Bolsa during this fiscal year was influenced by a se-
ries of national and international events. On the positive side, almost all
economic indicators measuring Mexico's performance improved from those re-
corded during the previous difficult year. At the same time, the Mexican elec-
toral process evidenced domestic progress towards higher levels of political
maturity, and the reelection of President Clinton ratified the close ties of
friendship and economic relations between our two countries. On the negative
side, the partial solution to the privatization program of the secondary pet-
rochemical industry, and some criminal acts against Mexican military and po-
lice units, created some concern among domestic and foreign investors. Addi-
tionally, towards the end of this period, the peso, which had remained rela-
tively stable during the year, declined in value.
During this 1996 fiscal year, the Fund invested the resources obtained from
the rights offering transaction concluded in October 1995. Investments were
directed to listed companies located in sectors of the Mexican economy that in
the Fund's view, and in the view of its investment adviser, were likely to be
positively impacted by the current economic environment. On a highly selective
basis, these investments were channeled to external-oriented companies produc-
ing "specialties" or "value-added" products, as well as to some domestic-ori-
ented companies that may realize benefits from the recovery of Mexico's domes-
tic market.
At the end of this reporting period, approximately 96% of the Fund's total
assets were invested in equity securities, compared with 77% at the termina-
tion of the rights offering. Using the dividend reinvestment criteria, the
Fund's NAV per share registered an increase of 28.6% during this 1996 fiscal
year, compared with an increase of 24.7% for the Bolsa index in dollar terms
and 26.8% for the Dow Jones Industrial Average (DJIA).
The Fund's market price per share ended October 1996 at $14 1/8, 18.5% higher
than one year earlier, reflecting an 18.5% discount from its NAV per share.
The total number of Fund shares traded during this fiscal year was 82 million,
equivalent to 1.65 times the total number of outstanding shares.
As mentioned in the Highlights of this Letter, Mr. Ernesto Fernandez Hurtado,
Director of the Fund since its inception in 1981, has resigned from the Board
of Directors, effective December 31, 1996. Mr. Fernandez Hurtado is retiring
to dedicate his time to private activities and all Directors, Counselors and
Officers of the Fund, while expressing their deep regret concerning his resig-
nation, wish success and prosperity to Mr. Fernandez Hurtado. The Fund's Board
of Directors has nominated for election as Director Dr. Jaime Serra Puche, a
distinguished Mexican intellectual and politician, to occupy the seat being
vacated by Mr. Fernandez Hurtado. In the Proxy Statement being mailed with
this Annual Report you will find the curriculum vitae of Dr. Serra Puche.
The Board of Directors has declared a dividend of 4 cents per share payable
on January 31, 1997, to shareholders of record on December 30, 1996. This div-
idend is comprised entirely of net investment income and is subject to appli-
cable Mexican withholding taxes. Non-US shareholders generally will be subject
to a US withholding tax at a maximum rate of 30%. Shareholders are advised to
consult with their own tax adviser about this and other taxes. This distribu-
tion is reportable by US taxpayers on their US Federal income tax return.
THE MEXICAN ECONOMY.
On October 26, 1996, President Zedillo witnessed the signature of the ACE be-
tween representatives of the private, rural, labor and public sectors of Mexi-
co. The ACE will expire on the last day of 1997, and its main goals are to
achieve, in 1997, a 4% GDP growth, an annual inflation rate of 15%, a current
account deficit equivalent to 2% of GDP and a fiscal deficit equivalent to
0.5% of GDP. In order to achieve these goals, participants of the ACE reached
several agreements, including an agreement on price and minimum salary in-
creases, and the ratification of the current free-floating foreign exchange
policy.
During the third quarter of calendar 1996, the Mexican GDP increased 7.4% in
real terms, compared with the same period of 1995. The most dynamic sector of
the economy was construction, which increased 24.9%,
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
followed by the manufacturing industry, which increased 13.9%. Production of
the mining industry increased 5.7%, while the electricity, gas and water sec-
tor increased 5.6% and the services sector increased 5.4%. Only the agricul-
tural sector, at -4.8%, registered a decline. During the first nine months of
calendar 1996, the Mexican GDP has increased 4.4%.
