<PAGE>
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The Mexico Fund, Inc.
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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
Hector Trigos -- Research Vice President
Alberto Osorio -- Finance Vice President
Eduardo Solano -- Investor Relations Vice President
Investment Adviser --
Impulsora del Fondo Mexico, S.A. de C.V.
Custodian --
Bancomer, S.A.
Comerica Bank
Transfer Agent and Registrar --
American Stock Transfer & Trust Company
Counsel --
Dechert
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.
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[FM LOGO]
The Mexico
Fund, Inc.
(Unaudited)
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Quarterly Report
July 31, 2000
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[MXF LISTED NYSE LOGO]
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www.themexicofund.com
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The Mexico Fund, Inc.
Third Quarter Report
July 31, 2000
Highlights
. The third quarter of the Fund's fiscal year 2000 ended July 31, 2000.
. The Fund has announced the implementation of a Share Repurchase Program
("SRP") for up to 10% of the Fund's total outstanding shares. The SRP is in-
tended to enhance shareholder value. Please see inside for additional de-
tails.
. On July 2, 2000, Mexico held Presidential, Congressional and some Gubernato-
rial elections. The electoral process, in which Vicente Fox, candidate of the
opposition alliance led by the PAN was elected President, was clean and
transparent.
. Mexico's economic activity continued to grow dynamically as the country's
gross domestic product (GDP) increased 7.8% during the first half of calendar
2000.
. During the first half of calendar 2000, Mexico's current account deficit to-
taled $8.0 billion. Direct foreign investment amounted to $6.7 billion, fi-
nancing the equivalent of 84% of the current account deficit.
. The currency market, which showed some volatility before the elections, has
resumed its stable performance, as the rate of exchange of the Mexican peso
against the dollar ended September 2000 at Ps. 9.43 per dollar.
. Inflation rates have declined to one-digit levels on a 12-month trailing pe-
riod. At the end of August 2000, the inflation rate was 9.1%, compared with
12.3% at the end of 1999.
. Interest rates on the 28-day Cetes (treasury bills) ended September 2000 at
15.2%, compared with 16.3% at the end of 1999.
. During the third quarter of fiscal 2000, the Fund's market price and NAV per
share remained practically unchanged, and decreased 9% and 14.2%, respective-
ly, during the first nine months of calendar 2000, compared with a 10.7% de-
crease for the Bolsa index.
. The Fund's share discount between market price and NAV ended September 2000
at a level of 24.9%.
. The Fund's Web site--www.themexicofund.com--provides, among other useful in-
formation, the Fund's daily market price and NAV per share and its portfolio
holdings within the first five business days after the end of each fiscal
quarter.
. The Board of Directors declared a cash dividend of 7.7 cents per share. The
dividend is payable on October 31, 2000 to shareholders of record as of Sep-
tember 29, 2000 and is comprised entirely of net investmentincome.
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.
Notice is hereby given in accordance with Section 23(c) of the Invest-
ment Company Act of 1940 that the Fund may purchase, from time to time,
shares of its common stock in the open market.
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THE MEXICO FUND, INC.
TO OUR SHAREHOLDERS:
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Economic Environment
On July 2, 2000, Mexico held Presidential, Congressional and several Guber-
natorial elections. Vicente Fox, presidential candidate of the opposition al-
liance headed by the PAN, was elected President. He will take office December
1, 2000. The PAN alliance also won important positions within the Congress
while the PRI, currently the ruling party, lost the two state Governorships
that held elections. The electoral process was perceived as clean and trans-
parent and there were not significant post-electoral disturbances. The presi-
dential transition is currently being carried out smoothly with full coopera-
tion from President Zedillo and his cabinet members.
President Elect Fox and his team members have announced that healthy public
sector finances and the fight against inflation will continue to be priorities
on the economic policy agenda. A continued GDP growth remains one of the basic
economic goals. Although Mr. Fox has not announced any specific economic mea-
sures to achieve his economic program, it is expected that, at least during
the early years of his administration, a restrictive monetary policy and pru-
dent fiscal management will prevail, as is the case today. Economic analysts
believe that the fundamentals of the Mexican economy will not change substan-
tially and have even improved their macroeconomic estimates for this year and
2001. According to results obtained from a monthly poll conducted by the Cen-
tral Bank, economic analysts estimate that during 2000, GDP growth will be
around 6.5%, the inflation rate will amount to less than 9%, domestic interest
rates at the end of the year will be around 14.5% and the exchange rate of the
peso against the dollar will end at around Ps. 9.80.
