<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
Eduardo Solano -- Investor Relations
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.
- --------------------------------------------------------------------------------
---------------------------------
------------------------------
----------------------------
The Mexico
Fund, Inc.
(Unaudited)
----------------------
Quarterly Report
July 31, 1999
----------------------------
------------------------------
------------------------------
www.themexicofund.com
---------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Mexico Fund, Inc.
Third Quarter Report
July 31, 1999
Highlights
.. The Fund's third quarter of fiscal 1999 ended July 31, 1999.
.. The Fund's market price and net asset value (NAV) per share decreased 15.7%
and 4.7% during this fiscal quarter, respectively. However, both registered
gains of 28% during the first eight months of 1999.
.. The Fund's discount between market price and NAV increased from 19% at the
end of April 1999 to around 29% at the end of August 1999.
.. The Mexican Stock Exchange (Bolsa) index declined 4.3% in US dollar terms
during the third quarter of fiscal 1999. However, during the first eight
months of calendar 1999, the Bolsa index increased 35.7% in US dollar terms
and continued to be the top performing stock market index in North and South
America for the calendar year through August.
.. Moody's Investor Services and Standard and Poor's, two of the world's leading
risk-rating agencies, recently upgraded the rating and outlook for Mexican
debt securities.
.. Mexico's gross domestic product (GDP) increased 3.2% during the second quar-
ter of 1999, compared with 1.9% during the previous quarter.
.. Five and a half years after NAFTA was implemented, Mexico is the second larg-
est trade partner of the United States. During the first half of 1999, 70% of
Mexico's total exports and imports were traded with the United States.
.. Mexico's fiscal balance registered a surplus of Ps. 7.9 billion during the
first half of 1999, 39% higher than the level reached during the same period
of 1998.
.. The Mexican peso continued to show strength as the rate of exchange ended Au-
gust 1999 at Ps. 9.37 per dollar, 5% lower than at the end of 1998, when it
traded at Ps. 9.89 per dollar.
.. Inflation rates in Mexico continued to decline. At the end of August 1999,
the accumulated 12-month inflation rate was 16.6%, compared with 18.6% at the
end of 1998.
.. Interest rates on the 28-day Cetes (treasury bills) ended August 1999 at
19.7%, decreasing from 31% at the end of 1998.
.. Although the performance of the most important economic indicators continued
to be positive, the Bolsa has been adversely affected by several interna-
tional events, such as the increase in US interest rates, some problems in
other emerging markets and the year 2000 transition issue.
.. The Fund's improved Web site has been available since August 2, 1999. Among
other features, the Fund's current NAV per share is now published on a same-
day basis and its portfolio holdings are updated within the first five busi-
ness days after the closing of each fiscal quarter.
.. A net dividend of 17.5 cents per share will be paid on October 29, 1999, to
shareholders of record on September 30, 1999. Please read this Report for
complete details.
The Mexico Fund, Inc. is a diversified closed-end management investment
company with the investment objective of long-term capital appreciation
through investments in securities, primarily equity, listed on the Mexi-
can Stock Exchange. The Fund provides a vehicle to investors who wish to
invest in Mexican companies through a managed diversified portfolio as
part of their overall investment program.
<PAGE>
- -------------------------------------------------------------------------------
THE MEXICO FUND, INC.
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Economic Environment
The North American Free Trade Agreement (NAFTA) has resulted in the economic
decoupling of Mexico from the rest of Latin America. In this context, Mexico
is much more active in the North American market than in the regional Latin
American market. Five and a half years after NAFTA was implemented, Mexico has
become the second largest trade partner of the United States and during the
first half of 1999, Mexico conducted 70% of its foreign trade with the United
States. During the first seven months of 1999, the Mexican trade balance reg-
istered a deficit of $2.25 billion, 41.5% lower compared to the same period
one year earlier. During this period, total exports increased 10.2% to $73.98
billion while total imports increased 7.4% to $76.23 billion.
Moody's Investors Services (Moody's) and Standard & Poor's (S&P), two of the
most important risk-rating agencies, improved the rating and outlook, respec-
tively, of Mexico's debt instruments. This is the first time any of the top
risk-rating agencies has upgraded these Mexican instruments since 1990. On Au-
gust 10, 1999, Moody's upgraded Mexico's long-term foreign currency bonds and
notes from Ba2 to Ba1. The upgrade resulted from Mexico's improved external
accounts and from the government's commitment to a precautionary pre-electoral
financial package with some of the leading multilateral credit institutions.
On September 15, 1999, Standard & Poor's changed the outlook of Mexican debt
securities from stable to positive and maintained their rating at BB.
The Mexican GDP increased 3.2% during the second quarter of calendar 1999,
higher than the 2.7% increase expected by economic analysts and the 1.9% reg-
istered during the first quarter of 1999. These figures suggest that the de-
celeration of economic activity that started one year earlier may have ended.
During the second quarter of 1999, the industrial sector grew 4.4% and, within
this, the construction industry increased 5.7%, the manufacturing and energy
industries increased 4.9%, and the mining industry declined 6.4%. During the
same period, the services and primary sectors increased 2.9% and 2.2%, respec-
tively. The GDP increased 2.5% during the first half of 1999 and is expected
by analysts to grow 3.1% by the end of 1999.
The agreement reached by several oil producing countries, including Mexico,
to reduce the oil supply by two million barrels per day, has resulted in
higher levels of international prices. The price of the Mexican mix increased
144%, from $7.70 per barrel at the end of 1998, to approximately $19.00 as of
the end of August 1999. As a result, Mexican oil export revenues, which had
been decreasing through March 1999, started to increase in April 1999.
