As filed with the Securities and Exchange Commission on March 13, 2007
1933 Act File No. 333-140298
1940 Act File No. 811- 03170
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
x REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
x Pre-Effective Amendment No. 3
¨ Post-Effective Amendment No.
and
x REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY OF 1940
Amendment No. 50
THE MEXICO FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1775 I Street, NW
Washington, DC 20006-2401
(Address of Principal Executive Offices)
(202) 261-7941
(Registrants Telephone Number, including Area Code)
José Luis Gómez Pimienta
President
The Mexico Fund, Inc.
1775 I Street, NW
Washington, DC 20006-2401
(Name and Address of Agent for Service)
Copies of Communications to:
Sander M. Bieber, Esq. Dechert LLP 1775 I Street, NW Washington, DC 20006-2401 |
Thomas A. Hale, Esq. Skadden, Arps, Slate, Meagher & Flom LLP 333 West Wacker Drive Chicago, IL 60606 |
Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. ¨
It is proposed that this filing will become effective when declared effective pursuant to section 8(c).
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
TITLE OF SECURITIES BEING REGISTERED | NUMBER BEING REGISTERED (1) |
PROPOSED MAXIMUM OFFERING PRICE PER UNIT (1) |
PROPOSED MAXIMUM AGGREGATE OFFERING PRICE (1) |
AMOUNT OF REGISTRATION FEE (2) | |||||||
Common Shares |
|||||||||||
$1.00 par value |
5,021,908 Shares | $ | 38.87 | $ | 185,441,486 | $ | 5,700 | ||||
(1) | Estimated solely for the purpose of calculating the registration fee. Based on the average of the high and low prices reported on the New York Stock Exchange on March 9, 2007 (i.e., a specified date within 5 business days prior to the date of filing this registration statement). |
(2) | $107.00 was previously paid on January 29, 2007 upon the filing under the Securities Act of 1933 of this Registration Statement for 25,316 Shares of Common Stock and $5,700 was previously paid on March 12, 2007 for 5,021,908 Shares of Common Stock. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such dates as the Commission, acting pursuant to said Section 8(a), may determine.
THE MEXICO FUND, INC.
CROSS REFERENCE SHEET
BETWEEN ITEMS OF REGISTRATION STATEMENT (FORM N-2) AND
PROSPECTUS PURSUANT TO RULE 495(A)
ITEM NO. |
CAPTION |
LOCATION IN PROSPECTUS OR STATEMENT OF ADDITIONAL | ||
1. | Outside Front Cover Page | Front Cover Page | ||
2. | Cover Pages; Other Offering Information | Front Cover Page | ||
3. | Fee Table and Synopsis | Fee Table and Prospectus Summary | ||
4. | Financial Highlights | Financial Highlights | ||
5. | Plan of Distribution | Front Cover Page; Prospectus Summary; The Offer | ||
6. | Selling Stockholders | Not Applicable | ||
7. | Use of Proceeds | Use of Proceeds | ||
8. | General Description of the Registrant | Front Cover Page; Prospectus Summary; The Fund; Investment Objective and Policies; Risk Factors and Special Considerations | ||
9. | Management | Prospectus Summary; Management of the Fund; Custodian and Transfer Agent; Distribution Arrangements | ||
10. | Capital Stock, Long-Term Debt, and Other Securities | Front Cover Page; The Fund; Dividends and Capital Gains Distributions; Dividend Reinvestment Plan; Taxation | ||
11. | Defaults and Arrears on Senior Securities | Not Applicable | ||
12. | Legal Proceedings | Not Applicable | ||
13. | Table of Contents of the Statement of Additional Information | Not Applicable | ||
14. | Cover Page of SAI | Not Applicable | ||
15. | Table of Contents of SAI | Not Applicable | ||
16. | General Information and History | The Fund; Capital Stock | ||
17. | Investment Objective and Policies | Investment Objective and Policies; Investment Restrictions | ||
18. | Management | Management of the Fund; Management Agreement; Administration and Service Agreements; Portfolio Transactions and Brokerage | ||
19. | Control Persons and Principal Holders of Securities | Capital StockBeneficial Ownership | ||
20. | Investment Advisory and Other Services | Management of the Fund; Management Agreement; Administration and Service Agreements; Custodian and Transfer Agent; Distribution Arrangements | ||
21. | Portfolio Managers | Management of the Fund; Management Agreement | ||
22. | Brokerage Allocation and Other Practices | Portfolio Transactions and Brokerage | ||
23. | Tax Status | Taxation in Prospectus | ||
24. | Financial Statements | Financial Statements |
PART C OF REGISTRATION STATEMENT
Information required to be included in Part C is set forth under the appropriate item, so numbered in Part C to this Registration Statement.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION , 2007
The Mexico Fund, Inc.
5,021,908 Shares of Common Stock
Issuable Upon Exercise of Rights to Subscribe for Such Shares
The Mexico Fund, Inc. (the Fund), a Maryland Corporation is issuing transferable rights (Rights) to its stockholders of record as of the close of business on March 22, 2007 (the Record Date) entitling the holders of these Rights to subscribe for an aggregate of 5,021,908 shares of common stock, par value $1.00 per share. Stockholders of record will receive one Right for each outstanding share of common stock of the Fund owned on the Record Date. The Rights entitle the holders to purchase one new share of common stock for every three Rights held (1-for-3), and stockholders of record who fully exercise their Rights will be entitled to subscribe, subject to certain limitations and subject to allotment, for additional shares represented by any unexercised Rights. The Funds outstanding common stock is listed on the New York Stock Exchange (NYSE) under the symbol MXF. The Rights are transferable and will be listed for trading on the NYSE under the symbol MXF.RT during the course of this offer. See The offer for a complete discussion of the terms of this offer. The subscription price (the Subscription Price) will be determined based upon a formula equal to 95% of the average of the last reported sales prices of a share of the Funds common stock on the NYSE on the Expiration Date and the four preceding trading days (the Formula Price). If, however, the Formula Price is less than 72.5% of the net asset value (NAV) per share of the Funds common stock on the Expiration Date, then the Subscription Price will be 72.5% of the NAV per share on that day. The offer will expire at 5:00 p.m., New York City time, on April 20, 2007, unless extended as described herein (the Expiration Date).
The net asset value per share of the Funds common stock at the close of business on March 9, 2007 (the last trading date prior to the date of this prospectus on which the Fund determined its net asset value) was $44.30 and the last reported sale price of a share on the NYSE on that day was $38.99.
The Fund is a non-diversified, closed-end management investment company whose primary investment objective is long-term capital appreciation through investment in securities, primarily equity, listed on the Bolsa Mexicana de Valores, S.A. de C.V. (the Mexican Stock Exchange or Bolsa). See Investment objective and policies and Investment restrictions in this prospectus.
As a result of the terms of this offer, stockholders who do not fully exercise their Rights will own, upon completion of this offer, a smaller proportional interest in the Fund than they owned prior to the offer. In addition, because the subscription price per share will be less than the net asset value per share, the offer will result in an immediate dilution of net asset value per share for all stockholders. Such dilution is not currently determinable because it is not known how many shares will be subscribed for, what the net asset value or market price of the Funds common stock will be on the Expiration Date or what the subscription price will be. If the subscription price per share is substantially less than the current net asset value per share, such dilution could be substantial. Any such dilution will disproportionately affect nonexercising stockholders. All stockholders will experience a decrease in the net asset value per share held by them, irrespective of whether they exercise all or any portion of their Rights. The distribution to stockholders of transferable rights which themselves may have intrinsic value will afford non-participating stockholders the potential to receive a cash payment upon sale of their rights, receipt of which may be viewed as partial compensation for the dilution of their interest in the Fund. No assurance can be given that a market for the rights will develop, or as to the value, if any, that rights will have. See Risk factors and special considerationsDilutionNet asset value and non-participation in the offer in this prospectus.
This prospectus sets forth concisely the information about the Fund that a prospective investor ought to know before investing and should be retained for future reference. Stockholders may obtain additional information about the Fund from the Funds reports filed with the Securities and Exchange Commission (the SEC). You may obtain a copy of the Funds reports filed with the SEC by
contacting the Information Agent at 1-800-965-5216 between the hours of 9:00 a.m. and 5:00 p.m. New York City time, Monday-Friday (except holidays). The Fund also makes its reports available free of charge on the Funds website at www.themexicofund.com under Investor Reports. In addition, the reports filed with the SEC, including material incorporated by reference into this prospectus, are available at the SECs website at www.sec.gov.
For information regarding the offer, please contact the Information Agent at 1-800-965-5216.
Investors are advised to read this prospectus and retain it for future reference.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per share | Total(4) | |||||
Estimated subscription price(1) |
$ | 37.04 | $ | 186,013,983 | ||
Estimated sales load(1)(2) |
1.30 | 6,510,489 | ||||
Proceeds, before expenses, to the Fund(1)(3) |
$ | 35.74 | $ | 179,503,494 |
(1) | Estimated on the basis of 95% of the market price per share at the close of trading on March 9, 2007. In no event shall the Subscription Price be less than 72.5% of the net asset value per share of the Funds common stock on the Expiration Date. See The offerThe Subscription price. |
(2) | In connection with the offer, the Dealer Manager will receive a fee for its financial structuring, marketing and soliciting services equal to 3.50% of the subscription price per share for each share issued pursuant to the exercise of Rights and the over-subscription privilege. The Dealer Manager will reallow a part of its fees to other broker-dealers which have assisted in soliciting the exercise of Rights. The Fund has also agreed to indemnify the Dealer Manager against certain liabilities under the Securities Act of 1933, as amended. |
(3) | Before deduction of offering expenses incurred by the Fund, estimated at $530,000. |
(4) | Assumes all Rights are exercised at the estimated subscription price. |
As used in this prospectus, unless otherwise specified, dollar, $, US$ or U.S. Dollar refer to the United States Dollar. No representation is made that the peso or dollar amounts shown in this prospectus could have been or could be converted into dollars or pesos, as the case may be, at any particular rate at all.
Unless otherwise indicated, U.S. dollar equivalent information in the prospectus for the peso as of a specified date is based on the exchange rate for obligations in U.S. dollars published by Banco de Mexico. On March 9, 2007, the exchange rate published by Banco de Mexico was $11.1205. U.S. dollar information presented in pesos for a period, and the daily calculation of the Funds net asset value, expressed in dollar terms, are determined by using this exchange rate.
2
The following summary is qualified in its entirety by reference to the more detailed information appearing elsewhere or incorporated by reference in this prospectus. It may not contain all of the information that is important to each stockholder. Accordingly, to understand the offer fully, stockholders are encouraged to read the entire document carefully. Unless otherwise indicated, the information in this prospectus assumes that all of the Rights issued are exercised.
THE OFFER AT A GLANCE
Purpose of the offer
The Board of Directors of the Fund (Board or Board of Directors) and Impulsora del Fondo Mexico, S.C., the Funds investment adviser (the Investment Adviser) have determined that it would be in the best interest of the Fund and its stockholders to increase the assets of the Fund available for investment, thereby enabling the Fund to more fully take advantage of available investment opportunities arising as a result of continued positive developments in Mexico and the Mexican securities market and consistent with the Funds investment objective of long-term capital appreciation and in accordance with its efforts to seek out and invest in attractive growth oriented businesses including, but not limited to small and medium capitalization companies.
The Board and the Investment Adviser also believe that an increase in the size of the Fund may result in a modest reduction in the Funds expense ratio. There can be no assurance that the offer will be successful or that by increasing the size of the Fund, the Funds
aggregate expenses and, correspondingly, its expense ratio, will be lowered. The Fund conducts periodic repurchase offers pursuant to the Funds repurchase offer policy, as described in further detail in this prospectus, which may counteract the possible positive effects of a rights offering on the Funds expense ratio. See The offerPurpose of the offer.
The offer
The Fund is issuing to stockholders of record on March 22, 2007, the Record Date, one transferable Right for each full share of Fund common stock (Share) held. Each stockholder on the Record Date and each other holder of the Rights is entitled to subscribe for one Share for every three Rights held (1 for 3). The Fund will not issue fractional shares of its common stock upon the exercise of Rights; accordingly, Rights may be exercised only in multiples of three. Any stockholder on the Record Date who is issued fewer than three Rights is entitled to subscribe for one full Share in this offer.
The Rights are transferable and will be listed for trading on the NYSE under the symbol MXF.RT during the course of this offer. See The offer. The Fund has been advised that the Investment Adviser and each of the Funds Directors intends to participate in the offer.
The offer is not contingent upon any number of Rights being exercised. The Fund will bear the expenses of the offer, which will be paid from the proceeds of the offer. These expenses include, but are not limited to, the expense of preparation and printing of the prospectus for the offer, the expense of counsel and auditors in connection with the offer, the expense of the Dealer Manager for its financial structuring, marketing and soliciting services, and the out-of-pocket expenses incurred by the officers of the Fund and others in connection with the offer.
In this prospectus, we use the terms Stockholders to refer to any person that holds Shares, Record Date Stockholders to refer to those stockholders that held their Shares on the Record Date and Rights Holders to refer to those persons (i) that are Record Date Stockholders to whom the Rights were issued initially and (ii) any subsequent transferees of the Rights that continue to hold the Rights.
Over-subscription privilege
Record Date Stockholders who fully exercise all Rights issued to them (other than those Rights which cannot be exercised because they represent the right to acquire less than one Share) are entitled to subscribe for additional Shares which were not subscribed for by other Record Date Stockholders. If sufficient Shares are available, all Record Date Stockholders over-subscription requests will be honored in full. If these requests exceed the Shares available, the available Shares will be allocated pro-rata among Record Date Stockholders who over-subscribe based on the number of Shares held by each such Record Date Stockholder on the Record Date. Investors who are not Record Date Stockholders, but who otherwise acquire Rights to purchase Shares pursuant to this offer, are not entitled to subscribe for any Shares pursuant to the over-subscription privilege. See The offerOver-subscription privilege.
Subscription price
The Subscription Price will be determined based upon a formula equal to 95% of the average of the last reported sales prices of a share of the Funds common stock on the NYSE on the Expiration Date and the four preceding trading days (the Formula Price). If, however, the Formula Price is less than 72.5% of the NAV per share of the Funds common stock on the Expiration Date, then the Subscription Price will be 72.5% of the NAV per share on that day.
Subscription agent
The subscription agent for this offer is American Stock Transfer & Trust Company (the Subscription Agent).
3
Sale of rights
The Rights are transferable until the Expiration Date. The Rights will be listed for trading on the NYSE under the symbol MXF.RT during the course of the offer. The Fund and the Dealer Manager will use their best efforts to ensure that an adequate trading market for the Rights will exist. No assurance can be given that a market for the Rights will develop. Trading in the Rights on the NYSE may be conducted until the close of trading on the NYSE on the last business day prior to the Expiration Date. See The offerSale of rights.
How to obtain subscription information
| Contact your broker-dealer, trust company, bank or other nominee, or |
| Contact the Information Agent toll-free at (800) 965-5216. |
How to subscribe
| If your shares are held in an account with your broker-dealer, trust company, bank or other nominee, have your broker-dealer, trust company, bank or other nominee deliver a Notice of Guaranteed Delivery to the Subscription Agent by the Expiration Date, or |
| Deliver a completed subscription certificate (Subscription Certificate) and payment to the Subscription Agent by the Expiration Date. |
Restrictions on foreign stockholders
The Fund will not mail Subscription Certificates to Stockholders whose record addresses are outside the United States (for these purposes, the United States includes its territories and possessions and the District of Columbia) (Foreign Stockholders). The Subscription Agent will send a letter via regular mail to notify Foreign Stockholders regarding the offer. The Subscription Agent will hold the Rights to which those Subscription Certificates relate for Foreign Stockholders accounts until instructions are received to exercise the Rights, subject to applicable law. If no instructions have been received by 5:00 p.m., New York City time, on April 17, 2007, three business days prior to the Expiration Date (or, if the subscription period is extended, on or before three business days prior to the extended Expiration Date), the Subscription Agent will transfer the Rights of these Stockholders to the Dealer Manager, which will either purchase the Rights or use its best efforts to sell the Rights.
Distribution arrangements
UBS Securities LLC will act as Dealer Manager for the offer. Under the terms and subject to the conditions contained in the Dealer Manager Agreement among the Dealer Manager, the Fund and the Investment Adviser, the Dealer Manager will provide financial structuring services and marketing assistance in connection with the offer and will solicit the exercise of Rights and participation in the over-subscription privilege by Record Date Stockholders. The Fund has agreed to pay the Dealer Manager a fee for its financial structuring, marketing and soliciting services equal to 3.50% of the subscription price per Share for Shares issued pursuant to the exercise of Rights and the over-subscription privilege. The Dealer Manager will reallow a portion of its fees to other broker-dealers that have assisted in soliciting the exercise of Rights. See The offerDistribution arrangements.
Prior to the expiration of this offer, the Dealer Manager may independently offer for sale Shares, including Shares acquired through purchasing and exercising the Rights, at prices it sets. Although the Dealer Manager may realize gains and losses in connection with such purchases and sales, such offering of Shares is intended by the Dealer Manager to facilitate the offer and any such gains or losses are not expected to be material to the Dealer Manager. The Dealer Managers fee for its financial structuring, marketing and soliciting services is independent of any gains or losses that may be realized by the Dealer Manager through the purchase and exercise of Rights.
Use of proceeds
The Investment Adviser anticipates that investment of the net proceeds of the offer in accordance with the Funds investment objective and policies will take approximately three and not more than six months from their receipt by the Fund, depending on market conditions and the availability of appropriate investment opportunities. See Use of proceeds.
4
IMPORTANT DATES TO REMEMBER
Record Date |
March 22, 2007 | |
Subscription Period |
March 22, 2007 April 20, 2007* | |
Final Date Rights Will Trade on NYSE |
April 19, 2007* | |
Expiration Date and Pricing Date |
April 20, 2007* | |
Payment for Shares or Notices of Guarantees of Delivery Due |
April 20, 2007* | |
Payment for Guarantees of Delivery Due |
April 25, 2007* | |
Confirmation Mailed to Participants |
April 27, 2007* | |
Final Payment for Shares Due |
May 11, 2007* |
* | Unless the offer is extended. |
THE FUND AT A GLANCE
The Fund
The Fund is a non-diversified, closed-end management investment company organized as a Maryland corporation. As of March 9, 2007 (the last trading date prior to the date of this prospectus on which the Fund determined its NAV), the Funds NAV per Share was $44.30 and the last reported sale price of a share on the NYSE was $38.99. See The Fund.
NYSE listed
As of March 9, 2007, the Fund had 15,005,723 Shares of common stock outstanding. The Funds common stock is traded on the NYSE under the symbol MXF. The last reported sale price of a Share of the Fund on the NYSE on March 9, 2007 was $38.99. The Rights are transferable and will be listed for trading on the NYSE under the symbol MXF.RT during the course of the offer. See The FundDescription of common stock.
Investment objective
The Funds investment objective is to seek long-term capital appreciation through investment in securities, primarily equity, listed on the Mexican Stock Exchange.
No assurance can be given that the Funds investment objective will be achieved. See Investment objective and policies.
Investment policies
For as long as the name of the Fund remains The Mexico Fund, Inc., it shall be the non-fundamental policy of the Fund normally to invest at least 80% of its assets in equity securities of issuers listed on the Mexican Stock Exchange. This investment policy is a non-fundamental policy which may be changed by the Board of Directors upon 60 days prior written notice to Stockholders.
The Fund is a non-diversified fund for purposes of the Investment Company Act of 1940, as amended (the 1940 Act). The Fund has also adopted a policy which permits the Fund to concentrate (i.e., over 25% of the Funds total assets) in 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.
The Fund may invest in Mexican fixed-income securities, bank time deposits of Mexican banks, and short-term repurchase agreements, all of which are peso-denominated and may be dollar-linked (i.e., paid in pesos but with repayment linked to a dollar exchange rate), in order to provide appropriate liquidity to take advantage of market opportunities and meet cash requirements. The Fund may also invest in dollar-denominated deposits and dollar-denominated investments such as U.S. Treasuries, U.S. Agency Securities, Agency Mortgage Backed Securities and Mexican Sovereign Debt. As market or other conditions require, the proportion of the Funds assets held in fixed-income securities or bank time deposits may vary. The Fund will not realize capital gains for the sole purpose of making distributions to stockholders. See Investment objective and policies.
5
Fundamental periodic repurchase offer policy
The Fund has adopted the following fundamental policy regarding periodic repurchases:
(a) The Fund will make offers to repurchase its Shares at least once each fiscal year based on the number of outstanding Shares at the beginning of the fiscal year;
(b) The Fund will offer to repurchase no less than five percent of its outstanding Shares each fiscal year;
(c) Repurchase request deadlines shall be disclosed in the notification provided to Stockholders of a repurchase offer and repurchase request deadlines shall be determined by the Board consistent with the 1940 Act, applicable SEC regulations and the terms of any exemptive order issued to the Fund by the SEC; and
(d) The date on which the repurchase price for Shares is to be determined shall occur no later than the fourteenth day after a repurchase request deadline, or the next business day if such day is not a business day.
The Funds repurchase offer policy is the subject of an exemptive order which permits the Fund to conduct periodic in-kind repurchase offers for up to 100% of the Funds outstanding Shares. This policy is intended to provide additional liquidity to Fund Shares and to reduce the discount at which Fund Shares have been trading on the NYSE. Under this policy which was approved by Stockholders and is the subject of exemptive relief granted by the SEC, the Fund offers to repurchase no less than five percent of the Funds outstanding Shares each fiscal year, based on the number of Shares outstanding at the beginning of the fiscal year. Repurchase offers occur no more frequently than quarterly and are for between one and one hundred percent of the Funds outstanding Shares. The Board can set or reset the periodic interval between repurchase offers at three, six or 12 months.
The repurchase offers are not part of a plan to liquidate the Fund. Stockholder participation in the repurchase offers is not mandatory as Stockholders can continue to purchase and sell Shares in cash transactions on the NYSE. See Investment objective and policies In-kind repurchase offer policy.
Investment Adviser
Impulsora del Fondo México, S.C. has acted as the Funds Investment Adviser since the Funds establishment in 1981. See Management agreement.
The Investment Adviser also provides administrative services to the Fund pursuant to an Administrative Services Agreement amended and restated as of March 7, 2007. See Administration agreement.
Compensation of the Investment Adviser and Administrator
The Fund pays the Investment Adviser a fee at the annual rate of 1.00% of the Funds average daily net assets up to and including $200 million, 0.90% of such assets between $200 million and $400 million, and 0.60% of such assets in excess of $400 million, computed based upon the average daily value of the net assets of the Fund and payable within fifteen days after the end of each calendar month. See Management agreement.
The Investment Adviser will benefit from the offer because its fees are based on the average net asset value applicable to Shares of the Fund.
The Fund also pays Impulsora (in such capacity, the Administrator) a fee for its administrative services, computed at the end of each calendar month on the basis of the average daily value of the net assets of the Fund (as translated into U.S. Dollars) for such month, at the annual rate of 0.11% of average daily net assets on assets under management up to $600 million, and at the annual rate of 0.09% of average daily net assets on assets under management above $600 million. The fee will not be lower than the annual amount of $450,000. The fee is payable within fifteen days after the end of each calendar month. The Administrator also receives a services fee of $75,000 per repurchase offer under the Funds periodic repurchase offer policy. See Administration agreement.
Custodian
The Fund maintains securities listed on the Mexican Stock Exchange in the book-entry system of Indeval, the Mexican central securities depository. BBVA Bancomer, SA acts as the Funds custodian for all Fund assets held in Mexico. Comerica Bank is the custodian for all assets held in the United States.
Transfer agent, dividend-paying agent and registrar
American Stock Transfer & Trust Company acts as the Funds dividend-paying agent and as transfer agent and registrar for the Funds common stock and Dividend Reinvestment Plan.
6
RISK FACTORS AND SPECIAL CONSIDERATIONS AT A GLANCE
Certain matters that you should consider, among others, in connection with the offer are summarized below. For a more complete discussion of the risk factors and special considerations involved in investing in the Funds shares, see Risk factors and special considerations.
Foreign investments generally
Foreign investments may involve certain considerations and risks not typically associated with domestic investments as a result of, among others, the possibility of political and economic developments and the level of governmental supervision and regulation of foreign securities markets. In addition, certain foreign markets may be substantially smaller, less developed, less liquid and more volatile than the major markets of the United States.
Mexico is considered to be an emerging market country. Investment in emerging markets presents greater risk of loss than investments in a developed country. This is due to, among other things, greater market volatility, lower trading volume, political and economic instability, greater risk of market shut down and more governmental limitations on foreign investment than those typically found in a developed market. The economies of emerging market countries generally are heavily dependent upon international trade, and have been and may be adversely affected by trade restrictions, currency values and economic conditions in the countries in which they trade.
Reduced market liquidity, as compared to U.S. markets, may also have an adverse effect on market price and the Funds ability to dispose of particular instruments when necessary and may make it more difficult for the Fund to obtain accurate market quotations of portfolio securities for valuing the Funds portfolio and calculating its net asset value. See Risk factors and special considerations Foreign investments generally.
Investment in Mexican securities
Investing in Mexican securities involves certain considerations not typically associated with investing in securities of U.S. issuers, including (1) less liquidity and smaller market capitalization; (2) greater currency fluctuations; (3) higher rates of inflation and domestic interest rates; and (4) less stringent disclosure requirements, less available information regarding Mexican public companies and less active regulatory oversight of Mexican public companies.
The Mexican securities market is not as large or as active as the securities markets in the United States. As of January 31, 2007, the Mexican equity market capitalization was approximately $353 billion compared to the approximate $25 trillion equity market capitalization of NYSE-listed equity securities. Generally, the Mexican securities market is characterized by a relatively small number of actively traded issuers and high price volatility. This may affect the rate at which the Fund is able to invest in listed Mexican securities, the purchase and sale prices for such securities and the timing of conversions, purchases and sales.
There is less publicly available information about the issuers of certain Mexican securities than is regularly published by issuers in the United States, although some Mexican companies whose shares trade in U.S. markets comply with U.S. regulations. Further, financial statements and reported earnings of Mexican companies incorporate the effects of inflation and differ from those of U.S. companies in this respect as well as others. Also, there is generally less government supervision and regulation of exchanges, brokers and issuers in Mexico than there is in the United States. Mexican corporate laws regarding fiduciary responsibility and protection of stockholders are less developed than those in the United States.
The Fund is subject to the risks of political and economic instability with respect to its investments in Mexico. Presidential elections in Mexico in July 2006 were the most contested in Mexicos history. The losing candidate, Andres Manuel López Obrador, asserted that the electoral victory of Mr. Felipe Calderón was fraudulent. These assertions were rejected by the Federal Electoral Tribunal of Mexico. Since December 1, 2006, when Mr. Calderón took office as President of Mexico, the Investment Adviser believes the political climate has improved significantly. However, the Investment Adviser cannot state that no issues relating to the political environment may arise in the near future. See Risk factors and special considerationsRisks involved in Mexican investments.
Currency exchange rate fluctuations
The Fund is subject to the risk of a decline in the value of the peso against the U.S. Dollar. Because almost all of the securities in the Funds portfolio are quoted in pesos, these securities must increase in value at a rate in excess of any rate of decline of the peso against the U.S. Dollar in order to avoid a decline in their equivalent U.S. Dollar value. Accordingly, a future decline in the value of the peso against the U.S. Dollar may result in a corresponding decline in the value of the securities held by the Fund that are denominated in pesos. The peso has been subject to significant devaluations in the past, although not in the recent past, and there can be no assurance that similar devaluations will not take place in the future. The Fund does not expect to hedge against a decline in the value of the peso. See Risk factors and special considerationsCurrency exchange rate fluctuations. Adverse developments in the political environment mentioned above could create further fluctuations in the valuation of the peso against the U.S. Dollar, impacting the valuation of the Funds securities.
7
Dilution
The Fund will experience a dilution of the aggregate net asset value per Share of its common stock upon the completion of this offer because the subscription price will be less than the Funds then current net asset value per Share. This dilution, which may be substantial, will be experienced by all Stockholders, irrespective of whether they exercise all or any portion of their Rights. It is not possible to determine the extent of this dilution at this time because the Fund does not know what proportion of the Shares will be purchased as a result of the offer.
Record Date Stockholders who do not fully exercise their Rights should expect that they will, at the completion of the offer, own a smaller proportional interest in the Fund than would otherwise be the case if they fully exercised their Rights.
As of the date of this prospectus, the subscription price per Share for the offer is less than the Funds NAV per Share. Assuming that all Rights are exercised and there is no change in the NAV per Share, the aggregate NAV of each Record Date Stockholders Shares will decrease as a result of the offer. The amount of the decrease in NAV is not predictable because it is not known at this time what the NAV per Share will be on the Expiration Date, what the subscription price will be or what proportion of the Shares will be purchased as a result of the offer.
Record Date Stockholders not wishing to exercise the Rights issued to them may still transfer or sell these Rights as set forth in this prospectus. The cash received from transferring Rights should serve as partial compensation for any possible dilution of a nonparticipating Stockholders interest in the Fund. There can be no assurance, however, that a market for the Rights will develop or that the Rights will have any value. See Risk factors and special considerationsDilutionNet asset value and non-participation in the offer.
Discount from net asset value
The Funds Shares have historically traded in the market at a price which is below the Funds NAV. This characteristic of shares of closed-end investment companies is a risk separate and distinct from the risk that the Funds NAV will decrease. In the 12-month period ended December 31, 2006, the Funds Shares traded in the market at an average discount to NAV of 11.69%. Stockholders wishing to sell their Shares during this offer should be aware that there is greater risk that the discount to NAV, which may increase during this offer, will adversely affect them. This increased risk is because, among other things, the market price per Share may reflect anticipated dilution that will result from this offer. There can be no assurance that, after the completion of this offer, the Shares will trade at the same level as the Funds current discount to NAV. See Risk factors and special considerationsNet asset value discount.
Investments in U.S. dollar-denominated instruments
The Fund may invest in dollar-denominated investments such as U.S. Treasuries, U.S. Agency Securities, Agency Mortgage Backed Securities and Mexican Sovereign Debt. Regarding certain U.S. federal agency securities or government sponsored-entity securities (such as debt securities or mortgage-backed securities issued by Freddie Mac, Fannie Mae, Federal Home Loan Banks, and other government-sponsored entities), although the issuer may be chartered or sponsored by Acts of Congress, the issuer is not funded by congressional appropriations and its securities are neither issued nor guaranteed by the United States Treasury. See Risk factors and special considerationsDollar-denominated investments risk.
Foreign custody
Investment companies generally hold foreign securities and cash in foreign banks and securities depositories, and regulatory oversight over such entities may be limited. The laws of certain countries may put limits on a funds ability to recover its assets if a foreign bank, depository or issuer of a security, or any of their agents, goes bankrupt. In addition, it is often more expensive for a fund to buy, sell and hold securities in certain foreign markets than in the United States.
BBVA Bancomer, SA (Bancomer), acts as the Funds custodian, and S.D. Indeval, S.A. de C.V. (Indeval) acts as a securities depository for securities or equivalent book-entries in Mexico. It is the Investment Advisers view that Bancomer and Indeval are stable financial institutions unlikely to be subject to the risks described herein. In addition, the Board of Directors reviews and evaluates the Funds foreign custody arrangements on an annual basis. See Risk factors and special considerationsForeign custody.
Non-diversified status
The Fund is classified as a non-diversified management investment company under the 1940 Act, which means that the Fund is not limited by the 1940 Act as to the proportion of its assets that may be invested in the securities of a single issuer. As a non-diversified
8
investment company, the Fund may invest a greater proportion of its assets in common stock of a smaller number of issuers and, as a result, will be subject to greater risk with respect to its portfolio securities. Although the Fund must diversify its holdings in order to be treated as a regulated investment company under the provisions of the Internal Revenue Code of 1986, as amended (Code), the Fund may be more susceptible to any single economic, political or regulatory occurrence than would be the case if it had elected to diversify its holdings sufficiently to be classified as a diversified management investment company under the 1940 Act. See Risk factors and special considerationsNon-diversified status.
Tax considerations
A significant portion of the Funds net assets is comprised of unrealized capital gains due to the investment performance of many of the Funds portfolio holdings over the last several years. Such gains, when realized and distributed, will become taxable to stockholders. Furthermore, there can be no assurance that the investment performance giving rise to such unrealized gains will continue, or that such gains will, in fact, be realized.
Value-added, withholding and/or other taxes may apply to the Fund and its investments, which will reduce the Funds return. The Fund intends to elect, when eligible, to pass-through to the Funds Stockholders, as a deduction or credit, the amount of foreign income and similar taxes paid by the Fund. See Risk factors and special considerationsTax considerations.
Concentration risk
The Mexican Stock Exchange is a concentrated market. A large percentage of the value of the Mexican securities market is currently represented by certain industry sectors, in particular, the communications industry. Also, a Mexican individual (Individual) has a controlling interest in companies representing over 40% of the market capitalization of the Mexican Stock Exchange. The value of the Mexican Stock Exchange may be subject to greater volatility than markets that are less concentrated. Any factors or events which impact this Individual could have negative repercussions for the issuers in which he holds a controlling interest and the Mexican Stock Exchange as a whole.
The Fund has adopted a concentration policy which permits it to concentrate its investments in any industry or group of industries of the Mexican Stock Exchange Index (or any successor or comparable index, 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 Index; provided, however, that the Fund will not exceed the Index concentration by more than 5%. Because the Funds investments may be concentrated from time to time in certain industries, the value of the Fund may be subject to greater volatility than a fund with a portfolio that is less concentrated. If securities of a particular industry in which the Fund has concentrated fall out of favor, the Fund could underperform against other funds with greater industry diversification. To the extent the Fund concentrates its investments in certain industries in accordance with its concentration policy or is invested in companies which the Individual controls, the Fund will be more susceptible to effects caused by changes in the economic climate, overall market volatility, or regulatory environment which impact these industries and any factors or events affecting the Individual. See Risk factors and special considerationsConcentration risk.
Repurchase offer policy risk
Stockholders should be aware of the following risks associated with periodic in-kind repurchases:
| In the event of an oversubscription of the repurchase offer, all of the Shares submitted by Stockholders may not be accepted for repurchase by the Fund. |
| There is a risk of decline in the Funds net asset value as a result of the delay between the repurchase request deadline and the repurchase pricing date, due to declines, among other things, in prices of securities held by the Fund and fluctuations in the Mexican peso relative to the U.S. dollar. There is an additional risk of decline in the value of proceeds received between the repurchase pricing date and the repurchase payment deadline because participating Stockholders are receiving portfolio securities of the Fund whose values are subject to change based on market activity. |
| By receiving and holding portfolio securities of the Fund, participating Stockholders are subject to the risks associated with investing in foreign equity securities, including market-, currency-, and country-related risks. |
See Risk factors and special considerationsRepurchase offer policy risk.
Anti-takeover provisions
The Fund has provisions in its charter (Charter) and bylaws (Bylaws) that could have the effect of limiting the ability of other entities or persons to acquire control of the Fund. The Bylaws provide for a staggered election of Directors, with such Directors divided into three classes, each serving for a term of three years and until their successors are duly elected and qualify. Accordingly, unless removed by Stockholders between annual meetings, only those Directors in one class may be changed in any one year, and it would require two years to change a majority of the Board of Directors. The Bylaws also contain certain qualifications for nominees for Director positions and establish certain Board and/or Stockholder supermajority approval requirements for certain corporate actions. This system of electing Directors may be regarded as having an anti-takeover effect, and may have the effect of maintaining the continuity of management and thus may make it more difficult for the Funds Stockholders to change the majority of Directors.
9
The Charter of the Fund contains certain provisions that limit the ability of Stockholders to remove Directors, provides that the number of Directors may be fixed only by the Board, provides that certain vacancies on the Board of Directors may be filled only by the vote of the remaining Directors, and limits the ability of Stockholders to call a special meeting of Stockholders. See Capital stockCertain provisions of the Maryland General Corporation Law, the Charter and Bylaws.
Market disruption
The U.S. securities markets are subject to disruption and suspension of trading as a result of terrorist activities such as the terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001; the war in Iraq and its aftermath; other hostilities; and other geopolitical events. Such events have led, or may in the future lead, to disruption of the U.S. or world financial markets, which could have an adverse impact on interest rates, auctions, secondary trading, ratings, credit risk, inflation and other factors relating to the Funds shares. See Risk factors and special considerationsMarket disruption.
10
Stockholder transaction expenses |
|||
Sales load (as a percentage of the subscription price)(1) |
3.50 | % | |
Dividend Reinvestment Plan fees |
None | ||
(as a percentage of net assets attributable to the common stock)(2) |
|||
Annual expenses |
|||
Management fee |
0.77 | % | |
Administrative fee |
0.10 | % | |
Interest payments on borrowed funds |
0.00 | % | |
Other expenses |
0.16 | % | |
Total annual expenses(3) |
1.03 | % | |
(1) | The Fund has agreed to pay the Dealer Manager a fee for its financial structuring, marketing and soliciting services equal to 3.50% of the aggregate subscription price for the Shares issued pursuant to the offer. In addition, the Fund has agreed to pay a fee to each of the Subscription Agent and the Information Agent estimated to be $100,000 and $8,500, respectively, plus reimbursement for their out-of-pocket expenses related to the offer. Total offering expenses are estimated to be $7,040,489, which assumes that the offer is fully subscribed. These fees and expenses will be borne by the Fund and indirectly by all of the Funds Stockholders, including those who do not exercise their Rights. See Distribution arrangements. |
(2) | Fees payable under the Management Agreement and Administration Agreement are calculated on the basis of the Funds average daily net assets. See Management agreement and Administration agreement. Other expenses have been estimated by annualizing actual expenses through the first fiscal quarter. |
(3) | The indicated 1.03% expense ratio assumes that the offer is fully subscribed, yielding estimated net proceeds of approximately $178,973,494 (assuming a subscription price of $37.04 as of March 9, 2007), and that, as a result, based on the Funds net assets of $664.7 million on March 9, 2007, the net assets attributable to Stockholders would be $843.7 million upon completion of the offer. It also assumes that net assets attributable to Stockholders will not increase or decrease due to currency fluctuations. |
The above table is intended to assist the Funds investors in understanding the various costs and expenses associated with investing in the Fund through the exercise of Rights.
Hypothetical example
An investor would directly or indirectly pay the following expenses on a $1,000 investment in the Fund, assuming a 5% annual return:
1 Year | 3 Years | 5 Years | 10 Years | |||||||
$ | 48 | $ | 70 | $ | 93 | $ | 160 |
This hypothetical example assumes that all dividends and other distributions are reinvested at NAV and that the percentage amounts listed under Annual expenses above remain the same in the years shown. The above tables and the assumption in the hypothetical example of a 5% annual return are required by regulation of the SEC applicable to all investment companies; the assumed 5% annual return is not a prediction of, and does not represent, the projected or actual performance of the Funds Shares. This hypothetical example reflects all recurring and non-recurring fees, including payment of the 3.50% sales load and other expenses incurred in connection with this offer. For more complete descriptions of certain of the Funds costs and expenses, see Management of the Fund, Management agreement and Administration agreement.