As a result of the North American Free Trade Agreement, Mexico continues to
be the second largest trade partner of the United States. In addition, Presi-
dent Elect Fox has announced his intention to further enhance trade relations
with Central and South American countries in an effort to diversify Mexican
exports.
Mexico's economic activity continues to show a dynamic performance. During
the first half of calendar 2000, the country's GDP expanded 7.8% on an
annualized rate, significantly higher than the 3.7% growth achieved during
1999 and also higher than the 7.2% expected by economists. During the first
half of 2000, the industrial sector of the economy grew 7.9%, and within this
sector, the manufacturing industry 8.3%, the construction industry 7.0% and
the energy and water sector 6.9%. At the same time, the services and primary
sectors of the economy expanded by 8.0% and 4.0%, respectively.
During the first half of 2000, Mexico's current account deficit amounted to
$8 billion, 23% higher than during the same period of 1999. However, if ex-
pressed as a percentage of GDP, the current account deficit has declined from
6.7% during the first half of 1994, to 2.8% during the first half of 2000.
Within the current account deficit, the trade balance deficit contributed with
$2.77 billion and was 26% higher than one year earlier. During the same peri-
od, Mexico's total exports increased
<PAGE>
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24% to $79 billion while total imports also increased 24% to $81.8 billion. At
the same time, direct foreign investment into Mexico amounted to $6.7 billion
and financed approximately 84% of the current account deficit. The price of
the Mexican oil mix increased to almost $30 per barrel by the end of August
2000, but decreased to $26 per barrel one month later, compared with $22.14 at
the end of 1999.
Mexico's total international reserves at Banco de Mexico (Central Bank) are
now near their highest historical level and amounted to approximately $33 bil-
lion at the end of August 2000. Although the Mexican currency registered some
volatility before the elections and the exchange rate reached levels above Ps.
10 per dollar, stability has returned to the market and the exchange rate
ended September 2000 at Ps. 9.43 per dollar, very similar to that registered
at the end of 1999.
Mexico's inflation rates have decreased substantially. At the end of August
2000, the 12-month inflation rate was 9.1%, compared with 12.3% for 1999, an-
ticipating the target set by the Central Bank of reaching a one-digit infla-
tion rate by the end of 2000. Strict adherence to the current administration's
monetary policy and the strong performance of the peso continued to contribute
to this declining inflation trend.
Interest rates paid by 28-day Cetes decreased from 16% at the end of 1999 to
15% at the end of September 2000. The upgrade of Mexico's credit rating by
Moody's and S&P and the positive results of the elections have contributed to
the recent stability and reduction of domestic interest rates.
The Bolsa and the Fund's Performance
The Mexican Bolsa index (IPC) registered a volatile performance before the
electoral period of July. However, once the preliminary results were known,
the Bolsa reacted positively and experienced a significant short-term rally.
Since then, once again, international concerns about the possible increase of
US interest rates and news about technological companies have affected the
performance of the Bolsa. The IPC declined 1.7% during the third quarter of
fiscal 2000 and 10.7% during the first nine months of 2000. This decline of
the IPC has been accompanied by relatively low levels of liquidity.
This volatile trend of the IPC has also been reflected in the Fund's perfor-
mance and market discount. During the third quarter of fiscal 2000, the Fund's
market price and NAV per share remained practically unchanged, but decreased
9% and 14.2%, respectively, during the first nine months of calendar 2000,
compared with a 10.7% decline for the IPC. The total volume of Fund shares
traded on the NYSE during the first nine months of calendar 2000 amounted to
26.6 million, equivalent to 54% of total outstanding shares.
Several fundamental indicators continue to suggest that market prices of
Mexican listed companies show modest valuations. At the end of September 2000,
the average price-earnings (PE) and price-book value (PBV) ratios of the Bolsa
were 9.5 and 1.3
<PAGE>
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times, respectively. Although not totally comparable, the average PE ratios of
the Dow Jones Industrial Average and S&P 500 indices in the US were approxi-
mately 20 and 29 times, respectively. More importantly, the Bolsa's average
enterprise value to EBITDA (earnings before interest, taxes, depreciation and
amortization) ratio (EV/EBITDA) is currently at a level of 6.6 times, 60%
lower than its historical high of 17 times reached in February 1994.
Special Meeting of Shareholders
The Board of Directors has called a Special Meeting of Shareholders to rec-
ommend changes to the Fund's investment policies that would provide the In-
vestment Adviser with additional flexibility to manage the Fund's portfolio.
If you have not received the Fund's proxy materials, please contract your bro-
ker or call the Fund's information agent at 1-800-224-4134.
Declaration of Dividend
The Board of Directors has declared a cash dividend of 7.7 cents per share,
payable on October 31, 2000 to shareholders of record on September 29, 2000.
