Source: U.S. Bancorp1; Thomson Reuters2; PAM3; MSCI4; Bloomberg.
|
i)
|
Our models have been adjusted to reflect companies’ higher cost of equity from 11% to 12% derived from higher risk-free rates, albeit temporarily, according to IMF and BANXICO, and higher equity risk premiums.
|
|
ii)
|
We ran a projected total earnings yield (EY), sensitivity analysis (inverse of share market price to 2017 forward 12-months earnings per share ratio + annual distribution) of the Fund’s portfolio assets to validate their minimum required total EY following a cumulative 300 basis points hike in
|
the reference rate (to 6.25% from 3.25%) by BANXICO since September 2015. We have substantially reduced or eliminated companies whose EY falls short as valuations should continue to be de-rated in line with a new higher interest rates cycle.
|
||
iii)
|
We have also included three investment themes in the Growth asset class category, as classified by PAM, (62.55% weight at the end of the Fund’s semi-annual period). The Fund has maintained assets that have shown consistent profitability and revenue metrics: i) FCF – free cash flow yield, ii) ROIC – a consistent return on invested capital, and ROE for Banks, as well as low book-value metric, and iii) U.S. Dollar revenues given significant Mergers & Acquisitions (M&A) activity abroad at relatively lower valuations resulting in currency-generating assets in U.S. Dollars or Euros.
|
|
iv)
|
The Investment Yield asset class category, as classified by PAM (dividends + share repurchase), which has a 21.7% weight, will likely continue to favor airports and companies with an annual distribution policy.
|
|
v)
|
The Special Situations asset class category’s 6.3% weight is mainly related to value stocks whose main characteristic is “oversold & small cap” due mainly to current conceptual NAFTA negotiations, especially with respect to the real estate, auto parts, and petrochemical sectors. We continue to search for liquid value stocks.
|
•
|
Contributors: Construction Materials 0.77%; Telecommunication Services 0.72%; and Metals & Mining 0.29%. (Source: PAM, Bloomberg).
|
|
•
|
Detractors: Transportation Infrastructure -2.69%; Banks -1.61%; and Beverages -1.41%. (Source: PAM, Bloomberg).
|
•
|
America Movil is the leading provider of integrated telecommunications services in Latin America. Through the development of a world-class integrated telecommunications platform, offer its customers a portfolio of value added services and enhanced communications solutions in 25 countries in America and Europe. At December 31, 2016, the company had 363.5 million access lines, including 280.6 million wireless subscribers, 33.7 million landlines, 27.0 million broadband accesses and 22.2 million PayTV units. In Latin America, America Movil operates under the brands: Telmex, Telcel and Claro.
|
|
•
|
The International Monetary Fund (IMF) is an international organization headquartered in Washington, D.C., of 189 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
|
|
•
|
Banxico: Banco de Mexico is the central bank of Mexico. By constitutional mandate, it is autonomous in both its operations and management. Its main function is to provide domestic currency to the Mexican economy and its main priority is to ensure the stability of the domestic currency’s purchasing power.
|
|
•
|
MSCI Mexico – Index: The Morgan Stanley Capital International Mexico Index is a capitalization-weighted index that monitors the performance of Mexican stocks. The MSCI Mexico Index is a free-float weighted equity index. It was developed with a base value of 100 as of December 31, 1987.
|
|
•
|
MEXBOL, or the IPC (Indice de Precios y Cotizaciones), is a capitalization-weighted index of the leading stocks traded on the Mexican Stock Exchange. The index was developed with a base level of 0.78 on October 30th, 1978.
|
|
•
|
Basis point (bps) is one hundredth of a percentage point (0.01%).
|
|
•
|
The net asset value per share (NAV) is calculated as the total market value of all the securities and other assets held by a fund minus total liabilities divided by the total number of common shares outstanding. The NAV of an investment company will fluctuate due to changes in the market prices of the underlying securities.
|
|
•
|
The market price of the common share of a closed-end fund is determined in the open market by buyers and sellers, and is the price at which investors may purchase or sell the common shares of a closed-end fund, which fluctuates throughout the day. The common share market price may differ from the Fund’s Net Asset Value; shares of a closed-end fund may trade at a premium to (higher
|
than) or a discount to (lower than) NAV. The difference between the market price and NAV is expressed as a percentage that is either a discount or a premium to NAV.
|
||
•
|
References to other funds should not be considered a recommendation to buy or sell any security.
|
|
•
|
GDP: Gross Domestic Product. The monetary value of all the finished goods and services produced within a country’s borders in a specific period of time, although GDP is usually calculated on an annual basis. It includes all private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
|
|
•
|
PEMEX: Petroleos Mexicanos is the Mexican state-owned oil company created in 1938. PEMEX is the seventh crude oil producer worldwide and the eleventh most integrated company. In Mexico, it is the sole producer of crude oil, natural gas and refined products, the most important source of government income and the country’s most important company.
|
|
•
|
SHCP: Secretaria de Hacienda y Credito Publico, is the Ministry of Finance.
|
|
•
|
INEGI: The National Institute of Statistics and Geography.
|
|
•
|
Free Cash Flow: is a measure of a company’s financial performance, calculated as operating cash flow minus capital expenditures.
|
|
•
|
Earnings before Interest, Taxes, Depreciation & Amortization (EBITDA), is one indicator of a company’s financial performance, and is used as a proxy for the earnings potential of a business, although doing so has its drawbacks. EBITDA strips out the cost of debt capital and its tax effects by adding back interest and taxes to earnings.
|
|
•
|
Free Cash Flow Yield: is an overall return evaluation ratio of a stock, which standardizes the free cash flow per share a company is expected to earn against its market price per share.
|
|
•
|
Return on Invested Capital (ROIC), a calculation used to assess a company’s efficiency at allocating the capital to profitable investments. Return on invested capital gives a sense of how well a company is using its money to generate returns.
|
|
•
|
Return on Equity (ROE): the amount of net income returned as a percentage of shareholder’s equity. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.