The hypothetical example should not be considered a representation of future expenses or rate of return and actual Fund expenses may be greater or less than those shown.
11
The following information, insofar as it relates to the years ended October 31, 2006, October 31, 2005, October 31, 2004, October 31, 2003 and October 31, 2002 has been audited by PricewaterhouseCoopers LLP, the independent registered public accounting firm for the Fund, whose reports thereon were unqualified. This information should be read in conjunction with the financial statements and notes thereto incorporated by reference in this prospectus. See Financial statements.
The Mexico Fund, Inc.
Financial Highlights
For the Year Ended October 31, | ||||||||||||||||||||||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 | 1997 | |||||||||||||||||||||||||||||||
Per Share Operating Performance: |
||||||||||||||||||||||||||||||||||||||||
Net asset value, beginning of period |
$ | 31.65 | $ | 21.92 | $ | 17.36 | $ | 15.46 | $ | 18.98 | $ | 20.84 | $ | 19.57 | $ | 15.52 | $ | 23.49 | $ | 17.33 | ||||||||||||||||||||
Net investment income (Note 1)* |
0.30 | 0.23 | 0.03 | 0.03 | 0.15 | 0.23 | 0.18 | 0.40 | 0.39 | 0.40 | ||||||||||||||||||||||||||||||
Net gain (loss) on investments and translation of foreign currency (Note1)* |
13.37 | 10.20 | 6.72 | 3.63 | (1.30 | ) | (2.31 | ) | 1.10 | 4.10 | (7.48 | ) | 6.16 | |||||||||||||||||||||||||||
Total from investment operations* |
13.67 | 10.43 | 6.75 | 3.66 | (1.15 | ) | (2.08 | ) | 1.28 | 4.50 | (7.09 | ) | 6.56 | |||||||||||||||||||||||||||
Less Dividends: |
||||||||||||||||||||||||||||||||||||||||
Dividends to stockholders from net investment income |
(0.63 | ) | (0.13 | ) | | (0.45 | ) | (0.13 | ) | (0.13 | ) | (0.19 | ) | (0.45 | ) | (0.23 | ) | (0.38 | ) | |||||||||||||||||||||
Distributions to stockholders from net realized gain on investments |
(2.28 | ) | (0.58 | ) | (0.31 | ) | (1.34 | ) | (2.67 | ) | (0.05 | ) | | | (0.60 | ) | (0.02 | ) | ||||||||||||||||||||||
Total dividends |
(2.91 | ) | (0.71 | ) | (0.31 | ) | (1.79 | ) | (2.80 | ) | (0.18 | ) | (0.19 | ) | (0.45 | ) | (0.83 | ) | (0.40 | ) | ||||||||||||||||||||
Capital Share Transactions: |
||||||||||||||||||||||||||||||||||||||||
Effect on NAV of stock repurchased |
0.02 | 0.01 | 0.01 | 0.06 | 0.43 | 0.40 | 0.18 | | | | ||||||||||||||||||||||||||||||
Capital charge resulting from issuance of fund shares |
| | (1.89 | ) | (0.03 | ) | | | | | (0.05 | ) | | |||||||||||||||||||||||||||
Total capital share transactions |
0.02 | 0.01 | (1.88 | ) | 0.03 | 0.43 | 0.40 | 0.18 | | (0.05 | ) | | ||||||||||||||||||||||||||||
Net asset value, end of period |
$ | 42.43 | $ | 31.65 | $ | 21.92 | $ | 17.36 | $ | 15.46 | $ | 18.98 | $ | 20.84 | $ | 19.57 | $ | 15.52 | $ | 23.49 | ||||||||||||||||||||
Market value per share, end of period |
$ | 36.91 | $ | 28.10 | $ | 18.65 | $ | 15.36 | $ | 14.58 | $ | 16.70 | $ | 15.81 | $ | 14.31 | $ | 11.25 | $ | 18.69 | ||||||||||||||||||||
Total investment return based on market value per share** |
44.14 | % | 55.64 | % | 27.39 | % | 22.49 | % | 2.14 | % | 6.64 | % | 11.82 | % | 31.92 | % | (36.70 | %) | 35.03 | % | ||||||||||||||||||||
Ratios to Average Net Assets: |
||||||||||||||||||||||||||||||||||||||||
Gross Expenses |
1.20 | % | 1.38 | % | 1.64 | % | 1.92 | % | 1.46 | % | 1.07 | % | 0.96 | % | 0.98 | % | 0.93 | % | 0.91 | % | ||||||||||||||||||||
Expenses, net of reimbursement |
1.20 | % | 1.38 | % | 1.64 | % | 1.92 | % | 1.37 | % | 1.07 | % | 0.96 | % | 0.98 | % | 0.93 | % | 0.91 | % | ||||||||||||||||||||
Net investment income, net of expense reimbursement |
0.87 | % | 0.84 | % | 0.15 | % | 0.15 | % | 0.83 | % | 1.12 | % | 0.78 | % | 2.14 | % | 1.87 | % | 1.80 | % | ||||||||||||||||||||
Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||
Net assets at end of period (in 000s) |
$ | 646,971 | $ | 534,654 | $ | 410,373 | $ | 269,762 | $ | 308,763 | $ | 862,977 | $ | 1,022,136 | $ | 988,627 | $ | 783,775 | $ | 1,167,893 | ||||||||||||||||||||
Portfolio turnover rate |
14.50 | % | 29.24 | % | 26.84 | % | 28.99 | % | 43.36 | % | 29.69 | % | 22.27 | % | 6.40 | % | 3.69 | % | 7.58 | % |
* | Amounts were computed based on average shares outstanding during the period. |
** | Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the last business day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the lower of the net asset value or the closing market price on the dividend/distribution day. If the fiscal 2003 distribution were taken in stock, which was issued at $12.08 per share, the total return would have been 20.99% for that year. For fiscal 2004, the total return was calculated assuming a sale of the rights received on September 22, and reinvested in stock at the closing market price of that date. |
Note: Contained above is operating performance for a Share of common stock outstanding, total investment return, ratios to average net assets of Stockholders and other supplemental data for each of the years indicated. This information has been determined based upon financial information provided in the financial statements and market value data for the Funds Shares.
12
Purpose of the offer
The Board of Directors and the Investment Adviser have determined that it would be in the best interest of the Fund and its Stockholders to increase the assets of the Fund available for investment. In connection with the Boards consideration of this offer, the Investment Adviser presented information regarding recent and future developments in the Mexican securities market. Proceeds from the offer would allow the Fund to capitalize further on the continued expansion and positive returns of the Mexican Stock Exchange without the disposition of current favorable investments.
An increase in the assets of the Fund available for investment would enable the Fund to more fully take advantage of available investment opportunities arising as a result of any continuing positive developments in Mexico and the Mexican securities market. Due to what the Investment Adviser believes to be a combination of positive economic, regulatory and securities market developments in an environment of prolonged economic stability, the Funds Board and the Investment Adviser believe that now is an opportune time to raise assets for investment in companies listed on the Mexican Stock Exchange.
In recent years, inflation, interest rates and foreign exchange rates in Mexico have remained comparatively stable despite relatively modest GDP growth. Moreover, the investment grade rating on Mexican government securities appears to reflect an increase in the perceived creditworthiness of the Mexican government. The Investment Adviser believes that this stabilization of the Mexican economy, along with significant international expansion of several Mexican companies, strong commodity prices, the boom in the Mexican housing sector and reduced political uncertainty following the 2006 presidential election, have been important drivers of economic and investment performance in Mexico.
Furthermore, the Investment Adviser believes that stock valuations remain at attractive levels relative to developed U.S., European and Asian economies. As a consequence of improved political, economic and structural market dynamics, global assets invested in Latin America have continued to increase as a percentage of overall equity investment. Moreover, the Investment Adviser believes that Mexican pension funds will further increase their exposure in the Mexican equity market similar to other pension systems in the world, and this could result in significant additional investment in the Mexican Bolsa. Finally, the Investment Adviser expects that recent revisions to the Mexican securities laws will create a more encouraging environment for listing small and medium size companies on the Mexican Bolsa, which could become new investment alternatives for the Fund.
The Funds Board of Directors and the Investment Adviser believe that increasing Fund assets available for investment should result in a modest lowering of the Funds expenses as a percentage of average net assets because fixed costs of the Fund can be spread over a larger asset base, although such expense reductions cannot be guaranteed.
Other rationale
Due to these positive economic and market developments, the Investment Adviser believes that now is an opportune time to raise further assets for investment in Bolsa-listed companies.
This offer provides existing Stockholders the opportunity to purchase additional Shares at a price below market price and NAV (subject to the sales load described in the prospectus). The distribution to Record Date stockholders of transferable Rights, which may themselves have intrinsic value, also will afford non-participating Record Date Stockholders the potential of receiving cash payment upon the sale of the Rights, receipt of which may be viewed as partial compensation for the dilution of their interests. The Funds Board of Directors also considered the impact of this offer on the Funds net asset value per Share. For a discussion of the potential impact of this offer on current Stockholders, such as dilution, see Risk factors and special considerations.
In determining that this offer was in the Funds best interest and in the best interest of the Funds Stockholders, the Board of Directors considered, among other things, the benefits and drawbacks of conducting a non-transferable versus a transferable rights offering and the effect on the Fund if this offer is not fully subscribed. The Board also considered the Funds repurchase offer policy and the interaction of the Funds obligations under its repurchase offer policy with a possible rights offering. The Board recognized that the repurchase offer policy is intended to provide Stockholders with additional liquidity in their Fund Shares while also seeking to alleviate the Funds market discount. An objective of the repurchase offer policy, which appears to have been successful thus far, was to increase Stockholder value without jeopardizing the management of the Fund consistent with its investment objective. The timing of this offer will permit the Fund to take advantage of the market developments and opportunities previously described and provides a means for Record Date Stockholders to increase their investment in the Fund at a reduced price by exercising their Rights or, alternatively, to obtain some value by selling their Rights. This offer and the next repurchase offer (anticipated to occur in September 2007) provide Stockholders with additional liquidity in the Fund while taking into account the market in which the Fund invests and the interests of all of its Stockholders.
There is no assurance that this offer will be successful or that, by increasing the Funds size, its aggregate expenses and, correspondingly, its expense ratio will be lowered. In particular, the Funds in-kind repurchase offer and required capital gains
13
distributions may counteract the possible positive effects of a rights offering on the Funds expense ratio. The Fund cannot provide any assurance that the investment of the proceeds of the offer will be successful or provide favorable returns.
Commencing with the Funds dividend distribution in December 2006, future distributions of long-term realized capital gains will be made payable in Fund shares unless the stockholder elects to receive the distribution in cash. This policy allows stockholders to remain invested in the Fund, without the transaction costs that would be incurred if stockholders received a dividend in cash and reinvested the dividend proceeds in shares of the Fund. This is beneficial to investors who, consistent with the Funds investment policy, seek long-term capital appreciation through investment in securities, primarily equity, listed on the Mexican Stock Exchange. Furthermore, the policy lessens the likelihood that the Fund must sell portfolio securities in less favorable market conditions in order to generate cash for long-term capital gains distributions.
Although the Fund has no present intention to do so, the Fund may, in the future and in its discretion, choose to make additional rights offerings from time to time for a number of Shares and on terms which may or may not be similar to this offer. Any such future rights offering will be made in accordance with the 1940 Act. For a discussion of certain benefits of this offer to affiliates of the Fund, see Certain effects of this offer below.
Terms of the offer
The Fund is issuing to Record Date Stockholders transferable Rights to subscribe for an aggregate of 5,021,908 Shares. Each Record Date Stockholder is being issued one transferable Right for each whole Share owned on the Record Date. The Rights entitle the Record Date Stockholder to acquire at the subscription price one Share for every three Rights held (1-for-3). Rights may be exercised at any time during the subscription period, which commences on March 22, 2007, the Record Date, and ends at 5:00 p.m., New York City time, on April 20, 2007, the Expiration Date, unless extended by the Fund. The Fund has been advised that the Investment Adviser and each of the Funds Directors intends to participate in the offer.
The Rights will be listed for trading on the NYSE under the symbol MXF.RT during the course of the offer. The Shares, once issued, will be listed on the NYSE under the symbol MXF. The Rights will be evidenced by Subscription Certificates which will be mailed to Record Date Stockholders, except as discussed below under Foreign stockholders.
The Fund will not issue fractional Shares upon the exercise of Rights; accordingly, Rights may be exercised only in multiples of three, except that any Record Date Stockholder who is issued fewer than three Rights is entitled to subscribe for one full Share in this offer.
The Rights are transferable. Rights Holders who are not Record Date Stockholders may purchase Shares as described above (the Primary Subscription) but are not entitled to subscribe for Shares pursuant to the Over-Subscription Privilege (as defined below). Record Date Stockholders and Rights Holders who purchase Shares in the Primary Subscription and Record Date Stockholders who purchase Shares pursuant to the Over-Subscription Privilege are hereinafter referred to as Exercising Rights Holders.
Shares not subscribed for during the Primary Subscription will be offered, by means of the Over-Subscription Privilege, to Record Date Stockholders who fully exercise the Rights issued to them pursuant to this offer (other than those Rights that cannot be exercised because they represent in the aggregate the right to acquire less than one Share) and who wish to acquire more than the number of Shares they are entitled to purchase pursuant to the exercise of their Rights, subject to certain limitations and subject to allotment. Investors who are not Record Date Stockholders are not entitled to subscribe for any Shares pursuant to the Over-Subscription Privilege. See Over-subscription privilege below.
For purposes of determining the number of Shares a Record Date Stockholder may acquire pursuant to the offer, broker-dealers, trust companies, banks or others whose Shares are held of record by Cede & Co. (Cede) or by any other depository or nominee will be deemed to be the holders of the Rights that are issued to Cede or the other depository or nominee on their behalf.
The offer is not contingent upon any number of Rights being exercised. The Fund will bear the expenses of the offer, which will be paid from the proceeds of the offer. These expenses include, but are not limited to, the expense of preparation and printing of the prospectus for the offer, the expense of counsel and auditors in connection with the offer, the expense of the Dealer Manager for its financial structuring, marketing and soliciting services, and the out-of-pocket expenses incurred by the officers of the Fund and others in connection with the offer.
Over-subscription privilege
Shares not subscribed for by Rights Holders (Excess Shares) will be offered, by means of the Over-Subscription Privilege (the Over-Subscription Privilege), to the Record Date Stockholders who have fully exercised the Rights issued to them and who wish to
14
acquire more than the number of Shares they are entitled to purchase pursuant to the Primary Subscription. Investors who are not Record Date Stockholders, but who otherwise acquire Rights to purchase Shares pursuant to this offer, are not entitled to subscribe for any Shares pursuant to the Over-Subscription Privilege. Record Date Stockholders should indicate, on the Subscription Certificate which they submit with respect to the exercise of the Rights issued to them, how many Excess Shares they are willing to acquire pursuant to the Over-Subscription Privilege. If sufficient Excess Shares remain, all Record Date Stockholders over-subscription requests will be honored in full. If Record Date Stockholder requests for Shares pursuant to the Over-Subscription Privilege exceed the Excess Shares available, the available Excess Shares will be allocated pro-rata among Record Date Stockholders who oversubscribe based on the number of Shares held by each such Record Date Stockholder on the Record Date. The percentage of remaining Shares each over-subscribing Record Date Stockholder may acquire will be rounded down to result in delivery of whole Shares. The allocation process may involve a series of allocations to assure that the total number of Shares available for over-subscriptions is distributed on a pro-rata basis.
Banks, brokers, trustees and other nominee holders of Rights will be required to certify to the Subscription Agent, before any Over-Subscription Privilege may be exercised with respect to any particular beneficial owner, as to the aggregate number of Rights exercised pursuant to the Primary Subscription and the number of Shares subscribed for pursuant to the Over-Subscription Privilege by such beneficial owner and that such beneficial owners Primary Subscription was exercised in full. Nominee Holder Over-Subscription Certificates and Beneficial Owner Listing Certification forms will be distributed to banks, brokers, trustees and other nominee holders with the Subscription Certificates.
The Fund will not offer or sell in connection with the offer any Shares that are not subscribed for pursuant to the Primary Subscription or the Over-Subscription Privilege.
The Fund has been advised that the Investment Adviser and each of the Funds Directors will exercise all of the Rights initially issued to them, and may request additional Shares pursuant to the Over-Subscription Privilege. Rule 144 under the 1933 Act generally provides that an affiliate of the Fund is entitled to sell, within any three-month period, a number of Shares that does not exceed the greater of 1% of the then outstanding Shares or the average weekly reported trading volume of the Shares during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to certain restrictions on the manner of sale, to notice requirements and to the availability of current public information about the Fund. In addition, any profit resulting from a Directors and the Investment Advisers sale of Shares within a period of less than six months from the purchases may have to be returned to the Fund.
The subscription price
The Subscription Price will be determined based upon a formula equal to 95% of the average of the last reported sales prices of a share of the Funds common stock on the NYSE on the Expiration Date and the four preceding trading days (the Formula Price). If, however, the Formula Price is less than 72.5% of the NAV per share of the Funds common stock on the Expiration Date, then the Subscription Price will be 72.5% of the NAV per share on that day. For example, if the average of the last reported sale prices of a share of the Fund's common stock on the NYSE on the Expiration Date and the four preceding trading days is $40.00, and the NAV per share is $50.00, then the Subscription Price will be 95% of $40.00, or $38.00 per share, because $38.00 is greater than 72.5% of $50.00 (or $36.25). Market prices and NAVs used in this example are for illustrative purposes only; the actual market prices and NAV used to calculate the Subscription Price may be higher or lower than those used here.
Since the Expiration Date will be April 20, 2007 (unless the Fund extends the subscription period), Rights Holders will not know the Subscription Price at the time of exercise and will be required initially to pay for both the Shares subscribed for pursuant to the Primary Subscription and, if eligible, any additional Shares subscribed for pursuant to the Over-Subscription Privilege at the estimated Subscription Price of $37.04 per Share. See Payment for shares below. Rights Holders who exercise their Rights will have no right to rescind a purchase after receipt of their completed subscription certificates together with payment for Shares by the Subscription Agent, except as provided under Notice of NAV decline below. The Fund does not have the right to withdraw the Rights or cancel this offer after the Rights have been distributed.
The Fund announced the offer after the close of trading on the NYSE on March 12, 2007. The NAV per Share at the close of business on March 9, 2007 (the last trading date on which the Fund publicly reported its NAV prior to the announcement) was $44.30, and the last reported sale price of a Share on the NYSE on that date was $38.99.
Expiration of the offer
The offer will expire at 5:00 p.m., New York City time, on April 20, 2007, unless extended by the Fund. The Rights will expire on the Expiration Date and thereafter may not be exercised.
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Any extension of the offer will be followed as promptly as practicable by announcement thereof, and in no event later than 9:00 a.m., New York City time, on the next business day following the previously scheduled Expiration Date. Without limiting the manner in which the Fund may choose to make such announcement, the Fund will not, unless otherwise required by law, have any obligation to publish, advertise or otherwise communicate any such announcement other than by making a release to the Dow Jones News Service or such other means of announcement as the Fund deems appropriate.
Subscription agent
The Subscription Agent is American Stock Transfer & Trust Company. The Subscription Agent will receive for its administrative, processing, invoicing and other services a fee estimated to be approximately $100,000, plus reimbursement for all out-of-pocket expenses related to the offer. The Subscription Agent is also the Funds transfer agent, dividend-paying agent and registrar for the Common Stock. Questions regarding the Subscription Certificates should be directed by mail to American Stock Transfer & Trust Company, 40 Wall Street, 46th Floor, New York, NY 10005, or by telephone to (877) 248-6417 (toll free). Stockholders may also subscribe for the offer by contacting their broker-dealer, trust company, bank, or other nominee.
Completed Subscription Certificates must be sent together with proper payment of the Subscription Price for all Shares subscribed for in the Primary Subscription and the Over-Subscription Privilege (for Record Date Stockholders) to American Stock Transfer & Trust Company by one of the methods described below. Alternatively, Notices of Guaranteed Delivery may be sent by facsimile to (718) 234-5001 to be received by the Subscription Agent prior to 5:00 p.m., New York City time, on the Expiration Date. Facsimiles should be confirmed by telephone at (877) 248-6417. The Fund will accept only properly completed and executed Subscription Certificates actually received at any of the addresses listed below, prior to 5:00 p.m., New York City time, on the Expiration Date or by the close of business on the third business day after the Expiration Date following timely receipt of a Notice of Guaranteed Delivery. See Payment for shares below.
Subscription Certificate Delivery Method |
Address/Number | |
By Notice of Guaranteed Delivery |
Contact your broker-dealer, trust company, bank, or other nominee to notify the Fund of your intent to exercise the Rights. | |
By First Class Mail Only (No Overnight /Express Mail) |
The Mexico Fund, Inc. American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, NY 11214 | |
By Hand to New York Delivery Window |
The Mexico Fund, Inc. American Stock Transfer & Trust Company 59 Maiden Lane Plaza Level New York, NY 10038 | |
By Express Mail or Overnight Courier |
The Mexico Fund, Inc. American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, NY 11214 |
Delivery to an address other than one of the addresses listed above will not constitute valid delivery.
Information agent
Any questions or requests for assistance concerning the method of subscribing for Shares or for additional copies of this prospectus or Subscription Certificates or Notices of Guaranteed Delivery may be directed to the Information Agent at its telephone number and address listed below:
Georgeson Inc.
17 State Street, 10th Floor
New York, NY 10004
(800) 965-5216
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Stockholders may also contact their brokers or nominees for information with respect to the offer. The Information Agent will receive a fee estimated to be $8,500, plus reimbursement for its out-of-pocket expenses related to the offer.
Sale of rights
The rights are transferable until the expiration date
The Rights will be listed for trading on the NYSE under the symbol MXF.RT subject to notice of issuance. The Fund will use its best efforts to ensure that an adequate trading market for the Rights will exist, although no assurance can be given that a market for the Rights will develop. Trading in the Rights on the NYSE is expected to be conducted on a when-issued basis beginning on or about March 12, 2007, until and including on or about March 22, 2007. Thereafter, the Rights are expected to trade on a regular-way basis until and including April 19, 2007, one business day prior to the Expiration Date (or if the offer is extended, until the last business day prior to the extended Expiration Date). Rights Holders are encouraged to contact their broker, bank, trustee or other nominees for more information about trading of the Rights.
Sales through subscription agent and dealer manager
Record Date Stockholders who do not wish to exercise any or all of their Rights may instruct the Subscription Agent to sell any Rights they do not intend to exercise themselves through or to the Dealer Manager. Subscription Certificates representing the Rights to be sold through or to the Dealer Manager must be received by the Subscription Agent on or before April 18, 2007 (or if the offer is extended, until two business days prior to the Expiration Date). Upon the timely receipt by the Subscription Agent of appropriate instructions to sell Rights, the Subscription Agent will ask the Dealer Manager either to purchase or to use its best efforts to complete the sale and the Subscription Agent will remit the proceeds of the sale to the selling Record Date Stockholders. If the Rights can be sold, sales of such Rights will be deemed to have been effected at the weighted-average price received by the Dealer Manager on the day such Rights are sold. The sale price of any Rights sold to the Dealer Manager will be based upon the then current market price for the Rights. The Dealer Manager will also attempt to sell all Rights which remain unclaimed as a result of Subscription Certificates being returned by the postal authorities to the Subscription Agent as undeliverable as of the fourth business day prior to the Expiration Date. The Subscription Agent will hold the proceeds from those sales for the benefit of such non-claiming Record Date Stockholders until such proceeds are either claimed or revert to the state. There can be no assurance that the Dealer Manager will purchase or be able to complete the sale of any such Rights, and neither the Fund nor the Dealer Manager has guaranteed any minimum sales price for the Rights. If a Record Date Stockholder does not utilize the services of the Subscription Agent and chooses to use another broker-dealer or other financial institution to sell Rights, then the other broker-dealer or financial institution may charge a fee to sell the Rights.
Other transfers
The Rights evidenced by a Subscription Certificate may be transferred in whole by endorsing the Subscription Certificate for transfer in accordance with the instructions accompanying the Subscription Certificate. A portion of the Rights evidenced by a single Subscription Certificate (but not fractional Rights) may be transferred by delivering to the Subscription Agent a Subscription Certificate properly endorsed for transfer, with instructions to register such portion of the Rights evidenced thereby in the name of the transferee and to issue a new Subscription Certificate to the transferee evidencing such transferred Rights. In such event, a new Subscription Certificate evidencing the balance of the Rights, if any, will be issued to the Record Date Stockholder or, if the Record Date Stockholder so instructs, to an additional transferee. The signature on the Subscription Certificate must correspond to the name as written upon the face of the Subscription Certificate in every particular, without alteration or enlargement, or any change. A signature guarantee must be provided by an eligible financial institution as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (1934 Act), subject to the standards and procedures adopted by the Fund.
Record Date Stockholders wishing to transfer all or a portion of their Rights should allow at least five business days prior to the Expiration Date for (i) the transfer instructions to be received and processed by the Subscription Agent; (ii) a new Subscription Certificate to be issued and transmitted to the transferee or transferees with respect to transferred Rights, and to the transferor with respect to retained Rights, if any; and (iii) the Rights evidenced by such new Subscription Certificate to be exercised or sold by the recipients thereof. Neither the Fund nor the Subscription Agent nor the Dealer Manager shall have any liability to a transferee or transferor of Rights if Subscription Certificates are not received in time for exercise or sale prior to the Expiration Date.
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Except for the fees charged by the Subscription Agent and Dealer Manager (which will be paid by the Fund), all commissions, fees and other expenses (including brokerage commissions and transfer taxes) incurred or charged in connection with the purchase, sale or exercise of Rights will be for the account of the transferor of the Rights, and none of those commissions, fees or expenses will be paid by the Fund, the Subscription Agent or the Dealer Manager.
The Fund anticipates that the Rights will be eligible for transfer through, and that the exercise of the Primary Subscription (but not the Over-Subscription Privilege) may be effected through, the facilities of the Depository Trust Company (DTC). Rights exercised through DTC are referred to as DTC Exercised Rights. Record Date Stockholders of DTC Exercised Rights may exercise the Over-Subscription Privilege in respect of such DTC Exercised Rights by properly executing and delivering to the Subscription Agent, at or prior to 5:00 p.m., New York City time, on the Expiration Date, a Nominee Holder Over-Subscription Certificate or a substantially similar form satisfactory to the Subscription Agent, together with payment of the Subscription Price for the number of Shares for which the Over-Subscription Privilege is to be exercised.
Methods for exercising rights
Rights are evidenced by Subscription Certificates that, except as described below under Foreign stockholders, will be mailed to Record Date Stockholders or, if a Record Date Stockholders Shares are held by Cede or any other depository or nominee on their behalf, to Cede or such depository or nominee. Rights may be exercised by completing and signing the Subscription Certificate that accompanies this Prospectus and mailing it in the envelope provided, or otherwise delivering the completed and signed Subscription Certificate to the Subscription Agent, together with payment in full for the Shares at the Subscription Price by the Expiration Date. Rights may also be exercised by contacting your broker, trustee or other nominee, who can arrange, on your behalf, to guarantee delivery of payment and delivery of a properly completed and executed Subscription Certificate pursuant to a Notice of Guaranteed Delivery by the close of business on the third Business day after the Expiration Date. A fee may be charged for this service. Completed Subscription Certificates and related payments must be received by the Subscription Agent prior to 5:00 p.m., New York City time, on or before the Expiration Date (unless payment is effected by means of a Notice of Guaranteed
Delivery as described below under Payment for shares) at the offices of the Subscription Agent at the address set forth above. Fractional Shares will not be issued upon the exercise of Rights.
Exercising rights holders
Exercising Rights Holders who are owners of record may choose either option set forth under Payment for shares below. If time is of the essence, alternative (2) will permit delivery of the Subscription Certificate and payment after the Expiration Date.
Record date stockholders whose shares are held by a nominee
Record Date Stockholders whose Shares are held by a nominee, such as a bank, broker or trustee, must contact that nominee to exercise their Rights. In that case, the nominee will complete the Subscription Certificate on behalf of the Record Date Stockholder and arrange for proper payment by one of the methods set forth under Payment for shares below.
Nominees
Nominees, such as brokers, trustees or depositories for securities, who hold Shares for the account of others should notify the respective beneficial owners of the Shares as soon as possible to ascertain the beneficial owners intentions and to obtain instructions with respect to the Rights. If the beneficial owner so instructs, the nominee should complete the Subscription Certificate and submit it to the Subscription Agent with the proper payment as described under Payment for shares below.
All questions as to the validity, form, eligibility (including times of receipt and matters pertaining to beneficial ownership) and the acceptance of subscription forms and the Subscription Price will be determined by the Fund, which determinations will be final and binding. No alternative, conditional or contingent subscriptions will be accepted. The Fund reserves the right to reject any or all subscriptions not properly submitted or the acceptance of which would, in the opinion of Funds counsel, be unlawful.
Foreign stockholders
Subscription Certificates will not be mailed to Foreign Stockholders. Foreign Stockholders will receive written notice of this offer. The Subscription Agent will hold the Rights to which those Subscription Certificates relate for these Stockholders accounts until instructions are received to exercise the Rights, subject to applicable law. If no instructions have been received by 5:00 p.m., New York City time, on April 17, 2007, three business days prior to the Expiration Date (or, if the subscription period is extended, on or before three business days prior to the extended Expiration Date), the Subscription Agent will transfer the Rights of these
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Stockholders to the Dealer Manager, which will either purchase the Rights or use its best efforts to sell them. The net proceeds, if any, from sale of those Rights will be remitted to these Stockholders.
Payment for shares
Exercising Rights Holders may choose between the following methods of payment:
(1) | An Exercising Rights Holder may send the Subscription Certificate together with payment for the Shares acquired in the Primary Subscription and any additional Shares subscribed for pursuant to the Over-Subscription Privilege (for Record Date Stockholders) to the Subscription Agent based on the estimated Subscription Price of $37.04 per Share (95% of $38.99, the last reported sale price of a Share on the NYSE on March 9, 2007). To be accepted, the payment, together with a properly completed and executed Subscription Certificate, must be received by the Subscription Agent at one of the Subscription Agents offices set forth above, prior to 5:00 p.m., New York City time, on the Expiration Date. |
(2) | An Exercising Rights Holder may send a Notice of Guaranteed Delivery by facsimile or otherwise from a bank, trust company or NYSE member guaranteeing delivery of (i) payment of the full Subscription Price for the Shares subscribed for in the Primary Subscription and any additional Shares subscribed for pursuant to the Over-Subscription Privilege (for Record Date Stockholders) and (ii) a properly completed and executed Subscription Certificate. The Subscription Agent will not honor a Notice of Guaranteed Delivery unless a properly completed and executed Subscription Certificate and full payment for the Shares is received by the Subscription Agent by the close of business on March 22, 2007 (or, if the offer is extended, until the third business day after the Expiration Date). |
All payments by an Exercising Rights Holder must be in U.S. dollars by money order or check drawn on a bank or branch located in the United States and payable to American Stock Transfer & Trust Company. The Subscription Agent will deposit all funds received by it prior to the final payment date into a segregated interest-bearing account (which interest will accrue to the benefit of the Fund) pending proration and distribution of the Shares.
The method of delivery of Subscription Certificates and payment of the Subscription Price to the Fund will be at the election and risk of the Exercising Rights Holders, but if sent by mail it is recommended that such Certificates and payments be sent by registered mail, properly insured, with return receipt requested, and that a sufficient number of days be allowed to ensure delivery to the Subscription Agent and clearance of payment prior to 5:00 p.m., New York City time, on the Expiration Date or the date guaranteed payments are due under a Notice of Guaranteed Delivery (as applicable). Because uncertified personal checks may take at least five business days to clear, you are strongly urged to pay, or arrange for payment, by means of certified or cashiers check or money order.
As soon as practicable following the Expiration Date (Confirmation Date), the Subscription Agent will send to each Exercising Rights Holder (or, if Shares are held by Cede or any other depository or nominee, to Cede or such other depository or nominee) a confirmation showing (i) the number of Shares purchased pursuant to the Primary Subscription; (ii) the number of Shares, if any, acquired pursuant to the Over-Subscription Privilege (for Record Date Stockholders); (iii) the per Share and total purchase price for the Shares; and (iv) any additional amount payable to the Fund by the Exercising Rights Holder or any excess to be refunded by the Fund to the Exercising Rights Holder, in each case based on the Subscription Price as determined on the Expiration Date. If any Exercising Rights Holder, if eligible, exercises his right to acquire Shares pursuant to the Over-Subscription Privilege, any excess payment which would otherwise be refunded to him will be applied by the Fund toward payment for Shares acquired pursuant to the exercise of the Over-Subscription Privilege. Any additional payment required from an Exercising Rights Holder must be received by the Subscription Agent within ten business days after the confirmation date. Any excess payment to be refunded by the Fund to an Exercising Rights Holder will be mailed by the Subscription Agent to the Rights Holder as promptly as practicable.
Whichever of the two methods described above is used, issuance and delivery of the Shares subscribed for are contingent upon actual payment for such Shares. If an Exercising Rights Holder who subscribes for Shares pursuant to the Primary Subscription or Over-Subscription Privilege (for Record Date Stockholders) does not make payment of any amounts due by the Expiration Date or the date guaranteed payments are due under a Notice of Guaranteed Delivery, the Subscription Agent reserves the right to take any or all of the following actions: (i) find other Record Date Stockholders who wish to subscribe for such subscribed and unpaid for Shares; (ii) apply any payment actually received by it from the Exercising Rights Holder toward the purchase of the greatest whole number of Shares which could be acquired by such Exercising Rights Holder upon exercise of the Primary Subscription and/or the Over-Subscription Privilege, and/or (iii) exercise any and all other rights or remedies to which it may be entitled, including, without limitation, the right to set off against payments actually received by it with respect to such subscribed for Shares.
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All questions concerning the timeliness, validity, form and eligibility of any exercise of Rights will be determined by the Fund, whose determinations will be final and binding. The Fund in its sole discretion may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as it may determine, or reject the purported exercise of any Right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as the Fund determines in its sole discretion. The Subscription Agent will not be under any duty to give notification of any defect or irregularity in connection with the submission of Subscription Certificates or incur any liability for failure to give such notification.
Exercising Rights Holders will have no right to rescind their subscription after receipt of their payment for Shares by the Subscription Agent, except as provided below under Notice of NAV decline.
Notice of NAV decline
The Fund, as required by the SECs registration form, will suspend the offer until it amends this prospectus (or will terminate the offer) if, subsequent to the effective date of this prospectus, the Funds NAV declines more than 10% from its NAV as of that date. If the Fund were to suspend the offer, the Expiration Date would be extended and the Fund would notify Record Date Stockholders of the decline and permit Exercising Rights Holders to cancel their exercise of Rights.
Delivery of stock certificates
Participants in the Funds Dividend Reinvestment Plan (Plan) will be able to have any Shares that they acquire pursuant to the offer credited to their Stockholder dividend reinvestment accounts in the Plan. Stockholders whose Shares are held of record by Cede or by any other depository or nominee on their behalf or their broker-dealers behalf will have any Shares that they acquire credited to the account of Cede or the other depository or nominee. With respect to all other Stockholders, stock certificates for all Shares acquired will be mailed after payment for all the Shares subscribed for has cleared, which may take up to 15 days from the date of receipt of the payment.
Federal income tax consequences of the offer
For Federal income tax purposes, neither the receipt nor the exercise of the Rights by Record Date Stockholders will result in taxable income to such Stockholders, and no loss will be realized if the Rights expire without exercise.
A Record Date Stockholders basis in a Right will be zero unless either (i) the fair market value of the Right on the date of distribution is 15% or more of the fair market value of the Shares with respect to which the Right was distributed or (ii) the Record Date Stockholder elects, in his or her Federal income tax return for the taxable year in which the Right is received, to allocate part of the basis of the Shares to the Right. If either of clauses (i) and (ii) is applicable, then if the Right is exercised, the Record Date Stockholder will allocate his or her basis in the Shares with respect to which the Right was distributed between the Shares and the Right in proportion to the fair market values of each on the date of distribution.
The holding period of a Right received by a Record Date Stockholder includes the holding period of the Shares with regard to which the Right is issued. If the Right is exercised, the holding period of the Shares acquired begins on the date the Right is exercised.
If a Right is sold, a gain or loss will be realized by the Rights Holder in an amount equal to the difference between the basis of the Right sold and the amount realized on its disposition.
A Record Date Stockholders basis for determining gain or loss upon the sale of a Share acquired upon the exercise of a Right will be equal to the sum of the Record Date Stockholders basis in the Right, if any, and the Subscription Price per Share. A Record Date Stockholders gain or loss recognized upon a sale of a Share acquired upon the exercise of a Right will be capital gain or loss (assuming the Share was held as a capital asset at the time of sale) and will be long-term capital gain or loss if the Share is held for more than one year.
The foregoing is a general summary of the material U.S. Federal income tax consequences of the offer under the provisions of the Code and Treasury regulations in effect as of the date of the prospectus that are generally applicable to Record Date Stockholders who are United States persons within the meaning of the Code, and does not address any foreign, state or local tax consequences. The Code and Treasury regulations are subject to change or differing interpretations by legislative or administrative action, which may be retroactive. Exercising Rights Holders should consult their tax advisors regarding specific questions as to foreign, Federal, state or local taxes.
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ERISA considerations
Stockholders who are employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA) (including corporate savings and 401(k) plans), Keogh or H.R. 10 plans of self-employed individuals and individual retirement accounts and other plans eligible for special tax treatment under the Code (collectively, Benefit Plans) should be aware that additional contributions of cash to a Benefit Plan (other than rollover contributions or trustee-to-trustee transfers from other Benefit Plans) in order to exercise Rights would be treated as Benefit Plan contributions and, when taken together with contributions previously made, may result in, among other things, excise taxes for excess or nondeductible contributions. In the case of Benefit Plans qualified under Section 401(a) of the Code and certain other Benefit Plans, additional cash contributions could cause the maximum contribution limitations of Section 415 of the Code or other qualification rules to be violated. Furthermore, it may also be a reportable distribution and there may be other adverse tax and ERISA consequences if Rights are sold or transferred by a Benefit Plan. Benefit Plans contemplating using additional cash contributions to exercise Rights should consult with their counsel prior to receiving or using such contributions.
Benefit Plans and other tax exempt entities, including governmental plans, should also be aware that if they borrow in order to finance their exercise of Rights, they may become subject to the tax on unrelated business taxable income (UBTI) under Section 511 of the Code. If any portion of an Individual Retirement Account (IRA) is used as security for a loan, the portion so used is also treated as distributed to the IRA depositor.
