During the first half of fiscal year 2022, a total of 2,328,089 Fund shares traded on all U.S. consolidated markets, resulting in a daily average value of shares traded of $283,643. Comparable closed-end funds4 investing outside the United States traded a daily average and median of $512,958 and $406,827, respectively, during the same period.
The average price-to-earnings ratio of the Mexican equity market at the end of April 2022 was 15.0 times, while the price-to-book value ratio was 2.0 times.5 The market capitalization of the Mexican Stock Exchange at the end of April 2022 amounted to $451.6 billion. During the first quarter of calendar year 2022, Mexican listed companies reported strong results as sales and Ebitda increased 17.2% and 13.4%, respectively, in annual terms, benefited by a recovery in global and domestic economic activity, the increase in commodity prices and cost reductions, since a growing portion of the Mexican issuer’s sales and Ebitda came from exports and/or sales abroad.
In March 2019, the Board and Impulsora jointly agreed to a significant reduction in Fund expenses to support the continued long-term performance of the Fund and to further the interests of Fund stockholders by continuing to deliver a competitive investment vehicle. For fiscal year 2022, the Board and Impulsora agreed to renew and further strengthen the Fund´s ELA, reducing the ordinary expense ratio cap from 1.50% to 1.40% from November 1, 2021, through October 31, 2022, so long as Fund net assets remain greater than $260 million. When Fund net assets are below the threshold of $260 million, Impulsora will still waive fees in an amount necessary to maintain an ordinary operating expense ratio of 1.40% at a hypothetical Fund net asset level of $260 million. During the first half of fiscal year 2022, the Fund’s total expense ratio was 1.32%, lower than the 1.45% reported during fiscal 2021; and the ordinary expense ratio (excluding the performance component of the Investment Advisory fee), was 1.38%, lower than the ordinary expense ratio of 1.41% reported during fiscal year 2021, and lower than the Fund’s expense limit of 1.40% during the year.
Under the MDP, the Fund pays quarterly amounts of $0.18 per share. Accordingly, the Board has declared a distribution of $0.18 per share, payable in cash on July 28, 2022 to stockholders of record as of July 20, 2022.
Mexican macroeconomic variables are strong and public finances remain solid. In addition, the financial results of Fund portfolio companies have shown superior growth to GDP, while valuations remain attractive, trading at a discount to its three- and five-year averages, which have translated into a positive investment performance of the Fund and Mexican equity market during the Fund´s first half of fiscal year 2022 and a constructive outlook going forward. Moreover, the Fund has kept reducing operating expenses and its MDP translates into an attractive distribution rate, broadening the interests of Fund stockholders. Despite the current challenging global context, the Board and the Adviser are confident that your Fund will continue to generate long-term value by investing in selected Mexican companies that best adapt to the current environment, while observing strong environmental, social and corporate governance standards. We hope you find this report useful and informative, and we thank you for your continued confidence in the Fund.
Annual Meeting of Stockholders
The Fund held its Annual Meeting of Stockholders on March 8, 2022 at 10:30 a.m. Central time at the John Jacob Boardroom on the Mezzanine Level of the St. Regis Hotel, located at 1919 Briar Oaks Lane, Houston, Texas 77027. Stockholders re-elected Edward P. Djerejian, Claudio X. González and Alberto Osorio as Class II Directors of the Fund for a three-year term expiring in 2025. In addition, stockholders approved the election of Ms. Claudia Jañez, to serve as a Class I Director until the expiration of the Class’s term in 2024. Ms. Jañez has strong business and legal experience and is expected to provide significant insights to the Fund. A total of 12,395,668 shares were represented at the meeting, constituting a quorum of 82.61%.
Regarding the election of the Fund´s Directors, the results of the Annual Meeting were as follows*:
|
For |
% Outstanding |
% of Voted |
Withheld |
% Outstanding |
% of Voted |
Claudio X. González |
11,368,331 |
75.76% |
91.71% |
1,027,337 |
6.85% |
8.29% |
Edward P. Djerejian |
11,802,486 |
78.66% |
95.21% |
593,182 |
3.95% |
4.79% |
Alberto Osorio |
11,731,755 |
78.18% |
94.64% |
663,913 |
4.42% |
5.36% |
Claudia Jañez |
11,807,204 |
78.69% |
95.25% |
588,464 |
3.92% |
4.75% |
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*
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There were no abstentions or broker non-votes with regard to the election of the Fund’s Class II or Class I Directors.
