Edgar Filing: MEXICO FUND INC

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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.

Auditors --
Arthur Andersen

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.
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Annual Report
October 31, 2000
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[MXF LISTED NYSE LOGO]

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www.themexicofund.com
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. The Fund's fiscal year 2000 ended October 31, 2000.

. The Fund began the implementation of its Share Repurchase Program ("SRP")
announced on July 31, 2000. The SRP is intended to enhance shareholder value.

. At the Fund's Special Meeting of Shareholders held on October 16, 2000,
shareholders approved two proposals to convert the Fund to a non-diversified
investment company and to permit the Fund to concentrate its investments in a
particular industry or group of industries based on the representation of
that industry or group of industries on a relevant Mexican stock index.

. During fiscal year 2000, the Fund's market price and NAV per share increased
11.1% and 7.0%, respectively, compared with an
increase of 18.0% registered by the Bolsa index and with a 14.9% increase
registered by the S&P/IFCG Mexico Index.

. The Fund's share discount between market price and NAV ended the fiscal year
2000 at a level of 24.1% from 26.9% one year earlier.

. The Fund's Web site-- www.themexicofund.com--provides, among other useful
information, the Fund's daily market price and NAV per share as well as its
portfolio holdings for the past fiscal quarter, updated within the first five
business days after the end of each fiscal quarter.

. The Board of Directors declared a cash dividend of 5.0 cents per share. The
dividend is payable on January 31, 2001 to shareholders of record as of
December 29, 2000 and is comprised entirely of long-term realized capital
gains.

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The Mexico Fund, Inc. is a non-diversified closed-end management invest-
ment company with the investment objective of long-term capital appreci-
ation through investments in securities, primarily equity, listed on the
Mexican Stock Exchange. The Fund provides a vehicle to investors who
wish to invest in Mexican companies through a managed non-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 and Political Environment

President Vicente Fox took office on December 1, 2000 and announced the des-
ignation of his cabinet at the end of November. The new Secretary of Finance
and Public Credit is Francisco Gil Diaz, who is well known to international
investors, as he has previously held important government positions both at
the same Ministry, as Undersecretary, and at the Central Bank, as Vice-Gover-
nor. Mr. Gil has announced that he will make special efforts to improve public
sector finances, to reduce domestic interest rates and to promote sustained
economic growth.

Mexican economic activity continued to grow dynamically through the end of
the third quarter of calendar 2000, as the country's gross domestic product
("GDP") increased 7% during that period. The GDP expansion for the first nine
months of calendar 2000 reached 7.5%. During the third quarter of 2000, the
services sector increased 7.3%, and within this, transportation grew 13%. At
the same time, the industrial sector increased 6.8%. The manufacturing indus-
try within the industry sector registered the most favorable performance,
7.2%. Finally, the primary sector of the economy, mining, agriculture, and
foodstuffs, increased 4.7%. Economic analysts estimate that the GDP growth
during 2000 will be approximately 7% and that it will decelerate to around
4.6% by 2001.

The dynamic performance of the Mexican economy continued to be accompanied
by a declining inflation trend. For the 12-month period ended October 31,
2000, Mexico's inflation rate was 8.9%, significantly lower than the 18.6% and
12.3% registered at the end of 1998 and 1999, respectively. Strict adherence
to the current administration's restrictive monetary policy and the strong
performance of the peso contributed to this inflation trend. Economic analysts
estimate that inflation will continue to decline and that at the end of 2001
inflation could reach approximately 7.7%.

The restrictive monetary policy implemented by Banco de Mexico (Central
Bank), aimed at controlling inflation rates, has resulted in stable levels of
the currency market but has increased domestic interest rates. The yield paid
by the 28-day Cetes (treasury bills) ended October 2000 at 17.30%, slightly
higher than the yield of 16.3% registered at the end of 1999.

As a result of the North American Free Trade Agreement, Mexico continued to
be the second largest trade partner of the United States. President Fox has
announced his intention to further enhance trade relations with Central, South
American and Asian countries, in an effort to diversify Mexican exports and
imports. Mexico is today one of the most open economies in the world, as the
country has signed ten international free trade agreements with 30 nations
around the globe. Direct foreign investment into Mexico amounted to $9.8 bil-
lion during the first nine months of 2000 and is expected to reach $13 billion
by the end of the year.

Mexico's external accounts continued to be healthy and manageable. During
the first ten months of 2000, Mexico's exports increased 24.3% to $138.2 bil-
lion, while total imports increased 24.8% to $143.5 billion, resulting in a
trade balance deficit of $5.3 billion, 41.3% higher than one year earlier. Al-
though the trade balance deficit is significantly higher than the previous
year, the amount of direct foreign investment into the country will likely fi-
nance approximately 80% of the current account deficit. Additionally, Mexico's
net international reserves at the Central Bank are now near their highest his-
torical level and amounted to approximately $34.6 billion at the end of Novem-
ber 2000.