ERISA contains fiduciary responsibility requirements, and ERISA and the Code contain prohibited transaction rules that may impact the exercise of Rights. Due to the complexity of these rules and the penalties for noncompliance, Benefit Plans should consult with their counsel and other advisers regarding the consequences of their exercise of Rights under ERISA and the Code.
Distribution arrangements
UBS Securities LLC, which is a broker-dealer and member of the NASD, will act as Dealer Manager for this offer. Under the terms and subject to the conditions contained in the Dealer Management Agreement among the Dealer Manager, the Fund and the Investment Adviser, the Dealer Manager will provide financial structuring and marketing services in connection with this offer and will solicit the exercise of Rights and participation in the Over-Subscription Privilege. The Fund has agreed to pay the Dealer Manager a fee for its financial structuring, marketing and soliciting services equal to 3.50% of the aggregate Subscription Price for Shares issued pursuant to this offer.
The Dealer Manager will reallow to broker-dealers included in the selling group to be formed and managed by the Dealer Manager selling fees equal to 2.50% of the Subscription Price per Share for each Share issued pursuant to this offer as a result of their selling efforts. In addition, the Dealer Manager will reallow to other broker-dealers that have executed and delivered a Soliciting Dealer Agreement and have solicited the exercise of Rights, solicitation fees equal to 0.50% of the Subscription Price per Share for each Share issued pursuant to the exercise of Rights as a result of their soliciting efforts, subject to a maximum fee based on the number of Shares held by each broker-dealer through DTC on the Record Date. Fees will be paid to the broker-dealer designated on the applicable portion of the subscription certificates or, in the absence of such designation, to the Dealer Manager.
The Fund has agreed to indemnify the Dealer Manager or contribute to losses arising out of certain liabilities, including liabilities under the 1933 Act. The Dealer Manager Agreement also provides that the Dealer Manager will not be subject to any liability to the Fund in rendering the services contemplated by the Dealer Manager Agreement except for any act of bad faith, willful misconduct, or gross negligence of the Dealer Manager or reckless disregard by the Dealer Manager of its obligations and duties under the Dealer Manager Agreement. The Fund may in certain circumstances agree to reimburse the Dealer Manager for a portion of its expenses incurred in connection with this offer in an amount up to $100,000.
Prior to the expiration of this offer, the Dealer Manager may independently offer for sale Shares, including Shares acquired through purchasing and exercising the Rights, at prices it sets. Although the Dealer Manager may realize gains and losses in connection with such purchases and sales, such offering of Shares is intended by the Dealer Manager to facilitate the offer and any such gains or losses are not expected to be material to the Dealer Manager. The Dealer Managers fee for its financial structuring, marketing and soliciting services is independent of any gains or losses that may be realized by the Dealer Manager through the purchase and exercise of Rights.
Certain effects of this offer
The Funds Investment Adviser will benefit from this offer because the investment advisory fee and the administrative fee are based on the Funds net assets. See Management agreementManagement fee. It is not possible to state precisely the amount of additional compensation the Investment Adviser will receive as a result of this offer because it is not known how many Shares will be subscribed for and because the proceeds of the offer will be invested in additional portfolio securities, which will fluctuate in value.
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However, assuming (i) all Rights are exercised, (ii) the Funds average monthly total net assets remains higher than $600 million and (iii) the subscription price is $37.04 per Share, and after giving effect to Dealer Manager fees and other expenses related to this offer, the Investment Adviser would receive additional annualized advisory fees of $1,073,841 and administrative fees of $161,076. One of the Funds Directors who voted to authorize this offer is an interested person of the Investment Adviser. The other Directors who approved this offer are not affiliated with the Investment Adviser.
If 5,021,908 Shares are sold at the estimated Subscription Price of $37.04, the net proceeds of the offer are estimated to be approximately $178,973,494, after deducting Dealer Manager fees and other expenses related to this offer payable by the Fund estimated at approximately $7,040,489. The Investment Adviser anticipates that investment of the net proceeds, in accordance with the Funds investment objective and policies will take approximately three months (but in no event later than six months from the date of this prospectus) from their receipt by the Fund, depending on market conditions and the availability of appropriate securities. See The offerPurpose of the offer, Investment objective and policies and Investment restrictions.
Pending such investment, the proceeds may be invested in high-quality, short-term repurchase agreements collateralized with obligations of the Mexican federal government in accordance with the policies described in Investment objective and policies below. The Fund invests in an emerging market whose liquidity may delay the investment of the proceeds in a manner consistent with the Funds primary investment objective.
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The Fund is a non-diversified, closed-end management investment company registered under the 1940 Act. The Fund was incorporated under the laws of the State of Maryland on January 13, 1981 and was the first publicly offered United States registered investment company organized to invest primarily in Mexican equity securities listed on the Bolsa. The Funds investment objective is long-term capital appreciation through investment in securities, primarily equity, listed on the Mexican Stock Exchange. No assurance can be given that the Funds investment objective will be achieved.
Description of common stock
The Fund is authorized to issue 150,000,000 Shares. Each Share has equal voting, dividend, distribution and liquidation rights. The Shares outstanding and the Shares offered hereby, when issued and paid for pursuant to the terms of the offer, will be fully paid and non-assessable. Shares are not redeemable and have no preemptive rights, conversion rights, cumulative voting rights, or (except with respect to appraisal rights arising in connection with the Maryland Control Share Acquisition Act discussed below), appraisal rights.
The number of Shares outstanding as of March 9, 2007 was 15,005,723. The number of Shares adjusted to give effect to the offer, assuming that all Rights are exercised and the applicable Shares issued, would be 20,027,631.
The Funds Shares are publicly held and are listed and traded on the NYSE. The following table sets forth for the quarters indicated the highest and lowest daily intraday prices on the NYSE per Share, the highest and lowest closing NAV per Share and the highest and lowest registered discount from NAV per Share. The table also sets forth the number of Shares traded on the NYSE during the respective quarter.
NAV per Share(1) |
NYSE Market Price(2) |
% Premium/ (Discount)(3) |
NYSE | |||||||||||||||||
During Quarter Ended |
High | Low | High | Low | Low | High | Volume(4) | |||||||||||||
October 31, 2002 |
$ | 17.00 | $ | 14.60 | $ | 15.95 | $ | 13.51 | (3.54 | ) | (8.19 | ) | 1,380,100 | |||||||
January 31, 2003 |
$ | 16.15 | $ | 12.44 | $ | 14.80 | $ | 10.90 | (7.69 | ) | (14.12 | ) | 1,803,300 | |||||||
April 30, 2003 |
$ | 14.69 | $ | 12.16 | $ | 12.70 | $ | 10.22 | (11.40 | ) | (16.40 | ) | 1,158,000 | |||||||
July 31, 2003 |
$ | 16.24 | $ | 14.59 | $ | 14.48 | $ | 12.60 | (10.16 | ) | (14.28 | ) | 1,074,400 | |||||||
October 31, 2003 |
$ | 17.36 | $ | 15.71 | $ | 15.38 | $ | 13.86 | (9.51 | ) | (12.78 | ) | 1,036,100 | |||||||
January 31, 2004 |
$ | 20.89 | $ | 17.11 | $ | 19.03 | $ | 15.25 | (8.56 | ) | (12.16 | ) | 1,096,500 | |||||||
April 30, 2004 |
$ | 22.58 | $ | 20.44 | $ | 20.95 | $ | 18.32 | (6.95 | ) | (10.51 | ) | 1,593,000 | |||||||
July 31, 2004 |
$ | 21.70 | $ | 19.36 | $ | 19.74 | $ | 17.11 | (7.35 | ) | (10.12 | ) | 906,100 | |||||||
October 31, 2004 |
$ | 23.84 | $ | 20.55 | $ | 20.22 | $ | 18.41 | (9.13 | ) | (21.41 | ) | 4,476,800 | |||||||
January 31, 2005 |
$ | 25.42 | $ | 22.03 | $ | 22.37 | $ | 18.35 | (10.73 | ) | (16.16 | ) | 4,202,500 | |||||||
April 30, 2005 |
$ | 27.20 | $ | 23.04 | $ | 24.00 | $ | 20.10 | (9.71 | ) | (14.13 | ) | 2,643,600 | |||||||
July 31, 2005 |
$ | 29.78 | $ | 24.42 | $ | 26.63 | $ | 21.26 | (10.23 | ) | (13.66 | ) | 935,900 | |||||||
October 31, 2005 |
$ | 32.67 | $ | 28.56 | $ | 28.94 | $ | 25.00 | (10.37 | ) | (13.41 | ) | 2,113,000 | |||||||
January 31, 2006 |
$ | 35.54 | $ | 31.54 | $ | 31.90 | $ | 27.27 | (9.94 | ) | (13.35 | ) | 2,477,400 | |||||||
April 30, 2006 |
$ | 37.10 | $ | 32.98 | $ | 32.85 | $ | 29.00 | (9.75 | ) | (14.25 | ) | 1,826,900 | |||||||
July 31, 2006 |
$ | 40.02 | $ | 29.79 | $ | 35.34 | $ | 26.93 | (7.86 | ) | (13.77 | ) | 2,392,800 | |||||||
October 31, 2006 |
$ | 43.03 | $ | 36.37 | $ | 38.01 | $ | 32.05 | (9.29 | ) | (13.52 | ) | 1,968,100 | |||||||
January 31, 2007 |
$ | 47.47 | $ | 42.36 | $ | 42.95 | $ | 36.49 | (9.66 | ) | (13.95 | ) | 1,881,800 |
(1) | Source: Impulsora del Fondo México, S.C. Represents the highest and lowest NAV per Share for the respective quarter based on the NAV calculated at the end of the business day. |
(2) | Source: Impulsora del Fondo México, S.C. with figures obtained from the NYSE. |
(3) | Source: Impulsora del Fondo México, S.C. Represents the high/low premium or discount from NAV of the Shares for the respective quarter based on the Share price and NAV at the end of the business day. |
(4) | Source: Impulsora del Fondo México, S.C. with figures obtained from the NYSE. |
At the close of business on March 9, 2007, the NAV per Share was $44.30 and the last reported sale price of a Share on the NYSE was $38.99, representing an 11.99% discount from such NAV.
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INVESTMENT OBJECTIVE AND POLICIES
Investment objective
The Funds investment objective is long-term capital appreciation through investment in securities, primarily equity, listed on the Mexican Stock Exchange. The Funds investment objective may not be changed without the approval of the holders of a majority of the outstanding Shares. A majority vote, as defined by the 1940 Act, means the affirmative vote of the lesser of (i) 67% of the relevant Shares represented at a meeting at which more than 50% of such Shares are represented or (ii) more than 50% of the relevant Shares.
Investment policies
Generally
To achieve its investment objective, the Fund may invest at least 80% of its total assets in equity securities listed on the Mexican Stock Exchange. This investment policy is a non-fundamental policy which may be changed by the Board of Directors upon 60 days prior written notice to Stockholders.
The Fund may also invest in fixed-income securities and bank time deposits of Mexican banks, all of which are peso-denominated and may be dollar-linked (i.e., paid in pesos but with repayment linked to a dollar exchange rate), in order to provide appropriate liquidity to take advantage of market opportunities and meet cash requirements. The Fund may also invest in dollar-denominated deposits and dollar-denominated investments such as U.S. Treasuries, U.S. Agency securities, Agency Mortgage-Backed Securities and Mexican Sovereign Debt. As market or other conditions require, the proportion of the Funds assets held in fixed-income securities or bank time deposits may vary. The Fund will not realize capital gains for the sole purpose of making distributions to Stockholders.
The Funds assets are diversified over a broad spectrum of the Mexican economy. Industries in which the Fund currently invests include cement, communications, construction, financial groups, food and beverages, housing, mining, consumer products, retail stores, service and steel.
Concentration policy
The Fund has adopted a fundamental policy which permits it to concentrate its investments in any industry or group of industries of the Mexican Stock Exchange Index (or any successor or comparable index 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 Index; provided, however, that the Fund will not exceed the Index concentration by more than 5%. Currently, as of January 2007, the only industry group that represents 20% or more of the value of the securities included in the Mexican Stock Exchange Index is the communications industry group. This industry includes local, long-distance and cellular telephone companies, as well as broadcast and media companies. Approximately 89.2% of the communications industry group is comprised of stocks of telecommunications companies. As of January 12, 2007, 31.9% of the Funds net assets were invested in the communications industry group as compared to this industry groups weighting of approximately 41.2% of the Mexican Stock Exchange Index. The Investment Adviser continually evaluates the Funds concentration and may choose not to concentrate in this industry group in the future or to concentrate in other industry groups subject to this concentration policy.
Small-and medium-capitalization equity investments
The Investment Adviser has also sought to identify and invest a larger percentage of Fund assets in securities issued by small- and medium-capitalization companies listed on the Bolsa which it believes offer potential for long-term capital appreciation. Investments in securities of these issuers may present greater opportunities for growth but also involve greater risks than are customarily associated with investments in securities issued by more established companies. The Fund has not established any minimum capitalization or length of operating history for these issuers.
Repurchase agreements, securities lending and borrowing
The Fund may enter into repurchase agreements with banks and broker-dealers pursuant to which the Fund may acquire a security for a relatively short period (usually no more than a week) subject to the obligations of the seller to repurchase and the Fund to resell such security at a fixed time and price. The Investment Adviser monitors the value of such securities daily to determine that the value equals or exceeds the repurchase price. Under the 1940 Act, repurchase agreements are considered to be loans made by the Fund which are collateralized by the securities subject to repurchase. Repurchase agreements may involve risks in the event of default or insolvency of the seller, including possible delays or restrictions upon the Funds ability to dispose of the underlying securities. The Fund will enter into repurchase agreements only with parties who meet creditworthiness standards approved by the Funds Board of Directors, i.e., banks or broker-dealers which have been determined by the Investment Adviser to present no serious risk of becoming involved in bankruptcy proceedings within the time frame contemplated by the repurchase transaction.
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To generate income, the Fund may also lend portfolio securities to borrowers, although it has not done so since 1999 and has no present intention to enter into any securities lending arrangement. Any such loans must be secured by collateral (consisting of any combination of cash, U.S. Government securities, irrevocable letters of credit and other high-quality debt securities) in an amount at least equal (on a daily marked-to-market basis) to the current market value of the securities loaned. The Fund may terminate the loans at any time and obtain the return of the securities. The Fund will continue to receive any interest or dividends paid on the loaned securities and will continue to have voting rights with respect to the securities. In connection with the lending of its portfolio securities, the Fund is exposed to the risk of delay in recovery of the securities loaned or possible loss of right in the collateral should the borrower become insolvent.
The Fund has the ability to borrow money to the extent permitted, or as not prohibited, by the 1940 Act. The 1940 Act requires the Fund to maintain asset coverage of not less than 300% of its senior securities representing indebtedness, as those terms are defined and used in the 1940 Act.
In selecting securities for the Fund, the Investment Adviser normally will consider the following factors, among others: (i) the Investment Advisers own evaluations of the market value, cash flow, earnings per share and other fundamental aspects of the underlying assets and business of the company; (ii) the potential for capital appreciation of the securities; (iii) the prices of securities relative to other comparable securities; (iv) the composition of the portfolio; (v) corporate governance practices; (vi) quality of management; (vii) associations with leading international companies; and (viii) vulnerability to external events. The Investment Adviser utilizes its own internal financial, economic and credit analysis resources as well as information from other sources to seek investments in industries and companies that the Investment Adviser believes have overall growth prospects and a strong competitive position in domestic and/or export markets. The Investment Adviser maintains specific research files for each listed company in which the Fund may invest or has invested that include, among other information, analysis of the economic sector, financial information, business performance, market share, management, investment programs, competition, identified risks, sales and profits forecasts.
The investment-decision process includes daily review of the market and of relevant information regarding listed companies in which the Fund may invest or has invested. This process also involves weekly meetings among the Director General of the Investment Adviser and his appropriate staff, plus, when required, meetings and discussions with company executives. The research personnel of the Investment Adviser visit companies included in the Funds portfolio, target companies for review regularly and attend most stockholder meetings. Additionally, companies and brokerage houses doing road shows to offer new equity securities or to keep investors informed often visit the Investment Adviser. Personnel of the Investment Adviser also participate in joint meetings with listed companies organized by brokerage houses for clients and analysts and regular conference calls prepared by specific issuers.
In-kind repurchase offer policy
In 2002, the Fund adopted a fundamental policy pursuant to which it will make offers to repurchase its shares at least once each fiscal year based on the number of outstanding Shares at the beginning of the fiscal year. As part of the fundamental policy, the Fund will offer to repurchase no less than five percent of its outstanding Shares each fiscal year. Deadlines for participation in a repurchase offer will be disclosed in the notification provided to Stockholders of a repurchase offer and will be determined by the Board consistent with the 1940 Act, applicable SEC regulations and the terms of the exemptive order issued by the SEC regarding the Funds repurchase offers. The date on which the repurchase price for Shares is to be determined shall be no later than the fourteenth day after a repurchase request deadline, or the next business day if that day is not a business day.
For each repurchase offer, the Fund offers to repurchase between one and 100% of the Funds outstanding shares. Participating stockholders generally receive a pro-rata distribution or slice of the Funds portfolio securities in return for their repurchased Shares except for (a) securities which, if distributed, would be required to register under the 1933 Act; (b) securities issued by entities in countries which restrict or prohibit the holding of securities by non-nationals other than through qualified investment vehicles; and (c) certain portfolio assets (such as forward currency exchange contracts, futures and options contracts, and repurchase agreements) that, although they may be liquid and marketable, include the assumption of contractual obligations, require special trading facilities or can only be traded with the counterparty to the transaction in order to effect a change in beneficial ownership. Additionally, the Fund may pay cash for fractional Shares and/or odd lots of securities and/or amounts attributable to any cash positions (including short-term non-equity securities); distribute odd lots, fractional Shares and any cash position to Stockholders; round off (up or down) odd lots or fractional Shares so as to eliminate them prior to distribution; or pay a higher pro-rata percentage of equity securities to represent those items.
In order to participate in the Funds periodic repurchase offers, Stockholders need to make appropriate custodial arrangements with Mexican custodians which requires establishment of accounts by participating Stockholders with a bank or broker in the Mexican market.
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The Fund has previously announced that it anticipates conducting its next repurchase offer in September 2007 for an amount yet to be determined. The Board reviewed the terms and effects of the Funds repurchase offer policy in connection with its consideration of this offer.
Investment in foreign issuers not organized in Mexico but listed on the Mexican Stock Exchange
The Fund may invest in the securities of issuers listed on the Mexican Stock Exchange but not organized in Mexico, provided that such issuers have subsidiaries operating in Mexico, and that in the aggregate, no more than 20% of the Funds assets are invested in such issuers, based on the market value of such issuers.
The Fund has elected to be classified as a non-diversified closed-end management investment company and will invest its assets only in a manner consistent with this classification under applicable law. The Funds investment objective and the following investment policies and restrictions are fundamental policies of the Fund and may not be changed without the approval of (i) more than two-thirds of the Funds outstanding Shares present at a meeting at which holders of more than 50% of the outstanding Shares are present in person or by proxy or (ii) more than 50% of the Funds outstanding Shares, whichever is less:
(1) | As to 50% of its assets, the Fund may not (a) invest more than 5% of its assets (at the time of such purchase) in the securities of any one issuer, or (b) purchase more than 10% of the voting equity securities (at the time of such purchase) of any one issuer. The Fund may not, however, invest more than 25% of its assets in short-term debt certificates and other obligations of the Mexican Federal Government. |
(2) | The Fund may concentrate its investments in any industry or group of industries of the Mexican Stock Exchange Index (or any successor or comparable index 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 Index; provided, however, that the Fund will not exceed the Index concentration by more than 5%. |
(3) | The Fund may not invest in real estate or real estate mortgages. |
(4) | The Fund may issue senior securities (as defined in the 1940 Act) or borrow through bank loans in an amount not in excess of 33 1/3% of the Funds assets (including the amount represented by such senior securities or borrowing). |
(5) | The Fund may purchase on margin, write put or call options and engage in short sales of securities not owned by the Fund. |
(6) | The Fund may not purchase commodities or commodities contracts. |
(7) | The Fund may not act as an underwriter of securities of other issuers (except in connection with the sale of subscription rights issued by portfolio companies). |
(8) | The Fund may not make loans other than through the purchase of publicly traded fixed-income securities or short-term obligations of publicly held Mexican corporations. The Fund may lend its securities, provided that the loan is secured continually by collateral in an amount at least equal to the current market value of the securities loaned and the Fund will receive any interest or dividends paid on the loaned securities. Such collateral may consist of U.S. dollars, securities issued or guaranteed by the United States Government or its agencies or instrumentalities (U.S. Government securities) or irrevocable stand-by letters of credit issued by a bank. The Fund may invest such cash collateral in short-term liquid U.S. money market securities, including but not limited to, U.S. Government securities, commercial paper and floating rate notes of U.S. issuers. |
(9) | With respect to periodic Share repurchases by the Fund: |
(a) | The Fund will make offers to repurchase its Shares at least once each fiscal year based on the number of outstanding Shares at the beginning of the fiscal year. |
(b) | The Fund will offer to repurchase no less than five percent of its outstanding Shares each fiscal year. |
(c) | Repurchase request deadlines shall be disclosed in the notification provided to Stockholders of a repurchase offer. Repurchase request deadlines shall be determined by the Board consistent with the 1940 Act, applicable SEC regulations and the terms of any exemptive order issued to the Fund by the SEC. |
(d) | The date on which the repurchase price for Shares is to be determined shall occur no later than the fourteenth day after a repurchase request deadline, or the next business day if such day is not a business day. |
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The following operating policies of the Fund may not be modified without the approval of two-thirds of the Funds Board of Directors.
1. The Fund may not issue senior securities as defined in the 1940 Act, and may not borrow through bank loans in an amount in excess of 10% of the Funds total assets (and then only to meet temporary cash needs).
2. The Fund may not purchase on margin, write put or call options and engage in short sales of securities not owned by the Fund.
3. The Fund may not make loans other than through the purchase of publicly traded fixed-income securities or short-term obligations of publicly held Mexican corporations.
RISK FACTORS AND SPECIAL CONSIDERATIONS
This prospectus contains certain forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of uncertainties set forth below and elsewhere in the prospectus. Investing in the Shares involves certain risks and considerations not typically associated with investing in the United States. The following discusses risks and special considerations with respect to the offer and with respect to an investment in the Fund.
Foreign investments generally
Foreign investments may involve certain considerations and risks not typically associated with those of U.S. equity securities as a result of, among others:
| generally less liquid and less efficient securities markets and smaller market capitalizations; |
| generally greater price volatility; |
| exchange rate fluctuations and exchange controls and the costs associated therewith; |
| currency fluctuation; |
| imposition of restrictions on the expatriation of funds or other assets; |
| less publicly available information about issuers; |
| the imposition of taxes; |
| higher transaction and custody costs; |
| settlement delays and risk of loss; |
| difficulties in enforcing contracts; |
| difficulties in obtaining or enforcing a court judgment; |
| lesser governmental regulation of the securities markets; |
| different accounting, auditing, financial and disclosure standards; |
| governmental interference; |
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| higher inflation; |
| social, economic and political uncertainties; |
| the risk of expropriation of assets; and |
| the risk of war. |
Mexico is considered to be an emerging market country. Investment in an emerging market country subjects the Fund to greater risk of loss than investments in developed countries. This is due to, among other things, greater market volatility, lower trading volume, political and economic instability, greater risk of market shut down and more governmental limitations on foreign investment policy than those typically found in a developed market.
The economy of an individual emerging market country may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments position. Further, the economies of developing countries are generally heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies have also been and may continue to be adversely affected by economic conditions in the countries with which they trade.
Foreign investment in certain emerging market issuers is restricted or controlled to varying degrees. These restrictions or controls may at times limit or preclude foreign investment in certain emerging market issuers and increase Fund costs and expenses. Certain emerging market countries require governmental approval prior to investments by foreign persons in a particular issuer, limit the amount of investment by foreign persons in a particular issuer, limit the investment by foreign persons only to a specific class of securities of an issuer that may have less advantageous rights than the classes available for purchase by nationals of the country and/or impose additional taxes on foreign investors. Certain emerging market countries may also restrict investment opportunities in issuers in industries deemed important to national interests. See Risks involved in Mexican investments below.
Reduced secondary market liquidity may have an adverse effect on market price and the Funds ability to dispose of particular instruments when necessary. Reduced secondary market liquidity for certain emerging market issuer securities may also make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing the Funds portfolio and calculating its net asset value. Market quotations are generally available on many emerging market issuer securities only from a limited number of dealers and may not necessarily represent firm bids of those dealers or prices for actual sales.
Risks involved in Mexican investments
Investment in Mexican securities involves special considerations and risks that are not as frequently associated with investments in U.S. securities, including (1) lesser liquidity and smaller market capitalization of the Mexican securities markets; (2) currency fluctuations; (3) higher rates of inflation and domestic interest rates; and (4) less stringent disclosure requirements, less available information regarding Mexican public companies and less active regulatory oversight of Mexican public companies.
Market illiquidity, volatility
Although one of the largest in Latin America by market capitalization, the Mexican Stock Exchange is substantially smaller, less liquid and more volatile than the major securities markets in the United States. As of January 31, 2007, the aggregate market value of equity securities listed on the Mexican Stock Exchange was approximately $353 billion, compared to approximately $25 trillion for NYSE-listed equity securities at the end of 2006. In addition, trading on the Mexican Stock Exchange is concentrated. Approximately 80% of the total traded volume of the Mexican Stock Exchange in January 2007 was produced by 15 issuers. At such date, the stock of America Movil, S.A. de C.V. (AMX) and its parent company accounted for approximately 20% of the aggregate market capitalization of the Mexican Stock Exchange, while no single stock issue accounted for more than 1.7% of the aggregate market capitalization of the NASDAQ and the NYSE. Thus, the performance of the Mexican Stock Exchange, as further described below, is highly dependent on the performance of a few issuers. Additionally, prices of equity securities traded on the Mexican Stock Exchange are generally more volatile than prices of equity securities traded on the NYSE. The combination of price volatility and the relatively limited liquidity of the Bolsa may have an adverse impact on the investment performance of the Fund.
Market corrections
Although less so in recent times, the Mexican securities market has been subject to periodic severe market corrections. In the two months following the general destabilization of the Mexican economy in December 1994, the Bolsas Index declined 36.3% in
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nominal peso terms and 58.0% in dollar terms from December 20, 1994 to February 27, 1995 before beginning to recover. Due to the high concentration of investors, issuers and intermediaries in the Mexican securities market and the general high volatility of the Mexican economy, the Mexican securities market may be subject to severe market corrections than more broadly based markets. As is the case with investing in any securities market, there can be no assurance that market corrections will not occur again.
The Mexican economy
As previously discussed in The offerPurpose of the offer, the Mexican economy has remained stable for the last 6 years as a result of governmental initiatives and successful free trade agreements with other countries, economic and fiscal discipline and stable economic, political and social conditions. Nevertheless, in the past the Mexican economy has experienced peso devaluations, significant rises in inflation and domestic interest rates and other economic instability and there can be no assurance that the economy will remain stable. In addition, although Mexico has exhibited in the last few years positive market indicators in terms of GDP growth, long-term interest rates, current account deficits, exports, and foreign investment, there is no assurance that these trends will continue. Overt unemployment continues to exist at levels of over four percent and more than one million new jobs will be required annually according to economic estimates. The economy has recently witnessed significant increases in energy, transportation and telecommunications costs and there is significant pressure to increase wage and energy productivity.
Oil and other commodity prices
Mexicos economy is highly dependent on oil. Total oil income represented 8.2% of GDP and approximately 36.8% of public sector revenues in the first eleven months of 2006. The public sector surplus of last year was mostly generated from high oil prices that reached more than $60 dollars per barrel for the Mexican oil mix, with an average of $52.90 dollars per barrel. However, since the end of 2006, falling global oil prices have contributed to high volatility in the international oil market and have caused current oil export prices for the Mexican oil mix to fall below the $42.80 estimated by Congress for the 2007 budget. Although oil export prices are expected to recover throughout the rest of 2007 due in part to an expected reduction in production by the OPEC, if oil export prices continue to fall, the Federal budget may have to be adjusted and additional resources for states could be affected.
In addition, Mexicos state-owned oil company, Petroleos Mexicanos (Pemex), may be facing a decline in its output particularly with respect to Cantarel, the largest oil field in Mexico. Although this situation has already been anticipated in the Federal budget for 2007, in the longer term Pemex may need to invest in the extraction of oil from deeper fields in order to replace this production. Increased government expenditures with respect to oil may create certain economic inefficiencies.
The anticipated structural reform to energy would imply that Pemex revenues may not necessarily be channeled into the Federal income. Pemex would have options for the use of these resources, essentially in exploration and development of refining capacity.
Current price reductions in other commodity prices such as copper or steel may also have an adverse impact in some Mexican issuers.
Political factors
Mexico is a federal, democratic republic with a tripartite division of powers: executive, legislative and judicial. The chief executive is the President, who is elected by popular vote for a period of six years and who may not be re-elected. There are three primary political parties, the Partido Revolucionario Institucional (the Institutional Revolutionary Party or PRI), the Partido Accion Nacional (PAN) and the Partido de la Revolucion Democratica (PRD). The PRI has traditionally been the dominant political party in Mexico; until the election in 2000 of PAN candidate Vincente Fox as President, the PRI had won all presidential elections held in Mexico. The election of Mr. Fox occurred peacefully and fairly, without any economic or political instability. However, the Mexican political situation in the past and somewhat recently has been subject to significant instability, including internal disruptions, assassinations, kidnappings and insurgent attacks. The Fund is subject to the risks of political and economic instability with respect to its investments in Mexico. Presidential elections in Mexico in July 2006 were the most contested in Mexicos history. The losing candidate, Andres Manuel López Obrador, asserted that the electoral victory of Mr. Felipe Calderón was fraudulent. These assertions were rejected by the Federal Electoral Tribunal of Mexico. Since December 1, 2006, when Mr. Calderón took office as President of Mexico, the Investment Adviser believes the political climate has improved significantly. However, the Investment Adviser cannot state that no issues relating to the political environment may arise in the near future. The impact of future events and changes and any political and economic instability in Mexico on the Fund cannot be predicted, although they may have an adverse effect on the Funds intended operations and performance.
Mexican securities laws and accounting rules
There is less publicly available information about the issuers of Mexican securities than is regularly published by issuers in the United States. All Mexican companies listed on the Bolsa must incorporate the effects of inflation directly in accounting records and in their published financial statements. Thus, Mexican financial statements and reported earnings may differ from those of companies in other countries.
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The Ley de Mercado de Valores (Mexican Securities Law), adopted in December 2005 and effective in June 2006, amends and restates the existing Mexican Securities Law in its entirety. The new Mexican Securities Law enhances disclosure requirements and corporate governance standards for Mexican listed companies by defining the functions, duties and liabilities of management, directors and audit committee (integrated solely by independent directors) and by introducing new concepts, such as the corporate practices committee, integrated in the majority of the cases by independent directors. The new law also provides minority shareholders of Mexican listed companies with improved information rights and legal remedies.
Although the Fund and the Investment Adviser are subject to service of process in the United States, the Fund has been advised by its Mexican counsel that there is doubt as to the enforceability in Mexican courts of liabilities predicated solely upon the U.S. securities laws, whether or not such liabilities are based upon judgments of courts in the United States. Moreover, bankruptcy and creditors rights laws in Mexico are less developed and it may be more difficult to obtain a judgment in a court in Mexico than in the United States.
Possible listing of Fund shares on the Bolsa
The Board of Directors of the Fund has determined to explore the possibility of listing the Funds shares on the Bolsa (Mexican Stock Exchange), due in part to the ability of private pension funds in Mexico (Afores) to invest in foreign equities. The listing of Fund shares on the Bolsa is subject to review by the appropriate regulatory authorities in Mexico. As a result, the timing of the listing and its impact upon this offer, as well as upon the Funds intended operations and performance, cannot be predicted with certainty.
Currency exchange rate fluctuations
As a non-fundamental policy, the Fund must invest at least 80% of its assets in equity securities listed on the Mexican Stock Exchange.
Currency exchange rates can fluctuate significantly over short periods and can be subject to unpredictable changes based on a variety of factors including political developments and currency controls by foreign governments. A change in the value of the currency in which a portfolio security is denominated against the U.S. Dollar will generally result in a change in the U.S. Dollar value of the Funds assets. If the exchange rate for a foreign currency declines compared to the U.S. Dollar, the Funds NAV would decline. In addition, although most of the Funds income will be received or realized primarily in foreign currencies, the Fund will be required to compute and distribute its income in U.S. Dollars. Therefore, for example, if the exchange rate for a foreign currency declines after the Funds income has been accrued and translated into U.S. Dollars, but before the income has been received or converted into U.S. Dollars, the Fund could be required to liquidate portfolio securities to make distributions. Similarly, if the exchange rate declines between the time the Fund incurs expenses in U.S. Dollars and the time the expenses are paid, the amount of foreign currency required to be converted into U.S. Dollars in order to pay the expenses in U.S. Dollars will be greater than the foreign currency equivalent of the expenses at the time they were incurred.
In addition, the Mexican peso has been subject to significant devaluations in the past, and there can be no assurance that similar devaluations will not take place in the future. The Mexican peso may also be negatively affected by adverse currency, financial or market developments in the United States and other Latin American countries.
Dilutionnet asset value and non-participation in the offer
Record Date Stockholders will experience a dilution of the aggregate net asset value per share of our common stock upon the completion of this rights offering because the subscription price will be less than our then current net asset value per share. This dilution, which may be substantial, will be experienced by all stockholders, irrespective of whether they exercise all or any portion of their rights, although non-exercising shareholders will experience disproportionate dilution. Also, stockholders who do not fully exercise their rights should expect that they will own a smaller proportional interest in us after the completion of the rights offering. The distribution to stockholders of transferable rights which themselves may have intrinsic value will afford non-participating stockholders the potential to receive a cash payment upon sale of their rights, receipt of which may be viewed as partial compensation for the dilution of their interest in the Fund. No assurance can be given that a market for the rights will develop, or as to the value, if any, that rights will have.
For example, assuming that all Rights are exercised at the estimated Subscription Price of $37.04 and the NAV per share on the Expiration Date is $44.30, the Funds NAV per share (after payment of the Dealer Manager fees and estimated offering expenses) would be reduced by $2.17 per Share (or 4.90%).
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The fact that the Rights are transferable may reduce the effects of any dilution as a result of the offer. Rights Holders can transfer or sell their Rights. The cash received from the sale of Rights is partial compensation for any possible dilution. There can be no assurances, however, that a market for the Rights will develop or the Rights will have any value in that market.
Net asset value discount
Shares of closed-end investment companies frequently trade at a discount from NAV. This characteristic is a risk separate and distinct from the risk that NAV will decrease. The Funds Shares have frequently traded at prices below NAV since the commencement of the Funds operations. In the 12-month period ended December 31, 2006, the Funds Shares have traded in the market at an average discount to NAV of 11.8%. Among the factors which may affect whether Shares of the Fund trade at a discount to net asset value are portfolio investment results, the general performance of the Mexican economy and Mexican securities, supply and demand for Shares and the development of alternatives to the Fund as a vehicle through which United States and other foreign investors may invest in Mexican securities. The Fund cannot predict whether its Shares in the future will trade at, below or above NAV. The risk that shares of a closed-end fund might trade at a discount is more significant for investors who wish to sell their shares in a relatively short period of time. For those investors, realization of gain or loss on their investment may be more dependent upon the existence of a premium or discount than upon portfolio performance.
Dollar-denominated investments risk
The Fund may also invest in dollar-denominated deposits and dollar-denominated investments such as U.S. Treasuries, U.S. Agency securities, Agency Mortgage-Backed Securities and Mexican Sovereign Debt. Asset-backed securities such as mortgage-backed securities represent interests in pools of consumer loans and interest and principal payments ultimately depend upon payment of the underlying loans by individuals. Securities issued by U.S. government agencies or government-sponsored enterprises may not be guaranteed by the U.S. Treasury. For example, Ginnie Mae (also known as the Government National Mortgage Association or GNMA), a wholly owned U.S. government corporation, is authorized to guarantee, with the full faith and credit of the U.S. government, the timely payment of principal and interest on securities issued by institutions approved by GNMA and backed by pools of mortgages insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Government-sponsored guarantors (i.e., the guarantees and securities of which are not backed by the full faith and credit of the U.S. government) include the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the U.S. government. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but its participation certificates are not backed by the full faith and credit of the U.S. government.
Foreign custody
Investment companies generally hold foreign securities and cash in foreign banks and securities depositories, and regulatory oversight over such entities may be limited. The laws of certain countries may put limits on a funds ability to recover its assets if a foreign bank, depository or issuer of a security, or any of their agents, goes bankrupt. In addition, it is often more expensive for a fund to buy, sell and hold securities in certain foreign markets than in the United States. The increased expense of investing in foreign markets reduces the amount a fund can earn on its investments and typically results in a higher operating expense ratio for a fund than for investment companies invested only in the United States.
BBVA Bancomer, SA (Bancomer), acts as the Funds custodian, and S.D. Indeval, S.A. de C.V. (Indeval) acts as a securities depository for securities or equivalent book-entries in Mexico. It is the Investment Advisers view that Bancomer and Indeval are stable financial institutions unlikely to be subject to the risks described herein. In addition, the Board of Directors reviews and evaluates the Funds foreign custody arrangements on an annual basis.
Non-diversified status
The Fund is classified as a non-diversified management investment company under the 1940 Act, which means that the Fund is not limited by the 1940 Act as to the proportion of its assets that may be invested in the securities of a single issuer. As a non-diversified investment company, the Fund may invest a greater proportion of its assets in the obligations of a smaller number of issuers and, as a result, will be subject to greater risk with respect to its portfolio securities. Although, with respect to 50% of its assets, the Fund must diversify its holdings in order to be treated as a regulated investment company under the provisions of the Code, the Fund may be
31
more susceptible to any single economic, political or regulatory occurrence than would be the case if it had elected to diversify its holdings sufficiently to be classified as a diversified management investment company under the 1940 Act. See TaxationU.S. tax status.
Tax considerations
A significant portion of the Funds net assets is comprised of unrealized capital gains due to the investment performance of many of the Funds portfolio holdings over the last several years. Such gains, when realized and distributed, will become taxable to stockholders. Furthermore, there can be no assurance that the investment performance giving rise to such unrealized gains will continue, or that such gains will, in fact, be realized.
Value-added, withholding and/or other taxes may apply to the Fund and its investments, which will reduce the Funds return. The Fund intends to elect, when eligible, to pass-through to the Funds Stockholders, as a deduction or credit, the amount of foreign income and similar taxes paid by the Fund.
Concentration risk
The Mexican Stock Exchange is a concentrated market. A large percentage of the value of the Mexican securities market is currently represented by certain industry sectors, in particular, the communications industry. Also, an individual has a controlling interest in companies representing over 40% of the market capitalization of the Mexican Stock Exchange. The value of the Mexican Stock Exchange may be subject to greater volatility than markets that are less concentrated. Any factors or events which impact this individual could have negative repercussions for the issuers in which he holds a controlling interest and the Mexican Stock Exchange as a whole. The Fund currently has 26.5% of its net assets invested in companies controlled by this individual.