The Mexican trade balance registered a surplus of $5.8 billion during the
first ten months of calendar 1996, compared with a surplus of $6 billion for
the same period of last year. During 1995, Mexican imports declined by 9% as a
consequence of the devaluation of the peso and the economic crisis. However,
during the first ten months of 1996, imports increased 22% to $73.1 billion,
while exports increased 20% to $79 billion.
Inflation rates, measured by the increase of the consumer price index (CPI),
continue to show a declining trend. For the 12-month period ended October 31,
1996, the inflation rate registered 29%, compared with 52% at the end of cal-
endar 1995. Private economic consulting firms estimate that inflation will
register approximately 27% at the end of 1996.
Interest rates for the 28-day Cetes declined from 30.2% at the end of July
1996, to 22.7% at the beginning of October 1996, its minimum level registered
since the December 1994 devaluation of the peso. However, some pressure was
observed on the domestic money market and by the end of October 1996, the 28-
day Cetes closed at a level of 29.3%.
During the first nine months of calendar 1996, the rate of exchange of the
peso against the US dollar fluctuated around the Ps. 7.50 level. This relative
strength of the peso did not reflect the inflationary difference that exists
between Mexico and its main commercial partners and, for this reason, a de-
cline of the relative value of the peso was expected by the currency market.
In October 1996, this slippage occurred, and at the end of October 1996, the
rate of exchange closed at Ps. 7.998 per US dollar, compared with Ps. 7.690 at
the end of 1995. According to the General Criteria of Economic Policy to be
followed by the Mexican Government during 1997, the average rate of exchange
for 1997 is estimated to be Ps. 8.530.
DIVIDEND REINVESTMENT PLAN
The Fund's Dividend Reinvestment Plan ("Plan") was amended by the Board of
Directors at the December 7, 1994, Board Meeting. The amended Plan became ef-
fective 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
PARTICIPATE IN THE PLAN, PLEASE CONTACT THE PLAN AGENT. Upon any termination
of participation under the Plan, the Plan Agent will cause a share certificate
for the appropriate number of full shares to be delivered to the participant,
and a cash adjustment for any fractional share. At a shareholder's request,
the Plan Agent will sell the participant's shares and remit any proceeds to
the participant, net of brokerage commissions. Shareholders who do not partic-
ipate in the Plan will receive all distributions in cash. The Plan provides a
convenient way to increase your holdings in the Fund's common stock through
the reinvestment of distributions.
Under the terms of the Plan, whenever the Fund declares a distribution, Plan
participants will receive their distribution entirely in shares of Common
Stock of the Fund ("Common Stock") purchased either in the open market or from
the Fund. If, on the date a distribution becomes payable or such other date as
may be specified by the Fund's Board of Directors (the "valuation date"), the
market price of the Common Stock plus estimated brokerage commission is equal
to or exceeds the net asset value per share of Common Stock ("net asset val-
ue"), the Plan Agent will invest the distribution in newly issued shares of
Common Stock. For purposes of determining the number of shares of Common Stock
equivalent to the cash distribution, participants will be issued Common Stock
valued at the greater of net asset value or the current market price. If, on
the valuation date, the market price of the Common Stock plus estimated bro-
kerage commission is lower than net asset value, the Plan Agent will buy Com-
mon Stock in the open market. As a participant in the Plan, you will be
charged a pro rata portion of brokerage commissions on all open market
purchases.
If your shares are registered in the name of a broker-dealer or any other
nominee, you must contact the broker-dealer or other nominee regarding his or
her status under the Plan, including whether such broker-dealer or nominee
will participate in the Plan on your behalf. Generally, shareholders receiving
Common Stock under the Plan will be treated as having received a distribution
equal to the
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
amount payable to them in cash as a distribution had the shareholder not par-
ticipated in the Plan.