The Mexican currency market registered a stable performance as the rate of
exchange of the Mexican peso against the dollar ended October 2000 at Ps.
9.56, compared with Ps. 9.49 at the end of 1999. President Fox has expressed
that the current free floating exchange rate policy implemented by the Central
Bank is the most appropriate policy at this time.

The Bolsa and the Fund's Performance

During fiscal 2000, consistent with most international financial markets,
the Bolsa presented a

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volatile performance and continued to be affected by domestic and interna-
tional events. Concerns about higher US interest rates, the significant in-
crease of international oil prices and the US Presidential elections, among
others, were some of the most important external events that affected finan-
cial markets. Domestically, the uncertain political climate that prevailed be-
fore the Mexican Federal elections of July 2000 played an important role.

The Fund's share market price increased 11% during this fiscal year and
ended at $15/13///16/. The discount between the Fund's market price and NAV
per share started fiscal 2000 at 27.1%, reached a maximum level of 33.5% dur-
ing May 2000 and declined to 24.1% at the end of the fiscal year. Although the
discount has narrowed recently, the Board of Directors continues to explore
options to try to reduce the discount on a permanent basis. In addition, the
Board continues to review options to enhance shareholder value consistent with
the Fund's long-term investment objective and closed-end structure that may
preserve the Fund as an attractive means for participating in the Mexican
economy through a managed investment vehicle.

It is now a common practice of the investment community to compare the per-
formance of funds with that of certain "benchmark" indices. In the case of the
Fund, the Board of Directors has examined several options and concluded that
the S&P/IFCG Mexico Index ("the IFC Mexico Index"), which is commonly used by
international investors, is an appropriate benchmark for the Fund. The IFC
Mexico Index is calculated by Standard & Poor's, one of the world's leading
rating agencies, and uses market capitalization weighing criteria (Standard &
Poor's does not sponsor the Fund nor is it affiliated in any way with the Fund
or its investment adviser. Standard & Poor's makes no representation or war-
ranty, express or implied, regarding the advisability of investing in the
Fund). In addition to this benchmark, reports to shareholders will also in-
clude figures of the Bolsa Index, which is calculated by the Mexican Stock Ex-
change and is also a market capitalization weighted indicator.

During fiscal 2000, the Fund's market price and NAV per share increased
11.1% and 7.0%, respectively, while the Bolsa Index grew 18.0% and the IFC
Mexico Index grew 14.9%. As we have previously reported, the relative
underperformance of the Fund's NAV versus these benchmarks was generated dur-
ing the first half of fiscal 2000, as the following table shows:

Total Return (%)
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IFC
Fund's Bolsa Mexico
Fiscal Period NAV Index Index
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First Half................................................. 11.0% 24.6% 20.2%
Second Half................................................ -4.4% -5.3% -4.4%
Fiscal 2000................................................ 7.0% 18.0% 14.9%

There have been inherent difficulties comparing the Fund's performance with
that of its benchmarks because of their concentrated composition and the di-
versified structure of the Fund. The two benchmark indices are heavily com-
prised of Telmex and its parent company, Telecom. In contrast, consistent with
its investment objective, diversification requirements, policies and proce-
dures, the Fund's portfolio maintained a lower average exposure to these two
issuers and others. During the first half of fiscal 2000, the return of Telmex
and Telecom was 37.5% and 60.5%, respectively. In this manner, a significant
portion of the difference between the return of the Fund's NAV and its bench-
marks is related to the lower weight of the Fund in these two issuers.

The balance of the underperformance is explained by the Adviser's decision
to maintain an under-weighted presence in media and banking companies, which
also fueled the return of the Bolsa Index and the IFC Mexico Index during the
first half of the Fund's fiscal year. The rationale was based upon several
fundamental characteristics of these sectors. In the case of the banking sec-
tor, the Fund's investment adviser was concerned that several factors could
have had an adverse effect on the industry, including profit quality, low lev-
els of credit operations, high levels of on-going interest rates and the lack
of legislative approval of two important laws (relating to bankruptcy and

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guarantees). With improvements in the financial sector and passage of legisla-
tion, the Fund has increased its presence to the banking sector. In the case
of media companies, the Fund's diversification limits restricted a higher con-
centration. With the recent shareholder approval to restructure the Fund as a
nondiversified fund and to permit concentrated investments under certain cir-
cumstances, the Fund has increased its investments in media companies.