In addition, the Fund may elect to pass through to U.S. shareholders as gross
income for Federal income tax purposes their proportionate share of Mexican
income taxes withheld to the Fund, amounting to a corrected estimate of 0.2
cents per share from the previously announced estimate of 1.0 cents per share.
Shareholders will receive a final calculation of their total proportionate
share of these taxes with their IRS Form 1099 dividend report provided by the
Fund after the end of this calendar year. U.S. shareholders may claim a for-
eign tax credit or deduction for U.S. federal income tax purposes for the
amount of the Mexican tax. The dividend is comprised entirely of net invest-
ment income.
Shareholders enrolled in the Dividend Reinvestment Plan will receive their
distribution in shares of common stock of the Fund. Shareholders whose divi-
dend distributions are additionally subject to withholding of U.S. tax by the
Fund will receive cash or shares, as the case may be, net of the amount of ap-
plicable U.S. withholding tax.
The full amount of the dividend, whether received in cash or in additional
shares of the Fund pursuant to the Fund's Dividend Reinvestment Plan, plus the
amount of the Mexican tax passed through to shareholders, will be reportable
by U.S. taxpayers on their Federal income tax returns and may be subject to
applicable state and local taxes.
Portfolio Strategy
During the third quarter of fiscal 2000, the Fund continued to sell some of
its investments in securities with limited liquidity and smaller market capi-
talization in order to increase its exposure to the telecommunications, bank-
ing, entertainment and media sectors. At the same time, the Fund also reduced
its exposure to some issuers in the beverages, conglomerates, cement, consumer
goods, mining, steel and agrobiotechnology sectors. Some of these transac-
tions, however, were made in order to comply with diversification requirements
applicable to the Fund. This Report includes for your reference a summary de-
scription of the Fund's ten largest
<PAGE>
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holdings, which at the end of July 2000 represented approximately 70% of its
total net assets.
The Fund publishes on its Web site, located at www.themexicofund.com, its
investment portfolio as of the end of each fiscal quarter, updated within the
first five business days after the closing of the fiscal quarter. Accordingly,
the Fund's investment portfolio, as reported on the Web site, is updated dur-
ing the first five business days of February, May, August and November. The
Fund's investment portfolio as of July 31, 2000 has been posted on the Web
site since early August 2000.
Share Repurchase and Securities Lending Programs
In an effort to enhance shareholder value, on July 31, 2000, the Fund's
Board of Directors instructed the Investment Adviser to repurchase in the open
market up to 10% of the Fund's total outstanding shares. The program commenced
on August 7, 2000. While it is expected that the share repurchase program will
enhance the NAV per share, there can be no assurance that this action will
achieve that objective or result in a decrease of the discount at which Fund
shares currently trade on the market or enhance shareholder value.
On March 7, 2000, the Fund re-established a Securities Lending Program (the
"Program"). During the first four months of operation, income generated by the
Program amounted to approximately $175,000, which will be added to the net in-
vestment income to be distributed to shareholders.
Investor Relations
The Fund's Web site presents the Fund's market price and NAV per share on a
same-day basis and provides a downloadable database containing the most impor-
tant historical figures for the Fund. Also available is the complete history
of dividend distributions made by the Fund and additional links to useful
sites of Mexican government agencies, capital markets and listed companies.
Web site visitors may now request online to receive via ordinary mail a copy
of the Fund's 1999 Annual Report and the most recent Quarterly and Monthly
Summary Reports. We hope that the Fund's Web site is a useful resource for in-
formation and we will continue working to improve it.
The Fund continues to offer 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 Investment
Adviser distributes 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 request
this report through the Fund's Web site or write to the Investment Adviser at:
Impulsora del Fondo Mexico, sa de cv.
77 Aristoteles St. 3rd Floor
Polanco
11560 Mexico, D.F.
Mexico
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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:
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
The Fund's dividend reinvestment plan and transfer agent is:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
(212) 936-5100
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
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 broker-
age commissions. Shareholders who do not participate in the Plan will receive
all distributions in cash. The Plan pro-
<PAGE>
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vides 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 distri-
bution 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 valuation date,
the market price of the Common Stock plus estimated brokerage commissions 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 marketpurchases.
If your shares are registered or will be registered in the name of a broker-
dealer or any other nominee, you must contact the broker-dealer or other nomi-
nee 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 dis-
tribution had the shareholder 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
October 6, 2000.
<PAGE>
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Description of the Fund's Ten Largest Holdings as of July 31, 2000.
1. Telefonos de Mexico (13.65%)
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 telecommunication services in
Latin America. Starting in 1999, Telmex provides telecommunication services in
the United States and Guatemala.
