MEXICO EQUITY & INCOME FUND INC, N-2/A, 1995-07-24

MEXICO EQUITY & INCOME FUND INC
N-2/A, 1995-07-24

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<PAGE> 1

AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1995

SECURITIES ACT FILE NO. 33-83820
INVESTMENT COMPANY ACT FILE NO. 811-06111
================================================================================

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

Form N-2
(Check appropriate box or boxes)

/X/ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

/X/ Pre-Effective Amendment No. 3

/ / Post-Effective Amendment No.
and/or
/X/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

/X/ Amendment No. 13

THE MEXICO EQUITY AND
INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)

World Financial Center
200 Liberty Street
New York, New York 10281
(Address of Principal Executive Offices)

(212) 677-7000
(Registrant's Telephone Number, including Area Code)

Alan H. Rappaport, Chairman
The Mexico Equity and Income Fund, Inc.
World Financial Center
200 Liberty Street
New York, New York 10281
(Name and Address of Agent for Service)

Copies to:

<TABLE>
<S> <C>
Laurence E. Cranch, Esq. Rose F. DiMartino, Esq.
Rogers & Wells Willkie Farr & Gallagher
200 Park Avenue One Citicorp Center
New York, New York 10166 153 E. 53rd Street
(212) 878-8000 New York, New York 10022
(212) 821-8000
</TABLE>

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

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 to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check this box. /X/

------------------------------------
<TABLE>
<CAPTION>

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------------------------------------
PROPOSED AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE (1) FEE(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.001 per share............. 3,625,000 $22.375 $81,109,375 $27,969
- --------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, based on the
average of the high and low sale prices reported on the New York Stock
Exchange on September 6, 1994.

(2) This amount was paid at the time of filing the Registration Statement on
September 12, 1994.

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

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 that the Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================

<PAGE> 2

THE MEXICO EQUITY AND INCOME FUND, INC.

FORM N-2

CROSS REFERENCE SHEET

PARTS A AND B OF THE PROSPECTUS*

<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
----------------------- ----------------------
<S> <C>
1. Outside Front Cover......................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages... Inside Front and Outside Back Cover of
Prospectus
3. Fee Table and Synopsis...................... Fee Table; Prospectus Summary
4. Financial Highlights........................ Prospectus Summary; Financial Highlights
5. Plan of Distribution........................ Outside Front Cover Page of Prospectus;
Prospectus Summary; The Offer
6. Selling Stockholders........................ Not Applicable
7. Use of Proceeds............................. Use of Proceeds
8. General Description of the Registrant....... Outside Front Cover Page of Prospectus;
Prospectus Summary; Market and Net Asset
Value Information; The Fund; Risk Factors;
Investment Objective and Policies;
Investment Restrictions; Common Stock;
Legal Matters
9. Management.................................. Management of the Fund; Portfolio
Transactions; Common Stock; Custodians and
Transfer and Dividend-Paying Agent
10. Capital Stock, Long-Term Debt, and other
Securities................................ Dividends and Distributions; Dividend
Reinvestment Plan; Taxation; Common Stock
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.................................. Not Applicable
15. Table of Contents........................... Not Applicable
16. General Information and History............. Prospectus Summary; The Fund
17. Investment Objective and Policies........... Prospectus Summary; Investment Objective and
Policies; Investment Restrictions
18. Management.................................. Prospectus Summary; Management of the Fund
19. Control Persons and Principal Holders of
Securities................................ Management of the Fund
20. Investment Advisory and Other Services...... Prospectus Summary; Management of the Fund;
Custodians and Transfer and
Dividend-Paying Agent; Experts
21. Brokerage Allocation and Other Practices.... Portfolio Transactions
22. Tax Status.................................. Taxation
23. Financial Statements........................ Financial Statements
- ------------------------
*Pursuant to Form N-2, all information required to be set forth in Part B has been included in
Part A.
Information required to be included in Part C is set forth under the appropriate item, so
numbered in Part C to this Registered Statement.
</TABLE>

<PAGE> 3

3,000,000 SHARES

THE MEXICO EQUITY AND INCOME FUND, INC.
COMMON STOCK
ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE FOR SUCH SHARES OF COMMON STOCK
------------------------

The Mexico Equity and Income Fund, Inc. (the "Fund") is issuing to its
stockholders of record ("Record Date Stockholders") as of the close of business
on July 24, 1995 (the "Record Date") transferable rights ("Rights") entitling
the holders thereof to subscribe for up to an aggregate of 3,000,000 shares (the
"Shares") of the Fund's common stock, par value $0.001 per share (the "Common
Stock"), at the rate of one Share for each three Rights held (the "Offer").
Record Date Stockholders will receive one Right for each full share of Common
Stock held and stockholders who fully exercise their Rights will be entitled to
subscribe for additional shares of Common Stock pursuant to the
Over-Subscription Privilege as described below. Fractional Shares will not be
issued upon the exercise of Rights. Accordingly, Shares may be purchased only
pursuant to the exercise of Rights in integral multiples of three. The number of
Rights to be issued to a Record Date Stockholder will be rounded up to the
nearest number of Rights evenly divisible by three. In the case of shares of
Common Stock held of record by Cede & Co. ("Cede"), as nominee for The
Depository Trust Corporation ("DTC"), or any other depository or nominee, the
number of Rights issued to Cede or such other depository or nominee will be
adjusted to permit rounding up (to the nearest number of Rights evenly divisible
by three) of the Rights to be received by beneficial owners for whom it is the
holder of record only if Cede or such other depository or nominee provides to
the Fund on or before the close of business on August 8, 1995 written
representation of the number of Rights required for such rounding. The Rights
are transferable and the Rights and the Shares will be listed for trading on the
New York Stock Exchange, Inc. (the "New York Stock Exchange"). The Fund's Common
Stock is traded on the New York Stock Exchange under the symbol "MXE" and the
Rights will be traded under the symbol "MXE.RT." See "The Offer." THE
SUBSCRIPTION PRICE PER SHARE (THE "SUBSCRIPTION PRICE") WILL BE $9.125.

THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME, on August 15, 1995 unless
extended as described herein (the "Expiration Date"). The Fund announced the
Offer after the close of trading on the New York Stock Exchange on June 20,
1995. The net asset value per share of Common Stock at the close of business on
June 15, 1995 and on July 20, 1995 was $10.01 and $11.27, respectively, and the
last reported sale price of a share of the Fund's Common Stock on the New York
Stock Exchange on June 15, 1995 and July 21, 1995 was $11.00 and $12.25,
respectively.

The Fund is a nondiversified, closed-end management investment company. The
Fund's investment objective is to seek high total return through capital
appreciation and current income. It is the Fund's policy to invest at least 50%
of its assets in equity and convertible debt securities issued by Mexican
companies and the remainder of its assets in debt (other than convertible debt)
securities of Mexican issuers and, for cash management or temporary defensive
purposes, in certain high quality short-term debt instruments. See "Investment
Objective and Policies." There can be no assurance that the Fund's investment
objective will be achieved. INVESTMENT IN THE FUND'S COMMON STOCK INVOLVES
CERTAIN RISKS THAT ARE NOT TYPICALLY ASSOCIATED WITH INVESTMENTS IN SECURITIES
OF U.S. ISSUERS. SEE "RISK FACTORS."

Acci Worldwide, S.A. de C.V. (the "Mexican Adviser") has served as the
Fund's investment adviser with respect to Mexican securities investments since
the Fund's inception in 1990. Advantage Advisers, Inc. (the "U.S. Co-Adviser"),
a subsidiary of Oppenheimer & Co., Inc., has served as the Fund's U.S.
Co-Adviser since the Fund's inception in 1990. See "Management of the Fund." The
Fund's address is World Financial Center, 200 Liberty Street, New York, New York
10281, and its telephone number is (212) 667-7000. All questions and inquiries
relating to the Offer should be directed to the Information Agent, Shareholder
Communications Corporation,
17 State Street, New York, New York 10004, toll free at (800) 733-8481, ext.
318, or collect at (212) 805-7000.

An immediate dilution, which could be substantial, of the aggregate net
asset value of the Common Stock owned by Record Date Stockholders who do not
fully exercise their Rights may occur as a result of the Offer because the
Subscription Price per Share may be less than the Fund's net asset value per
share on the Expiration Date (and the Fund will incur expenses in connection
with the Offer), and the number of shares outstanding after the Offer is likely
to increase in a greater percentage than the increase in the size of the Fund's
assets. In addition, as a result of the terms of the Offer, Record Date
Stockholders who do not fully exercise their Rights should expect that they
will, upon the completion of the Offer, own a smaller proportional interest in
the Fund than would otherwise be the case. See "Risk Factors-- Dilution" and
"The Offer--Terms of the Offer."

THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUND THAT A
PROSPECTIVE INVESTOR OUGHT TO KNOW BEFORE INVESTING IN THE FUND. INVESTORS ARE
ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

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<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------

<CAPTION>
SUBSCRIPTION SALES PROCEEDS
PRICE LOAD(1) TO FUND(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...................................... $9.125(3) $0.319 $8.806
- ---------------------------------------------------------------------------------------------------------------------
Total.......................................... $27,375,000 $958,125 $26,416,875(4)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

(Footnotes on the following page)
------------------------
OPPENHEIMER & CO., INC.
------------------------

THE DATE OF THIS PROSPECTUS IS JULY 24, 1995

<PAGE> 4

(Continued from Previous Page)

All references in this Prospectus to "U.S. dollars," "dollars," or "US$" are
to United States dollars. Effective January 1, 1993, the Mexican Congress
approved the establishment of a new currency unit, the new peso, which replaced
the old peso at a rate of one new peso per one thousand old pesos. Unless
otherwise specified, all references in this Prospectus to "new pesos," "NPs.,"
"pesos" or "Ps." refer to new Mexican Pesos. NO REPRESENTATION IS MADE THAT THE
PESO OR U.S. DOLLAR AMOUNTS SHOWN IN THIS PROSPECTUS COULD HAVE BEEN OR COULD BE
CONVERTED INTO U.S. DOLLARS OR PESOS, AS THE CASE MAY BE, AT ANY PARTICULAR RATE
OR AT ALL.

On July 20, 1995, the exchange rate published by Banco de Mexico (the
"Published Rate") was Ps.6.1583 = US$1.00. See "Appendix A--The United Mexican
States" for additional information on the historical rate of exchange between
the dollar and the peso.

Certain numbers and percentages have been rounded for ease of presentation
which may result in amounts not totaling precisely.

(Footnotes from Previous Page)

(1) In connection with the Offer, the Fund has agreed to pay to Oppenheimer &
Co., Inc. (the "Dealer Manager") and other broker-dealers included in the
selling group to be formed and managed by the Dealer Manager ("Selling Group
Members") a fee of 2.50% of the Subscription Price per Share for each Share
either issued upon the exercise of Rights as a result of their soliciting
efforts or sold to the public. Certain other broker-dealers that have
executed and delivered a Soliciting Dealer Agreement (each a "Soliciting
Dealer") and have solicited the exercise of Rights will receive fees for
their soliciting efforts of 0.50% of the Subscription Price per Share. The
Fund has agreed to pay the Dealer Manager a fee for financial advisory
services in connection with the Offer equal to 1.00% of the aggregate
Subscription Price for the Shares, and has agreed to indemnify the Dealer
Manager and each Soliciting Dealer against certain liabilities under the
U.S. Securities Act of 1933, as amended. See "Distribution Arrangements."
Assumes that the exercise of all Rights was solicited by the Dealer Manager
and other Selling Group Members.

(2) Before deduction of offering expenses incurred by the Fund, estimated at
$550,000, including up to $100,000 payable to the Dealer Manager as partial
reimbursement for its expenses.

(3) Represents the subscription price per Share payable by holders of Rights.
Sales of Shares may be made during the Subscription Period by the Dealer
Manager and other Selling Group Members at prices set by the Dealer Manager
from time to time. See "Distribution Arrangements."
(4) Assumes all Rights are exercised at the Subscription Price.

IN CONNECTION WITH THIS OFFERING, THE DEALER MANAGER MAY EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE RIGHTS AND THE
COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKETS OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus.

THE OFFER

TERMS OF THE OFFER

The Mexico Equity and Income Fund, Inc. (the "Fund") is issuing to its
stockholders of record ("Record Date Stockholders") as of the close of business
on July 24, 1995 (the "Record Date") transferable rights ("Rights") to subscribe
for up to an aggregate of 3,000,000 shares (the "Shares") of the Fund's common
stock, par value $0.001 per Share ("Common Stock") at the rate of one Share for
each three Rights held (the "Offer"). Each Record Date Stockholder is being
issued one Right for each full share of Common Stock owned on the Record Date.
The number of Rights to be issued to a Record Date Stockholder will be rounded
up to the nearest number of Rights evenly divisible by three. Accordingly, no
fractional Shares will be issued. In the case of shares held of record by Cede &
Co. ("Cede"), as nominee for The Depository Trust Corporation ("DTC"), or by any
other depository or nominee (in each instance a "Nominee Holder"), the number of
Rights issued to Cede or such other depository or nominee will be adjusted to
permit rounding up (to the nearest number of Rights evenly divisible by three)
of the Rights to be received by beneficial owners for whom it is the holder of
record only if Cede or such other depository or nominee provides to the Fund on
or before the close of business on August 8, 1995 written representation of the
number of Rights required for such rounding. The Rights entitle the holders
thereof ("Rights Holders") to acquire at the Subscription Price (as hereinafter
defined) one Share for each three Rights held. The Subscription Period commences
on July 26, 1995 and ends at 5:00 p.m., New York time, on August 15, 1995,
unless extended by the Fund and the Dealer Manager (the "Expiration Date"). The
Rights are evidenced by Subscription Certificates which will be mailed to the
Record Date Stockholders other than Foreign Record Date Stockholders. See
"Foreign Stockholders."

The right of a Rights Holder to acquire Shares during the Subscription
Period is hereinafter referred to as the "Primary Subscription." All Rights may
be exercised immediately upon receipt and until 5:00 p.m., New York time, on the
Expiration Date. Rights Holders purchasing Shares in the Primary Subscription,
including those who purchase Shares pursuant to the Over-Subscription Privilege
(as hereinafter defined), are hereinafter referred to as "Exercising Rights
Holders."

Nominees who hold shares of Common Stock for the account of others, such as
banks, brokers, trustees or depositories for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such 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 (as
hereinafter defined) with proper payment. In addition, beneficial owners of
Common Stock or Rights held through such a nominee should contact the nominee
and request the nominee to effect transactions in accordance with the beneficial
owner's instructions. See "The Offer."

OVER-SUBSCRIPTION PRIVILEGE

Any Record Date Stockholder who fully exercises all Rights issued to such
Record Date Stockholder by the Fund is entitled to subscribe for Shares which
were not otherwise subscribed for by others in the Primary Subscription (the
"Primary Over-Subscription Privilege"). In addition, any Rights Holder who
exercises Rights is entitled to subscribe for Shares which are not otherwise
subscribed for in the Primary Subscription or pursuant to the Primary
Over-Subscription Privilege (the "Secondary Over-Subscription Privilege, "
which, together with the Primary Over-Subscription Privilege, is referred to
herein as the "Over-Subscription Privilege"). Shares acquired pursuant to the
Over-Subscription Privilege are subject to allotment, which is more fully
discussed under "The Offer--Over-Subscription Privilege."

SUBSCRIPTION PRICE

The Subscription Price per Share is $9.125. The Subscription Price is
approximately a 19% discount to the Fund's net asset value per share on July 20,
1995 and approximately a 25% discount to the last

3
<PAGE> 6

reported sale price per share of Common Stock on the New York Stock Exchange on
July 21, 1995. See "Common Stock."

The Subscription Price is discussed further under "The Offer--The
Subscription Price." In addition, information with respect to the quarterly high
and low market prices of the Fund's Common Stock on the New York Stock Exchange,
the corresponding net asset value per share and the premium and discount at
which the Fund's Common Stock was trading is provided under "Market and Net
Asset Value Information."

EXERCISE OF RIGHTS

Rights will be evidenced by Subscription Certificates (see Appendix B) and
may be exercised by completing a Subscription Certificate and delivering it,
together with payment, either by means of a Notice of Guaranteed Delivery (see
Appendix C) or a check, to PNC Bank, National Association (the "Subscription
Agent"), by mail, express mail or overnight courier to c/o ACS, 915 Broadway,
5th Floor, New York, New York 10010, or by hand to c/o PNC Trust Company, 40
Broad Street, 5th Floor, New York, New York 10004. Exercising Rights Holders
will have no right to modify or rescind a purchase after the Subscription Agent
has received a properly completed and executed Subscription Certificate or
Notice of Guaranteed Delivery. See "The Offer--Exercise of Rights" and "The
Offer--Payment for Shares." There is no minimum number of Rights which must be
exercised for the Offer to close.

SALES OF RIGHTS

The Rights are transferable until the last Business Day (as defined below)
prior to the Expiration Date. The Rights and the Shares will be listed for
trading on the New York Stock Exchange. The Fund has used its best efforts to
ensure that an adequate trading market for the Rights will exist by causing the
Rights to be listed on the New York Stock Exchange and by retaining the Dealer
Manager, the Subscription Agent and the Information Agent. The Fund expects that
a market for the Rights will develop and that the value of the Rights, if any,
will be reflected by the market price. Rights may be sold directly by a Rights
Holder, or may be sold through the Subscription Agent if delivered to the
Subscription Agent on or before August 10, 1995. Trading of the Rights on the
New York Stock Exchange will be conducted on a when-issued basis commencing on
July 25, 1995, and on a regular-way basis from July 27, 1995 through the last
Business Day prior to the Expiration Date. If the Subscription Agent receives
Rights for sale in a timely manner, it will use its best efforts to sell the
Rights through or to the Dealer Manager. Any commissions in connection with the
sale of Rights by the Subscription Agent will be paid by the applicable selling
Rights Holders. Neither the Fund, the Subscription Agent nor the Dealer Manager
will be responsible if Rights cannot be sold, and none of them has guaranteed
any minimum sale price for the Rights. For purposes of this Prospectus, a
"Business Day" means any day on which trading is conducted on the New York Stock
Exchange. See "The Offer--Sale of Rights."

Rights Holders are urged to obtain a recent trading price for the Rights on
the New York Stock Exchange from their broker, bank, financial adviser or the
financial press. Exercising Rights Holders' inquiries should be directed to the
Information Agent, Shareholder Communications Corporation, Investor Relations
Department. See "Information Agent" below.

DEALER MANAGER AND SOLICITING FEES

In connection with the Offer, the Fund has agreed to pay Oppenheimer & Co.,
Inc., as Dealer Manager, and other Selling Group Members a fee equal to 2.50% of
the Subscription Price per Share for Shares either issued upon the exercise of
Rights as a result of their soliciting efforts or sold to the public. Certain
other broker-dealers that have executed and delivered a Soliciting Dealer
Agreement and have solicited the exercise of Rights will receive fees for their
soliciting efforts of up to 0.50% of the Subscription Price per Share. The Fund
will pay to the Dealer Manager a fee equal to 1.00% of the aggregate
Subscription Price for Shares issued upon exercise of the Rights for financial
and advisory services, including advice with respect to the advisability,
timing, size and pricing of the Offer, the formation and management of the
Selling Group, the coordination of soliciting efforts among soliciting dealers,
the Subscription Agent and the Information Agent and market-making activities to
assure a liquid and orderly market for the Rights and the Shares. The Fund

4
<PAGE> 7

has also agreed to reimburse the Dealer Manager for its out-of-pocket expenses
in connection with the Offer up to an aggregate of $100,000. See "Distribution
Arrangements."

FOREIGN RESTRICTIONS

Subscription Certificates will not be mailed to Record Date 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 Record Date Stockholders"). The Rights to which such
Subscription Certificates relate will be held by the Subscription Agent for such
Foreign Record Date Stockholders' accounts until instructions are received to
exercise, sell or transfer the Rights. If no instructions have been received by
12:00 Noon, New York time, three Business Days prior to the Expiration Date, the
Subscription Agent will use its best efforts to sell the Rights through or to
the Dealer Manager. The net proceeds, if any, from the sale of those Rights will
be remitted to the Foreign Record Date Stockholders on a pro rata basis. See
"The Offer--Foreign Stockholders."

PURPOSE OF THE OFFER

The Board of Directors of the Fund has determined that it is in the best
interests of the Fund and its stockholders to increase the assets of the Fund
available for investment so that the Fund may take advantage of the availability
of attractively priced equity and debt securities of Mexican issuers following
the recent peso devaluation. The Board of Directors believes that increasing the
size of the Fund should also increase the liquidity of the Fund's shares and
reduce the Fund's expenses as a proportion of average net assets, although no
assurance can be given that this result will be achieved. At July 20, 1995, the
Fund had net assets of $99,430,851. Also, the Offer seeks to reward the Fund's
stockholders by giving them the right to purchase additional shares of common
stock at a price below market and net asset value without incurring any direct
transaction costs. The distribution to stockholders of transferable rights which
themselves may have intrinsic value will also afford non-participating
stockholders the potential of receiving a cash payment upon sale of such Rights,
receipt of which may be viewed as partial compensation for the possible dilution
of their interest in the Fund. The Board of Directors determined to proceed with
the offer of transferable Rights after having considered the dilutive effect of
the Offer on stockholders who are unwilling or unable to fully exercise their
Rights, as well as the alternatives of a secondary offering and the issuance of
non-transferable Rights. After careful consideration, the Fund's Board of
Directors unanimously voted to approve the Offer. See "The Offer--Purpose of the
Offer."

USE OF PROCEEDS

If all of the Rights are exercised in full at the Subscription Price of
$9.125 per Share and the maximum solicitation fee is paid to the Dealer Manager
and other Selling Group Members, the net proceeds to the Fund would be
approximately $25,866,875, after deducting offering expenses payable by the Fund
estimated to be approximately $550,000. However, there can be no assurance that
all Rights will be exercised in full. It is expected that the net proceeds of
the Offer will be fully invested in investments conforming to the Fund's
investment objective and policies within six months from their receipt by the
Fund, depending on market conditions and the availability of appropriate
securities for purchase. Pending such investment it is anticipated that the
proceeds will be invested in certain short-term and medium-term debt
instruments, as described under "Investment Objective and Policies--Temporary
Investments."

5
<PAGE> 8

INFORMATION AGENT

The Information Agent for the Offer is:

Shareholder Communications Corporation
17 State Street
New York, New York 10004
Toll Free: (800) 733-8481, ext. 318
or
Call Collect: (212) 805-7000

IMPORTANT DATES TO REMEMBER

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<CAPTION>
EVENT DATE
- ------------------------------------------------------- --------------------------------
<S> <C>
Record Date............................................ July 24, 1995
Subscription Period.................................... July 26, 1995 to August 15, 1995
(unless extended)
Expiration Date........................................ August 15, 1995
Payment for Shares or Notices of Guaranteed Delivery
Due.................................................. August 15, 1995
Subscription Certificates and Payment for Shares Due
pursuant to Notices of Guaranteed Delivery........... August 18, 1995
Confirmation Date...................................... August 29, 1995
</TABLE>

THE FUND

INFORMATION REGARDING THE FUND

The Fund has been engaged in business as a non-diversified, closed-end
management investment company since August 21, 1990, when it completed an
initial public offering of 6,250,000 shares of its Common Stock. The Fund
completed a transferable rights offering in October 1993 pursuant to which an
additional 2,200,000 shares of its Common Stock were sold. The Fund's investment
objective is to seek high total return through capital appreciation and current
income. It is the policy of the Fund, under normal market conditions, to invest
at least 50% of its assets in equity and convertible debt securities issued by
Mexican companies and the remainder of its assets in debt (other than
convertible debt) securities of Mexican issuers and, for cash management or
temporary defensive purposes, in certain high quality short-term debt
instruments. See "Investment Objective and Policies." There is no assurance that
the Fund's investment objective will be achieved. See "Investment Objective and
Policies" and "Risk Factors."

The Fund currently has 8,825,273 shares of Common Stock outstanding, which
are listed and traded on the New York Stock Exchange under the symbol "MXE." See
"Common Stock." As of July 20, 1995, the net assets of the Fund were
$99,430,851. As of July 20, 1995, approximately 90.0% of the Fund's assets were
invested in equity securities of Mexican companies, 0.43% in convertible debt
securities of one Mexican issuer, 6.74% in short term debt securities of Mexican
issuers and 2.80% in U.S. dollar-denominated money market instruments.