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Renewal of Investment Advisory Agreement
At a meeting of the Board held on March 8, 2022 at which a majority of the Directors were in attendance, including a majority of the Independent Directors, the Board, and separately a majority of the Independent Directors, taking into consideration the recommendation of the Contract Review Committee of the Board (“Committee”), approved the continuation of the Investment Advisory Agreement (“Agreement”) with Impulsora based on its consideration of various factors, including: (1) the nature, extent and quality of services provided by the Adviser to the Fund; (2) the investment performance of the Fund; (3) the costs of the services provided, and profits to be realized, by the Adviser from its relationship with the Fund; (4) the extent to which economies of scale may be realized as the Fund grows and whether fee levels reflect these economies of scale for the benefit of Fund investors; and (5) other benefits to the Adviser from its relationship with the Fund (and any corresponding benefit to the Fund). In response to a specific request by the Independent Directors, Impulsora provided detailed information concerning the foregoing factors. The Board also received a memorandum from independent legal counsel discussing the duties of board members in considering the approval of the continuation of the Agreement. The Board evaluated information consisting of comparative figures of overall expenses, management and other fees, of a group of substantially similar funds. As discussed more fully below, the Board considered the Fund’s historical performance through the beginning of March 2022, as well as the Fund’s current advisory fee rate, noting that the total advisory fee rate is slightly higher than the median for comparable regional closed-end funds as provided by Lipper, Inc., while its ordinary advisory fee (excluding the fulcrum fee) is in line with its peers. The Board determined that the fees payable to Impulsora were reasonable, especially in light of the quality of the services provided, as well as the level of advisory fees paid by comparable funds.
The following discussion is not intended to be all-inclusive. The Board reviewed a variety of factors and considered a significant amount of information, including information received on an ongoing basis at meetings of the Board and Board committees. In view of the broad scope and variety of these factors and
10 | The Mexico Fund, Inc.
GENERAL INFORMATION continued
information, the Board did not find it practicable to, and did not, make specific assessments of, quantify or otherwise assign relative weights to the specific factors in reaching their conclusions and determination to approve the continuance of the Agreement.
The Board has determined that the Agreement is in the best interests of the Fund’s stockholders, as it would enable the stockholders to obtain high quality services at a cost that is appropriate and reasonable. In addition, the Board has concluded that the Agreement appropriately aligns the interests of the Adviser, the Fund, and Fund stockholders by rewarding superior performance or penalizing poor investment results when compared with the MSCI Mexico Index.
Performance adjustments under the Agreement began on April 1, 2015 based upon the Fund’s performance during the trailing 12-month period and adjustments were made since then, which the Board reviewed in its consideration of renewal of the Agreement.
Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of advisory services provided by the Adviser. The Board receives information at regular meetings throughout the year regarding the services rendered by the Adviser concerning the management of the Fund and the Adviser’s role in coordinating providers of other services to the Fund. Also, the Adviser provides all facilities and services necessary to analyze, execute and maintain investments consistent with the Fund’s objectives, and has done so since the Fund’s inception in 1981. The Board had available to it the qualifications, backgrounds and responsibilities of the personnel primarily responsible for the day-to-day portfolio management of the Fund and recognized that these individuals report to the Board regularly and provide a detailed report on the Fund’s performance at each regular meeting of the Board. The Board also received and considered the Adviser’s financial information, including recent operating results and expenses, as well as the specific services performed by the Adviser. The Board concluded that overall, it was satisfied with the nature, quality and extent of services that the Adviser provides to the Fund.
Investment Performance. At the Board meeting on March 8, 2022, the Board received and considered information regarding Fund performance relative to the leading Mexican equity indices, including the S&P BMV IPC Index and the MSCI Mexico Index, and the EWW (an ETF that tracks the Mexican equity market) as well as comparable funds. The Board had also received information throughout the year at periodic intervals regarding the Fund’s performance, including with respect to the leading Mexican equity indices. The Board was provided with the performance matrix as of January 31, 2022 with periods of three months, year-to-date, one-, three-, five- and ten-year periods, and determined that the Fund had outperformed the MSCI Mexico Index over periods of year-to-date, three-, five- and ten years. The Board also determined that the Adviser had achieved superior investment performance compared with all of the comparable Mexican equity mutual funds over three-, and ten-year periods ended January 31, 2022, and ranked second over the five-year period. Based on its review and the Adviser’s explanation, the Board concluded that the Fund’s performance has been positive and competitive.