As previously mentioned, the Fund has adopted a concentration policy which permits it to concentrate its investments in any industry or group of industries of the Mexican Stock Exchange Index (or any successor or comparable index, 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 Index; provided, however, that the Fund will not exceed the Index concentration by more than 5%. As of January 12, 2007, the Fund had 31.9% of the Funds net assets invested in the communications industry group, (which has a weighting of approximately 41.2% of the Index). Because the Funds investments may be concentrated from time to time in certain industries, the value of the Fund may be subject to greater volatility than a fund with a portfolio that is less concentrated. If securities of a particular industry in which the Fund has concentrated fall out of favor, the Fund could underperform against other funds with greater industry diversification.
To the extent the Fund concentrates its investments in certain industries in accordance with its concentration policy or is invested in companies which this Mexican individual controls, the Fund will be more susceptible to effects caused by changes in the economic climate, overall market volatility, or regulatory environment which impact these industries and any factors or events affecting this Mexican individual.
Repurchase offer policy risk
Stockholders should be aware of the following special risk considerations associated with periodic in-kind repurchases:
| In the event of an oversubscription to the offer, all of the Shares submitted by Stockholders may not be accepted for repurchase by the Fund. |
| There is a risk of decline in the net asset value as a result of the delay between the repurchase request deadline and the repurchase pricing date, due to declines, among other things, in prices of securities held by the Fund and fluctuations in the Mexican peso relative to the U.S. dollar. There is an additional risk of decline in the value of proceeds received between the repurchase pricing date and the repurchase payment deadline because participating Stockholders are receiving portfolio securities of the Fund whose values are subject to change based on market activity. |
| By receiving and holding portfolio securities of the Fund, participating Stockholders are subject to the risks associated with investing in foreign equity securities, including market-, currency-, and country-related risks. |
Anti-takeover provisions
The Fund has provisions in its Charter and Bylaws that could have the effect of limiting (i) the ability of other entities or persons to acquire control of the Fund, (ii) the Funds freedom to engage in certain transactions, and (iii) the ability of the Funds Directors or Stockholders to amend the Charter and Bylaws or effect changes in the Funds management. Other bylaw provisions that may be regarded as anti-takeover disclose that the Fund has elected, under limited circumstances, to be subject to the Maryland Control
32
Share Acquisition Act (MCSAA), which sets restrictions on the voting rights of holders of MCSAA control shares of the Fund acquired in a MCSAA control share acquisition.
The foregoing provisions may be regarded as anti-takeover provisions and may have the effect of depriving Stockholders of an opportunity to sell their shares at a premium over prevailing market prices. See Capital stockCertain provisions of the Maryland General Corporation Law, the Charter and Bylaws.
Market disruption
The U.S. securities markets are subject to disruption and suspension of trading as a result of terrorist activities such as the terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001; the war in Iraq and its aftermath; other hostilities; and other geopolitical events. Such events have led, or may in the future lead, to disruption of the U.S. or world financial markets, which could have an adverse impact on interest rates, auctions, secondary trading, ratings, credit risk, inflation and other factors relating to the Funds shares.
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The following sets forth certain information with respect to the composition of the Funds investment portfolio as of January 31, 2007:
The Mexico Fund, Inc.
Schedule of Investments as of January 31, 2007 (Unaudited)
Shares Held | Common Stock (99.64%) |
Series | Value |
Percent of Net Assets |
||||||
Cement Industry |
||||||||||
10,962,634 | Cemex, S.A.B. de C.V. |
CPO | $ | 38,663,491 | 5.79 | % | ||||
4,220,500 | Grupo Cementos de Chihuahua, S.A de C.V. |
* | 20,455,939 | 3.06 | ||||||
59,119,430 | 8.85 | |||||||||
Communications |
||||||||||
13,156,400 | América Móvil, S.A. de C.V. |
A | 28,963,103 | 4.34 | ||||||
57,167,866 | América Móvil, S.A. de C.V. |
L | 126,680,618 | 18.97 | ||||||
879,100 | Axtel, S.A. de C.V. |
CPO | 3,009,656 | 0.45 | ||||||
5,758,700 | Grupo Televisa, S.A. |
CPO | 33,900,484 | 5.07 | ||||||
8,767,100 | Teléfonos de México, S.A.B. de C.V. |
A | 13,105,140 | 1.96 | ||||||
205,659,001 | 30.79 | |||||||||
Construction |
||||||||||
3,049,000 | Carso Infraestructura y Construcción, S.A de C.V. |
B-1 | 2,803,659 | 0.42 | ||||||
5,708,833 | Empresas ICA, S.A.B. de C.V. |
* | 20,982,348 | 3.14 | ||||||
23,786,007 | 3.56 | |||||||||
Financial Groups |
||||||||||
6,878,200 | Grupo Financiero Banorte, S.A. de C.V. |
O | 27,274,267 | 4.08 | ||||||
Food and Beverages |
||||||||||
2,102,317 | Fomento Económico Mexicano, S.A. de C.V. |
UBD | 25,190,017 | 3.77 | ||||||
3,226,400 | Gruma, S.A.B. de C.V. |
B | 9,730,468 | 1.46 | ||||||
2,719,500 | Grupo Bimbo, S.A. de C.V. |
A | 13,575,080 | 2.03 | ||||||
48,495,565 | 7.26 | |||||||||
Holding Companies |
||||||||||
2,789,400 | Alfa, S.A.B. de C.V. |
A | 18,942,710 | 2.84 | ||||||
6,165,200 | Mexichem, S.A de C.V. |
* | 11,293,539 | 1.69 | ||||||
2,278,000 | Verzatec, S.A. de C.V. |
* | 1,702,587 | 0.25 | ||||||
31,938,836 | 4.78 | |||||||||
Housing |
||||||||||
2,679,500 | Consorcio ARA, S.A. de C.V. |
* | 17,926,933 | 2.68 | ||||||
5,285,600 | Corporación Geo, S.A.B. de C.V. |
B | 27,945,464 | 4.18 | ||||||
1,869,800 | Desarrolladora Homex, S.A.B. de C.V. |
* | 18,474,062 | 2.77 | ||||||
4,472,082 | Sare Holding, S.A.B. de C.V. |
B | 6,539,056 | 0.98 | ||||||
9,927,800 | Urbi Desarrollos Urbanos, S.A de C.V. |
* | 35,256,632 | 5.28 | ||||||
106,142,147 | 15.89 | |||||||||
Mining Industry |
||||||||||
4,509,753 | Grupo México, S.A.B. de C.V. |
B | 18,470,940 | 2.77 | ||||||
Consumer Products | ||||||||||
2,834,680 | Kimberly-Clark de México, S.A.B. de C.V. |
A | 12,152,077 | 1.82 |
34
Retail Stores |
||||||||||
2,642,782 | Alsea, S.A.B. de C.V. |
* | 15,923,922 | 2.39 | ||||||
12,097,430 | Wal-Mart de México, S.A. de C.V. |
V | 53,515,746 | 8.01 | ||||||
69,439,668 | 10.40 | |||||||||
Service |
||||||||||
971,748 | Grupo Aeroportuario del Centro Norte, S.A.B de C.V |
B | 2,981,746 | 0.45 | ||||||
2,395,700 | Grupo Aeroportuario del Pacífico, S.A. de C.V. |
B | 9,729,778 | 1.46 | ||||||
2,371,700 | Grupo Aeroportuario del Sureste, S.A.B. de C.V. |
B | 10,218,881 | 1.53 | ||||||
976,200 | Promotora Ambiental, S.A.B. de C.V. |
B | 1,746,657 | 0.25 | ||||||
24,677,062 | 3.69 | |||||||||
Steel |
||||||||||
3,450,100 | Industrias CH, S.A. de C.V. |
B | 15,052,891 | 2.25 | ||||||
984,800 | Tenaris, S.A. |
* | 23,374,078 | 3.50 | ||||||
38,426,969 | 5.75 | |||||||||
Total Common Stock (Identified cost $242,712,991) |
$ | 665,581,969 | 99.64 | % |
Securities |
Short-Term Securities (0.52%) |
Value |
Percent of Net Assets |
||||||
Repurchase Agreements | BBVA Bancomer, S.A., 6.96%, dated 01/31/07, due 02/01/07 repurchase price $3,484,742, collateralized by Bonos del Gobierno Federal. Value of collateral $3,528,167 |
$ | 3,484,069 | 0.52 | % | ||||
Total Short-Term Securities (Identified cost $3,484,069) |
3,484,069 | 0.52 | |||||||
Total Investments (Identified cost $246,197,060) |
669,066,038 | 100.16 | |||||||
Liabilities in Excess of Other Assets |
(1,106,596 | ) | (0.16 | ) | |||||
Net Assets Equivalent to $44.51 per share on 15,005,723 shares of capital stock outstanding |
$ | 667,959,442 | 100.00 | % | |||||
Directors and officers
Under the Funds Bylaws and the Maryland General Corporation Law, the business and affairs of the Fund shall be managed under the direction of, and all the powers of the Fund shall be exercised by or under authority of, its Board of Directors. Investment decisions for the Fund are made by the Investment Adviser, subject to any direction it may receive from the Funds Board of Directors, which periodically reviews the Funds investment performance.
The Funds Bylaws provide that the Directors to be elected by Stockholders will be divided into three classes, as nearly equal in number as possible. Each Director serves for three years and until his or her successor is duly elected and qualifies. Each year, the term of one class expires. The officers of the Fund serve at the pleasure of the Board of Directors.
Although the Fund is a Maryland corporation, certain of its Directors and officers (Messrs. José Luis Gómez Pimienta, Claudio X. González, Eugenio Clariond Reyes-Retana, Emilio Carrillo Gamboa, Jaime Serra Puche, Samuel Garcia-Cuellar, Alberto Osorio, Carlos H. Woodworth and Eduardo Solano) are non-residents of the United States and have all, or a substantial part, of their assets located outside the United States. None of these Directors or officers has authorized an agent for service of process in the United States. As a result, it may be difficult for U.S. investors to effect service of process upon these Directors and officers within the United
35
States or to effectively enforce judgments of courts of the United States predicated upon civil liabilities of the Directors or officers under the Federal securities laws of the United States. The Fund has been advised by Mexican counsel in each jurisdiction in which the Funds Directors and officers reside that it is unlikely that the Mexican courts would adjudge civil liability against Directors and officers resident in Mexico in an original action predicated solely on a violation of the Federal securities laws of the United States.
The Bylaws of the Fund provide that the Fund will indemnify Directors and officers of the Fund against liabilities and expenses, including the advancement of expenses actually and reasonably incurred in connection with claims or litigation in which they may be involved because of their offices with the Fund. Neither the Charter nor the Bylaws of the Fund protects or indemnifies a Director or officer against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
The names of the Directors and officers of the Fund, their addresses, ages and principal occupations during the past five years are provided in the tables below. Directors that are deemed interested persons (as that term is defined in Section 2(a)(19) of the 1940 Act) of the Fund, the Investment Adviser and the Dealer Manager are included in the table titled Interested Directors. Directors who are not interested persons as described above are referred to as Independent Directors.
Interested Director
Name, Address and Age |
Position(s) |
Term of Office and Length of Time Served |
Principal Occupation(s) During Past Five Years |
Number of |
Other Directorships Held by Director | |||||
José Luis Gómez Pimienta** Aristóteles 77, 3rd Floor Col. Polanco 11560 México, D.F. México
Age: 67 |
President of the Fund; Class II Director | Term expires 2010; Director since 1989. | Mr. Gómez Pimienta has over two decades of experience investing in the Mexican securities market. He has been the President of the Fund since its inception and has also served as a Director since 1989. Mr. Gómez Pimienta has been Chairman of the Board of the Funds investment adviser, Impulsora del Fondo México, S.C., since 1987 and Chief Executive Officer since inception. | None | Director (since 1997) and member of the Executive Committee (since 1998) and the Audit Committee (since 2003) of the Bolsa Mexicana de Valores (Mexican Stock Exchange). |
* | There are no other funds in the Fund Complex. |
** | Director is an interested director (as defined in the 1940 Act). Mr. Gómez Pimienta is deemed to be an interested director by reason of his affiliation with the Investment Adviser. |
|
Alternate member of Valuation Committee. |
36
Independent Directors
Name, Address and Age |
Position(s) |
Term of Office and Length of Time Served |
Principal Occupation(s) During Past Five Years |
Number
of |
Other Directorships Held by Director | |||||
Marc J. Shapiro 707 Travis, 11th Floor Houston, TX 77002
Age: 59 |
Class I Director | Term expires 2009; Director since 2006. | Since 2003, Mr. Shapiro has served as Non-Executive Chairman of Chase Bank of Texas. Prior to that time, he was Vice Chairman of JPMorgan Chase (banking and financial services). | None. | Director, Burlington Northern Santa Fe (railroad); Director, Kimberly-Clark (consumer goods); Director, Weingarten Realty (real estate investment). |
37
Name, Address and Age |
Position(s) |
Term of Office and |
Principal Occupation(s) During |
Number of |
Other Directorships Held by Director | |||||
Jaime Serra Puche Edificio Plaza Prolongación Paseo de la Reforma 600-103 Santa Fe Peña Blanca 01210 México, D.F. México
Age: 55 |
Class I Director | Term expires 2009; Director since 1997. | Dr. Serra is a Senior Partner of the law and economics consulting firm SAI Consultores, S.C. Dr. Serra is a former Secretary of Finance for Mexico and he was the minister in charge of negotiations for NAFTA and trade agreements between Mexico and Chile, Bolivia, Venezuela, Colombia and Costa Rica on behalf of the Mexican government. Formerly, Dr. Serra has served as a Visiting Professor at Princeton University, Stanford University and New York University. He was also Secretary of Trade and Industry (Mexico) and a Distinguished Visiting Associate at the Carnegie Endowment for International Peace. He has a Ph.D. in economics from Yale University. | None. | Director, Vitro, S.A. de C.V. (glass manufacturer); Director, Tenaris (tube producer); Director, Chiquita Brands, Inc. (fruit producer); Director, Grupo Modelo, S.A. de C.V. (beer brewing); Co-Chairman, Presidents Council on International Activities of Yale University. |
* | There are no other funds in the Fund Complex. |
38
Name, Address and Age |
Position(s) Held |
Term of Office and |
Principal Occupation(s) |
Number of |
Other Directorships Held by | |||||
Claudio X. González Lagrange 103 Polanco Colonia Los Morales México, D.F. 11510 México
Age: 72 |
Class II Director | Term expires 2010; Director since 1981. | Mr. González was Director since 1981. President of the Business Coordinating Council of Mexico. He has served as Chairman of the Board and Chief Executive Officer of Kimberly-Clark de México S.A. de C.V., a consumer products company, since 1973. Mr. González is also on the Board of Directors of several prominent U.S. and Mexican companies, including General Electric Co. | None. | Chairman of the Board, Chief Executive Officer and Director, Kimberly-Clark de México, S.A. de C.V. (consumer products); Director, Kimberly-Clark Corp. (consumer products); Director, General Electric Co. (industrial and financial products); Director, Investment Company of America (investment fund); Director, Kellogg Co. (food products); Director, Home Depot (home improvement); Director, Grupo Alfa, S.A. de C.V. (conglomerate); Director, Grupo Carso, S.A. de C.V.; Director, Grupo México, S.A. de C.V. (copper mining and rail transportation); Director, America Movil, S.A. de C.V. (telecommunications); Director, Grupo Financiero Inbursa (investment and banking); Director, Televisa (broadcasting). | |||||
Robert L. Knauss c/o Aristóteles 77, 3rd Floor Col. Polanco México
Age: 73 |
Class II Director |
Term expires Director 2010; Director since 1985. |
Mr. Knauss served as Chairman of the Board and Principal Executive Officer of Philips Services Corp. (industrial services) (1998-2003) and also served as Chairman of the Board and Chief Executive Officer of Baltic International USA, Inc. (investments) (1995- 2003). During the past twenty years Mr. Knauss has served on the Boards of Directors of eight public companies. Mr. Knauss was the former Dean and Distinguished University Professor of University of Houston Law School and was also Dean of Vanderbilt Law School. |
None. | Director, Equus Total Return Inc. (investment company); Director, XO Holdings, Inc. (telecommunications); Director, Westpoint International Inc. (home products). |
39
Eugenio Clariond Reyes- Av. Batallon de San Piso 26 Col. Valle Oriente 66269 Garza Garcia, N.L. Mexico
Age: 63 |
Class III Director |
Term expires 2008, Director since 2005. |
From 2003 until
Mr. Clariond |
None. | Director, Grupo Industrial Saltillo S.A. (manufacturer of metal products, construction products and cooking materials); Director, Proeza, S.A. (automotive parts and technological services); Director, Chaparral Steel Company (steel producer); Director, Navistar International Corp. (truck and engine manufacturer); Director, Johnson Controls, Inc. (automotive components, air conditioning, controls); Director, Grupo Financiero Banorte S.A. (banking). |
40
Name, Address and Age |
Position(s) Held |
Term of Office and |
Principal Occupation(s) |
Number of |
Other Directorships Held by Director | |||||
Emilio Carrillo Gamboa Blvd. Manuel Avila Camacho No. 1, Ste. 609 Polanco 011009 México, D.F. México
Age: 69 |
Class III Director | Term expires Director 2008; Director 1981-1987 and since 2002. | Mr. Carrillo Gamboa served as a director of the Fund from inception of the Fund in 1981 to 1987. He resigned as director in 1987 to become Mexicos Ambassador to Canada. Mr. Carrillo Gamboa was reelected as a Director of the Fund in 2002. Mr. Carrillo Gamboa is a prominent lawyer in Mexico with extensive business experience and has been a partner of the Bufete Carrillo Gamboa, S.C. law firm since 1989. He has also served or currently serves on the boards of many Mexican charitable organizations. |
None. | Chairman of the Board; HolcimApasco (cement company); Director, ICA (Sociedad Controladora, S.A.B. de C.V. (construction company); Director, Grupo Modelo, S.A.B. de C.V. (beer brewing); Director, Grupo Mexico S.A.B. de C.V. (copper mining and rail transportation); Director, Kimberly-Clark de México, S.A.B. de C.V. (consumer products); Director, Sanluis Corporación, S.A.B. de C.V. (automotive parts); Director, Southern Copper Corporation (copper mining); Director, Gasoductos de Chihuahua, S. de R.L. de C.V. (public utility-gas transportation); Director, Bank of Tokyo Mitsubishi (Mexico) S.A. (banking); Director, Posadas de Mexico S.A.B. de C.V. (hotels). |
* | There are no other funds in the Fund Complex. |
| Audit Committee, Contract Review Committee and Nominating and Corporate Governance Committee member. Member or alternate member of the Valuation Committee. |
41
Officers who are not directors
Name, Address and Age |
Position(s) Held With the Fund |
Term of Office and Length of Term Served |
Principal Occupation(s) During Past | |||
Samuel García-Cuéllar Creel, García-Cuéllar y Müggenburg, S.C., Paseo de los Tamarindos 60 3er piso Bosques de las Lomas 05120 México, D.F. México
Age: 65 |
Secretary | Since 1981. | Mr. García-Cuéllar is a partner of Creel, García-Cuéllar y Müggenburg, S.C., Mexican counsel to the Fund; Director, MexDer Mercado Mexicano de Derivados (futures and options) (since 2001); Director, GE Capital Bank, S.C. Institución de Banca Múltiple, GE Capital Grupo Financiero (bank) (since 2002); Director, GE Capital Grupo Financiero, S.A. de C.V. (financial group) (since 2002). | |||
Alberto Osorio Morales Aristóteles 77, 3rd Floor Col. Polanco 11560 México, D.F. México
Age: 39 |
Treasurer (formerly, Vice President From 1999 to of Finance) | Since 2002. From 1999 to 2002. | Mr. Osorio currently serves as Director of Finance of the Funds investment adviser, Impulsora del Fondo México, S.C. and has been an employee of the Investment Adviser since 1991. | |||
Carlos H. Woodworth Ortiz Aristóteles 77, 3rd Floor Col. Polanco 11560 México, D.F. México
Age: 63 |
Vice-President of Corporate Governance and Chief Compliance Officer (formerly, Treasurer) | Since 2002. From 1992 to 2002. | Mr. Woodworth has served on the Board of Directors of the Funds investment adviser, Impulsora del Fondo México, S.C., as well as Deputy Director of the Investment Adviser since 1981. | |||
Eduardo Solano Arroyo Aristóteles 77, 3rd Floor Col. Polanco 11560 México, D.F. México
Age: 38 |
Investor Relations Vice President | Since 1997. | Mr. Solano has served as Director of Economic Research of the Funds investment adviser, Impulsora del Fondo México, S.C. since 1997 and has been an employee of the Investment Adviser since 1991. | |||
Sander M. Bieber 1775 I Street, N.W. Washington, DC 20006
Age: 57 |
Assistant Secretary | Since 1989. | Partner of Dechert LLP, U.S. counsel to the Fund and the Independent Directors. |
Ownership of securities
As of the Record Date, the Funds Directors and executive officers, as a group, owned less than 1% of the Funds outstanding Shares. The information as to ownership of securities which appears below is based on statements furnished to the Fund by its Directors and executive officers.
42
As of December 31, 2006, the dollar range of equity securities owned beneficially by each Director in the Fund and in any registered investment companies overseen by the Director within the same family of investment companies as the Fund was as follows:
Name of Director or Nominee |
Dollar Range of Equity Securities in the Fund |
Aggregate Dollar Range of Equity Securities in All Registered Investment Companies Overseen by Director or Nominee in Family of Investment Companies* | ||
Interested Directors |
||||
José Luis Gómez Pimienta |
Over $100,000 | Over $100,000 | ||
Independent Directors |
||||
Eugenio Clariond Reyes-Retana |
$10,001 - $50,000 | $10,001 - $50,000 | ||
Emilio Carrillo Gamboa |
$50,001-$100,000 | $50,001- $100,000 | ||
Marc Shapiro |
Over $100,000 | Over $100,000 | ||
Claudio X. González |
Over $100,000 | Over $100,000 | ||
Robert L. Knauss |
Over $100,000 | Over $100,000 | ||
Jaime Serra Puche |
Over $100,000 | Over $100,000 |
* | There are no other funds in the family of investment companies. |
For the period ended October 31, 2006, none of the Independent Directors or their immediate family members owned any shares of the Investment Adviser or of any person (other than a registered investment company) directly or indirectly controlling, controlled by, or under common control with the Investment Adviser.
Committees of the Board of Directors
Current committees and members
The Fund has a standing Audit Committee, Valuation Committee, Contract Review Committee and a Nominating and Corporate Governance Committee. The Audit Committee, Contract Review Committee and Nominating and Corporate Governance Committee are composed entirely of Directors who are not interested persons of the Fund or the Funds Investment Adviser within the meaning of the 1940 Act and who are independent as defined in the New York Stock Exchange listing standards. All Directors are members, or alternate members, of the Valuation Committee.
Audit and valuation committees
The Audit Committee is responsible for the selection and engagement of the Funds independent public accountants (subject to ratification by the Board of Directors), pre-approves and reviews both the audit and non-audit work of the Funds independent public accountants, and reviews compliance of the Fund with regulations of the SEC and the Internal Revenue Service, and other related matters.
The Board of Directors has adopted a Charter for each of its Audit and Valuation Committees. The Audit Committee has received the written disclosures and the letter required by Independence Standards Board Standard No. 1 from Pricewaterhouse Coopers LLP (PwC), the Funds independent registered public accounting firm, and has discussed with PwC its independence. The Audit Committee has also reviewed and discussed the audited financial statements with Fund management and the auditor and discussed certain matters with the auditor required to be discussed by Statements on Auditing Standards Nos. 61 and 90. Based on the foregoing, the Audit Committee recommended to the Board of Directors that the Funds audited financial statements be included in the Funds Annual Report to Stockholders for the fiscal year ended October 31, 2006. The members of the Funds Audit Committee are Messrs. Carrillo Gamboa, Clariond, González, Knauss, Serra Puche and Shapiro. Mr. Knauss is the Chairman of the Audit Committee. Both the Audit and Valuation Committee charters are available on the Funds website at www.themexicofund.com under Corporate Governance.
The Valuation Committee oversees the implementation of the Funds Pricing and Valuation Procedures and the activities of the Funds Pricing Committee. The Board of Directors has delegated to the Valuation Committee the responsibility of determining the fair value of the Funds securities or other assets in connection with significant events, as described in the procedures adopted by the Board of Directors. The members of the Funds Valuation Committee are Messrs. González, Serra Puche and Shapiro. The alternate members of the Funds Valuation Committee are Messrs. Carrillo Gamboa, Clariond, Gómez Pimienta and Knauss. Mr. Shapiro is the Chairman of the Valuation Committee.
43
Contract review committee
The Contract Review Committee reviews and makes recommendations to the Board of Directors with respect to entering into, renewal or amendment of the Funds Management Agreement, Administrative Agreement and other agreements. The members of the Funds Contract Review Committee are Messrs. Clariond, Carrillo Gamboa, González, Knauss, Serra Puche and Shapiro. Dr. Serra Puche is the Chairman of the Contract Review Committee. The Committees charter is available on the Funds website at www.themexicofund.com under Corporate Governance.
Nominating and corporate governance committee; consideration of potential director nominees
The Nominating and Corporate Governance Committee makes recommendations to the Board regarding nominations for membership on the Board of Directors. It evaluates candidates qualifications for Board membership and, with respect to nominees for positions as independent directors, their independence from the Funds Investment Adviser and other principal service providers. The Committee periodically reviews Director compensation and will recommend any appropriate changes to the Board as a group. This Committee also reviews and may make recommendations to the Board relating to those issues that pertain to the effectiveness of the Board in carrying out its responsibilities in governing the Fund and overseeing the management of the Fund. The members of the Funds Nominating and Corporate Governance Committee are Messrs. Clariond, Carrillo Gamboa, González, Knauss, Serra Puche and Shapiro. Mr. González is the Chairman of the Nominating and Corporate Governance Committee.
The Committee will consider potential director candidates recommended by Stockholders provided that the proposed candidates satisfy the director qualification requirements provided in the Funds Bylaws; are not interested persons of the Fund or the Funds Investment Adviser within the meaning of the 1940 Act; and are independent as defined in the New York Stock Exchange listing standards. Before fiscal year 2004, the Committee did not have a formal process for the submission of potential candidates by Stockholders except as part of a Stockholder proposal in accordance with the 1934 Act. In determining procedures for the submission of potential candidates by Stockholders and any eligibility requirements for such nominees and the Stockholders submitting the nominations, the Committee has looked for guidance to recent SEC promulgations regarding director nominations. Accordingly, the Committee has determined that potential director candidates recommended by Stockholders must satisfy the nominee requirements proposed by the SEC in its proposed Rule 14a-11(c) under the 1934 Act, and Stockholders making the recommendations must satisfy the requirements proposed by the SEC in its proposed Rule 14a-11(b) under the 1934 Act.
For potential director nominees recommended by Stockholders, these requirements are as follows:
(a) | The nominee may not be the nominating Stockholder, a member of the nominating Stockholder group, or a member of the immediate family of the nominating Stockholder or any member of the nominating Stockholder group; |
(b) | Neither the nominee nor any member of the nominees immediate family may be currently employed or employed within the last year by any nominating Stockholder entity or entity in a nominating Stockholder group; |
(c) | Neither the nominee nor any immediate family member of the nominee is permitted to have accepted directly or indirectly, during the year of the election for which the nominees name was submitted, during the immediately preceding calendar year, or during the year when the nominees name was submitted, any consulting, advisory, or other compensatory fee from the nominating Stockholder or any member of a nominating Stockholder group; |
(d) | The nominee may not be an executive officer, director (or person performing similar functions) of the nominating Stockholder or any member of the nominating Stockholder group, or of an affiliate of the nominating Stockholder or any such member of the nominating Stockholder group; and |
(e) | The nominee may not control (as control is defined in the 1940 Act) the nominating Stockholder or any member of the nominating Stockholder group (or in the case of a holder or member that is a fund, an interested person of such holder or member as defined by Section 2(a)(19) of the 1940 Act). |
The nominating Stockholder or Stockholder group must meet the following requirements:
(a) | Any Stockholder or Stockholder group submitting a proposed nominee must beneficially own, either individually or in the aggregate, more than 5% of the Funds securities that are eligible to vote at the time of submission of the nominee and at the time of the annual meeting where the nominee may be elected. Each of the securities used for proposes of calculating this ownership must have been held continuously for at least two years as of the date of the nomination. In addition, such securities must continue to be held through the date of the meeting. The nominating Stockholder or Stockholder group must also bear the economic risk of the investment and the securities used for purposes of calculating the ownership cannot be held short. |
(b) | The nominating Stockholder or Stockholder group must also submit a certification which provides the number of Shares which the person or group has (i) sole power to vote or direct the vote; (ii) shared power to vote or direct the vote; (iii) sole power to dispose or direct the disposition of such Shares; and (iii) shared power to dispose or direct the disposition of such Shares. In addition, the certification shall provide that the Shares have been held continuously for at least 2 years. |
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A nominating Stockholder or Stockholder group may not submit more nominees than the number of Board positions open each year. All Stockholder recommended nominee submissions must be received by the Fund by the deadline for submission of any Stockholder proposals which would be included in the Funds proxy statement for its 2007 Annual Meeting. The deadline for any Stockholder recommended nominee submissions to be considered for the 2007 Annual Meeting was October 6, 2006.
Stockholders nominating potential director candidates must comply with these requirements at the time of submitting their proposed director candidate to the attention of the Funds Secretary. Notice to the Funds Secretary should be provided in accordance with the deadline specified in the Funds Bylaws (Article II, Section 10); and include, among other things, as specified in the same section of the Funds Bylaws, (i) the Stockholders contact information; (ii) the director candidates contact information and the number of Fund Shares owned by the proposed candidate; (iii) all information regarding the candidate that would be required to be disclosed in solicitations of proxies for elections of directors required by Regulation 14A of the 1934 Act; and (iv) a notarized letter executed by the director candidate, stating his or her intention to serve as a nominee and be named in the Funds proxy statement, if nominated by the Board of Directors, to be named as a director if so elected.
The Board of Directors has adopted a charter for the Nominating and Corporate Governance Committee which is available on the Funds website at www.themexicofund.com under Corporate Governance.
The Nominating Committee identifies prospective candidates from any reasonable source and has the ability to engage third-party services for the identification and evaluation of potential nominees. The Funds Bylaws (Article III, Section 2(c)) provide a list of minimum qualifications for Fund directors which include expertise, experience or relationships that are relevant to the Funds business; educational qualifications; and interaction with business in Mexico. The Committee may recommend that the Board modify these minimum qualifications from time to time. The Committee meets twice annually, typically in September and December, to identify and evaluate nominees for director and makes its recommendations to the Board at the time of the Boards December meeting. Other than compliance with the requirements mentioned above for submission of a director candidate, the Nominating and Corporate Governance Committee does not otherwise evaluate Stockholder director nominees in a different manner. The standard of the Nominating and Corporate Governance Committee is to treat all equally qualified nominees in the same manner.
No nominee recommendations have been received from Stockholders. The Nominating and Corporate Governance Committee may modify its policies and procedures for director nominees and recommendations from time to time in response to changes in the Funds needs and circumstances, and as applicable legal or listing standards change.
Board and committee meetings in fiscal 2006
During the Funds fiscal year ended October 31, 2006, the Board held three (3) regular meetings, one (1) telephonic regular meeting, two (2) telephonic special meetings, two (2) Audit Committee meetings, one (1) Valuation Committee meeting, one (1) Contract Review Committee meeting, and two (2) Nominating and Corporate Governance Committee meetings. Each Director then in office attended 75% or more of the aggregate number of regular and special meetings of the Board and those Committees of which each Director is a member.
Compensation of officers
The Fund does not pay its officers for the services they provide to the Fund, except for those expenses incurred in connection with Board or Stockholders meetings which are reimbursed by the Fund under the Funds reimbursement policy. Instead, the officers who are also officers or employees of Impulsora are compensated by it.
Compensation of directors
During the fiscal year ended October 31, 2006, the Fund paid each Director, with the exception of Mr. Gómez Pimienta (who is not compensated for his services as Director), an annual retainer of $20,000 and $2,000 per in-person Board meeting attended. The Fund also reimbursed all Directors and officers of the Fund for out-of-pocket expenses relating to attendance at meetings. In addition, for Committee meetings attended, each Independent Director received $1,500; for each telephonic special Board meeting attended, each Independent Director received $1,500. The aggregate amount of fees paid and expenses reimbursed to the Directors and officers for the fiscal year ended October 31, 2006 was $319,952. In December 2006, the Board of Directors, upon the recommendation of the Boards Nominating and Corporate Governance Committee, approved the following changes to the fee structure: the per committee meeting fee increased to $2,000 and the per special telephonic meeting fee increased to $2,000.
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The following table sets forth the aggregate compensation (not including expense reimbursements) paid by the Fund to each Director (other than Mr. Gómez Pimienta, who receives no director fees or other compensation for services as a Director of the Fund) during the fiscal year ended October 31, 2006, as well as the total compensation paid by the Fund to each Director.
Name of Director |
Aggregate Compensation From Fund |
Pension or Retirement Benefits Accrued As Part of Fund Expenses |
Estimated Annual Benefits Upon Retirement |
Total Compensation From Fund and Fund Complex Paid to Directors* | ||||||
Philip Caldwell*** |
$ | 25,500 | None | None | $ | 25,500 | ||||
Emilio Carrillo Gamboa |
$ | 50,000 | None | None | $ | 50,000 | ||||
Eugenio Clariond Reyes-Retana |
$ | 38,000 | None | None | $ | 38,000 | ||||
Claudio X. González |
$ | 38,500 | None | None | $ | 38,500 | ||||
Robert L. Knauss |
$ | 42,500 | None | None | $ | 2,500 | ||||
Jaime Serra Puche |
$ | 38,000 | None | None | $ | 38,000 | ||||
Marc J. Shapiro** |
$ | 17,000 | None | None | $ | 17,000 | ||||
José Luis Gómez Pimienta |
None | None | None | None |
* | There are no other funds in the Fund Complex. |
** | Mr. Shapiro was elected as Director in March 2006. |
*** | Mr. Caldwell served as Director until March 2006. |
The Fund has a policy that half of the annual retainer paid by the Fund to its Directors is to be used by each Director to purchase Fund Shares on the secondary market. When a Director owns Fund Shares with a market value of $100,000, he is not obligated to purchase any additional Fund Shares pursuant to the policy. For the 2006 fiscal year, all Board members are in compliance with the policy.
The Fund and the Investment Adviser have adopted a joint code of ethics in accordance with Rule 17j-1 under the 1940 Act. The Funds Dealer Manager has also adopted a code of ethics in accordance with Rule 17j-1 under the 1940 Act. Subject to certain conditions and restrictions, these codes of ethics permit personnel who are subject to them to invest in securities, including securities that may be purchased or held by the Fund.
Each of these codes of ethics may be reviewed and copied at the Public Reference Room of the SEC in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. These codes of ethics are also available on the EDGAR Database on the SECs Internet site at www.sec.gov. Copies of these codes of ethics may be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov, or by writing to the SECs Public Reference Section, Washington, D.C. 20549-0102. The Funds code of ethics is also available on the Funds web site, www.themexicofund.com under Corporate Governance.
Impulsora serves as Investment Adviser to the Fund pursuant to an Investment Advisory and Management Agreement dated April 28, 2003 (the Management Agreement). The current Management Agreement was approved by the Funds Board of Directors, and separately by a majority of the Funds Independent Directors, at an in-person meeting held on November 12, 2002 and was subsequently approved by the Funds Stockholders at the 2003 Annual Meeting on April 28, 2003.
The Investment Adviser provides the overall investment advice to the Fund on matters including broad investment structure, stock selection, industry diversification, exposure to equity securities, compliance testing, and maintenance of tests pertaining to collateral through a team of investment managers/analysts employed, or supervised, by the Investment Adviser.
Pursuant to the existing and previous management agreements with the Fund, the Investment Adviser has served in this capacity since the Fund was organized in 1981. The Investment Adviser is a registered investment adviser under the Investment Advisers Act of 1940, as amended, and is located at 77 Aristóteles Street, 3rd Floor, Col. Polanco, 11560 México, D.F., México.
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The Investment Adviser is a Mexican sociedad civil governed by the Federal Civil Code of Mexico. As of October 31, 2006, the President and Chief Executive Officer is José Luis Gómez Pimienta. Mr. Gómez Pimienta, Aristóteles 77-3rd Floor, Col. Polanco, 11560 México D.F., México, also owns greater than ten percent of the Investment Advisers equity interests.
The ultimate day-to-day investment decisions of the Fund are determined by Mr. Gómez Pimienta, the Director General and Chairman of the Investment Adviser. He is assisted by the Investment Committee of the Investment Adviser which is composed of the executive officers mentioned above of the Investment Adviser and Ms. Guadalupe Villar, an equity analyst employed by the Investment Adviser since 1998. The Investment Committee meets at least once weekly to determine the portfolio allocation of the Fund.
The Investment Adviser also provides administrative services to the Fund pursuant to an Amended and Restated Administrative Services Agreement (the Administration Agreement) which was amended and restated as of March 7, 2007, including assisting the Fund with preparation of financial statements and regulatory filings, calculation of the Funds net asset value, repurchase offer services, and maintenance of the Funds web site. For these services, the Investment Adviser is paid an annual rate of 0.11% of average daily net assets on assets under management up to $600 million, and at an annual rate of 0.09% of average daily net assets on assets under management above $600 million. The fee will not be lower than the annual amount of $450,000. The Investment Adviser also receives a services fee of $75,000 per repurchase offer under the Funds periodic repurchase offer policy. The Investment Adviser was paid $778,771 pursuant to this contract during the fiscal year ended October 31, 2006.
During the fiscal year ended October 31, 2006, the Fund paid no brokerage commissions to an affiliated broker.
The Investment Adviser has a substantial part of its assets located outside the United States. As a result, it may be difficult for U.S. investors to enforce judgments of the courts of the United States against the Investment Adviser predicated on the civil liability provisions of the Federal securities laws of the United States. The Fund has been advised that there is substantial doubt as to the enforceability in the courts of Mexico of judgments against the Investment Adviser predicated upon the civil liability provisions of the Federal securities laws of the United States. The Investment Adviser is advised by U.S. counsel with respect to the Federal securities laws of the United States.
Terms of the Management Agreement
Under the Management Agreement, the Investment Adviser, subject to the control of the Board of Directors and in accordance with the objectives, policies and principles of the Fund set fort in the Funds registration statement and the requirements of the 1940 Act and other applicable law, manages the affairs of the Fund. In this regard, it is the responsibility of the Investment Adviser to make investment decisions on behalf of the Fund, to make available to the Fund any necessary research and statistical data in connection therewith, and to supervise the acquisition and disposition of investment for the Fund, including the selection of the brokers or dealers to carryout portfolio transactions for the Fund.