INFORMATION REGARDING THE FUND'S INVESTMENT ADVISERS, ADMINISTRATOR AND
CUSTODIAN

Acci Worldwide, S.A. de C.V. (the "Mexican Adviser"), a subsidiary of
Acciones y Valores de Mexico, S.A. de C.V. ("AVM"), acts as the Fund's
investment adviser with respect to Mexican securities investments pursuant to
the terms of an Investment Advisory Agreement, dated as of October 14, 1991. The
Fund pays the Mexican Adviser a monthly fee for its advisory services at an
annual rate of 0.52% of the Fund's average monthly net assets. The Mexican
Adviser is a registered investment adviser under the U.S. Investment Advisers
Act of 1940, as amended (the "Advisers Act"). AVM is one of the leading
brokerage firms in Mexico and is a wholly owned subsidiary of Grupo Financiero
Banamex Accival, S.A. de C.V. ("Grupo

6
<PAGE> 9

Banacci"). Grupo Banacci also holds the controlling interest in Banco Nacional
de Mexico, S.A., Mexico's largest commercial bank, in terms of total deposits.

Advantage Advisers, Inc., a subsidiary of Oppenheimer & Co., Inc., acts as
the Fund's U.S. co-adviser (the "U.S. Co-Adviser") pursuant to the terms of a
U.S. Co-Advisory Agreement, dated as of August 14, 1990. The Fund pays the U.S.
Co-Adviser a monthly fee at an annual rate of 0.40% of the Fund's average
monthly net assets. The U.S. Co-Adviser is a registered investment adviser under
the Advisers Act.

Oppenheimer & Co., Inc. (the "Administrator") acts as the Fund's
Administrator pursuant to the terms of an Administration Agreement, dated as of
August 14, 1990. The Fund pays the Administrator a monthly fee at an annual rate
of 0.20% of the Fund's average monthly net assets.

Although the fees paid to the Mexican Adviser, the U.S. Co-Adviser and the
Administrator, in the aggregate, are comparable to fees paid by other closed-end
management investment companies that invest primarily in the securities of
issuers of a single foreign country, they are higher than those paid by most
investment companies.

PNC Bank, National Association acts as the Fund's global custodian and
Citibank, N.A. acts as sub-custodian of the Fund's Mexican assets. Securities of
the Fund that are listed on the Bolsa Mexicana de Valores, S.A. de C.V. (the
"Mexican Stock Exchange") are held by Citibank, N.A. through the book-entry
system of S.D. Indeval, S.A. de C.V., the Mexican central securities depository
("Indeval"). See "Custodians and Transfer and Dividend--Paying Agent."

Since the Mexican Adviser's, the U.S. Co-Adviser's and the Administrator's
fees are based on the average monthly net assets of the Fund, each of the
Mexican Adviser, the U.S. Co-Adviser and the Administrator will benefit from an
increase in the Fund's assets resulting from the Offer. See "Management of the
Fund." In addition, two of the Fund's five Directors are "interested persons"
(as such term is defined under the U.S. Investment Company Act of 1940, as
amended (the "1940 Act")) of the Fund who could benefit indirectly from the
Offer because of such Directors' indirect affiliations with the Dealer Manager,
the U.S. Co-Adviser and the Administrator. See "Management of the Fund."

DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN

The Fund distributes, at least annually, substantially all of its net
investment income and its net realized capital gains, if any, although the Board
of Directors of the Fund may decide not to distribute all or a portion of net
realized capital gains under certain circumstances. Unless the Fund is otherwise
instructed in writing, in the manner described under "Dividends and
Distributions; Dividend Reinvestment Plan," stockholders are presumed to have
elected to have all distributions automatically reinvested in shares of Common
Stock. See "Dividends and Distributions; Dividend Reinvestment Plan" and
"Taxation--United States Federal Income Taxes."

RISK FACTORS

Dilution. An immediate dilution, which could be substantial, of the
aggregate net asset value of the shares of Common Stock owned by Record Date
Stockholders who do not fully exercise their Rights may occur as a result of the
Offer because the Subscription Price per Share may be less than the Fund's net
asset value per share on the Expiration Date (and the Fund will incur expenses
in connection with the Offer), and the number of shares outstanding after the
Offer will increase in a greater percentage than the increase in the size of the
Fund's assets. In addition, 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.
Although it is not possible to state precisely the amount of such a decrease in
net asset value because it is not known at this time what the net asset value
per share will be on the Expiration Date or what proportion of the Shares will
be subscribed for, such dilution could be substantial. For example, assuming
that all Rights are exercised and that the Subscription Price of $9.125 is 19%
below the Fund's net asset value of $11.27 per share as of July 20, 1995, the
Fund's net asset value per share (after payment of the Dealer Manager and
Soliciting Fees and estimated offering expenses) would be reduced approximately
$0.67. The distribution to stockholders of transferable Rights which themselves
may have intrinsic value will afford non-participating stockholders the
potential of receiving a cash payment upon sale of such Rights, receipt of

7
<PAGE> 10

which may be viewed as partial compensation for the possible dilution of their
interest in the Fund. No assurance can be given, however, that a market for the
Rights will develop or as to the value, if any, that such Rights will have. See
"Risk Factors--Dilution."

Risks of Investment in Mexican Securities. Investment in Mexican equity
and debt securities involves special considerations and risks that are not
normally associated with investments in U.S. securities, including (1)
relatively higher price volatility, lesser liquidity and smaller market
capitalization of the Mexican securities markets, (2) currency fluctuations and
devaluation and the cost of converting foreign currency into U.S. dollars, (3)
restrictions on foreign investment and potential restrictions on repatriation of
capital invested in Mexico and remittance of profits and dividends accruing
thereon, (4) political, economic and social risks and uncertainties, including
risks of confiscatory taxation and expropriation or nationalization of assets,
and (5) high rates of inflation, unemployment and domestic interest rates. In
addition, as a result of the financial crisis that occurred in Mexico in
December 1994 many private and public sector entities are faced with severe
financial and operational problems, including the lack of foreign exchange
needed to repay U.S. dollar denominated obligations. In the past, such financial
difficulties have led to numerous restructurings of existing debt obligations.
Bankruptcy and creditors' rights laws in Mexico are relatively undeveloped and
it may be more difficult to obtain and execute a judgment in Mexico than in the
United States.

The Mexican securities market is not as large or as active as the
securities markets in the United States. As of June 29, 1995, the Mexican equity
market capitalization was approximately NPs. 603.9 billion (US$96.5 billion)
having declined approximately 13% in new pesos and 52% in U.S. dollars from
November 30, 1994. Generally, the Mexican securities market is characterized by
a relatively small number of actively traded issues and high price volatility.
These and other factors may make it difficult to dispose of the securities that
the Fund holds in its portfolio, particularly when large numbers of investors
desire to dispose of securities at the same time. In addition, these factors may
limit the supply of securities available for investment by the Fund. 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 Mexican
securities than is regularly published by issuers in the United States. 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 risk of a decline in the value of the peso
against the U.S. dollar. Because the equity and debt securities in the Fund's
portfolio and equity securities underlying the convertible debt securities in
which the Fund may invest will be 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 equity and debt
securities held by the Fund that are denominated in pesos. The 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. Prior to December
22, 1994, the Mexican Government permitted the peso/dollar exchange rate to
fluctuate within a band. The ceiling of the band, which was the maximum selling
rate, increased by 0.0004 new pesos per day, while the floor of the band, which
was the minimum buying rate, remained fixed. On December 22, 1994, in response
to extreme market pressure on the exchange rate, the Government eliminated the
band and allowed the new peso to float freely against the dollar. The new peso
reached a low of NPs. 7.207=US$1.00 on March 17, 1995, before strengthening to
its recent level of NPs. 6.1583=US$1.00 on July 20, 1995. The devaluation has
resulted in a significant rise in inflation and domestic interest rates. The
free floation of the new peso against the dollar continues to be the current
Mexican Government's policy.

Under current Mexican regulations, the Fund may freely acquire U.S. dollar
denominated securities issued by Mexican companies and may freely convert pesos
acquired with respect to its Mexican investments into U.S. dollars. However,
future regulatory changes in Mexico may adversely affect the Fund's ability to
acquire these U.S. dollar-denominated securities or to obtain U.S. dollars with
respect to its investments in

8
<PAGE> 11

Mexican companies. If the Fund were unable to obtain U.S. dollars sufficient in
amount to satisfy certain distribution requirements relating to its status as a
regulated investment company for U.S. federal income tax purposes, and if it
were unable otherwise to satisfy those requirements, the Fund might no longer be
able to qualify as a regulated investment company or, if it continued to so
qualify, it might become subject to certain U.S. federal income and excise
taxes. See "Risk Factors--Currency Fluctuation and Exchange Control Laws" and
"Taxation--United States Federal Income Taxes." The Fund is authorized to borrow
money from banks for the purpose of making distributions required to maintain
its qualification as a regulated investment company for U.S. tax purposes, for
temporary or emergency purposes or for the clearance of transactions. Borrowings
by the Fund increase exposure to capital risk. See "Risk Factors."

Under existing restrictions on foreign investment in Mexican securities,
many of the shares of Mexican companies actively traded on the Mexican Stock
Exchange, and also a portion of any shares issuable upon conversion of any
convertible securities acquired by the Fund, must be held by Mexican nationals.
As a consequence, the Fund, in many instances, may not invest directly in the
shares of a Mexican company, but instead must acquire ordinary certificates of
participation issued by a trust (created under Mexican law) that holds such
shares. The trustee of the trust is deemed to be the record owner of the shares
held by the trust and is granted the voting rights with respect thereto. These
voting rights, however, typically are limited in that the trustee must vote such
shares in accordance with the votes cast by the majority of stockholders holding
shares of the same class. Thus, the Fund's ability to participate in such
instances in the governance of the company in which it has invested is extremely
limited.

The Fund will be subject to the risks of political instability, social
unrest and acts of violence with respect to its investments in Mexico. For
example, the leading presidential candidate of the Partido Revolucionario
Institucional (the Institutional Revolutionary Party, or the "PRI"), the
dominant political party in Mexico, was assassinated in March 1994. The former
attorney general of the State of Jalisco was assassinated, reportedly by members
of a drug cartel, in May 1995. Other recent destabilizing events include an
armed insurgency in the southern state of Chiapas, the assassination of the
former Secretary-General of the PRI, the kidnapping of several well-known
business leaders, the ongoing investigations into the circumstances surrounding
the assassinations and the financial crisis that commenced in December 1994.
Future changes in Mexico could produce further political, economic and social
instability which could, in turn, have an adverse effect on the Fund's
operations and performance.

Currency Transactions and Hedging. The equity and debt securities in the
Fund's portfolio will be denominated in pesos. Currently, the value of the
Fund's securities may be adversely affected by changes in the exchange rate
between the peso and the U.S. dollar. The Fund does not expect to hedge against
a decline in the value of the peso except in limited circumstances. Accordingly,
the Fund's peso denominated investments should be considered an unhedged
currency risk. Decreases in the value of the peso relative to the U.S. dollar
will result in a corresponding decrease in the U.S. dollar value of the Fund's
assets.

On March 19, 1995, Banco de Mexico approved the establishment of
over-the-counter forward and option contracts in Mexico on the new peso between
banks and their clients. Also, Banco de Mexico recently authorized the issuance
and trading of futures contracts in respect of the new peso on the Chicago
Mercantile Exchange ("CME"). Trading of new peso futures contracts began on the
CME on April 25, 1995. These markets are relatively new and have not developed
significantly. The nature of the strategies adopted by the Fund and the extent
to which those strategies are used will depend on the development of such a
market.

The ability of the Fund to utilize hedging successfully will depend on its
ability to predict pertinent market movements, which cannot be assured. These
skills are different from those needed to select portfolio securities. See
"Investment Objective and Policies--Currency Transactions and Hedging."

Net Asset Value Discount. Shares of closed-end investment companies
frequently trade at a discount from their net asset value. This characteristic
of shares of a closed-end fund is a risk separate and distinct from the risk
that the Fund's net asset value will decrease. The Fund cannot predict whether
its shares will trade at, below or above net asset value. Accordingly, the
Common Stock of the Fund is designed primarily for long-term investors and
should not be considered a vehicle for trading purposes. The Fund may seek to
minimize any market discount through share repurchases or tender offers by the
Fund; however, there can be no assurance that such measures will, if taken,
result in shares of the Fund trading at a price equal to their net

9
<PAGE> 12

asset value. The net asset value of the Fund's shares will fluctuate with, among
other factors, price changes of the Fund's portfolio securities. The Fund's
shares have generally traded at a discount to net asset value. See "Common
Stock."

Non-Diversification of Investments. The Fund is classified as a
"non-diversified" investment company under the 1940 Act, which means that the
Fund is not limited by the 1940 Act in 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, may be subject to
greater risk with respect to portfolio securities. The Fund intends to continue
to comply with the diversification requirements imposed on regulated investment
companies by the U.S. Internal Revenue Code of 1986, as amended. See
"Taxation--United States Federal Income Taxes."

Operating Expenses. The operating expense ratio of the Fund is higher than
that of a fund investing predominantly in the securities of U.S. issuers since
the expenses of the Fund (such as investment advisory and administration fees,
custodial and communication costs) are higher. The operating expense ratio of
the Fund for the year ended July 31, 1994 was 1.64%. See "Management of the
Fund."

Certain Provisions of the Articles of Incorporation. Certain provisions of
the Fund's Articles of Incorporation may have the effect of inhibiting the
Fund's possible conversion to open-end status and limiting the ability of other
persons to acquire control of the Fund's Board of Directors. In certain
circumstances, these provisions might inhibit the ability of stockholders to
sell their shares at a premium over prevailing market prices. See "Common
Stock."

10
<PAGE> 13

FEE TABLE

<TABLE>
<S> <C>
STOCKHOLDER TRANSACTION EXPENSES:
Sales Load (as a percentage of offering price)(1)(2).............................. 3.50%
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS):
Management Fees................................................................... 0.92%
Other Expenses(2)................................................................. 0.78%
----
Total Annual Expenses............................................................. 1.70%
EXAMPLE
</TABLE>

An investor would pay the following expenses on a $1,000 investment,
assuming a 5% annual return throughout the periods indicated(3):

<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
- -------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$ 52 $ 87 $ 124 $229
</TABLE>

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

(1) The Fund has agreed to pay to the Dealer Manager and each other Selling
Group Member a fee equal to 2.50% of the Subscription Price per Share for
each Share either issued upon the exercise of Rights as a result of their
soliciting efforts or sold to the public. Certain other broker-dealers that
have executed and delivered a Soliciting Dealer Agreement and have
solicited the exercise of Rights will receive fees for their soliciting
efforts of up to 0.50% of the Subscription Price per Share. The Fund has
agreed to pay the Dealer Manager a fee for financial advisory services in
connection with the Offer equal to 1.00% of the aggregate Subscription
Price for the Shares. These fees will be borne by all of the Fund's
stockholders, including those stockholders who do not exercise their
Rights. See "Distribution Arrangements." Assumes that the exercise of
Rights was solicited by the Dealer Manager and other Selling Group Members.

(2) The figures provided under "Other Expenses" are based on estimated amounts
for the current fiscal year and do not include expenses of the Fund
incurred in connection with the Offer, estimated at $550,000. See
"Management of the Fund" for additional information.

(3) The Example reflects the Sales Load and other expenses of the Fund incurred
in connection with the Offer and assumes that all of the Rights are
exercised.

The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that an investor in the Fund will bear directly or
indirectly.

The Example set forth above assumes reinvestment of all dividends and
distributions at net asset value and an expense ratio of 1.70%. The table above
and the assumption in the Example of a 5% annual return are required by
Securities and Exchange Commission regulations applicable to all investment
companies. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR ANNUAL RATES OF RETURN AND ACTUAL EXPENSES OR ANNUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE.

11
<PAGE> 14

FINANCIAL HIGHLIGHTS

The table below sets forth selected data for a share of Common Stock
outstanding throughout each of the periods presented. The information contained
in the table below insofar as it pertains to the period from August 21, 1990
(commencement of operations) through July 31, 1991 and for the fiscal years
ended July 31, 1992, 1993 and 1994 has been audited by Price Waterhouse LLP, the
Fund's independent accountants, whose report thereon was unqualified. The
information contained in the table below for the six-month period ended January
31, 1995 has not been audited. The information set forth below should be read in
conjunction with the financial statements and notes thereto contained in the
Fund's Annual Report to Stockholders as of July 31, 1994, and Semi-Annual Report
to Stockholders as of January 31, 1995, which are available upon request from
PNC Bank, National Association, (800) 852-4750, and which are incorporated by
reference into this Prospectus.

<TABLE>
<CAPTION>
FOR THE SIX-
MONTH PERIOD
FOR THE PERIOD ENDED
AUGUST 21, 1990* FOR THE YEAR FOR THE YEAR FOR THE YEAR JANUARY 31,
THROUGH ENDED ENDED ENDED 1995
JULY 31, 1991 JULY 31, 1992 JULY 31, 1993 JULY 31, 1994 (UNAUDITED)
---------------- ------------- ------------- ------------- ------------
(FOR A SHARE OUTSTANDING THROUGH EACH PERIOD)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period......................... $ 11.27** $ 15.08 $ 16.03 $ 18.51 $ 20.33
---------------- ------------- ------------- ------------- ------------
Net investment income.......... 1.42 0.83 0.68 0.51 0.22
Net realized and unrealized
gains (losses) on
investments, foreign
currency holdings, and other
assets and liabilities
denominated in foreign
currencies.................. 2.97 1.09 3.33 5.47 (6.52)
---------------- ------------- ------------- ------------- ------------
Net increase (decrease) from
investment operations.......... 4.39 1.92 4.01 5.98 (6.30)
---------------- ------------- ------------- ------------- ------------
Less distributions
Dividends from net investment
income...................... (0.58) (0.96) (0.77) (0.42) (0.03)
Distributions from net realized
gains....................... (0.00) (0.01) (0.76) (1.67) (3.90)
---------------- ------------- ------------- ------------- ------------
Total dividends and
distributions.................. (0.58) (0.97) (1.53) (2.09) (3.93)
---------------- ------------- ------------- ------------- ------------
Dilutive effect of rights
offering....................... -- -- -- (2.07) --
---------------- ------------- ------------- ------------- ------------
Net asset value, end of period... $ 15.08 $ 16.03 $ 18.51 $ 20.33 $ 10.10
============ ========= ========= ========= ==========
Per share market value,
end of period.................. $ 13.00 $ 14.875 $ 18.625 $ 21.25 $ 13.75
TOTAL INVESTMENT RETURN
Based on market value***....... 18.3% 22.8% 37.1% 41.4% (16.8)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
000's)......................... $ 94,741 $ 101,190 $ 117,627 $ 175,380 $ 89,163
Ratio of expenses to average net
assets......................... 1.98%**** 1.62% 1.63% 1.64% 1.63%****
Ratio of net investment income to
average net assets............. 12.18%**** 5.10% 4.14% 2.75% 2.22%****
Portfolio turnover............... 8.18% 15.08% 44.21% 43.57% 20.07%
</TABLE>

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

* Commencement of Operations.

** Initial public offering price of $12.00 per share less underwriting
discount of $0.60 per share and offering expenses of $0.13 per share.

*** 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 prices obtained under the Fund's dividend reinvestment plan.
Rights offerings, if any, are assumed, for purposes of this calculation, to
be fully subscribed under the terms of the rights offering. Total
investment return does not reflect sales charges or brokerage commissions.

**** Annualized.

12
<PAGE> 15

MARKET AND NET ASSET VALUE INFORMATION

The Fund's currently outstanding shares of Common Stock are, and the Shares
offered by this Prospectus will be, listed on the New York Stock Exchange.
Shares of the Common Stock commenced trading on the New York Stock Exchange on
August 21, 1990.

In the past, the Fund's shares have traded both at a premium and at a
discount in relation to net asset value. Although the Fund's shares recently
have been trading at a premium above net asset value, there can be no assurance
that this premium will continue after the Offer or that the shares will not
again trade at a discount. Shares of other closed-end investment companies
frequently trade at a discount from net asset value. See "Risk Factors."

The following table shows for each of the periods indicated the high and
low market prices of the Common Stock on the New York Stock Exchange, the
corresponding net asset value per share and the premium or discount at which the
Fund's shares were trading.

<TABLE>
<CAPTION>
PREMIUM
OR (DISCOUNT)
NET ASSET AS % OF NET ASSET
MARKET PRICE(1) VALUE(2) VALUE
--------------- --------------- ------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------------------------------------- ------ ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
July 31, 1992.............................. 17.500 13.750 17.660 16.100 (0.91)% (14.60)%
October 31, 1992........................... 14.875 13.000 15.810 14.360 (5.91)% (9.47)%
January 31, 1993........................... 17.500 14.500 17.740 15.890 (1.35)% (8.75)%
April 30, 1993............................. 18.000 15.250 17.400 16.310 3.45% (6.50)%
July 31, 1993.............................. 18.625 15.000 18.210 16.910 2.28% (11.30)%
October 31, 1993........................... 20.500 16.125 21.250 19.580 (3.53)% (17.65)%
January 31, 1994........................... 26.375 16.500 22.810 19.090 15.63% (13.57)%
April 30, 1994............................. 25.125 17.750 23.150 18.550 8.53% (4.31)%
July 30, 1994.............................. 21.875 19.375 20.320 18.920 7.65% 2.40%
October 31, 1994........................... 23.625 21.500 22.710 22.020 4.03% (2.36)%
January 31, 1995........................... 23.500 12.125 21.700 10.180 8.29% 19.11%
April 30, 1995............................. 13.625 8.375 10.100 8.120 34.90% 3.14%
through July 20, 1995...................... 13.375 10.750 11.770 10.010 13.64% 7.39%
</TABLE>

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

(1) As provided by PFPC, Inc., the Fund's Accounting Agent.

(2) Based on the Fund's computations.

The last reported sale price, net asset value per share and percentage
premium to net asset value of the Common Stock on July 20, 1995 were $12.125,
$11.27, and 7.59%, respectively.

13
<PAGE> 16

THE OFFER

TERMS OF THE OFFER

The Mexico Equity and Income Fund, Inc. (the "Fund") is issuing to its
stockholders of record ("Record Date Stockholders") as of the close of business
on July 24, 1995 (the "Record Date") transferable rights ("Rights") to subscribe
for up to an aggregate of 3,000,000 shares (the "Shares") of the Fund's common
stock, par value $.001 per Share (the "Common Stock") at the rate of one Share
for each three Rights held (the "Offer"). Each Record Date Stockholder is being
issued one Right for each full share of Common Stock owned on the Record Date.
The number of Rights to be issued to a Record Date Stockholder will be rounded
up to the nearest number of Rights evenly divisible by three. Accordingly, no
fractional Shares will be issued. In the case of shares held of record by Cede &
Co. ("Cede"), as nominee for The Depository Trust Corporation ("DTC"), or any
other depository or nominee, the number of Rights issued to Cede or such other
depository or nominee will be adjusted to permit rounding up (to the nearest
number of Rights evenly divisible by three) of the Rights to be received by
beneficial owners for whom it is the holder of record only if Cede or such other
depository or nominee provides to the Fund on or before the close of business on
August 8, 1995 written representation of the number of Rights required for such
rounding. The Rights entitle the holders thereof ("Rights Holders") to acquire
at the Subscription Price (as hereinafter defined) one Share for each three
Rights held. The Subscription Period commences on July 26, 1995 and ends at 5:00
p.m., New York time, on August 15, 1995, unless extended by the Fund and the
Dealer Manager (the "Expiration Date"). The Rights are evidenced by Subscription
Certificates which will be mailed to the Record Date Stockholders other than
Foreign Record Date Stockholders. See "Foreign Stockholders."

Completed Subscription Certificates may be delivered to the Subscription
Agent at any time during the Subscription Period, which commences on July 26,
1995 and ends at 5:00 p.m., New York time, on August 15, 1995, unless extended
by the Fund and the Dealer Manager. See "--Expiration of the Offer." Parties
that purchase Rights prior to the Expiration Date may also purchase Shares in
the Primary Subscription. All Rights may be exercised immediately upon receipt
and until 5:00 p.m. on the Expiration Date.

Any Record Date Stockholder who fully exercises all Rights initially issued
to such Record Date Stockholder by the Fund will be entitled to subscribe for
Shares which were not otherwise subscribed for by Exercising Rights Holders in
the Primary Subscription (the "Primary Over-Subscription Privilege"). In
addition, any Rights Holder who exercises Rights is entitled to subscribe for
Shares which are not otherwise subscribed for in the Primary Subscription or
pursuant to the Primary Over-Subscription Privilege (the "Secondary
Over-Subscription Privilege" and, together with the Primary Over-Subscription
Privilege, the "Over-Subscription Privilege"). Shares acquired pursuant to the
Over-Subscription Privilege are subject to allotment, which is more fully
discussed below under "--Over-Subscription Privilege."