Costs and Profitability. The Board reviewed the fees charged by Impulsora for investment advisory services, as well as the gross revenues and pre-tax profits earned by Impulsora. The Board also reviewed and considered comparative information supplied by Lipper, Inc., which the Board noted showed that the total effective investment advisory fee of the Fund remained competitive and slightly higher than the median fee rate of other comparable regional closed-end funds, while its ordinary advisory fee (excluding the fulcrum fee) is in line with its peers. The Board also reviewed and considered comparative information regarding administrative fees and expense ratios charged to comparable funds. Additionally, the Board reviewed the actual dollar amount of the fees payable under the Agreement, as well as the fee as a percentage of assets under management. The Board further considered the Expense Limitation Agreement between the Fund and Impulsora ,by which Impulsora would waive fees and/or reimburse expenses (excluding amounts payable via the performance adjustment factor under the Fund’s Agreement,
The Mexico Fund, Inc. | 11
GENERAL INFORMATION continued
taxes, interest, brokerage fees and any non-recurring expenses) to the extent necessary so that the Fund’s ordinary annual expense ratio does not exceed 1.40% beginning on November 1, 2021 through October 31, 2022, so long as Fund net assets remain greater than $260 million. On the basis of this information, the Board concluded that the level of the investment advisory fee and the profitability of the relationship between the Fund and Impulsora are appropriate in light of the nature, extent and quality of services provided to the Fund. The Board also concluded that the Agreement’s performance component and its use of the MSCI Mexico Index were fair and appropriate.
Economies of Scale. The Board determined that the investment advisory fees payable under the Agreement already reflect potential future economies of scale, through the existing fee structure, which includes the imposition of breakpoints as Fund assets increase, of 1.0% of average daily net assets for assets up to and including $200 million, 0.90% of average daily net assets for assets in excess of $200 million and up to and including $400 million, 0.80% of average daily net assets for assets in excess of $400 million and up to and including $600 million, 0.70% of average daily net assets for assets in excess of $600 million and up to and including $800 million, and 0.60% of average daily net assets for assets over $800 million.
Other Benefits to the Adviser. The Board determined that the other benefits described by the Adviser were reasonable, fair, and consistent with industry practice and the best interests of the Fund and its stockholders. In this regard, the Board specifically considered the benefits to IFM Capital, LLC, a subsidiary of the Adviser, due to the fact that it serves, and receives a fee from, the Fund pursuant to the Fund Services Agreement.
Concentration Policy
The Fund has adopted a concentration policy, as permitted by the 1940 Act, that allows it to concentrate its investments in any industry or group of industries beyond 25% of the Fund’s assets if, at the time of investment, such industry represents 20% or more of the IPC Index; provided, however, that the Fund will not exceed the IPC Index concentration by more than 5%. At the end of April 2022, no industry group represented 20% or more of the value of the securities included in the IPC Index.
Proxy Voting
Information about how the Fund voted proxies during the twelve-month period ended June 30 will be available, without charge, upon request by calling collect Mr. Tofi Dayan, or on the SEC’s website at www.sec.gov. The Fund’s and its Investment Adviser’s proxy voting policies and procedures are available on the Fund’s website, www.themexicofund.com under the heading “Corporate Governance,” on the SEC’s website at www.sec.gov, or without charge, upon request, by calling Mr. Tofi Dayan. Mr. Dayan can be contacted at (+52 55) 9138-3350, during Mexico City business hours (10:00 am to 3:00 pm and 5:00 to 7:00 pm ET).
How to Obtain More Information About the Fund
The Fund’s semi-annual and annual reports (collectively, “Shareholder Reports”) and proxy statements are published on the Fund’s website, www.themexicofund.com, under the section captioned “Publications.”
Unless you have elected to receive all future Shareholder Reports in paper, Shareholder Reports will be made available on the Fund’s website and you will be notified by mail each time a Shareholder Report is posted and provided with a website link to access the Shareholder Report. Stockholders who are recordholders of Fund shares and who wish to receive public reports and press releases regarding the Fund by e-mail should log in to their accounts with AST at www.amstock.com and consent to electronic delivery.
12 | The Mexico Fund, Inc.
GENERAL INFORMATION continued
The Fund publishes a Monthly Summary Report containing information about the Fund’s performance and portfolio composition. The Monthly Summary Reports are distributed via e-mail to interested investors, made available on the Fund’s website, and filed with the SEC on Form 8-K.
Stockholders
with questions about the Fund may contact Mr. Tofi Dayan, the Fund’s Treasurer, at (+52 55) 9138-3350 between 10:00 am and
3:00 pm ET, and between 5:00 pm and 7:00 pm ET. If you prefer to contact the Fund via e-mail, please direct your e-mail inquiries to
investor-relations@themexicofund.com.
Please visit our website for daily information on the Fund’s NAV and market price per share. The Fund’s NYSE trading symbol is MXF.