Management fee
The Management Agreement provides that the Fund will pay the Investment Adviser a fee at the annual rate of 1.00% of the Funds average daily net assets up to and including $200 million, 0.90% of such assets between $200 million and $400 million, and 0.60% of such assets in excess of $400 million, based upon the average daily value of the net assets of the Fund computed at the end of each calendar month, payable within fifteen days after the end of each calendar month.
For the fiscal years ended October 31, 2006, 2005 and 2004, the Fund paid or accrued on behalf of the Investment Adviser aggregate management fees of $4,829,660, $4,254,429 and $2,982,933, respectively.
Payment of expenses
The Management Agreement obligates the Investment Adviser to bear all expenses incurred by it in connection with its duties thereunder as well as the salaries of the Funds Directors and officers who are interested persons (as defined in the 1940 Act) of the Investment Adviser, except for those expenses incurred in connection with Board or Stockholder meetings which are reimbursed by the Fund under its reimbursement policy. The Fund bears all of its other expenses including fees of the Funds Independent Directors; interest expenses; taxes and governmental fees; brokerage commissions and other expenses incurred in acquiring or disposing of the Funds portfolio securities; auditing, accounting, insurance and legal costs; custodian, dividend disbursing and transfer agent expenses; and the expenses of stockholders meetings and of the preparation and distribution of proxies and reports to Stockholders.
Duration and termination
The Management Agreement took effect on April 28, 2003 and will continue in effect until March 7, 2008. The Management Agreement provides that it will continue in effect for successive 12-month periods, if not sooner terminated, provided
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that each continuance is specifically approved annually by (1) the vote of the majority of the Funds Independent Directors cast in person at a meeting called for the purpose of voting on such approval and (2) either (a) the vote of a majority of the outstanding voting securities of the Fund or (b) the vote of a majority of the Funds Board of Directors. The Management Agreement may be terminated at any time by the Fund, without the payment of any penalty, upon vote of a majority of the Funds Directors or a majority of the outstanding voting securities of the Fund, on 60 days written notice to the Investment Adviser. The Management Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act). In addition, the Investment Adviser may terminate the Management Agreement on 60 days written notice to the Fund.
On March 7, 2007, the Board of Directors of the Fund, including a majority of Independent Directors, approved the continuation of the Investment Advisory and Management Agreement (Agreement) with Impulsora del Fondo México, S.C. (Impulsora). A discussion regarding the basis for the Boards approval of the Investment Advisory and Management Agreement will be available in the Funds Semi-Annual Report for the six month period ending April 30, 2007.
Relationship of a Director to Investment Adviser
Mr. José Luis Gómez Pimienta, a Director and President of the Fund, also serves as the Chairman and Chief Executive Officer of the Investment Adviser and owns stock in the Investment Adviser.
A committee of persons associated with the Fund or the Investment Adviser of the Fund (the Portfolio Management Committee) is jointly and primarily responsible for the day-to-day management of the Funds portfolio. Below is a table reflecting the information requested for each member of the Portfolio Management Committee:
Name |
Title |
Length
of |
Business Experience During Past 5 Years |
Role on Portfolio Management Committee | ||||
José Luis Gómez Pimienta |
Chief Executive Officer | Since Inception | Mr. Gómez Pimienta has over two decades of experience investing in the Mexican securities market. He has been Chairman of the Board of the Funds Investment Adviser, Impulsora del Fondo México, S.C., since 1987 and Chief Executive Officer of the Fund since inception.
Director (since 1997) and member of the Executive Committee (since 1998) and the Audit Committee (since 2003) of the Bolsa Mexicana de Valores (Mexican Stock Exchange). |
Mr. Gómez Pimienta oversees the full operation of the Funds Investment Adviser, and any determinations made by the Portfolio Management Committee. | ||||
Carlos H. Woodworth |
Deputy Director | Since 1981 | Mr. Woodworth has served on the Board of Directors of the Funds Investment Adviser, Impulsora del Fondo México, S.C., and has served as Deputy Director of the Investment Adviser since 1981. | Mr. Woodworth participates in the investment decision-making processes of the Portfolio Management Committee and monitors the trading and reporting activities of the brokerage houses used in connection with the Funds investments. |
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Alberto Osorio | Finance Director | Sine 1991 | Mr. Osorio currently serves as Finance Director of the Funds Investment Adviser, Impulsora del Fondo México, S.C. and has been an employee of the Investment Adviser since 1991. | Mr. Osorio participates in the investment decision-making processes of the Portfolio Management Committee. He also oversees the analysis of financial and quantitative information of equity issuers listed on the Bolsa Mexicana de Valores (Mexican Stock Exchange), and makes recommendations to the Committee regarding purchases or sales of portfolio securities. | ||||
Eduardo Solano | Director of Economic Research | Since 1991 | Mr. Solano has served as Director of Economic Research of the Funds Investment Adviser, Impulsora del Fondo México, S.C. since 1997 and has been an employee of the Investment Adviser since 1991. | Mr. Solano participates in the investment decision-making processes of the Portfolio Management Committee, and also analyzes the Mexican economic environment and its potential impact on the Funds portfolio. | ||||
Guadalupe Villar | Research Analyst | Since 1998 | Ms. Villar serves as research analyst of the Funds Investment Adviser, Impulsora del Fondo México, S.C., since 2001 and has been an employee of the Investment Adviser since 1998. | Ms. Villar participates in the investment decision-making processes of the Portfolio Management Committee, and analyzes equity issuers listed on the Bolsa Mexicana de Valores (Mexican Stock Exchange). She also serves as Secretary of the Portfolio Management Committee. |
Other accounts managed
None of the individuals identified in the table above are responsible for the day-to-day management of the portfolio of any other account.
Compensation
All of the individuals identified in the table above are compensated through a base salary and a variable bonus that is paid in December of each year. There are no deferred compensation or pension/retirement plans. All of the individuals identified in the table above participate in a stock option plan maintained by the Investment Adviser. Additionally, all members of the Committee are entitled to the use of a company car, owned by the Investment Adviser.
The base salary of the individuals identified in the table above is fixed, and is generally adjusted on an annual basis at a rate similar to the inflation rate in Mexico. Experience and level of responsibility held within the Investment Adviser are taken into account in determining the base salary of each individual.
The annual bonus paid to the individuals identified in the table above is variable, and depends on the annual performance results of the Investment Adviser. The total amount of bonus paid annually equals 40% of the difference between the Investment Advisers total
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income and its fixed costs (operating profit before tax and bonuses). The bonus is distributed in December of each year. Half of the bonus is distributed among all personnel employed by the Investment Adviser, and is paid on the basis of each persons base salary. The other half of the bonus is distributed among certain key officers of the Investment Adviser. All of the individuals identified in the table above, as well as the Systems Manager of the Investment Adviser, are considered key officers. The portion of the bonus paid to key officers is determined on the basis of each key officers contribution to the performance of the Investment Adviser.
The Investment Adviser has a Compensation Committee whose members are appointed by a Partners Meeting. The formula utilized to calculate the annual bonus was adopted by the Compensation Committee. There are no other benchmarks or variables utilized to calculate compensation to the individuals identified in the table above.
Ownership of equity securities
As of the end of the Funds most recently completed fiscal year, October 31, 2006, Mr. Gómez Pimienta was the beneficial owner of over $100,000 of equity securities of the Fund. None of the other individuals identified in the table above had beneficial ownership of any equity securities of the Fund.
The Fund is not currently a party to any legal proceedings.
Summary of proxy voting policies and procedures of the Fund
The Funds proxy voting policies and procedures seek to assure that proxies received by the Fund are voted in the best interests of the Funds Stockholders. Because the investment philosophy of the Investment Adviser is generally consistent with the investment objective of the Fund and the economic interests of its Stockholders, investment decisions for the Fund should generally be consistent with its Investment Advisers philosophy. In proxy voting decisions, as in other investment decisions, the Investment Adviser is in the best position to determine whether a particular proxy proposal is consistent with its philosophy, and therefore generally consistent with the investment objective of the Fund and the best economic interests of the Funds Stockholders.
Accordingly, the Funds proxy voting policies and procedures delegate all responsibility for proxy voting to the Investment Adviser provided that the Board has the opportunity to periodically review and approve the Investment Advisers proxy voting policies and any material amendments.
In addressing potential conflicts of interest, the Funds procedures provide that the Investment Adviser follow an alternative voting procedure instead of voting in its sole discretion. The proxies may be voted in accordance with the recommendations of an independent service provider, or the Investment Adviser may notify the Board or a Board representative of the conflict of interest and seek a waiver to vote the proxy, or forward the proxy to the Board, a designated Board committee or a representative of either, so that the Board, the committee or the representative may vote the proxies itself. However, the Fund allows the Investment Adviser to resolve conflicts of interest in any reasonable manner consistent with the alternative voting procedures described in its proxy voting policy.
The Fund shall annually file Form N-PX disclosing its proxy voting record for the most recent twelve-month period ended June 30. Commencing August 31, 2006, a description of the Funds proxy voting record for the most recent twelve-month period ended June 30 is available without charge, upon request, by calling collect Mr. Eduardo Solano, the Funds Investor Relations Vice President, at (52 55) 5280-3247, during Mexico City business hours (10:00 a.m. to 3:00 p.m. and 5:00 to 7:00 p.m. ET), and on the SECs website at www.sec.gov. The Funds proxy voting policies and procedures are available on the Funds website, www.themexicofund.com under Corporate Governance.
Summary of the Investment Advisers Proxy Voting Policies and Procedures
The Investment Advisers proxy voting policies and procedures reflect the substantial differences between proxy voting at stockholders meetings held in the United States and proxy voting in Mexico. The Investment Adviser seeks to vote proxies in the best interests of the Fund and its Stockholders in accordance with the Investment Advisers fiduciary duties and Rule 206(4)-6 of the Investment Advisers Act.
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As noted in the Investment Advisers policies and procedures, stockholders meetings in Mexico are ordinary, extraordinary or special depending on the agenda of the meeting. There is no proxy solicitation effort as occurs in the United States. Where the Investment Adviser has the ability to vote, the Investment Adviser will vote the Funds shares in the best interests of the Fund and its Stockholders. The Investment Adviser is responsible for identifying the cases when it may be faced with a potential conflict of interest in voting shares of the Funds investments in the best interest of the Fund and its Stockholders. If a potential conflict of interest exists, the Investment Adviser can only exercise its voting authority after careful investigation and research of the issues involved. The Investment Adviser can consult with third parties and could, in exceptional cases, make the determination that not voting the securities is in the best interest of the Fund. In attempting to eliminate a potential material conflict of interest, the Investment Adviser may vote in accordance with its policies and procedures if a routine matter is involved; vote as recommended by an independent third party which has no knowledge of the nature of the material conflict of interest or does not itself have a material conflict of interest; erect information barriers around the persons making the voting decisions to insulate the decision from the conflict; or notify the Board of Directors of the material conflict of interest and seek a waiver of the conflict.
In accordance with its policies and procedures, the Investment Adviser will generally support existing management on votes on the financial statements of the issuer and the election of the board of directors; vote for the acceptance of the accounts unless there are grounds to suspect that the accounts as presented or audit procedures used do not present an accurate picture of company results and support routine issues such as the appointment of independent auditors, allocation of income and the declaration of dividends. Where matters are of an extraordinary nature, or an extraordinary or special meeting is called, further investigation and consultation may be necessary to analyze all relevant information to reach a decision as to how to vote and such matters will be voted on a case by case basis.
ADMINISTRATION AND SERVICE AGREEMENTS
Pursuant to an Administration Agreement, effective April 1, 1994, which was amended and restated as of March 7, 2007, the Investment Adviser also provides administrative services to the Fund, including assisting the Fund with preparation of financial statements and regulatory filings, calculation of the Funds net asset value, repurchase offer services, and maintenance of the Funds web site. For these services, the Investment Adviser is paid an annual rate of 0.11% of average daily net assets on assets under management up to $600 million, and at an annual rate of 0.09% of average daily net assets on assets under management above $600 million. The fee will not be lower than the annual amount of $450,000. The Investment Adviser also receives a services fee of $75,000 per repurchase offer under the Funds periodic repurchase offer policy.
Pursuant to a Service Agreement, effective June 22, 2000, which was amended and restated as of March 8, 2006, Dechert LLP (the Firm) provides certain administrative services to the Fund in connection with its services as legal counsel to the Fund. These services include the processing of all mail and other communications and inquiries received concerning the Fund, and the dispatching of materials, as appropriate, to the Funds service providers; the processing of information from the Investment Adviser concerning the Funds operations; and other services related thereto. As compensation for the services rendered and the expenses borne by the Firm pursuant to the Service Agreement, the Fund pays the Firm $1,800 per month.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Adviser selects broker-dealers registered with and approved by the Comision Nacional Bancaria y de Valores, the Mexican equivalent of the SEC (CNBV), for the execution of portfolio transactions for the Fund. In placing orders, it is the policy of the Investment Adviser to seek the best execution for its transactions, taking into account all relevant factors, including price, promptness of execution and other advantages to the Fund.
Subject to obtaining best execution, the Fund may place orders for transactions with brokers who provide investment research services to the Investment Adviser. Research so provided is in addition to, and not in lieu of, the services required to be performed by the Investment Adviser, and the Investment Advisers expenses are not necessarily reduced as a result of the receipt of such supplemental information. Neither the Fund nor the Investment Adviser is obligated to deal with any broker or group of brokers in the execution of portfolio transactions. In selecting broker-dealers, the Investment Adviser considers various factors, including the size and nature of
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the transaction, the nature of the market for the security, the investment research services provided to the Investment Adviser and the capability and financial condition of the broker-dealer. To the extent consistent with the Funds policy of seeking best execution of its portfolio transactions, orders may be placed with the Investment Advisers stockholders. However, ownership of the Investment Advisers stock is not a factor in the selection of broker-dealers to execute the Funds transactions. The Fund may also purchase securities in a public offering in Mexico in which one or more of the Investment Advisers stockholders participates as an underwriter so long as no Director, officer or employee of the Fund or other affiliate of the Fund is an affiliate of a principal underwriter in such offering. Pursuant to exemptive relief granted by the SEC, the Fund may purchase securities in a public offering in Mexico through a member of an underwriting syndicate where a participant in the syndicate has a common director with the Fund, or a company controlled by, under common control with, or controlling such company, participates as principal underwriter, provided specific conditions are met. The Fund may purchase securities from an unaffiliated member of the underwriting syndicate but not from a member of the underwriting syndicate that has a common director with the Fund.
Portfolio transactions of the Fund are primarily effected with dealers acting as a principal for their own account. During the fiscal years ended October 31, 2006, 2005 and 2004, the Fund paid brokerage commissions of $238,706, $244,501 and $198,955, respectively. The rate of portfolio turnover in the fiscal years ended October 31, 2006, 2005 and 2004 were 14.50%, 29.24% and 26.84%, respectively.
NET ASSET VALUE OF COMMON STOCK
The Shares are listed on the NYSE. The NAV per Share is generally determined each day during which the Bolsa is open for trading and each other day that the calculation of the NAV is required for regulatory purposes (Valuation Date). The NAV per Share is calculated by dividing the value of net assets of the Fund (the value of its assets less its liabilities and its accumulated and unpaid dividends, whether or not earned or declared) by the total number of Shares outstanding. For purposes of establishing the Funds NAV, portfolio securities regularly traded on the Mexican Stock Exchange are valued at the closing price provided by the Mexican Stock Exchange prior to the time the securities held in the Fund are valued. For purposes of calculating NAV, pesos are translated into dollars at the exchange rate provided by the Mexican Central Bank.
The value of a security traded or dealt in upon the Bolsa or any recognized securities exchange (that is not subject to restrictions against sale by the Fund on such exchanges) shall be determined as of the Valuation Date in accordance with the following procedures:
| If there are any sales of the security on the principal exchange on which the security trades on the Valuation Date, the value of the security shall be the average of the sales prices during the last twenty minutes of security trades on the principal exchange on which the security trades where the principal exchange is the Bolsa, and the last sales price or closing price, as appropriate, of the security where the principal exchange is not the Bolsa. |
| If there are no trades on the principal exchange on which the security trades, the value of the security shall be the value determined in accordance with the previous paragraph on the day prior to the Valuation Date on the principal exchange as of the Valuation Date. |
The Fund may invest in Mexican fixed-income securities which are peso-denominated and may be dollar-linked in order to provide appropriate liquidity to take advantage of market opportunities and meet cash requirements. The Fund may also invest in U.S. dollar-denominated instruments such as U.S. Treasuries.
The Fund may suspend the calculation of NAV (i) during any period when the Mexican Stock Exchange is closed or during which trading on the Mexican Stock Exchange is restricted or (ii) during any period when, in the opinion of the Investment Adviser and with the approval of the CNBV, the determination of NAV may not fairly be made and would be prejudicial to the interests of Stockholders.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Funds present policy is to make distributions to Stockholders of net investment income over the course of each fiscal year in the form of periodic dividends, as determined for U.S. federal income tax purposes, and, except to the extent retained, to make annual distributions of net capital gains. See TaxationU.S. tax status.
Commencing with the Funds dividend distribution in December 2006, future distributions of long-term realized capital gains will be made payable in Fund shares unless the Stockholder elects to receive the distribution in cash. This policy allows Stockholders to remain invested in the Fund, without the transaction costs that would be incurred if Stockholders
52
received a dividend in cash and reinvested the dividend proceeds in shares of the Fund. This is beneficial to investors who, consistent with the Funds investment policy, seek long-term capital appreciation through investment in securities, primarily equity, listed on the Mexican Stock Exchange. Furthermore, the policy lessens the likelihood that the Fund must sell portfolio securities in less favorable market conditions in order to generate cash for long-term capital gains distributions.
Pursuant to the Dividend Reinvestment Plan, Stockholders are presumed to have elected to have all income dividends or capital gains distributed automatically reinvested by American Stock Transfer and Trust Company (the Plan Agent) in Fund Shares pursuant to the Plan. Stockholders who do not participate in the Plan will receive all income dividends or capital gain distributions in cash or in Fund shares, pursuant to the Funds policy with respect to dividend distributions described above.
Each Stockholder of the Fund whose Shares are registered in his or her own name will automatically be a participant (participant) under the Plan, unless such Stockholder specifically elects not to participate. A Stockholder whose Shares are registered in the name of a broker-dealer or other nominee must contact the broker-dealer or other nominee regarding his or her status under the Plan, including whether such broker-dealer or nominee will participate on such Stockholders behalf.
Whenever the Fund declares a dividend or capital gains distribution, Plan participants will receive the distributions in the manner described below as determined on the date the distribution becomes payable or such other date as may be specified by the Funds Board (the valuation date). The Plan Agent will apply the distribution amount to purchase Shares in the open-market or from the Fund as soon as practicable after the payment date of the distribution but in no event later than 30 calendar days after such date, except where necessary to comply with applicable provisions of the U.S. federal securities laws (the purchase period).
If, on the valuation date, the market price of the Shares plus the estimated brokerage commission to purchase a Share is equal to or exceeds the net asset value per Share (such condition being referred to herein as a market premium), the Plan Agent will invest the distribution amount in newly issued Shares on behalf of the participant. For the purpose of determining the number of Shares equivalent to the distribution amount, participants will be issued Shares valued at the greater of the net asset value per Share or the current market price on the valuation date. Participants will receive their distribution entirely in Shares, and the Plan Agent shall automatically receive the Shares, including fractions, for holding for all participants accounts.
If, on the valuation date, the market price of the Shares plus the estimated brokerage commission to purchase a Share is lower than the net asset value per Share (such condition being referred to herein as a market discount), the Plan Agent will, as purchasing agent for the participants, buy Shares in the open market, on the NYSE or elsewhere, for each participants account during the purchase period. If, before the Plan Agent has completed its purchases, the market discount condition switches to a market premium, the Plan Agent shall suspend making open-market purchases and shall invest the balance available in newly issued Shares which shall be issued at the greater of the net asset value or the current market price per Share. In any case in which the Plan Agent is unable to invest the full dividend amount in open-market purchases by the last business day of the purchase period, the Plan Agent will invest the balance available in newly issued Shares valued at the greater of the net asset value or the current market price per Share as determined on the last business day during the purchase period.
Whenever the Fund declares a capital gain distribution or an income dividend payable (i) in stock or (ii) in stock or cash at the election of the Stockholder, all Stockholders not electing for cash will receive the capital gain distribution or dividend in newly issued Shares on identical terms and conditions as established by the Funds Board, and the terms of the Plan shall not apply to such a distribution.
For all purposes of the Plan, (a) the market price of the Funds Shares on a particular date shall be the last sale price on the NYSE at the close of business on that date, or if there is no sale on the NYSE on such date, then the mean between the closing bid and asked quotations for such stock on the NYSE on such date, and (b) net asset value per Share on a particular date shall be as determined by or on behalf of the Fund.
Open-market purchases provided for above may be made on any securities exchange where the Funds Shares are traded, in the over-the-counter market or in negotiated transactions, and may be on such terms as to price, delivery and otherwise as the Plan Agent shall determine. Participant funds held by the Plan Agent uninvested will not bear interest and, in any event, the Plan Agent shall have no liability in connection with any inability to purchase Shares within 30 calendar days after the payable date for any divided or distribution, as herein provided, or with the timing of any purchases effected. The Plan Agent shall have no responsibility as to the value of the Shares of the Fund acquired for participant accounts. For the purposes of purchases in the open market, the Plan Agent may aggregate purchases with those of other participants, and the average price (including brokerage commissions) of all Shares purchased by the Plan Agent shall be the price per Share allocable to all participants.
The Plan Agent will hold Shares acquired pursuant to the Plan, together with the Shares of other participants acquired pursuant to the Plan, in noncertificated form in the Plan Agents name or that of its nominees. The Plan Agent will forward to participants any proxy solicitation material and will vote any Shares so held for participants only in accordance with the proxies returned by the participants
53
to the Fund. Upon any participants written request, the Plan Agent will deliver to him or her, without charge, a certificate or certificates for the full Shares held by the Plan Agent on his or her behalf.
The Plan Agent will confirm to each participant acquisitions made for its account as soon as practicable but not later than 60 calendar days after the date thereof. Although participants may, from time to time, have an undivided fractional interest (computed to three decimal places) in a Share of the Fund, no certificates for fractional Shares will be issued. However, dividends and distributions on fractional Shares will be credited to participant accounts. In the event of termination of an account under the Plan, the Plan Agent will adjust for any such undivided fractional interest in cash at the market price of the Funds Shares at the time of termination.
If a stock split is effected by the Fund, any stock distributed by the Fund on Shares held by the Plan Agent for participants will be credited to participant accounts. In the event that the Fund makes available to Stockholders rights to purchase additional Shares or other securities, the Plan Agent shall solicit instructions from the participants.
The Plan Agents service fee for handling capital gain distributions or income dividends will be paid by the Fund. Participants will be charged a pro-rata share of brokerage commissions on all open-market purchases.
Participants may terminate their participant under the Plan by notifying the Plan Agent in writing. Such termination will be effective immediately if notice is received by the Plan Agent not less than 14 calendar days prior to any dividend or distribution payment date; otherwise, such termination will be effective after the investment of any current dividend or distribution. The Plan may be terminated by the Plan Agent or the Fund upon notice in writing mailed to participants. Upon termination, the Plan Agent will cause: (i) a certificate or certificates for the appropriate number of full Shares held for participants and (ii) a cash adjustment for any fractional Share (valued at the market price of the Shares as the time of termination), to be delivered to participants, in addition to any brokerage commissions. If, in advance of such termination, a participant elects by written notice to the Plan Agent to have the Plan Agent sell part or all of his or her Shares and remit the proceeds to him or her, the Plan Agent is authorized to deduct a brokerage commission for this transaction from the proceeds. If a participant disposes of all Shares registered in his or her name on the books of the Fund, the Plan Agent may, at its option, terminate the participants account or determine from the participant whether he or she wishes to continue his or her participation in the Plan. However, if a participants Shares are held in nominee or street name through a broker, bank or other nominee, the participant must notify the nominee if he or she wishes to terminate his or her account as established under the Plan.
The terms and conditions of the Plan may be amended or supplemented by the Plan Agent or the Fund at any time or times but only by mailing to participants appropriate written notice prior to the effective date thereof, except when necessary or appropriate to comply with applicable law or the rules or policies of the SEC or any other regulatory authority. The amendment or supplement shall be deemed to be accepted by participants unless, prior to the effective date thereof, the Plan Agent receives written notice of termination of a participant account under the Plan. Any such amendment may include an appointment by the Plan Agent in its place and stead of a successor agent under these terms and conditions, with full power and authority to perform all or any of the acts to be performed by receiving dividends and distributions. The Fund will be authorized to pay such successor agent, for a participants account, all dividends and distributions payable on Shares of the Fund held in a participants name or under the Plan for retention or application by such successor agent as provided in these terms and conditions.
Under the terms of the Plan, the Plan Agent is obligated at all times to act in good faith and use its best efforts within reasonable limits to ensure the accuracy of all services performed under the Plan and to comply with applicable law, but assumes no responsibility and is not liable for loss or damage due to error unless such error is caused by the Plan Agents negligence, bad faith or willful misconduct of it or its employees.
A participant has no right to draw checks or drafts against his or her account or to give instructions to the Plan Agent in respect to any Shares or cash held therein except as expressly provided in the Plan. Generally, Stockholders receiving Shares under the Plan will be treated as having received a distribution equal to the amount payable to them in cash as a dividend had the Stockholder not participated in the Plan.
Additional information about the Plan may be obtained from American Stock Transfer & Trust Company, Attention: Dividend Reinvestment Department, 40 Wall Street, New York, New NY 10005, telephone number (718) 921-8200.
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The following is intended to be a general summary of certain tax consequences that may result to the Fund and its Stockholders. It is not intended as a complete discussion of all such tax consequences, nor does it purport to deal with all categories of investors. Investors are therefore advised to consult with their tax advisers before making an investment in the Fund. The summary is based on the laws in effect on the date of this prospectus, which are subject to change.
Mexican tax status
The Fund receives and intends to continue receiving income solely from the following sources, to the extent consistent with the Funds investment policies:
(A) | Interest derived from bonds, certificates of credit institutions, debentures, notes, ordinary certificates of participation, acceptances, credit instruments, loans or credits payable by credit institutions or auxiliary credit organizations; including yields derived from government-issued instruments placed at a discount (Cetes, Bondes, etc.) At present, income taxes, if applicable, will be withheld at the source of income at rates that vary from 4.9 to 15% for interest earned; |
(B) | With regard to dividends and other profit distributions made by Mexican corporations and Mexican banks residing in Mexico; such dividends and other profit distributions will not be subject to income tax if the Mexican corporations paid taxes on such profits in Mexico (CUFIN). On the contrary when the dividends or other profit distributions do not come from CUFIN, the rate to be paid by the Mexican corporation will be 28% to be applied over a basis equivalent to the effective amount to be distributed, grossed-up with a factor of 1.3889; in this case the income tax paid is considered as an advance of the annual income tax paid by the Mexican corporation, and it may be credited against the annual income tax of the year in which the distribution of dividends was made and the two following years; and |
(C) | Gains from the sale through a stock exchange authorized in Mexico of equity securities included in the list of the Ministry of Finance and Public Credit of securities approved for investment by the general investing public, which are tax exempt in Mexico for Mexican individuals or residents abroad. |
In September 2005, the Fund obtained a ruling from the Mexican tax authority which authorizes the Fund to utilize a 0% rate instead of the 15% value-added tax in Mexico.
The Fund has obtained a ruling from the Mexican Tax Authorities confirming that the Fund is a resident in the United States within the meaning of the Tax Treaty to Avoid Double Taxation (the Tax Treaty) and therefore it would enjoy the tax benefits derived therefrom. Based on the provisions of the Mexican Income Tax Law:
(1) | The Fund is not required to pay any Mexican income taxes on the types of income listed in B and C above. |
(2) | Stockholders of the Fund are not subject to Mexican income taxes on the types of income listed above that are earned by the Fund. |
(3) | If the Fund earns income other than as described in A through C above, the applicable rate would be up to 28% and the tax would be charged against the payment of such income to the Fund. |
U.S. tax status
The Fund has elected to be treated and intends to qualify annually and to elect to be treated as a regulated investment company under the U.S. Internal Revenue Code of 1986, as amended (the Code). To qualify as a regulated investment company, the Fund must, among other things, (A) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to securities loans, net income from certain publicly traded partnerships and gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its business of investing in stocks, securities or currencies; (B) diversify its holdings so that, at the end of each quarter of the taxable year, (i) at least 50% of the market value of the Funds assets is represented by cash, U.S. Government securities, securities of other regulated investment companies and investments in other securities which, with respect to any one issuer do not represent more than 5% of the value of the Funds total assets nor more than 10% of the outstanding voting securities of such issuer and (ii) not more than 25% of the value of its total assets is invested in (a) the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies); (b) two or more controlled issuers in the same or similar trade or business or (c) certain publicly traded partnerships; and (C) distribute at least 90% of its investment company taxable income (which includes, among other items for this purpose, dividends, interest and net short-term capital gains in excess of net long-term capital losses) each taxable year.
As a regulated investment company, the Fund generally will not be subject to U.S. federal income tax on its investment company taxable income and net capital gains (net long-term capital gains in excess of the sum of net short-term capital losses and capital loss carryovers from prior years, if any) that it distributes to Stockholders. The Fund intends to distribute to its Stockholders, at least annually, substantially all of its investment company taxable income, as computed for U.S. federal income tax purposes. To the extent
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the Fund retains its net capital gains for investment, it will be subject under current tax rates to a federal income tax at a maximum effective rate of 35% on the amount retained. See Distributions below.
Amounts not distributed on a timely basis in accordance with a calendar-year distribution requirement are subject to a nondeductible 4% federal excise tax payable by the Fund. To avoid the tax, the Fund must distribute, or be deemed to have distributed, during each calendar-year at least an amount equal to the sum of (1) 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (2) 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for the twelve-month period ending on October 31 of the calendar year, and (3) all ordinary income and capital gains for previous years that were not distributed or taxed during such years. To prevent application of the non-deductible excise tax, the Fund currently intends to make its distributions in accordance with the calendar-year distribution requirement. Compliance with the calendar year distribution requirement may limit the extent to which the Fund will be able to retain its net capital gains for investment.
A distribution will be treated as paid on December 31 of a calendar year if it is declared by the Fund in October, November or December of that year to Stockholders of record on a date in such a month and paid by the Fund during January of the following calendar year. Such distributions will be taxable to Stockholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received.
If in any taxable year the Fund fails to qualify as a regulated investment company under the Code, the Fund will be taxed in the same manner as an ordinary corporation and distributions to its Stockholders will not be deductible by the Fund in computing its taxable income. In addition, in the event of a failure to qualify, the Funds distributions, to the extent derived from the Funds current or accumulated earnings and profits, will constitute dividends (eligible for the corporate dividends-received deduction in the case of corporate stockholders and eligible for treatment as qualified dividend income in the case of individual stockholders) which are taxable to Stockholders as ordinary income, even though those distributions might otherwise (at least in part) have been treated in the Stockholders hands as long-term capital gains. If the Fund fails to qualify as a regulated investment company in any year, it will be required to pay out its earnings and profits accumulated in that year in order to qualify again as a regulated investment company and may in certain circumstances be required to pay tax on unrealized gains.
The Fund may invest in shares of foreign corporations which may be classified under the Code as passive foreign investments companies (PFICs). In general, a foreign corporation is classified as a PFIC if at least 50% of its assets constitute investment-type assets or 75% or more of its gross income is investment-type income. If the Fund receives a so-called excess distribution with respect to PFIC stock, the Fund itself may be subject to a tax on a portion of the excess distribution, whether or not the corresponding income is distributed by the Fund to Stockholders. In general, under the PFIC rules, an excess distribution is treated as having been realized ratably over the period during which the Fund held the PFIC shares. The Fund itself will be subject to tax on the portion, if any, of an excess distribution that is so allocated to prior Fund taxable years and an interest factor will be added to the tax, as if the tax had been payable in such prior taxable years. Certain distributions from a PFIC as well as gain from the sale of PFIC shares are treated as excess distributions. Excess distributions are characterized as ordinary income even though, absent application of the PFIC rules, certain excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with respect to PFIC shares. Under an election that currently is available in some circumstances, the Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether distributions are received from the PFIC in a given year. If this election was made, the special rules, discussed above, relating to the taxation of excess distributions, would not apply. In addition, another election may be available that would involve marking to market the Funds PFIC shares at the end of each taxable year (and on certain other dates prescribed in the Code), with the result that unrealized gains are treated as though they were realized. If this election were made, tax at the Fund level under the PFIC rules would generally be eliminated, but the Fund could, in limited circumstances, incur nondeductible interest charges and any mark to market gains would be treated as ordinary income.
Because the application of the PFIC rules may affect, among other things, the character of gains, the amount of gain or loss and the timing of the recognition of income with respect to PFIC shares, as well as subject the Fund itself to tax on certain income from PFIC shares, the amount that must be distributed to Stockholders, and which will be taxed to Stockholders as ordinary income or long-term income capital gain, may be increased or decreased substantially as compared to a fund that did not invest in PFIC shares.
The Fund has received a private letter ruling from the Internal Revenue Service that provides that the Fund will not recognize gain or loss on the distribution of stocks or securities to Stockholders in connection with repurchase offers made by the Fund.
Distributions
Dividends paid out of the Funds investment company taxable income (which includes any net short-term capital gains) will be taxable to a U.S. Stockholder as ordinary income. Distributions of net capital gains (net long-term capital gains in excess of the sum of
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net short-term capital losses and any capital loss carryovers from prior years), if any, designated by the Fund as capital gain dividends, are taxable as long-term capital gains, regardless of how long the Stockholder has held the Funds Shares.
Dividends paid by the Fund will not qualify for the deduction for dividends received by corporations because the Funds income is not expected to consist of dividends paid by U.S. corporations. A portion of the Funds dividends may qualify for the 15% rate on qualified dividend income applicable to individual shareholders to the extent that the Funds income is derived from qualified dividends and to the extent that both the Fund and the individual Stockholder satisfy, among other requirements, a more than 60 day holding period requirement. There can be no assurance as to what portion of the Funds distributions will qualify for favorable treatment as qualified dividend income. These special rates that apply to ordinary income dividends paid to individuals are set to expire for taxable years beginning in 2011.
In the event the Fund retains any net capital gains, it may designate such retained amounts as undistributed capital gains in a notice to its Stockholders. In the event such a designation is made, Stockholders subject to U.S. tax would include in income, as long-term capital gains, their proportionate share of such undistributed amounts, but would be allowed a credit or refund, as the case may be, for their proportionate share of the 35% tax paid by the Fund. If the designation is made, for U.S. federal income tax purposes, the tax basis of Shares owned by a Stockholder would be increased by an amount equal to 65% of the amount of undistributed capital gains included in the Stockholders income.
Investment company taxable income will be increased or decreased by the amount of foreign currency gains or losses realized by the Fund in connection with the disposition of peso-denominated debt securities as well as changes in peso/dollar exchange rates between the time the Fund accrues a receivable (typically, dividends, interest and payments for securities sold) or payable (typically, expenses and payments for securities purchased) and the time such receivable or payable is satisfied. The Fund cannot predict the impact of such transactions on company taxable investment income.
Sales of shares
Upon the sale or other disposition of Shares of the Fund, a Stockholder generally will realize a taxable gain or loss in an amount equal to the difference between the proceeds of the sale or other dispositions and the Stockholders adjusted tax basis in the Shares. Such gain or loss will be a capital gain or loss if the Shares are capital assets in the Stockholders hands and generally will be long-term or short-term depending upon the Stockholders holding period for the Shares. Any loss realized on a sale or exchange will be disallowed to the extent the Shares disposed of are replaced (including replacement through the Dividend Reinvestment Plan) within a period of 61 days, beginning 30 days before and ending 30 days after the Shares are disposed of. In such a case, the basis of the Shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a Stockholder on a disposition of Fund Shares held by the Stockholder for six months or less will be treated as a long-term capital loss to the extent of any distributions of capital gain dividends received or treated as having received by the Stockholder with respect to such shares.
Foreign taxes
Mexican taxes may be imposed on the Fund (and not on its Stockholders) and withheld as described above. In addition, a Mexican income tax may be imposed on the Fund to the extent it receives income from certain sources.
If more than 50% in value of the Funds total assets at the close of any taxable year consists of stocks or securities of foreign corporations, the Fund may elect to treat any Mexican income and similar taxes paid by it as paid by its Stockholders. The Fund anticipates that it will qualify annually to make the election. The Fund will notify Stockholders in writing each year if it makes the election and of the amount of Mexican taxes, if any, that would be treated as paid by the Stockholders. If the Fund makes the election, the source (for U.S. federal income tax purposes) of the Funds income will flow through to Stockholders and Stockholders will be required to include their proportionate share of the amount of foreign income and similar taxes paid by the Fund in income even though they do not actually receive such amounts.
Generally, Stockholders itemizing their deductions will be entitled to deduct the amount of Mexican taxes withheld from distributions to them and, if the Fund so elects, their proportionate share of the amount of Mexican income and similar taxes paid by the Fund, if any. Alternatively, Stockholders who satisfy certain holding period requirements may be eligible to claim a foreign tax credit for such amounts. However, under certain provisions of the Code, Stockholders may not be able to claim a credit for the full amount of Mexican taxes withheld from distributions or for the full amount of their proportionate share of Mexican income and similar taxes paid by the Fund. This is because, generally, a credit for foreign taxes is subject to the limitation that it may not exceed the Stockholders U.S. federal income tax attributable to his foreign source taxable income. Under the Code, the Funds distributions are not treated as foreign source income. However, if the Fund elects to treat any Mexican income and similar taxes paid by it as paid by
57
its Stockholders, the source of the Funds income will instead flow through to its Stockholders and such income may, at least in part, be foreign source income. Accordingly, the Fund will make such an election whether or not it pays any Mexican taxes. In addition, Stockholders will not be eligible to claim a foreign tax credit with respect to foreign income taxes paid by the Fund unless certain holding period requirements are satisfied. The U.S. Internal Revenue Service has issued a private ruling to the Fund to the effect that making such an election will serve to pass through to Stockholders the source of the Funds income even if the Fund pays no foreign taxes.
Non-U.S. Stockholders may not be able to credit or deduct the foreign taxes, but they may be deemed to have additional income from the Fund, equal to their share of the foreign taxes, that is subject to the U.S. withholding tax.
Gains, if any, from the sale of securities by the Fund generally will be treated as derived from U.S. sources and certain currency fluctuation gains, if any, from foreign currency-denominated debt securities, receivables and payables, will be treated as ordinary income derived from U.S. sources. In addition, the foreign tax credit is available only to the extent of the U.S. tax that would otherwise be payable on foreign source income. Thus, even if the source of the Funds income passes through to Stockholders, Stockholders may be unable to claim a credit for the full amount of the Mexican taxes withheld from distributions or for the full amount of their proportionate share, if any, of the Mexican taxes paid by the Fund.