If you have any questions concerning the Plan or would like a copy of the
Plan brochure, please contact the Plan Agent:
American Stock Transfer & Trust Company
Attention: Dividend Reinvestment Department
40 Wall Street
New York, NY 10005
(212) 936-5100
ANNUAL SHAREHOLDERS MEETING
The Fund's Annual Meeting of Shareholders will be held on February 28, 1997
at 2:00 p.m. at the RIHGA Royal Hotel, located at 151 W. 54th Street, New
York, NY 10019. Accompanying this Annual Report is the notice of this meeting
together with the corresponding proxy materials. We encourage all Fund share-
holders who do not plan to attend the meeting to vote by proxy and in this way
help reduce the expenses of solicitation.
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 inquiries regarding other Fund matters
to the appropriate firms or individuals. Please refer your information re-
quests to:
GEORGESON & COMPANY INC.
Wall Street Plaza
New York, NY 10005
(800) 224-4134
Sincerely yours:
/s/ Jose Luis Gomez Pimienta /s/ Juan Gallardo T.
JOSE LUIS GOMEZ JUAN GALLARDO T.
PIMIENTA Chairman of the Board
President
December 18, 1996.
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of The Mexico Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of The
Mexico Fund, Inc. (a Maryland corporation), including the schedule of
investments, as of October 31, 1996, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period ended October 31, 1996 and the five months in
the period ended October 31, 1991. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Mexico Fund, Inc. as of October 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period ended October 31, 1996 and the five months in the period ended
October 31, 1991, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, N.Y.
November 15, 1996
<PAGE>
- --------------------------------------------------------------------------------
THE MEXICO FUND, INC.
SCHEDULE OF INVESTMENTS AS OF OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
SHARES VALUE OF NET
INDUSTRIES DIV HELD COMMON STOCK (95.79%) SERIES (NOTE 1) ASSETS
- ----------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
CEMENT
INDUSTRY 6,800,000 Apasco, S.A. de C.V..... * $ 41,660,415 4.83%
12,131,958 Cemex, S.A. de C.V...... CPO 41,334,816 4.80
------------ -----
82,995,231 9.63
- ----------------------------------------------------------------------------------------
Carso Global Telecom,
COMMUNICATIONS (a) 10,036,994 S.A. de C.V. .......... A1 24,471,291 2.84
Grupo Televisa, S.A. de
(a) 1,268,200 C.V.................... CPO 16,649,287 1.93
Telefonos de Mexico,
10,000,000 S.A. de C.V............ *A 15,078,770 1.75
Telefonos de Mexico,
13,095,000 S.A. de C.V............ *L 19,876,632 2.31
------------ -----
76,075,980 8.83
- ----------------------------------------------------------------------------------------
Corporacion Geo, S.A. de
CONSTRUCTION (a) 1,900,000 C.V.................... B 8,552,138 0.99
Empresas ICA, Sociedad
Controladora, S.A. de
(a) 1,791,332 C.V.................... * 23,718,687 2.75
------------ -----
32,270,825 3.74