2. Wal-Mart de Mexico (10.42%)
Walmex 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 a sub-
sidiary of the US firm Wal-Mart Stores, Inc. Walmex has a total of 460 units
in 43 cities in Mexico, which includes supermarkets, retail stores and restau-
rants.
3. Carso Global Telecom (9.38%)
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 United States have traded on the NASDAQ since February 1999.
4. Grupo Televisa (5.79%)
Televisa is the largest media company in the Spanish-speaking world and a
major participant in the international entertainment industry. Televisa has
interests in television production and broadcasting, international distribu-
tion of television programming, direct-to-home satellite services, publishing,
music recording, cable television, radio production and broadcasting, profes-
sional sports and show business promotion, paging services, feature film pro-
duction and distribution and special events promotion and dubbing. Televisa
also has an unconsolidated equity stake in Univision, the leading Spanish-lan-
guage television company in the United States, and is about to launch an
internet portal.
5. Grupo Modelo (5.72%)
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 approximately 58%. The group 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.
6. Fomento Economico Mexicano (5.26%)
Femsa is Latin America's largest beverage company with exports to the United
States, Canada and selected countries in Latin America, Europe and the Far
East. Founded in 1890, Femsa is the largest totally integrated producer of
soft drinks and beer in Mexico. Femsa also operates the largest chain of con-
venience stores in Mexico (Oxxo), produces packaging materials and is an im-
portant bottler in Argentina. Brand names produced by Femsa include Sol beer
and Coca Cola, among others.
7. Cemex (5.25%)
Cemex is the world's third largest cement producer. The company and its sub-
sidiaries are dedicated to the production, distribution, commercialization and
sale of cement, concrete, mix, clinker and value added products. Cemex pro-
duces and operates in 30 countries around the world and has commercial rela-
tions with 60 countries. Cemex is the leader in the cement markets of Mexico,
Spain, Venezuela, Panama and the Dominican Republic and has important market
presence in the Caribbean, Indonesia, the Philippines and the southwest region
of the United States.
8. Grupo Financiero Banamex Accival (4.73%)
Banacci is one of the three largest financial institutions in Mexico, offer-
ing mainly banking, brokerage, insurance and pension funds management in Mexi-
co. Through two of its subsidiaries, Banacci is also engaged in financial ac-
tivities in Argentina and California, USA, and participates in the Mexican
telecommunications sector through its investment in Avantel.
9. Kimberly Clark de Mexico (4.42%)
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.
10. Apasco (4.07%)
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.
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The Mexico Fund, Inc.
Schedule of Investments as of July 31, 2000 (Unaudited)
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<TABLE>
<CAPTION>
Percent
Shares Value of Net
Industries Held Common Stock (98.00%) Series (Note 1) Assets
-----------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
Fomento Economico
Beverages (c) 14,100,000 Mexicano, S.A. de C.V.. UBD $ 58,593,099 5.26%
9,422,000 Grupo Continental, S.A.. * 11,071,680 0.99
Grupo Modelo, S.A. de
27,340,000 C.V.................... C 63,669,693 5.72
------------ -----
133,334,472 11.97
-----------------------------------------------------------------------------------------
Cement
Industry 6,540,000 Apasco, S.A. de C.V..... * 45,341,951 4.07
12,478,000 Cemex, S.A. de C.V...... CPO 58,451,052 5.25
------------ -----
103,793,003 9.32
-----------------------------------------------------------------------------------------
Carso Global Telecom,
Communications (a) 40,147,976 S.A. de C.V............ A1 104,433,631 9.38
Telefonos de Mexico,
(c) 19,000,000 S.A. de C.V............ A 49,321,654 4.43
Telefonos de Mexico,
(c) 38,906,000 S.A. de C.V............ L 102,657,643 9.22
------------ -----
256,412,928 23.03
-----------------------------------------------------------------------------------------
Conglomerates (c) 9,519,000 Alfa, S.A. de C.V....... A 24,913,524 2.24
(c) 34,765,000 Desc, S.A. de C.V....... B 21,168,732 1.90
Grupo Carso, S.A. de
(a)(c) 8,900,000 C.V.................... A1 30,851,939 2.77
Grupo Imsa, S.A. de
3,099,000 C.V.................... UBC 4,601,656 0.42
------------ -----
81,535,851 7.33
-----------------------------------------------------------------------------------------
Construction & Consorcio ARA, S.A. de
Housing (a) 6,946,000 C.V.................... * 10,224,963 0.92
Corporacion Geo, S.A. de
(a) 2,480,000 C.V.................... B 4,535,585 0.41
Empresas ICA, Sociedad
Controladora, S.A. de
(a) 12,600,000 C.V.................... * 3,095,823 0.28
------------ -----
17,856,371 1.61
-----------------------------------------------------------------------------------------
Consumer
Products for Kimberly-Clark de
Personal Care (c) 17,000,000 Mexico, S.A. de C.V.... A 49,214,827 4.42
-----------------------------------------------------------------------------------------
Corporacion
Interamericana de
Entretenimiento, S.A.