|
|
•
|
Dividend Yield: a financial ratio that indicates how much a company pays out in dividends each year relative to its share price.
|
|
•
|
The General Agreement on Tariffs and Trade (GATT) was a pact between more than 100 countries, including the United States, to substantially lower tariffs and other barriers to trade. The agreement was signed in October of 1947 and took effect in January of 1948. It has been updated several times since its original signing, but hasn’t been active since 1994.
|
|
•
|
The North American Free Trade Agreement (NAFTA) created one of the world’s largest free trade zones and laid the foundations for strong economic growth and rising prosperity for Canada, the United States, and Mexico.
|
•
|
Trion Field: Part of a larger area of oil deposits known as the “Perdido” trend, it was discovered in 2012 and is thought to contain about 485 million barrels of commercial reserves. It is expected to cost about $11 billion to develop the field, with capital expenditures of $7.5 billion from Mexico’s oil regulator, the National Hydrocarbons Commission.
|
|
•
|
CNH: National Hydrocarbons Commission: the CNH was created on November 28, 2008 as a body with technical autonomy to regulate and supervise the exploration and extraction of hydrocarbons in Mexico. The CNH was formally installed on May 20, 2009, following the appointment of its governing body.
|
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Real Activity (million US$)
|
2016
|
2015
|
2014
|
2013
|
2012
|
|||||||||||||||
Real GDP Growth (y-o-y)
|
2.36
|
%
|
2.46
|
%
|
2.25
|
%
|
1.36
|
%
|
4.02
|
%
|
||||||||||
Industrial Production (y-o-y)
|
0.00
|
%
|
0.95
|
%
|
2.65
|
%
|
-0.50
|
%
|
2.86
|
%
|
||||||||||
Trade Balance (US billions)
|
$
|
-13.14
|
$
|
-14.60
|
$
|
-3.06
|
$
|
-1.20
|
$
|
0.02
|
||||||||||
Exports (US billions)
|
$
|
373.93
|
$
|
380.62
|
$
|
396.91
|
$
|
380.02
|
$
|
370.77
|
||||||||||
Export growth (y-o-y)
|
-1.80
|
%
|
-4.12
|
%
|
4.40
|
%
|
2.49
|
%
|
6.11
|
%
|
||||||||||
Imports (US billions)
|
$
|
387.06
|
$
|
395.23
|
$
|
399.98
|
$
|
381.21
|
$
|
370.75
|
||||||||||
Import growth (y-o-y)
|
-2.1
|
%
|
-1.2
|
%
|
4.9
|
%
|
2.8
|
%
|
5.7
|
%
|
||||||||||
Financial Variables and Prices
|
||||||||||||||||||||
28-Day CETES (T-bills)/Average
|
4.16
|
%
|
2.98
|
%
|
2.99
|
%
|
3.70
|
%
|
4.29
|
%
|
||||||||||
Exchange rate (Pesos/US$)Average
|
18.68
|
%
|
15.88
|
13.31
|
12.77
|
13.15
|
||||||||||||||
Inflation IPC, 12 month trailing
|
3.36
|
%
|
2.13
|
%
|
4.08
|
%
|
3.97
|
%
|
3.57
|
%
|
||||||||||
Mexbol Index
|
||||||||||||||||||||
USD Return
|
-9.74
|
%
|
-13.15
|
%
|
-9.43
|
%
|
-1.33
|
%
|
28.97
|
%
|
||||||||||
Market Cap- (US billions)
|
$
|
252.77
|
$
|
279.00
|
$
|
326.32
|
$
|
356.02
|
$
|
370.74
|
||||||||||
EV/EBITDA
|
9.57
|
x
|
9.93
|
x
|
9.92
|
x
|
9.91
|
x
|
9.13
|
x
|
||||||||||
Fund’s NAV & Common Share
|
||||||||||||||||||||
Market Price Performance
|
||||||||||||||||||||
NAV’s per share
|
-14.88
|
%
|
-6.90
|
%
|
-3.45
|
%
|
15.85
|
%
|
47.13
|
%
|
||||||||||
Share Price
|
-14.78
|
%
|
-10.23
|
%
|
-4.57
|
%
|
19.24
|
%
|
45.13
|
%
|
Allocation of Portfolio Assets
|
January 31, 2017
(Unaudited)
|
Schedule of Investments
|
January 31, 2017
(Unaudited)
|
MEXICO – 103.04%
|
Shares
|
Value
|
||||||
COMMON STOCKS – 94.25%
|
||||||||
Airports – 6.07%
|
||||||||
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. – Series B
|
809,914
|
$
|
3,455,830
|
|||||
Grupo Aeroportuario del Pacifico, S.A.B. de C.V. – Series B
|
170,900
|
1,324,109
|
||||||
4,779,939
|
||||||||
Auto Parts and Equipment – 1.09%
|
||||||||
Rassini, S.A.B. de C.V.
|
231,822
|
855,652
|
||||||
Beverages – 5.66%
|
||||||||
Arca Continental, S.A.B. de C.V.
|
292,984
|
1,580,584
|
||||||
Coca-Cola Femsa, S.A.B. de C.V. – Series L
|
133,487
|
828,249
|
||||||
Fomento Economico Mexicano, S.A.B. de C.V. – Series UBD
|
272,011
|
2,046,066
|
||||||
4,454,899
|
||||||||
Building Materials – 1.59%
|
||||||||
Cemex, S.A.B. de C.V. – Series CPO (a)
|
1,351,490
|
1,248,217
|
||||||
Chemical Products – 8.24%
|
||||||||
Alpek, S.A.B. de C.V. – Series A
|
1,639,637
|
1,886,249
|
||||||
Mexichem, S.A.B. de C.V.