- ----------------------------------------------------------------------------------------
Coca-Cola Femsa, S.A. de
CONSUMER GOODS 4,430,000 C.V.................... L 10,424,181 1.21
Fomento Economico
Mexicano, S.A. de
8,342,000 C.V. .................. B 25,449,462 2.95
Grupo BAFAR, S.A. de
(a) 940,000 C.V.................... B 1,598,400 0.19
3,053,000 Grupo Continental, S.A.. *CP 11,451,613 1.33
Grupo Industrial Bimbo,
8,103,000 S.A de C.V. ........... A 40,474,475 4.70
Grupo Industrial Maseca,
27,097,000 S.A. de C.V. .......... B 33,134,366 3.84
Grupo Modelo, S.A. de
9,275,000 C.V.................... C 48,300,044 5.60
Jugos del Valle, S.A. de
(a) 818,000 C.V.................... B 1,129,122 0.13
Sistema Argos, S.A. de
1,275,000 C.V.................... A 1,084,021 0.13
Sistema Argos, S.A. de
5,805,000 C.V.................... B 5,283,871 0.61
------------ -----
178,329,555 20.69
- ----------------------------------------------------------------------------------------
FINANCIAL Grupo Financiero Banamex
GROUPS (a) 7,078,450 Accival, S.A. de C.V. . B 15,045,468 1.75
Grupo Financiero Banamex
(a) 470,944 Accival, S.A. de C.V. . L 965,677 0.11
Grupo Financiero
(a) 25,000,009 Bancomer, S.A de C.V... B 10,658,919 1.24
Grupo Financiero
(a) 555,556 Bancomer, S.A de C.V... L 191,020 0.02
Grupo Financiero BBV-
Probursa, S.A. de
(a) 54,327,000 C.V. .................. B 3,328,361 0.39
Grupo Financiero
3,356,074 Inbursa, S.A. de C.V. . B 10,909,968 1.27
Grupo Financiero
Inverlat Recovery
(a)(b) -- Trust.................. -- 0.00
Grupo Financiero
InverMexico, S.A. de
(a) 9,985,554 C.V. .................. BCP 873,954 0.10
Grupo Financiero
InverMexico, S.A. de
(a) 998,555 C.V. .................. LCP 87,395 0.01
Grupo Financiero Serfin,
(a) 1,663,283 S.A. de C.V............ B4 800,655 0.09
Grupo Financiero Serfin,
(a) 141 S.A. de C.V............ BCP 68 0.00
------------ -----
42,861,485 4.98
- ----------------------------------------------------------------------------------------
HOLDINGS 10,249,094 Alfa, S.A. de C.V....... A 42,928,813 4.98
4,500,000 Cydsa, S.A. ............ A 8,495,874 0.99
(a) 1,789,190 Desc, S.A. de C.V....... A 9,283,744 1.08
(a) 6,277,190 Desc, S.A. de C.V....... B 30,922,891 3.59
(a) 200,000 Desc, S.A. de C.V....... C 975,244 0.11
Grupo Carso, S.A. de
7,175,994 C.V. .................. A1 32,748,660 3.80
San Luis Corporacion,
2,666,000 S.A. de C.V............ CPO 13,433,333 1.56
3,998,237 Vitro, S.A.............. * 7,648,540 0.89
------------ -----
146,437,099 17.00
- ----------------------------------------------------------------------------------------
IRON & STEEL Altos Hornos de Mexico,
INDUSTRY (a) 5,250,000 S.A. de C.V............ * 11,684,171 1.36
Grupo Simec, S.A. de
(a) 4,500,000 C.V.................... B 731,433 0.08
5,940,000 Hylsamex, S.A. de C.V. . BCP 22,354,839 2.59
Industrias CH, S.A. de
(a) 1,540,000 C.V.................... B 4,775,194 0.55
Tubos de Acero de
(a) 889,000 Mexico, S.A. de C.V.... * 9,870,368 1.15
------------ -----
49,416,005 5.73
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
THE MEXICO FUND, INC.