At the same time, the Fund's portfolio maintains a strong presence in "val-
ue" companies with solid financial and market fundamentals, with anticipated
price growth perspectives. During the first half of fiscal 2000, prices of
technology companies boomed and were not generally followed by "old economy"
stocks. Unlike the Bolsa Index or the IFC Mexico Index, the Fund is a managed
investment vehicle and portfolio management involves judgment with regard to
the fundamental financial situation and growth prospects of each portfolio
company and market sector. Certain portfolio holdings, including those consid-
ered to belong to the "old economy", were out of favor but, in the Adviser's
view, continue to represent attractive investment opportunities.

The Adviser has been repositioning the Fund's portfolio and, as a result,
the relative performance of the Fund's NAV against the Bolsa Index and the IFC
Mexico Index has improved. During the second half of fiscal 2000, the Fund's
NAV outperformed the Bolsa Index by 0.9% and was equal to the performance of
the IFC Mexico Index.

Below you will find a discussion of several changes regarding diversifica-
tion and sector concentration recently approved by shareholders that provide
the Fund's Investment Adviser with additional flexibility to manage your
Fund's portfolio.

Special Meeting of Shareholders

On October 16, 2000, the Fund held a Special Shareholders' Meeting to con-
sider certain changes to the Fund's investment policies intended to provide
the Fund's investment adviser with greater flexibility to manage the Fund's
portfolio. Shareholders approved a proposal to convert the Fund to a non-di-
versified investment company as well as a proposal to permit the Fund to con-
centrate its investments in a particular industry or group of industries based
on the representation of that industry or group of industries on a relevant
Mexican stock index.

Although a majority of the shares of the Fund present at the meeting sup-
ported a proposal to amend the Fund's fundamental investment policy to permit
it to invest in a broader range of Mexican equity securities, the proposal did
not receive the requisite vote and accordingly was not adopted.

Portfolio Strategy

During fiscal 2000, the Fund disposed of 13 small-cap and low liquidity is-
suers in order to increase its investments in larger and more attractive com-
panies in the "new economy" and financial sectors, including four new issuers
in the portfolio that have performed strongly since the Fund's investment in
them. Although the financial fundamentals of most of the companies sold by the
Fund were solid, their limited market liquidity impeded fair valuations. Ac-
cordingly, the Fund's portfolio now reflects a relatively higher concentra-
tion, as its total number of issuers was reduced from 37 to 28 during fiscal
2000. It is also important to mention that the Mexican Bolsa has shown low
levels of liquidity and this has resulted in a burden to more actively manage
the Fund's portfolio, as the 12 largest companies of the Bolsa accounted for
approximately 80% of the total traded volume.

Additionally, and in order to allow the Fund to increase its exposure in the
financial, media and telecommunications sectors, the Adviser partially reduced
some investments in traditional companies such as Grupo Mexico (mining),
Apasco (cement), Alfa (conglomerate), Kimberly Clark (paper), Grupo Modelo
(brewer), Tamsa (steel) and Desc (conglomerates). Although these companies
have not performed as dynamically as those of the "new economy", the Invest-
ment Adviser believes that they continue to offer significant value and
represent an attractive long-term investment opportunity for the Fund.

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Several fundamental indicators of the Bolsa continue to suggest that market
prices of Mexican listed companies show modest valuations. At the end of Octo-
ber 2000, the average price-earnings (PE) and price-book value (PBV) ratios of
the Bolsa were 9.9 and 1.3 times, respectively. Although not comparable, the
average PE ratios of the Dow Jones Industrial Average and S&P 500 indices in
the US were approximately 19 and 27 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
6.5 times, 62% lower than its historical high of 17 times reached in February
1994.

This Report includes for your reference a summary description of the Fund's
ten largest holdings, which at the end of fiscal 2000 represented approxi-
mately 71.5% of its total net assets. For the last few years, the Fund had
been using a distinct sector classification system to categorize its invest-
ments by industry. Under this system, for example, media and telecommunica-
tions were separate sector classifications. As a result of the recent approval
of the Fund's concentration policy by shareholders, the Fund has reclassified
the sector allocation of its portfolio in accordance with the sector classifi-
cation provided by the Mexican Stock Exchange.

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 quarter. Accordingly, the
Fund's investment portfolio, as reported on the Web site, is updated during
the first five business days of February, May, August and November. The Fund's
investment portfolio as of October 31, 2000 has been posted on the Web site
since early November 2000.

Declaration of Dividend

The Board of Directors has declared a cash dividend of 5.0 cents per share,
payable on January 31, 2001 to shareholders of record on December 29, 2000.
The dividend is comprised entirely of long-term capital gains.

Shareholders enrolled in the Dividend Reinvestment Plan will receive their
distribution in shares of common stock of the Fund.