|
1,941,339
|
4,600,713
|
||||||
6,486,962
|
||||||||
Construction and Infrastructure – 6.49%
|
||||||||
Promotora y Operadora de Infraestructura, S.A.B. de C.V. (a)
|
312,004
|
2,720,188
|
||||||
Promotora y Operadora de Infraestructura, S.A.B. de C.V. – Series L (a)
|
367,139
|
2,386,619
|
||||||
5,106,807
|
||||||||
Energy – 6.20%
|
||||||||
Infraestructura Energetica Nova, S.A.B. de C.V.
|
1,105,524
|
4,879,923
|
||||||
Financial Groups – 16.89%
|
||||||||
Banregio Grupo Financiero, S.A.B. de C.V. – Series O
|
434,501
|
2,413,003
|
||||||
Grupo Financiero Banorte, S.A.B. de C.V. – Series O
|
1,357,281
|
6,505,394
|
||||||
Grupo Financiero Inbursa, S.A.B. de C.V. – Series O
|
1,423,804
|
2,110,427
|
||||||
Grupo Financiero Santander Mexico, S.A.B. de C.V. – Series B
|
1,585,228
|
2,260,756
|
||||||
13,289,580
|
Schedule of Investments (continued)
|
January 31, 2017
(Unaudited)
|
COMMON STOCKS (continued)
|
Shares
|
Value
|
||||||
Food – 5.92%
|
||||||||
Gruma, S.A.B. de C.V. – Series B
|
281,458
|
$
|
3,786,831
|
|||||
Grupo Bimbo, S.A.B. de C.V. – Series A
|
391,676
|
868,304
|
||||||
4,655,135
|
||||||||
Holding Companies – 1.30%
|
||||||||
Grupo Carso, S.A.B. de C.V. – Series A-1
|
254,070
|
1,020,983
|
||||||
Hotels, Restaurants, and Recreation – 5.66%
|
||||||||
Alsea, S.A.B. de C.V. – Series A
|
530,737
|
1,534,425
|
||||||
Grupe, S.A.B. de C.V. (a)
|
599,082
|
1,264,038
|
||||||
Grupo Hotelero Santa Fe, S.A.B. de C.V. (a)
|
3,619,000
|
1,653,874
|
||||||
4,452,337
|
||||||||
Mining – 8.24%
|
||||||||
Grupo Mexico, S.A.B. de C.V. – Series B
|
1,807,251
|
5,419,977
|
||||||
Industrias Penoles, S.A.B. de C.V.
|
45,074
|
1,065,902
|
||||||
6,485,879
|
||||||||
Real Estate Services – 2.49%
|
||||||||
Corporacion Inmobiliaria Vesta, S.A.B. de C.V.
|
1,772,503
|
1,956,651
|
||||||
Retail – 11.59%
|
||||||||
El Puerto de Liverpool, S.A.B. de C.V. – Series C – 1
|
214,548
|
1,353,740
|
||||||
Grupo Comercial Chedraui, S.A. de C.V.
|
313,297
|
577,061
|
||||||
Grupo Sanborns, S.A.B. de C.V. – Series B – 1
|
1,635,891
|
1,626,987
|
||||||
Organizacion Soriana, S.A. de C.V. – Class B (a)
|
118,804
|
250,842
|
||||||
Wal-Mart de Mexico, S.A.B. de C.V.
|
3,003,209
|
5,314,140
|
||||||
9,122,770
|
||||||||
Telecommunication – 6.82%
|
||||||||
America Movil, S.A.B. de C.V. – Series L
|
8,514,552
|
5,365,105
|
||||||
TOTAL COMMON STOCKS (Cost $74,081,969)
|
74,160,839
|
|||||||
CAPITAL DEVELOPMENT CERTIFICATES – 2.55%
|
||||||||
Atlas Discovery Trust II (b)(c)
|
300,000
|
2,008,337
|
||||||
TOTAL CAPITAL DEVELOPMENT CERTIFICATES (Cost $1,460,703)
|
2,008,337
|
Schedule of Investments (concluded)
|
January 31, 2017
(Unaudited)
|
Principal
|
||||||||
SHORT-TERM INVESTMENTS – 6.24%
|
Amount
|
Value
|
||||||
Mexican BANOBRA
|
||||||||
0.000% Coupon, 5.645% Effective Yield, 02/02/2017 (d)
|
73,800,000
|
*
|
$
|
3,538,442
|
||||
Mexican INAFIN
|
||||||||
0.000% Coupon, 5.542% Effective Yield, 02/01/2017 (d)
|
28,700,000
|
*
|
1,376,268
|
|||||
TOTAL SHORT-TERM INVESTMENTS (Cost $4,951,152)
|
4,914,710
|
|||||||
TOTAL MEXICO (Cost $80,493,824)
|
81,083,886
|
|||||||
UNITED STATES – 0.84%
|
Shares
|
Value
|
||||||
INVESTMENT COMPANIES – 0.84%
|
||||||||
Morgan Stanley Institutional Liquidity Funds –
|
||||||||
Government Portfolio – Institutional Class – 0.468% (e)
|
661,886
|
661,886
|
||||||
TOTAL INVESTMENT COMPANIES (Cost $661,886)
|
661,886
|
|||||||
TOTAL UNITED STATES (Cost $661,886)
|
661,886
|
|||||||
Total Investments (Cost $81,155,710) – 103.88%
|
81,745,772
|
|||||||
Liabilities in Excess of Other Assets – (3.88)%
|
(3,048,846
|
)
|
||||||
TOTAL NET ASSETS – 100.00%
|
$
|
78,696,926
|
(a)
|
Non-income producing security.
|
|
(b)
|
Fair valued security. The total market value of this security was $2,008,337, representing 2.55% of net assets.
|
|
(c)
|
Illiquid security. The total market value of this security was $2,008,337, representing 2.55% of net assets.
|
|
(d)
|
Effective yield based on the purchase price. The calculation assumes the security is held to maturity.
|
|
(e)
|
The rate shown represents the 7-day yield at January 31, 2017.
|
|
*
|
Principal amount in Mexican pesos.