Positive economic results and expectations for the Mexican economy have re-
sulted so far this year in a significant inflow of direct foreign investment,
strengthening the Mexican peso. During the first half of 1999, total foreign
investment into Mexico amounted to $12.7 billion, of which 43% came as direct
foreign investment and the remaining 57% was directed to financial instru-
ments. At the end of August 1999, international reserves at the central bank
reached a historical level of approximately $31 billion, and the rate of ex-
change of the peso was Ps. 9.37 per dollar, compared with Ps. 9.89 at the end
of 1998. Economic analysts estimate that the exchange rate at the end of De-
cember 1999 could reach approximately Ps 10.09 per dollar.
In parallel to the recent strengthening of the peso, domestic interest rates
have declined during the first seven months of 1999. The interest rate paid by
28-day Cetes (treasury bills) has decreased from 33% at the end of 1998 to
19.7% at the end of August 1999.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Mexico's annual inflation rate, measured by the increase of the consumer
price index (CPI), was 16.6% at the end of August 1999, lower than 18.6% reg-
istered during 1998. Economic analysts estimate that the 1999 inflation rate
will decrease to approximately 13.6%, while the target set by the central bank
continues to be 13.0%.
The Bolsa and the Fund's Performance
The performance of the Bolsa during the third quarter of fiscal 1999 was
highly influenced by the US financial markets. In June 1999, the US Federal
Reserve's decision to increase discount rates resulted in volatility of inter-
national stock markets; the Bolsa index lost 4.3% of its dollar value during
the Fund's third fiscal quarter. Similarly, the possibilities of additional
increases in US interest rates during the remaining months of 1999 continue to
affect the Bolsa. Nevertheless, the performance of the Bolsa during the first
eight months of 1999 has been positive, as the Bolsa index registered an in-
crease of 35.7% in dollar terms and was the top performing stock market index
in North and South America for the calendar year through August.
Several fundamental indicators in Mexico suggest that market prices of
listed companies continue to show significantly low valuations. The Bolsa in-
dex at the end of August 1999, expressed in US dollar terms, is roughly at the
same level as it was at the end of 1991. Since then, however, the country's
macroeconomic and stock market fundamentals have improved significantly.
Mexico's GDP, also in dollar terms, is now more than 40% higher than at the
end of 1991, total exports are three times higher and oil exports dependence
has been reduced substantially. Currently, the price-earnings (PE) and price-
book value (PBV) ratios of the Bolsa are 10.5 and 1.1 times, respectively,
compared with 17.1 and 2.1 at the end of 1991. Although not totally compara-
ble, the PE ratios of the Dow Jones Industrial Average and S&P 500 indices in
the US are approximately 27 and 37 times, respectively.
The volatile performance of the Bolsa has been reflected in the Fund's mar-
ket price and NAV per share. During the third quarter of fiscal 1999, the
Fund's market price per share decreased 15.7% to $14 13/16, while the NAV de-
creased 4.7% to $20.73. However, similar to the performance of the Bolsa, dur-
ing the first eight months of 1999, the Fund's price per share and NAV in-
creased approximately 28%. As a result of this erratic performance, the dis-
count between market price and NAV increased from 19% at the end of April 1999
to 28.7% at the end of July 1999 and remained at a similar level through the
end of August.
Declaration of Dividend
The Board of Directors has declared a gross dividend of 18.49 cents per
share. After deduction of the new Mexican withholding tax applicable to divi-
dends received by the Fund, shareholders will receive a dividend of 17.5 cents
per share. This dividend is payable on October 29, 1999, to shareholders of
record on September 30, 1999, and is comprised entirely of net investment in-
come.
Portfolio Strategy
During the third quarter of fiscal 1999, the Fund directed its portfolio in-
vestments to selected companies in the cement, retail, steel and communication
sectors, while it also sold some of its investments in the conglomerate, min-
ing, food and beverages sectors. These transactions were consistent with the
view of Impulsora del Fondo Mexico, S.A. de C.V. (the Adviser) that under the
current economic environment of high real interest rates, the Fund's invest-
ments should be directed to companies with high levels of cash and/or low lev-
els of debt.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Fund's investments in equity securities represented 95.13% of its total
net assets at the end of July 1999. This Report includes for your reference a
summary description of the Fund's ten largest holdings, which at the end of
July 1999 represented 63.15% of its total net assets.
The Fund now publishes on its Web site, located at www.themexicofund.com,
its portfolio of investments as of the end of each fiscal quarter, updated
within five business days after the closing of the fiscal quarter. According-
ly, the Fund's portfolio of investments, as reported on the Web site, will be
updated during the first five business days of February, May, August and No-
vember. The Fund's portfolio of investments as of July 1999 has been posted on
the Web site since early August 1999.
Investor Relations
On August 2, 1999, in an additional effort to provide our shareholders and
potential investors with the best available access to public information about
the Fund, the Mexican economy and financial markets, the Fund unveiled an im-
proved version of its Web site. Among other additional features, the Fund's
Web site now publishes the Fund's NAV per share on a same-day basis and pro-
vides a downloadable database containing the most important historical figures
of the Fund. The improved Web site also provides the complete history of divi-
dend distributions made by the Fund and additional links to useful sites of
Mexican government agencies, capital markets and listed companies. We hope
that the Fund's Web site will be a useful resource for information and we will
continue working to improve it in the future.
The Fund now also offers a convenient e-mail service as another way for
shareholders and potential investors to obtain additional information and to
contact Fund management. Please direct your e-mail inquiries to:
Investor Relations Office
[email protected]
In addition to the quarterly reports published by the Fund, the Adviser dis-
tributes a Monthly Summary Report with information about the Fund, the Mexican
economy and the Bolsa. Interested persons may either access this report on the
Fund's Web site or receive it via ordinary mail. Please direct your request to
the Investment Adviser via e-mail or write to:
Impulsora del Fondo Mexico, sa de cv.