Entertainment (a) 6,100,000 de C.V................. B 28,606,986 2.57
-----------------------------------------------------------------------------------------
Financial Grupo Financiero BBVA-
Groups (a)(c) 52,000,000 Bancomer, S.A. de C.V.. O 26,830,467 2.41
Grupo Financiero Banamex
(a) 11,059,000 Accival, S.A. de C.V... O 52,630,964 4.73
Grupo Financiero
(a) 4,227,000 Inbursa, S.A. de C.V... O 14,901,293 1.34
Grupo Financiero
Inverlat Recovery
(a)(b) -- Trust.................. -- 0.00
------------ -----
94,362,724 8.48
-----------------------------------------------------------------------------------------
</TABLE>
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The Mexico Fund, Inc.
Schedule of Investments as of July 31, 2000 (Unaudited) -- (Continued)
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<TABLE>
<CAPTION>
Percent
Value of Net
Industries Shares Held Common Stock (Continued) Series (Note 1) Assets
--------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
Grupo Bimbo, S.A. de
Food (c) 24,644,000 C.V. .................. A $41,226,903 3.70%
Grupo Industrial Maseca,
(c) 17,000,000 S.A. de C.V. .......... B 7,118,898 0.64
-------------- ------
48,345,801 4.34
--------------------------------------------------------------------------------------------
Iron & Steel Tubos de Acero de
Industry (c) 870,000 Mexico, S.A. * 11,998,398 1.08
--------------------------------------------------------------------------------------------
Media (a) 19,832,000 Grupo Televisa, S.A. ... CPO 64,404,743 5.79
(a) 14,000,000 TV Azteca, S.A. de C.V.. CPO 10,409,144 0.94
-------------- ------
74,813,887 6.73
--------------------------------------------------------------------------------------------
Mining Grupo Mexico, S.A. de
Industry (c) 7,750,000 C.V. .................. B 29,887,298 2.69
--------------------------------------------------------------------------------------------
Controladora Comercial
Mexicana, S.A. de
Retail Trade (c) 11,770,000 C.V. .................. UBC 13,378,143 1.20
Grupo Elektra, S.A. de
7,000,000 C.V. .................. CPO 7,014,208 0.63
Grupo Sanborns, S.A. de
(a)(c) 4,250,000 C.V.................... B-1 6,873,731 0.62
Organizacion Soriana,
4,650,000 S.A. de C.V. .......... B 17,361,126 1.56
Wal-Mart de Mexico, S.A.
(a)(c) 16,232,807 de C.V. ............... C 36,069,051 3.24
Wal-Mart de Mexico, S.A.
(a)(c) 34,696,784 de C.V. ............... V 79,875,622 7.18
-------------- ------
160,571,881 14.43
--------------------------------------------------------------------------------------------
Total Common Stock
(Identified Cost--
$604,935,730).......... $1,090,734,427 98.00
--------------------------------------------------------------------------------------------
<CAPTION>
Percent
Short-Term Securities Value of Net
Securities Fair Value (8.75%) (Note 1) Assets
--------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
$22,027,649 Bancomer, S.A., 12.25%,
dated 07/31/00, due
08/01/00, repurchase
price $22,035,144,
Repurchase collateralized by
Agreements Udibonos............... $ 22,027,649 1.98%
Lehman Brothers, 6.55%,
dated 07/31/00, due
08/01/00, repurchase
price $75,382,520,
75,368,807 collateralized by U.S.