|
Statement of Assets & Liabilities
|
January 31, 2017
(Unaudited)
|
ASSETS:
|
||||
Investments, at value (cost $81,155,710)
|
$
|
81,745,772
|
||
Receivables for investments sold
|
2,104,320
|
|||
Foreign currency (cost $5,449)
|
5,425
|
|||
Interest Receivable
|
9
|
|||
Other assets
|
23,686
|
|||
Total Assets
|
83,879,212
|
|||
LIABILITIES:
|
||||
Payable for securities purchased
|
5,001,184
|
|||
Advisory fees payable
|
53,250
|
|||
Administration fees payable
|
24,294
|
|||
NYSE fees payable
|
24,061
|
|||
Audit fees payable
|
17,297
|
|||
Custody fees payable
|
15,657
|
|||
Fund accounting fees payable
|
11,709
|
|||
Legal fees payable
|
8,219
|
|||
Printing and mailing
|
7,709
|
|||
Director fees and expenses payable
|
6,355
|
|||
CCO fees and expenses payable
|
4,375
|
|||
Transfer Agent fees and expenses payable
|
4,222
|
|||
Accrued expenses and other liabilities
|
3,954
|
|||
Total Liabilities
|
5,182,286
|
|||
Net Assets
|
$
|
78,696,926
|
||
Net Asset Value Per Common Share ($78,696,926 / 7,349,716)
|
$
|
10.71
|
||
NET ASSETS CONSIST OF:
|
||||
Common stock, $0.001 par value; 7,349,716 shares outstanding,
|
||||
7,347,660 shares held in treasury (98,144,872 shares authorized)
|
$
|
7,350
|
||
Paid-in capital
|
96,968,246
|
|||
Accumulated undistributed net investment loss
|
(300,590
|
)
|
||
Accumulated net realized loss on investments and foreign currency
|
(18,570,450
|
)
|
||
Net unrealized appreciation on investments and foreign currency
|
592,370
|
|||
Net assets
|
$
|
78,696,926
|
Statement of Operations
|
For the Six Months Ended
January 31, 2017 (Unaudited)
|
INVESTMENT INCOME
|
||||
Dividends(1)
|
$
|
595,338
|
||
Interest
|
40,863
|
|||
Total Investment Income
|
636,201
|
|||
EXPENSES
|
||||
Advisory fees (Note B)
|
393,717
|
|||
Directors’ fees and expenses (Note B)
|
105,892
|
|||
Administration fees (Note B)
|
52,405
|
|||
Custodian fees (Note B)
|
35,328
|
|||
CCO fees and expenses (Note B)
|
26,220
|
|||
Legal fees
|
25,024
|
|||
Fund accounting fees (Note B)
|
23,552
|
|||
Printing and mailing fees
|
20,424
|
|||
Insurance fees
|
19,044
|
|||
Audit fees
|
17,296
|
|||
NYSE fees
|
13,156
|
|||
Transfer agent fees and expenses (Note B)
|
8,096
|
|||
Miscellaneous
|
3,089
|
|||
Total Expenses
|
743,243
|
|||
NET INVESTMENT LOSS
|
(107,042
|
)
|
||
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
|
||||
Net realized loss from investments and foreign currency transactions
|
(9,083,485
|
)
|
||
Net change in unrealized appreciation/(depreciation) on investments and foreign currency transactions
|
(2,809,123
|
)
|
||
Net loss from investments and foreign currency transactions
|
(11,892,608
|
)
|
||
Net decrease in net assets resulting from operations
|
$
|
(11,999,650
|
)
|
(1)
|
Net of $14,561 in dividend withholding tax.
|
For the Six
|
||||||||
Months Ended
|
For the
|
|||||||
January 31, 2017
|
Year Ended
|
|||||||
(Unaudited)
|
July 31, 2016
|
|||||||
DECREASE IN NET ASSETS
|
||||||||
Operations:
|
||||||||
Net investment income (loss)
|
$
|
(107,042
|
)
|
$
|
95,471
|
|||
Net realized loss on investments and foreign currency transactions
|
(9,083,485
|
)
|
(6,600,139
|
)
|
||||
Net change in unrealized appreciation/(depreciation) in value
|
||||||||
of investments and foreign currency transactions
|
(2,809,123
|
)
|
(181,380
|
)
|
||||
Net decrease in net assets resulting from operations
|
(11,999,650
|
)
|
(6,686,048
|
)
|
||||
Distributions to Shareholders from:
|
||||||||
Net realized gains
|
||||||||
Common stock
|
—
|
(4,160,192
|
)
|
|||||
Preferred stock
|
—
|
(27,180
|
)
|
|||||
Decrease in net assets from distributions
|
—
|
(4,187,372
|
)
|
|||||
Capital Share Transactions (Note D):
|
||||||||
Issuance of common stock for dividend
|
—
|
1,089,584
|
||||||
Redemption of preferred stock
|
—
|
(546,989
|
)
|
|||||
Repurchase of common stock
|
(882,728
|
)
|
(1,207,197
|
)
|
||||
Decrease in net assets from capital share transactions
|
(882,728
|
)
|
(664,602
|
)
|
||||
Total decrease in net assets
|
(12,882,378
|
)
|
(11,538,022
|
)
|
||||
Net Assets:
|
||||||||
Beginning of period
|
91,579,304
|
103,117,326
|
||||||
End of period*
|
$
|
78,696,926
|
$
|
91,579,304
|
||||
* Including accumulated undistributed net investment loss of
|
$
|
(300,590
|
)
|
$
|
(193,548
|
)
|
For the Six
|
||||||||||||||||||||||||
Months Ended
|
||||||||||||||||||||||||
January 31,
|
||||||||||||||||||||||||
2017
|
For the Year Ended July 31,
|
|||||||||||||||||||||||
(Unaudited)
|
2016
|
2015
|
2014
|
2013
|
2012
|
|||||||||||||||||||
Per Share Operating Performance