77 Aristoteles St 3rd Floor
Polanco
11560 Mexico, D.F.
Mexico
The Fund also has a toll free telephone number and an information agent,
Morrow & Co. Inc. in the United States. Upon request, this office will be
pleased to provide you with the Fund's current NAV, quarterly reports and
other Fund materials. Please refer your information requests to:
Morrow & Co., Inc.
14755 Preston Road Suite 725
One Signature Place
Dallas, TX 75240
(800) 224-4134
In addition to the Fund's Web site, information on the Fund's NAV and market
price per share is published weekly in The Wall Street Journal, The New York
Times and other newspapers in a table called "Closed-End Funds". Daily market
price for the Fund's shares is published in the NYSE Composite Transactions
under the designations "MexFd" or "MexicoFd". The Fund's NYSE trading symbol
is MXF.
The Fund's shares are also listed and traded on the Third Section
("Freiverkehr") of the Stuttgart Stock Exchange. The Fund's German Domestic
Tax Representative is:
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
Mergenthalerallee 10-12
65760 Eschborn/Frankfurt/M.
Postfach 53 23
65728 Eschborn/Frankfurt/M.
Germany
Telefon: 06196-99-6264
Telefax: 06196-99-6419
Securities Lending Program
The Fund commenced a securities lending program on August 18, 1998 and ap-
pointed Merrill Lynch Portfolio Services, Inc. (ML) as its securities lending
agent. From the commencement of operation of the securities lending program
through August 24, 1999, the Fund generated net income of $482,683 through the
program. The engagement of ML was terminated when ML sold its securities lend-
ing business. The Fund is currently reviewing other proposals to appoint a new
securities lending agent and expects to re-establish its securities lending
program within the next few months.
Year 2000 (Y2K)
Many computer programs employed throughout the world use two digits rather
than four to identify the year. These programs, if not adapted, may not cor-
rectly handle the change from "99" to "00" on January 1, 2000, and may not be
able to perform necessary functions. Y2K issues affect virtually all companies
and organizations on a worldwide basis.
The Investment Adviser has completed all necessary modifications required to
ensure that the Fund's and the Adviser's computer systems are capable of
processing information on or after January 1, 2000. During July 1999, an ex-
ternal systems auditor approved the Fund's and the Adviser's systems as Y2K-
compliant. In addition, the Adviser will continue implementing preventive
tests during the remaining months of 1999.
The Fund continues to assess with third parties their Y2K plans and compli-
ance efforts. The Fund has developed a contingency plan intended to provide
for possible Y2K occurrences if, and as, the Fund begins to experience system
and computer difficulties. The Fund is also trying to ensure that third party
non-compliance, should it occur, will not materially affect the Fund's opera-
tions. The Fund does not currently anticipate that the Y2K issue will have an
adverse effect on the Adviser's ability to continue to provide the services it
currently provides to the Fund.
The Fund's investment return, however, could be adversely affected if the
Y2K issue affects any of the companies in which the Fund invests. For this
reason, the Adviser has sent questionnaires to all these companies requesting
information about their Y2K status and has obtained favorable responses from
them. However, there can be no assurance that the Fund or its portfolio compa-
nies will not experience adverse effects if certain Y2K problems arise. For
example, if the Mexican Stock Exchange or the Mexican central securities de-
pository experience interruptions in operations related to the Y2K, the Fund
may be unable to engage in certain securities transactions. Similarly, the ef-
ficient operations of the Fund and the Adviser are significantly dependent on
the technology infrastructure of Mexico, including telephone and electrical
systems. Y2K problems related to these factors are outside of the control of
either the Fund or the Adviser. The Fund also relies on third party services
for transfer agency, custody, brokerage, and securities lending services,
among others. Despite the Fund's continuing efforts to assess the Y2K readi-
ness of these service providers, there can be no assurance that such service
providers will not experience Y2K problems that may adversely affect the Fund.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dividend Reinvestment Plan
The Fund's Dividend Reinvestment Plan (the "Plan") provides a convenient way
to increase your holdings in the Common Stock of the Fund through the rein-
vestment of net investment income and capital gain distributions. Under the
terms of the Plan, Fund shareholders are automatically enrolled as partici-
pants in the Plan. If you do not wish to participate in the Plan, please con-
tact 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 frac-
tional share. At a shareholder's request, the Plan Agent will sell the partic-
ipant's shares and remit any proceeds to the participant, net of brokerage
commissions. Shareholders who do not participate in the Plan will receive all
distributions in cash. The Plan provides a convenient way to increase your
holdings in the 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 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 commissions is equal to or exceeds the NAV per
share of Common Stock, the Plan Agent will invest the distribution in newly
issued shares of Common Stock, which will be priced at NAV. If on the valua-
tion date, the market price of the Common Stock plus estimated brokerage com-
missions is lower than the NAV per share, the Plan Agent will buy Common 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 amount payable to them in cash as a distribution had the share-
holder not participated 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
Sincerely yours,
/s/ Jose Luis Gomez Pimienta /s/ Juan Gallardo T.
Jose Luis Gomez Pimienta Juan Gallardo T.
President Chairman of the Board
September 24, 1999.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Description of the Fund's Ten Largest Holdings as of July 31, 1999
1. Cifra, S.A. de C.V. (9.24%)
Cifra is the largest chain of retail stores in Mexico and has the dominant
market position in the commercial sector of the country. The company is now a
subsidiary of the US firm Wal-Mart Stores, Inc. At the end of 1998, Cifra had
a total of 414 units in Mexico, which included supermarkets, retail stores and
restaurants.