The foregoing is only a general description of the foreign tax credit. Because application of the credit depends on the particular circumstances of each Stockholder, Stockholders are advised to consult their own tax advisers.
Backup withholding
The Fund may be required to withhold for U.S. federal income taxes 28% of all taxable distributions payable to Stockholders who fail to provide the Fund with their certified U.S. taxpayer identification number (or certificate regarding foreign status) or to Stockholders otherwise subject to U.S. backup withholding. Similarly, proceeds from the sale or other disposition of Shares of the Fund in the United States may be subject to backup withholding if the Stockholder fails to provide a certified U.S. taxpayer identification number (or certificate regarding foreign status) and make other certifications in connection with the transaction, or if the Stockholder is otherwise subject to U.S. backup withholding. Corporate Stockholders and other Stockholders specified in the Code are exempt from such backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be refunded or credited against the Stockholders U.S. federal income tax liability, provided that the required information is furnished to the Internal Revenue Service.
Foreign stockholders
U.S. taxation of a Stockholder who, as to the United States, is a non-resident alien individual, a foreign trust or estate, a foreign corporation or foreign partnership (Foreign Stockholder) depends on whether the income from the Fund is effectively connected with a U.S. trade or business carried on by such Stockholder. Ordinarily, income from the Fund will not be treated as so effectively connected.
Income not effectively connected
If the income from the Fund is not effectively connected with a U.S. trade or business carried on by the Foreign Stockholder, distributions of investment company taxable income will be subject to a U.S. withholding tax of 30% (or lower treaty rate), which tax generally will be withheld from such distributions. Foreign Stockholders may be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) of the income resulting from the Funds election to treat any foreign taxes paid by it as paid by its Stockholders, but may not be able to claim a credit or deduction for the foreign taxes treated as having been paid by them.
Capital gain dividends and amounts retained by the Fund which are designated as undistributed capital gains will not be subject to U.S. tax at the rate of 30% (or lower treaty rate) unless the Foreign Stockholder is a non-resident alien individual and is physically present in the United States for more than 182 days during the taxable year and meets certain other requirements. However, this rule applies only in exceptional cases because any individual present in the United States for more than 182 days during a calendar year is generally treated as a resident for U.S. federal income tax purposes; in that case, he or she would be subject to U.S. federal income tax on his or her worldwide income at the graduated rates applicable to U.S. citizens, rather than the 30% U.S. withholding tax. In the case of a Foreign Stockholder who is a non-resident alien individual, the Fund may be required to withhold U.S. federal income tax at a rate of 28% of a capital gain dividend. See Backup Withholding above. If a Foreign Stockholder is a non-resident alien individual, any gain he realizes upon the sale of his Fund Shares in the United States will ordinarily be exempt from U.S. tax unless (1) he is physically present in the United States for more than 182 days during the taxable year or is otherwise considered to be a resident alien of the United States or (2) backup withholding applies. See Backup withholding above.
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Income effectively connected
If the income from the Fund is effectively connected with a U.S. trade or business carried on by a Foreign Stockholder, then distributions of investment company taxable income and net capital gains, amounts retained by the Fund which are designated as undistributed capital gains and any gains realized upon the sale of Shares of the Fund, will be subject to U.S. federal income tax at the graduated rates applicable to U.S. citizens, residents and domestic corporations. Such Stockholders may also be subject to the branch profits tax imposed under the Code.
The tax consequences to a Foreign Stockholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign Stockholders are advised to consult their own tax adviser with respect to the particular tax consequences to them of an investment in the Fund.
Other tax considerations
Distributions from the Fund and sales or other dispositions of Shares of the Fund may be subject to additional state, local and foreign taxes depending on each Stockholders particular situation. Stockholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund.
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The following summary of the terms of the stock of the Fund does not purport to be complete and is subject to and qualified in its entirety by reference to the Maryland General Corporation Law and the Funds Charter and Bylaws.
General
Set forth below is information with respect to the Funds outstanding securities as of February 28, 2007:
Title of Class |
Number of Shares Authorized |
Number of Shares Held by the Fund or for its Account |
Number of Shares Issued and Outstanding | |||
Common Stock |
150,000,000 shares | 0 | 15,005,723 |
Common stock
The Funds charter authorizes the issuance of up to 150,000,000 Shares of common stock, par value $1.00 per share. On March 9, 2007, there were 15,005,723 outstanding Shares of the Fund, all of which are fully paid and non-assessable. All Shares of common stock have equal rights as to dividends, assets and voting and have no conversion, preemptive or other subscription rights. In the event of liquidation, each Share of common stock is entitled to its proportion of the Funds assets after the payment of debts and expenses. Stockholders are entitled to one vote per Share and do not have cumulative voting rights. The Fund will hold regular annual meetings of Stockholders in accordance with the laws of Maryland and the rules of the NYSE. Except with respect to appraisal rights arising in connection with the Maryland Control Share Acquisition Act discussed below, as permitted by the Maryland General Corporation Law, Stockholders will not be entitled to appraisal rights.
The Shares commenced trading on the NYSE on June 4, 1981. For the quarter ended January 31, 2007, the highest trading price was $42.95 and the lowest trading price was $36.49. During the same period, the NAV ranged from a low of $42.36 to a high of $47.47. Total trading volume of the NYSE during the period was 1,881,800 shares. On January 31, 2007, the closing price on the NYSE was $39.99 and the NAV was $44.51.
Beneficial ownership
Title of Class |
Name and Address of Beneficial Owner |
Amount and Nature of Beneficial Ownership |
Percent of Class |
|||||
Common Stock |
City of London Investment Group plc | 942,844 | * | 6.28 | %** | |||
Common Stock |
Lazard Asset Management LLC | 1,137,144 | 7.58 | %** |
* | City of London Investment Group plc is the parent holding company of City of London Investment Management Company Limited, an investment adviser to various public and private investment funds including The Emerging World Fund, Emerging Markets Country Fund, Investable Emerging Markets Country Fund, Emerging Free Markets Country Fund, Natural Resource Fund, Global Equity CEF Fund, Frontier Emerging Markets Fund, Global Emerging Markets Equity Yield Fund, GFM Emerging Markets Country Fund and Tradex Global Equity Fund (the Funds), and has the power to direct the dividends from, or the proceeds of the sale of the shares owned by, the Funds. Each of the Funds owns less than 5% of the shares. |
** | Each beneficial owner made the filing upon which this information is based for a reporting event occurring on December 29, 2006. Percent of class is based on the number of shares outstanding as of March 9, 2007. |
No preemptive rights
No holder of Shares has any preemptive right to acquire from the Fund any capital stock of the Fund whether now or hereafter authorized.
60
Certain provisions of the Maryland General Corporation Law, the Charter and Bylaws
Maryland Control Share Acquisition Act
The Maryland Control Share Acquisition Act provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror, by officers or by directors who are employees of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power:
| one-tenth or more but less than one-third; |
| one-third or more but less than a majority; or |
| a majority or more of all voting power. |
The requisite stockholder approval must be obtained each time an acquiror crosses one of the thresholds of voting power set forth above. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may repurchase for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to repurchase control shares is subject to certain conditions and limitations, including compliance with the 1940 Act. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights of the shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition.
The Control Share Acquisition Act does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation.
The Board of Directors of the Fund has adopted a resolution that makes the Control Share Act applicable to the Fund. However, the Bylaws of the Fund provide that the election to be subject to the Control Share Act shall not apply to votes entitled to be cast by holders of control shares in connection with any action required by the 1940 Act to be approved by the Stockholders by the vote of a majority of the outstanding voting securities (as defined by the 1940 Act) of the Fund. This resolution and this Bylaw may be altered or repealed, in whole or in part, at any time by the Funds Board of Directors.
Charter and Bylaw provisions
The Fund has provisions in its Charter and Bylaws that could have the effect of delaying, deferring, preventing or otherwise limiting the ability of other entities or persons to acquire control of the Fund, to cause it to engage in certain transactions or to modify its structure. These provisions may be regarded as anti-takeover provisions.
The Board of Directors of the Fund is divided into three classes each having a term of three years. Each Director serves for three years and until his or her successor is duly elected and qualifies. Each year, the term of one class expires and the successor or successors elected to that class will serve for a three-year term. The classified nature of the Board could delay for up to two years the replacement of a majority of the Board of Directors by Stockholders. The Funds Bylaws provide that the affirmative vote of the holders of a majority of the outstanding Shares of stock entitled to vote in the election of Directors will be required to elect a Director. The Fund also has certain Board composition and Director qualification requirements. A Director may be removed from office only by the affirmative vote of at least two-thirds of the Funds outstanding Shares of capital stock. The Charter provides that the number of Directors will be set only by the Board of Directors. Except as otherwise required by law, any vacancy on the Board of Directors can be filled only by the affirmative vote of the majority of the remaining Directors in office even if the remaining Directors do not constitute a quorum. The Bylaws also require that advance notice be given to the Fund in the event a Stockholder desires to nominate
61
a person for election to the Board of Directors or to transact any other business at a meeting of Stockholders. The Funds Bylaws provide that special meetings of Stockholders may be called by the Board of Directors and certain of the Funds officers. Additionally, the Charter and Bylaws provide that, subject to the satisfaction of certain procedural and informational requirements by the Stockholders requesting the meeting, a special meeting of Stockholders will be called by the Secretary of the Fund upon the written request of Stockholders entitled to cast not less than a majority of all the votes entitled to be cast at such meeting.
A vote of two-thirds of the Funds outstanding Shares are required for certain actions including merger or consolidation of the Fund with another company or the sale of substantially all of its assets to another company; amending certain provisions of the Charter; open-ending the Fund; dissolving the Fund; and Stockholder proposals regarding specific investment decisions with respect to investment of the Funds assets.
The general purpose of these provisions is to encourage potential acquirers of more than certain percentages of voting Shares of the Fund in market transactions either to negotiate with the Board, as the elected representatives of the Stockholders, or to obtain the approval of the Stockholders for any proposed plan of action.
Additionally, as described below, the Bylaws contain certain provisions that may tend to make a change of control of the Fund more difficult. The Bylaws:
1. | Establish supermajority Board vote requirements for certain actions, including mergers, consolidations, sales of substantially all of the Funds assets, dissolution, amendment of the Funds charter, election of officers, officer and Director compensation and the amendment of the Director qualification requirements. |
2. | Require that any proposed advisory, sub-advisory or management agreement between the Fund and an affiliate of any disinterested director then serving on the Board or who served on the Board within the preceding two years be approved by at least 75% of all disinterested directors who are not affiliates of a proposed party to the contract. This provision cannot be changed except by 75% of the Continuing Directors, a term defined as a member of the Board of Directors who (i) was a member of the Board of Directors on September 17, 2003 or (ii) was elected, or nominated to succeed a Continuing Director, by a majority of the Continuing Directors then on the Board of Directors. |
3. | In the event that the Board approves an advisory, sub-advisory or management agreement between the Fund and (i) an affiliate of any disinterested director, (ii) a person (or an affiliate of such a person) who nominated any disinterested director serving on the Board at the time such agreement is considered for approval or (iii) a person (or an affiliate of such a person) that controls the Fund, the Bylaws would provide automatic liquidity to dissatisfied stockholders by requiring the Fund, within 45 days after the agreement is approved, to commence a tender offer for at least 50% of its outstanding shares at a price of not less than 98% of the Funds per share net asset value. This provision cannot be changed except by 75% of the Continuing Directors. |
The full text of these provisions can be found in the Funds Charter and Bylaws, on file with the SEC, but also on the Funds website, www.themexicofund.com under Corporate governance. These provisions could have the effect of depriving Stockholders of an opportunity to sell their Shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund in a tender offer or similar transaction. The Board of Directors believes that the provisions of the Funds Charter and Bylaws described above provide the advantage of greater assurance of continuity of Board and management composition and policies and has determined that the foregoing provisions are in the best interests of the Funds Stockholders generally.
Pursuant to a Custody Agreement dated March 14, 2006, BBVA Bancomer, SA, acts as the Funds custodian. The principal business address of BBVA Bancomer, SA is Av. Universidad 1200, Col. Xoco 03339, Mexico, D.F. For assets of the Fund held in the United States, pursuant to a contract dated April 5, 2000, Comerica Bank acts as custodian. The principal business address of Comerica Bank is 500 Woodward Avenue, Detroit, Michigan 48226. The Board has delegated various foreign custody responsibilities to the Investment Adviser, as the foreign custody manager for the Fund, to the extent permitted under the 1940 Act and the rules thereunder. See Risk factors and special considerationsForeign custody.
American Stock Transfer & Trust Company acts as the Funds dividend paying agent, transfer agent and registrar for the Funds Shares. The principal business address of American Stock Transfer & Trust Company is 59 Maiden Lane, New York, New York 10038.
62
The financial statements of the Fund incorporated by reference in this prospectus, insofar as they relate to the periods from November 1, 2002 through October 31, 2006, have been so incorporated in reliance on the report of Pricewaterhouse Coopers LLP, the independent registered public accounting firm of the Fund, given on the authority of said firm as experts in accounting and auditing. The principal place of business of Pricewaterhouse Coopers LLP is located at 300 Madison Avenue, New York, New York 10017. The audit services they provide include examination of the financial statements of the Fund, services relating to filings by the Fund with the SEC, and consultation on matters related to the preparation and filing of tax returns.
UBS Securities LLC will act as Dealer Manager for the offer. Under the terms and subject to the conditions contained in the Dealer Manager Agreement dated March 13, 2007 among the Dealer Manager, the Fund and the Investment Adviser, the Dealer Manager will provide financial structuring and marketing services in connection with the offer and will solicit the exercise of Rights and participation in the Over-Subscription Privilege. Prior to the expiration of this offer, the Dealer Manager may independently offer for sale Shares, including Shares acquired through purchasing and exercising the Rights, at prices it sets. Although the Dealer Manager may realize gains and losses in connection with such purchases and sales, such offering of Shares is intended by the Dealer Manager to facilitate the offer and any such gains or losses are not expected to be material to the Dealer Manager. The Dealer Managers fee for its financial structuring, marketing and soliciting services is independent of any gains or losses that may be realized by the Dealer Manager through the purchase and exercise of Rights.
The Fund has agreed to pay the Dealer Manager a fee for its financial structuring, marketing and soliciting services equal to 3.50% of the aggregate Subscription Price for Shares issued pursuant to the offer. The Dealer Manager fee will be borne by the Fund and indirectly by all of the Funds Stockholders, including those who do not exercise their Rights.
The Dealer Manager will reallow to broker-dealers included in the selling group to be formed and managed by the Dealer Manager selling fees equal to 2.50% of the Subscription Price per Share for each Share issued pursuant to the offer as a result of their selling efforts. In addition, the Dealer Manager will reallow to other broker-dealers that have executed and delivered a Soliciting Dealer Agreement and have solicited the exercise of Rights, solicitation fees equal to 0.50% of the Subscription Price per Share for each Share issued pursuant to the exercise of Rights as a result of their soliciting efforts, subject to a maximum fee based upon the number of Shares held by each broker-dealer through DTC on the Record Date. Fees will be paid to the broker-dealer designated on the applicable portion of the Subscription Certificates or, in the absence of such designation, to the Dealer Manager.
The Fund has agreed to indemnify the Dealer Manager or contribute to losses arising out of certain liabilities, including liabilities under the 1933 Act. The Dealer Manager Agreement also provides that the Dealer Manager will not be subject to any liability to the Fund or the Investment Adviser in rendering the services contemplated by such Agreement except for any act of bad faith, willful misconduct or gross negligence of the Dealer Manager or reckless disregard by the Dealer Manager of its obligations and duties under such Agreement. The Fund may in certain circumstances agree to reimburse the Dealer Manager for a portion of its expenses incurred in connection with this offer in an amount up to $100,000.
In the ordinary course of their businesses, the Dealer Manager and its affiliates may engage in investment banking or financial transactions with the Fund, the Investment Adviser and their affiliates.
The principal business address of UBS Securities LLC is 299 Park Avenue, New York, New York 10171-0026.
The validity of the shares offered hereby will be passed on for the Fund by Dechert LLP, 1775 I Street, NW, Washington, DC 20006, and certain legal matters relating to the offer will be passed on for the Dealer Manager by Skadden, Arps, Slate, Meagher & Flom LLP, 333 West Wacker Drive, Suite 2100, Chicago, IL 60606. Dechert LLP and Skadden, Arps, Slate, Meagher & Flom LLP will rely as to certain matters of Maryland law on the opinion of Venable LLP, Two Hopkins Plaza, Suite 1800, Baltimore, MD 21201-2978. Matters of Mexican law will be passed on for the Fund by Creel, García-Cuéllar y Müggenburg, Paseo de los Tamarindos 60, Col. Bosque de las Lomas, 05120 México, D.F. México.
Samuel García-Cuéllar, a partner of Creel, García-Cuéllar y Müggenburg, S.C., serves as Secretary of the Fund. Sander M. Bieber, a partner of Dechert LLP, serves as Assistant Secretary to the Fund.
63
The required financial statements are included in the Funds 2006 Annual Report, which is incorporated by reference herein. These statements include: Schedule of Investments as of October 31, 2006; Statement of Assets and Liabilities as of October 31, 2006; Statement of Operations for the fiscal year ended October 31, 2006; Statement of Changes in Net Assets for the fiscal years ended October 31, 2006 and 2005 and Financial Highlights for a share of common stock outstanding during each of the fiscal years ended October 31, 2006, 2005, 2004, 2003 and 2002. A copy of the Funds 2006 annual report is available at the SECs website at http://www.sec.gov. Copies may also be obtained free of charge upon written or oral request from the Funds information agent at Georgeson Inc., 17 State Street, 10th Floor, New York, New York 10004 or (800) 965-5216.
64
No dealer, salesperson or any other person has been authorized to give any information or to make any representations other than those contained in this prospectus in connection with the offer made by this prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Fund, the Investment Adviser or the Dealer Manager. This prospectus does not constitute an offer to sell or the solicitation of any offer to buy any security other than the Shares of common stock offered by this prospectus, nor does it constitute an offer to sell or a solicitation of any offer to buy the Shares of common stock by anyone in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so, or to any such person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that information contained herein is correct as of any time subsequent to the date hereof. However, if any material change occurs while this prospectus is required by law to be delivered, the prospectus will be amended or supplemented accordingly.
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65
The Mexico Fund, Inc.
Managed by
Impulsora del Fondo México, S.C.
66
PART C
OTHER INFORMATION
Item 25. | Financial Statements and Exhibits. |
1. | Financial Statements |
Schedule of Investments as of October 31, 2006(1)
Statement of Assets and Liabilities as of October 31, 2006(1)
Statement of Operations for the fiscal year ended October 31, 2006(1)
Statements of Changes in Net Assets for the fiscal years ended October 31, 2006 and 2005(1)
Notes to Financial Statements(1)
Financial Highlights for a share of common stock outstanding during each of the fiscal years ended October 31, 2006, 2005, 2004, 2003 and 2002(1)
2. | Exhibits |
a) | 1) | Amended and Restated Articles of Incorporation dated March 5, 1998(2) | ||
2) | Articles Supplementary dated November 29, 2000(2) | |||
3) | Articles Supplementary dated December 4, 2003(2) | |||
b) | Amended and Restated Bylaws as of December 6, 2005(3) | |||
c) | Not Applicable | |||
d) | 1) | Form of Subscription Certificate(4) | ||
2) | Form of Notice of Guaranteed Delivery(4) | |||
3) | Form of Beneficial Owner Certification Form(4) | |||
4) | Form of Subscription Agent Agreement(4) | |||
5) | Form of Information Agent Agreement(4) | |||
e) | Dividend Reinvestment Plan(5) | |||
f) | Not Applicable | |||
g) | Amended and Restated Investment Advisory and Management Agreement, dated April 28, 2003 between the Registrant and the Investment Adviser(2) | |||
h) | Form of Dealer Manager Agreement between the Registrant and UBS Securities LLC* | |||
i) | Not Applicable | |||
j) | 1) | Amended and Restated Custody Agreement dated March 14, 2006 between Registrant and BBVA Bancomer, S.A.(6) | ||
2) | Custody Agreement between Registrant and Comerica Bank dated April 5, 2000(5) | |||
3) | Form of First Amended and Restated Foreign Custody Delegation Agreement between Registrant and the Investment Adviser | |||
k) | 1) | Amended and Restated Administrative Services Agreement between Registrant and Impulsora del Fondo Mexico, S.C. dated March 7, 2007 | ||
2) | Dividend Reinvestment Plan Transfer Agency and Registrar Agreement between Registrant and American Stock Transfer and Trust Company dated June 23, 1993(5) | |||
3) | Service Agreement between Registrant and Dechert LLP dated March 8, 2006(6) |
l) | Form of Opinion and Consent of Dechert LLP(4) | |||
m) | Not Applicable | |||
n) | Consent of Pricewaterhouse Coopers LLP, the independent registered public accounting firm of the Registrant(4) | |||
o) | Not Applicable | |||
p) | Not Applicable | |||
q) | Not Applicable | |||
r) | 1) | Code of Ethics of Registrant adopted pursuant to Rule 17j-1 of the Investment Company Act of 1940(2) | ||
2) | Code of Ethics of the Investment Adviser adopted pursuant to Rule 17j-1 of the Investment Company Act of 1940(2) | |||
s) | Power of Attorney dated January 22, 2007 |
* | Filed herewith. |
(1) | Incorporated by reference from Form N-CSR filed on December 29, 2006. |
(2) | Incorporated by reference from Amendment No. 42 to Registration Statement under the Investment Company Act of 1940, filed September 16, 2004. |
(3) | Incorporated by reference from Amendment No. 45 to Registration Statement under the Investment Company Act of 1940, filed January 20, 2006. |
(4) | Incorporated by reference from Amendment No. 49 to Registration Statement under the Investment Company Act of 1940, filed March 12, 2007. |
(5) | Incorporated by reference from Amendment No. 43 to Registration Statement under the Investment Company Act of 1940, filed September 17, 2004. |
(6) | Incorporated by reference from Amendment No. 46 to Registration Statement under the Investment Company Act of 1940, filed May 17, 2006. |
Item 26. | Marketing Arrangements. |
Not Applicable
Item 27. | Other Expenses of Issuance and Distribution. |
The following table sets forth the estimated expenses to be incurred in connection with the offering described in this Registration Statement:
Registration fees |
$6,000 | |
NYSE listing fee |
$20,000 | |
Printing and Postage (including subscription certificates) |
$110,000 | |
Fees and expenses of qualifications under state securities laws (including fees of counsel) |
$0 | |
Legal fees and expenses |
$200,000 | |
Accounting fees and expenses |
$40,000 | |
Subscription Agent fee and expenses |
$110,000 | |
Information Agent fees and expenses |
$20,000 | |
Miscellaneous |
$20,000 | |
Total |
$546,000 |
Item 28. | Persons controlled by or under common control with Registrant. |
None.
C-2
Item 29. | Number of Holders of Securities. |
Title of Class |
Number of recordholders at March 9, 2007 | |
Common Stock, par value $1.00 per share |
3,690 |
Item 30. | Indemnification. |
Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment as being material to the cause of action.
Article VII of the Registrants Charter provides that no director or officer of the Registrant shall have any personal liability to the Registrant or its stockholders for money damages, except to the extent such exemption from liability or limitation thereof is not permitted by law (including the Investment Company Act of 1940) or as the same may hereafter be amended.
The Registrants Bylaws obligate the Registrant to indemnify current or former directors, officers of the Registrant, employees and agents to the maximum extent permissible under the Maryland General Corporation Law. In addition, the Registrant may purchase insurance on behalf of any current or former director, officer, employee or agent of the Registrant with respect to certain liabilities. The Bylaws provide, however, that the Registrants directors, officers and certain agents shall not be indemnified against liability arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their office or under any contract or agreement with the Registrant. The Registrant will not indemnify any such person unless the court or other body before which a proceeding is brought dismisses the proceeding for insufficiency of evidence or reaches a final decision on the merits that the person was not liable by reason of the disabling conduct or; absent such a decision, a reasonable determination is made, based upon a review of the facts, by a vote of a majority of a quorum of the Directors of the Registrant who are neither interested persons of the Registrant as defined in the Investment Company Act of 1940 nor parties to the proceeding; or if such quorum is not obtainable, or even if obtainable, if a majority of a quorum of such directors so direct, by independent legal counsel in a written opinion, that such person was not liable by reason of disabling conduct. The Bylaws further provide that the Registrant may pay expenses incurred in defending a proceeding involving a director, officer, employee or agent in advance of the final disposition of the proceeding upon the undertaking by such person to repay the expenses (unless it is ultimately determined that he or she is entitled to indemnification), if (1) such person provides adequate security for the undertaking, (2) the Registrant is insured against losses arising by reason of the advance or (3) a majority of a quorum of such disinterested directors, or independent legal counsel in a written opinion, determines, based on readily available facts, that there is reason to believe that such person will be found to be entitled to indemnification.
Maryland law requires a corporation (unless its charter provides otherwise, which the Registrants charter does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service in that capacity. Maryland law permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made, or threatened to be made, a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that a personal benefit was improperly received, unless in either case a court orders indemnification, and then only for expenses. In addition, Maryland law permits a corporation to advance reasonable expenses to a director or officer upon the corporations receipt of (a) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met. The Fund maintains insurance on behalf of any person who is or was a director or officer of the Fund, against certain liability asserted against him and incurred by him arising out of his position.
Insofar as indemnification for liability arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the Registrant, pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the
C-3
successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue.
Reference is made to Section 7 of the Dealer Manager Agreement, a form of which will be filed as Exhibit (h) hereto, for provisions relating to the indemnification of the Dealer Manager.
The Management and Administration Agreements, filed as Exhibits (g) and (k)(1) limit the liability of Registrants investment adviser and administrator.
Item 31. | Business and other connections of the Investment Adviser |
Information as to the directors and officers of Impulsora del Fondo Mexico, S.C. is included in its Form ADV filed with the SEC (SEC File No. 801-16064) and is incorporated herein by reference thereto.
Item 32. | Location of accounts and records. |
Certain accounts, books and other documents required to be maintained pursuant to Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder are maintained by Dechert LLP, 1775 I Street, Washington, DC 20006 and the Funds Investment Adviser, Impulsora del Fondo Mexico, S.C., Aristóteles 77, 3rd Floor, Col. Polanco, 11560 México, D.F., México; and those relating to the duties of the transfer agent, dividend paying agent and registrar are maintained by American Stock Transfer & Trust Company, 59 Maiden Lane, New York, NY 10038.
Item 33. | Management services. |
Not applicable.
Item 34. | Undertakings. |
(1) Registrant undertakes to suspend the offering of the shares of Common Stock covered hereby until it amends its Prospectus contained herein if (a) subsequent to the effective date of this Registration Statement, its net asset value per share of Common Stock declines more than 10% from its net asset value per share of Common Stock declines more than 10% from its net asset value per share of Common Stock as of the effective date of this Registration Statement, or (b) its net asset value per share of Common Stock increases to an amount greater than its net proceeds as stated in the Prospectus contained herein.
(2) Not applicable.
(3) Not applicable.
(4) Not applicable.
(5) Registrant undertakes that:
(a) For purposes of determining any liability under the Securities Act of 1933, as amended, the information omitted from the form of prospectus filed as part of the Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 497(h) under the Securities Act of 1933, as amended, shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(b) For purposes of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to a new registration statement relating to the securities at that time shall be deemed to be the initial bona fide offering thereof.
(6) Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any Statement of Additional Information.
C-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized on the 13th day of March 2007.
THE MEXICO FUND, INC. (Registrant) | ||
By: | /s/ Jóse Luis Gómez Pimienta* | |
Jóse Luis Gómez Pimienta | ||
President (Principal Executive Officer) |
* | Executed by Karl Paulson Egbert, Attorney-in-Fact pursuant to Power of Attorney dated January 22, 2007. |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Sander M. Bieber and Karl Paulson Egbert, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
Signatures |
Title |
Date | ||
/s/ Emilio Carrillo Gamboa Emilio Carrillo Gamboa* |
Chairman and Director | March 13, 2007 | ||
/s/ Eugenio Clariond Reyes-Retana Eugenio Clariond Reyes-Retana* |
Director | March 13, 2007 | ||
/s/ Jóse Luis Gómez Pimienta Jóse Luis Gómez Pimienta* |
Director | March 13, 2007 | ||
/s/ Claudio X. González Claudio X. González* |
Director | March 13, 2007 | ||
/s/ Robert L. Knauss Robert L. Knauss* |
Director | March 13, 2007 | ||
/s/ Marc J. Shapiro Marc J. Shapiro* |
Director | March 13, 2007 | ||
/s/ Jaime Serra Puche Jaime Serra Puche* |
Director | March 13, 2007 |
* | Executed by Karl Paulson Egbert, Attorney-in-Fact pursuant to Power of Attorney dated January 22, 2007. |
Exhibit(h)
[ ] Shares of Common Stock
Issuable Upon Exercise of Rights
to Subscribe for such Shares
DEALER MANAGER AGREEMENT
New York, New York [ ], 2007 |
UBS Securities LLC
299 Park Avenue
New York, New York 10171-0026
Ladies and Gentlemen:
Each of The Mexico Fund, Inc., a Maryland corporation (the Fund), and Impulsora del Fondo México, S.C., a Mexican sociedad comun (the Investment Adviser), hereby confirms the agreement with and appointment of UBS Securities LLC to act as dealer manager (the Dealer Manager) in connection with the issuance by the Fund to the holders of record (the Record Date Stockholders) at the close of business on the record date set forth in the Prospectus (as defined herein) (the Record Date) transferable rights entitling their holders to subscribe for up to [ ] shares (each a Share and, collectively, the Shares) of common stock, par value $1.00 per share (the Common Shares), of the Fund (the Offer). Pursuant to the terms of the Offer, the Fund is issuing each Record Date Stockholder one transferable right (each a Right and, collectively, the Rights) for each Common Share held by such Record Date Stockholder on the Record Date. Such Rights entitle their holders to acquire during the subscription period set forth in the Prospectus (the Subscription Period), at the price set forth in such Prospectus (the Subscription Price), one Share for each [ ] Rights exercised (except that any Record Date Stockholder who is issued fewer than [ ] Rights will be able to subscribe for one full Share pursuant to the primary subscription), on the terms and conditions set forth in such Prospectus. No fractional shares will be issued. Any Record Date Stockholder who fully exercises all Rights initially
issued to such Record Date Stockholder on the Record Date (other than those Rights that cannot be exercised because they represent the right to acquire less than one Share) will be entitled to subscribe for, subject to allocation, additional Shares (the Over-Subscription Privilege) on the terms and conditions set forth in the Prospectus. Investors who are not Record Date Stockholders, but who otherwise acquire Rights to purchase Shares pursuant to this Offer, are not entitled to subscribe for any Shares pursuant to the Over-Subscription Privilege. The Rights are transferable and are expected to be listed on the New York Stock Exchange, Inc. (the NYSE) under the symbol MXF.RT.
The Fund has filed with the Securities and Exchange Commission (the Commission) a registration statement on Form N-2 (Nos. 333-140298 and 811-02409) and a related preliminary prospectus under the Investment Company Act of 1940, as amended (the Investment Company Act), the Securities Act of 1933, as amended (the Securities Act), and the rules and regulations of the Commission under the Investment Company Act and the Securities Act (the Rules and Regulations), and has filed such amendments to such registration statement on Form N-2, if any, and such amended preliminary prospectuses as may have been required to the date hereof. If the registration statement has not become effective, a further amendment to such registration statement, including forms of a final prospectus necessary to permit such registration statement to become effective, will promptly be filed by the Fund with the Commission. If the registration statement has become effective and any prospectus contained therein omits certain information at the time of effectiveness pursuant to Rule 430A of the Rules and Regulations, a final prospectus containing such omitted information will promptly be filed by the Fund with the Commission in accordance with Rule 497(h) of the Rules and Regulations. The term Registration Statement means the registration statement, as amended, at the time it becomes or became effective, including financial statements and all exhibits and all documents, if any, incorporated therein by reference, and any information deemed to be included by Rule 430A. The term Prospectus means (except as otherwise specified herein) the final prospectus in the form filed with the Commission pursuant to Rule 497(c), (e), (h) or (j) of the Rules and Regulations, as the case may be, as from time to time amended or supplemented pursuant to the Securities Act.
The Prospectus and letters to owners of Common Shares of the Fund, subscription certificates and other forms used to exercise rights, brochures, wrappers, any letters from the Fund to securities dealers, commercial banks and other nominees and any newspaper announcements, press releases and other offering materials and
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information that the Fund may use, approve, prepare or authorize for use in connection with the Offer are collectively referred to hereinafter as the Offering Materials.