Government Agency
Securities............. 75,368,807 6.77
-------------- ------
97,396,456 8.75
--------------------------------------------------------------------------------------------
Total Short-Term
Securities (Identified
cost--$97,396,456)..... 97,396,456 8.75
Total Investments
(Identified cost--
$702,332,186).......... 1,188,130,883 106.75
Liabilities in Excess of
Other Assets........... (75,124,569) (6.75)
-------------- ------
Net Assets (Equivalent
to $22.04 per share on
50,506,925 shares of
capital stock
outstanding (Note 7)... $1,113,006,314 100.00%
-------------- ------
</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 10 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, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments:
Securities, at value (Note 1):
Common stock (identified cost -- $604,935,730).. $1,090,734,427
Short term securities (identified cost --
$97,396,456).................................. 97,396,456
--------------
Total investments (identified cost --
$702,332,186)................................ $1,188,130,883
Cash............................................. 36,441
Dividends receivable............................. 598,428
Interest receivable.............................. 21,208
Prepaid Mexican withholding taxes (Note 1)....... 525,551
--------------
Total assets................................... 1,189,312,511
--------------
Liabilities:
Payable upon return of securities loaned (Note
1).............................................. 75,368,807
Payable to Investment Advisor (Notes 2 and 3).... 792,746
Accrued expenses and other liabilities........... 144,644
--------------
Total liabilities.............................. 76,306,197
--------------
Net Assets -- Equivalent to $22.04 per share on
50,506,925 shares of capital stock outstanding
(Note 7)........................................ $1,113,006,314
==============
</TABLE>
See Notes to Financial Statements.
<PAGE>
--------------------------------------------------------------------------------
The Mexico Fund, Inc.
Statement of Operations (Unaudited) For the Nine Months Ended July 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Net Investment Income:
Income (Note 1):
Dividends........................................... $13,378,135
Interest and discounts earned....................... 4,132,875
Income from securities loaned, net.................. 175,093
-----------
Total income........................................ $ 17,686,103
Expenses:
Investment advisory fee (Note 2).................... 5,734,170
Administrative services (Note 3).................... 267,500
Value-added taxes (Note 1).......................... 924,667
Printing, distribution and mailing of shareholder
reports............................................ 159,627
Legal fees.......................................... 275,685
Directors' fees..................................... 154,787
Directors' and Officers' expenses................... 39,762
Accounting and audit fees........................... 77,337
Custodian fees (Note 5)............................. 73,058
Transfer agent and dividend disbursement fees....... 15,750
Shareholders' information........................... 166,438
Stock exchange fees................................. 36,242
Insurance........................................... 69,983
Miscellaneous....................................... 74,282
-----------
Operating expenses.................................. 8,069,288
------------
Net investment income (Note 1)...................... 9,616,815
------------
Net Realized and Unrealized Gain on Investments and
Foreign Currency Transactions:
Net realized gain on investments and foreign currency
transactions (Notes 1 and 6):
Proceeds from sales................................. 131,059,003
Cost of securities sold............................. 77,841,474
-----------
Net realized gain on investments.................... 53,217,529
Net realized gain from foreign currency 207,108
transactions.......................................
-----------
Net realized gain on investments and foreign
currency transactions.............................. 53,424,637
Increase in net unrealized gain on investments and
translation of assets and liabilities in foreign
currency:
Investments:
End of period (Note 6).............................. 485,798,696
Beginning of period................................. 419,910,947
-----------
Increase in net unrealized gain on investments...... 65,887,749
Translation of assets and liabilities in foreign
currency:
End of period....................................... 666,714
Beginning of period................................. (304,016)
-----------
Increase in net unrealized gain on translation of
assets and liabilities in foreign currency.......... 970,730
-----------
Increase in net unrealized gain on investments and
translation of assets and liabilities in foreign
currency............................................ 66,858,479
------------
Net Increase in Net Assets Resulting from Operations. $129,899,931
============
</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, 2000 Year Ended
(Unaudited) October 31, 1999
---------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations
Net investment income................... $ 9,616,815 $ 20,388,489
Net realized gain on investments and
foreign currency transactions.......... 53,424,637 1,107,534
Increase in net unrealized gain on
investments and translation of assets
and liabilities in foreign currency.... 66,858,479 206,280,504
-------------- ------------
Net increase in net assets resulting
from operations........................ 129,899,931 227,776,527
Dividends to shareholders from net
investment income...................... (5,520,407) (22,925,093)
-------------- ------------
Total increase in net assets........... 124,379,524 204,851,434
Net Assets:
Beginning of period..................... 988,626,790 783,775,356
-------------- ------------
End of period........................... $1,113,006,314 (A) $988,626,790 (A)
============== ============
</TABLE>
See Notes to Financial Statements.
(A) Including accumulated net investment loss of $(6,583,029) as of July 31,
2000 and $(10,886,545) as of October 31, 1999.