Rights will be evidenced by Subscription Certificates (see Appendix B) and
may be exercised by completing a Subscription Certificate and delivering it,
together with payment, either by means of a Notice of Guaranteed Delivery (see
Appendix C) or a check, to the Subscription Agent. The method by which Rights
may be exercised and Shares paid for is set forth below under "--Exercise of
Rights" and "--Payment for Shares." An Exercising Rights Holder will have no
right to rescind a purchase after the Subscription Agent has received a
completed Subscription Certificate or Notice of Guaranteed Delivery. See
"--Payment for Shares" below. Shares issued pursuant to an exercise of Rights
will be listed for trading on the New York Stock Exchange.

The Rights are transferable until the close of business on the last
Business Day prior to the Expiration Date and will be listed for trading on the
New York Stock Exchange. Assuming a market exists for the Rights, the Rights may
be purchased and sold through usual brokerage channels, or may be sold through
the Subscription Agent if delivered to the Subscription Agent on or before
August 10, 1995. Although no assurance can be given that a market for the Rights
will develop, trading in the Rights on the New York Stock Exchange may be
conducted until and including the close of trading on the last Business Day
prior to the Expiration Date. The method by which Rights may be transferred is
set forth below under "--Sale of Rights." The underlying Shares will also be
listed for trading on the New York Stock Exchange.

14
<PAGE> 17

There is no minimum number of Rights which must be exercised in order for
the Offer to close.

PURPOSE OF THE OFFER

The Board of Directors of the Fund has determined that it is in the best
interests of the Fund and its stockholders to increase the assets of the Fund
available for investment so that the Fund may take advantage of the availability
of attractively priced equity and debt securities of Mexican issuers following
the recent peso devaluation. The Board of Directors believes that increasing the
size of the Fund should increase the liquidity of the Fund's shares and reduce
the Fund's expenses as a proportion of average net assets, although no assurance
can be given that this result will be achieved. At July 20, 1995, the Fund had
net assets of $99,430,851. Also, the Offer seeks to reward the Fund's
stockholders by giving them the right to purchase additional shares of common
stock at a price below market and net asset value without incurring any direct
transaction costs. The distribution to stockholders of transferable Rights which
themselves may have intrinsic value will also afford non-participating
stockholders the potential of receiving a cash payment upon sale of such Rights,
receipt of which may be viewed as partial compensation for the possible dilution
of their interest in the Fund. The Board of Directors determined to proceed with
the offer of transferable Rights after having considered the dilutive effect of
the Offer on stockholders who are unwilling or unable to fully exercise their
Rights, as well as the alternatives of a secondary offering and the issuance of
non-transferable Rights. After careful consideration, the Fund's Board of
Directors unanimously voted to approve the Offer.

In reaching its decision, the Board of Directors was advised by the U.S.
Co-Adviser that the availability of new funds would provide the Fund with
additional investment flexibility as well as increase the Fund's ability to
invest in additional investment opportunities in the Mexican securities markets
without having to sell portfolio securities that the U.S. Co-Adviser believes
should be held. Furthermore, the U.S. Co-Adviser believes that additional
investment opportunities exist in Mexico at this particular time by reason of,
among other factors, the apparent signs of success of the Mexican Government's
economic program to address the recent peso devaluation.

The Mexican Adviser, the U.S. Co-Adviser and the Administrator will benefit
from the Offer because their fees are based on the average net assets of the
Fund. It is not possible to state precisely the amount of additional
compensation the Mexican Adviser, the U.S. Co-Adviser and the Administrator will
receive as a result of the 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. However, in the
event that all the Rights are exercised in full and on the basis of the
Subscription Price, the Mexican Adviser, the U.S. Co-Adviser and the
Administrator would receive additional annual fees of approximately $134,612,
$103,548 and $51,774, respectively, as a result of the increase in assets under
management. Two of the Fund's Directors who voted to authorize the Offer are
"interested persons" of the Fund as that term is defined in the 1940 Act. These
Directors could benefit indirectly from the Offer because of their indirect
affiliations with the U.S. Co-Adviser and the Administrator. The other three
Directors who voted to authorize the Offer are not "interested persons" of the
Fund. See "Management of the Fund."

The Fund may, in the future and at 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 the Offer.

OVER-SUBSCRIPTION PRIVILEGE

Shares not subscribed for in the Primary Subscription will be offered, by
means of the Primary Over-Subscription Privilege, to Record Date Stockholders
who have exercised all Rights issued to them by the Fund and who wish to acquire
more than the number of Shares for which the Rights issued to them are
exercisable. 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 Shares they are willing to acquire pursuant to the Primary
Over-Subscription Privilege. If sufficient Shares remain, all over-subscriptions
will be honored in full.

If subscriptions for Shares pursuant to the Primary Over-Subscription
Privilege exceed the Shares available, the available Shares will be allocated
among those Record Date Stockholders (including beneficial owners of shares of
Common Stock of the Fund on the Record Date which are held of record by a
nominee

15
<PAGE> 18

such as a broker, trustee or depository for securities), who subscribe for an
aggregate of 100 or fewer Shares (inclusive of Shares subscribed for by such
Record Date Stockholders in the Primary Subscription). Any Shares remaining
thereafter will be allocated among all other Record Date Stockholders. In each
case, if insufficient Shares are available to permit such allocation, Shares
will be allocated pro rata among such other Record Date Stockholders being
prorated, based on the number of Rights originally issued to them by the Fund so
that the number of shares issued to Record Date Stockholders who subscribe for
an aggregate of more than 100 shares pursuant to the Primary Over-Subscription
Privilege will generally be in proportion to the number of Shares owned by them
in the Fund on the Record Date. Any Rights Holder who exercises Rights is
entitled to subscribe for Shares which are not otherwise subscribed for in the
Primary Subscription or pursuant to the Primary Over-Subscription Privilege.
Rights Holders should indicate, on the Subscription Certificate which they
submit with respect to the exercise of any Rights, how many Shares they are
willing to acquire pursuant to the Secondary Over-Subscription Privilege. If
sufficient Shares remain after the Primary Over-Subscription, all
over-subscriptions by Rights Holders will be honored in full in the Secondary
Over-Subscription. If remaining Shares are insufficient to permit such
allocation, such Shares will be allocated pro rata among Rights Holders being
prorated, based on the number of Shares such Rights Holders subscribed for in
the Primary Subscription relative to the aggregate number of Shares subscribed
for in the Primary Subscription by all such Rights Holders then being prorated.

The percentage of Shares each over-subscribing Exercising Rights Holder may
acquire may be rounded up or down to result in delivery of whole Shares. The
allocation process may involve a series of allocations in order to assure that
the total number of Shares available for over-subscriptions is distributed on a
pro rata basis.

The Fund will not offer or sell any Shares which are not subscribed for
pursuant to the Primary Subscription or the Over-Subscription Privilege.

THE SUBSCRIPTION PRICE

The Subscription Price per Share is $9.125. Exercising Rights Holders will
have no right to modify or rescind a purchase after receipt by the Subscription
Agent of a properly completed and executed Subscription Certificate or a Notice
of Guaranteed Delivery. The Fund does not have the right to withdraw the Offer
after the Rights have been distributed.

The Fund announced the Offer after the close of trading on the New York
Stock Exchange on June 20, 1995. The net asset value per share of Common Stock
at the close of business on June 15, 1995 and on July 20, 1995 was $10.01 and
$11.27, respectively, and the last reported sales price of a share of the Common
Stock on the New York Stock Exchange on June 15, 1995 and July 21, 1995 was
$11.00 and $12.25, respectively. The Subscription Price of $9.125 is
approximately a 19% discount to the Fund's net asset value per share on July 20,
1995 and approximately a 25% discount to the last reported sale price of a share
of Common Stock on the New York Stock Exchange on July 21, 1995.

EXPIRATION OF THE OFFER

The Offer will expire at 5:00 p.m., New York time, on August 15, 1995,
unless extended by the Fund and the Dealer Manager (the "Expiration Date").
Rights will expire on the Expiration Date and may not be exercised thereafter.

SUBSCRIPTION AGENT

The Subscription Agent is PNC Bank, National Association, which will
receive for its administrative, processing, invoicing and other services as
subscription agent, a fee estimated to be $25,000, as well as reimbursement for
all out-of-pocket expenses related to the Offer which are expected to be $5,000.
The Subscription Agent is also the Fund's transfer agent, dividend-paying agent
and registrar. Questions regarding Subscription Certificates should be directed
to PNC Bank, National Association (telephone (800) 852-4750); stockholders may
also consult their brokers or nominees. Signed Subscription Certificates (see
Appendix B) should be sent by mail, express mail or overnight courier to PNC
Bank, National Association, c/o ACS, 915 Broadway, 5th Floor, New York, New York
10010 or by hand to PNC Trust Company, 40 Broad Street, 5th Floor, New York, New
York 10004. Subscription Certificates may also be sent by facsimile to

16
<PAGE> 19

(212) 505-4576, with the original Subscription Certificate to be sent by one of
the methods described above. Facsimiles should be confirmed by telephone at
(212) 505-4559.

INFORMATION AGENT

Any questions or requests for assistance may be directed to the Information
Agent at its telephone number and address listed below:

Shareholder Communications Corporation
17 State Street
New York, New York 10004
Toll Free: (800) 733-8481, ext. 318

Call Collect (212) 805-7000

The Information Agent will receive a fee of $10,000, as well as
reimbursement for all out-of-pocket expenses related to the Offer which are
expected to be $28,000.

SALE OF RIGHTS

The Rights are transferable until the last Business Day prior to the
Expiration Date. The Rights will be listed on the New York Stock Exchange under
the symbol "MXE.RT" and may be sold on the New York Stock Exchange through the
usual investment channels. The Fund has used its best efforts to ensure that an
adequate trading market for the Rights will exist by causing the Rights to be
listed on the New York Stock Exchange and by retaining the Dealer Manager, the
Subscription Agent and the Information Agent. Although there can be no assurance
that such a market for the Rights will develop, trading in the Rights on the New
York Stock Exchange may be conducted until the close of trading on the last
Business Day prior to the Expiration Date.

Sales through Subscription Agent. Rights Holders who do not wish to
exercise any or all of their Rights may instruct the Subscription Agent to sell
any unexercised Rights. Subscription Certificates representing the Rights to be
sold by the Subscription Agent must be received by the Subscription Agent on or
before August 10, 1995. Upon timely receipt by the Subscription Agent of
appropriate instructions to sell the Rights the Subscription Agent will use its
best efforts to complete the sale and the Subscription Agent will remit the
proceeds of sale, net of commissions, to the Rights Holders. Rights may be sold
through or to the Dealer Manager on the New York Stock Exchange or otherwise. No
brokerage commissions will be charged to holders of less than 100 Rights, and
beneficial owners of less than 100 Rights held on their behalf by qualified
financial institutions, who elect to direct the Subscription Agent to sell such
Rights in whole but not in part. Any commissions on sales of 100 Rights or more
will be paid by the selling Rights Holder. 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 Subscription Agent 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 less amounts comparable to the usual and
customary brokerage fees. The Subscription Agent 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. For holders of more
than 100 Rights, such sales will be made net of commissions on behalf of the
nonclaiming Record Date Stockholders. The Subscription Agent will hold the
proceeds from those sales for the benefit of such nonclaiming Record Date
Stockholders until such proceeds are either claimed or escheat. There can be no
assurance that the Subscription Agent will be able to complete the sale of any
such Rights, and neither the Fund, the Subscription Agent nor the Dealer Manager
has guaranteed any minimum sale price for the Rights.

Other Transfers. The Rights are transferable until the close of business
on the last Business Day prior to the Expiration Date. The Rights evidenced by a
single Subscription Certificate may be transferred in whole or in part (in a
number evenly divisible by three) by delivering to the Subscription Agent a
Subscription Certificate properly endorsed for transfer, with instructions to
register such portion of the Rights evidenced

17
<PAGE> 20

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 will be
issued to the transferring Rights Holder or, if the transferring Rights Holder
so instructs, to an additional transferee. The signature on the Subscription
Certificate must correspond with the name as written upon the face of the
Subscription Certificate in every particular, without alteration or enlargement,
or any change whatever. A signature guarantee must be provided by an eligible
financial institution as defined in Rule 17Ad-15 of the Securities Exchange Act
of 1934, as amended (the "1934 Act"), subject to the standards and procedures
adopted by the Subscription Agent.

Rights Holders wishing to transfer all or a portion of their Rights should
allow up to three 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. None of the Fund, 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.

Except for the fees charged by the Subscription Agent and brokerage
commissions charged to holders of less than 100 Rights (which will be paid by
the Fund as described above), 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 such commissions, fees or expenses
will be paid by the Fund, the Subscription Agent or the Dealer Manager.

The Rights will be eligible for transfer through, and 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." The holder of a
DTC Exercised Right may exercise the Over-Subscription Privilege in respect of
such DTC Exercised Right by properly executing and delivering to the
Subscription Agent, at or prior to 5:00 p.m., New York time, on the Expiration
Date, a Nominee Holder Over-Subscription Form (see Appendix D), together with
payment of the Subscription Price for the number of Shares for which the
Over-Subscription Privilege is to be exercised. Copies of the Nominee Holder
Over-Subscription Form may be obtained from the Subscription Agent.

EXERCISE OF RIGHTS

Rights may be exercised by completing and signing the reverse side of the
Subscription Certificate which 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 of the Subscription
Price for the Shares as described below under "--Payment for Shares." Completed
Subscription Certificates and payment for the Shares must be received by the
Subscription Agent prior to 5:00 p.m., New York time, on 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. Rights may also be exercised through an
Exercising Rights Holder's broker, who may charge such Exercising Rights Holder
a servicing fee.

Nominees who hold shares of Common Stock for the account of others, such as
banks, brokers, trustees or depositories for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such 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. In addition, beneficial owners of Common Stock or Rights held
through such a nominee should contact the nominee and request the nominee to
effect transactions in accordance with the beneficial owner's instructions.

EXERCISE OF THE OVER-SUBSCRIPTION PRIVILEGE

Record Date Stockholders who fully exercise all Rights issued to them by
the Fund, and, secondarily, Rights Holders, may participate in the
Over-Subscription Privilege by indicating on their Subscription

18
<PAGE> 21

Certificate the number of Shares they are willing to acquire pursuant thereto.
If sufficient Shares remain after the Primary Subscription, all
over-subscriptions will be honored in full; otherwise the number of Shares
issued pursuant to the Over-Subscription Privilege will be allocated as
described above under "--Over-Subscription Privilege."

Banks, brokers, trustees and other nominee holders of Rights will be
required to certify to the Subscription Agent, before any Primary
Over-Subscription Privilege may be exercised as 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 Primary
Over-Subscription Privilege by such beneficial owner and that such beneficial
owner's Primary Subscription was exercised in full. Before any Secondary
Over-Subscription Privilege may be exercised as to any particular beneficial
owner, such nominee holders of Rights will be required to certify to the
Subscription Agent as to the aggregate number of Rights exercised pursuant to
the Primary Subscription and the number of Shares subscribed for pursuant to the
Secondary Over-Subscription Privilege by such beneficial owner. A Nominee Holder
Over-Subscription Exercise Form is contained in Appendix D.

PAYMENT FOR SHARES

Exercising Rights Holders may choose between the following methods of
payment:

(1) An Exercising Rights Holder can 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 to the Subscription Agent based
upon the Subscription Price of $9.125 per Share. A subscription
will be accepted when payment, together with the properly completed
and executed Subscription Certificate, is received by the
Subscription Agent at its Shareholders Services Division; such
payment and Subscription Certificates to be received by the
Subscription Agent no later than 5:00 p.m., New York time, on the
Expiration Date. The Subscription Agent will deposit all checks
received by it for the purchase of Shares into a segregated
interest-bearing account of the Fund (the interest from which will
belong to the Fund) pending proration and distribution of Shares. A
PAYMENT PURSUANT TO THIS METHOD MUST BE IN U.S. DOLLARS BY MONEY
ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE UNITED STATES OF
AMERICA, MUST BE PAYABLE TO THE MEXICO EQUITY AND INCOME FUND, INC.
AND MUST ACCOMPANY A PROPERLY COMPLETED AND EXECUTED SUBSCRIPTION
CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED AND BE
RECEIVED BY 5:00 P.M. ON THE EXPIRATION DATE.

(2) Alternatively, a subscription will be accepted by the Subscription
Agent if, prior to 5:00 p.m., New York time, on the Expiration
Date, the Subscription Agent has received a Notice of Guaranteed
Delivery (see Appendix C) by facsimile (telecopy) or otherwise from
a bank, a trust company, or a New York Stock Exchange 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, 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 the
third Business Day after the Expiration Date (the "Protect
Period").

Within seven Business Days following the Protect Period (the "Confirmation
Date"), the Subscription Agent will send to each Exercising Rights Holder (or,
if the Common Stock is held by a Nominee Holder, to such Nominee Holder) the
share certificates representing the Shares purchased pursuant to the Primary
Subscription and, if applicable, the Over-Subscription Privilege, along with a
letter explaining the allocation of Shares pursuant to the Over-Subscription
Privilege. Any excess payment to be refunded by the Fund to an

19
<PAGE> 22

Exercising Rights Holder who is not allocated the full amount of Shares
subscribed for pursuant to the Over-Subscription Privilege will be refunded by
the Subscription Agent within seven Business Days following the Protect Period.
An Exercising Rights Holder will have no right to modify or rescind a purchase
after the Subscription Agent has received a properly completed and executed
Subscription Certificate or a Notice of Guaranteed Delivery. All payments by a
Rights Holder must be in United States dollars by money order or check drawn on
a bank located in the United States and payable to The Mexico Equity and Income
Fund, Inc.

WHICHEVER OF THE TWO METHODS DESCRIBED ABOVE IS USED, ISSUANCE OF THE
SHARES PURCHASED IS SUBJECT TO COLLECTION OF CHECKS AND ACTUAL PAYMENT. IF AN
EXERCISING RIGHTS HOLDER WHO ACQUIRES SHARES PURSUANT TO THE PRIMARY
SUBSCRIPTION OR OVER-SUBSCRIPTION PRIVILEGE DOES NOT MAKE PAYMENT OF ANY AMOUNTS
DUE, THE FUND AND THE SUBSCRIPTION AGENT RESERVE THE RIGHT TO TAKE ANY OR ALL OF
THE FOLLOWING ACTIONS: (I) FIND OTHER STOCKHOLDERS OR RIGHTS HOLDERS FOR SUCH
SUBSCRIBED AND UNPAID FOR SHARES; (II) APPLY ANY PAYMENT ACTUALLY RECEIVED BY IT
TOWARD THE PURCHASE OF THE GREATEST WHOLE NUMBER OF SHARES WHICH COULD BE
ACQUIRED BY SUCH HOLDER UPON EXERCISE OF THE PRIMARY SUBSCRIPTION AND/OR
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 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 PRIOR TO 5:00 P.M., NEW YORK TIME, ON
THE EXPIRATION DATE. 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 A CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.

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 Fund 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.

Nominees who hold shares of Common Stock for the account of others, such as
banks, brokers, trustees or depositories for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such 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. In addition, beneficial owners of Common Stock or Rights held
through such a nominee should contact the nominee and request the nominee to
effect transactions in accordance with the beneficial owner's instructions.

DELIVERY OF SHARE CERTIFICATES

Certificates representing Shares purchased pursuant to the Primary
Subscription will be delivered to Exercising Rights Holders as soon as
practicable after the corresponding Rights have been validly exercised and full
payment for such Shares has been received and cleared. Certificates representing
Shares purchased pursuant to the Over-Subscription Privilege will be delivered
to Exercising Rights Holders as soon as practicable after the Expiration Date
and after all allocations have been effected. Participants in the Fund's
Dividend Reinvestment Plan (the "Plan") will have any Shares acquired in the
Primary Subscription and pursuant to the Over-Subscription Privilege credited to
their stockholder dividend reinvestment accounts in the Plan. Participants in
the Plan wishing to exercise Rights issued in respect of the Shares held in
their accounts in the Plan must exercise them in accordance with the procedures
set forth above. Stockholders

20
<PAGE> 23

whose Shares are held of record by Cede or by any other depository or nominee on
their behalf or their broker-dealer's behalf will have any Shares acquired in
the Primary Subscription credited to the account of Cede or such other
depository or nominee. Shares acquired pursuant to the Over-Subscription
Privilege will be certificated and stock certificates representing such Shares
will be sent directly to Cede or such other depository or nominee. Stock
certificates will not be issued for Shares credited to Plan accounts.

FOREIGN STOCKHOLDERS

Subscription Certificates will not be mailed to Foreign Record Date
Stockholders. The Rights to which such Subscription Certificates relate will be
held by the Subscription Agent for such Foreign Record Date Stockholders'
accounts until instructions are received to exercise, sell or transfer the
Rights. If no instructions have been received by 12:00 Noon, New York time,
three Business Days prior to the Expiration Date, the Subscription Agent will
use its best efforts to sell the Rights of those Foreign Record Date
Stockholders through or to the Dealer Manager. The net proceeds, if any, from
the sale of those Rights will be remitted to the Foreign Record Date
Stockholders.

FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER

The U.S. federal income tax consequences to holders of Common Stock with
respect to the Offer will be as follows:

1. The distribution of Rights to Record Date Stockholders will not
result in taxable income to such holders nor will such holders realize
taxable income as a result of the exercise of the Rights.

2. The basis of a Right will be (a) to a holder of Common Stock to
whom it is issued and who exercises or sells the Right (i) if the fair
market value of the Right immediately after issuance is less than 15% of
the fair market value of the Common Stock with regard to which it is
issued, zero (unless the holder elects, by filing a statement with his
timely filed federal income tax return for the year in which the Rights are
received, to allocate the basis of the Common Stock between the Right and
the Common Stock based on their respective fair market values immediately
after the Right is issued), and (ii) if the fair market value of the Right
immediately after issuance is 15% or more of the fair market value of the
Common Stock with regard to which it is issued, a portion of the basis in
the Common Stock based upon their respective fair market values immediately
after the Right is issued; (b) to a holder of Common Stock to whom it is
issued and who allows the Right to expire, zero; and (c) to anyone who
purchases a Right in the market, the purchase price for a Right.

3. The holding period of a Right received by a Record Date
Stockholder includes the holding period of the Common Stock with regard to
which the Right is issued.

4. Any gain or loss on the sale of a Right will be treated as a
capital gain or loss if the Right is a capital asset in the hands of the
seller. Such a capital gain or loss will be long- or short-term, depending
on how long the Right has been held, in accordance with paragraph 3 above.
A Right will be a capital asset in the hands of the person to whom it is
issued if the Common Stock to which the Right relates would be a capital
asset in the hands of that person. If a Right is allowed to expire, there
will be no loss realized unless the Right had been acquired by purchase, in
which case there will be a loss equal to the basis of the Right.

5. If the Right is exercised by the Record Date Stockholder, the
basis of the Common Stock received will include the basis allocated to the
Right and the amount paid upon exercise of the Right.

6. If the Right is exercised, the holding period of the Common Stock
acquired begins on the date the Right is exercised.

7. Gain recognized by a foreign shareholder on the sale of a Right
will be taxed in the same manner as gain recognized on the sale of Fund
shares. See "Taxation -- United States Federal Income Taxes -- Foreign
Stockholders."

The Fund is required to withhold and remit to the U.S. Treasury 31% of
reportable payments paid on an account if the holder of the account is a
taxpayer to which the backup withholding rules apply and has provided the Fund
with either an incorrect taxpayer identification number or no number at all or
fails to certify that he is not subject to such withholding.

21
<PAGE> 24

The foregoing is only a summary of the applicable federal income tax laws
and does not include any state or local tax consequences of the Offer.
Exercising Rights Holders should consult their own tax advisers concerning the
tax consequences of this transaction. See "Taxation."

NOTICE OF NET ASSET VALUE DECLINE

The Fund has, pursuant to the Securities and Exchange Commission's
regulatory requirements, undertaken to suspend the Offer until it amends this
Prospectus if, subsequent to July 24, 1995 (the effective date of the Fund's
Registration Statement) the Fund's net asset value declines more than 10% from
its net asset value as of that date.