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, will be
reportable by U.S. taxpayers on their Federal income tax returns and may be
subject to applicable state and local taxes.

Foreign Taxes

The Fund paid foreign taxes of $635,510 and earned $19,586,296 of foreign
source income during the year ended October 31, 2000. Pursuant to Section 853
of the Internal Revenue Code, the Fund designates $0.0126 per share as foreign
taxes paid and $0.3886 per share as income earned from foreign sources for the
year ended October 31, 2000.

Share Repurchase and Securities Lending Programs

The Fund's Share Repurchase Program (SRP) commenced on August 7, 2000, and,
through the end of fiscal 2000, the Fund had repurchased 1,454,800 shares,
equivalent to 29% of the total amount authorized by the Board of Directors.
While it is expected that the share repurchase program will enhance the NAV
per share, there can be no assurance that the SRP will achieve that objective,
result in any 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 but
is not actively loaning portfolio securities of the Fund under the Program at
this time.

Concentration Policy

As recently approved by the shareholders of the Fund, the Fund has adopted a
concentration

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policy which permits the Fund to concentrate its investments in any industry
or group of industries of the Bolsa Index (or any successor or comparable in-
dex as determined by the Board of Directors to be an appropriate measure of
the Mexican market) if, at the time of investment, such industry represents
20% or more of the Bolsa Index; provided, however, that the Fund will not ex-
ceed the Bolsa Index concentration by more than 5%.

Currently, the only industry group which represents 20% or more of the value
of the securities included in the Bolsa Index is the communications industry
group. This industry category includes local, long-distance, and cellular tel-
ephone companies, as well as broadcast and media companies. Approximately
four-fifths of this industry group are telecommunications companies.

As provided below, the Fund has chosen to concentrate its investments in
this industry group. The communications industry group currently represents
40.75% of the value of the securities included in the Bolsa Index. The Fund
has invested 32.63% of its total assets in this industry category. The invest-
ment adviser to the Fund will continue to evaluate its concentration in this
industry category and may choose not to concentrate in this industry group in
the future or to concentrate in other industry categories subject to the con-
centration policy described above.

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 regular mail a copy of
this Annual Report and the most recent Quarterly and Monthly Summary Reports.
We hope that the Fund's Web site is a useful resource for information and we
will continue working to improve it.

The Fund also offers shareholders and the general public the ability to con-
tact the Fund via e-mail with questions or requests for additional information
about the Fund. Please direct your e-mail inquiries to:

Investor Relations Office
investor-relations@themexicofund.com

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 regular 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

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

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 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 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/ Juan Gallardo T.
Juan Gallardo T.
[/s/ Jose Luis Gomez Pimienta
Chairman of the Board
Jose Luis Gomez Pimienta
President

December 20, 2000.

1. Telefonos de Mexico ("Telmex") (17.66%)

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 ("Walmex") (11.18%)

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 ("Telecom") (7.56%)

Telecom is dedicated to the telecommunications business and is the control-
ling company of Telmex (see above), Prodigy Inc. (US) and Mcom Wireless Inc.
(Brazil). The shares of Prodigy Inc., an important Internet service provider
in the United States, have traded on the NASDAQ since February 1999.

4. Grupo Modelo ("Gmodelo") (6.53%)

Founded in 1925, Gmodelo is the leader in the production, distribution and
sale of beer in Mexico with a market share in the domestic and export markets
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.

5. Grupo Televisa ("Televisa") (5.70%)

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 has launched its own
internet portal.

6. Grupo Financiero Banamex Accival ("Banacci") (4.90%)

Banacci is the second largest financial institution in Mexico, offering
mainly banking, brokerage, insurance and pension funds management in Mexico.
Through two of its subsidiaries, Banacci is also engaged in financial activi-
ties in Argentina and California, USA, and participates in the Mexican tele-
communications sector through its investment in Avantel.

7. Cemex (4.86%)

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. Fomento Economico Mexicano ("Femsa") (4.84%)

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.

9. Grupo Financiero BBVA--Bancomer ("GFBB") (4.30%)

GFBB is one of Mexico's leading financial groups. In terms of deposits and
number of clients, GFBB is the largest private financial institution in Latin
America. GFBB's principal subsidiary is Bancomer, one of Mexico's leading com-
mercial banks, which operates as a universal bank and offers products and
services to individuals and corporations. Through its network of 2,413
branches and 4,172 automated teller machines (ATMs) in Mexico, as of June 30,
2000 (including BBV-Mexico and Banca Promex), Bancomer engages in a wide vari-
ety of commercial and retail banking activities. Grupo Banco Bilbao Vizcaya
Argentaria (BBVA), is GFBB's main stockholder. BBVA is the largest financial
group in Spain in terms of market capitalization, which totals more than $42
billion.