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Electronic Delivery of Fund Materials |
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We encourage our stockholders to receive Fund materials via e-mail in order to save on printing expenses and contribute to saving the environment. Please inform your broker about your preference for electronic delivery (if you are holding your shares in street name) or if you are a recordholder of Fund shares, by logging in to your AST account at www.amstock.com and consenting to electronically receive Fund materials. |
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Open Market Repurchases
Under the Fund’s open market share repurchase policy, the Fund may repurchase up to 10% of the Fund’s outstanding common stock in open market transactions during any 12-month period if and when Fund shares trade at a price that is at a discount of at least 10% to NAV. During the first half of fiscal year 2022, the Fund did not repurchase Fund shares in the open market.
Distribution Reinvestment and Stock Purchase Plan
The Fund’s Distribution Reinvestment and Stock Purchase Plan (the “Plan”) provides a convenient way to increase your holdings in the common stock of the Fund through the reinvestment of distributions paid by the Fund. The Plan includes the following:
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(1)
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Voluntary Stock Purchase Option. All registered stockholders (regardless of whether they are Plan participants) can make monthly voluntary cash investments in Fund shares through AST (the “Plan Agent”). The minimum investment for a voluntary cash investment is $25.00; you may vary the amount of your investment as long as it equals or exceeds this $25.00 minimum. There is a fixed transaction fee of $2.50 and a $0.10 per share commission for this service. Optional cash payments can be made online or by mail, as described further in the enclosed brochure. Stockholders can also authorize AST to make automatic withdrawals from a bank account.
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(2)
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Clarification Regarding Reinvestment of Distributions. Distributions received through the Fund’s MDP can be reinvested directly in additional Fund shares, regardless of the character of such distributions for accounting and tax reporting purposes.
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(3)
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Online Enrollment in the Plan. As an alternative to mailing an authorization card to AST, stockholders may enroll in the Plan through AST’s website at www.amstock.com. To have distributions reinvested, stockholder authorization must be received by AST by the record date for a given distribution.
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The Mexico Fund, Inc. | 13
GENERAL INFORMATION continued
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(4)
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Withdrawal from the Plan. Stockholders may withdraw from the Plan by notifying AST. If a request for withdrawal is received by AST more than three (3) business days before a distribution payment date that distribution will be paid out in cash.
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(5)
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Amendment of Plan. The Fund reserves the right to amend or supplement the Plan at any time, but only by mailing to participants appropriate written notice at least thirty (30) days prior to the effective date thereof, except when necessary to comply with applicable laws or the rules or policies of the SEC or other regulatory authority.
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The Plan brochure can be accessed through AST’s or the Fund’s website, at www.amstock.com or www.themexicofund.com. If you have any questions, please contact AST at 1-877-573-4007 or 1-718-921-8124. You may also contact AST via mail at:
American Stock Transfer & Trust Company, LLC
Attention: Plan Administration Department
PO Box 922
Wall Street Station
New York, NY 10269-0560
If you are a Fund shareholder of record, you may enroll in the Plan by mail or online at www.amstock.com. Please contact AST for further information or to request an authorization card for enrollment. If your shares are held in nominee or “street name” through a broker, bank or other nominee who does not provide an automatic reinvestment service and you wish to have distributions reinvested in shares of the Fund, you must notify such nominee and request that the change be made on your behalf or that your shares be re-registered in your own name.
You may withdraw from the Plan, without penalty, at any time by notice to AST. If your request to withdraw from the Plan is received more than three business days before any distribution payment date, then that distribution will be paid out in cash. If your request to withdraw from the Plan is received less than three business days prior to any distribution payment date, then that distribution will be reinvested. However, all subsequent distributions would be paid out in cash on all balances.
Should you choose to withdraw any shares from the Plan or discontinue your participation in the Plan, you will receive a certificate or certificates for the appropriate number of full shares, along with a check in payment for any fractional share interest you may have. The payment for the fractional shares will be valued at the market price of the Fund’s shares on the date your termination is effective. In lieu of receiving a certificate, you may request the Plan Agent to sell part or all of your shares at market price and remit the proceeds to you, net of any brokerage commissions.
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 Board (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 valued at the greater of the NAV per share or the current market price on the valuation date. 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. Although stockholders in the Plan may receive no cash distributions, participation in the Plan will not relieve participants of any income tax that may be payable on such dividends or distributions. As a participant in the Plan, you will be charged a pro-rata portion of brokerage commissions on all open market purchases.
14 | The Mexico Fund, Inc.
GENERAL INFORMATION concluded
If you have any questions concerning the Plan or would like a hard copy of the Plan brochure, please contact AST using the contact information listed above.