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THE EMERGING MEXICO FUND, INC.
1285 Avenue of the Americas
New York, NY 10019
May 21, 1998
Dear Stockholder:
Enclosed is a copy of the Proxy Statement for The Emerging Mexico Fund, Inc.
containing important information to help you decide how to vote on the issues
to be determined at the June 24, 1998 Annual Meeting of Stockholders. We urge
you to read it carefully.
In particular, we wish to bring to your attention two proposals included in the
Proxy Statement that have been submitted by two stockholders. As required by
the rules of the Securities and Exchange Commission, we have included these
proposals as they were submitted, despite our belief that they are based on
fundamentally flawed arguments.
Proposal 3 seeks to open-end the Fund and Proposal 4 seeks to terminate the
Fund's investment advisory contract with Santander Management Inc. It is
important that you read these materials carefully, including the Board's
reasoned explanation of why the proposals are not in your best interest.
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THE BOARD OF DIRECTORS UNANIMOUSLY AGREES THAT PROPOSALS 3 AND 4 ARE NOT IN THE
BEST INTERESTS OF ALL STOCKHOLDERS AND WOULD DAMAGE THE ABILITY OF THE FUND TO
CONTINUE TO DELIVER THE SUPERIOR PERFORMANCE IT HAS ACHIEVED IN THE PAST.
THE BOARD OF DIRECTORS OF THE FUND STRONGLY RECOMMENDS THAT YOU VOTE
AGAINST PROPOSALS 3 AND 4 BY SIGNING, DATING AND RETURNING THE ENCLOSED PROXY
CARD TODAY.
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THE BOARD AND THE FUND'S ADVISER, SANTANDER MANAGEMENT, ARE COMMITTED TO
PURSUING A RESPONSIBLE COURSE OF ACTION IN THE INTERESTS OF ALL STOCKHOLDERS.
The proposals seek to convert the Fund to open-end status, and its proponents
assert that the Fund's adviser, Santander Management, opposes this change in
order to preserve its management fees. This allegation is entirely without
merit. Your Directors, the majority of whom are independent of Santander, have
been greatly concerned by the fact that the market price of the Fund's shares
are trading at a discount to the Fund's net asset value. They are committed to
investigating all possible alternatives that would significantly reduce the
discount without harming the long-term interests of the Fund's stockholders.
After extensive review, however, the Directors have not yet found such an
alternative nor have the proponents suggested such an alternative.
1
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AFTER CONVERSION TO OPEN-END STATUS, CLOSED-END FUNDS GENERALLY PERFORM POORLY
As explained in a May 11, 1998 story in Investor's Business Daily(1),
closed-end funds generally perform poorly after conversion to open-end status.
Large investors generally benefit the most from open-ending due to their
ability to sell large blocks of stock quickly during the short period after
announcement of conversion when the discount narrows. Long-term investors,
however, are generally worse off due to increased taxes, increased expense
ratios and declining performance caused by substantially reduced assets
resulting from sales of Fund investments to meet redemptions after the actual
conversion. AS AN INDUSTRY ANALYST STATED IN THE ARTICLE, "CLOSED-END INVESTORS
OVERESTIMATE THE BENEFITS OF GOING OPEN. THE DISCOUNT DOES NARROW, BUT THAT
DOESN'T MEAN THE FUND'S VALUE WILL GO UP."
AFTER CONVERSION TO OPEN-END STATUS, NET ASSET VALUE MAY, IN FACT, DECREASE
In contrast to the proponents' claim of realizing full net asset value for the
shares, we believe that the net asset value of our Fund may, in fact, decrease
after conversion, as the Fund is forced to liquidate rapidly a large portion of
its holdings to meet redemptions. We believe that our Fund would be
particularly hard hit due to its concentration of investments in the less-liquid
but very promising smaller-sized companies that has driven our Fund's extremely
strong performance over the past few years.
AFTER CONVERSION TO OPEN-END STATUS, CONTINUING HOLDERS WOULD LIKELY SUFFER
HIGHER EXPENSE RATIOS AND TAX BURDENS
Conversion would also result in the Fund's continuing holders bearing a larger
share of the Fund's expenses as certain large, professional investors quickly
exit the Fund in their pursuit of relatively small but immediate gains through
"fund arbitrage." Continuing holders would also have to bear the extra burden
of additional capital gains taxes as the Fund liquidates long-term investments
to raise cash to meet current or future redemptions.
AFTER CONVERSION TO OPEN-END STATUS, THE FUND COULD NOT CONTINUE
ITS SUCCESSFUL INVESTMENT STRATEGY
After conversion to open-end status, the Fund could not continue to pursue its
stated and very successful strategy of investing in the most promising
companies in Mexico. As a closed-end fund, we can invest in those companies
with the greatest potential for growth, even though such stocks may not be very
liquid at the time of investment. As an open-end fund, however, our ability to
make such attractive investments would be severely hampered by the need to keep
cash on hand to meet redemptions.
IN BOTH 1996 AND 1997, THE EMERGING MEXICO FUND, INC. OUTPERFORMED THE OTHER
TWO U.S. REGISTERED MEXICAN COUNTRY FUNDS. DURING THAT SAME PERIOD, THE FUND'S
NET ASSET VALUE INCREASED 30% AND 51%, RESPECTIVELY.
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1 Permission to use quotations for the article was neither sought nor otherwise
obtained.
2
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THE PROPOSALS ARE NOT IN THE BEST LONG-TERM INTERESTS OF ALL OF THE FUND'S
STOCKHOLDERS
In addition, you should know that the proponents are a hedge fund that invests
in closed-end funds trading at a discount to net asset value and the wife of
one of the hedge fund's principals. The proponents then attempt to open-end
those funds. We understand that the proponents currently have submitted similar
proposals to several other closed-end funds. We believe that their investment
in the Fund was not occasioned by an interest in the long-term appreciation in
value that the Mexican economy represents, but by a desire to profit from the
short-term trading opportunity that conversion might represent. Their personal
agenda, we strongly believe, does not represent the best long-term interests of
all of the Fund's stockholders.
DO NOT BE MISLED INTO SACRIFICING THE LONG-TERM VALUE OF YOUR INVESTMENT
IN THE FUND SO ARBITRAGEURS AND A FEW INVESTORS CAN REAP OPPORTUNISTIC,
ONE-TIME PROFITS.
VOTE AGAINST PROPOSALS 3 AND 4 BY SIGNING, DATING AND RETURNING
THE ENCLOSED PROXY CARD TODAY!
Very truly yours,
The Directors of The Emerging Mexico Fund, Inc.
/s/ Gonzalo de Las Heras /s/ Philip L. Bullen /s/ Rodney B. Wagner
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Gonzalo de Las Heras Philip L. Bullen Rodney B. Wagner
/s/ Edgar R. Fiedler /s/ Richard S. Weiner
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Edgar R. Fiedler Richard S. Weiner
IF YOU HAVE ANY QUESTIONS OR REQUIRE ANY ASSISTANCE IN VOTING YOUR SHARES,
PLEASE CONTACT OUR PROXY SOLICITOR:
INNISFREE M&A INCORPORATED
1-888-750-5834
501 MADISON AVENUE
20TH FLOOR
NEW YORK, NY 10022