|
||||||||||||||||||||||||
Net asset value, beginning of period
|
$
|
12.32
|
$
|
13.79
|
$
|
17.77
|
$
|
17.91
|
$
|
13.78
|
$
|
13.26
|
||||||||||||
Net investment income (loss)
|
(0.01
|
)
|
0.01
|
(0.09
|
)
|
0.01
|
(0.09
|
)
|
(0.05
|
)
|
||||||||||||||
Net realized and unrealized gains (losses) on
|
||||||||||||||||||||||||
investments and foreign currency transactions
|
(1.62
|
)
|
(0.92
|
)
|
(2.14
|
)
|
2.10
|
4.35
|
0.48
|
|||||||||||||||
Net increase (decrease) from
|
||||||||||||||||||||||||
investment operations
|
(1.63
|
)
|
(0.91
|
)
|
(2.23
|
)
|
2.11
|
4.26
|
0.43
|
|||||||||||||||
Less: Distributions
|
||||||||||||||||||||||||
Dividends from net investment income
|
—
|
—
|
(0.01
|
)
|
—
|
—
|
—
|
|||||||||||||||||
Distributions from net realized gains
|
—
|
(0.56
|
)
|
(1.61
|
)
|
(2.13
|
)
|
(0.19
|
)
|
—
|
||||||||||||||
Total dividends and distributions
|
—
|
(0.56
|
)
|
(1.62
|
)
|
(2.13
|
)
|
(0.19
|
)
|
—
|
||||||||||||||
Capital Share Transactions
|
||||||||||||||||||||||||
Anti-dilutive effect of Common
|
||||||||||||||||||||||||
Share Repurchase Program
|
0.02
|
0.03
|
—
|
0.00
|
(3)
|
0.06
|
0.09
|
|||||||||||||||||
Anti-dilutive effect of
|
||||||||||||||||||||||||
Preferred Share Redemption
|
—
|
0.00
|
(3)
|
—
|
—
|
—
|
—
|
|||||||||||||||||
Dilutive effect of Reinvestment of
|
||||||||||||||||||||||||
Distributions to the Fund’s Stockholders
|
—
|
(0.03
|
)
|
(0.13
|
)
|
(0.12
|
)
|
—
|
—
|
|||||||||||||||
Total capital share transactions
|
0.02
|
—
|
(0.13
|
)
|
(0.12
|
)
|
0.06
|
0.09
|
||||||||||||||||
Net Asset Value, end of period
|
$
|
10.71
|
$
|
12.32
|
$
|
13.79
|
$
|
17.77
|
$
|
17.91
|
$
|
13.78
|
||||||||||||
Per share market value, end of period
|
$
|
9.22
|
$
|
10.78
|
$
|
12.11
|
$
|
16.08
|
$
|
15.84
|
$
|
12.11
|
||||||||||||
Total Investment Return Based on
|
||||||||||||||||||||||||
Market Value, end of period(1)
|
(14.47
|
)%
|
(6.35
|
)%
|
(15.19
|
)%
|
15.93
|
%
|
32.55
|
%
|
4.04
|
%
|
||||||||||||
Ratios/Supplemental Data
|
||||||||||||||||||||||||
Net assets, end of period (000’s)
|
$
|
78,697
|
$
|
91,579
|
$
|
102,448
|
$
|
120,386
|
$
|
109,337
|
$
|
86,970
|
||||||||||||
Ratios of expenses to average net assets:
|
1.73
|
%(2)
|
1.89
|
%
|
1.76
|
%
|
1.79
|
%
|
1.62
|
%
|
1.57
|
%
|
||||||||||||
Ratios of net investment income (loss)
|
||||||||||||||||||||||||
to average net assets:
|
(0.25
|
)%(2)
|
0.10
|
%
|
(0.58
|
)%
|
0.07
|
%
|
(0.52
|
)%
|
(0.42
|
)%
|
||||||||||||
Portfolio turnover rate
|
184.26
|
%
|
167.08
|
%
|
175.19
|
%
|
134.98
|
%
|
179.10
|
%
|
277.48
|
%
|
(1)
|
Total investment return is calculated assuming a purchase of common stock at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at the closing market price on the dividend ex-date. Total investment does not reflect brokerage commissions.
|
(2)
|
Annualized.
|
(3)
|
Less than 0.5 cents per share.
|
Notes to Financial Statements
|
January 31, 2017
(Unaudited)
|
Notes to Financial Statements (continued)
|
January 31, 2017
(Unaudited)
|
Interest income on debt issued by the Mexican federal government is generally not subject to withholding. Withholding tax on interest from other debt obligations such as publicly traded bonds and loans by banks or insurance companies is at a rate of 4.9% under the tax treaty between Mexico and the United States.
|
|
Gains realized from the sale or disposition of debt securities may be subject to a 4.9% withholding tax. Gains realized by the Fund from the sale or disposition of equity securities that are listed and traded on the Mexican Stock Exchange (“MSE”) are exempt from Mexican withholding tax if sold through the stock exchange. Gains realized on transactions outside of the MSE may be subject to withholding at a rate of 25% (20% rate prior to January 1, 2002) of the value of the shares sold or, upon the election of the Fund, at 35% (40% rate prior to January 1, 2002) of the gain. If the Fund has owned less than 25% of the outstanding stock of the issuer of the equity securities within the 12 month period preceding the disposition, then such disposition will not be subject to capital gains taxes as provided for in the treaty to avoid double taxation between Mexico and the United States.
|
Level 1 –
|
Unadjusted quoted prices in active markets for identical assets or liabilities that the company has the ability to access.
|
Level 2 –
|
Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
|
Level 3 –
|
Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the company’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.