EMPLOYEE PLAN CONSIDERATIONS

Record Date Stockholders that 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 ("IRAs") and other
plans eligible for special tax treatment under the Code or subject to Section
4975 of the Code (collectively, "Plans") should be aware that additional
contributions of cash to the Plan (other than rollover contributions or
trustee-to-trustee transfers from other Plans) in order to exercise Rights would
be treated as Plan contributions and, when taken together with contributions
previously made, may subject a Plan to excise taxes for excess or nondeductible
contributions. In the case of Plans qualified under Section 401(a) of the Code
and certain other 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 be a reportable distribution and there may
be other adverse tax consequences if Rights are sold or transferred by a Plan to
another account. A sale of Rights by a Plan account to an unrelated third party
and retention of cash proceeds by the Plan account, or the direct exercise of
Rights by a Plan account, should not be treated as a taxable Plan distribution.
Plans contemplating making additional cash contributions to exercise Rights
should consult with their counsel prior to making such contributions.

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 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 or
transfer of Rights. Due to the complexity of these rules and the penalties for
noncompliance, Plans should consult with their counsel regarding the
consequences of their exercise or transfer of Rights under ERISA and the Code.

THE FUND

The Fund, incorporated under the laws of the State of Maryland on May 24,
1990, has been engaged in business as a non-diversified, closed-end management
investment company registered under the 1940 Act since August 21, 1990, when it
completed an initial public offering of 6,250,000 shares of its Common Stock.
The Fund completed a transferable rights offering in October 1993 pursuant to
which an additional 2,200,000 shares of its Common Stock were issued. The Fund's
investment objective is to seek high total return through capital appreciation
and current income. It is the policy of the Fund, under normal market
conditions, to invest at least 50% of its assets in equity and convertible debt
securities issued by Mexican companies and the remainder of its assets in debt
(other than convertible debt) securities of Mexican issuers and, for cash
management or temporary defensive purposes, in certain high quality short-term
debt instruments. See "Investment Objective and Policies." There is no assurance
that the Fund's investment objective will be achieved. See "Investment Objective
and Policies" and "Risk Factors."

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<PAGE> 25

assets of the Fund were $99,430,851. The Fund's principal office is located at
World Financial Center, 200 Liberty Street, New York, New York 10281 and its
telephone number is (212) 667-7000.

USE OF PROCEEDS

Assuming all Shares offered pursuant to the Primary Subscription are sold
at the Subscription Price of $9.125 per Share and the maximum solicitation fee
is paid to the Dealer Manager and other Selling Group Members, the net proceeds
of the Offer are estimated to be $25,866,875, after payment of estimated
offering expenses. Expenses related to the issuance of the Shares will be borne
by the Fund and will reduce the net asset value of the Common Stock. The Mexican
Adviser and U.S. Co-Adviser anticipate that investment of such proceeds, in
accordance with the Fund's investment objective and policies, will take up to
six months from their receipt by the Fund, depending on market conditions and
the availability of appropriate securities for purchase. Pending such investment
in accordance with the Fund's investment objective and policies, the proceeds
will be held in U.S. Government securities (which term includes obligations of
the United States Government, its agencies or instrumentalities) and U.S.
dollar, U.S. dollar-linked or peso-denominated money market instruments that are
rated no lower than A-2 by Standard & Poor's ("S&P") or P-2 by Moody's Investors
Service, Inc. ("Moody's") or the equivalent from another rating service or, if
unrated, deemed to be of equivalent quality by the Mexican Adviser and the U.S.
Co-Adviser. See "Investment Objective and Policies."

RISK FACTORS

Investing in the Fund, and in Mexican equity and debt securities in
general, involves certain risks not typically associated with investing in the
securities of United States issuers, including those discussed below.

DILUTION

An immediate dilution, which could be substantial, of the aggregate net
asset value of the shares of Common Stock owned by Record Date Stockholders who
do not fully exercise their Rights may occur as a result of the Offer because
the Subscription Price may be less than the Fund's net asset value per share on
the Expiration Date (and the Fund will incur expenses in connection with the
Offer), and the number of shares outstanding after the Offer may increase in a
greater percentage than the increase in the size of the Fund's assets. In
addition, 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. Although it
is not possible to state precisely the amount of such a decrease in net asset
value because it is not known at this time what the net asset value per share
will be on the Expiration Date or what proportion of the Shares will be
subscribed for, such dilution could be substantial. For example, assuming that
all Rights are exercised and that the Subscription Price of $9.125 is 19% below
the Fund's net asset value of $11.27 per share as of July 20, 1995, the Fund's
net asset value per share would be reduced approximately $0.67. The distribution
to stockholders of transferable Rights which themselves may have intrinsic value
will afford non-participating stockholders the potential of receiving a cash
payment upon sale of such Rights, receipt of which may be viewed as partial
compensation for the possible dilution and their interest in the Fund. No
assurance can be given, however, that a market for the rights will develop or as
to the value, if any, that such Rights will have.

RISKS OF INVESTMENT IN MEXICAN SECURITIES

Investment in Mexican equity and debt securities involves special
considerations and risks that are not normally associated with investments in
U.S. securities, including (1) relatively higher price volatility, lesser
liquidity and smaller market capitalization of the Mexican securities markets,
(2) currency fluctuations and devaluation and the cost of converting foreign
currency into U.S. dollars, (3) restrictions on foreign investment and potential
restrictions on repatriation of capital invested in Mexico and remittance of
profits and dividends accruing thereon, (4) political, economic and social risks
and uncertainties, including risks of confiscatory taxation and expropriation or
nationalization of assets, and (5) high rates of inflation, unemployment and
domestic interest rates. In addition, as a result of the financial crisis that
occurred in Mexico in December 1994 many private and public sector entities are
faced with severe financial and operational problems, including the lack of
foreign exchange needed to repay U.S. dollar denominated obligations. In the

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<PAGE> 26

past, such financial difficulties have led to numerous restructurings of
existing debt obligations. Bankruptcy and creditors' rights laws in Mexico are
relatively undeveloped and it may be more difficult to obtain and execute a
judgment in Mexico than in the United States.

Market Illiquidity; Volatility. The Mexican securities market is
substantially smaller, less liquid and more volatile than the major securities
markets in the United States. At June 29, 1995, the aggregate market value of
equity securities listed on the Mexican Stock Exchange was approximately
NPs. 603.9 billion (approximately US$96.5 billion), compared to approximately
US$5.27 trillion for equity securities listed on the New York Stock Exchange at
June 29, 1995. At such date, the stock of Telefonos de Mexico, S.A. de C.V.
("Telmex") accounted for approximately 25.8% of the aggregate market
capitalization of the Mexican Stock Exchange, while no single stock issue
accounts for more than 2.5% of the aggregate market capitalization of the New
York Stock Exchange. Thus, the performance of the Mexican Stock Exchange is
highly dependent on the performance of Telmex. Additionally, prices of equity
securities traded on the Mexican Stock Exchange are generally more volatile than
prices of equity securities traded on the New York Stock Exchange. The
combination of price volatility and the relatively limited liquidity of the
Mexican Stock Exchange may have an adverse impact on the investment performance
of the Fund.

Investment in Low Rated and Unrated Securities. The Fund, the Mexican
Adviser and the U.S. Co-Adviser have no established rating criteria for the
Mexican debt securities in which the Fund invests. The Fund invests in debt
securities of Mexican companies that the Mexican Adviser and the U.S. Co-Adviser
determine to be suitable investments regardless of whether such debt is rated.
As a result, the Fund's portfolio of Mexican debt securities may consist of
securities that would be considered to have a credit quality rated below
investment grade by internationally recognized credit rating organizations such
as Moody's and S&P. Non-investment grade securities (that is, rated Ba1 or lower
by Moody's or BB+ or lower by S&P) are commonly referred to as "junk bonds" and
are regarded as predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms of the
obligations and involve major risk exposure to adverse conditions. Some of the
debt securities held by the Fund, which may not be paying interest currently or
may be in payment default, may be comparable to securities rated as low as C by
Moody's or CCC or lower by S&P. These securities are considered to have
extremely poor prospects of ever attaining any real investment standing, to have
a current identifiable vulnerability to default, to be unlikely to have the
capacity to pay interest and repay principal when due in the event of adverse
business, financial or economic conditions and/or to be in default or not
current in the payment of interest or principal.

Low rated and unrated debt instruments generally offer a higher current
yield than that available from higher grade issues, but typically involve
greater risk. Low rated and unrated securities are especially subject to adverse
changes in general economic conditions, to changes in the financial condition of
their issuers and to price fluctuation in response to changes in interest rates.
During periods of economic downturn or rising interest rates, issuers of low
rated and unrated instruments may experience financial stress that could
adversely affect their ability to make payments of principal and interest and
increase the possibility of default. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values and
liquidity of low rated and unrated securities especially in a market
characterized by a low volume of trading.

The Mexican Economy. From 1992 through 1994, increasing amounts of foreign
capital inflows were invested in the Mexican Stock Exchange and in short-term
Mexican Government and private sector debt instruments, such as bank
certificates of deposit. Certain foreign portfolio investors were attracted to
Mexico because of its relatively high real interest rates and high returns on
equity investments, compared to returns on investments in developed countries,
and a variety of positive, fundamental investment factors, including Mexico's
relatively stable exchange rate. During 1994, internal and external events
combined to complicate the management of the Mexican economy and, in particular,
adversely affected the capital inflows needed to finance Mexico's current
account deficit. Externally, the U.S. monetary authorities took measures to
increase interest rates in the United States in order to control inflationary
pressures. The progressive increases in interest rates in the United States
during 1994, as well as the prospect of further increases in those rates, made
Mexican investments and investments in other emerging markets relatively less
attractive to foreign portfolio investors.

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<PAGE> 27

Mexico's economic situation deteriorated further due to a series of
internal disruptions and political events that undermined the confidence of
investors in Mexico during 1994. At the beginning of 1994, armed insurgents
attacked (and in certain cases temporarily seized control of) several villages
in the southern state of Chiapas. While the Mexican Government responded by
providing support to the local authorities by means of certain operations
conducted by the Mexican army and publicly offering to negotiate a peaceful
solution that would address the underlying concerns of the local population, the
conflict remained a source of debate and uncertainty for the remainder of the
year. Negotiations with the rebels continued through the spring of 1994, but
were subsequently broken off. In December, the Mexican Congress created a
Congressional peace commission responsible for mediating the negotiations
between the Government and the insurgents. By late 1994, the rebels had not
agreed to resume negotiations and the region experienced certain additional
incidents of civil unrest.

Further, the Mexican Presidential and Congressional elections held in 1994
furnished investors with additional grounds for unease. In March 1994, Luis
Donaldo Colosio, the candidate for the Partido Revolucionario Institucional
("PRI"), the dominant political party in Mexico, was assassinated. This event
increased the general uncertainty surrounding the elections scheduled for August
1994, and led to pressures on the foreign exchange market. While the uncertainty
abated after Ernesto Zedillo was elected President in a presidential election
that was perceived as fair, substantial out-flows of foreign capital occurred in
the weeks preceding the elections.

Other destabilizing events that occurred during 1994 included the
assassination of Jose Francisco Ruiz Massieu, the former Secretary-General of
the PRI, and the kidnapping of several prominent businessmen. These events
caused some foreign investors to believe that Mexico's political system was less
stable than had been previously believed.

At the end of the first quarter of 1994, the Mexican authorities responded
to the increased pressure on the new peso/dollar exchange rate by permitting the
exchange rate to depreciate, but always within the limit of the Banco de Mexico
intervention band. In addition, in order to retain the capital of investors who
perceived a risk of further devaluation of the new peso, the Mexican Government
issued increasing amounts of Tesobonos, which are short-term notes denominated
in U.S. dollars but payable in dollars or in new pesos indexed to the value of
the dollar. The Mexican Government also increased interest rates on its new peso
denominated internal debt in an attempt to maintain capital inflows. While the
Mexican Government was aware of the large current account deficit and the unease
of foreign investors, its stated view was that throughout much of 1994 the real
exchange rate remained competitive, particularly given the robust growth of
exports, and that the factors that had provoked uncertainty among foreign
investors were transitory.

The Mexican Government's attempts to stabilize the exchange rate and
restore capital inflows were not successful and the Mexican Government suffered
a substantial loss in its gross international reserves in 1994. During the
second half of December 1994, foreign capital continued to flee the country as
investors grew even more concerned, resulting in a strong demand for dollars.
Given the loss of reserves that had occurred throughout the year, it became
impossible to maintain the new peso within the band established earlier that
year and on December 20, 1994, the Mexican Government moved the ceiling of the
intervention band. That action proved to be entirely insufficient to address the
concerns of foreign investors, and the demand for foreign currency increased. On
December 22, 1994, the Mexican Government eliminated the intervention band and
allowed the new peso to float freely against the dollar. A sharp and rapid
devaluation of the new peso ensued.

The peso devaluation has resulted in a significant rise in inflation and
domestic interest rates. These high rates of interest and inflation have led to
a recessionary economy and significantly higher unemployment and continue to
affect adversely the companies in which the Fund intends to invest. In addition,
the new peso rates of exchange have been unstable relative to the U.S. dollar.
The Government has announced that it intends to maintain its current free
floating exchange rate policy, with Banco de Mexico intervening in the foreign
exchange market from time to time in an effort to minimize volatility. Mexico is
currently one of the largest debtor nations (among developing countries) to
foreign governments.

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<PAGE> 28

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. In the presidential election held on August
21, 1994, PRI candidate Ernesto Zedillo Ponce de Leon won a clear victory over
the right of center party, Partido Accion National ("PAN") and over the left of
center party, Partido de la Revolucion Democratica ("PRD"). President Zedillo
took office on December 1, 1994. Since the 1930s, the Mexican political climate
has remained stable and exhibited continuity. The PRI is the dominant political
party in Mexico. Since 1929, the PRI has won all presidential elections and has
held a majority in Congress. Until 1989, it also had won all of the state
governorships. In the elections held on August 21, 1994, the PRI won all four
gubernatorial contests. In the event the PRI's control of the legislature were
to decrease substantially in future elections, it is possible that changes in
the Mexican government's economic policy could result and the Mexican securities
markets could react in a negative manner.

The Fund is unable to predict the future course of Mexican politics. The
election of President Zedillo may have a significant effect upon the nature of
future economic policies in Mexico. Questions have been raised regarding many
aspects of his National Development Plan, including the ability of the Mexican
economy to create 800,000 to 1 million jobs per year and the ability of the
Mexican Government to convince Mexicans to increase their savings rate given the
recent history of devaluations and high inflation rates. The failure of the Plan
to address the problems of poverty and unemployment in Mexico may lead to social
unrest and instability. 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 Fund's intended operations and
performance.

Currency Fluctuation and Exchange Control Laws. Most of the equity and
debt securities in the Fund's portfolio and the equity securities underlying the
convertible securities in which the Fund may invest will be denominated in
pesos. As a result, these securities must increase in market value at a rate in
excess of the rate of any decline in the value of the peso against the U.S.
dollar in order to avoid a decline in their equivalent U.S. dollar value.
Accordingly, a further decline in the value of the peso against the U.S. dollar
may result in a corresponding change in the value of the Fund's equity and debt
securities denominated in pesos. The 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. See the discussion above under
the heading "-- The Mexican Economy" for additional information regarding the
events leading up to the recent devaluation of the new peso in December 1994 and
the ensuing volatility in the peso/dollar exchange rate.

The Fund computes its income from its peso assets on the date that such
income is earned by the Fund at the foreign exchange rate in effect on that
date, and if the value of the peso falls relative to the U.S. dollar between
recognition of income and the date the Fund makes distributions, the Fund could
be required to liquidate portfolio securities to make distributions to
stockholders unless the Fund successfully hedges against declines in the value
of the peso. There can be no assurance that the Fund will be able to liquidate
securities in order to meet such distribution requirements. The Fund is
permitted to borrow money to make distributions required to maintain its status
as a regulated investment company for U.S. tax purposes. If the exchange rate
declines between the time the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the amount of pesos required to be converted into U.S.
dollars in order to pay expenses in U.S. dollars will be greater than the
equivalent amount in pesos of such expenses at the time they are incurred. THE
FUND DOES NOT EXPECT TO HEDGE AGAINST A DECLINE IN THE VALUE OF THE PESO EXCEPT
IN LIMITED CIRCUMSTANCES. THE RISK OF CURRENCY DEVALUATIONS AND FLUCTUATIONS
SHOULD BE CAREFULLY CONSIDERED BY INVESTORS IN DETERMINING WHETHER TO PURCHASE
SHARES OF THE FUND.

See Appendix A "The United Mexican States--Exchange Controls and Foreign
Exchange Rates" for a table which sets forth the average and closing controlled
rate of exchange and free rate of exchange for the peso against the U.S. dollar
for the periods indicated therein.

Mexican Foreign Investment Laws. Mexico's Ley de Inversion Extranjera
("Foreign Investment Law") became effective on December 28, 1993 and established
a new set of rules to provide legal certainty to foreign investors and promote
the country's competitiveness. The Foreign Investment Law liberalizes certain

26
<PAGE> 29

restrictions on foreign investment in Mexico, permitting, if certain conditions
are satisfied, the ownership by foreign investors of 100% of the capital stock
of a Mexican company. The law also sets forth those activities of the economy
which continue to be reserved to the Mexican Government or to Mexican investors
and lists the different activities in which foreign investment may not exceed
10%, 25%, 30% and 49% of the total investment. The Mexican Government recognizes
that Mexico is competing for capital with many other countries, including the
former communist nations in Eastern and Central Europe, but believes that,
because of the increased competitiveness and productivity of its economy, Mexico
will be able to maintain access to sources of investment capital.

Under the new regulations, the Mexican Government has established
mechanisms through which non-Mexican nationals can acquire beneficial ownership
of shares of Mexican companies previously limited to ownership by Mexican
nationals, through special trust arrangements established with Mexican banks.
The first such arrangement was established with Nacional Financiera, S.N.C.
("Nafinsa"), the Mexican national development bank, and is administered by
Indeval, the Mexican central securities depository agency. Under that
arrangement, called the Master Trust, all shares of Mexican companies acquired
for the benefit of non-Mexican nationals (and which otherwise would be required
to be held by Mexican nationals) are held in a series of special Indeval
accounts in the name of Nafinsa as trustee. Under the Master Trust arrangement,
Nafinsa is the record owner of the shares held in these special Indeval accounts
and must vote such shares in agreement with the votes cast by the majority of
the stockholders holding shares of the same class. Under the Master Trust
arrangement, the non-Mexican national beneficiaries have the right to receive
dividends and other distributions in respect of the shares and certificates of
ordinary participation and to dispose of the shares and certificates.

The Mexican Government has amended financial legislation to allow 49%
foreign participation in the capital banks, brokerage houses and financial
groups. The ordinary capital stock of holding companies shall be made up of
series "A" shares representing at least 51% of said capital, the remaining 49%
may be made up, singly or jointly, of series "A" or "B" shares. In the case of
brokerage firms the maximum percentage of ordinary capital stock that series "B"
shares may represent was increased from 30% to 49%. Under this new structure of
the ordinary capital stock, banking institutions and holding companies are no
longer required to issue series "C" shares. Subsequent to prior authorization
from the Ministry of Finance and Public Credit, the limit on individual
shareholding in banks, brokerage houses and financial groups has been increased
to 20% of capital stock. In the case of investments made by foreign financial
institutions, this Ministry may authorize higher limits on individual holdings
in order to enable Intermediaries with a majority of Mexican capital to become
affiliates of said foreign institutions.

Ownership of certain other industries (such as petroleum exploration and
recovery) is reserved exclusively to the state. Current foreign investment
regulations also contemplate that listed Mexican companies may issue neutral (or
series "N") shares which have no voting rights and which may be acquired freely
by non-Mexican nationals. N shares must also be held through special trust
arrangements established with Mexican banks.

Although current Mexican regulations and trust arrangements will permit the
Fund to invest freely in most equity securities traded on the Mexican Stock
Exchange and to hold stock issued upon conversion of the Fund's convertible debt
securities, there can be no assurance that Mexican foreign investment
regulations will not change in the future in a manner which adversely affects
the ability of the Fund to acquire publicly traded Mexican securities or
beneficial ownership thereof or to hold the stock issuable upon conversion of
its convertible debt securities. If, as a result of a change in Mexican foreign
investment regulations, the Fund were unable to hold stock (either directly or
through a trust arrangement) of Mexican companies issuable upon conversion of
its convertible debt securities, it would either have to dispose of the
convertible debt securities prior to conversion, or convert the securities and
dispose of the resulting stock at the time of conversion, in order to realize
the conversion value of such convertible debt securities.

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
Mexican Stock Exchange must incorporate the effects of inflation directly in

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<PAGE> 30

accounting records and in their published financial statements. Thus, Mexican
financial statements and reported earnings may differ from those of companies in
other countries. However, in order to allow comparable analysis with previous
accounting standards, the Mexican Securities Commission has required all
companies listed on the Mexican Stock Exchange to include notes to their
financial statements which report financial data in a way which is consistent
with previous rules. Also, there is generally less governmental supervision and
regulation of exchanges, brokers and issuers in Mexico than there is in the
United States. There have been recent modifications to the regulatory framework
of the securities market with the intention of bringing Mexican supervision
closer to international standards. See Appendix A "The United Mexican
States -- Structural Reform." Mexican corporate laws regarding fiduciary
responsibility and protection of stockholders have developed in a different
manner and are not as specific as those in the United States.

NET ASSET VALUE DISCOUNT

Shares of closed-end investment companies frequently trade at a discount
from net asset value. This characteristic of shares of a closed-end fund is a
risk separate and distinct from the risk that the Fund's net asset value will
decrease. Among the factors which may be expected to affect whether shares of
the Fund trade above or below net asset value are portfolio investment results,
the general performance of the Mexican economy and Mexican securities, supply
and demand for shares of the Fund 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 will
trade at, below or above net asset value. The risk of purchasing shares of a
closed-end fund that might trade at a discount is more pronounced for investors
who wish to sell their shares in a relatively short period of time because, for
those investors, realization of gain or loss on their investments is likely to
be more dependent upon the existence of a premium or discount than upon
portfolio performance.

NON-DIVERSIFICATION OF INVESTMENTS

The Fund is classified as a "non-diversified" investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in 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, may be subject to greater risk with respect to portfolio
securities. The Fund intends to continue to comply with the diversification
requirements imposed on regulated investment companies by the U.S. Internal
Revenue Code of 1986, as amended (the "Code"). See "Taxation--United States
Federal Income Taxes."

OPERATING EXPENSES

The operating expense ratio of the Fund is higher than that of a fund
investing predominantly in the securities of U.S. issuers since the expenses of
the Fund (such as investment advisory and administration fees, custodial and
communications costs) are higher. However, the Fund's operating expense ratio
has been comparable to operating expense ratios of funds investing primarily in
a single foreign country. The operating expense ratio of the Fund for the year
ended July 31, 1994 was 1.64%. See "Management of the Fund."

ADDITIONAL CONSIDERATIONS

The Fund may invest in unlisted or restricted securities and engage in
foreign currency hedging transactions each of which may involve special risks.
See "Investment Objective and Policies." In addition, certain special voting
provisions of the Fund's Articles of Incorporation may have the effect of
depriving shareholders of an opportunity to sell their shares at a premium over
prevailing market prices. See "Common Stock."

INVESTORS SHOULD CAREFULLY CONSIDER THEIR ABILITY TO ASSUME THE FOREGOING
RISKS BEFORE MAKING AN INVESTMENT IN THE FUND. AN INVESTMENT IN THE COMMON STOCK
OF THE FUND MAY NOT BE APPROPRIATE FOR ALL INVESTORS AND SHOULD NOT BE
CONSIDERED AS A COMPLETE INVESTMENT PROGRAM.

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<PAGE> 31

INVESTMENT OBJECTIVE AND POLICIES

GENERAL

The Fund's investment objective is to seek high total return through
capital appreciation and current income. The Fund will seek to achieve its
objective through investment in equity and convertible debt securities issued by
Mexican companies and other debt securities of Mexican issuers. Mexican
companies are defined as (i) companies organized under the laws of Mexico; (ii)
companies whose securities are principally traded on the Mexican Stock Exchange;
and (iii) subsidiaries of companies described in clauses (i) or (ii) above that
issue debt securities guaranteed by, or securities payable with (or convertible
into) the stock of, the companies described in clauses (i) or (ii). The Fund
will not invest in the securities of any non-Mexican parent company of a Mexican
company, or in securities payable with (or convertible into) the stock of such
non-Mexican parent company. Mexican issuers are defined as (i) Mexican companies
and (ii) the Mexican Government and its agencies and instrumentalities. The
Fund's investment objective and the percentage limitation on investments set
forth in the first sentence of the next paragraph are fundamental policies that
may not be changed without the approval of a majority of the Fund's outstanding
voting securities. As used in this Prospectus, and for purposes of the 1940 Act,
a majority of the Fund's outstanding voting securities means the lesser of (i)
67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the outstanding
shares. No assurance can be given that the Fund's investment objective will be
achieved. Due to the risks inherent in international investing generally, the
Fund should not be considered as a complete investment program.