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Nine Months
Ended For the Year Ended October 31,
The Mexico Fund, Inc. July 31, 2000 ----------------------------------------------------
Financial Highlights (Unaudited) 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of period.... $ 19.57 $ 15.52 $ 23.49 $ 17.33 $ 13.80 $ 33.48
---------- -------- -------- ---------- -------- --------
Net investment income
(Note 1).............. 0.19 0.40 0.39** 0.40 0.50 0.59**
Net gain (loss) on
investments and
translation of foreign
currency (Note1)...... 2.39 4.10 (7.48)** 6.16 3.46 (19.21)**
---------- -------- -------- ---------- -------- --------
Total from investment
operations............. 2.58 4.50 (7.09)** 6.56 3.96 (18.62)**
---------- -------- -------- ---------- -------- --------
Less Dividends and
Distributions:
Dividends to
shareholders from net
investment income..... (0.11) (0.45) (0.23) (0.38) (0.43) --
Distributions to
shareholders from net
capital gains......... -- -- (0.60) (0.02) -- (0.01)
---------- -------- -------- ---------- -------- --------
Total dividends and
distributions.......... (0.11) (0.45) (0.83) (0.40) (0.43) (0.01)
---------- -------- -------- ---------- -------- --------
Tax return of capital.. -- -- -- -- -- (0.05)
---------- -------- -------- ---------- -------- --------
Capital charge
resulting from
issuance of fund
shares................ -- -- (0.05) -- -- (1.00)
---------- -------- -------- ---------- -------- --------
Net asset value, end of
period................ $ 22.04 $ 19.57 $ 15.52 $ 23.49 $ 17.33 $ 13.80
========== ======== ======== ========== ======== ========
Market value per share,
end of period......... $ 15.19 $ 14.31 $ 11.25 $ 18.69 $ 14.13 $ 12.25
========== ======== ======== ========== ======== ========
Total investment return
based on market value
per share.............. 6.87% 31.92% (36.70%) 35.03% 18.77% (60.79%)
Ratios to Average Net
Assets:
Expenses............... 0.93%* 0.98% 0.93% 0.91% 1.00% 1.14%
Net investment income.. 1.11%* 2.14% 1.87% 1.80% 2.93% 3.24%
Supplemental Data:
Net assets at end of
period (in 000's)..... $1,113,006 $988,627 $783,775 $1,167,893 $861,750 $685,896
Portfolio turnover
rate.................. 12.05% 6.40% 3.69% 7.58% 9.57% 10.61%
</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 Quarter Ended Quarter Ended
July 31, 2000 April 30, 2000 January 31, 2000
--------------------- --------------------- ---------------------
Total Per Share Total Per Share Total Per Share
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income....... $ 7,971 $ 0.16 $ 6,420 $ 0.13 $ 3,295 $ 0.07
Net investment income... $ 5,351 $ 0.11 $ 3,651 $ 0.07 $ 615 $ 0.01
Net realized gain on
investments............ $ 23,230 $ 0.46 $ 17,040 $ 0.34 $ 12,947 $ 0.26
Net realized (loss) gain
from foreign currency
transactions........... $ (1,167) $(0.02) $ 846 $ 0.02 $ 528 $ 0.01
(Decrease) increase in
net unrealized gain on
investments............ $ (15,586) $(0.31) $ (21,816) $(0.43) $ 103,290 $ 2.05
Increase (decrease) in
net unrealized gain on
translation of assets
and liabilities in
foreign currency....... $ 940 $ 0.02 $ 65 $ 0.00 $ (34) $ 0.00
Net assets.............. $1,113,006 $22.04 $1,104,784 $21.87 $1,104,998 $21.88
</TABLE>
--------
See Notes to Financial Statements.
<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
The Mexico Fund, Inc.
Notes to Financial Statements--
July 31, 2000 (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 accounting princi-
ples generally accepted in the United States requires management to make esti-
mates and assumptions that affect the reported amounts of assets and liabili-
ties at the date of the financial statements and the reported amounts of reve-
nues and expenses for the period. Actual results could differ from those esti-
mates. 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 closing price reported by the Mexican Stock Exchange. The
closing price represents the weighted average for the last ten minutes of op-
erations in any business day. Short-term securities are carried at cost, plus
accrued interest, which approximates market value. All other securities are
valued in accordance with methods determined 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 rea-
sonably expects to receive on a current sale of the security, the Fund will
value the security based on a method that the Board believes accurately re-
flects fairvalue.
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
recorded as it is earned.
Foreign currency -- 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 exchange rate prevailing in Mexico City at the end of the period. The
open market exchange rate at July 31, 2000 was Ps. 9.361 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 func-
tional currency denominated assets, currency gains or losses realized between
the trade and settlement dates on securities transactions, the difference be-
tween the amounts of dividends, interest, and foreign withholding taxes re-
corded by the Fund, and the U.S. dollar equivalent of the amount actually re-
ceived or paid.
<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
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.