|
Notes to Financial Statements (continued)
|
January 31, 2017
(Unaudited)
|
Level 1*
|
Level 2*
|
Level 3**
|
Total
|
|||||||||||||
Equity
|
||||||||||||||||
Airports
|
$
|
4,779,939
|
$
|
—
|
$
|
—
|
$
|
4,779,939
|
||||||||
Auto Parts and Equipment
|
855,652
|
—
|
—
|
855,652
|
||||||||||||
Beverages
|
4,454,899
|
—
|
—
|
4,454,899
|
||||||||||||
Building Materials
|
1,248,217
|
—
|
—
|
1,248,217
|
||||||||||||
Capital Development Certificates
|
—
|
—
|
2,008,337
|
2,008,337
|
||||||||||||
Chemical Products
|
6,486,962
|
—
|
—
|
6,486,962
|
||||||||||||
Construction and Infrastructure
|
5,106,807
|
—
|
—
|
5,106,807
|
||||||||||||
Energy
|
4,879,923
|
—
|
—
|
4,879,923
|
||||||||||||
Financial Groups
|
13,289,580
|
—
|
—
|
13,289,580
|
||||||||||||
Food
|
4,655,135
|
—
|
—
|
4,655,135
|
||||||||||||
Holding Companies
|
1,020,983
|
—
|
—
|
1,020,983
|
||||||||||||
Hotels, Restaurants, and Recreation
|
3,188,299
|
1,264,038
|
—
|
4,452,337
|
||||||||||||
Mining
|
6,485,879
|
—
|
—
|
6,485,879
|
||||||||||||
Real Estate Services
|
1,956,651
|
—
|
—
|
1,956,651
|
||||||||||||
Retail
|
9,122,770
|
—
|
—
|
9,122,770
|
||||||||||||
Telecommunication
|
5,365,105
|
—
|
—
|
5,365,105
|
||||||||||||
Total Equity
|
$
|
72,896,801
|
$
|
1,264,038
|
$
|
2,008,337
|
$
|
76,169,176
|
||||||||
Short-Term Investments
|
$
|
—
|
$
|
5,576,596
|
$
|
—
|
$
|
5,576,596
|
||||||||
Total Investments in Securities
|
$
|
72,896,801
|
$
|
6,840,634
|
$
|
2,008,337
|
$
|
81,745,772
|
*
|
There were no significant transfers between levels 1 and 2 during the period. Transfers between Levels are recognized at the end of the reporting period.
|
|
**
|
The Fund measures Level 3 activity as of the beginning and end of each financial reporting period.
|
Notes to Financial Statements (continued)
|
January 31, 2017
(Unaudited)
|
Description
|
Investments in Securities
|
|||
Balance as of July 31, 2016
|
$
|
2,494,332
|
||
Acquisition/Purchase
|
—
|
|||
Sales
|
—
|
|||
Realized gain
|
—
|
|||
Change in unrealized appreciation (depreciation)(1)
|
(485,995
|
)
|
||
Balance as of January 31, 2017
|
$
|
2,008,337
|
(1)
|
Included in the net unrealized appreciation on investments and foreign currency on the Statement of Assets & Liabilities.
|
Impact to
|
||||
Valuation from
|
||||
Fair Value
|
Valuation
|
Unobservable
|
an Increase in
|
|
January 31, 2017
|
Methodologies
|
Input(1)
|
Input(2)
|
|
Capital Development Certificates
|
$2,008,337
|
Market
|
Liquidity
|
Decrease
|
Comparables/
|
Discount
|
|||
Sum of the Parts
|
||||
Valuation
|
(1)
|
In determining these inputs, management evaluates a variety of factors including economic conditions, foreign exchange rates, industry and market developments, market valuations of comparable companies and company specific developments.
|
(2)
|
This column represents the directional change in the fair value of the Level 3 investment that would result from increases to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect.
|
Notes to Financial Statements (continued)
|
January 31, 2017
(Unaudited)
|
Accumulated Undistributed Net Investment Loss
|
|
$(289,019
|
)
|
|
Accumulated Net Realized Loss
|
352,433
|
|||
Paid-in Capital
|
(63,414
|
)
|
(i)
|
market value of investment securities, assets and liabilities at the current Mexican peso exchange rate on the valuation date, and
|
|
(ii)
|
purchases and sales of investment securities, income and expenses at the Mexican peso exchange rate prevailing on the respective dates of such transactions. Fluctuations in foreign currency rates, however, when determining the gain or loss upon the sale of foreign currency denominated debt obligations pursuant to U.S. Federal income tax regulations; such amounts are categorized as foreign exchange gain or loss for income tax reporting purposes.
|
Notes to Financial Statements (continued)
|
January 31, 2017
(Unaudited)
|
Distributions paid from:
|
7/31/16
|
7/31/15
|
||||||
Ordinary Income
|
$
|
—
|
$
|
1,330,752
|
||||
Long-Term Capital Gain
|
4,187,372
|
9,706,965
|
||||||
Total
|
$
|
4,187,372
|
$
|
11,037,717
|
Cost of Investments for tax purposes(a)
|
$
|
93,783,137
|
|||
Gross tax unrealized appreciation on investments
|
6,604,407
|
||||
Gross tax unrealized depreciation on investments
|
(7,456,276
|
)
|
|||
Net tax unrealized depreciation on investments
|
(851,869
|
)
|
|||
Undistributed ordinary income
|
—
|
||||
Undistributed long-term capital gains
|
—
|
||||
Total distributable earnings
|
—
|
||||
Other accumulated gains(losses)
|
$
|
(5,427,151
|
)
|
||
Total accumulated earnings(losses)
|
$
|
(6,279,020
|
)
|
(a)
|
Represents cost for federal income tax purposes. Differences between the Fund’s cost basis of investments at July 31, 2016, for book and tax purposes, relates primarily to the deferral of losses related to wash sales.
|
Notes to Financial Statements (continued)
|
January 31, 2017
(Unaudited)
|
Notes to Financial Statements (continued)
|
January 31, 2017
(Unaudited)
|
Notes to Financial Statements (concluded)
|
January 31, 2017
(Unaudited)
|
Additional Information
|
January 31, 2017
(Unaudited)
|
Additional Information (concluded)
|
January 31, 2017
(Unaudited)
|
Dividends and Distributions
|
January 31, 2017
(Unaudited)
|
Dividends and Distributions (concluded)
|
January 31, 2017
(Unaudited)
|
Results of Annual
Stockholders Meeting
|
January 31, 2017
(Unaudited)
|
I.