10. Kimberly Clark de Mexico ("Kimber") (4.00%)

The company is dedicated to the manufacturing, marketing and sale of paper
and consumer products for personal care. Kimber 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.

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The Mexico Fund, Inc.
Report of Independent Public Accountants
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To the Shareholders of
The Mexico Fund, Inc.:

We have audited the accompanying statement of assets and liabilities of The
Mexico Fund, Inc. (a Maryland corporation), including the schedule of
investments, as of October 31, 2000, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of
the two years in the period then ended, and the financial highlights for each
of the six years in the period ended October 31, 2000. These financial
statements and the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with auditing standards generally ac-
cepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of October 31, 2000, by correspondence with the custodians and bro-
kers. An audit also includes assessing the accounting principles used and sig-
nificant estimates made by management, as well as evaluating the overall finan-
cial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Mexico Fund, Inc. as of October 31, 2000, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the six years in
the period ended October 31, 2000, in conformity with accounting principles
generally accepted in the United States.

ARTHUR ANDERSEN

New York, New York
November 24, 2000

--------------------------------------------------------------------------------
The Mexico Fund, Inc.
Schedule of Investments as of October 31, 2000
--------------------------------------------------------------------------------

Percent
Value of Net
Industries Shares Held Common Stock (97.31%) Series (Note 1) Assets
----------------------------------------------------------------------------------------

Cement
Industry 5,300,000 Apasco, S.A. de C.V..... * $27,165,272 2.66%
11,800,000 Cemex, S.A. de C.V...... CPO 49,680,962 4.86
----------- -----
76,846,234 7.52
----------------------------------------------------------------------------------------
Carso Global Telecom,
Communications (a) 34,500,000 S.A. de C.V............ A1 77,228,033 7.56
(a) 21,500,000 Grupo Televisa, S.A..... CPO 58,247,908 5.70
Telefonos de Mexico,
19,000,000 S.A. de C.V............ A 51,375,523 5.03
Telefonos de Mexico,
47,950,000 S.A. de C.V............ L 129,154,027 12.63
22,639,000 TV Azteca, S.A. de C.V.. CPO 17,476,550 1.71
----------- -----
333,482,041 32.63
----------------------------------------------------------------------------------------
Financial Grupo Financiero Banamex
Groups (a) 32,200,000 Accival, S.A. de C.V... O 50,051,464 4.90
Grupo Financiero BBVA-
(a) 71,000,000 Bancomer, S.A. de C.V.. O 43,966,527 4.30
Grupo Financiero
(a) 4,827,000 Inbursa, S.A. de C.V... O 18,378,954 1.80
Grupo Financiero
Inverlat Recovery
(a)(b) -- Trust.................. -- 0.00
----------- -----
112,396,945 11.00
----------------------------------------------------------------------------------------
Food, Fomento Economico
Beverages 13,000,000 Mexicano, S.A. de C.V.. UBD 49,497,908 4.84
Grupo Bimbo, S.A. de
and Tobacco 23,444,000 C.V.................... A 32,566,561 3.19
6,131,000 Grupo Continental, S.A.. * 7,246,893 0.71
Grupo Modelo, S.A. de
24,975,000 C.V.................... C 66,748,039 6.53
----------- -----
156,059,401 15.27
----------------------------------------------------------------------------------------
Holding
Companies 6,000,000 Alfa, S.A. de C.V....... A 12,025,105 1.18
Corporacion
Interamericana de
Entretenimiento, S.A.
(a) 6,100,000 de C.V................. B 27,437,238 2.68
23,000,000 Desc, S.A. de C.V....... B 10,008,368 0.98
Grupo Carso, S.A. de
(a) 8,900,000 C.V.................... A1 27,742,678 2.71
Grupo Sanborns, S.A. de
(a) 3,400,000 C.V.................... B-1 5,647,699 0.55
----------- -----
82,861,088 8.10
----------------------------------------------------------------------------------------
Consorcio ARA, S.A. de
Housing (a) 6,875,000 C.V.................... * 9,708,421 0.95
Corporacion Geo, S.A. de
(a) 2,440,000 C.V.................... B 2,787,113 0.26
----------- -----
12,495,534 1.21
----------------------------------------------------------------------------------------

-------------------------------------------------------------------------------
The Mexico Fund, Inc.
Schedule of Investments as of October 31, 2000 -- (Continued)
-------------------------------------------------------------------------------

Percent
Value of Net
Industries Shares Held Common Stock (Continued) Series (Note 1) Assets
------------------------------------------------------------------------------------------