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 the Fund's investment advisor monitors the credit standing of
repurchase agreement counterparties. The fair value of the collateral exceeds
the principal amount of the repurchase transaction, including accrued inter-
est, at all times. If the counterparty defaults, and the fair value of the
collateral declines, realization 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, 2000, 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.
Lending of portfolio securities -- During fiscal year 1998, the Board of Di-
rectors approved a securities lending program for the Fund. Merrill Lynch
Portfolio Services, Inc. served as the lending agent for the Fund from August
1998 throughAugust 1999.
In March 2000, the Board appointed Cantor Fitzgerald & Co. ("Cantor"), as the
lending agent for the Fund. Since March 7, 2000, 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. Any gain or loss in the 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 investment 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 borrower, and may pay a commission to the
lending agent. Under the agreement, Cantor may also reimburse to the Fund the
custodian fees. In order to protect against the risk of failure by the bor-
rower to return the securities loaned or any delay in the delivery of such se-
curities, each loan is collateralized by U.S. dollars (cash), securities is-
sued or guaranteed by the U.S. government or its agencies or instrumentali-
ties, or irrevocable stand-by letters of credit issued by U.S. banks. Portfo-
lio securities loaned are initially collateralized at 105 percent of its mar-
ket value. If the collateral value falls below
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
105 percent, at the close of any business day, Comerica Bank, the Fund's custo-
dian of the collateral received, will obtain additional collateral from the
borrower, on the following business day, in an amount sufficient to restore the
collateral to 105 percent. At July 31, 2000, the value of securities loaned and
collateral received thereon were as follows:
<TABLE>
<S> <C>
Value of Securities Loaned......................................... $72,118,313
===========
Value of Collateral Received....................................... $75,368,807
===========
</TABLE>
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 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 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, 2001. The annual fee pay-
able to the Adviser by the Fund under this agreement is $350,000.
4. Trust Agreement and Trustee:
Bancomer, S.A. ("Bancomer") was the trustee for the Mexican Trust through
which the Fund invested. During 1997 and 1998, the Mexican governmental author-
ities gave approval to the Trustee for the transfer of the total assets and li-
abilities of the Trust to the Fund. On February 27, 1998, the Fund's sharehold-
ers approved matters in connection with the termination of the Trust Agreement
with Bancomer. The termination was effective on March 31, 1998.
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 $50,296. Due to the na-
ture 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, 2000 were as follows:
<TABLE>
<S> <C>
Purchases
-------------------------------------------------------------------------------
Common Stock...................................................... $170,703,735
------------
Total Purchases................................................. $170,703,735
============
Proceeds from Investments Sold
-------------------------------------------------------------------------------
Common Stock...................................................... $131,059,003
------------
Total Sales..................................................... $131,059,003
============
</TABLE>
<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
As of July 31, 2000, net unrealized gains on investments in common stocks for
Federal income tax purposes aggregated to approximately $486 million, of which
approximately $541 million related to appreciated securities and approximately
$55 million related to depreciated securities. The aggregate cost of invest-
ments in common stocks at July 31, 2000 for Federal income tax purposes was
approximately $605 million.
7. Capital Stock:
At July 31, 2000, 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.
The Fund offers a Dividend Reinvestment Plan ("Plan") to its shareholders.
Fund shareholders are automatically enrolled as participants in the Plan un-
less they notify the Fund's transfer agent 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, 2000, 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.............................. (6,583,029)
Undistributed net realized gains on investments.............. 6,150,708(A)
Unrealized appreciation of investments and translation of
assets and liabilities in foreign currency.................. 486,465,410
--------------
$1,113,006,314
==============
</TABLE>
-------------------------------------------------------------------------------
-------
(A) ($ 3,566,751) for Federal Income Taxes.
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 accounting principles generally accepted in the United States.
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 has net capital loss
carryforwards at July 31, 2000 of approximately $3,567,000 expiring in 2007.
9. Stock Repurchase Program:
On July 31, 2000, the Board of Directors announced a Stock Repurchase Program
pursuant to which the Fund may purchase in the open market up to 5,050,693
shares of its stock at prevailing market prices. The Program started on Au-
gust 7, 2000. As of October 2, 2000 the Fund has repurchased 1,019,200 of its
shares at a cost of $16,062,032.
10. 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
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
recapitalization program. On July 23, 1996, after the absorption of accumulated
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 in-
terest. Management has assigned the market value of the Fund's holdings in the
Recovery Trust at $0 as of July 31, 2000, due to the uncertainty regarding its
ultimate realization.
According to the Bank Savings Protection Law, which was enacted on January 20,
1999, all assets of FOBAPROA have been transfered to a new entity called IPAB
(Bank Savings Protection Institute). This transfer will not modify the market
value assigned to the Recovery Trust.