|
(A) Election of Directors – Common
|
||
Votes For
|
Votes Withheld
|
||
Gerald Hellerman
|
3,434,444
|
3,042,545
|
|
I.
|
(B) Election of Directors – Common
|
||
Votes For
|
Votes Withheld
|
||
Glenn Goodstein
|
3,436,684
|
3,040,306
|
Privacy Policy
|
January 31, 2017
(Unaudited)
|
FACTS
|
WHAT DOES THE MEXICO EQUITY AND INCOME FUND, INC. (THE “FUND”),
|
|||
AND SERVICE PROVIDERS TO THE FUND, ON THE FUND’S BEHALF, DO WITH YOUR PERSONAL INFORMATION?
|
||||
Why?
|
Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.
|
|||
What?
|
The types of personal information we, and our service providers, on our behalf, collect and share depends on the product or service you have with us. This information can include:
|
|||
• Social Security number
|
||||
• account balances
|
||||
• account transactions
|
||||
• transaction history
|
||||
• wire transfer instructions
|
||||
• checking account information
|
||||
When you are no longer our customer, we continue to share your information as described in this notice.
|
||||
How?
|
All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons the Fund, and our service providers, on our behalf, choose to share; and whether you can limit this sharing.
|
Reasons we can share your personal information
|
Does the Fund share?
|
Can you limit this sharing?
|
|
For our everyday business purposes –
|
|||
such as to process your transactions, maintain your account(s),
|
|||
respond to court orders and legal investigations, or report to
|
|||
credit bureaus
|
Yes
|
No
|
|
For our marketing purposes –
|
|||
to offer our products and services to you
|
No
|
We don’t share
|
|
For joint marketing with other financial companies
|
No
|
We don’t share
|
|
For our affiliates’ everyday business purposes –
|
|||
information about your transactions and experiences
|
Yes
|
No
|
|
For our affiliates’ everyday business purposes –
|
|||
information about your creditworthiness
|
No
|
We don’t share
|
|
For our affiliates to market to you
|
No
|
We don’t share
|
|
For nonaffiliates to market to you
|
No
|
We don’t share
|
Questions?
|
Call (877) 785-0376
|
Privacy Policy (concluded)
|
January 31, 2017
(Unaudited)
|
What we do
|
|||
Who is providing this notice?
|
The Mexico Equity and Income Fund, Inc. (the “Fund”)
|
||
How does the Fund, and the
|
To protect your personal information from unauthorized access and use,
|
||
Fund’s service providers, on the
|
we and our service providers use security measures that comply with
|
||
Fund’s behalf, protect my
|
federal law. These measures include computer safeguards and secured
|
||
personal information?
|
files and buildings.
|
||
How does the Fund, and the
|
We collect your personal information, for example, when you:
|
||
Fund’s service providers, on
|
• open an account
|
||
the Fund’s behalf, collect my
|
• provide account information
|
||
personal information?
|
• give us your contact information
|
||
• make a wire transfer
|
|||
We also collect your information from others, such as credit bureaus, affiliates, or other companies.
|
|||
Why can’t I limit all sharing?
|
Federal law gives you the right to limit only
|
||
• sharing for affiliates’ everyday business purposes – information about your creditworthiness
|
|||
• affiliates from using your information to market to you
|
|||
• sharing for nonaffiliates to market to you
|
|||
State laws and individual companies may give you additional rights to limit sharing.
|
|||
Definitions
|
|||
Affiliates
|
Companies related by common ownership or control. They can be financial and nonfinancial companies.
|
||
• None
|
|||
Nonaffiliates
|
Companies not related by common ownership or control. They can be financial and nonfinancial companies.
|
||
• The Fund does not share with nonaffiliates so they can market to you.
|
|||
Joint marketing
|
A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
|
||
• The Fund does not jointly market.
|
Management of the Fund
|
January 31, 2017
(Unaudited)
|
Term of
|
|||||
Year
|
Position(s)
|
Office/Length
|
Principal Occupation
|
Other Directorships
|
|
Name and Address
|
Born
|
with the Fund
|
of Time Served
|
During the Past Five Years
|
Held by Director
|
Gerald Hellerman
|
1937
|
Director, Chief
|
Since
|
Managing Director of
|
Director, Crossroads
|
615 E. Michigan Street
|
Compliance
|
2013 / 15 years
|
Hellerman Associates
|
Capital, Inc. (f/k/a
|
|
Milwaukee, WI 53202
|
Officer
|
(a financial and corporate
|
BDCA Venture, Inc.);
|
||
consulting firm) since 1993
|
Director, Emergent
|
||||
(which terminated activities
|
Capital, Inc. (f/k/a
|
||||
as of December 31, 2013).
|
Imperial Holdings,
|
||||
Inc.); Director,
|
|||||
Ironsides Partners
|
|||||
Opportunity
|
|||||
Offshore Fund Ltd.
|
|||||
(2012-2016);
|
|||||
Director, MVC
|
|||||
Capital, Inc.;
|
|||||
Director, Special
|
|||||
Opportunities
|
|||||
Fund, Inc.
|
Management of the Fund (continued)
|
January 31, 2017
(Unaudited)
|
Term of
|
|||||
Year
|
Position(s)
|
Office/Length
|
Principal Occupation
|
Other Directorships
|
|
Name and Address
|
Born
|
with the Fund
|
of Time Served
|
During the Past Five Years
|
Held by Director
|
Phillip Goldstein
|
1945
|
Chairman
|
Since
|
Since its inception in 2009,
|
Director, Crossroads
|
Park 80 West, Plaza Two,
|
2014 / 16 years
|
Mr. Goldstein has been a
|
Capital, Inc. (f/k/a
|
||
250 Pehle Avenue,
|
member of Bulldog Investors,
|
BDCA Venture, Inc.);
|
|||
Suite 708
|
LLC, the investment advisor
|
Chairman, Emergent
|
|||
Saddle Brook, NJ 07663
|
of Special Opportunities
|
Capital, Inc. (f/k/a
|
|||
Fund, Inc. and the Bulldog
|
Imperial Holdings,
|
||||
Investors group of funds.