Mining Nuevo Grupo Mexico, S.A.
Industry (a) 7,000,000 de C.V................. B $ 23,284,519 2.28%
------------------------------------------------------------------------------------------
Kimberly-Clark de
Pulp and Paper 16,000,000 Mexico, S.A. de C.V.... A 40,920,502 4.00
------------------------------------------------------------------------------------------
Controladora Comercial
Retail Stores 11,770,000 Mexicana, S.A. de C.V.. UBC 13,050,418 1.28
Grupo Elektra, S.A. de
7,450,000 C.V.................... CPO 7,714,959 0.75
Organizacion Soriana,
4,650,000 S.A. de C.V............ B 14,592,050 1.43
Wal-Mart de Mexico, S.A.
(a) 14,477,000 de C.V................. C 32,785,256 3.21
Wal-Mart de Mexico, S.A.
(a) 34,000,000 de C.V................. V 81,443,515 7.97
-------------- ------
149,586,198 14.64
------------------------------------------------------------------------------------------
Tubos de Acero de
Steel 434,000 Mexico, S.A............ * 6,718,828 0.66
------------------------------------------------------------------------------------------
Total Common Stock
(Identified Cost--
$578,014,298).......... $ 994,651,290 97.31
------------------------------------------------------------------------------------------

Percent
Short-Term Securities Value of Net
Securities Fair Value (2.76%) (Note 1) Assets
------------------------------------------------------------------------------------------

$28,192,528 Bancomer, S.A., 16.70%,
dated 10/31/00, due
11/01/00, repurchase
price $28,205,606
Repurchase collateralized by
Agreements Cetes.................. $ 28,192,528 2.76%
------------------------------------------------------------------------------------------
Total Short-Term
Securities (Identified
cost--$28,192,528)..... 28,192,528 2.76
Total Investments
(Identified cost--
$606,206,826).......... 1,022,843,818 100.07
Liabilities in Excess of
Other Assets........... (707,883) (0.07)
-------------- ------
Net Assets Equivalent to
$20.84 per share on
49,052,125 shares of
capital stock
outstanding (Note 7)... $1,022,135,935 100.00%
-------------- ------

(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.

See Notes to Financial Statements.

--------------------------------------------------------------------------------
The Mexico Fund, Inc.
Statement of Assets and Liabilities as of October 31, 2000
--------------------------------------------------------------------------------

Assets:
Investments:
Securities, at value (Note 1):
Common stock (identified cost -- $578,014,298).... $994,651,290
Short term securities (identified cost --
$28,192,528).................................... 28,192,528
------------
Total investments (identified cost --
$606,206,826).................................. $1,022,843,818
Receivables from securities sold................... 2,656,826
Dividends receivable............................... 101,513
Prepaid Mexican withholding taxes (Note 1)......... 87,660
Interest receivable................................ 13,078
--------------
Total assets..................................... 1,025,702,895
--------------
Liabilities:
Payable for repurchase of Funds shares (Note 9).... 2,687,731
Payable to Investment Advisor (Notes 2 and 3)...... 681,779
Accrued expenses and other liabilities............. 197,450
--------------
Total liabilities................................ 3,566,960
--------------
Net Assets -- Equivalent to $20.84 per share on
49,052,125 shares of capital stock outstanding
(Note 7).......................................... $1,022,135,935
==============

See Notes to Financial Statements.

--------------------------------------------------------------------------------
The Mexico Fund, Inc.
Statement of Operations

For the Year Ended October 31, 2000
--------------------------------------------------------------------------------

Net Investment Income:
Income (Note 1):
Dividends........................................... $14,672,257
Interest and discounts earned....................... 4,914,039
Income from securities loaned, net.................. 215,269
-----------
Total income........................................ $19,801,565
Expenses:
Investment advisory fee (Note 2).................... 7,533,012
Administrative services (Note 3).................... 358,000
Value-added taxes (Note 1).......................... 1,212,617
Printing, distribution and mailing of shareholder
reports............................................ 252,198
Legal fees.......................................... 498,067
Directors' fees..................................... 194,000
Directors' and Officers' expenses................... 72,832
Accounting and audit fees........................... 106,870
Custodian fees (Note 5)............................. 94,390
Transfer agent and dividend disbursement fees....... 21,000
Shareholders' information........................... 316,219
Stock exchange fees................................. 48,410
Insurance........................................... 102,001
Miscellaneous....................................... 98,564
-----------
Operating expenses.................................. 10,908,180
-----------
Net investment income (Note 1)...................... 8,893,385
-----------
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................................. 240,412,446
Cost of securities sold............................. 181,265,862
-----------
Net realized gain on investments.................... 59,146,584
Net realized gain from foreign currency 571,031
transactions.......................................
-----------
Net realized gain on investments and foreign
currency transactions.............................. 59,717,615
Decrease in net unrealized gain on investments and
translation of assets and liabilities in foreign
currency:
Investments:
End of period (Note 6).............................. 416,636,993
Beginning of period................................. 419,910,947
-----------
Decrease in net unrealized gain on investments...... (3,273,954)
Translation of assets and liabilities in foreign
currency:
End of period....................................... 35,585
Beginning of period................................. (304,016)
-----------
Increase in net unrealized gain on translation of
assets and liabilities in foreign currency.......... 339,601
-----------
Decrease in net unrealized gain on investments and
translation of assets and liabilities in foreign
currency............................................ (2,934,353)
-----------
Net Increase in Net Assets Resulting from Operations. $65,676,647
===========