It is the policy of the Fund, under normal market conditions, to invest at
least 50% of its assets in equity and convertible debt securities issued by
Mexican companies. The remainder of the Fund's assets will be invested in
Mexican issuer debt (other than convertible debt) securities and, for cash
management or temporary defensive purposes, other instruments described below
under "--Temporary Investments." In addition to any convertible debt securities
acquired by the Fund, which have limited liquidity, the Fund may invest up to
10% of its assets in other securities which may be unlisted, restricted as to
resale or not otherwise readily marketable.

As of July 20, 1995, approximately 90.0% of the Fund's assets were invested
in equity securities of Mexican companies, 0.43% in convertible debt securities
of one Mexican issuer, 6.74% in short term debt securities of Mexican issuers
and 2.80% in U.S. dollar-denominated money market instruments.

The Fund defines equity securities to mean common stock (including ADRs and
GDRs issued on deposit of common stock), preferred stock and warrants to
purchase common stock and preferred stock of Mexican companies, whether acquired
directly or upon conversion of debt securities.

The Fund seeks to identify and invest in companies it believes offer
potential for long-term capital appreciation. In evaluating prospective
investments, the Mexican Adviser utilizes internal financial, economic and
credit analysis resources as well as information obtained from other sources. In
selecting industries and companies for investment, the Mexican Adviser generally
considers such factors as overall growth prospects, competitive position in
domestic and export markets, technology, financial strength, price/earnings
ratios, research and development, productivity, labor costs, raw material costs
and sources, profit margins, return on investment, sources of U.S. dollar-based
revenues, capital resources and government regulation and management.

Initially, the Fund's management anticipated that the Fund would acquire
convertible debt securities in privately negotiated transactions. Because of the
extremely limited number of convertible debt securities issued to date by
Mexican companies, the Fund's management does not anticipate that the Fund will
be acquiring significant amounts of convertible debt securities; however, the
Fund may acquire convertible debt securities of Mexican companies in the future
if and when they become available. A convertible debt security is a bond,
debenture or note that may be converted into or exchanged for, or may otherwise
entitle the holder to purchase, a prescribed amount of common stock or other
equity security of the same or a different Mexican company within a particular
period of time at a specified price or formula. A convertible debt security
entitles the holder to receive interest paid or accrued on debt until the
convertible security matures or is redeemed,

29
<PAGE> 32

converted or exchanged. Before conversion, convertible debt securities have
characteristics similar to nonconvertible debt securities in that they
ordinarily provide for a fixed stream of income with generally higher yields
than those of stocks of the same or similar issuers. Convertible debt securities
rank senior to stock in a corporation's capital structure and, therefore,
generally entail less risk than the corporation's stock. Given the volatility of
the Mexican securities market and the pricing of securities in Mexico, a
significant portion of the value of a Mexican convertible debt security may be
derived from the conversion feature rather than the fixed income feature.

The Fund defines debt securities (other than convertible debt securities)
to mean bonds, notes, bills and debentures. The Fund's investments in debt
securities of Mexican issuers include debt securities issued by private Mexican
companies and by the Mexican Government and its agencies and instrumentalities.
These debt securities may be denominated either in pesos or in U.S. dollars. The
Fund has established no rating criteria for the Mexican issuers' debt securities
in which it invests. The Fund invests in debt securities of Mexican issuers that
it determines to be suitable investments regardless of their rating. See "Risk
Factors--Risks of Investment in Mexican Securities."

Although the Mexican Adviser and the U.S. Co-Adviser consider available
security ratings when making investment decisions, they perform their own
investment analysis. The Mexican Adviser's and the U.S. Co-Adviser's analysis
may include consideration of the issuer's experience and management strength,
changing financial condition, borrowing requirements or debt maturity schedules,
and its responsiveness to changes in business conditions and interest rates. The
Mexican Adviser and the U.S. Co-Adviser also consider relative values based on
anticipated cash flow, interest coverage, asset coverage, earnings prospects and
other factors. The analysis of the Mexican Adviser and the U.S. Co-Adviser is
not, however, necessarily comparable to any established rating standards.

Among the obligations of the Mexican Government in which the Fund may
invest are Tesobonos, which are short-term bonds issued directly by the Mexican
Government and which are denominated in U.S. dollars and paid at maturity in the
peso equivalent calculated at the free exchange rate; Bondes, which are
development bonds issued directly by the Mexican Government denominated in pesos
and payable in pesos with a minimum term of 364 days; Ajustabonos, which are
adjustable bonds with different terms issued directly by the Mexican Government
and denominated in pesos with the face amount adjusted each quarter by the
quarterly inflation rate; and instruments evidencing the foreign debt of Mexico
and its public sector entities.

The Fund does not expect to trade in securities for short-term gain. It is
anticipated that the Fund's annual portfolio turnover rate generally will not
exceed 50%. This rate is calculated by dividing the lesser of sales or purchases
of portfolio securities for any given year by the average monthly value of the
Fund's portfolio securities for such year. For purposes of this calculation, no
regard is given to securities having a maturity or expiration date at the time
of acquisition of one year or less. The Fund's portfolio turnover rate for
fiscal years ended July 31, 1992, 1993 and 1994 was 15.08%, 44.21% and 43.57%,
respectively. Portfolio turnover directly affects the amount of transaction
costs that are borne by the Fund. In addition, the sale of securities held by
the Fund for not more than one year will give rise to short-term capital gain or
loss for U.S. federal income tax purposes. The U.S. federal income tax
requirement that the Fund derive less than 30% of its gross income from the sale
or other disposition of stock or securities held less than three months may
limit the Fund's ability to dispose of its securities. See "Taxation--United
States Federal Income Taxes."

The Fund may invest in the securities of other investment companies that
invest a substantial portion of their assets in Mexican securities to the extent
permitted by the 1940 Act. Under Section 12(d)(1) of the 1940 Act, the Fund may
invest up to 10% of its total assets in shares of other investment companies and
up to 5% of its total assets in any one investment company, provided that the
investment does not represent more than 3% of the voting stock of the acquired
investment company. By investing in an investment company, the Fund bears a
ratable share of the investment company's expenses, as well as continuing to
bear the Fund's advisory and administrative fees with respect to the amount of
the investment. Under the 1940 Act, banks organized outside of the United States
are deemed to be investment companies, although the U.S. Securities and Exchange
Commission (the "Commission") has adopted a rule which would permit the Fund to
invest in

30
<PAGE> 33

the securities of foreign commercial banks, under certain circumstances, without
regard to the percentage limitations of Section 12(d)(1) of the 1940 Act.
Mexican law recently was amended to permit foreign investment in up to 30% of
the capital stock of Mexican commercial banks. The Fund may, to the extent
permitted by applicable Commission rules and regulations, invest a portion of
its assets in the securities of Mexican commercial banks.

The Fund may be prohibited under Section 12(d)(3) of the 1940 Act from
purchasing the securities of any company that, in its most recent fiscal year,
derived more than 15% of its gross revenues from securities-related activities.
In Mexico, the largest commercial banks act as securities brokers and dealers,
investment advisers and underwriters of government securities or otherwise
engage in securities-related activities, which may limit the Fund's ability to
hold securities issued by banks. In addition, there are Mexican securities
companies with publicly traded shares and the provisions of Section 12(d)(3)
limit the Fund's ability to hold securities issued by these companies.

Under the 1940 Act, the Fund may not purchase during the existence of any
underwriting syndicate any security a principal underwriter of which is an
affiliate of the Mexican Adviser. Acciones y Valores de Mexico, S.A. de C.V.,
the parent company of the Mexican Adviser, is actively engaged in the
underwriting business in Mexico. The Fund may seek an exemption from the
Commission permitting the Fund to purchase securities in public offerings in
which Acciones y Valores de Mexico, S.A. de C.V. ("AVM"), or any of its
affiliates, participates as underwriter, although there can be no assurance that
such relief will be sought or obtained. In addition, the purchase by the Fund of
securities being sold by an underwriting syndicate in which Oppenheimer & Co.,
Inc., the parent company of the U.S. Co-Adviser, is a member may be restricted.

TEMPORARY INVESTMENTS

For temporary defensive purposes, e.g., during periods in which the Mexican
Adviser and the U.S. Co-Adviser determine that changes in the Mexican securities
markets or other economic or political conditions in Mexico warrant, the Fund
may vary from its investment objective and may invest, without limit (except for
the limitations as described under "Investment Restrictions"), in certain high
quality short-term debt instruments, including U.S. and Mexican Government
securities (provided that the Fund may not invest more than 25% of its total
assets in Mexican Government securities). The Fund may also at any time invest
funds in such instruments as reserves for expenses and dividend and other
distributions to stockholders. Also, for temporary defensive purposes, the Fund
may change the relative percentages of debt securities and equity securities
held in its portfolio.

The short-term instruments in which the Fund may invest include (a)
obligations of the United States Government and the Mexican Government,
including the agencies or instrumentalities of each (including repurchase
agreements with respect to these securities); (b) bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of United States
and Mexican banks denominated in U.S. dollars or pesos); (c) obligations of
United States and Mexican companies that are rated no lower than A-2 by S&P or
P-2 by Moody's or the equivalent from another rating service or, if unrated,
deemed to be of equivalent quality by the Mexican Adviser and the U.S.
Co-Adviser; and (d) shares of money market funds that are authorized to invest
in (a) through (c).

Among the obligations of agencies and instrumentalities of the United
States Government in which the Fund may invest are securities that are supported
by the "full faith and credit" of the United States Government (such as
securities of the Government National Mortgage Association), by the right of the
issuer to borrow from the United States Treasury (such as those of the
Export-Import Bank of the United States), by the discretionary authority of the
United States Government to purchase the agency's obligations (such as those of
the Federal National Mortgage Association) or by the credit of the United States
Government instrumentality itself (such as those of the Student Loan Marketing
Association).

CURRENCY TRANSACTIONS AND HEDGING

The Fund does not expect to hedge against a decline in the value of the
peso except in limited circumstances. On March 19, 1995, Banco de Mexico
approved the establishment of over-the-counter forward

31
<PAGE> 34

and option contracts in Mexico on the new peso between banks and their clients.
Also, Banco de Mexico recently authorized the issuance and trading of futures
contracts in respect of the new peso on the Chicago Mercantile Exchange ("CME").
Trading of new peso futures contracts began on the CME on April 25, 1995. These
markets are relatively new and have not developed significantly. The nature of
the strategies adopted by the Fund and the extent to which those strategies are
used will depend on the development of such markets.

The Fund will conduct any currency exchange transactions either on a spot,
i.e., cash, basis at the rate prevailing in the currency exchange market, or, if
a forward market develops, through entering into forward contracts to purchase
or sell currency. The Fund will not seek to hedge against a decline in the value
of its portfolio securities resulting from a currency devaluation unless
suitable hedging instruments for which a liquid market exists are available on a
timely basis and on acceptable terms. Under these circumstances, the Fund may,
in its discretion, hedge all or part of the value of its portfolio securities
denominated in currencies other than U.S. dollars, although it is not obligated
to do so. Unless the Fund engages in hedging transactions, it will be subject to
the risk of changes in value of the non-U.S. dollar currencies in which its
portfolio securities are denominated, particularly the peso. The Fund will
conduct any forward currency exchange transactions, which are considered
derivative transactions, only for hedging and not speculation. The risk of
future currency devaluations and fluctuations should be carefully considered by
investors in determining whether to purchase shares of the Fund. Although the
Fund will value its assets weekly in terms of U.S. dollars, it does not intend
physically to convert its holdings of pesos into U.S. dollars on a weekly basis.
It will do so from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.

A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. The Fund's dealings in forward currency contracts will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward currency
contracts with respect to specific receivables or payables of the Fund generally
arising in connection with the purchase or sale of its portfolio securities or
in anticipation of receipt of dividend or interest payments. Position hedging is
the purchase or sale of forward currency contracts with respect to portfolio
security positions denominated or quoted in the currency.

The Fund may not position hedge with respect to a particular currency to an
extent greater than the aggregate market value (at the time of making such
purchase or sale) of the securities held in its portfolio denominated or quoted
in or currently convertible into that particular currency. If the Fund enters
into a position hedging transaction, the custodian of the Fund's assets being
hedged will place cash or readily marketable securities in a segregated account
of the Fund in an amount equal to the value of the Fund's total assets committed
to the consummation of the forward contract. If the value of the securities
placed in the segregated account declines, additional cash or securities will be
placed in the account so that the value of the account will equal the amount of
the Fund's commitment with respect to the contract.

The Fund may enter into forward currency contracts in several
circumstances. When the Fund enters into a contract for the purchase or sale of
securities denominated in a foreign currency, or when the Fund anticipates the
receipt in a foreign currency of interest or dividend payments, the Fund may
desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such interest or dividend payment, as the case may be. By entering
into a forward contract for a fixed amount of U.S. dollars for the purchase or
sale of the amount of foreign currency involved in the underlying transactions,
the Fund will be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date on which the security is
purchased or sold, or on which the dividend payment is declared, and the date on
which such dividend or interest payment is to be received.

32
<PAGE> 35

At or before the maturity of a forward currency contract, the Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency that it is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in forward
contract prices. The use of forward currency contracts does not eliminate
fluctuation in the underlying prices of the securities, but it does establish a
rate of exchange that can be achieved in the future. In addition, although
forward currency contracts limit the risk of loss due to a decline in the value
of the hedged currency, at the same time they limit any potential gain that
might result should the value of the currency increase. If a devaluation is
generally anticipated, the Fund may not be able to contract to sell the currency
at a price above the devaluation level it anticipates.

The cost to the Fund of engaging in currency transactions either on a spot
or forward basis will vary with factors such as the currency involved, the
length of the contract period and the market conditions then prevailing. Because
transactions in currency exchange are usually conducted on a principal basis, no
fees or commissions are involved, although the price charged in the transaction
includes a dealer's markup.

Certain provisions of the Code may limit the extent to which the Fund may
enter into the foreign currency transactions described above. These transactions
may also affect the character and timing of income, and the amount of gain or
loss recognized by the Fund and its stockholders for U.S. federal income tax
purposes. See "Taxation --United States Federal Income Taxes."

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements on U.S. Government securities
with primary government securities dealers recognized by the Federal Reserve
Bank of New York and member banks of the U.S. Federal Reserve System. Repurchase
agreements are contracts under which the buyer of a security simultaneously buys
and commits to resell the security to the seller at an agreed upon price and
date. Under a repurchase agreement, the seller is required to maintain the value
of the securities subject to the repurchase agreement at not less than their
repurchase price, including accrued interest. As required under the 1940 Act,
the U.S. Co-Adviser, will monitor and mark to market the value of such U.S.
Government securities daily to assure that the value equals or exceeds the
repurchase price. Repurchase agreements may involve risks in the event of
default or insolvency of the seller, including possible delays or restrictions
upon the Fund's ability to dispose of the underlying securities. The Fund will
limit its investment in repurchase agreements to no more than 50% of its total
assets.

SHORT SALES

The Fund may make short sales of securities "against the box." A short sale
is a transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. In a short
sale "against the box," at the time of sale, the Fund owns or has the immediate
and unconditional right to acquire at no additional cost the identical security.
Short sales against the box are a form of hedging to offset potential declines
in long positions in similar securities.

BORROWING

The Fund is authorized to borrow money from banks to make distributions
required to maintain its qualification as a regulated investment company for
U.S. tax purposes, for temporary or emergency purposes or for the clearance of
transactions in an aggregate amount not exceeding 10% of its total assets (not
including the amount borrowed). Borrowings by the Fund increase exposure to
capital risk. In addition, borrowed funds are subject to interest costs that may
offset or exceed the return earned on investment of such funds.

LOANS OF PORTFOLIO SECURITIES

The Fund may lend to banks and broker-dealers portfolio securities with an
aggregate market value of up to one-third of its total assets. Such loans must
be secured by collateral (consisting of any combination of

33
<PAGE> 36

cash, U.S. Government securities or irrevocable letters of credit) in an amount
at least equal (on a daily mark-to-market basis) to the current market value of
the securities loaned. The Fund retains all or a portion of the interest
received on investment of the cash collateral or receives a fee from the
borrower. The Fund may terminate the loans at any time and obtain the return of
the securities loaned within five business days. The Fund will continue to
receive any interest or dividends paid on the loaned securities and will
continue to have voting rights, if any, with respect to the securities. However,
as with other extensions of credit, there are risks of delay in recovery or even
loss of rights in collateral should the borrower default on its obligations.

INVESTMENT RESTRICTIONS

The Fund has adopted certain fundamental investment restrictions that may
not be changed without the prior approval of the holders of a majority of the
Fund's outstanding voting securities. For purposes of the restrictions listed
below, all percentage limitations apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting
from market fluctuations does not require elimination of any security from the
Fund's portfolio. Fund policies which are not fundamental may be modified by the
Directors if, in the reasonable exercise of the Directors' business judgment,
modification is determined to be necessary or appropriate to carry out the
Fund's objectives. Under its fundamental restrictions, the Fund may not:

1. invest 25% or more of the total value of its assets in a
particular industry; this restriction does not apply to investments in U.S.
Government securities but does apply to investments in Mexican Government
securities;

2. issue senior securities, borrow or pledge its assets, except that
the Fund may borrow from a bank to make distributions required for the Fund
to maintain its qualification as a regulated investment company under U.S.
tax law, for temporary or emergency purposes or for the clearance of
transactions in amounts not exceeding 10% (taken at the lower of cost or
current value) of its total assets (not including the amount borrowed) and
may also pledge its assets to secure such borrowings. Additional
investments will not be made when borrowings exceed 5% of the Fund's
assets;

3. lend money to other persons except through the purchase of debt
obligations and the entering into of repurchase agreements in the United
States or Mexico consistent with the Fund's investment objective and
policies;

4. make short sales of securities or maintain a short position in
any security except for short sales against the box as a form of hedging;

5. purchase securities on margin, except such short-term credit as
may be necessary or routine for the clearance or settlement of transactions
and the maintenance of margin with respect to forward contracts or other
hedging transactions;

6. underwrite securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933, as
amended, in selling portfolio securities;

7. purchase or sell commodities or real estate, except that the Fund
may invest in securities secured by real estate or interests in real estate
or in securities issued by companies, including real estate investment
trusts, that invest in real estate or interests in real estate, and may
purchase and sell forward contracts on foreign currencies to the extent
permitted under applicable law; or

8. make investments for the purpose of exercising control over, or
management of, the issuers of any securities.

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<PAGE> 37

MANAGEMENT OF THE FUND

DIRECTORS AND OFFICERS

Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. The Fund's Directors approve all significant
agreements between the Fund and the persons or companies that furnish services
to the Fund, including agreements with the Mexican Adviser, the U.S. Co-Adviser
and the Fund's custodian and transfer agent. The names of the Directors and
principal officers of the Fund are set forth below, together with their
positions with the Fund, their age and their principal occupations during the
past five years.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST
NAME AND ADDRESS POSITION WITH THE FUND AGE FIVE YEARS
- ---------------- ---------------------- --- -----------------------------------

<S> <C> <C> <C>
*ALAN H. RAPPAPORT............ President, Director 42 Executive Vice President (since
World Financial Center and Chairman of the 1994) and Managing Director (since
200 Liberty Street Board 1986), Oppenheimer & Co., Inc.;
New York, New York 10281 President and Director, Advantage
Advisers, Inc. (since 1993);
Executive Vice President, Advantage
Advisers, Inc. (1990-1993);
Chairman of the Board and Director,
The Asia Tigers Fund, Inc., The
India Fund, Inc., The Czech
Republic Fund, Inc., The Emerging
Markets Income Fund II, Inc., and
The Emerging Markets Floating Rate
Fund, Inc.; President and Director,
Global Partners Income Fund, Inc.
The Emerging Markets Income Fund,
Inc.; Director, Xiosinvest
Management Co., S.A.; Member, New
York Stock Exchange Advisory
Committee on International Capital
Markets.

*FREDERICK M. BOHEN........... Director 58 Director, Oppenheimer & Co., Inc.
One Fifth Avenue (since 1993); Executive Vice
Apt. 26A President, Rockefeller University
New York, New York 10003 (since 1990); Senior Vice
President, Brown University
(1985-1990); Director, Apache
Corporation (energy exploration,
development, production and
marketing) (since 1981); Director,
Student Loan Marketing Association
(since 1984).

CARROLL W. BREWSTER........... Director 59 Executive Director, Hole in the
126 Lounsbury Road Wall Gang Fund, Inc.
Ridgefield, (not-for-profit charitable
Connecticut 06877 organization) (since July 1991);
President, Hobart & William Smith
Colleges (1982-1991).

SOL GITTLEMAN................. Director 61 Senior Vice President and Provost,
Ballou Hall Tufts University.
Tufts University
Medford, Massachusetts 02155
</TABLE>

35
<PAGE> 38

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST
NAME AND ADDRESS POSITION WITH THE FUND AGE FIVE YEARS
- ------------------------------ ---------------------- --- -----------------------------------
<S> <C> <C> <C>
DR. LUIS RUBIO................ Director 39 President, Centro de Investigacion
Jaime Balme No. 11 para el Desarrollo (Center of
Edificio D. Piso 2 Research for Development);
Polanco Los Morales Director, Banco Nacional de Mexico,
11510 Mexico S.A. (September 1991 to April 1,
1993); Director of The Czech
Republic Fund, Inc. (since 1994).

DENNIS FEENEY................. Secretary and 43 Executive Vice President (since
World Financial Center Treasurer 1995), Chief Financial Officer
200 Liberty Street (since 1994) and Controller,
New York, New York 10281 Oppenheimer & Co., Inc. (since
1986).
</TABLE>

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

* Director who is an "interested person" within the meaning of the 1940 Act.

The Fund pays each of its Directors who is not a director, officer or
employee of the Mexican Adviser, the U.S. Co-Adviser, the Administrator or any
affiliate thereof an annual fee of $5,000 plus $700 for each Board of Directors
meeting attended in person and $100 for each meeting attended by means of a
telephonic conference. In addition, the Fund reimburses the Directors for travel
and out-of-pocket expenses incurred in connection with Board of Directors
meetings.

The following table sets forth the aggregate compensation paid by the Fund
to each Director during the fiscal year ended July 31, 1994, as well as the
total compensation paid by the Fund and other funds advised by the Mexican
Adviser or the U.S. Co-Adviser or otherwise affiliated with the Fund to each
Director.

<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND COMPLEX
COMPENSATION AS PART OF FUND BENEFITS UPON PAID TO
NAME OF PERSON, POSITION FROM FUND EXPENSES RETIREMENT DIRECTORS
- ---------------------------------- ------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Antonio S. Fernandez,
Director+*...................... $ 0 0 0 $ 0
Alan H. Rappaport, Director**..... $ 0 0 0 $ 0
Frederick M. Bohen, Director+..... $ 0 0 0 $ 0
Carroll W. Brewster, Director..... $7,900 0 0 $7,900
Sol Gittleman, Director........... $8,000 0 0 $8,000
Dr. Luis Rubio, Director.......... $8,000 0 0 $8,000
</TABLE>

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

+ Messrs. Fernandez and Bohen, who are considered "interested persons" of the
Fund, did not receive any compensation from the Fund for their services as
directors. Mr. Bohen did receive $7,800 from the U.S. Co-Adviser for his
services as a director of the Fund.

* Mr. Fernandez resigned as Director of the Fund effective February 15, 1995.

** Mr. Rappaport was elected as a Director of the Fund on February 15, 1995. Mr.
Rappaport is considered an "interested person" of the Fund and will not
receive any compensation from the Fund for his services as a director.

The Fund's Board of Directors also has an Audit Committee which is
responsible for reviewing financial and accounting matters. The current members
of the Audit Committee are Messrs. Brewster, Gittleman and Rubio.

While the Fund is a Maryland corporation, one of its Directors, Dr. Louis
Rubio, is not a resident of the United States, and substantially all of his
assets may be located outside of the United States. As a result, it may be
Difficult for investors to effect service of process upon Dr. Rubio within the
United States, or to realize judgments of courts of the United States predicated
upon civil liabilities of Dr. Rubio under the federal securities laws of the
United States. The Fund has been advised that there is substantial doubt as to
the enforceability in the country in which Dr. Rubio resides of such civil
remedies and criminal penalties as are afforded by the federal securities laws
of the United States. Dr. Rubio has not appointed an agent for service of
process in any action, suit or proceeding under the provisions of the U.S.
securities laws.