|
Inc.); Director,
|
||||
He also is a member of
|
MVC Capital, Inc.;
|
||||
Kimball & Winthrop, LLC,
|
Chairman, Special
|
||||
the managing general
|
Opportunities Fund,
|
||||
partner of Bulldog Investors
|
Inc.; Chairman,
|
||||
General Partnership, since
|
Brantley Capital
|
||||
2012. From 1992-2012,
|
Corporation (until
|
||||
Mr. Goldstein was a
|
2013); Director,
|
||||
member of the general
|
ASA Ltd. (until
|
||||
partners of several private
|
2013); Director,
|
||||
funds in the Bulldog
|
Korea Equity and
|
||||
Investors group of funds
|
Income Fund, Inc.
|
||||
and in 2012 became a
|
(until 2012).
|
||||
member of Bulldog
|
|||||
Holdings, LLC, which
|
|||||
became the sole owner of
|
|||||
such general partners.
|
|||||
Glenn Goodstein
|
1963
|
Director
|
Since
|
Registered Investment
|
None
|
5650 El Camino Real,
|
2013 / 15 years
|
Advisor; held numerous
|
|||
Suite 155
|
executive positions with
|
||||
Carlsbad, CA 92008
|
Automatic Data Processing
|
||||
until 1996.
|
Management of the Fund (concluded)
|
January 31, 2017
(Unaudited)
|
Term of
|
|||||
Year
|
Position(s)
|
Office/Length
|
Principal Occupation
|
Other Directorships
|
|
Name and Address
|
Born
|
with the Fund
|
of Time Served
|
During the Past Five Years
|
Held by Director
|
Rajeev Das
|
1968
|
Director
|
Since
|
Since 2004, Mr. Das has
|
None
|
68 Lafayette Avenue
|
2015 / 15 years
|
been a Principal of the
|
|||
Dumont, NJ 07628
|
entities serving as the general
|
||||
partner of the private
|
|||||
investment partnerships in
|
|||||
the Bulldog Investors group
|
|||||
of investment funds. Head
|
|||||
Trader of Bulldog Investors,
|
|||||
LLC, the investment
|
|||||
adviser to the Special
|
|||||
Opportunities Fund, Inc.,
|
|||||
since its inception in
|
|||||
2009. Treasurer of
|
|||||
Special Opportunities Fund,
|
|||||
Inc., from 2009-2014.
|
|||||
Richard Abraham
|
1955
|
Director
|
Since
|
Since 1998, Mr. Abraham
|
None
|
143 Colfax Rd
|
2015 / 1 year
|
has been self employed as
|
|||
Havertown, PA 19083
|
a securities trader.
|
||||
Maria Eugenia Pichardo
|
1950
|
Interested
|
Since
|
Portfolio Manager of the
|
None
|
Andres Bello No. 45 – 22 Floor
|
Director,
|
2014 / 6 years
|
Fund since the Fund’s
|
||
Col. Chapultepec Polanco
|
Officer,
|
Inception; President and
|
|||
Del. Miguel Hidalgo
|
President
|
Indefinite / 12 years
|
General Partner, Pichardo
|
||
Mexico, CDMX (D.F.),
|
Asset Management, S.A. de
|
||||
C.P. 11560
|
C.V. since 2003; Managing
|
||||
Director, Acciones y Valores
|
|||||
de Mexico, S.A. de C.V.
|
|||||
from 1979-2002.
|
|||||
Luis Calzada
|
1965
|
Secretary
|
Indefinite / 5 years
|
Administrative and
|
None
|
Andres Bello No. 45 – 22 Floor
|
Compliance Director,
|
||||
Col. Chapultepec Polanco
|
Pichardo Asset
|
||||
Mexico, CDMX (D.F.),
|
Management S.A. de C.V.
|
||||
C.P. 11560
|
|||||
Arnulfo Rodriguez
|
1962
|
Chief
|
Since 2016
|
Strategist and Debt Portfolio
|
None
|
Andres Bello No. 45 – 22 Floor
|
Financial
|
Manager, Pichardo Asset
|
|||
Col. Chapultepec Polanco
|
Officer
|
Management, S.A. de C.V.
|
|||
Mexico, CDMX (D.F.),
|
from January 2016-present;
|
||||
C.P. 11560
|
Local Fixed Income Research
|
||||
Vice President, Acciones y
|
|||||
Valores Banames from July
|
|||||
2011-January 2016.
|
(a)
|
Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.
|
(b)
|
Not Applicable.
|
Period
|
(a)
Total Number of Shares (or Units)
Purchased
|
(b)
Average Price Paid per Share (or Unit)
|
(c)
Total Number of Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs
|
(d)
Maximum Number (or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
|
8/1/16 to 8/31/16
|
25,819
|
$10.97
|
0
|
0
|
9/1/16 to 9/30/16
|
11,110
|
$10.36
|
0
|
0
|
10/1/16 to 10/31/16
|
37,859
|
$10.65
|
0
|
0
|
11/1/16 to 11/30/16
|
5,153
|
$10.18
|
0
|
0
|
12/1/16 to 12/31/16
|
3,000
|
$9.54
|
0
|
0
|
1/1/17 to 1/31/17
|
0
|
$0.00
|
0
|
0
|
Total
|
82,941(1)
|
$10.64
|
0
|
0
|
(a)
|
The Registrant’s President and Chief Financial Officer have reviewed the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d‑15(b) under the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant’s service provider.
|
(b)
|
There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting.
|
(a)
|
(1) Any code of ethics or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Not applicable.
|
(b)
|
Certifications pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002. Furnished herewith.
|