1. | Representations and Warranties. |
a. | The Fund represents and warrants to, and agrees with, the Dealer Manager as of the date hereof, as of the date of the commencement of the Offer (such date being hereinafter referred to as the Representation Date) and as of the Expiration Date (as defined below) that: |
i. | The Fund meets the requirements for use of Form N-2 under the Securities Act and the Investment Company Act and the Rules and Regulations. At the time the Registration Statement became or becomes effective, the Registration Statement did or will contain all statements required to be stated therein in accordance with and did or will comply in all material respects with the requirements of the Securities Act, the Investment Company Act and the Rules and Regulations and did not or will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. From the time the Registration Statement became or becomes effective through the expiration date of the Offer set forth in the Prospectus, as it may be extended as provided in the Prospectus (the Expiration Date), the Prospectus and the other Offering Materials will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement, Prospectus or other Offering Materials made in reliance upon and in conformity with information relating to the Dealer Manager furnished to the Fund in writing by the Dealer Manager expressly for use in the Registration Statement, Prospectus or other Offering Materials. |
ii. | The Fund has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of |
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Maryland, has full corporate power and authority to conduct its business as described in the Registration Statement and the Prospectus, currently maintains all governmental licenses, permits, consents, orders, approvals, and other authorizations (collectively, the Licenses and Permits) necessary to carry on its business as contemplated in the Prospectus, and is duly qualified to do business in each jurisdiction wherein it owns or leases real property or in which the conduct of its business requires such qualification, except where the failure to obtain or maintain such Licenses and Permits or to be so qualified does not involve a material adverse effect upon the Funds business, properties, prospects, financial position or results of operations. The Fund has no subsidiaries. |
iii. | The Fund is duly registered with the Commission under the Investment Company Act as a closed-end, non-diversified management investment company, no order of suspension or revocation of such registration has been issued or proceedings therefor initiated or, to the best of its knowledge, threatened by the Commission, all required action has been taken under the Securities Act and the Investment Company Act to make the public offering and to consummate the issuance of the Rights and the issuance and sale of the Shares by the Fund upon exercise of the Rights, and the provisions of the Funds charter and bylaws comply as to form in all material respects with the requirements of the Investment Company Act and the Rules and Regulations. |
iv. | [PricewaterhouseCoopers LLP], the accounting firm that certified the financial statements of the Fund set forth or incorporated by reference in the Registration Statement and the Prospectus, is an independent registered public accounting firm as required by the Investment Company Act and the Rules and Regulations. |
v. | The financial statements of the Fund set forth or incorporated by reference in the Registration Statement and the Prospectus present fairly in all material respects the financial condition of the Fund as of the dates or for the periods indicated in conformity with U.S. generally accepted accounting principles applied on a consistent basis; and the information set forth in the Prospectus |
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under the headings Fund expenses and Financial highlights presents fairly in all material respects the information stated therein. |
vi. | The Fund has an authorized and outstanding capitalization as set forth in the Prospectus; the outstanding Common Shares have been duly authorized and are validly issued, fully paid and non-assessable and conform in all material respects to the description thereof in the Prospectus under the heading The FundDescription of common stock; the Rights have been duly authorized by all requisite action on the part of the Fund for issuance pursuant to the Offer; the Shares have been duly authorized by all requisite action on the part of the Fund for issuance and sale pursuant to the terms of the Offer and, when issued and delivered by the Fund pursuant to the terms of the Offer against payment of the consideration set forth in the Prospectus, will be validly issued, fully paid and non-assessable; the Shares and the Rights conform in all material respects to all statements relating thereto contained in the Registration Statement, the Prospectus and the other Offering Materials; and the issuance of each of the Rights and the Shares is not subject to any preemptive rights. |
vii. | Except as set forth in the Prospectus, subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, (A) the Fund has not incurred any liabilities or obligations, direct or contingent, or entered into any transactions, other than in the ordinary course of business, that are material to the Fund and (B) there has not been any material change in the Common Shares or long-term debt of the Fund, or any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or other), business prospects, net worth or results of operations of the Fund (it being understood that minor fluctuations in the Funds net asset value due to investment activities in the ordinary course of business and changes in the market price per share of the Common Shares and discount or premium of such market price per share to net asset value per share are not material adverse changes). |
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viii. | Each of this dealer manager agreement (the Dealer Manager Agreement); the Subscription Agency Agreement (the Subscription Agency Agreement) dated as of [ ], 2007 between the Fund and [American Stock Transfer & Trust Company] (the Subscription Agent); the Information Agent Agreement (the Information Agent Agreement) dated as of [ ], 2007 between the Fund and [Georgeson Shareholder Communications Inc.] (the Information Agent); the Amended and Restated Investment Advisory and Management Agreement dated as of April 28, 2003 between the Fund and the Investment Adviser (the Investment Advisory Agreement), the Amended and Restated Custody Agreement dated as of March 14, 2006 between the Fund and BBVA Bancomer Servicios, S.A., the Custody Agreement dated as of April 5, 2000 between the Fund and Comerica Bank (together, the Custody Agreements), and the Foreign Custody Delegation Agreement dated as of June 13, 2000 between the Fund and the Investment Adviser (the Foreign Custody Delegation Agreement) (the Custody Agreements and the Foreign Custody Delegation Agreement being referred to herein collectively as the Custodian Agreement); the Amended and Restated Administrative Services Agreement dated as of March 8, 2006 between the Fund and Impulsora del Fondo Mexico, S.C. (the Administration Agreement); the Dividend Reinvestment Plan Transfer Agency and Registrar Agreement dated as of June 23, 1993 between the Fund and American Stock Transfer & Trust Company (the Dividend Reinvestment Plan Transfer Agency Agreement); the Standstill Agreement dated March 7, 2002 between Registrant and Laxey Partners Limited; and the Service Agreement dated as of March 8, 2006 between the Fund and Dechert LLP (the Service Agreement) (collectively, all the foregoing are referred to herein as the Fund Agreements), has been duly authorized, executed and delivered by the Fund; each of the Fund Agreements complies with all applicable provisions of the Investment Company Act, the Investment Advisers Act of 1940, as amended (the Advisers Act), and the rules and regulations under such Acts; and, assuming due authorization, execution and delivery by the other parties thereto, each of the Fund Agreements constitutes a legal, valid, binding and enforceable obligation of the Fund, subject to the qualification that the enforceability |
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of the Funds obligations thereunder may be limited by the Mexican law of Concurso Mercantil, by U.S. bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). |
ix. | Neither the issuance of the Rights, nor the issuance and sale of the Shares pursuant to the exercise of the Rights, nor the execution, delivery, performance and consummation by the Fund of any other of the transactions contemplated in the Fund Agreements, nor the consummation of the transactions contemplated in this Dealer Manager Agreement or in the Registration Statement nor the fulfillment of the terms hereof or thereof will conflict with or violate the charter, bylaws or similar organizational documents of the Fund, or conflict with, result in a breach or violation of, or constitute a default or an event of default under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Fund under the charter, bylaws or similar organizational documents of the Fund, or the terms and provisions of any agreement, indenture, mortgage, loan agreement, note, insurance or surety agreement, lease or other instrument to which the Fund is a party or by which it may be bound or to which any of the property or assets of the Fund is subject, nor will such action result in any violation of any order, law, rule or regulation of any court or governmental agency or body having jurisdiction over the Fund or any of its properties. |
x. | Except as set forth in the Registration Statement, there is no pending or, to the knowledge of the Fund, threatened action, suit or proceeding affecting the Fund or to which the Fund is a party before or by any court or governmental agency, authority or body or any arbitrator which might result in any material adverse change in the condition (financial or other), business prospects, net worth or results of operations of the Fund, or which might materially and adversely affect the properties or assets thereof, of a character required to be disclosed in the Registration Statement or the Prospectus. |
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xi. | There are no franchises, contracts or other documents of the Fund required to be described in the Registration Statement or the Prospectus or to be filed or incorporated by reference as exhibits which are not described or filed or incorporated by reference therein as permitted by the Securities Act, the Investment Company Act or the Rules and Regulations. |
xii. | No consent, approval, authorization, notification or order of, or filing with, any court or governmental agency or body is required for the consummation by the Fund of the transactions contemplated by this Dealer Manager Agreement or the Registration Statement, except such as have been obtained, or if the Registration Statement filed with respect to the Shares is not effective under the Securities Act as of the time of execution hereof, such as may be required (and shall be obtained prior to commencement of the Offer) under the Investment Company Act, the Securities Act and the Securities Exchange Act of 1934, as amended (the Exchange Act). |
xiii. | The Common Shares have been duly listed on the NYSE and prior to their issuance the Shares and the Rights will have been duly approved for listing, subject to official notice of issuance, on the NYSE. |
xiv. | The Fund (A) has not taken, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Fund to facilitate the issuance of the Rights or the sale or resale of the Rights and the Shares, (B) has not since the filing of the Registration Statement sold, bid for or purchased, or paid anyone any compensation for soliciting purchases of, Common Shares of the Fund (except for the solicitation of exercises of the Rights pursuant to this Dealer Manager Agreement) and (C) will not, until the later of the expiration of the Rights or the completion of the distribution (within the meaning of the anti-manipulation rules under the Exchange Act) of the Shares, sell, bid for or purchase or pay or agree to pay to any person any compensation for soliciting another to purchase any other securities of the Fund |
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(except for the solicitation of exercises of the Rights pursuant to this Dealer Manager Agreement); provided that any action in connection with the Funds dividend reinvestment plan will not be deemed to be within the terms of this Section 1.a.xiv. |
xv. | The Fund has complied in all previous tax years, except for tax years for which the applicable statute of limitations has expired, and intends to direct the investment of the proceeds of the Offer described in the Registration Statement and the Prospectus in such a manner as to continue to comply, with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the Code), and has qualified and intends to continue to qualify as a regulated investment company under Subchapter M of the Code. |
xvi. | The Fund has complied in the last five years, and intends to direct the investment of the proceeds of the Offer described in the Registration Statement and the Prospectus in such a manner as to continue to comply, with the asset coverage and other applicable requirements of the Investment Company Act. |
b. | The Investment Adviser represents and warrants to, and agrees with, the Dealer Manager as of the date hereof, as of the Representation Date and as of the Expiration Date that: |
i. | The Investment Adviser has been duly incorporated and is validly existing as a corporation under the laws of Mexico, has full power and authority (corporate and other) to own its properties and conduct its business as described in the Registration Statement and the Prospectus, currently maintains all governmental licenses, permits, consents, orders, approvals and other authorizations material to the conduct of its business and necessary to enable the Investment Adviser to continue to supervise investments in securities as contemplated in the Prospectus. |
ii. | The Investment Adviser is duly registered as an investment adviser under the Advisers Act, and is not prohibited by the Advisers Act or the Investment Company Act, or the rules and |
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regulations under such Acts, from acting as investment adviser for the Fund as contemplated in the Prospectus and the Investment Advisory Agreement. |
iii. | Each of this Dealer Manager Agreement, the Investment Advisory Agreement, the Foreign Custody Delegation Agreement and the Administration Agreement (collectively, all the foregoing are referred to herein as the Adviser Agreements) has been duly authorized, executed and delivered by the Investment Adviser, and complies with all applicable provisions of the Investment Company Act, the Advisers Act and the rules and regulations under such Acts, and is, assuming due authorization, execution and delivery by the other parties thereto, a legal, valid, binding and enforceable obligation of the Investment Adviser, subject to the qualification that the enforceability of the Investment Advisers obligations thereunder may be limited by the Mexican law of Concurso Mercantil, by U.S. bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). |
iv. | Neither the execution, delivery, performance and consummation by the Investment Adviser of its obligations under this Dealer Manager Agreement or any other Adviser Agreement nor the consummation of the transactions contemplated herein or therein or in the Registration Statement nor the fulfillment of the terms thereof will conflict with or violate the charter, bylaws or similar organizational documents of the Investment Adviser, or conflict with, result in a breach or violation of, or constitute a default or an event of default under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Investment Adviser under the charter, bylaws or similar organizational document or the terms and provisions of any agreement, indenture, mortgage, loan agreement, note, insurance or surety agreement, lease or other instrument to which the Investment Adviser is a party or by which it may be bound or to which any of the property or assets of the Investment Adviser is subject, nor will such action result in any violation of any order, |
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law, rule or regulation of any court or governmental agency or body having jurisdiction over the Investment Adviser or any of its properties. |
v. | There is no pending or, to the best of the Investment Advisers knowledge, threatened action, suit or proceeding affecting the Investment Adviser or to which the Investment Adviser is a party before or by any court or governmental agency, authority or body or any arbitrator which might result in any material adverse change in the Investment Advisers condition (financial or other), business prospects, net worth or results of operations, or which might materially and adversely affect the properties or assets thereof, of a character required to be disclosed in the Registration Statement or Prospectus. |
vi. | No consent, approval, authorization, notification or order of, or filing with, any court or governmental agency or body is required for the consummation by the Investment Adviser of the transactions contemplated by this Dealer Manager Agreement or any other Adviser Agreement. |
vii. | The Investment Adviser (A) has not taken, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Fund to facilitate the issuance of the Rights or the sale or resale of the Rights or the Shares, (B) has not since the filing of the Registration Statement sold, bid for or purchased, or paid anyone any compensation for soliciting purchases of, Common Shares of the Fund (except for the solicitation of exercises of the Rights pursuant to this Dealer Manager Agreement) and (C) will not, until the later of the expiration of the Rights or the completion of the distribution (within the meaning of the anti-manipulation rules under the Exchange Act) of the Shares, sell, bid for or purchase or pay or agree to pay any person any compensation for soliciting another to purchase any other securities of the Fund (except for the solicitation of exercises of the Rights pursuant to this Dealer Manager Agreement); provided that any action in connection with the Funds dividend reinvestment plan will not be deemed to be within the terms of this Section 1.b.vii. |
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viii. | Except as set forth in the Prospectus, to the best of the Investment Advisers knowledge, there is no pending or threatened action, suit or proceeding affecting the Fund or to which the Fund is a party before or by any court or governmental agency, authority or body or any arbitrator which might result in any material adverse change in the condition (financial or other), business prospects, net worth or results of operations of the Fund, or which might materially and adversely affect the properties or assets thereof, of a character required to be disclosed in the Registration Statement or the Prospectus. |
ix. | To the best of the Investment Advisers knowledge, neither the issuance of the Rights, nor the issuance and sale of the Shares pursuant to the exercise of the Rights, nor the execution, delivery, performance and consummation by the Fund of the transactions contemplated in the Registration Statement will (A) result in any violation of any order, law, rule or regulation of any court or governmental agency or body having jurisdiction over the Fund or any of its properties, except, in each case, for such violations, defaults, conflicts or breaches that would not have, individually or in the aggregate, a material adverse effect on the Fund, or (B) require the consent, approval, authorization, notification or order of, or filing with, any court or governmental agency or body for the consummation by the Fund of the transactions contemplated by the Registration Statement, except such as have been obtained. |
x. | To the best of the Investment Advisers knowledge, the Fund currently maintains all Licenses and Permits necessary to carry on its business as contemplated in the Prospectus, and is duly qualified to do business in each jurisdiction wherein it owns or leases real property or in which the conduct of its business requires such qualification, except where the failure to obtain or maintain such Licenses and Permits or to be so qualified does not involve a material adverse effect upon the Funds business, properties, financial position or results of operations, except for such licenses, permits, consents, orders or approvals and other |
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authorizations which the failure to obtain would not have, individually or in the aggregate, a material adverse effect on the Fund. |
xi. | The Investment Adviser intends to direct the investment of the proceeds of the Offer described in the Registration Statement and the Prospectus in such a manner as to cause the Fund to comply with the requirements of Subchapter M of the Code. |
c. | Any certificate required by this Dealer Manager Agreement that is signed by any officer of the Fund on behalf of the Fund or any officer of the Investment Adviser on behalf of the Investment Adviser and delivered to the Dealer Manager or counsel for the Dealer Manager shall be deemed a representation and warranty by the Fund or the Investment Adviser, as the case may be, to the Dealer Manager, as to the matters covered thereby. |
2. | Agreement to Act as Dealer Manager. |
a. | On the basis of the representations and warranties contained herein, and subject to the terms and conditions of the Offer: |
i. | The Fund hereby appoints the Dealer Manager to solicit the exercise of Rights and authorizes the Dealer Manager to sell Shares purchased by the Dealer Manager from the Fund through the exercise of Rights as described herein; the Fund hereby authorizes the Dealer Manager to form and manage a group of selling broker-dealers (each a Selling Group Member and collectively the Selling Group) that enter into a Selling Group Agreement with the Dealer Manager in the form attached hereto as Exhibit A to solicit the exercise of Rights and to sell Shares purchased by the Selling Group Member from the Dealer Manager as described herein; and the Fund hereby authorizes other soliciting broker-dealers (each a Soliciting Dealer and collectively the Soliciting Dealers) that enter into a Soliciting Dealer Agreement with the Dealer Manager in the form attached hereto as Exhibit B to solicit the exercise of Rights. The Dealer Manager hereby agrees to solicit the exercise of Rights in accordance |
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with its customary practice subject to the terms and conditions of this Dealer Manager Agreement, the procedures described in the Registration Statement, the Prospectus and, where applicable, the terms and conditions of such Selling Group Agreement or Soliciting Dealer Agreement; and the Dealer Manager hereby agrees to form and manage the Selling Group to solicit the exercise of Rights and to sell Shares to the Selling Group purchased by the Dealer Manager from the Fund through the exercise of Rights as described herein in accordance with its customary practice subject to the terms and conditions of this Dealer Manager Agreement, the procedures described in the Registration Statement, the Prospectus and, where applicable, the terms and conditions of the Selling Group Agreement. |
ii. | The Fund hereby authorizes the Dealer Manager to buy and exercise Rights, including unexercised Rights delivered to the Subscription Agent for resale and Rights of Foreign Stockholders (as defined in the Prospectus) held by the Subscription Agent for which no instructions are received, on the terms and conditions set forth in the Prospectus, and to sell Shares to the public or to Selling Group Members at the offering price set by the Dealer Manager from time to time. Sales of Shares by the Dealer Manager or Selling Group Members shall not be at a price higher than the offering price set by the Dealer Manager from time to time. |
b. | To the extent permitted by applicable law, the Fund agrees to furnish, or cause to be furnished, to the Dealer Manager, lists, or copies of those lists, showing the names and addresses of, and number of Common Shares held by, Record Date Stockholders as of the Record Date, and the Dealer Manager agrees to use such information only in connection with the Offer, and not to furnish the information to any other person except for securities brokers and dealers that have been requested by the Dealer Manager to solicit exercises of Rights. |
c. | The Dealer Manager agrees to provide to the Fund, in addition to the services described in Section 2.a., financial structuring and marketing services in connection with the Offer. Each of the Fund and the Investment Adviser and the Dealer Manger agree that they are each responsible for making their own independent judgments with respect to the Offer and that any opinions or views expressed by the Dealer Manager to the Fund or the Investment Adviser regarding such transactions, including, but not limited to, any opinions or views with respect to the price or market for the Funds securities, do not constitute advice or recommendations to the Fund or the Investment Adviser. No fee, other than the fees provided for in Section 3 of this Dealer Manager Agreement and the |
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reimbursement of the Dealer Managers out-of-pocket expenses as described in Section 5 of this Dealer Manager Agreement, will be payable by the Fund, or any other party hereto, to the Dealer Manager in connection with the financial structuring and marketing services provided by the Dealer Manager pursuant to this Section 2.c. |
d. | The Fund and the Dealer Manager agree that the Dealer Manager is an independent contractor with respect to the solicitation of the exercise of Rights and the performance of financial structuring and marketing services for the Fund contemplated by this Dealer Manager Agreement. The Fund and the Investment Adviser further acknowledge that the Dealer Manager is acting pursuant to a contractual relationship created solely by this Agreement, entered into on an arms length basis, and in no event do the parties intend that the Dealer Manger act or be responsible as a fiduciary to the Fund or the Investment Adviser or their respective managements, stockholders or creditors or any other person in connection with any activity that the Dealer Manager may undertake or have undertaken in furtherance of the Rights Offering, including any purchase and sale of the Shares, either before or after the date hereof. The Dealer Manager hereby expressly disclaims any fiduciary or similar obligations to the Fund or the Investment Adviser, either in connection with the transactions contemplated by this Agreement or any matters leading up to such transactions, and the Fund and the Investment Adviser each hereby confirms its understanding and agreement to that effect. |
e. | In rendering the services contemplated by this Dealer Manager Agreement, the Dealer Manager will not be subject to any liability to the Fund or the Investment Adviser or any of their affiliates, for any act or omission on the part of any soliciting broker or dealer (except with respect to the Dealer Manager acting in such capacity) or any other person, and the Dealer Manager will not be liable for acts or omissions in performing its obligations under this Dealer Manager Agreement, except for any losses, claims, damages, liabilities and expenses that are finally judicially determined to have resulted primarily from the bad faith, willful misconduct or gross negligence of the Dealer Manager or by reason of the reckless disregard of the obligations and duties of the Dealer Manager under this Dealer Manager Agreement. |
3. | Dealer Manager Fees. In full payment for the financial advisory, marketing and soliciting services rendered and to be rendered hereunder by the Dealer Manager, the Fund agrees to pay the Dealer Manager a fee (the Dealer Manager Fee) equal to [ ]% of the aggregate Subscription Price for the Shares issued pursuant to the exercise of Rights and the Over-Subscription Privilege. In full payment for the soliciting efforts to be rendered, the Dealer Manager agrees to reallow selling fees (the Selling Fees) to Selling Group Members equal to [ ]% of the Subscription Price per Share for each Share issued pursuant to either (a) the exercise of Rights and the Over-Subscription Privilege where such Selling Group Member is so designated on the subscription form or (b) the purchase for resale from the Dealer Manager in accordance with the Selling Group Agreement. In full payment for the soliciting efforts to be rendered, the Dealer Manager agrees to reallow soliciting fees (the Soliciting Fees) to Soliciting Dealers equal to [ ]% of the Subscription Price per Share for each Share issued pursuant to the exercise of Rights and the Over-Subscription |
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Privilege where such Soliciting Dealer is so designated on the subscription form, subject to a maximum fee based on the number of Common Shares held by such Soliciting Dealer through The Depository Trust Company (DTC) on the Record Date. The Dealer Manager agrees to pay the Selling Fees or Soliciting Fees, as the case may be, to the broker-dealer designated on the applicable portion of the form used by the holder to exercise Rights and the Over-Subscription Privilege, and if no broker-dealer is so designated or a broker-dealer is otherwise not entitled to receive compensation pursuant to the terms of the Selling Group Agreement or Soliciting Dealer Agreement, then the Dealer Manager shall retain such Selling Fee or Soliciting Fee for Shares issued pursuant to the exercise of Rights and the Over-Subscription Privilege. Payment to the Dealer Manager by the Fund will be in the form of a wire transfer of same day funds to an account or accounts identified by the Dealer Manager. Such payment will be made on each date on which the Fund issues Shares after the Expiration Date. Payment to a Selling Group Member or Soliciting Dealer will be made by the Dealer Manager directly to such Selling Group Member or Soliciting Dealer by check to an address identified by such broker-dealer. Such payments shall be made on or before the tenth business day following the day the Fund issues Shares after the Expiration Date. |
4. | Other Agreements. |
a. | The Fund covenants with the Dealer Manager as follows: |
i. | The Fund will use its best efforts to cause the Registration Statement to become effective and maintain its effectiveness under the Securities Act, and will advise the Dealer Manager promptly as to the time at which the Registration Statement and any amendments thereto (including any post-effective amendment) becomes so effective. |
ii. | The Fund will notify, and confirm the notice in writing to, the Dealer Manager immediately (A) of the effectiveness of the Registration Statement and any amendment thereto (including any post-effective amendment), (B) of the receipt of any comments from the Commission, (C) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional |
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information, (D) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose and (E) of the receipt of any written notice regarding the suspension of the qualification of the Shares or the Rights for offering or sale in any jurisdiction. The Fund will make every reasonable effort to prevent the issuance of any stop order described in subsection (D) hereunder and, if any such stop order is issued, to obtain the lifting thereof at the earliest possible moment. |
iii. | The Fund will give the Dealer Manager notice of its intention to file any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Fund proposes for use by the Dealer Manager in connection with the Offer, which differs from the prospectus on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 497(c), (e) or (h) of the Rules and Regulations), whether pursuant to the Investment Company Act, the Securities Act, or otherwise, and will furnish the Dealer Manager with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement to which the Dealer Manager or counsel for the Dealer Manager shall reasonably object. |
iv. | The Fund will, without charge, deliver to the Dealer Manager, as soon as practicable, the number of copies (one of which is manually executed) of the Registration Statement as originally filed and of each amendment thereto as it may reasonably request, in each case with the exhibits filed therewith. |
v. | The Fund will, without charge, furnish to the Dealer Manager, from time to time during the period when the Prospectus is required to be delivered under the Securities Act, such number of copies of the Prospectus (as amended or supplemented) as the Dealer Manager may reasonably request for the purposes contemplated by the Securities Act or the Rules and Regulations. |
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vi. | If any event shall occur as a result of which it is necessary, in the reasonable opinion of counsel for the Dealer Manager, to amend or supplement the Registration Statement or the Prospectus (or the other Offering Materials) to make the Prospectus (or such other Offering Materials) not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time the Prospectus (or such other Offering Materials) is delivered to a Record Date Stockholder, the Fund will forthwith amend or supplement the Prospectus by preparing and filing with the Commission (and furnishing to the Dealer Manager a reasonable number of copies of) an amendment or amendments of the Registration Statement or an amendment or amendments of or a supplement or supplements to the Prospectus (in form and substance reasonably satisfactory to counsel for the Dealer Manager), at the Funds expense, which will amend or supplement the Registration Statement or the Prospectus (or otherwise will amend or supplement such other Offering Materials) so that the Prospectus (or such other Offering Materials) will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus (or such other Offering Materials) is delivered to a Record Date Stockholder, not misleading. |
vii. | The Fund will endeavor, in cooperation with the Dealer Manager and its counsel, to confirm that the Rights and the Shares are not required to be qualified for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Dealer Manager may designate. |
viii. | The Fund will make generally available to its security holders as soon as practicable, but no later than 60 days after the end of the Funds fiscal semi-annual or fiscal year-end period covered thereby, an earnings statement (which need not be audited) (in form complying with the provisions of Rule 158 of the Rules and Regulations of the Securities Act) covering a twelve-month |
18
period beginning not later than the first day of the Funds fiscal semi-annual period next following the effective date (as defined in said Rule 158) of the Registration Statement. |
ix. | For a period of 180 days from the date of this Dealer Manager Agreement, the Fund will not, without the prior consent of the Dealer Manager, offer or sell, or enter into any agreement to sell, any equity or equity related securities of the Fund or securities convertible into such securities, other than the Rights and the Shares and the Common Shares issued in reinvestment of dividends or distributions. |
x. | The Fund will use the net proceeds from the Offer as set forth under Use of proceeds in the Prospectus. |
xi. | The Fund will use its best efforts to cause the Rights and the Shares to be duly authorized for listing by the NYSE, subject to official notice of issuance, prior to the time the Rights are issued. |
xii. | The Fund will use its best efforts to maintain its qualification as a regulated investment company under Subchapter M of the Code. |
xiii. | The Fund will apply the net proceeds from the Offer in such a manner as to continue to comply with the requirements of the Prospectus and the Investment Company Act. |
xiv. | The Fund will (or cause the Subscription Agent to) (A) advise the Dealer Manager and, only where specifically noted, each Selling Group Member who specifically requests, from day to day during the period of, and promptly after the termination of, the Offer, as to the names and addresses of all Record Date Stockholders exercising Rights, the total number of Rights exercised by each Record Date Stockholder during the immediately preceding day, indicating the total number of Rights verified to be in proper form for exercise, rejected for exercise and being processed and, for the Dealer Manager and each Selling Group Member, the number of Rights exercised on subscription certificates indicating the Dealer Manager or such Selling Group Member, as the case may be, as the broker-dealer with respect to |
19
such exercise, and as to such other information as the Dealer Manager may reasonably request; and will notify the Dealer Manager and each Selling Group Member, not later than 5:00 P.M., New York City time, on the first business day following the Expiration Date, of the total number of Rights exercised and Shares related thereto, the total number of Rights verified to be in proper form for exercise, rejected for exercise and being processed and, for the Dealer Manager and each Selling Group Member, the number of Rights exercised on subscription certificates indicating the Dealer Manager or such Selling Group Member, as the case may be, as the broker-dealer with respect to such exercise, and as to such other information as the Dealer Manager may reasonably request; (B) sell any Rights received for resale from Record Date Stockholders exclusively to or through the Dealer Manager, which may, at its election, purchase such Rights as principal or act as agent for the resale thereof; and (C) issue Shares upon the Dealer Managers exercise of Rights no later than the close of business on the business day following the day that full payment for such Shares has been received by the Subscription Agent. |
b. | Neither the Fund nor the Investment Adviser will take, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Fund to facilitate the issuance of the Rights or the sale or resale of the Rights or the Shares; provided that any action in connection with the Funds dividend reinvestment plan will not be deemed to be within the meaning of this Section 4.b. |
5. | Payment of Expenses. |
a. | The Fund will pay all expenses incident to the performance of its obligations under this Dealer Manager Agreement, including, but not limited to, (i) expenses relating to the printing and filing of the Registration Statement as originally filed and of each amendment thereto, (ii) expenses relating to the preparation, issuance and delivery of the certificates for the Shares and subscription certificates relating to the Rights, (iii) the fees and disbursements of the Funds counsel (including the fees |
20
and disbursements of local counsel) and accountants, (iv) expenses relating to the qualification of the Rights and the Shares under securities laws in accordance with the provisions of Section 4.a.vii. of this Dealer Manager Agreement, including filing fees, (v) expenses relating to the printing or other production and delivery to the Dealer Manager of copies of the Registration Statement as originally filed and of each amendment thereto and of the Prospectus and any amendments or supplements thereto, (vi) the fees and expenses incurred with respect to filing with the National Association of Securities Dealers, Inc., including the fees and disbursements of the Dealer Managers counsel with respect thereto, (vii) the fees and expenses incurred in connection with the listing of the Shares on the NYSE, (viii) expenses relating to the printing of, or other production, mailing and delivery expenses incurred in connection with, Offering Materials and (ix) the fees and expenses incurred with respect to the Subscription Agent and the Information Agent. |
b. | In addition to any fees that may be payable to the Dealer Manager under this Agreement, the Fund agrees to reimburse the Dealer Manager upon request made and invoices submitted from time to time for a portion of its expenses incurred in connection with its activities under this Agreement, including the fees and disbursements of its legal counsel (excluding fees and expenses pursuant to Section 5.a.iv which are to be paid directly by the Fund), upon proper presentation of documentation therefor, in an amount not to exceed $100,000. |
c. | If this Dealer Manager Agreement is terminated by the Dealer Manager in accordance with the provisions of Section 6 or Section 9.a., the Fund agrees to reimburse the Dealer Manager for all of its reasonable out-of-pocket expenses incurred in connection with its performance hereunder, including the reasonable fees and disbursements of counsel for the Dealer Manager. In the event the transactions contemplated hereunder are not consummated, the Fund agrees to pay all of the costs and expenses set forth in paragraphs 5.a. and 5.b. which the Fund would have paid if such transactions had been consummated. |
6. | Conditions of the Dealer Managers Obligations. The obligations of the Dealer Manager hereunder (including any obligation to pay for Shares issuable upon exercise of Rights by the Dealer Manager) are subject to the accuracy of the |
21
respective representations and warranties of the Fund and the Investment Adviser contained herein, to the performance by the Fund and the Investment Adviser of their respective obligations hereunder, and to the following further conditions: |
a. | The Registration Statement shall have become effective not later than 5:30 P.M., New York City time, on the Record Date, or at such later time and date as may be approved by the Dealer Manager; the Prospectus and any amendment or supplement thereto shall have been filed with the Commission in the manner and within the time period required by Rule 497(c), (e), (h) or (j), as the case may be, under the Securities Act; no stop order suspending the effectiveness of the Registration Statement or any amendment thereto shall have been issued, and no proceedings for that purpose shall have been instituted or threatened or, to the knowledge of the Fund, the Investment Adviser or the Dealer Manager, shall be contemplated by the Commission; and the Fund shall have complied with any request of the Commission for additional information (to be included in the Registration Statement, the Prospectus or otherwise). |
b. | On the Representation Date and the Expiration Date, the Dealer Manager shall have received: |
i. | The favorable opinions, dated the Representation Date and the Expiration Date, of Dechert LLP, counsel for the Fund, in form and substance satisfactory to counsel for the Dealer Manager, to the effect that: |
(1) | The Fund is a corporation duly incorporated and existing under and by virtue of the laws of the State of Maryland and is in good standing with the State Department of Assessments and Taxation, has full corporate power to conduct its business as described in the Registration Statement and the Prospectus, and does not own or lease real property or conduct business in any other jurisdiction. |
(2) | The Fund is registered with the Commission under the Investment Company Act as a closed-end, non-diversified |
22
management investment company; to the best of such counsels knowledge after reasonable inquiry, no order of suspension or revocation of such registration has been issued or proceedings therefor initiated or threatened by the Commission; all required action has been taken by the Fund under the Securities Act and the Investment Company Act to make the public offering and consummate the issuance of the Rights and the issuance and sale of the Shares upon exercise of the Rights; and the provisions of the Funds charter and bylaws do not conflict with the requirements of the Investment Company Act and the Rules and Regulations. |
(3) | The number of shares of authorized and issued and outstanding stock of the Fund is as set forth in the Prospectus; the outstanding Common Shares have been duly authorized and are validly issued, fully paid and non-assessable and conform as to legal matters in all material respects to the description thereof in the Prospectus under the heading The FundDescription of common stock; the issuance of the Rights has been duly authorized; the sale and issuance of the Shares upon the exercise of the Rights have been duly authorized and, when issued and delivered by the Fund against payment of the consideration as set forth in the resolutions of the Board of Directors of the Fund authorizing the sale and issuance of the Shares and the Prospectus, the Shares will be validly issued, fully paid and non-assessable; the Rights and the Shares conform as to legal matters in all material respects to all statements relating thereto contained in the Registration Statement, the Prospectus and the other Offering Materials; and the issuance of the Rights and the sale and issuance of the Shares upon the exercise of Rights are not subject to any preemptive or similar rights under the Maryland General Corporation Law, the charter or the bylaws. |
(4) | Each of the Fund Agreements has been duly authorized, executed and delivered by the Fund; each of the Fund |
23
Agreements complies with all applicable provisions of the Investment Company Act, the Advisers Act and the rules and regulations under such Acts; and, assuming due authorization, execution and delivery by the other parties thereto, each of the Fund Agreements constitutes a legal, valid and legally binding obligation of the Fund enforceable in accordance with its terms, subject to the qualification that the enforceability of the Funds obligations thereunder may be limited by the Mexican law of Concurso Mercantil, by U.S. bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). |
(5) | Neither the issuance of the Rights, nor the issuance and sale of the Shares upon exercise of the Rights, nor the execution, delivery, performance and consummation by the Fund of any other of the transactions contemplated in this Dealer Manager Agreement or, to the extent relevant to the Rights or the Shares, in the Fund Agreements, nor the consummation of the transactions contemplated herein or therein or in the Registration Statement nor the fulfillment of the terms thereof will conflict with or violate the charter, bylaws or similar organizational documents of the Fund, or will result in a breach or violation of, or constitute a default or an event of default under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Fund under the charter, bylaws or similar organizational documents of the Fund, the terms and provisions of any agreement, indenture, mortgage, loan agreement, note, insurance or surety agreement, lease or other instrument, known to such counsel after reasonable inquiry, to which the Fund is a party or by which it may be bound or to which any of the property or assets of the Fund is subject, nor will such action by the Fund result in any material violation of any order, law, rule or regulation of any U.S. |
24
federal, New York or Maryland state court or governmental agency or body having jurisdiction over the Fund or any of its properties or any published rule or regulation of the Maryland General Corporation Law; provided, however, that solely for purposes of this paragraph (5) and not for purposes of the opinions expressed in other paragraphs, such counsel need express no opinion with respect to the antifraud provisions of Federal securities laws, state securities laws, laws governing fiduciary relationships, fraudulent transfer laws, antitrust laws, the Employee Retirement Income Security Act of 1974 or laws governing the solicitation of deposits and provided, further, that insofar as performance by the Fund of its obligations under this Dealer Manager Agreement and the Fund Agreements is concerned, such counsel need express no opinion as to the Mexican law of Concurso Mercantil and to U.S. bankruptcy, insolvency, reorganization, moratorium, and similar laws of general applicability relating to or affecting creditors rights. |
(6) | To the best of such counsels knowledge after reasonable inquiry, there is no pending or threatened action, suit or proceeding affecting the Fund or to which the Fund is a party before or by any court or governmental agency, authority or body or any arbitrator which might result in any material adverse change in the condition (financial or other), business prospects, net worth or results of operations of the Fund, or which might materially and adversely affect the properties or assets thereof of a character required to be disclosed in the Registration Statement or the Prospectus. |
(7) | There are no franchises, contracts or other documents of the Fund, to the best of such counsels knowledge after reasonable inquiry, required to be described in the Registration Statement or the Prospectus or to be filed or incorporated by reference as exhibits which are not described or filed or incorporated by reference therein as permitted by the Securities Act, the Investment Company Act or the Rules and Regulations. |
25
(8) | No consent, approval, authorization, notification or order of, or filing with, any U.S. federal, New York or Maryland state court or governmental agency or body pursuant to those laws, rules and regulations which are normally applicable to transactions of the type contemplated by the Fund Agreements is required for the consummation by the Fund of the transactions contemplated by the Fund Agreements or the Registration Statement, except (A) such as have been obtained and (B) such as may be required under the blue sky laws of any jurisdiction in connection with the transactions contemplated hereby. |
(9) | The Common Shares have been duly listed on the NYSE and the Shares and the Rights have been duly approved for listing, subject to official notice of issuance, on the NYSE. |
(10) | The Registration Statement is effective under the Securities Act; any required filing of the Prospectus or any supplement thereto pursuant to Rule 497(c), (e), (h) or (j) required to be made prior to the date hereof has been made in the manner and within the time period required by Rule 497(c), (e), (h) or (j), as the case may be; no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been instituted or threatened; and the Registration Statement, the Prospectus and each amendment thereof or supplement thereto (other than the financial statements, schedules, the notes thereto and the schedules and other financial or statistical data contained or incorporated by reference therein or omitted therefrom, as to which such counsel need express no opinion) as of their respective effective or issue dates complied as to form and appear on their face to be appropriately responsive in all material respects with the applicable requirements of the Securities Act and the Investment Company Act and the Rules and Regulations. |
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(11) | The statements in the Prospectus under the headings The offerFederal income tax consequences of the offer and Taxation fairly present the information disclosed therein in all material respects. |
In rendering such opinion, such counsel may rely as to matters of Maryland law on the opinion of Venable LLP and as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Fund and public officials.
Such counsel shall also have stated that, while they have not themselves checked the accuracy and completeness of or otherwise verified, and are not passing upon and assume no responsibility for the accuracy or completeness of, the statements contained in the Registration Statement or the Prospectus, in the course of their review and discussion of the contents of the Registration Statement and Prospectus with certain officers and employees of the Fund and its independent accountants, no facts have come to their attention which cause them to believe that the Registration Statement, on the date it became effective, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements contained therein not misleading or that the Prospectus, as of its date and on the Representation Date or the Expiration Date, as the case may be, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (except that such counsel need not express any statement or belief with respect to the financial statements, schedules or other financial or statistical data included or incorporated by reference in the Registration Statement or the Prospectus) .
ii. | The favorable opinions, dated the Representation Date and the Expiration Date, of Creel, García-Cuéllar y Müggenburg, S.C., counsel for the Investment Adviser, in form and substance satisfactory |
27
to counsel for the Dealer Manager to the effect that: |
(1) | The Investment Adviser has been duly incorporated and is validly existing as a corporation under the laws of Mexico, has full corporate power and authority to own its properties and conduct its business as described in the Registration Statement and the Prospectus, and currently maintains all governmental licenses, permits, consents, orders, approvals, and other authorizations material to the conduct of its business and necessary to enable the Investment Adviser to continue to supervise investment in securities as contemplated in the Investment Advisory Agreement. |
(2) | The Investment Adviser is registered as an investment adviser under the Advisers Act, and is not prohibited by the Advisers Act or the Investment Company Act, or the rules and regulations under such Acts, from acting as investment adviser for the Fund as contemplated in the Investment Advisory Agreement. |
(3) | Each of the Adviser Agreements has been duly authorized, executed and delivered by the Investment Adviser and complies with all applicable provisions of the Investment Company Act, the Advisers Act and the rules and regulations under such Acts, and is, assuming due authorization, execution and delivery by the other parties thereto, a legal, valid and legally binding obligation of the Investment Adviser enforceable in accordance with its terms, subject to the qualification that the enforceability of the Investment Advisers obligations thereunder may be limited by the Mexican law of Concurso Mercantil, by U.S. bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). |
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(4) | The execution, delivery, performance and consummation by the Investment Adviser of its obligations under this Dealer Manager Agreement or any of the Adviser Agreements will not materially conflict with or materially violate the charter, bylaws or similar organizational documents of the Investment Adviser, or materially conflict with, result in a material breach or violation of, or constitute a material default under, or result in the creation or imposition of any material lien, charge or encumbrance upon any properties or assets of the Investment Adviser under the charter, bylaws or similar organizational documents of the Investment Adviser or the terms and provisions of any material agreement, indenture, mortgage, loan agreement, note, insurance or surety agreement, lease or other instrument, known to such counsel after reasonable inquiry, to which the Investment Adviser is a party or by which it may be bound or to which any of the property or assets of the Investment Adviser is subject, nor will such action result in any material violation of any U.S. federal or Mexican law; provided, however, that solely for purposes of this paragraph (4) and not for purposes of the opinions expressed in other paragraphs, such counsel need express no opinion with respect to the antifraud provisions of the Federal securities laws, state securities laws, laws governing fiduciary relationships, fraudulent transfer laws, antitrust laws, the Employee Retirement Income Security Act of 1974 or laws governing the solicitation of deposits; and provided, further, that in so far as performance by the Investment Adviser of its obligations under this Dealer Manager Agreement and the Investment Advisory Agreement is concerned, such counsel need express no opinion as to the Mexican law of Concurso Mercantil and U.S. bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights. |
(5) | To the best of such counsels knowledge after reasonable inquiry, there is no pending or threatened action, suit or |
29
proceeding affecting the Investment Adviser or to which the Investment Adviser is a party before or by any Mexican, U.S. federal, New York or Maryland court or governmental agency, authority or body or any arbitrator which might result in any material adverse change in the Investment Advisers condition (financial or other), business prospects, net worth or results of operations or which might materially and adversely affect the properties or assets thereof of a character required to be disclosed in the Registration Statement or Prospectus. |
(6) | No consent, approval, authorization, notification or order of or filing with any Mexican court or governmental agency or body pursuant to those laws, rules and regulations which are normally applicable to transactions of the type contemplated by the Adviser Agreements is required for the consummation by the Investment Adviser of the transactions contemplated by the Adviser Agreements. |
In rendering such opinion, such counsel has relied as to matters of Maryland law, with the Dealer Managers consent and without making any investigation with respect thereto, on the opinion of Venable LLP and as to matters of the Investment Company Act, the Advisers Act, the Securities Act and the rules and regulations under such Acts, on the opinion of Dechert LLP pursuant to Section 6.b.i. of this Dealer Manager Agreement, and as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Investment Adviser and public officials.