2. Grupo Modelo, S.A. de C.V. (8.22%)
Founded in 1925, Grupo Modelo is the leader in the production, distribution
and sale of beer in Mexico with a market share in the domestic and export mar-
kets of 57.9%. The group currently owns 10 brand names, including Corona, the
most popular beer imported from Mexico, Victoria and Modelo. The company also
imports and distributes in Mexico brand names of beer produced by its partner
Anheuser-Busch, including Budweiser and Bud Light.
3. Kimberly Clark de Mexico, S.A. de C.V. (7.21%)
The company is dedicated to the manufacturing, marketing and sale of paper
and consumer products for personal care. Kimberly has the leading market posi-
tion in every product category where it competes. Products sold by the company
include tissue paper, diapers, feminine care products, notebooks, office paper
and specialty products.
4. Telefonos de Mexico, S.A. de C.V. (7.10%)
Telmex is the major telecommunications company in Mexico and provides local
telephone, domestic and international long-distance, wireless, data, and video
transmission services. Since its privatization in 1990, Telmex has aggres-
sively modernized and has emerged as a leader in telecommunications services
in Latin America.
5. Grupo Industrial Bimbo, S.A. de C.V. (6.44%)
Bimbo is the most important food producer in Mexico and one of the largest
in Latin America. The company is dedicated to the production, distribution and
sale of bread, cookies, cakes, candies, chocolates, snacks, tortillas and
processed foods. Bimbo is the leader in the Mexican bread market and has the
largest distribution network in the country. Since 1989, Bimbo has expanded
its operations to the United States and Central and South America.
6. Cemex, S.A. de C.V. (5.73%)
Cemex is the largest cement company in the Americas and one of the three
largest in the world. The company and its subsidiaries are dedicated to the
production, distribution, commercialization and sale of cement, concrete, mix,
clinker and value added products. Cemex operates in 22 countries around the
world and has commercial relations with 60 countries. Cemex is the leader in
the cement markets of Mexico, Spain, Venezuela, Panama and the Dominican Re-
public and has important market presence in the Caribbean, Indonesia, the
Philippines and the southwest region of the United States.
7. Carso Global Telecom, S.A. de C.V. (5.60%)
This company is dedicated to the telecommunications business and is the con-
trolling company of Telmex (see above), Prodigy Inc. (US) and Mcom Wireless
Inc. (Brazil). The shares of Prodigy Inc., an important Internet service pro-
vider in the US, began trading on NASDAQ in February 1999.
8. Fomento Economico Mexicano, S.A. de C.V. (5.09%)
Femsa is the largest totally integrated producer of soft drinks and beer in
Mexico, and ex-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ports its products worldwide. Femsa also operates the largest chain of conve-
nience stores in Mexico (Oxxo), produces packaging materials and is an impor-
tant bottler in Argentina. Brand names produced by Femsa include Sol beer and
Coca Cola, among others.
9. Apasco (4.33%)
The Apasco Group is an organization founded in 1928, dedicated to the pro-
duction and commercialization of cement, ready-mixed concrete, aggregates and
other related products and services. Apasco is the second largest producer of
cement and ready-mixed concrete in Mexico and the company also has market
presence in Honduras and El Salvador. Holderbank, the world's leading producer
of cement, holds a majority position in Apasco.
10. Desc, S.A. de C.V. (4.19%)
Desc is one of Mexico's largest holding groups and focuses its activities in
five business sectors: autoparts, chemicals, consumer products, food and real
estate. The company's diversification has enabled it to compensate for the ef-
fects of the natural cycles of the business sectors in which it participates.
<PAGE>
- --------------------------------------------------------------------------------
The Mexico Fund, Inc.
Schedule of Investments as of July 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Shares Value of Net
Industries Held Common Stock (95.13%) Series (Note 1) Assets
- ------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
Coca-Cola Femsa, S.A. de
Beverages (a) 7,950,000 C.V. .................. L 13,230,236 1.26%
Embotelladoras Argos,
6,200,000 S.A. .................. B 7,120,818 0.68
Fomento Economico
Mexicano, S.A. de
15,469,000 C.V. .................. UBD 53,315,805 5.09
Grupo Continental,
14,400,000 S.A. .................. * 20,803,750 1.99
Grupo Modelo, S.A. de
31,000,000 C.V. .................. C 86,037,716 8.22
------------- -----
180,508,325 17.24
- ------------------------------------------------------------------------------------------
Cement
Industry 8,110,000 Apasco, S.A. de C.V. ... * 45,362,774 4.33
14,000,000 Cemex, S.A. de C.V. .... CPO 59,961,645 5.73
Corporacion Moctezuma,
5,000,000 S.A. de C.V. .......... * 6,179,416 0.59
------------- -----
111,503,835 10.65
- ------------------------------------------------------------------------------------------
Carso Global Telecom,
Communications (a) 10,036,994 S.A. de C.V. .......... A1 58,707,753 5.60
(a) 1,549,000 Grupo Televisa, S.A. ... CPO 30,019,508 2.87
Telefonos de Mexico,
9,500,000 S.A. de C.V. .......... A 36,234,818 3.46
Telefonos de Mexico,
(c) 10,000,000 S.A. de C.V. .......... L 38,088,643 3.64
------------- -----
163,050,722 15.57
- ------------------------------------------------------------------------------------------
Conglomerates (c) 10,150,001 Alfa, S.A. de C.V. ..... A 35,740,202 3.41
2,030,000 Cydsa, S.A. ............ A 2,768,378 0.26
8,945,950 Desc, S.A. de C.V. ..... A 9,912,410 0.95
32,530,950 Desc, S.A. de C.V. ..... B 33,896,515 3.24
Grupo Carso, S.A. de
(a) 10,164,000 C.V. .................. A1 40,337,631 3.85
Grupo Imsa, S.A. de
3,105,000 C.V. .................. UBC 6,219,263 0.59
Sanluis Corporacion,
(a)(c) 3,100,000 S.A. de C.V. .......... CPO 6,110,164 0.58
(a) 1,520,000 Savia, S.A. de C.V. .... A 8,712,551 0.83
4,000,000 Vitro, S.A. ............ A 5,838,483 0.57
------------- -----
149,535,597 14.28
- ------------------------------------------------------------------------------------------
Construction & Consorcio ARA, S.A. de
Housing (a) 2,200,000 C.V. .................. * 8,391,221 0.80
Consorcio Hogar, S.A. de
(a) 2,000,000 C.V. .................. B 1,086,725 0.11
Corporacion Geo, S.A. de
(a) 2,480,000 C.V. .................. B 9,353,505 0.89
Empresas ICA, Sociedad
Controladora, S.A. de
12,600,000 C.V. .................. * 7,571,276 0.72
------------- -----
26,402,727 2.52
- ------------------------------------------------------------------------------------------
Consumer
Products for Kimberly-Clark de
Personal Care (c) 21,250,000 Mexico, S.A. de C.V. .. A 75,504,741 7.21
- ------------------------------------------------------------------------------------------
Corporacion
Interamericana de
Entretenimiento, S.A.