36
<PAGE> 39

The Articles of Incorporation of the Fund contain a provision permitted
under the Maryland General Corporation Law (the "MGCL") which by its terms
eliminates the personal liability of the Fund's directors to the Fund or its
stockholders for monetary damages for breach of fiduciary duty as a director,
subject to certain qualifications described below. The Articles of Incorporation
and the By-Laws of the Fund provide that the Fund will indemnify directors,
officers, employees or agents of the Fund to the full extent permitted by
Maryland law. Under Maryland law, a corporation may indemnify any director or
officer made a party to any proceeding by reason of service in that capacity
unless it is established that (1) the act or omission of the director or officer
was material to the matter giving rise to the proceeding and (A) was committed
in bad faith or (B) was the result of active and deliberate dishonesty; (2) the
director or officer actually received an improper personal benefit in money,
property or services; or (3) in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission was
unlawful. The Articles of Incorporation further provide that to the fullest
extent permitted by the MGCL, and subject to the requirements of the 1940 Act,
no director or officer will be liable to the Fund or its stockholders for money
damages. Under Maryland law, a corporation may restrict or limit the liability
of directors or officers to the corporation or its stockholders for money
damages, except to the extent that (1) it is proved that the person actually
received an improper benefit or profit in money, property or services, or (2) a
judgment or other final adjudication adverse to the person is entered in a
proceeding based on a finding in the proceeding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. However, nothing
in the Articles of Incorporation or the By-Laws of the Fund protects or
indemnifies a director, officer, employee or agent against any liability to
which he would otherwise be subject by reason of acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, or
protects or indemnifies a director or officer of the Fund against any liability
to the Fund or its stockholders 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 Directors are divided into three classes, having terms of one, two and
three years, respectively. At the annual meeting of stockholders in each year
the term of one class expires and directors are elected to serve in that class
for terms of three years. See "Common Stock--Special Voting Provisions."

To the knowledge of the management of the Fund, no persons owned
beneficially more than 5% of the Fund's outstanding shares as of July 20, 1995.

As of July 20, 1995, the Directors and Officers of the Fund as a group
owned beneficially and of record less than 1% of the Fund's outstanding shares.

THE MEXICAN ADVISER

Acci Worldwide, S.A. de C.V., the Fund's Mexican Adviser, was organized in
1990 as a company with limited liability under the laws of Mexico to carry on
investment management activities and is registered under the Advisers Act. In
addition to its services to the Fund, the Mexican Adviser acts as an adviser for
the Mexico portfolio of The Hercules North American Growth and Income Fund, a
U.S. registered investment company. The Mexican Adviser is a wholly owned
subsidiary of Acciones y Valores de Mexico, S.A. de C.V. ("AVM"). The principal
address of the Mexican Adviser is Paseo de la Reforma 398, Mexico City, D.F.,
Mexico 06600.

AVM, organized in 1971, owns 100% of the capital stock of the Mexican
Adviser. AVM provides institutional and brokerage services as well as financial
advice to investors and securities issuers, specializing in money market,
brokerage and corporate finance operations, and provides investment advice to
Mexican investment funds. AVM is one of the leading brokerage firms in Mexico
and is a wholly owned subsidiary of Grupo Financiero Banamex Accival, S.A. de
C.V. ("Grupo Banacci"). As of June 1995, Grupo Banacci had over US$970 million
under management invested through a family of mutual funds investing in Mexican
securities. Grupo Banacci also holds the controlling interest in Banco Nacional
de Mexico, S.A., Mexico's largest commercial bank in terms of total deposits.

37
<PAGE> 40

AVM holds 100% of the capital stock of ACCI Securities, Inc., a securities
brokerage firm incorporated in Delaware in June 1990, with its principal place
of business in New York, New York. ACCI Securities, Inc. is registered as a
broker-dealer with the United States Securities and Exchange Commission and
effects transactions as a broker in Mexican securities, primarily for U.S.
institutional investors and, solely incidental thereto, provides investment
advice and research.

For its services to the Fund, the Mexican Adviser receives a monthly fee at
an annual rate of .52% of the Fund's average monthly net assets. For the fiscal
years ended July 31, 1992, 1993 and 1994, the Mexican Adviser earned a fee,
including the applicable Mexican value added tax, under its Advisory Agreement
with the Fund of $546,299, $597,038 and $896,561, respectively which was paid or
payable by the Fund.

In September 1994, the Mexican Adviser obtained a ruling from the Mexican
Treasury Department in which it was established that income received by the
Mexican Adviser for investment advisory services rendered to the Fund, and other
similar entities domiciled outside Mexico, was considered income arising from
export transactions and, therefore, subject to a 0% Mexican value added tax. In
early 1995, the Mexican Adviser requested re-confirmation of the value added tax
treatment mentioned above, as required pursuant to the ruling. The Mexican
Treasury Department has not yet responded to the Mexican Adviser's request. In
the event that the Mexican Treasury Department fails to re-confirm the Mexican
Adviser's value added tax treatment, the Mexican Adviser's income for advisory
services to the Fund and other non-Mexican entities will be subject to a 15%
value added tax. In such event, the Mexican Adviser will be required to collect
the value added tax from the Fund with respect to the advisory fee paid by the
Fund for any period for which the re-confirmation was not obtained, including
1995. Consequently, the advisory fee paid by the Fund would equal .598% of the
Fund's average monthly assets.

Pursuant to the Advisory Agreement, the Mexican Adviser makes investment
decisions for the Fund, prepares and makes available to the Fund research and
statistical data in connection therewith and supervises the acquisition and
disposition of securities by the Fund, including the selection of brokers or
dealers to carry out such transactions on behalf of the Fund, subject to the
direct participation by the U.S. Co-Adviser in any investment decisions with
respect to investments by the Fund in convertible debt securities. All decisions
to acquire convertible debt securities require the concurrence of both the
Mexican Adviser and the U.S. Co-Adviser. In the case of securities transactions
other than the acquisition of convertible debt securities, the Mexican Adviser
receives advice from, and consults with, the U.S. Co-Adviser regarding the
Fund's overall investment strategy and the Mexican Adviser's individual
decisions to buy, sell or hold particular securities. Subject to this
participation by the U.S. Co-Adviser and the oversight and supervision of the
Fund's Board of Directors, the Mexican Adviser is responsible for the management
of the Fund's portfolio in accordance with the Fund's investment objective and
policies and for making decisions to buy, sell or hold particular securities.
The Advisory Agreement provides that the Mexican Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the Advisory Agreement relates, except
liability resulting from willful misfeasance, bad faith or gross negligence on
the Mexican Adviser's part in the performance of its duties or from reckless
disregard of its obligations and duties under the Advisory Agreement.

The Advisory Agreement was last approved by a majority of the Fund's
outstanding voting shares on November 7, 1994 and by the directors, including a
majority of the directors who are not parties to the Advisory Agreement or
interested persons (as such term is defined in the 1940 Act) of such parties, on
June 5, 1995. By its terms, the Advisory Agreement continues in effect until
October 14, 1996 and from year to year thereafter if it is approved annually by
a vote of a majority of the members of the Fund's Board of Directors who are not
parties to the Advisory Agreement or interested persons of such parties, cast in
person at a meeting called for the purpose of voting on such approval, and by a
majority vote of either the Fund's Board of Directors or the Fund's outstanding
voting securities. The Advisory Agreement may be terminated by the Fund or the
Mexican Adviser at any time, without payment of penalty, upon sixty days'
written notice. The Advisory Agreement will terminate automatically in the event
of its assignment (as defined in the 1940 Act).

38
<PAGE> 41

THE U.S. CO-ADVISER

Advantage Advisers, Inc., the Fund's U.S. co-adviser (the "U.S.
Co-Adviser"), is a corporation organized under the laws of the State of Delaware
on May 31, 1990 and is registered under the Advisers Act. The U.S. Co-Adviser
also acts as investment adviser to The Emerging Markets Income Fund Inc, and as
investment manager to The Emerging Markets Income Fund II Inc., Global Partners
Income Fund Inc., The Asia Tigers Fund, Inc., The India Fund, Inc., The Emerging
Markets Floating Rate Fund, Inc., The Czech Republic Fund, Inc., Municipal
Advantage Fund, Inc., Municipal Partners Fund Inc. and Municipal Partners Fund
II Inc., each of which is a U.S. registered investment company. The principal
address of the U.S. Co-Adviser is World Financial Center, 200 Liberty Street,
New York, New York 10281.

Oppenheimer & Co., Inc. ("OpCo"), World Financial Center, 200 Liberty
Street, New York, New York 10281, owns all of the shares of the U.S. Co-Adviser.
OpCo has been engaged in the management of investment funds for more than 35
years. As of June 29, 1995, total assets under management by OpCo and its
affiliates were approximately $35 billion for investment company, corporate,
pension, profit-sharing and other accounts.

For its services, the U.S. Co-Adviser receives a monthly fee at an annual
rate of 0.40% of the Fund's average monthly net assets. For the fiscal years
ended July 31, 1992, 1993 and 1994, the U.S. Co-Adviser earned a fee under its
Co-Advisory Agreement with the Fund (the "U.S. Co-Advisory Agreement") of
$411,117, $417,509 and $652,949, respectively, which was paid or payable by the
Fund.

Pursuant to the U.S. Co-Advisory Agreement between the Fund and the U.S.
Co-Adviser, the U.S. Co-Adviser provides advice and consultation to the Mexican
Adviser regarding the Fund's overall investment strategy and the Mexican
Adviser's individual decisions to buy, sell or hold particular securities. In
addition, the U.S. Co-Adviser furnishes to the Mexican Adviser and the Fund
international economic information and analysis with particular emphasis on
macroeconomic issues relating to Mexico and North America. The U.S. Co-Adviser
also furnishes to the Mexican Adviser investment advice regarding global and
U.S. debt securities, particularly with respect to investments made during
defensive periods, and regarding the Fund's assets held for distribution or
payment of expenses or pending reinvestment in securities. In addition, the U.S.
Co-Adviser makes investment decisions jointly with the Mexican Adviser regarding
any convertible debt security acquisitions made by the Fund and would
participate in the process of negotiating and structuring any future
acquisitions of convertible debt securities directly from Mexican companies.

The U.S. Co-Adviser also provides investors with information with respect
to the Mexican economy and securities market, the net asset value of the Fund's
portfolio and the general composition of such portfolio, including by making
available to investors a toll free telephone number ((800) 421-4777). The U.S.
Co-Adviser also supervises and coordinates the work of the Fund's administrator
with respect to regulatory filings and the overall administration of the Fund in
the United States.

The U.S. Co-Advisory Agreement provides that the U.S. Co-Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with matters to which the U.S. Co-Advisory Agreement
relates, except liability resulting from willful misfeasance, bad faith or gross
negligence on the U.S. Co-Adviser's part in the performance of its duties or
from reckless disregard of its obligations and duties under the U.S. Co-Advisory
Agreement.

The U.S. Co-Advisory Agreement was last approved by a majority of the
Fund's outstanding voting shares on November 7, 1994 and by the directors,
including a majority of the directors who are not parties to the U.S.
Co-Advisory Agreement or interested persons (as such term is defined in the 1940
Act) of such parties, on June 5, 1995. By its terms, the U.S. Co-Advisory
Agreement will continue in effect until August 14, 1996 and continues from year
to year thereafter if it is approved annually by a vote of a majority of the
members of the Fund's Board of Directors who are not parties to the U.S.
Co-Advisory Agreement or interested persons of such parties, cast in person at a
meeting called for the purpose of voting on such approval, and by a majority
vote of either the Fund's Board of Directors or the Fund's outstanding voting
securities. The U.S. Co-Advisory Agreement may be terminated by the Fund or the
U.S. Co-Adviser at any time, without payment of penalty, upon sixty days'
written notice. The U.S. Co-Advisory Agreement will terminate automatically in
the event of its assignment (as defined in the 1940 Act).

39
<PAGE> 42

PORTFOLIO MANAGEMENT

The Fund's portfolio is managed on a day to day basis by Maria Eugenia
Pichardo. Ms. Pichardo joined AVM in May 1979 as an assistant to the
International Director and was appointed Director General of the Mexican Adviser
in 1990. Currently, she is Director, Secretary and Director General of the
Mexican Adviser and a Vice President of AVM. Ms. Pichardo has managed the Fund's
portfolio since 1990.

ADMINISTRATOR

Oppenheimer & Co., Inc. serves as the Fund's administrator (the
"Administrator") pursuant to an agreement with the Fund, dated August 14, 1990
(the "Administration Agreement"). The Administrator is located at World
Financial Center, 200 Liberty Street, New York, New York 10281.

The Administrator performs various administrative services, including
providing the Fund with the services of persons to perform administrative and
clerical functions, maintenance of the Fund's books and records, preparation of
various filings, reports, statements and returns filed with government
authorities, and preparation of financial information for the Fund's proxy
statements and semiannual and annual reports to stockholders. The Administrator
subcontracts certain of these services to PFPC Inc., an affiliate of PNC Bank,
National Association. Under the Administration Agreement, the Fund pays the
Administrator a fee that is computed monthly and paid quarterly at an annual
rate of 0.20% of the Fund's average monthly net assets. For the fiscal years
ended July 31, 1992, 1993 and 1994, the Administrator earned a fee under its
Administration Agreement with the Fund of $205,558, $208,755 and $326,475,
respectively, which was paid or payable by the Fund.

NON-EXCLUSIVE SERVICES

The services of the Mexican Adviser, the U.S. Co-Adviser and the
Administrator are non-exclusive, and nothing in the relevant service agreements
will prevent any of them or their affiliates from providing similar services to
other investment companies and other clients (whether or not their investment
objectives and policies are similar to those of the Fund) or from engaging in
other activities.

OPERATING EXPENSES

The Mexican Adviser, the U.S. Co-Adviser and the Administrator are each
obligated to pay expenses associated with providing the service contemplated by
the agreements to which they are parties, including compensation of and office
space for their respective officers and employees connected with investment and
economic research, trading and investment management and administration of the
Fund, as well as the fees of all directors of the Fund who are affiliated with
those companies or any of their affiliates. The Fund will bear travel expenses,
or an appropriate fraction thereof, of directors and officers of the Fund who
are directors, officers or employees of the Mexican Adviser or any of its
affiliates or the U.S. Co-Adviser or any of its affiliates to the extent that
such expenses relate to attendance at meetings of the Board of Directors of the
Fund or any committees thereof. The Fund pays all other expenses incurred in the
operation of the Fund including, among other things, expenses for legal and
independent accountants' services, costs of printing proxies, stock certificates
and stockholder reports, charges of the custodian, subcustodian and transfer and
dividend paying agent, expenses in connection with the Dividend Reinvestment
Plan, U.S. Securities and Exchange Commission fees, fees and expenses of
unaffiliated directors, accounting and pricing costs, membership fees in trade
associations, fidelity bond coverage for the Fund's officers and employees,
directors' and officers' errors and omissions insurance coverage, interest,
brokerage costs and stock exchange fees, taxes, stock exchange listing fees and
expenses, expenses of qualifying the Fund's shares for sale in various states
and foreign jurisdictions, litigation and other extraordinary or nonrecurring
expenses, and other expenses properly payable by the Fund.

40
<PAGE> 43

The Fund's annual operating expenses are higher than annual operating
expenses of many other investment companies of comparable size, but are
comparable to expenses of other closed-end investment companies registered under
the 1940 Act that invest primarily in the securities of a single foreign
country. The operating expense ratio of the Fund for the years ended July 31,
1992, 1993 and 1994 was 1.62%, 1.63% and 1.64%, respectively.

THE MEXICAN SECURITIES MARKETS

The information in this section is based on material obtained by the Fund
from the Mexican Stock Exchange and from economic consultants, publications and
interviews with leading participants in the market. The information is believed
to be accurate but has not been independently verified by the Fund, the Mexican
Adviser, the U.S. Co-Adviser or the Dealer Manager.

THE EXCHANGE

The Mexican Stock Exchange, located in Mexico City, is the only stock
exchange in Mexico. Founded in 1894, it ceased operation in the early 1900s and
was reestablished in 1907. The Mexican Stock Exchange is organized as a
corporation, the shares of which are held by 34 brokerage firms. The firms are
exclusively authorized to trade on the floor of the Mexican Stock Exchange which
is open between the hours of 8:00 a.m. and 2:00 p.m., Mexico City time, each
business day. Each trading day begins at 8:30 a.m. and is divided into six
trading sessions with five-minute periods separating each session; orders may be
placed beginning at 8:00 a.m. Trades in securities listed on the Mexican Stock
Exchange may, subject to certain requirements, also be effected off the
exchange. Due primarily to tax considerations, however, most transactions in
listed Mexican securities are effected on the exchange. The Mexican Stock
Exchange operates a system of automatic suspension of trading in shares of a
particular issuer as a means of controlling excessive price volatility.

Settlement takes place two business days after a transaction involving the
purchase or sale of shares is completed on the Mexican Stock Exchange. Deferred
settlement, even if by mutual agreement, is not permitted without the approval
of the Comision Nacional Bancaria y de Valores. Most securities traded on the
Mexican Stock Exchange are on deposit with S.D. Indeval, S.A. de C.V.,
Institucion para el Deposito de Valores ("Indeval"), a privately-owned central
securities depositary that acts as a clearinghouse, depositary, custodian,
settlement, transfer and registration institution for Mexican Stock Exchange
transactions, thereby eliminating the need for physical transfer of securities.

The Mexican Stock Exchange is one of Latin America's largest exchanges by
market capitalization, but remains relatively small and illiquid compared to
major world markets. During 1994, the five most actively traded equity issues
represented approximately 46.78% of the total value of equity issues traded on
the Mexican Stock Exchange. Although there is substantial participation by the
public in the trading of securities, a major part of the activity of the Mexican
Stock Exchange reflects transactions by approximately 60 institutional
investors. There is no formal over-the-counter market for securities in Mexico.

The market capitalization of the Mexican Stock Exchange was $129.9 billion
at the end of 1994, representing a decrease of 35.3% in U.S. dollars from its
1993 level. The value of transactions in equity securities on the Mexican Stock
Exchange reached $87.7 billion in 1994, representing a $24.0 billion increase
over the 1993 level. Fixed income securities (i.e., commercial paper, notes,
bonds and ordinary participation certificates) accounted for 14.4% and
variable-income securities (i.e., shares and certificates of patrimonial
contribution of CPOs) accounted for the remaining 85.6% of transactions. In
1994, public offerings of equity securities of private sector companies totalled
approximately $1.76 billion.

41
<PAGE> 44

The following table shows the trading volume on the Mexican Stock Exchange
in U.S. dollars during the periods indicated.

MEXICAN STOCK EXCHANGE TRADING VOLUME

(US$ BILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
SECURITIES 1990 1991 1992 1993 1994
- --------------------------------------------- ----- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Equity securities............................ 12.1 31.5 44.6 62.4 84.1*
----- ------ ------ ------- -------
Total........................................ 801.3 1,760.3 3,597.5 4,633.2 4,115.7
===== ====== ====== ====== ======
</TABLE>

- ---------------
Source: Mexican Stock Exchange

* Figure does not include approximately US$3.6 billion in mutual funds.

Regulation

The Comision Nacional de Valores ("CNV") was established in 1946, to
regulate stock market activity. On May 1, 1995 the CNV was merged with the
Comision Nacional Bancaria (the Mexican National Banking Commission) and the
resulting entity is known as the Comision Nacional Bancaria y de Valores (the
Mexican National Banking and Securities Commission or "CNBV"). The mandate of
the CNBV is to ensure consolidated supervision of the banking and securities
industries. The Ley del Mercado de Valores of 1975, as amended (the "Securities
Market Law"), regulates the securities markets and brokerage firms and sets
standards for the registration of brokers in the Intermediaries Section of
Registro Nacional de Valores e Intermediarios (the Mexican National Registry of
Securities and Intermediaries or "RNVI"), a prerequisite to becoming a member of
the Mexican Stock Exchange. As a result of the NAFTA accords, Mexican financial
legislation has been modified so as to allow foreign securities firms increased
access to trading on the Mexican Stock Exchange. The Securities Market Law also
empowers the CNBV to regulate the public offering and trading of securities and
to impose sanctions for the illegal use of inside information. The governing
board of the CNBV is composed of representatives of the Secretaria de Hacienda y
Credito Publico (the Ministry of Finance and Public Credit), Banco de Mexico
(the Mexican central bank), the Secretaria de Comercio y Fomento Industrial (the
Ministry of Commerce and Industrial Development), the Comision Nacional de
Seguros y Fianzas (the National Insurance and Bonding Commission) and Nacional
Financiera, S.N.C. (a Mexican government development bank).

In order to offer securities to the public in Mexico, an issuer must meet
certain requirements specified by the CNBV with respect to the issuer's assets,
operating history, management and other matters, and only securities with
respect to which an application for registration has been approved by the CNBV
may be listed on the Mexican Stock Exchange. Issuers of registered securities
are required to file unaudited quarterly financial statements and audited annual
financial statements as well as various other periodic reports with the CNBV and
the Mexican Stock Exchange.

The CNBV has published general rules to implement an intermediate
securities market in addition to the current market operated by the Mexican
Stock Exchange in order to permit less liquid issues and issuers with a lower
market capitalization to participate in the public securities market. In
essence, the general rules divide the Securities Section of the RNVI into two
subsections, Subsection "A" and Subsection "B." Registration of securities in
Subsection "A" enables such securities to be eligible for certain transactions
for which only securities classified as "high-liquidity" issues by the Mexican
Stock Exchange are eligible (for example, the issuance of warrants). The
registration of securities will be classified in Subsection "B" if the issuer
meets the qualifications for such classification but does not otherwise meet the
requirements for Subsection "A." In the event that an issuer does not meet the
requirements to maintain the registration of its securities in Subsection "B,"
such registration and the listing thereof on the Mexican Stock Exchange may be
cancelled by the CNBV.

In August 1980, the Exchange established a contingency fund to guarantee
the obligations of brokers to their clients and to create greater financial
stability in the market. Brokers are obliged to make contributions to the fund
on a per transaction basis (including new issues of shares or debt instruments).

42
<PAGE> 45

Effective January 1, 1990, the Securities Market Law was amended to
regulate the use of non-public information in the context of purchases and sales
of securities. Directors and certain individuals involved in management of a
listed company, stockholders holding more than 10% of the company's ordinary
share capital, independent advisers to the company, management employees of the
brokerage houses and any other individual deemed to have inside information may
not trade in company securities for three months from the date they acquire the
information. Stockholders must also report to the CNBV purchases or sales by
reason of which their holdings exceed or fall below the 10% ownership floor.

On July 24, 1993, amendments to the Securities Market Law became effective,
which amendments include more flexible rules for the repurchase by Mexican
companies of their own shares and a new definition of (and rules relating to)
privileged information. In addition, under the new amendments, brokerage houses
are authorized to act as trustees in transactions related to their trading
activities, and the listing of foreign securities on the Mexican Stock Exchange
is permitted upon the authorization of the Ministry of Finance and Public
Credit, the CNBV and Banco de Mexico. The amendments also include the creation
of an international quotation system. Beginning in July 1994 foreign securities
firms were permitted to establish representative offices in Mexico with the
prior approval of the Mexican Government. In addition, as permitted under NAFTA,
certain foreign securities firms have incorporated Mexican affiliates to trade
on the Mexican Stock Exchange.

In February 1995, restrictions on the shareholding structure of securities
firms and commercial banks were also relaxed. Prior to 1995, the capital of
securities firms was required to be represented by at least 70% Series "A"
shares (which may be owned only by Mexican persons) and up to 30% Series "B"
shares (which may be owned by foreigners other than foreign governmental
entities exercising functions of authority). Pursuant to the 1995 reform, the
level of permissible foreign shareholding was increased by permitting securities
firms to have as little as 51% of their capital represented by Series "A"
shares, with the remainder to be represented by Series "B" shares. In addition,
whereas formerly Series "A" shares generally could be owned only by Mexican
individuals and financial group holding companies, they now may also be owned by
personas morales (legal persons, such as corporations, partnerships and trusts,
that are not individuals) and certain institutional investors established under
Mexican law and controlled by Mexicans. Per-shareholder ownership limits (with
authorization from the Ministry of Finance and Public Credit) were raised by the
new legislation from 15% to 20% of capital. As was the case prior to the 1995
reform, the per-shareholder ownership limit without Ministry of Finance and
Public Credit authorization is 10% of capital. These per-shareholder limits do
not apply to any foreign financial institution that, in accordance with a
program to acquire a Mexican-owned securities firm that has been approved by the
Ministry of Finance and Public Credit, acquires shares of that securities firm.