SCHEDULE OF INVESTMENTS AS OF OCTOBER 31, 1996 -- (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 $ 21,569,767 2.50%
Industrias Penoles, S.A
5,013,000 de C.V................. * 19,994,336 2.32
------------ ------
41,564,103 4.82
- ---------------------------------------------------------------------------------------
Kimberly-Clark de
PAPER 4,357,400 Mexico, S.A. de C.V.... A 84,445,736 9.80
- ---------------------------------------------------------------------------------------
ACER Computec Latino
RETAIL TRADE (a) 1,330,000 America, S.A. de C.V... * 4,706,052 0.55
(a) 38,698,422 Cifra, S.A. de C.V...... B 49,739,907 5.77
(a) 16,232,807 Cifra, S.A. de C.V...... C 20,904,965 2.43
Controladora Comercial
(a) 14,990,000 Mexicana, S.A. de C.V.. UBC 13,119,530 1.52
Grupo Corvi, S.A. de
(a) 3,000,000 C.V.................... UBL 2,588,147 0.30
------------ ------
91,058,601 10.57
- ---------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Identified Cost --
$549,289,501)......... 825,454,620 95.79
- ---------------------------------------------------------------------------------------
<CAPTION>
PERCENT
FACE SHORT- VALUE OF NET
SECURITIES VALUE TERM SECURITIES (4.30%) (NOTE1) ASSETS
- ---------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
$17,026,288 Bancomer, S.A., 31.90%,
dated 10/31/96, due
11/01/96, repurchase
price $17,159,376,
REPURCHASE collateralized by
AGREEMENTS Ajustabonos............ $ 17,026,288 1.98%
20,004,991 Vector Casa de Bolsa,
S.A. de C.V., 31.10%,
dated 10/31/96, due
11/28/96, repurchase
price at the year end
exchange rate of 7.998
of $20,488,890,
collateralized by
Bondes................. 20,004,991 2.32
- ---------------------------------------------------------------------------------------
TOTAL SHORT-TERM
SECURITIES (Identified
cost -- 37,031,279).... 37,031,279 4.30
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Identified cost --
$586,320,780)......... 862,485,899 100.09
LIABILITIES IN EXCESS OF
OTHER ASSETS........... (736,247) (0.09)
------------ ------
NET ASSETS (Equivalent
to $17.33 Per Share on
49,715,907 Shares of
Capital Stock
Outstanding)........... $861,749,652 100.00%
------------ ------
</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 OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments:
Mexican
securities, at
value (Note 1):
Common stock
(identified
cost --
$549,289,501). $825,454,620
Short-term
securities
(identified
cost --
$37,031,279).. 37,031,279
------------
Total
investments
(identified
cost --
$586,320,780). $862,485,899
Dividends
receivable...... 530,906
Interest
receivable...... 32,379
------------
Total assets... 863,049,184
------------
LIABILITIES:
Payables:
Investment
adviser (Note
2)............. 640,299
Trustee (Note
3)............. 9,346
------------
Total payables. 649,645
Accrued expenses
and other
liabilities..... 649,887
------------
Total
liabilities... 1,299,532
------------
NET ASSETS --
Equivalent to
$17.33 Per Share
on 49,715,907
shares of
capital stock
outstanding
(Note 5).......... $861,749,652
============
</TABLE>
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
THE MEXICO FUND, INC.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
NET INVESTMENT INCOME:
Income (Note 1):
Dividends.......................................... $10,325,294
Interest and discount earned....................... 23,168,335
-----------
Total income....................................... $ 33,493,629
Expenses:
Investment advisory fee (Note 2)................... 5,831,370
Administrative services (Note 3)................... 350,000
Trustee fee (Note 3)............................... 93,016
Value-added taxes (Note 1)......................... 957,644
Printing, distribution and mailing of shareholder
reports........................................... 400,746
Legal fees......................................... 223,444
Directors' fees.................................... 140,000
Directors' expenses................................ 22,892
Accounting and audit fees.......................... 107,633
Custodian fees..................................... 36,749
Transfer agent and dividend disbursing fees........ 21,000
Shareholders' information.......................... 72,125
Stock exchange fees................................ 35,380
Miscellaneous...................................... 233,450
-----------
Operating expenses................................. 8,525,449
------------
Net investment income (Note 1)..................... 24,968,180
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY:
Realized gain (loss) on investments and foreign
currency transactions (Notes 1 and 4):
Proceeds from sales................................ 73,606,287
Cost of securities sold............................ 72,683,860
-----------
Net realized gain (loss) on investments............ 922,427
Net realized gain (loss) from foreign currency
transactions...................................... (1,645,232)
-----------
Net realized gain (loss) on investments and foreign
currency transactions............................. (722,805)
Unrealized gain (loss) on investments and