Entertainment (a)(c) 3,748,000 de C.V. ............... B 9,903,090 0.95
Corporacion
Interamericana de
Entretenimiento, S.A.
(a) 1,200,000 de C.V. ............... L 2,940,550 0.28
(a) 1,710,000 ECE, S.A. de C.V. ...... * 654,049 0.06
------------- -----
13,497,689 1.29
- ------------------------------------------------------------------------------------------
Financial Grupo Financiero
Groups 4,227,000 Inbursa, S.A. de C.V. . O 11,934,317 1.14
Grupo Financiero
Inverlat Recovery
(a)(b) -- Trust.................. -- 0.00
------------- -----
11,934,317 1.14
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
The Mexico Fund, Inc.
Schedule of Investments as of July 31, 1999 (Unaudited) -- (Continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Value of Net
Industries Shares Held Common Stock (Continued) Series (Note 1) Assets
- ---------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
Grupo Industrial Bimbo,
Food 30,100,000 S.A. de C.V. .......... A 67,505,327 6.44%
Grupo Industrial Maseca,
17,000,000 S.A. de C.V. .......... B 11,591,732 1.11
-------------- ------
79,097,059 7.55
- ---------------------------------------------------------------------------------------------
Seguros Comercial
Insurance (a) 1,000,000 America, S.A. de C.V. . B 3,782,229 0.36
- ---------------------------------------------------------------------------------------------
Iron & Steel
Industry (a)(c) 2,600,000 Hylsamex, S.A. de C.V. . BCP 7,479,224 0.71
Industrias CH, S.A. de
(a) 1,705,000 C.V. .................. B 4,686,661 0.45
Tubos de Acero de
1,115,000 Mexico, S.A. .......... * 11,344,822 1.08
-------------- ------
23,510,707 2.24
- ---------------------------------------------------------------------------------------------
Mining Grupo Mexico, S.A. de
Industry (c) 7,000,000 C.V. .................. B 28,265,502 2.70
Industrias Penoles, S.A.
3,451,000 de C.V. ............... * 9,191,882 0.88
-------------- ------
37,457,384 3.58
- ---------------------------------------------------------------------------------------------
Retail Trade (a) 16,232,807 Cifra, S.A. de C.V. .... C 26,841,377 2.56
(a) 37,723,784 Cifra, S.A. de C.V. .... V 69,933,288 6.68
Controladora Comercial
Mexicana, S.A. de
11,250,000 C.V. .................. UBC 9,588,749 0.92
Grupo Sanborns, S.A. de
(a) 2,292,000 C.V. .................. B-1 3,980,354 0.38
Organizacion Soriana,
2,100,000 S.A. de C.V. .......... B 8,569,146 0.82
-------------- ------
118,912,914 11.36
- ---------------------------------------------------------------------------------------------
Corporacion Mexicana de
Restaurantes, S.A. de
Service (a) 7,822,000 C.V. .................. B 1,500,064 0.14
- ---------------------------------------------------------------------------------------------
Total Common Stock
(Identified Cost--
$526,211,301).......... $ 996,198,310 95.13
- ---------------------------------------------------------------------------------------------
<CAPTION>
Percent
Face Short-Term Securities Value of Net
Securities Value (5.88%) (Note 1) Assets
- ---------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
$52,269,166 Bancomer, S.A., 19.80%,
dated 07/30/99, due
08/02/99, repurchase
price $52,355,411,
Repurchase collateralized by
Agreements Bondes................. $ 52,269,166 4.99%
$ 9,280,000 Nomura Securities Int'l
Inc., 5.10%, dated
07/30/99, due 08/02/99,
repurchase price
$9,283,944,
collateralized by U.S.
Government Agency
Securities............. 9,280,000 0.89
-------------- ------
61,549,166 5.88
- ---------------------------------------------------------------------------------------------
Total Short-Term
Securities (Identified
Cost--$61,549,166)..... 61,549,166 5.88
Total Investments
(Identified Cost--
$587,760,467).......... 1,057,747,476 101.01
Liabilities in Excess of
Other Assets........... (10,592,357) (1.01)
-------------- ------
Net Assets (Equivalent
to $20.73 per share on
50,506,925 Shares of
Capital Stock
Outstanding)........... $1,047,155,119 100.00%
-------------- ------
</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 9 to Financial Statements.