THE EQUITY MARKET

Since the 1800s, equity securities have been traded in Mexico and used to
finance companies in a variety of industries. Notwithstanding the long history
of the Mexican equity market, when compared to markets in the U.S., Europe and
parts of Asia, it is small and far less liquid. For a variety of reasons,
trading volume in equities had declined in importance relative to other
instruments in the securities market during the 1980s. In 1979, for example,
equity trading represented 26% of total Mexican Stock Exchange trading as
opposed to 1987, when equity trading represented only 7% of the total. From 1990
to 1994, the equity market grew in importance due to continued economic
stability and the Government's policy of encouraging institutional investment as
well as an increase in new equity issues by both private and public sector
Mexican companies. The Government's privatization program was partially
conducted through public offers for sale of equity. As of December 31, 1994, 206
companies were listed on the Mexican Stock Exchange, excluding mutual funds.
During 1994, 23.84 billion equity securities were traded on the Mexican Stock
Exchange; total turnover amounted to Ps. 293.8 billion (US$87.7 billion). Of the
companies listed in 1994, the five most actively traded companies accounted for
46.78% of total turnover.

43
<PAGE> 46

The following table shows the value in new pesos and U.S. dollars of new
equity issues floated on the Mexican Stock Exchange for the periods indicated.

<TABLE>
<CAPTION>
CORPORATE ISSUES
--------------------
NEW PESOS US$
YEAR MILLIONS MILLIONS
---------------------------------------------- --------- ------
<S> <C> <C>
1986.......................................... 8.8 13.7
1987.......................................... 639.3 451.2
1988.......................................... 150.2 64.7
1989.......................................... 683.3 269.6
1990.......................................... 2,256.1 791.3
1991.......................................... 7,245.3 2,390.4
1992.......................................... 2,563.2 817.9
1993.......................................... 13,968.3 4,483.9
1994.......................................... 7,040.3 1,757.5
</TABLE>

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

Source: Mexican Stock Exchange

In addition to shares acquired through special trust agreements established
with Mexican banks, non-voting preferred shares are currently outstanding in the
market. Mexican company law grants stockholders preemptive rights to ensure that
their ownership will not be diluted in the event of an issuance of additional
shares. The Mexican Stock Exchange, however, does not have a rights market in
which such rights may be traded.

Trading of shares on the Mexican Stock Exchange is subject to limitations
on advances in share prices. Shares are traded only in whole number peso values,
with certain allowed increases in price determined by the price range for the
security ("puja"). Thus, for shares trading in the price range Ps.5.02-10.00,
for example, the share price may advance only in multiples of Ps.0.020. When the
share price is Ps.10.00, a higher bid must be at least Ps.10.020. Trading units
are determined in accordance with the price of the share as shown below.

<TABLE>
<CAPTION>
"PUJA" TRADING
PRICE RANGE (PS.) (PS.) UNIT
------------------------------------------------- ----- -------
<S> <C> <C>
0.01-0.20........................................ 0.001 100,000
0.21-5.00........................................ 0.010 10,000
5.02-10.00....................................... 0.020 5,000
10.05-50.00...................................... 0.050 2,000
50.10-upwards.................................... 0.100 1,000
</TABLE>

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

Source: Mexican Stock Exchange

The following table shows the average daily value of trading in equity
securities on the Mexican Stock Exchange since 1985.

MEXICAN STOCK EXCHANGE EQUITY TURNOVER

<TABLE>
<CAPTION>
MILLIONS OF MILLIONS OF YEAR-END MARKET
YEAR ENDED NEW PESOS DOLLARS CAPITALIZATION
DECEMBER 31 (AVERAGE DAILY) (AVERAGE DAILY) (US$ MILLION)
------------------------------ --------------- --------------- ---------------
<S> <C> <C> <C>
1985.......................... 3.14 10.12 3,241.04
1986.......................... 10.28 16.12 5,572.14
1987.......................... 63.96 45.04 8,715.68
1988.......................... 48.74 21.33 15,184.38
1989.......................... 99.39 39.76 26,562.71
1990.......................... 151.67 52.94 40,939.86
1991.......................... 332.23 109.42 101,718.65
1992.......................... 434.50 140.37 138,749.07
1993.......................... 715.00 299.50 200,613.00
1994.......................... 1,100.00 315.00 129,850.00
1995 (through May 31)......... 535.16 85.46 82,747.61
</TABLE>

- ---------------
Source: Mexican Stock Exchange

44
<PAGE> 47

TRADING

Trading on the Mexican Stock Exchange takes place from 8:30 a.m. to 2:30
p.m. each weekday other than public holidays.

The Exchange's procedures are designed to ensure that transactions are
effected at the first available opportunity in the market. Trading in active
shares is by open outcry. "Operaciones en Corro," in which a broker must
register a firm bid or asked price for a certain lot of shares, are the only
transactions permitted during the first daily trading session of the Exchange.
"Operaciones de Cruce," in which the broker must announce the price of the
transactions on the Exchange and can effect closing if no third party makes a
higher bid or lower offer for the shares, ensure market prices for share
transactions between two clients of the same broker. The Mexican Stock Exchange
does not have formal market makers, although in operation, companies whose
shares are most actively traded can expect certain brokerage houses to make a
market in their shares.

The Exchange provides for automatic suspension of trading in particular
securities if, during the day, a bid or offer is made or a transaction closes at
a price more than 5% above or below the opening price of the security for that
day (taking into account the puja). In such an event, trading of the particular
security is halted for sixty minutes (although brokers may continue to make bids
and offers which are recorded by the Exchange during the period). When the sixty
minutes have elapsed, the original transaction, if any, is cancelled and a new
transaction is consummated at the lowest offer or highest bid given during the
period, which in turn establishes the new reference price. If it again becomes
necessary to suspend dealing, the suspension period is ninety minutes. In any
event, no suspension period may extend beyond the close of trading.

Settlement of share transactions normally occurs within 48 hours although
in transactions involving shares in mutual funds, settlement may occur on the
same day or within 24 hours depending on the fund. Deferred settlement, even if
by mutual agreement, is not permitted. Most securities are on deposit with
Indeval, a privately owned central securities depository that acts as a
clearinghouse for Mexican Stock Exchange transactions. Indeval has fully
automated securities clearance systems.

Stock Exchange Indices

The Mexican Stock Exchange issues a market index, Indice de Precios y
Cotizaciones ("IPC") (also known as the BMV index) based on a group of the 40
most traded issues. The composition of the index is reviewed every two months
and adjusted to account for changes in the trading volume of shares. Calculation
of the index differs from the standard Aggregate Value Method (which divides the
current market capitalization of the shares in the index by the base market
capitalization) by reason of a positive adjustment to reflect the value of paid
out dividends. The IPC therefore measures growth by means of the total return to
stockholders, rather than only capital growth. The base of the index was
established at 781.62 on October 30, 1978; however, the base changed to 0.781 as
of January 1, 1993, when Mexico instituted a new currency unit, the new peso,
which replaced the old peso at a rate of one new peso per one thousand old
pesos. The following table shows the number of listed companies and the IPC
index in nominal and real terms.

<TABLE>
<CAPTION>
IPC INDEX
TOTAL LISTED -------------------
YEAR COMPANIES REAL* NOMINAL
------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
1985................................. 157 196.627 11.197
1986................................. 155 401.783 47.101
1987................................. 190 347.807 105.670
1988................................. 203 459.090 211.532
1989................................. 204 759.590 418.925
1990................................. 199 877.475 628.790
1991................................. 207 1,681.558 1,431.460
1992................................. 199 1,846.416 1,759.440
1993................................. 190 2,528.970 2,602.630
1994................................. 206 2,155.390 2,875.660
</TABLE>

- ---------------
* The real index is calculated using July 30, 1993 money values.
Source: Mexican Stock Exchange, and AVM for 1993 and 1994

45
<PAGE> 48

The Mexican Stock Exchange also issues a derivatives market index, Indice
Mexico ("INMEX") based on a sample of 25 companies which is adjusted every six
months. The INMEX measures the daily change in the market capitalization of the
25 companies which are reflected on the basis of active trading volume.

THE DEBT MARKET

The debt market in Mexico began to develop rapidly after the promulgation
of the Securities Market Law in 1975; prior to that time the debt market had
been relatively inactive. Since 1975, the debt market has expanded rapidly and
now provides an increased capital base for the Mexican Government and Mexican
private sector companies.

Debt Instruments

Currently, securities traded in the debt market comprise a large variety of
debt obligations. The list of debt obligations traded in Mexico includes the
following Mexican Government-issued securities, all of which are traded on the
Mexican Stock Exchange: (i) Bondes--long-term development bonds, bearing
variable interest rates, sold through weekly auctions under the aegis of Banco
de Mexico, (ii) Ajustabonos--long-term bonds, also issued in Banco de Mexico
auctions, with a variable face amount that adjusts each quarter depending on the
quarterly inflation rate, upon which face amount is applied a fixed interest
rate, (iii) Tesobonos--short-term dollar denominated bonds payable at maturity
in pesos according to the exchange rate published by Banco de Mexico in the
stockmarket bulletin for 48 hours forward payment and (iv) Cetes--long- or
short-term debt securities sold at weekly auctions held by Banco de Mexico.

A variety of other special purpose bonds are traded on the Mexican Stock
Exchange, including Government bonds issued by the Federal Government such as
development bonds and urban renovation bonds, as well as bank development bonds
and industrial development bonds. Mexican banks also issue bankers' acceptances
and certificates of deposit that pay interest either at maturity or monthly.

In addition to debt instruments issued by the Mexican Government and
Mexican banks, Mexican private sector corporations have issued their own debt
instruments, such as corporate bonds, both secured and unsecured, with short-
and long-term maturities, and commercial paper.

46
<PAGE> 49

The following table shows the amount of certain Mexican debt obligations
outstanding in new pesos for the period shown.

DEBT MARKET VALUE

(MILLIONS OF NEW PESOS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
DEBT INSTRUMENTS 1992 1993 1994
- ---------------- ------- ------- -------
<S> <C> <C> <C>
Short term: 96,135 138,044 195,940
Cetes....................................................... 59,388 81,014 40,394
Tesobonos(1)................................................ 922 3,842 94,679
Bankers' Acceptances........................................ 12,617 22,103 26,173
Negotiable Bank Promissory Notes............................ 20,551 26,795 29,516
Commercial Paper............................................ 2,643 3,563 4,058
Certificates of Deposit..................................... 64 727 1,120
Long term: 118,099 112,294 103,910
Bondes(2)................................................... 36,848 17,036 8,316
Ajustabonos(3).............................................. 36,271 33,695 28,602
Bibs(4)..................................................... 1 1 1
Bonos Renovacion Urbana..................................... 23 23 8
Debentures(5)............................................... 17,443 20,947 20,773
Bankers' Bonds(6)........................................... 6,883 15,913 20,560
Certificados de Participacion............................... 11,369 10,014 10,590
Medium-term Promissory Notes................................ 9,261 14,665 15,060
</TABLE>

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

Source: Banco de Mexico

(1) Dollar-indexed bonds.
(2) Includes Bondes with a 364 day maturity.
(3) Inflation-indexed bonds.

(4) Bonos de Indemnizacion Bancaria (bank indemnification bonds).

(5) Industrial debentures, subordinated debentures, and other debentures.

(6) Includes Bonos de Desarrallo (treasury bills) and Bonos Bancarios para la
vivienda (bank housing bonds).

Trading

The Mexican debt market operates on the same schedule as the equity market.
Certain Government or related issues are sold through auction, while corporate
instruments are sold at fixed prices. Unit prices for peso-denominated
instruments generally range from Ps.10 to Ps.100, while dollar-denominated
instruments are issued in $1,000 units. Generally, debt transactions are settled
within 24 hours with the exception of corporate debt transactions, which are
settled in 48 hours, and certain Government issues, which are often settled on
the same day. All certificates representing Mexican Government obligations are
held by Banco de Mexico, while all other certificates are held by Indeval.

Brokerage Commissions

Currently, commissions are payable only in connection with the purchase and
sale of corporate debentures. Brokers may charge up to 0.25% for transactions in
corporate debentures, depending on the size of the transaction.

RATING AGENCY

The Mexican Securities Commission, the predecessor to the CNBV, authorized
the establishment of Calificadora de Valores, S.A. de C.V. ("CAVAL"), Mexico's
first credit rating agency, in November 1989. CAVAL is privately owned and rates
Mexican issuers and debt obligations. Ultimately, it is expected that all debt
obligations and securities registered with the National Securities and
Intermediaries Register will be rated by a Mexican rating agency such as CAVAL.

47
<PAGE> 50

PORTFOLIO TRANSACTIONS

Decisions to buy and sell certain securities for the Fund are made by the
Mexican Adviser and the U.S. Co-Adviser (as described under "Management of the
Fund"), subject to the overall review, oversight and supervision of the Fund's
Board of Directors. Portfolio securities transactions for the Fund are placed on
behalf of the Fund by persons authorized by the Mexican Adviser. The parent
company of the Mexican Adviser, AVM, manages other accounts that may invest in
Mexican securities. Although investment decisions for the Fund are made
independently from those of the other accounts managed by AVM, investments of
the type the Fund may make may also be made by those other accounts. When the
Fund and one or more other accounts managed by AVM are prepared to invest in, or
desire to dispose of, the same security, available investments or opportunities
for each will be allocated in a manner believed by the Mexican Adviser to be
equitable to each. In some cases, this procedure may adversely affect the price
paid or received by the Fund or the size of the position obtained or disposed of
by the Fund. The Fund may utilize AVM, OpCo or their affiliates in connection
with the purchase or sale of securities in accordance with rules or exemptive
orders adopted by the Commission when the Mexican Adviser believes that the
charge for the transactions does not exceed usual and customary levels. In
addition, the Fund may purchase securities of issuers for which AVM, OpCo or
their respective affiliates have acted as placement agent, consistent with
applicable rules adopted by the Commission or regulatory authorization, if
necessary.

Transactions on United States and some foreign stock exchanges involve the
payment of negotiated brokerage commissions, which may vary among different
brokers. The cost of securities purchased from underwriters includes an
underwriter's commission or concession, and the prices at which securities are
purchased from and sold to dealers in the U.S. over-the-counter markets include
an undisclosed dealer's mark-up or mark-down.

In selecting brokers or dealers to execute portfolio transactions on behalf
of the Fund, the Mexican Adviser seeks the best overall terms available. The
Advisory Agreement provides that, in assessing the best overall terms available
for any transaction, the Mexican Adviser must consider the factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, for the specific
transaction and on a continuing basis. In addition, the Advisory Agreement
authorizes the Mexican Adviser in selecting brokers or dealers to execute a
particular transaction and in evaluating the best overall terms available, to
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided to the Fund
and/or accounts over which the Mexican Adviser exercises investment discretion.
The Mexican Adviser's fee under the Advisory Agreement is not reduced as a
result of its receiving such brokerage and research services. The Fund has no
obligation to deal with any broker or dealer in execution of transactions in
portfolio securities. Consistent with the Fund's policy of obtaining best net
results and subject to the requirements of the 1940 Act, all of the Fund's
portfolio transactions conducted on an agency basis during the fiscal year ended
July 31, 1994, were conducted through AVM.

The Fund's Directors periodically review the commissions paid by the Fund
to determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits inuring to the Fund.

For the fiscal years ended July 31, 1992, 1993 and 1994, the Fund paid
$163,702, $313,473 and $367,067, respectively, in brokerage commissions for the
execution of portfolio transactions. AVM, the parent of the Mexican Adviser,
received 100% of the total brokerage commissions paid by the Fund and 100% of
the total aggregate dollar amount of brokerage transactions conducted by the
Fund in fiscal years 1992 and 1994. In fiscal year 1993, $310,973 of such fees
were paid to AVM, and $2,500 of such fees were paid to Oppenheimer & Co., Inc.,
the parent company of the U.S. Co-Adviser, representing 100% of the total
brokerage commissions paid by the Fund and 100% of the aggregate dollar amount
of brokerage transactions conducted by the Fund in fiscal year 1993. The
portfolio turnover rate during the fiscal years ended July 31, 1992, 1993 and
1994 was 15.08%, 44.21% and 43.57%, respectively.

48
<PAGE> 51

DIVIDENDS AND DISTRIBUTIONS;
DIVIDEND REINVESTMENT PLAN

The Fund intends to distribute to stockholders, at least annually,
substantially all of its investment company taxable income. Investment company
taxable income, as defined in section 852 of the Code, includes all of the
Fund's taxable income minus the excess, if any, of its net realized long-term
capital gains over its net realized short-term capital losses (including any
capital loss carryovers), plus or minus certain other required adjustments. The
Fund also expects to distribute annually substantially all of its net realized
long-term capital gains in excess of net realized short-term capital losses
(including any capital loss carryovers), except in circumstances where the Fund
realizes very large capital gains and where the Directors of the Fund determine
that the decrease in the size of the Fund's assets resulting from the
distribution of the gains would not be in the interests of the Fund's
stockholders generally.

Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), each
stockholder will be deemed to have elected, unless the Plan Agent (as defined
below) is otherwise instructed by the stockholder in writing, to have all
distributions, net of any applicable U.S. withholding tax, automatically
reinvested in additional shares of the Fund by PNC Bank, National Association,
the Fund's transfer agent, as the Plan Agent (the "Plan Agent"). Stockholders
who do not participate in the Plan will receive all dividends and distributions
in cash, net of any applicable U.S. withholding tax, paid in U.S. dollars by
check mailed directly to the stockholder by the Plan Agent, as dividend-paying
agent. Stockholders who do not wish to have dividends and distributions
automatically reinvested should notify the Plan Agent for The Mexico Equity and
Income Fund, Inc., c/o PNC Bank, National Association, 400 Bellevue Parkway,
Wilmington, Delaware 19809. Dividends and distributions with respect to shares
registered in the name of a broker-dealer or other nominee (i.e., in "street
name") will be reinvested under the Plan unless the service is not provided by
the broker or nominee or the stockholder elects to receive dividends and
distributions in cash. A stockholder whose shares are held by a broker or
nominee that does not provide a dividend reinvestment program may be required to
have his shares registered in his own name to participate in the Plan. Investors
who own shares of the Fund's Common Stock registered in street name should
contact the broker or nominee for details.

The Plan Agent serves the stockholders in administering the Plan. If the
Directors of the Fund declare an income dividend or a capital gains distribution
payable either in the Fund's Common Stock or in cash, as stockholders may have
elected, nonparticipants in the Plan will receive cash and participants in the
Plan will receive Common Stock, to be issued by the Fund. If the market price
per share on the valuation date equals or exceeds net asset value per share on
that date, the Fund will issue new shares to participants valued at net asset
value or, if the net asset value is less than 95% of the market price on the
valuation date, then valued at 95% of the market price. If net asset value per
share on the valuation date exceeds the market price per share on that date,
participants in the Plan will receive shares of stock from the Fund valued at
market price. The valuation date is the dividend or distribution payment date
or, if that date is not a New York Stock Exchange trading day, the next
preceding trading day. If the Fund should declare an income dividend or capital
gains distribution payable only in cash, the Plan Agent will, as agent for the
participants, buy Fund shares in the open market, on the New York Stock Exchange
or elsewhere, for the participants' accounts on, or shortly after, the payment
date.

The Plan Agent will maintain all stockholder accounts in the Plan and will
furnish written confirmations of all transactions in the account, including
information needed by stockholders for personal and tax records. Shares in the
account of each Plan participant will be held by the Plan Agent in
noncertificated form in the name of the participant, and each stockholder's
proxy will include those shares purchased pursuant to the Plan.

In the case of stockholders, such as banks, brokers or nominees, that hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
stockholders as representing the total amount registered in the stockholder's
name and held for the account of beneficial owners who are to participate in the
Plan.

There is no charge to participants for reinvesting dividends or capital
gains distributions payable in either stock or cash. The Plan Agent's fees for
the handling of reinvestment of such dividends and capital gains

49
<PAGE> 52

distributions will be paid by the Fund. There will be no brokerage charges with
respect to shares issued directly by the Fund as a result of dividends or
capital gains distributions payable either in stock or in cash. However, each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with the
reinvestment of dividends or capital gains distributions payable in cash.

The Plan Agent will charge a participant a pro rata share of the brokerage
commissions. Brokerage charges for purchasing small amounts of stock for
individual accounts through the Plan are expected to be less than usual
brokerage charges for such transactions because the Plan Agent will be
purchasing stock for all participants in blocks and prorating the lower
commission thus attainable. Brokerage commissions will vary based on, among
other things, the broker selected to effect a particular purchase and the number
of participants on whose behalf such purchase is being made.

The receipt of dividends and distributions in stock under the Plan will not
relieve participants of any income tax (including withholding tax) that may be
payable on such dividends or distributions.

Experience under the Plan may indicate that changes in the Plan are
desirable. Accordingly, the Fund and the Plan Agent reserve the right to
terminate the Plan as applied to any dividend or distribution paid subsequent to
notice of the termination sent to the members of the Plan at least 30 days
before the record date for dividends or distributions. The Plan also may be
amended by the Fund or the Plan Agent, but (except when necessary or appropriate
to comply with applicable law, rules or policies of a regulatory authority) only
by at least 30 days' written notice to members of the Plan. All correspondence
concerning the Plan should be directed to the Plan Agent at the address set
forth above.

NET ASSET VALUE

Net asset value is calculated (a) no less frequently than weekly, (b) on
the last business day of each month and (c) at such other times as determined by
the Fund's Directors. Net asset value is calculated by dividing the value of the
Fund's net assets (the value of its assets less its liabilities, exclusive of
capital stock and surplus) by the total number of shares of Common Stock
outstanding. All securities for which market quotations are readily available
are valued at the last sales price prior to the time of determination, or, if no
sales price is available at that time, at the closing price quoted for the
securities (but if bid and asked quotations are available, at the mean between
the last current bid and asked prices, rather than the quoted closing price).
Forward contracts will be valued at the current cost of covering or offsetting
the contracts. Securities that are traded over-the-counter are valued, if bid
and asked quotations are available, at the mean between the current bid and
asked prices. If bid and asked quotations are not available, then
over-the-counter securities will be valued as determined in good faith by the
Fund's Directors. In making this determination the Directors will consider,
among other things, publicly available information regarding the issuer, market
conditions and values ascribed to comparable companies. In instances where
quotations are not readily available or where the price determined above is
deemed not to represent fair market value, the price is determined in such
manner as the Directors may prescribe. Investments in short-term debt securities
having a maturity of 60 days or less are valued at amortized cost if their term
to maturity from the date of purchase was less than 60 days, or by amortizing
their value on the 61st day prior to maturity if their term to maturity from the
date of purchase when acquired by the Fund was more than 60 days, unless this is
determined by the Directors not to represent fair value. All other securities
and assets are taken at fair value as determined in good faith by the Directors,
although the actual calculation may be done by others.

In the absence of an active trading market for any convertible debt
securities acquired by the Fund (or for comparable debt securities of other
Mexican companies), valuing the convertible debt securities held by the Fund
will be difficult. The Fund's Directors are responsible for making a good faith
determination of the fair value of the Fund's assets. Such determination must
approximate market value, which means the value that the Directors reasonably
believe could be received in the short term upon the sale of the securities held
by the Fund. The Directors of the Fund have established and regularly monitor
procedures which are used to value the Fund's convertible debt securities for
which bid and ask quotations are not available. Initially, the convertible debt
securities held by the Fund are valued at cost. In determining the fair value of
such securities

50
<PAGE> 53

the following factors ordinarily are considered: the existence of restrictions
upon the sale of the security; an estimate of the existence and extent of a
market for the security; the public trading values of comparable debt securities
of comparable companies and the current yield to call on comparable securities;
the proportion of the issue held by the Fund; changes in the financial condition
and prospects of the issuer; and any other factors affecting fair value, all in
accordance with the 1940 Act. In valuing the Fund's assets, quotations of
foreign securities in a foreign currency are converted to U.S. dollar
equivalents at the then current currency value. Any assets or liabilities
initially expressed in terms of pesos are translated into U.S. dollars at the
then current currency value.