See Notes to Financial Statements.

--------------------------------------------------------------------------------
The Mexico Fund, Inc.
Statement of Changes in Net Assets

For the
Year Ended For the
October 31, Year Ended
2000 October 31, 1999
--------------------------------------------------------------------------------

Increase (Decrease) in Net Assets:
From Operations
Net investment income.................... $ 8,893,385 $ 20,388,489
Net realized gain on investments and
foreign currency transactions........... 59,717,615 1,107,534
(Decrease) increase in unrealized gain on
investments and translation of assets
and liabilities in foreign currency..... (2,934,353) 206,280,504
-------------- ------------
Net increase in net assets resulting from
operations.............................. 65,676,647 227,776,527
Dividends to shareholders from net
investment income....................... (9,429,937) (22,925,093)
-------------- ------------
56,246,710 204,851,434
From Capital Share Transactions (Note 9)
Repurchase of stock, at cost............. (22,737,565) --
-------------- ------------
Total increase in net assets............ 33,509,145 204,851,434
Net Assets:
Beginning of period...................... 988,626,790 783,775,356
-------------- ------------
End of period............................ $1,022,135,935 (A) $988,626,790 (A)
============== ============

See Notes to Financial Statements.
(A) Including accumulated net investment loss of $(10,852,067) as of October
31, 2000 and $(10,886,545) as of October 31, 1999.

--------------------------------------------------------------------------------

The Mexico Fund, Inc. For the Year Ended October 31,
Financial Highlights
2000 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------

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).............. 0.18** 0.40 0.39** 0.40 0.50 0.59**
Net gain (loss) on
investments and
translation of foreign
currency (Note1)...... 1.10** 4.10 (7.48)** 6.16 3.46 (19.21)**
---------- -------- -------- ---------- -------- --------
Total from investment
operations............. 1.28** 4.50 (7.09)** 6.56 3.96 (18.62)**
---------- -------- -------- ---------- -------- --------
Less Dividends and
Distributions:
Dividends to
shareholders from net
investment income..... (0.19) (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.......... (0.19) (0.45) (0.83) (0.40) (0.43) (0.01)
---------- -------- -------- ---------- -------- --------
Tax return of capital.. -- -- -- -- -- (0.05)
---------- -------- -------- ---------- -------- --------
Capital Share
Transactions:
Effect on NAV of stock
repurchased........... 0.18 -- -- -- -- --
Capital charge
resulting from
issuance of fund
shares................ -- -- (0.05) -- -- (1.00)
---------- -------- -------- ---------- -------- --------
Net asset value, end of
period................ $ 20.84 $ 19.57 $ 15.52 $ 23.49 $ 17.33 $ 13.80
========== ======== ======== ========== ======== ========
Market value per share,
end of period......... $ 15.81 $ 14.31 $ 11.25 $ 18.69 $ 14.13 $ 12.25
========== ======== ======== ========== ======== ========
Total investment return
based on market value
per share.............. 11.82% 31.92% (36.70%) 35.03% 18.77% (60.79%)
Ratios to Average Net
Assets:
Expenses............... 0.96% 0.98% 0.93% 0.91% 1.00% 1.14%
Net investment income.. 0.78% 2.14% 1.87% 1.80% 2.93% 3.24%
Supplemental Data:
Net assets at end of
period (in 000's)..... $1,022,136 $988,627 $783,775 $1,167,893 $861,750 $685,896
Portfolio turnover
rate.................. 22.27% 6.40% 3.69% 7.58% 9.57% 10.61%

--------
**Amounts were computed based on average shares outstanding during the period.