(c) Securities are partially on loan.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
The Mexico Fund, Inc.
Statement of Assets and Liabilities as of July 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments:
Securities, at value (Note 1):
Common stock (identified cost -- $526,211,301).... $996,198,310
Short term securities (identified cost --
$61,549,166).................................... 61,549,166
------------
Total investments (identified cost --
$587,760,467).................................. $1,057,747,476
Cash............................................... 532,015
Prepaid Mexican withholding taxes (Note 1)......... 501,944
Interest receivable................................ 60,125
--------------
Total assets..................................... 1,058,841,560
--------------
Liabilities:
Payable upon return of securities loaned (Note 1).. 9,288,815
Payables for securities purchased.................. 1,191,706
Investment adviser (Notes 2 and 3)................. 772,053
Accrued expenses and other liabilities............. 433,867
--------------
Total liabilities................................ 11,686,441
--------------
Net Assets -- Equivalent to $20.73 per share on
50,506,925 shares of capital stock outstanding
(Note 7).......................................... $1,047,155,119
==============
</TABLE>
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
The Mexico Fund, Inc.
Statement of Operations (Unaudited) For the Nine Months Ended July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Net Investment Income:
Income (Note 1):
Dividends........................................... $15,480,043
Interest and discounts earned....................... 10,153,948
Income from securities loaned, net.................. 427,007
-----------
Total income........................................ $ 26,060,998
Expenses:
Investment advisory fee (Note 2).................... 4,722,928
Administrative services (Note 3).................... 262,499
Value-added taxes (Note 1).......................... 767,197
Printing, distribution and mailing of shareholder
reports............................................ 237,514
Legal fees.......................................... 279,916
Directors' fees..................................... 119,749
Directors' expenses................................. 20,361
Accounting and audit fees........................... 86,894
Custodian fees (Note 5)............................. 64,961
Transfer agent and dividend disbursement fees....... 15,750
Shareholders' information........................... 167,961
Stock exchange fees................................. 38,279
Miscellaneous....................................... 108,997
-----------
Operating expenses.................................. 6,893,006
------------
Net investment income (Note 1)...................... 19,167,992
------------
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency:
Net realized gain (loss) on investments and foreign
currency transactions (Notes 1 and 6):
Proceeds from sales................................. 12,567,367
Cost of securities sold............................. 10,330,165
-----------
Net realized gain on investments.................... 2,237,202
Net realized loss from foreign currency (1,720,858)
transactions.......................................
-----------
Net realized gain on investments and foreign
currency transactions.............................. 516,344
Increase (decrease) in net unrealized gain (loss) on
investments and translation of assets and
liabilities in foreign currency:
Investments:
End of period (Note 6).............................. 469,987,007
Beginning of period................................. 218,282,123
-----------
Increase in net unrealized gain on investments...... 251,704,884
Translation of assets and liabilities in foreign
currency:
End of period....................................... 621,210
Beginning of period................................. (4,955,696)
-----------
Increase in net unrealized gain on translation of
assets and liabilities in foreign currency......... 5,576,906
-----------
Increase in net unrealized gain on investments and
translation of assets and liabilities in foreign
currency........................................... 257,281,790
------------
Net increase in Net Assets Resulting from Operations. $276,966,126
============
</TABLE>
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
The Mexico Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the
Nine Months Ended For the
July 31, 1999 Year Ended
(Unaudited) October 31, 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations
Net investment income................... $ 19,167,992 $ 19,480,793
Net realized gain (loss) on investments
and foreign currency transactions...... 516,344 (61,371,108)
Net increase (decrease) in unrealized
gain on investments and translation of
assets and liabilities in foreign
currency............................... 257,281,790 (316,063,430)
-------------- -------------
Net increase (decrease) in net assets
resulting from operations.............. 276,966,126 (357,953,745)
Dividends to shareholders from net
investment income...................... (13,586,363) (11,616,592)
Dividends to shareholders from net
realized gain on investments........... - (29,625,602)
Net increase in capital stock (Note 7).. - 15,078,787
-------------- -------------
Total increase (decrease) in net
assets................................ 263,379,763 (384,117,152)
Net Assets:
Beginning of period..................... 783,775,356 1,167,892,508
-------------- -------------
End of period........................... $1,047,155,119 (A) $ 783,775,356 (A)
============== =============
</TABLE>
See Notes to Financial Statements.