translation of assets and liabilities in foreign
currency:
End of period (Note 4)............................. 276,165,119
Beginning of period................................ 102,222,345
-----------
Net increase (decrease) in unrealized gain on
investments....................................... 173,942,774
Net unrealized gain (loss) on translation of assets
and liabilities in foreign currency............... (992,126)
-----------
Net unrealized gain (loss) on investments and
translation of assets and liabilities in foreign
currency.......................................... 172,950,648
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS......................................... $197,196,023
============
</TABLE>
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
THE MEXICO FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income.................... $ 24,968,180 $ 21,970,230
Net realized gain (loss) on investments
and foreign currency transactions....... (722,805) (45,716,330)
Net unrealized gain (loss) on investments
and translation of assets and
liabilities in foreign currency......... 172,950,648 (670,000,040)
------------ --------------
Net increase (decrease) in net assets
resulting from operations............... 197,196,023 (693,746,140)
Dividends to shareholders from net
investment income....................... (21,342,679) (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. 175,853,344 (562,197,351)
NET ASSETS:
Beginning of period...................... 685,896,308 1,248,093,659
------------ --------------
End of period............................ $861,749,652 (A) $ 685,896,308 (A)
============ ==============
</TABLE>
See Notes to Financial Statements.
(A) Including accumulated net investment loss and net realized gain on
investments of ($150,359) and $0(B), respectively, as of October 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
FIVE MONTHS
FOR THE YEAR ENDED OCTOBER 31, ENDED
THE MEXICO FUND, INC. -------------------------------------------------------- OCTOBER 31,
FINANCIAL HIGHLIGHTS 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $ 13.80 $ 33.48** $ 28.88** $ 24.91** $ 25.60** $ 24.07
-------- -------- ---------- ---------- -------- --------
Net investment income
(loss) (Note 1)....... 0.50 0.59** 0.21** 0.58** 0.50** (0.02)
Net gain (loss) on
investments and
translation of foreign
currency (Note 1)..... 3.46 (19.21)** 4.89** 8.77** 3.85** 1.81
-------- -------- ---------- ---------- -------- --------
Total from investments
operations............. 3.96 (18.62)** 5.10** 9.35** 4.35** 1.79
Less dividends and
distributions:
Dividends to common
shareholders from net
investment income..... (0.43) -- (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
distributions......... (0.43) (0.01) (0.50) (2.97) (1.51) (0.26)
-------- -------- ---------- ---------- -------- --------
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................ $ 17.33 $ 13.80 $ 33.48 $ 28.88 $ 24.91 $ 25.60
======== ======== ========== ========== ======== ========
Market value per share,
end of period......... $ 14.13 $ 12.25 $ 31.38 $ 27.00 $ 23.25 $ 22.88
======== ======== ========== ========== ======== ========
TOTAL INVESTMENT RETURN
BASED ON MARKET VALUE
PER SHARE.............. 18.77% (60.79%) 15.39% 27.41% 8.12% (1.52%)
RATIOS TO AVERAGE NET
ASSETS
Expenses............... 1.00% 1.14% 0.92% 1.08% 1.08% 1.25%*
Net investment income
(loss)................ 2.93% 3.24% 0.63% 2.27% 1.89% (0.23%)*
SUPPLEMENTAL DATA:
Net assets at end of
period (in 000's)..... $861,750 $685,896 $1,248,094 $1,075,948 $654,917 $504,849
Portfolio turnover
rate.................. 9.57% 10.61% 3.89% 5.14% 15.59% 3.34%*
Average Commission Rate
Paid.................. $ .0026
</TABLE>
- --------
*Annualized
**Amounts were computed based on average shares outsanding during the period.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------------------------------------------------------------------------
QUARTER ENDED 10/31/1996 QUARTER ENDED 07/31/1996 QUARTER ENDED 04/30/1996 QUARTER ENDED 01/31/1996
-----------------------------------------------------------------------------------------------------------------
TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE
------------- -------------- ------------- -------------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
Income......... $ 5,792 $ 0.11 $ 6,983 $ 0.14 $ 11,757 $ 0.24 $ 8,962 $ 0.18
Net Investment
Income......... $ 3,598 $ 0.07 $ 4,838 $ 0.10 $ 9,586 $ 0.19 $ 6,946 $ 0.14
Net realized
gain (loss) on
investments.... $ 19,541 $ 0.40 $ (1,174) $ (0.02) $ (1,273) $ (0.03) $ (16,172) $ (0.33)
Net realized
gain (loss)
from foreign
currency
transactions... $ (1,792) $ (0.03) $ 136 $ 0.00 $ (18) $ (0.00) $ 29 $ 0.00
Net increase
(decrease) in
unrealized gain
on investments. $ (3,106) $ (0.06) $ (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....... $ (748) $ (0.02) $ (1,387) $ (0.03) $ (190) $ (0.00) $ 1,333 $ 0.03
Net asset value. $ 861,750 $ 17.33 $ 852,709 $ 17.15 $ 902,497 $ 18.15 $ 837,097 $ 16.84
</TABLE>
- --------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THE MEXICO FUND, INC.