Such counsel shall also have stated that, while they have not themselves checked the accuracy and completeness of or otherwise verified, and are not passing upon and assume no responsibility for the accuracy or completeness of, the statements contained in the Registration Statement or the Prospectus, in the course of their review and discussion of the contents of the Registration Statement and Prospectus with certain officers and employees of the Investment Adviser and its affiliates, no facts
30
have come to their attention which cause them to believe that the Registration Statement, on the date it became effective, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements contained therein not misleading or that the Prospectus, as of its date and on the Representation Date or the Expiration Date, as the case may be, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (except that such counsel need not express any statement or belief with respect to the financial statements, schedules or other financial or statistical data included or incorporated by reference in the Registration Statement or the Prospectus).
c. | The Dealer Manager shall have received from Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Dealer Manager, such opinion or opinions, dated the Representation Date and the Expiration Date, with respect to the Offer, the Registration Statement, the Prospectus and other related matters as the Dealer Manager may reasonably require, and the Fund shall have furnished to such counsel such documents as they reasonably request for the purpose of enabling them to pass upon such matters. |
d. | The Fund shall have furnished to the Dealer Manager certificates of the Fund, signed on behalf of the Fund by the President of the Fund, dated the Representation Date and the Expiration Date, to the effect that the signer of such certificate carefully examined the Registration Statement and each amendment thereof, the Prospectus and any supplement thereto and this Dealer Manager Agreement and that, to the best of his knowledge: |
i. | the representations and warranties of the Fund in this Dealer Manager Agreement are true and correct in all material respects on and as of the Representation Date or the Expiration Date, as the case may be, with the same effect as if made on the Representation Date or the Expiration Date, as the case may be, and the Fund has complied with all the agreements and satisfied |
31
all the conditions on its part to be performed or satisfied at or prior to the Representation Date or the Expiration Date, as the case may be; |
ii. | no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the Funds knowledge, threatened; and |
iii. | since the date of the most recent balance sheet included or incorporated by reference in the Prospectus, there has been no material adverse change in the condition (financial or other), business prospects, net worth or results of operations of the Fund (it being understood that minor fluctuations in the Funds net asset value due to investment activities in the ordinary course of business and changes in the market price per share of the Common Shares and discount or premium of such market price per share to net asset value per share are not material adverse changes), except as set forth in or contemplated in the Prospectus. |
e. | The Investment Adviser shall have furnished to the Dealer Manager certificates of the Investment Adviser, signed on behalf of the Investment Adviser by the President, dated the Representation Date and the Expiration Date, to the effect that the signer of such certificate carefully examined the Registration Statement and each amendment thereof, the Prospectus and any supplement thereto and this Dealer Manager Agreement and that, to the best of his knowledge, the representations and warranties of the Investment Adviser in this Dealer Manager Agreement are true and correct in all material respects on and as of the Representation Date or the Expiration Date, as the case may be, with the same effect as if made on the Representation Date or the Expiration Date, as the case may be. |
f. | [PricewaterhouseCoopers LLP] shall have furnished to the Dealer Manager letters, dated the Representation Date and the Expiration Date, in form and substance satisfactory to the Dealer Manager, stating in effect that: |
i. | they are an independent registered public accounting firm with respect to the Fund within the meaning of the Securities Act and the applicable Rules and Regulations; |
32
ii. | in their opinion, the audited financial statements examined by them and included or incorporated by reference in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the Investment Company Act and the respective Rules and Regulations with respect to registration statements on Form N-2; |
iii. | they have performed specified procedures, not constituting an audit in accordance with generally accepted auditing standards, including a reading of the latest available unaudited financial information of the Fund, a reading of the minute books of the Fund, and inquiries of officials of the Fund responsible for financial and accounting matters, and on the basis of such inquiries and procedures nothing came to their attention that caused them to believe that at a specified date not more than five business days prior to the Representation Date or the Expiration Date, as the case may be, there was any change in the Common Shares, any decrease in net assets or any increase in long-term debt of the Fund as compared with amounts shown in the most recent statement of assets and liabilities included or incorporated by reference in the Registration Statement, except as the Registration Statement discloses has occurred or may occur, or they shall state any specific changes, increases or decreases; and |
iv. | in addition to the procedures referred to in clause iii. above, they have compared certain dollar amounts (or percentages as derived from such dollar amounts) and other financial information regarding the operations of the Fund appearing in the Registration Statement, which have previously been specified by the Dealer Manager and which shall be specified in such letter, and have found such items to be in agreement with the accounting and financial records of the Fund. |
g. | Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus (excluding an amendment or supplement subsequent to the Representation Date), there shall not |
33
have been (i) any change, increase or decrease specified in the letter or letters referred to in Section 6.f., or (ii) any change, or any development involving a prospective change, in or affecting the condition (financial or other), business prospects, net worth or results of operations of the Fund, the effect of which, in any case referred to in clause (i) or (ii) above, is, in the judgment of the Dealer Manager, so material and adverse as to make it impractical or inadvisable to proceed with the Offer as contemplated by the Registration Statement and the Prospectus. |
h. | Prior to the Representation Date, the Fund shall have furnished to the Dealer Manager such further information, certificates and documents as the Dealer Manager may reasonably request. |
i. | If any of the conditions specified in this Section 6 shall not have been fulfilled in all material respects when and as provided in this Dealer Manager Agreement or waived by the Dealer Manager, or if any of the opinions and certificates mentioned above or elsewhere in this Dealer Manager Agreement shall not be in all material respects satisfactory in form and substance to the Dealer Manager and its counsel, this Dealer Manager Agreement and all obligations of the Dealer Manager hereunder may be canceled at, or at any time prior to, the Expiration Date by the Dealer Manager. Notice of such cancellation shall be given to the Fund in writing or by telephone confirmed in writing. |
7. | Indemnity and Contribution. |
a. | The Fund agrees to indemnify, defend and hold harmless the Dealer Manager, its partners, directors and officers, and any person who controls the Dealer Manager within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and the successors and assigns of all of the foregoing persons, from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) which, jointly or severally, the Dealer Manager or any such person may incur under the Securities Act, the Exchange Act, the Investment Company Act, the Advisers Act, the common law or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment |
34
thereof by the Fund) or in a Prospectus (the term Prospectus for the purpose of this Section 7 being deemed to include any preliminary prospectus, the Offering Materials, the Prospectus and the Prospectus as amended or supplemented by the Fund), or arises out of or is based upon any omission or alleged omission to state a material fact required to be stated in either such Registration Statement or Prospectus or necessary to make the statements made therein (with respect to the Prospectus, in light of the circumstances under which they were made) not misleading, except insofar as any such loss, damage, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in and in conformity with information furnished in writing by or on behalf of the Dealer Manager to the Fund or the Investment Adviser expressly for use with reference to the Dealer Manager in such Registration Statement or such Prospectus. |
If any action, suit or proceeding (together, a Proceeding) is brought against the Dealer Manager or any such person in respect of which indemnity may be sought against the Fund pursuant to the foregoing paragraph, the Dealer Manager or such person shall promptly notify the Fund and the Investment Adviser in writing of the institution of such Proceeding and the Fund shall assume the defense of such Proceeding, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses; provided, however, that the failure to so notify the Fund and the Investment Adviser shall not relieve the Fund from any liability which the Fund may have to the Dealer Manager or any such person or otherwise. The Dealer Manager or such person shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Dealer Manager or of such person unless the employment of such counsel shall have been authorized in writing by the Fund in connection with the defense of such Proceeding or the Fund shall not have, within a reasonable period of time in light of the circumstances, employed counsel to have charge of the defense of such Proceeding or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from, additional to or in conflict with those available to the Fund (in which case the Fund shall not have the right to direct the
35
defense of such Proceeding on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the Fund and paid as incurred (it being understood, however, that the Fund shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel) in any one Proceeding or series of related Proceedings in the same jurisdiction representing the indemnified parties who are parties to such Proceeding). The Fund shall not be liable for any settlement of any such Proceeding effected without its written consent, but if settled with the written consent of the Fund, the Fund agrees to indemnify and hold harmless the Dealer Manager and any such person from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this paragraph, then the indemnifying party agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if (i) such settlement is entered into more than 60 business days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 30 days prior notice of its intention to settle. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened Proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such Proceeding and does not include an admission of fault, culpability or a failure to act, by or on behalf of such indemnified party. |
b. | The Dealer Manager agrees to indemnify, defend and hold harmless the Fund, its directors and officers, and any person who controls the Fund within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and the successors and assigns of all of the foregoing persons, from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) which, jointly or severally, the Fund or any such person may incur under the Securities |
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Act, the Exchange Act, the Investment Company Act, the Advisers Act, the common law or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in and in conformity with information furnished in writing by or on behalf of the Dealer Manager to the Fund expressly for use with reference to the Dealer Manager in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Fund) or in a Prospectus, or arises out of or is based upon any omission or alleged omission to state a material fact in connection with such information required to be stated in such Registration Statement or such Prospectus or necessary to make such information not misleading (with respect to the Prospectus, in light of the circumstances under which they were made). |
If any Proceeding is brought against the Fund or any such person in respect of which indemnity may be sought against the Dealer Manager pursuant to the foregoing paragraph, the Fund or such person shall promptly notify the Dealer Manager in writing of the institution of such Proceeding and the Dealer Manager shall assume the defense of such Proceeding, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses; provided, however, that the omission to so notify the Dealer Manager shall not relieve the Dealer Manager from any liability which the Dealer Manager may have to the Fund or any such person or otherwise. The Fund or such person shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Fund, the Investment Adviser or such person, as the case may be, unless the employment of such counsel shall have been authorized in writing by the Dealer Manager in connection with the defense of such Proceeding or the Dealer Manager shall not have, within a reasonable period of time in light of the circumstances, employed counsel to have charge of the defense of such Proceeding or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to or in conflict with those available to the Dealer Manager (in which case the Dealer Manager shall not have the right to direct the defense of such Proceeding on behalf of the indemnified party or parties,
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but the Dealer Manager may employ counsel and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of the Dealer Manager), in any of which events such fees and expenses shall be borne by the Dealer Manager and paid as incurred (it being understood, however, that the Dealer Manager shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel) in any one Proceeding or series of related Proceedings in the same jurisdiction representing the indemnified parties who are parties to such Proceeding). The Dealer Manager shall not be liable for any settlement of any such Proceeding effected without its written consent, but if settled with the written consent of the Dealer Manager, the Dealer Manager agrees to indemnify and hold harmless the Fund and any such person from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this paragraph, then the indemnifying party agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if (i) such settlement is entered into more than 60 business days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 30 days prior notice of its intention to settle. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened Proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such Proceeding. |
c. | If the indemnification provided for in this Section 7 is unavailable to an indemnified party under subsections (a) and (b) of this Section 7 in respect of any losses, damages, expenses, liabilities or claims referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, damages, expenses, |
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liabilities or claims (i) in such proportion as is appropriate to reflect the relative benefits received by the Fund on the one hand and the Dealer Manager on the other hand from the Offer or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Fund on the one hand and of the Dealer Manager on the other in connection with the statements or omissions which resulted in such losses, damages, expenses, liabilities or claims, as well as any other relevant equitable considerations. The relative benefits received by the Fund on the one hand and the Dealer Manager on the other shall be deemed to be in the same respective proportions as the total proceeds from the Offer (net of the Dealer Manager Fee but before deducting expenses) received by the Fund and the total Dealer Manager Fee received by the Dealer Manager bear to the aggregate public offering price of the Shares. The relative fault of the Fund on the one hand and of the Dealer Manager on the other shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission relates to information supplied by the Fund or by the Dealer Manager and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, damages, expenses, liabilities and claims referred to in this subsection shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating, preparing to defend or defending any Proceeding. |
d. | The Fund and the Dealer Manager agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in subsection (c) above. Notwithstanding the provisions of this Section 7, the Dealer Manager shall not be required to contribute any amount in excess of the fees received by it. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. |
e. | Notwithstanding any other provisions in this Section 7, no party shall be |
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entitled to indemnification or contribution under this Dealer Manager Agreement against any loss, claim, liability, expense or damage arising by reason of such persons willful misfeasance or gross negligence in the performance of its duties hereunder. The parties hereto acknowledge that the foregoing provision shall not be construed to impose upon any such parties any duties under this Dealer Manager Agreement other than as specifically set forth herein (it being understood that the Dealer Manager has no duty hereunder to the Fund to perform any due diligence investigation). |
f. | The indemnity and contribution agreements contained in this Section 7 and the covenants, warranties and representations of the Fund contained in this Dealer Manager Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the Dealer Manager, its partners, directors or officers or any person (including each partner, officer or director of such person) who controls the Dealer Manager within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, or by or on behalf of the Fund or the Investment Adviser, its directors or officers or any person who controls the Fund or the Investment Adviser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and shall survive any termination of this Dealer Manager Agreement or the issuance and delivery of the Rights. The Fund and the Dealer Manager agree promptly to notify each other of the commencement of any Proceeding against it and, in the case of the Fund, against any of the Funds officers or directors, in connection with the issuance of the Rights or in connection with the Registration Statement or Prospectus. |
g. | The Fund acknowledges that the statement of the principal business address of the Dealer Manager under the caption Distribution Arrangements in the Prospectus constitute the only information furnished in writing to the Fund by the Dealer Manager expressly for use in such document. |
8. | Representations, Warranties and Agreements to Survive Delivery. The respective agreements, representations, warranties, indemnities and other statements of the Fund or its officers, of the Investment Adviser and of the Dealer Manager set forth in or made pursuant to this Dealer Manager Agreement shall survive the Expiration Date and will remain in full force and |
40
effect, regardless of any investigation made by or on behalf of Dealer Manager or the Fund or any of the officers, directors or controlling persons referred to in Section 7 hereof, and will survive delivery of and payment for the Shares pursuant to the Offer. The provisions of Sections 5 and 7 hereof shall survive the termination or cancellation of this Dealer Manager Agreement.
9. | Termination of Agreement. |
a. | This Dealer Manager Agreement shall be subject to termination in the absolute discretion of the Dealer Manager, by notice given to the Fund prior to the expiration of the Offer, if prior to such time (i) financial, political, economic, currency, banking or social conditions in the United States or Mexico shall have undergone any material change the effect of which on the financial markets makes it, in the Dealer Managers judgment, impracticable or inadvisable to proceed with the Offer, (ii) there has occurred any outbreak or material escalation of hostilities or other calamity, terrorist activity or crisis the effect of which on the financial markets of the United States or Mexico is such as to make it, in the Dealer Managers judgment, impracticable or inadvisable to proceed with the Offer, (iii) trading in the Common Shares or in the Rights shall have been suspended by the Commission or the NYSE, (iv) trading in securities generally on the NYSE shall have been suspended or limited or (v) a banking moratorium shall have been declared either by U.S. federal or New York State authorities. |
b. | If this Dealer Manager Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 5 and the Dealer Manager shall not have any obligation to purchase any Shares upon exercise of Rights. |
10. | Notices. All communications hereunder will be in writing and effective only on receipt, and, if sent to the Dealer Manager, will be mailed, delivered or telegraphed and confirmed to UBS Securities LLC, 299 Park Avenue, New York, New York 10171-0026, Attn: Todd Reit and, if to the Fund or the Investment Adviser, shall be sufficient in all respects if delivered or sent to the Fund or the Investment Adviser at 1775 I Street, N.W., Suite 900, Washington, DC 20006-2401 and 77 Aristoteles Street, 3rd Floor, Polanco D.F. 11560 Mexico, respectively, Attention: Mr. José Luis Gómez Pimienta. |
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11. | Successors. This Dealer Manager Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and will inure to the benefit of the officers and directors and controlling persons referred to in Section 7 hereof, and no other person will have any right or obligation hereunder. |
12. | Applicable Law. This Dealer Manager Agreement will be governed by and construed in accordance with the laws of the State of New York. |
13. | Submission to Jurisdiction. Except as set forth below, no claim (a Claim) which relates to the terms of this Dealer Manager Agreement or the transactions contemplated hereby may be commenced, prosecuted or continued in any court other than the courts of the State of New York located in the City and County of New York or in the United States District Court for the Southern District of New York, which courts shall have jurisdiction over the adjudication of such matters, and each of the Fund and the Investment Adviser consents to the jurisdiction of such courts and personal service with respect thereto. Each of the Fund and the Investment Adviser hereby consents to personal jurisdiction, service and venue in any court in which any Claim arising out of or in any way relating to this Dealer Manager Agreement is brought by any third party against the Dealer Manager or any indemnified party. Each of the Dealer Manager, the Fund (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and the Investment Adviser (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) waives all right to trial by jury in any action, proceeding or counterclaim (whether based upon contract, tort or otherwise) in any way arising out of or relating to this Dealer Manager Agreement. Each of the Fund and the Investment Adviser agrees that a final judgment in any such action, proceeding or counterclaim brought in any such court shall be conclusive and binding upon the Fund or the Investment Adviser, as the case may be, and may be enforced in any other courts in the jurisdiction of which the Fund or the Investment Adviser is or may be subject, by suit upon such judgment. |
14. | Counterparts. This Dealer Manager Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. |
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If the foregoing is in accordance with your understanding of our agreement, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among the Fund, the Investment Adviser and the Dealer Manager.
Very truly yours, | ||
THE MEXICO FUND, INC. | ||
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IMPULSORA DEL FONDO MÉXICO, S.A. DE C.V. | ||
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Title: |
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The foregoing Dealer Manager Agreement is hereby confirmed and accepted as of the date first above written. | ||
UBS SECURITIES LLC | ||
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Exhibit A
THE MEXICO FUND, INC.
[ ] Shares of Common Stock
Issuable Upon Exercise of Transferable Rights
to Subscribe for Such Shares
SELLING GROUP AGREEMENT
New York, New York
[ ], 2007
UBS Securities LLC
299 Park Avenue
New York, New York 10171-0026
Ladies and Gentlemen:
We understand that The Mexico Fund, Inc., a Maryland corporation (the Fund), is issuing to its shareholders of record (the Record Date Stockholders) as of the close of business on March 22, 2007 (the Record Date) transferable rights (Rights) to subscribe for an aggregate of up to [ ] shares (the Shares) of the Funds common stock, par value $1.00 per share (the Common Shares), upon the terms and subject to the conditions set forth in the Funds prospectus (the Prospectus) dated [ ], 2007 (the Offer). Pursuant to the terms of the Offer, the Fund is issuing each Record Date Stockholder one Right for each full Common Share held by such Record Date Stockholder on the Record Date. Such Rights entitle their holders to acquire during the subscription period set forth in the Prospectus (the Subscription Period), at the price set forth in the Prospectus (the Subscription Price), one Share for each [ ] Rights (except that any Record Date Stockholder who is issued fewer than [ ] Rights will be able to subscribe for one full Share pursuant to the primary subscription), on the terms and conditions set forth in the Prospectus. No fractional shares will be issued. Any Record Date Stockholder who fully exercises all Rights initially issued to such Record Date Stockholder on the Record Date (other than those Rights that cannot be exercised because they represent the right to acquire less than one Share) will be entitled to subscribe for, subject to allocation, additional Shares (the Over-Subscription Privilege) on the terms and conditions set forth in the Prospectus.
The Mexico Fund, Inc.
Selling Group Agreement - Page 2
Rights Offer Expiring April 20, 2007, unless extended
Investors who are not Record Date Stockholders, but who otherwise acquire Rights to purchase Shares pursuant to this Offer, are not entitled to subscribe for any Shares pursuant to the Over-Subscription Privilege. The Rights are transferable and are expected to be listed on the New York Stock Exchange, Inc.
We further understand that the Fund has appointed UBS Securities LLC to act as the dealer manager (the Dealer Manager) in connection with the Offer and has authorized the Dealer Manager to form and manage a group of broker-dealers (each a Selling Group Member and collectively the Selling Group) to solicit the exercise of Rights and to sell Shares purchased by the Dealer Manager from the Fund through the exercise of Rights.
We hereby express our interest in participating in the Offer as a Selling Group Member.
We hereby agree with you as follows:
1. | We have received and reviewed the Prospectus and we understand that additional copies of the Prospectus (or of the Prospectus as it may be subsequently supplemented or amended, if applicable) and any other solicitation materials authorized by the Fund relating to the Offer (Offering Materials) will be supplied to us in reasonable quantities upon our request therefor to you. We agree that we will not use any solicitation material other than the Prospectus (as supplemented or amended, if applicable) and the Offering Materials and we agree not to make any representation, oral or written, to any holders or prospective holders of Shares or Rights other than those contained in the Prospectus and the Offering Materials, unless otherwise previously authorized in writing by the Fund or permitted by applicable law. |
2. | From time to time during the Subscription Period commencing on March 22, 2007 and ending at 5:00 p.m., New York City time, on the Expiration Date (the term Expiration Date means April 20, 2007, unless and until the Fund shall, in its sole discretion, have extended the period for which the Offer is open, in which event the term Expiration Date with respect to the Offer will mean the latest time and date on |
The Mexico Fund, Inc.
Selling Group Agreement - Page 3
Rights Offer Expiring April 20, 2007, unless extended
which the Offer, as so extended by the Fund, will expire), we may solicit the exercise of Rights in connection with the Offer. We will be entitled to receive fees in the amounts and at the times described in Section 4 of this selling group agreement (the Selling Group Agreement) with respect to Shares purchased pursuant to the exercise of Rights and with respect to which [American Stock Transfer & Trust Company] (the Subscription Agent) has received, no later than 5:00 p.m., New York City time, on the Expiration Date, either (i) a properly completed and executed Subscription Certificate identifying us as the broker-dealer having been instrumental in the exercise of such Rights, and full payment for such Shares, or (ii) a Notice of Guaranteed Delivery guaranteeing to the Subscription Agent by the close of business of the third business day after the Expiration Date a properly completed and duly executed Subscription Certificate, similarly identifying us, and full payment for such Shares. We understand that we will not be paid these fees with respect to Shares purchased pursuant to an exercise of Rights for our own account or for the account of any of our affiliates. We also understand and agree that we are not entitled to receive any fees in connection with the solicitation of the exercise of Rights other than pursuant to the terms of this Selling Group Agreement and, in particular, that we will not be entitled to receive any fees under the Funds Soliciting Dealer Agreement. We agree to solicit the exercise of Rights in accordance with the Securities Act of 1933, as amended (the Securities Act), the Securities Exchange Act of 1934, as amended (the Exchange Act), the Investment Company Act of 1940, as amended, and the rules and regulations under each such Act, any applicable securities laws of any state or jurisdiction where such solicitations may be lawfully made, the applicable rules and regulations of any self-regulatory organization or registered national securities exchange and customary practice and subject to the terms of the Subscription Agent Agreement between the Fund and the Subscription Agent and the procedures described in the Funds registration statement on Form N-2 (File Nos. 333-140298 and 811-02409), as amended (the Registration Statement).
The Mexico Fund, Inc.
Selling Group Agreement - Page 4
Rights Offer Expiring April 20, 2007, unless extended
3. | From time to time during the Subscription Period, we may indicate interest in purchasing Shares from the Dealer Manager. We understand that from time to time the Dealer Manager intends to offer Shares obtained or to be obtained by the Dealer Manager through the exercise of Rights to Selling Group Members who have so indicated interest at prices which shall be determined by the Dealer Manager (the Offering Price). We agree that, with respect to any such Shares purchased by us from the Dealer Manager, the sale of such Shares to us shall be irrevocable, and we will offer them to the public at the Offering Price at which we purchase them from the Dealer Manager. Shares not sold by us at such Offering Price may be offered by us after the next succeeding Offering Price is set at the latest Offering Price set by the Dealer Manager. The Dealer Manager agrees that, if requested by any Selling Group Member, and subject to applicable law, the Dealer Manager will set a new Offering Price prior to 4:00 p.m., New York City time, on any business day. We agree to advise the Dealer Manager from time to time upon request, prior to the termination of this Selling Group Agreement, of the number of Shares remaining unsold which were purchased by us from the Dealer Manager and, upon the Dealer Managers request, we will resell to the Dealer Manager any of such Shares remaining unsold at the purchase price thereof if in the Dealer Managers opinion such Shares are needed to make delivery against sales made to other Selling Group Members. Any Shares purchased hereunder from the Dealer Manager shall be subject to regular way settlement through the facilities of The Depository Trust Company. |
4. | We understand that you will remit to us on or before the tenth business day following the day the Fund issues Shares after the Expiration Date, following receipt by you from the Fund of the Dealer Manager Fee (as defined in the Dealer Manager Agreement), a fee (the Selling Fee) equal to [ ]% of the Subscription Price per Share for (A) each Share issued pursuant to the exercise of Rights or the Over-Subscription Privilege pursuant to each Subscription Certificate upon which we are designated, as certified to you by the Subscription Agent, as a result of our solicitation efforts in accordance with Section 2 and (B) each Share sold by the Dealer Manager to us in accordance with Section 3 less any |
The Mexico Fund, Inc.
Selling Group Agreement - Page 5
Rights Offer Expiring April 20, 2007, unless extended
Shares resold to the Dealer Manager in accordance with Section 3. Your only obligation with respect to payment of the Selling Fee to us is to remit to us amounts owing to us and actually received by you from the Fund. Except as aforesaid, you shall be under no liability to make any payments to us pursuant to this Selling Group Agreement.
5. | We agree that you, as Dealer Manager, have full authority to take such action as may seem advisable to you in respect of all matters pertaining to the Offer. You are authorized to approve on our behalf any amendments or supplements to the Registration Statement or the Prospectus. |
6. | We represent that we are a member in good standing of the National Association of Securities Dealers, Inc. (the NASD) and, in soliciting the exercise of Rights and in making sales of Shares, agree to comply with all applicable rules of the NASD including, without limitation, NASD Conduct Rules 2420, 2730, 2740, 2750 and 2790. We understand that no action has been taken by you or the Fund to permit the solicitation of the exercise of Rights or the sale of Shares in any jurisdiction (other than the United States) where action would be required for such purpose. We agree that we will not, without your approval in advance, buy, sell, deal or trade in, on a when-issued basis or otherwise, the Rights or the Shares or any other option to acquire or sell Shares for our own account or for the accounts of customers, except as provided in Sections 2 and 3 hereof and except that we may buy or sell Rights or Shares in brokerage transactions on unsolicited orders which have not resulted from activities on our part in connection with the solicitation of the exercise of Rights and which are executed by us in the ordinary course of our brokerage business. We will keep an accurate record of the names and addresses of all persons to whom we give copies of the Registration Statement, the Prospectus, any preliminary prospectus (or any amendment or supplement thereto) or any Offering Materials and, when furnished with any subsequent amendment to the Registration Statement and any subsequent prospectus, we will, upon your request, promptly forward copies thereof to such persons. |
The Mexico Fund, Inc.
Selling Group Agreement - Page 6
Rights Offer Expiring April 20, 2007, unless extended
7. | Nothing contained in this Selling Group Agreement will constitute the Selling Group Members partners with the Dealer Manager or with one another or create any association between those parties, or will render the Dealer Manager or the Fund liable for the obligations of any Selling Group Member. The Dealer Manager will be under no liability to make any payment to any Selling Group Member other than as provided in Section 4 of this Selling Group Agreement, and will be subject to no other liabilities to any Selling Group Member, and no obligations of any sort will be implied. We agree to indemnify and hold harmless you and each other Selling Group Member and each person, if any, who controls you and any such Selling Group Member within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, against loss or liability caused by any breach by us of the terms of this Selling Group Agreement. |
8. | We agree to pay any transfer taxes which may be assessed and paid on account of any sales or transfers for our account. |
9. | All communications to you relating to the Offer will be addressed to: UBS Securities LLC, 299 Park Avenue, New York, New York 10171-0026, Attn: William Dowson, Syndicate Department. |
10. | This Selling Group Agreement will be governed by the internal laws of the State of New York. |
The Mexico Fund, Inc.
Selling Group Agreement - Page 7
Rights Offer Expiring April 20, 2007, unless extended
A signed copy of this Selling Group Agreement will be promptly returned to the Selling Group Member at the address set forth below.
Very truly yours, | ||
UBS SECURITIES LLC | ||
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PLEASE COMPLETE THE INFORMATION BELOW | ||||
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Printed Firm Name | Address | |||
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Contact at Selling Group Member | DTC Participation Number | |||
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Authorized Signature | Area Code and Telephone Number | |||
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Name and Title | Facsimile Number | |||
Dated: |
Payment of the Selling Fee shall be mailed
by check to the following address:
Exhibit B
THE MEXICO FUND, INC.
[ ] Shares of Common Stock
Issuable Upon Exercise of Transferable Rights
to Subscribe for Such Shares
SOLICITING DEALER AGREEMENT
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
APRIL 20, 2007, UNLESS EXTENDED
New York, New York
[ ], 2007
To Securities Dealers and Brokers:
The Mexico Fund, Inc., a Maryland corporation (the Fund), is issuing to its shareholders of record (Record Date Stockholders) as of the close of business on March 22, 2007 (the Record Date) transferable rights (Rights) to subscribe for an aggregate of up to [ ] shares (the Shares) of the Funds common stock, par value $1.00 per share (the Common Shares), upon the terms and subject to the conditions set forth in the Funds prospectus (the Prospectus) dated [ ], 2007 (the Offer). Pursuant to the terms of the Offer, the Fund is issuing each Record Date Stockholder one Right for each full Common Share owned by such Record Date Stockholder on the Record Date. Such Rights entitle their holders to acquire during the subscription period set forth in the Prospectus (the Subscription Period), at the price set forth in the Prospectus (the Subscription Price), one Share for each [ ] Rights (except that any Record Date Stockholder who is issued fewer than [ ] Rights will be able to subscribe for one full Share pursuant to the primary subscription), on the terms and conditions set forth in the Prospectus. No fractional shares will be issued. Any Record Date Stockholder who fully exercises all Rights initially issued to such Record Date Stockholder on the Record Date (other than those Rights that cannot be exercised because they represent the right to acquire less than one Share) will be entitled to subscribe
The Mexico Fund, Inc.
Soliciting Dealer Agreement - Page 2
Rights Offer Expiring April 20, 2007, unless extended
for, subject to allocation, additional Shares (the Over-Subscription Privilege) on the terms and conditions set forth in the Prospectus. Investors who are not Record Date Stockholders, but who otherwise acquire Rights to purchase Shares pursuant to this Offer, are not entitled to subscribe for any Shares pursuant to the Over-Subscription Privilege. The Rights are transferable and are expected to be listed on the New York Stock Exchange, Inc. The Subscription Period will commence on March 22, 2007 and end at 5:00 p.m., New York City time on the Expiration Date (the term Expiration Date means April 20, 2007, unless and until the Fund shall, in its sole discretion, have extended the period for which the Offer is open, in which event the term Expiration Date with respect to the Offer will mean the latest time and date on which the Offer, as so extended by the Fund, will expire).
The Fund has appointed UBS Securities LLC to act as dealer manager (the Dealer Manager) in connection with the Offer. For the duration of the Offer, the Fund has authorized and the Dealer Manager has agreed to reallow a fee to any qualified broker or dealer executing a Soliciting Dealer Agreement who solicits the exercise of Rights and the Over-Subscription Privilege in connection with the Offer and who complies with the procedures described below (a Soliciting Dealer). Upon timely delivery to [American Stock Transfer & Trust Company], the Funds Subscription Agent for the Offer, of payment for Shares purchased pursuant to the exercise of Rights and the Over-Subscription Privilege and of properly completed and executed documentation as set forth in this Soliciting Dealer Agreement, a Soliciting Dealer will be entitled to receive a fee (the Soliciting Fee) equal to [ ]% of the Subscription Price per Share so purchased subject to a maximum fee based on the number of Common Shares held by such Soliciting Dealer through The Depository Trust Company on the Record Date; provided, however, that no payment shall be due with respect to the issuance of any Shares until payment therefor is actually received. A qualified broker or dealer is a broker or dealer which is a member of a registered national securities exchange in the United States or the National Association of Securities Brokers, Inc. (NASD) or any foreign broker or dealer not eligible for membership who agrees to conform to the Rules of Fair Practice of the NASD, including Sections 2730, 2740, 2420 and 2750 thereof, in making solicitations in the United States to the same extent as if it were a member thereof.
The Fund has authorized and the Dealer Manager has agreed to pay the Soliciting Fees payable to the undersigned Soliciting Dealer and to indemnify such
The Mexico Fund, Inc.
Soliciting Dealer Agreement - Page 3
Rights Offer Expiring April 20, 2007, unless extended
Soliciting Dealer on the terms set forth in the Dealer Manager Agreement, dated [ ], 2007, among the Dealer Manager, the Fund and others (the Dealer Manager Agreement). Solicitation and other activities by Soliciting Dealers may be undertaken only in accordance with the applicable rules and regulations of the Securities and Exchange Commission and only in those states and other jurisdictions where such solicitations and other activities may lawfully be undertaken and in accordance with the laws thereof. Compensation will not be paid for solicitations in any state or other jurisdiction in which, in the opinion of counsel to the Fund or counsel to the Dealer Manager, such compensation may not lawfully be paid. No Soliciting Dealer shall be paid Soliciting Fees with respect to Shares purchased pursuant to an exercise of Rights and the Over-Subscription Privilege for its own account or for the account of any affiliate of the Soliciting Dealer. No Soliciting Dealer or any other person is authorized by the Fund or the Dealer Manager to give any information or make any representations in connection with the Offer other than those contained in the Prospectus and other authorized solicitation material furnished by the Fund through the Dealer Manager. No Soliciting Dealer is authorized to act as agent of the Fund or the Dealer Manager in any connection or transaction. In addition, nothing herein contained shall constitute the Soliciting Dealers partners with the Dealer Manager or with one another, or agents of the Dealer Manager or of the Fund, or create any association between such parties, or shall render the Dealer Manager or the Fund liable for the obligations of any Soliciting Dealer. The Dealer Manager shall be under no liability to make any payment to any Soliciting Dealer, and shall be subject to no other liabilities to any Soliciting Dealer, and no obligations of any sort shall be implied.
In order for a Soliciting Dealer to receive Soliciting Fees, the Subscription Agent must have received from such Soliciting Dealer no later than 5:00 p.m., New York City time, on the Expiration Date, either (i) a properly completed and duly executed Subscription Certificate with respect to Shares purchased pursuant to the exercise of Rights and the Over-Subscription Privilege and full payment for such Shares or (ii) a Notice of Guaranteed Delivery guaranteeing delivery to the Subscription Agent by close of business on the third business day after the Expiration Date of (a) full payment for such Shares and (b) a properly completed and duly executed Subscription Certificate with respect to Shares purchased pursuant to the exercise of Rights and the Over-Subscription Privilege. Soliciting Fees will only be paid after receipt by the Subscription Agent of a properly completed and duly executed Soliciting Dealer Agreement and a Subscription Certificate designating the Soliciting Dealer in the applicable
The Mexico Fund, Inc.
Soliciting Dealer Agreement - Page 4
Rights Offer Expiring April 20, 2007, unless extended
portion hereof. In the case of a Notice of Guaranteed Delivery, Soliciting Fees will only be paid after delivery in accordance with such Notice of Guaranteed Delivery has been effected. Soliciting Fees will be paid by the Fund (through the Subscription Agent) to the Soliciting Dealer by check to an address designated by the Soliciting Dealer below by the tenth business day following the day the Fund issues Shares after the Expiration Date.
All questions as to the form, validity and eligibility (including time of receipt) of this Soliciting Dealer Agreement will be determined by the Fund, in its sole discretion, which determination shall be final and binding. Unless waived, any irregularities in connection with a Soliciting Dealer Agreement or delivery thereof must be cured within such time as the Fund shall determine. None of the Fund, the Dealer Manager, the Subscription Agent, the Information Agent for the Offer or any other person will be under any duty to give notification of any defects or irregularities in any Soliciting Dealer Agreement or incur any liability for failure to give such notification.
The acceptance of Soliciting Fees from the Fund by the undersigned Soliciting Dealer shall constitute a representation by such Soliciting Dealer to the Fund that: (i) it has received and reviewed the Prospectus; (ii) in soliciting purchases of Shares pursuant to the exercise of the Rights and the Over-Subscription Privilege, it has complied with the applicable requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), the applicable rules and regulations thereunder, any applicable securities laws of any state or jurisdiction where such solicitations were made, and the applicable rules and regulations of any self-regulatory organization or registered national securities exchange; (iii) in soliciting purchases of Shares pursuant to the exercise of the Rights and the Over-Subscription Privilege, it has not published, circulated or used any soliciting materials other than the Prospectus and any other authorized solicitation material furnished by the Fund through the Dealer Manager and has not made any written representations concerning the Fund to any holders or prospective holders of Shares or Rights other than those contained in such materials or otherwise previously authorized in writing by the Fund or otherwise permitted by applicable law; (iv) it has not purported to act as agent of the Fund or the Dealer Manager in any connection or transaction relating to the Offer; (v) the information contained in this Soliciting Dealer Agreement is, to its best knowledge, true and complete; (vi) it is not affiliated with the Fund; (vii) it will not accept Soliciting Fees paid by the Fund pursuant to the terms hereof with respect to Shares purchased by the Soliciting
The Mexico Fund, Inc.
Soliciting Dealer Agreement - Page 5
Rights Offer Expiring April 20, 2007, unless extended
Dealer pursuant to an exercise of Rights and the Over-Subscription Privilege for its own account; (viii) it will not remit, directly or indirectly, any part of Soliciting Fees paid by the Fund pursuant to the terms hereof to any beneficial owner of Shares purchased pursuant to the Offer; and (ix) it has agreed to the amount of the Soliciting Fees and the terms and conditions set forth herein with respect to receiving such Soliciting Fees. By returning a Soliciting Dealer Agreement and accepting Soliciting Fees, a Soliciting Dealer will be deemed to have agreed to indemnify the Fund and the Dealer Manager against losses, claims, damages and liabilities to which the Fund may become subject as a result of the breach of such Soliciting Dealers representations made herein and described above. In making the foregoing representations, Soliciting Dealers are reminded of the possible applicability of the anti-manipulation rules under the Exchange Act if they have bought, sold, dealt in or traded in any Shares for their own account since the commencement of the Offer.
Upon expiration of the Offer, no Soliciting Fees will be payable to Soliciting Dealers with respect to Shares purchased thereafter.
Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Dealer Manager Agreement or, if not defined therein, in the Prospectus.
This Soliciting Dealer Agreement will be governed by the laws of the State of New York.
Please execute this Soliciting Dealer Agreement below accepting the terms and conditions hereof and confirming that you are a member firm of the NASD or a foreign broker or dealer not eligible for membership who has conformed to the Rules of Fair Practice of the NASD, including Sections 2730, 2740, 2420 and 2750 thereof, in making solicitations of the type being undertaken pursuant to the Offer in the United States to the same extent as if you were a member thereof, and certifying that you have solicited the purchase of the Shares pursuant to exercise of the Rights, all as described above, in accordance with the terms and conditions set forth in this Soliciting Dealer Agreement. Please forward two executed copies of this Soliciting Dealer Agreement to: UBS Securities LLC, 299 Park Avenue, New York, New York 10171-0026, Attn: William Dowson, Syndicate Department.
The Mexico Fund, Inc.
Soliciting Dealer Agreement - Page 6
Rights Offer Expiring April 20, 2007, unless extended
A signed copy of this Soliciting Dealer Agreement will be promptly returned to the Soliciting Dealer at the address set forth below.
Very truly yours, | ||
UBS SECURITIES LLC | ||
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Dated: |
Payment of the Soliciting Fee shall be
mailed by check to the following address:
DECHERT LLP
1775 I Street, NW
Washington, DC 20006
March 13, 2007
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: | The Mexico Fund, Inc. |
Investment Company Act File No. 811-03170
Registration Statement on Form N-2
Dear Sir or Madam:
On January 30, 2007 and March 12, 2007, The Mexico Fund, Inc. (the Registrant) filed a Registration Statement on Form N-2 and Pre-Effective Amendments No. 1 and 2 to such Registration Statement relating to a proposed rights offering by the Registrant. Enclosed for filing on behalf of the Registrant is the third pre-effective amendment to that Registration Statement. The Amendment is being provided in order to update certain disclosure and exhibits.
Filing fees required under the 1933 Act have been transmitted to the SECs lockbox. If you have any questions or comments, please contact the undersigned at (202) 261-3499.
Sincerely, |
/s/ Karl Paulson Egbert |
Karl Paulson Egbert |