(A) Including accumulated net investment loss of $(2,321,935) as of July 31,
1999 and $(6,182,706) as of October 31, 1998.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Nine Months
Ended For the Year Ended October 31,
The Mexico Fund, Inc. July 31, 1999 --------------------------------------------------------
Financial Highlights (Unaudited) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of period.... $ 15.52 $ 23.49 $ 17.33 $ 13.80 $ 33.48 $ 28.88
---------- -------- ---------- -------- -------- ----------
Net investment income
(Note 1).............. 0.38 0.39** 0.40 0.50 0.59** 0.21**
Net gain (loss) on
investments and
translation of foreign
currency (Note1)...... 5.10 (7.48)** 6.16 3.46 (19.21)** 4.89**
---------- -------- ---------- -------- -------- ----------
Total from investments
operations............. 5.48 (7.09)** 6.56 3.96 (18.62)** 5.10**
---------- -------- ---------- -------- -------- ----------
Less dividends and
distributions:
Dividends to common
shareholders from net
investment income..... (0.27) (0.23) (0.38) (0.43) -- (0.27)
Distributions to common
shareholders from net
capital gains......... -- (0.60) (0.02) -- (0.01) (0.23)
---------- -------- ---------- -------- -------- ----------
Total dividends and
distributions.......... (0.27) (0.83) (0.40) (0.43) (0.01) (0.50)
---------- -------- ---------- -------- -------- ----------
Tax return of capital.. -- -- -- -- (0.05) --
---------- -------- ---------- -------- -------- ----------
Capital charge
resulting from
issuance of fund
shares................ -- (0.05) -- -- (1.00) --
---------- -------- ---------- -------- -------- ----------
Net asset value, end of
period................ $ 20.73 $ 15.52 $ 23.49 $ 17.33 $ 13.80 $ 33.48
========== ======== ========== ======== ======== ==========
Market value per share,
end of period......... $ 14.81 $ 11.25 $ 18.69 $ 14.13 $ 12.25 $ 31.38
========== ======== ========== ======== ======== ==========
Total investment return
based on market value
per share.............. 34.83% (36.70%) 35.03% 18.77% (60.79%) 15.39%
Ratios to Average Net
Assets:
Expenses............... 0.98%* 0.93% 0.91% 1.00% 1.14% 0.92%
Net investment income.. 2.74%* 1.87% 1.80% 2.93% 3.24% 0.63%
Supplemental Data:
Net assets at end of
period (in 000's)..... $1,047,155 $783,775 $1,167,893 $861,750 $685,896 $1,248,094
Portfolio turnover
rate.................. 1.44% 3.69% 7.58% 9.57% 10.61% 3.89%
</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
07/31/99 Quarter Ended 04/30/99 Quarter Ended 01/31/99
--------------------- -------------------------------------------------------
Total Per Share Total Per Share Total Per Share
---------- --------- ------------- ------------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income....... $ 9,222 $ 0.18 $ 5,166 $ 0.10 $ 11,673 $ 0.23
Net Investment Income... $ 6,597 $ 0.13 $ 3,035 $ 0.06 $ 9,536 $ 0.19
Net realized gain (loss)
on investments......... $ 2,498 $ 0.05 $ (65) $ 0.00 $ (196) $ 0.00
Net realized gain (loss)
from foreign currency
transactions........... $ 2,389 $ 0.05 $ (944) $ (0.02) $ (3,166) $ (0.06)
(Decrease) increase in
net unrealized gain on
investments............ $ (59,737) $ 1.18 $ 316,815 $ 6.27 $ (5,373) $ (0.11)
(Decrease) increase in
net unrealized gain on
translation of assets
and liabilities in
foreign currency....... $ (3,176) $ 0.06 $5,675 $ 0.11 $ 3,078 $ 0.06
Net asset value......... $1,047,155 $20.73 $1,098,585 $ 21.75 $ 774,070 $15.33
</TABLE>
- --------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Mexico Fund, Inc.
Notes to Financial Statements--
July 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------
1. Operations and Significant Accounting Policies:
The Fund is registered under the Investment Company Act of 1940, as amended,
as a diversified, closed-end management investment company. The investment ob-
jective of the Fund is to seek long term capital appreciation through invest-
ment in securities, primarily equity, listed on the Mexican Stock Exchange.
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. All other securities are valued in accordance with methods de-
termined by the Board of Directors. If the Board of Directors believes that
the price of a security obtained under the Fund's valuation procedures does
not represent the amount that the Fund reasonably expects to receive on a cur-
rent sale of the security, the Fund will value the security based on a method
that the Board believes accurately reflects fair 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 Pesos ("Ps.") was 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 July 31, 1999 was Ps. 9.386 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.
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.
Reported net realized foreign exchange gains or losses arise from sales of
short-term securities in exchange of property, payment of services or
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
functional currency denominated assets, currency gains or losses realized be-
tween the trade and settlement dates on securities transactions, the differ-
ence between the amounts of dividends, interest, and foreign withholding taxes
recorded by the Fund, 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 common stocks, re-
sulting from changes in the exchange rate.
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 Fund enters into repurchase agreements with ap-
proved institutions. The Fund's repurchase agreements are fully collateralized
by Mexican or U.S. Government securities. The Fund takes possession of the
collateral and monitors the credit standing of repurchase agreement
counterparties. The fair value of the collateral exceeds the principal amount
of the repurchase transaction, including accrued interest, at all times. If
the counterparty defaults, and the fair value of the collateral declines, re-
alization of the collateral by the Fund may be delayed or limited.
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, 1999, 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 regu-
lated investment companies and to distribute substantially all of such income
to its shareholders.
The Fund is subject to Mexican withholding taxes in accordance with the Mexi-
can Income Tax Law and with the provisions included in the treaty to avoid
double taxation signed between Mexico and the United States, on specific
sources of income. Such taxes will be applied to the shareholders upon payment
of dividends by the Fund.
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.