See Notes to Financial Statements.
--------------------------------------------------------------------------------
Selected Quarterly Financial Data (Unaudited)
--------------------------------------------------------------------------------

(Amounts in thousands,
except per share amounts)
---------------------------------------------------------------------------------------
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
October 31, 2000 July 31, 2000 April 30, 2000 January 31, 2000
--------------------- --------------------- --------------------- ---------------------
Total Per Share Total Per Share Total Per Share Total Per Share
---------- --------- ---------- --------- ---------- --------- ---------- ---------

Investment income....... $ 2,116 $ 0.04 $ 7,971 $ 0.16 $ 6,420 $ 0.13 $ 3,295 $ 0.07
Net investment income... $ (724) $(0.01) $ 5,351 $ 0.11 $ 3,651 $ 0.07 $ 615 $ 0.01
Net realized gain on
investments............ $ 5,929 $ 0.12 $ 23,230 $ 0.46 $ 17,040 $ 0.34 $ 12,947 $ 0.26
Net realized gain (loss)
from foreign currency
transactions........... $ 364 $ 0.01 $ (1,167) $(0.02) $ 846 $ 0.02 $ 528 $ 0.01
(Decrease) increase in
net un-
realized gain on
investments............ $ (69,162) $(1.41) $ (15,586) $(0.31) $ (21,816) $(0.43) $ 103,290 $ 2.05
(Decrease) increase in
net unrealized gain on
translation of assets
and liabilities in
foreign currency....... $ (631) $(0.01) $ 940 $ 0.02 $ 65 $ 0.00 $ (34) $ 0.00
Net assets.............. $1,022,136 $20.84 $1,113,006 $22.04 $1,104,784 $21.87 $1,104,998 $21.88

--------
See Notes to Financial Statements.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

The Mexico Fund, Inc.
Notes to Financial Statements--
October 31, 2000
-------------------------------------------------------------------------------

1. Operations and Significant Accounting Policies:
The Fund is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as a closed-end management investment company. On October
16, 2000, the Fund received shareholder approval to convert from a diversified
to a non- diversified investment company under the 1940 Act. The investment
objective of the Fund is to seek long term capital appreciation through in-
vestment in securities, primarily equity, listed on the Mexican Stock Ex-
change.

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
operationsin any business day. Short-term securities arecarried at cost, plus
accrued interest, which approximates market value. All other securities
arevalued 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
reasonably 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 fair value.

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.

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 October 31, 2000 was Ps. 9.560 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.

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 year ended
October 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 through August 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 105 percent, at the close of
any business day, Comerica Bank, the Fund's custodian of the collateral re-
ceived, will obtain additional collateral from the borrower, on the following
business day, in an amount sufficient to restore the collateral to 105 per-
cent.

Since September 29, 2000, the Fund has not been actively lending portfolio
securities under this Program.

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. Investment Advisers
Act of 1940. The Adviser furnishes investment research and portfolio management
services consistent with the Fund's stated investment policies. The Fund pays
to the Adviser a monthly fee at the annual rate of 0.85% on the first $200 mil-
lion 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:
BBVA 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 $50,253. 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
year ended October 31, 2000 were as follows:

Purchases
-------------------------------------------------------------------------------
Common Stock...................................................... $247,206,687
------------
Total Purchases................................................. $247,206,687
============
Proceeds from Investments Sold
-------------------------------------------------------------------------------
Common Stock...................................................... $240,412,446
------------
Total Sales..................................................... $240,412,446
============

As of October 31, 2000, net unrealized gains on investments in common stocks
for Federal income tax purposes aggregated to approximately $417 million, of
which approximately $458 million related to appreciated securities and approxi-
mately $41 million related to depreciated securities. The aggregate cost of in-
vestments in common stocks at October 31, 2000 for Federal income tax purposes
was approximately $578 million.

7. Capital Stock:
At October 31, 2000, there were 150,000,000 shares of $1.00 par value common
stock authorized, of which 50,758,750 shares were issued, 49,052,125 shares
were outstanding and 1,706,625 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

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 October 31, 2000, net assets were comprised of the following:

Common stock................................................. $ 49,052,125
Additional paid-in capital................................... 555,183,536
Accumulated net investment loss.............................. (10,852,067)
Undistributed net realized gains on investments.............. 12,079,763(A)
Unrealized appreciation of investments and translation of
assets and liabilities in foreign currency.................. 416,672,578
--------------
$1,022,135,935
==============

Dividends to shareholders from net investment income are determined based on
Federal income tax regulations, whereas the corresponding net investment income
as reflected in the accompanying financial statements, is presented in accor-
dance 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.

--------------------------------------------------------------------------------

--------
(A) $2,362,304 for Federal Income Taxes

Capital loss carryforwards will be used to offset future capital gains avail-
able for distribution.

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 August
7, 2000. As of October 31, 2000, the Fund has repurchased 1,454,800 of its
shares at a cost of $22,737,565.

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 recapitalization program. On July 23, 1996,
after the absorption of accumulated losses through the total reduction of capi-
tal 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 Fund's holdings in the Recovery Trust at $0 as of October
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.