NOTES TO FINANCIAL STATEMENTS--
OCTOBER 31, 1996
- -------------------------------------------------------------------------------
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.
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 October
31, 1996 was P 7.998 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 October 31, 1996 and the results of operations for
the year then ended.
Given the aforementioned conditions, the financial condition and results of
operation of the Fund during 1997 could vary significantly from that in 1996.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
term securities, currency gains or losses realized between the trade and set-
tlement dates on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amount actually 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 exchange
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 accompanying
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.
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 year ended
October 31, 1996 on net investment company taxable income or net long-term cap-
ital 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 in-
vestment 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 Mexi-
can 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 million.
3. ADMINISTRATIVE SERVICES AGREEMENT:
Effective April 1, 1994, the Fund entered into an Administrative Services
Agreement with the
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 records in accor-
dance 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 term of this agreement was renewed until August 31, 1997. The an-
nual 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 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 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 amounted to $93,016 in
1996.
5. PURCHASES AND SALES OF INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 1996 were as follows:
<TABLE>
<S> <C>
Purchases
- --------------------------------------------------------------------------------
Common Stock....................................................... $194,007,128
Fixed Income Securities............................................ --
------------
Total Purchases.................................................. $194,007,128
============
</TABLE>
<TABLE>
<S> <C>
Proceeds from Investments Sold
- -------------------------------------------------------------------------------
Common Stock....................................................... $73,606,287
Fixed Income Securities............................................ --
-----------
Total Sales...................................................... $73,606,287
===========
</TABLE>
As of October 31, 1996, net unrealized gain on investments for Federal income
tax purposes aggregated to approximately $276 million, of which approximately
$347 million related to appreciated securities and approximately $71 million
related to depreciated securities. The aggregate cost of investments at Octo-
ber 31, 1996 for Federal income tax purposes was approximately $586 million.
6. CAPITAL STOCK:
At October 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 31 1995, the Company issued rights to subscribe 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 October 31, 1996, net assets were comprised of the following:
<TABLE>
<S> <C>
Common Stock..................................................... $ 49,715,907
Additional paid-in capital....................................... 562,178,531
Accumulated net investment loss.................................. (150,359)
Accumulated net realized loss on investments..................... (16,807,032)
Unrealized appreciation of investments and depreciation on
translation of assets and liabilities in foreign currency....... 266,812,605
------------
$861,749,652
============
</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.
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 October 31, 1996 of approximately
$20,950,000 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 October 31, 1996 due to the uncertainty regarding its ultimate reali-
zation.
<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.
AUDITORS --
Arthur Andersen LLP
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 MEXICO FUND APPEARS HERE]
THE MEXICO
FUND, INC.
----------------------
Annual Report
October 31, 1996
----------------------------
------------------------------
---------------------------------
- --------------------------------------------------------------------------------