Lending of portfolio securities -- During fiscal year 1998, the Board of Di-
rectors approved a securities lending program for the Fund proposed by the
Fund's Investment Adviser. The Board also approved Merrill Lynch Portfolio
Services, Inc. (MLPS) as the lending agent for the Fund. Since August 18,
1998, the Fund has been lending part of its portfolio securities to approved
financial institutions, provided that the market value of securities loaned
will not at any time exceed one-third of the Fund's total assets. The Fund
continues to receive dividends on the securities loaned. The gain or loss in
the fair value of the securities loaned that may occur during the term of the
loan will be accounted for by the Fund. The Fund earns interest on the invest-
ment of the collateral received for the securities loaned. The Fund may rebate
a portion of the interest earned on the investment of collateral to the bor-
rower, and pays a commission to
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the lending agent. Under the agreement, MLPS also reimburses to the Fund the
custodian fees. The net income under this program (including the custodian fees
reimbursed) is shown in the accompanying Statement of Operations. In order to
protect against the risk of failure by the borrower to return the securities
loaned or any delay in the delivery of such securities, each loan is collater-
alized by U.S. dollars (cash), securities issued or guaranteed by the U.S. gov-
ernment or its agencies or instrumentalities, or irrevocable stand-by letters
of credit issued by U.S. banks. The collateral is maintained at all times in an
amount equal to at least 105 percent of the current market value of the loaned
securities. At July 31, 1999, the values of securities loaned and collateral
received thereon were as follows:
<TABLE>
<S> <C>
Value of Securities Loaned.......................................... $8,427,668
==========
Value of Collateral Received........................................ $9,288,815
==========
</TABLE>
In August 1999, the engagement of MLPS was terminated when MLPS sold its secu-
rities lending business.
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 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 mainte-
nance of the Fund's books and records in accordance with applicable U.S. and
Mexican Laws and assistance in the preparation and filing of annual reports and
tax returns. The term of this agreement was renewed by the Board of Directors
through August 31, 2000. The annual fee payable to the Adviser by the Fund un-
der 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 invested. 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 arrangement, effective Octo-
ber 5, 1995, Bancomer received an amount denominated in Mexican pesos for three
years, subject to a monthly increase linked to the Mexican Consumer Price In-
dex, paid monthly on a cumulative basis, which for the five month period ended
March 31, 1998, amounted to $47,990, equivalent to a monthly average of $9,598.
During 1997 and 1998, the Mexican governmental authorities gave approval to
the Trustee for the transfer of the total assets and liabilities of the Trust
to the Fund. On February 27, 1998, the Fund's shareholders approved matters in
connection with the termination of the Trust Agreement with Bancomer. The ter-
mination was effective on March 31, 1998.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. Mandate Agreement and Mandatory Party:
In connection with the termination of the Trust Agreement discussed in the
preceding note, on March 31, 1998, the Fund signed a Mandate Agreement with
Bancomer. Under this Agreement, Bancomer acts as the Mandatory Party, perform-
ing certain activities related to the custody of the Fund's securities, that
were previously performed under the trust agreement.
The annual fee payable to Bancomer under this Agreement is denominated in Mex-
ican pesos, which currently translates to approximately $49,446, equivalent to
a monthly average of $4,120. Due to the nature of this Agreement, the fees paid
to Bancomer are consolidated with the Fund's custodian fees.
6. Purchases and Sales of Investments:
Purchases and sales of investments, excluding short-term securities, for the
nine months ended July 31, 1999 were as follows:
<TABLE>
<S> <C>
Purchases
- -------------------------------------------------------------------------------
Common Stock....................................................... $29,647,289
-----------
Total Purchases.................................................. $29,647,289
===========
Proceeds from Investments Sold
- -------------------------------------------------------------------------------
Common Stock....................................................... $12,567,367
-----------
Total Sales...................................................... $12,567,367
===========
</TABLE>
As of July 31, 1999, net unrealized gains on investments in common stocks for
Federal income tax purposes aggregated to approximately $469 million, of which
approximately $535 million related to appreciated securities and approximately
$66 million related to depreciated securities. The aggregate cost of invest-
ments in common stocks at July 31, 1999 for Federal income tax purposes was ap-
proximately $527 million.
7. Capital Stock:
At July 31, 1999, there were 150,000,000 shares of $1.00 par value common
stock authorized, of which 50,758,750 shares were issued, 50,506,925 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 Company
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 December 10, 1997, the Board of Directors declared a stock dividend of $
29,625,602. This dividend was paid in shares of common stock of the Fund, and
in cash by specific election. Some shareholders selected the stock dividend,
therefore, on January 31, 1998 the Company issued 791,018 shares, which
amounted to $ 15,078,787.
As of July 31, 1999, net assets were comprised of the following:
<TABLE>
<S> <C>
Common Stock................................................ $ 50,506,925
Additional paid-in capital.................................. 576,466,300
Accumulated net investment loss............................. (2,321,935)
Accumulated net realized loss on investments................ (48,104,388)(A)
Unrealized appreciation of investments and translation of
assets and liabilities in foreign currency................. 470,608,217
--------------
$1,047,155,119
==============
</TABLE>
- --------
(A) ($56,762,396) for Federal Income Taxes.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment income are determined based on
Federal income tax regulations, whereas the corresponding net investment in-
come as reflected in the accompanying financial statements, is presented in
accordance with generally accepted accounting principles. For the nine months
ended July 31, 1999, dividends to shareholders from net investment income are
in excess of net investment income as presented in the statement of operations
due to a book-tax temporary difference.
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 tax
code.
8. 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 July 31, 1999 of approximately $56,762,000 expiring in 2007.
9. 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 accumu-
lated losses through the total reduction of capital stock, shareholders of
Inverlat approved a cash contribution by FOBAPROA (Banking Fund for Savings
Protection) to cover such losses. As a consequence, all shares outstanding
prior to July 23, 1996, were cancelled . The Fund has received an interest in
a Recovery Trust set up to manage the recovery 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
Funds holdings in the Recovery Trust at $0 as of July 31, 1999, due to the un-
certainty regarding its ultimate realization.
According to the Bank Savings Protection Law, which was enacted on January
20, 1999, all assets of FOBAPROA will be transferred to a new entity called
IPAB (Bank Savings Protection Institute). This transfer will not modify the
market value assigned to the Recovery Trust.