TAXATION

UNITED STATES FEDERAL INCOME TAXES

The Fund and Its Investments

The Fund intends to continue to qualify and elect to be treated as a
regulated investment company for each taxable year under the Internal Revenue
Code of 1986, as amended (the "Code"). To so qualify, the Fund must, among other
things: (a) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock or securities or foreign currencies, or other
income (including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in stock,
securities or currencies; (b) derive less than 30% of its gross income in each
taxable year from the sale or other disposition of the following assets held for
less than three months: (i) stock or securities, (ii) options, futures and
forward contracts (other than options, futures and forward contracts on foreign
currencies), and (iii) foreign currencies (and options, futures and forward
contracts on foreign currencies) which are not directly related to the Fund's
principal business of investing in stock or securities (or options and futures
with respect to stock or securities); and (c) diversify its holdings so that, at
the end of each quarter of the Fund's taxable year, (i) at least 50% of the
value of the Fund's assets is represented by cash and cash items, securities of
other regulated investment companies, United States government securities and
other securities, with such other securities limited, in respect of any one
issuer, to an amount not greater in value than 5% of the value of the Fund's
assets and not greater than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in the
securities (other than United States government securities or securities of
other regulated investment companies) of any one issuer or of any two or more
issuers that the Fund controls and that are determined to be engaged in the same
business or similar or related businesses. The Fund expects that all of its
foreign currency gains will be directly related to its principal business of
investing in stocks and securities. For purposes of these requirements, assets
held in the Master Trust will be treated as assets of the Fund, and earnings
attributable to such assets will be treated as earnings of the Fund.

As a regulated investment company, the Fund will not be subject to United
States federal income tax on that portion, if any, of its net investment income
(i.e., income other than its net realized long- and short-term capital gains),
and net realized long-term and short-term capital gains, that it distributes to
its stockholders, provided that the Fund distributes an amount equal to at least
90% of its investment company taxable income (i.e., 90% of its taxable income
less the excess, if any, of its net realized long-term capital gains over its
net realized short-term capital losses (including any capital loss carryovers),
plus or minus certain other adjustments as specified in section 852 of the Code)
for the taxable year; however, the Fund will be subject to tax at regular
corporate rates on any income or gains that it does not distribute. Furthermore,
the Fund will be subject to a United States corporate income tax with respect to
such distributed amounts in any year that it fails to qualify as a regulated
investment company or fails to meet this distribution requirement. The Fund is
authorized to borrow money or liquidate assets in order to meet this
distribution requirement. Any dividend declared by the Fund in October, November
or December of any calendar year and payable to stockholders of record on a
specified date in such a month shall be deemed to have been received by each
stockholder on December 31 of such calendar year and to have been paid by the
Fund not later than such December 31 provided that such dividend is actually
paid by the Fund during January of the following calendar year.

51
<PAGE> 54

The Fund intends to continue to distribute annually to its stockholders
substantially all of its investment company taxable income. The Directors of the
Fund will determine annually whether to distribute any net realized long-term
capital gains in excess of net realized short-term capital losses (including any
capital loss carryovers). The Fund expects to distribute any such excess
annually to its stockholders, except in circumstances where the Fund realizes
very large capital gains and where the Directors of the Fund determine that the
decrease in the size of the Fund's assets resulting from the distribution of the
gains would not be in the interests of the Fund's stockholders generally. If the
Fund retains for investment or otherwise an amount equal to its net long-term
capital gains in excess of its net short-term capital losses and capital loss
carryovers, it will be subject to a corporate tax (currently at a rate of 35%)
on the amount retained. In that event, the Fund expects to designate such
retained amounts as undistributed capital gains in a notice to its stockholders,
each of whom (a) will be required to include in income for United States federal
income tax purposes, as long-term capital gains, its proportionate share of the
undistributed amount, (b) will be entitled to credit its proportionate share of
the 35% tax paid by the Fund on the undistributed amount against its United
States federal income tax liabilities and to claim a refund to the extent its
credits exceed its liabilities and (c) will be entitled to increase its tax
basis, for United States federal income tax purposes, in its shares by an amount
equal to 65% of the amount of undistributed capital gains included in the
stockholder's income.

The Code imposes a 4% nondeductible excise tax on the Fund to the extent
the Fund does not distribute by the end of any calendar year at least 98% of its
taxable income (as adjusted and not taking into account any net capital gains)
for that year and at least 98% of the net amount of its capital gains (both
long- and short-term) for the one-year period ending, as a general rule, on
October 31 of that year plus 100% of any such taxable income and net capital
gains from the prior year that was not previously distributed. For this purpose,
however, any income or gain retained by the Fund that is subject to corporate
income tax will be considered to have been distributed by year-end.

Exchange control regulations may restrict repatriations of investment
income and capital or the proceeds of securities sales by foreign investors such
as the Fund and may limit the Fund's ability to make sufficient distributions to
satisfy the 90% distribution requirement and to avoid the 4% excise tax.

In general, gains or losses on the disposition of debt securities
denominated in a foreign currency (i.e., a currency other than the U.S. dollar)
that are attributable to fluctuations in exchange rates between the date the
debt securities are acquired and the date of disposition, gains and losses from
the disposition of foreign currencies, and gains and losses attributable to
currency exchange forward contracts will be treated as ordinary income or loss.
As noted above, the Fund may acquire currency exchange forward contracts to
hedge its risk of currency fluctuations with regard to property held or to be
held by the Fund, and before the close of the day on which the Fund enters into
a forward contract the Fund will identify, on its records, that the forward
contract was entered into as part of a hedging transaction. Under current law
and regulations, the Fund may be required to calculate separately certain gains
and losses from its currency exchange forward contracts even if the Fund
acquired the forward contracts to hedge its risk of currency fluctuations with
regard to capital assets held or to be held by the Fund. However, the U.S.
Internal Revenue Service has issued regulations and has the authority to issue
additional regulations that would permit or require the Fund either to integrate
some or all of its currency exchange forward contracts with the hedged
investments and treat the forward contracts and the hedged investments as a
single transaction, or otherwise to treat the forward contracts in a manner that
is consistent with the hedged investments. The Fund anticipates that its hedging
activities will not adversely effect its regulated investment company status.

Dividends and Distributions

Dividends of net investment income and distributions of net realized
short-term capital gains are taxable as ordinary income, whether paid in cash or
in shares. Distributions of net long-term capital gains, if any, that the Fund
designates as capital gains dividends are taxable as long-term capital gains,
whether paid in cash or in shares and regardless of how long a stockholder has
held its Fund shares. Dividends and distributions paid by the Fund will not
qualify for the deduction for dividends received by corporations.

52
<PAGE> 55

Stockholders receiving dividends or distributions in the form of additional
shares pursuant to the Plan should be treated for United States federal income
tax purposes as receiving a distribution in an amount equal to the amount of
money that the stockholders receiving cash dividends or distributions will
receive, and should have a cost basis in the shares received equal to such
amount.

Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the net asset value of shares
purchased at that time may reflect the amount of the forthcoming distribution,
those who purchase just prior to a distribution will receive a distribution
which will nevertheless be taxable to them.

If the Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in the
Fund's gross income not as of the date received but as of the later of (a) the
date such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, the Fund
may be required to pay dividends based on anticipated earnings, and stockholders
may receive dividends in an earlier year than would otherwise be the case.

Sales of Shares

Upon the sale or exchange of shares, a stockholder will realize a taxable
gain or loss depending upon the amount realized and basis in shares owned. Such
gain or loss will be treated as a capital gain or loss, if the shares are
capital assets in the stockholder's hands, and will be long-term or short-term
depending upon the stockholder's 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 reinvesting of
dividends and capital gains distributions in the Fund under the Plan, within a
period (of 61 days) beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired will
be increased to reflect the disallowed loss. Any loss realized by a stockholder
on the sale of a Fund share held by the stockholder for six months or less will
be treated for United States federal income tax purposes as a long-term capital
loss to the extent of any distributions or deemed distributions of long-term
capital gains received (or deemed received) by the stockholder with respect to
such share.

Foreign Taxes

As set forth below under "Mexican Taxes," it is expected that interest and
dividends from Mexican resident issuers and certain capital gains realized by
the Fund will be subject to Mexican taxes. If the Fund qualifies as a regulated
investment company, if certain distribution requirements are satisfied, and if
more than 50% of the value of the Fund's assets at the close of the taxable year
consists of stocks or securities of foreign corporations, the Fund may elect,
for United States federal income tax purposes, to treat such Mexican taxes paid
by the Fund that can be treated as income taxes of the Fund under United States
federal income tax principles as paid by its stockholders. The Fund has made
this election in the past and intends to continue to make this election. As a
consequence, the amount of Mexican income taxes paid by the Fund will be
included in the income of its stockholders, reported to the U.S. Internal
Revenue Service for such stockholders and each such stockholder may be entitled
to credit its portion of these amounts against its United States tax due, if
any, or to deduct such portion from its United States taxable income, if any. No
deduction for Mexican taxes may be claimed by a stockholder who does not itemize
deductions. Shortly after any year for which it makes such an election, the Fund
will report to each stockholder, in writing, the amount per share of such
Mexican income tax that must be included in each stockholder's gross income and
the amount which will be available for deduction or credit.

The amount of Mexican income taxes that may be credited against a
stockholder's United States tax liability in any particular year generally will
be limited to an amount equal to the stockholder's United States federal income
tax rate multiplied by its foreign source taxable income. For this purpose, the
Fund expects that the capital gains it distributes to its stockholders, whether
as dividends or capital gains distributions, will not be treated as foreign
source taxable income. In addition, this limitation must be applied separately
to

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<PAGE> 56

certain categories of foreign source income including foreign source "passive
income." For this purpose, foreign source "passive income" includes dividends,
interest, certain capital gains and certain foreign currency gains. As a
consequence, although certain stockholders may be able to carryback or
carryforward foreign tax credits, certain stockholders may not be able to claim
a foreign tax credit for the full amount of their proportionate share of Mexican
income taxes paid by the Fund.

Backup Withholding

The Fund may be required to withhold, for United States federal income tax
purposes, 31% of the dividends and distributions payable to stockholders who
fail to provide the Fund with their correct taxpayer identification number or to
make required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate stockholders and
certain other stockholders are exempt from backup withholding. Backup
withholding is not an additional tax and any amount withheld may be credited
against a stockholder's United States federal income tax liabilities. Additional
tax withholding requirements which apply with respect to foreign investors are
discussed below.

Foreign Stockholders

Taxation of a stockholder who, as to the United States, is a foreign
investor depends, in part, on whether the stockholder's income from the Fund is
"effectively connected" with a United States trade or business carried on by the
stockholder.

If the foreign investor is not a resident alien and the income from the
Fund is not effectively connected with a United States trade or business carried
on by the foreign investor, distributions of net investment income and net
realized short-term capital gains will be subject to a 30% (or lower treaty
rate) United States withholding tax. Furthermore, foreign investors may be
subject to an increased United States tax on their income resulting from the
Fund's election (described above) to "pass-through" amounts of foreign taxes
paid by the Fund, but may not be able to claim a credit or deduction with
respect to the Mexican or other foreign taxes treated as having been paid by
them. Distributions of net realized long-term capital gains, amounts retained by
the Fund which are designated as undistributed capital gains, and gains realized
upon the sale of shares of the Fund will not be subject to United States tax
unless a foreign investor who is a nonresident alien individual is physically
present in the United States for more than 182 days during the taxable year and,
in the case of gain realized upon the sale of Fund shares, unless (i) such gain
is attributable to an office or fixed place of business in the United States or
(ii) such nonresident alien individual has a tax home in the United States and
such gain is not attributable to an office or fixed place of business located
outside the United States. However, a determination by the Fund not to
distribute long-term capital gains may reduce a foreign investor's overall
return from an investment in the Fund, since the Fund will incur a United States
federal tax liability with respect to retained long-term capital gains, thereby
reducing the amount of cash held by the Fund that is available for distribution,
and the foreign investor may not be able to claim a credit or deduction with
respect to such taxes. In the case of a foreign investor who is a nonresident
alien individual, the Fund may be required to withhold U.S. federal income tax
at a rate of 31% of distributions of net capital gains. See "Backup Withholding"
above.

If a foreign investor is a resident alien or if dividends or distributions
from the Fund are effectively connected with a United States trade or business
carried on by the foreign investor, dividends of net investment income,
distributions of net short-term and long-term capital gains, amounts retained by
the Fund that are designated as undistributed capital gains and any gains
realized upon the sale of shares of the Fund will be subject to United States
income tax at the rates applicable to United States citizens or domestic
corporations. If the income from the Fund is effectively connected with a United
States trade or business carried on by a foreign investor that is a corporation,
then such foreign investor also may be subject to the 30% branch profits tax.

The tax consequences to a foreign stockholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Stockholders may be required to provide appropriate documentation
to establish their entitlement to the benefits of such a treaty. Foreign
investors are advised to consult their own tax advisers with respect to (a)
whether their income from the Fund is or is not effectively

54
<PAGE> 57

connected with a United States trade or business carried on by them, (b) whether
they may claim the benefits of an applicable tax treaty and (c) any other tax
consequences to them of an investment in the Fund.

Notices

Stockholders will be notified annually by the Fund as to the United States
federal income tax status of the dividends, distributions and deemed
distributions made by the Fund to its stockholders. Furthermore, stockholders
will receive, if appropriate, various written notices after the close of the
Fund's taxable year regarding the United States federal income tax status of
certain dividends, distributions and deemed distributions that were paid (or
that are treated as having been paid) by the Fund to its stockholders during the
preceding taxable year.

MEXICAN TAXES

For purposes of Mexican federal income tax law, the Fund will be treated as
a nonresident legal person and will be subject to Mexican taxation as set forth
below.

On September 18, 1992, the United States and Mexico signed the Treaty to
Avoid Double Taxation (the "Treaty"). The Treaty generally became effective on
January 1, 1994. The provisions of the Treaty allow the respective residents of
each country to claim an income tax credit for income taxes paid in the other
country.

Interest income (and related income such as loan commitment and funding
fees) on Mexican debt obligations may be subject, under the provisions of the
Treaty, to withholding taxes at the rate of 10%. Interest and fee income,
including interest and gains earned by the Fund from debt instruments that are
listed on the Mexican Stock Exchange, received by the Fund with respect to
convertible debt securities of Mexican issuers and other Mexican debt
obligations will generally be subject to a withholding tax at a rate of 10%. For
the period ending on December 31, 1995, the withholding rate is 4.9%. After the
fifth year of the effectiveness of the Treaty, the withholding rate will be
again reduced to 4.9%.

If the Treaty ceases to be effective, higher withholding taxes may apply.

Interest and gains earned by the Fund from debt instruments issued by the
Mexican Government are not subject to Mexican taxes.

Income received by the Fund in the form of dividends will not be subject to
Mexican taxes if such dividends are paid from after-tax profits by the Mexican
company making such distribution. If, however, dividends are not distributed
from after-tax profits the Mexican company making such distribution will be
required to pay to the Mexican tax authorities an amount equal to 34% of the
amount of such distribution, in which case the Fund will not be liable for any
Mexican taxes in connection therewith.

Capital gains earned by the Fund from the sale of equity securities listed
on the Mexican Stock Exchange are not subject to Mexican taxes if such sale is
made on the Mexican Stock Exchange and such securities are considered by the
Mexican Ministry of Finance and Public Credit as being placed among the greater
investing public. Off-exchange transactions in both listed and unlisted
securities may be subject to a 20% withholding tax on the amount paid on the
transaction, or, at the election of the Fund (provided that a tax return is
filed by a representative in Mexico), a 30% tax on the gain. However, under the
Treaty, if the Fund has not held more than 25% of the outstanding stock of the
issuer in the 12-month period preceding the disposition, capital gains will not
be subject to taxes in Mexico.

The Fund will be required to pay a value added tax at the rate of 15% on
the amount of any fees paid for services rendered to the Fund in Mexico except
for those fees paid to the Mexican Adviser (unless the Mexican Treasury
Department fails to re-confirm that the advisory fees paid to the Mexican
Adviser are not subject to the value added tax. See "Management of the
Fund -- The Mexican Adviser").

No other Mexican taxes will be applicable to the Fund or its stockholders,
other than stockholders, such as residents of Mexico, who are subject to Mexican
taxes for reasons other than their status as stockholders in the Fund.

55
<PAGE> 58

OTHER TAXATION

Distributions also may be subject to additional state, local and foreign
taxes depending on each stockholder's particular situation.

The foregoing is only a summary of certain material tax consequences
affecting the Fund and its stockholders. Stockholders are advised to consult
their own tax advisers with respect to the particular tax consequences to them
of an investment in the Fund.

COMMON STOCK

The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock, $.001 par value per share (the "Common Stock"). All shares of Common
Stock have equal rights as to dividends and voting privileges and, when issued,
will be fully paid and nonassessable. There are no conversion, preemptive or
other subscription rights. In the event of liquidation, dissolution or winding
up of the Fund, each share of Common Stock is entitled to its proportion of the
Fund's assets after debts and expenses.

Set forth below is information with respect to the Common Stock as of July
20, 1995.

<TABLE>
<CAPTION>
AMOUNT HELD
BY THE FUND
OR FOR ITS
TITLE OF ISSUE AUTHORIZED OUTSTANDING ACCOUNT
- --------------------------------------------- ------------------- ------------------- -----------
<S> <C> <C> <C>
Common Stock, $0.001 par value............... 100,000,000 shares 8,825,273 shares -0-
</TABLE>

Stockholders are entitled to one vote per share and do not have cumulative
voting rights. Thus, holders of more than 50% of the shares voting for the
election of directors have the power to elect 100% of the directors, and, if
such event should occur, the holders of less than 50% of the shares voting for
directors would not be able to elect any person or persons to the Board of
Directors.

The Fund has no present intention of offering additional shares, except
that additional shares may be issued under the Plan. See "Dividends and
Distributions; Dividend Reinvestment Plan." Other offerings of shares, if made,
will require approval of the Fund's Directors. Any additional offering will be
subject to the requirements of the 1940 Act that shares may not be sold at a
price below the then current net asset value (exclusive of underwriting
discounts and commissions) except in connection with an offering to existing
stockholders or with the consent of a majority of the Fund's outstanding shares.

SPECIAL VOTING PROVISIONS

The Fund has provisions in its Articles of Incorporation and By-Laws
(collectively, the "Charter Documents") that could have the effect of limiting
(i) the ability of other entities or persons to acquire control of the Fund,
(ii) the Fund's ability to engage in certain transactions or (iii) the ability
of the Fund's Directors or stockholders to amend the Charter Documents or effect
changes in the Fund's management. These provisions in the Fund's Charter
Documents may be regarded as "anti-takeover" provisions.

The Board of Directors are divided into three classes, each having a term
of three years. At the annual meeting of stockholders in each year the term of
one class expires. Accordingly, only those directors in one class may be changed
in any one year, and it would require two years to replace a majority of the
Board of Directors. In addition, a director may be removed from office, with or
without cause, only by vote of the holders of at least 75% of the shares of the
Fund entitled to be voted on the matter. Such a system of electing and removing
directors may have the effect of maintaining the continuity of the management
and, thus, make it more difficult for the Fund's stockholders to change the
majority of the directors.

Under the Fund's Articles of Incorporation, the Board of Directors has the
authority to classify or reclassify shares of its capital stock with such
rights, preferences, qualifications and limitations as the Board, in its
discretion, may determine.

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<PAGE> 59

As permitted by the Maryland General Corporation Law ("MGCL"), the Fund has
elected to be subject to the provisions of Section 3-602 of the MGCL which deals
with certain "business combinations" with "interested stockholders." An
"interested stockholder" is defined, in essence, as any person owning
beneficially, directly or indirectly, more than ten percent of the outstanding
voting stock of a Maryland corporation. A "business combination" is defined to
include, among other things, any merger or similar transaction subject to a
statutory vote and additional transactions involving transfers of assets or
securities in specified amounts to interested stockholders or their affiliates.
Unless an exemption to Section 3-602 applies, the Fund may not engage in any
business combination with an interested stockholder for a period of five years
after the interested stockholder became an interested stockholder, and
thereafter may not engage in a business combination unless it is recommended by
the Board of Directors and approved by the affirmative vote of at least (i) 80%
of the votes entitled to be cast by the holders of all outstanding voting stock
of the Fund, and (ii) 66 2/3% of the votes entitled to be cast by all holders
of outstanding shares of voting stock other than voting stock held by the
interested stockholder.

In addition, under the Fund's Articles of Incorporation, the affirmative
vote of the holders of at least 75% of the shares of the Fund then entitled to
vote is required to approve, adopt or authorize the following:

(i) a merger or consolidation of the Fund with or into another
corporation or a share exchange transaction in which the Fund is not the
successor corporation;

(ii) a sale, lease, exchange or other disposition to or with any
entity or person of all or any substantial part of the assets of the Fund
(except assets having an aggregate fair market value of less than
US$1,000,000 or such sale, lease or exchange in the context of the ordinary
course of the Fund's investment activities);

(iii) issuance or transfer of any securities of the Fund to any
person or entity for cash, securities or other property (or combination
thereof) having an aggregate fair market value of US$1,000,000 or more
excluding sales of securities in connection with a public offering and
securities issued pursuant to a dividend reinvestment plan adopted by the
Fund or upon the exercise of any stock subscription rights distributed by
the Fund;

(iv) a liquidation or dissolution of the Fund; or

(v) the conversion of the Fund from closed-end to open-end status
under the 1940 Act,

unless any of the foregoing actions or events shall have been previously
approved, adopted or authorized by the affirmative vote of 75% of the directors
then in office. In such case, the affirmative vote of the holders of 66 2/3% of
the outstanding shares of the Fund or such higher percentage as may be specified
in the 1940 Act would be required.

The affirmative vote of 75% or more of the outstanding shares of the Fund
then entitled to vote is required to amend any or all of the foregoing
provisions and certain other provisions contained in the Charter Documents.

The Board of Directors has determined that the super-majority voting
requirements described above, which are greater than the minimum requirement
under Maryland law or the 1940 Act, are generally in the best interests of
stockholders. Reference should be made to the Charter Documents on file with the
Commission for the full text of these provisions.

The Fund's Articles of Incorporation permit the Board of Directors (if they
deem it necessary to avoid an adverse tax consequence to the Fund) to (i) impose
restrictions on the transfer of Fund shares to Mexican residents, (ii) require
the record owners of the Fund's shares to disclose the identity of the
beneficial owners of the shares (including their residence), and (iii) require
the disposition of shares by Mexican residents if necessary to reduce the
Mexican share ownership in order to avoid an adverse tax consequence.

The provisions of the Charter Documents described above could have the
effect of depriving stockholders of the 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 overall effect of these

57
<PAGE> 60

provisions is to render more difficult the accomplishment of a merger with, or
the assumptions of control of the Fund by, another entity or person.

DISTRIBUTION ARRANGEMENTS

Oppenheimer & Co., Inc., a broker-dealer and member of the National
Association of Securities Dealers, Inc., will act as Dealer Manager for the
Offer. Under the terms and subject to the conditions contained in a Dealer
Manager Agreement dated the date of this Prospectus, the Dealer Manager will
provide financial advisory services in connection with the Offer. In addition,
the Dealer Manager has agreed with the Fund to form and manage a group of
securities dealers ("Selling Group Members") to (a) solicit the exercise of
Rights and (b) sell to the public Shares purchased by the Dealer Manager from
the Fund as a result of purchases and exercise of Rights by the Dealer Manager.

The Fund has agreed to pay the Dealer Manager a fee for its financial
advisory services in an amount equal to 1.00% of the aggregate Subscription
Price for the Shares. The Fund has also agreed to reimburse the Dealer Manager
for up to $100,000 as partial reimbursement for its reasonable expenses incurred
in connection with the Offer.

In addition, the Fund will indemnify the Dealer Manager and each Soliciting
Dealer with respect to certain liabilities, including liabilities under the U.S.
Securities Act of 1933, as amended (the "Securities Act"). Oppenheimer & Co.,
Inc. also serves as the Administrator of the Fund and is the parent company of
the Fund's U.S. Co-Adviser. Messrs. Bohen, Feeney and Rappaport, directors and
officers of the Fund, are affiliated with Oppenheimer & Co., Inc.

Pursuant to the Dealer Manager Agreement, the Fund has agreed to pay fees
equal to 2.50% of the Subscription Price per Share to the Dealer Manager and
each Selling Group Member for each Share either issued upon the exercise of
Rights as a result of their soliciting efforts or sold to the public, and to the
Dealer Manager for each Share issued upon the exercise of Rights but for which
no dealer designation was made on the related Subscription Certificate.

The Fund has also agreed that, with respect to Rights exercised not as a
result of the selling or soliciting efforts of the Selling Group Members, the
Fund will pay a soliciting dealer fee equal to 0.50% of the Subscription Price
per Share to any securities dealer who is not a Selling Group Member but who is
a member of the National Association of Securities Dealers, Inc. and who has
executed and delivered a Soliciting Dealer Agreement and solicited the exercise
of such Rights.

From the date of this Prospectus, the Dealer Manager and Selling Group
Members may offer and sell shares of Common Stock at prices set by the Dealer
Manager from time to time, which prices may be higher or lower than the
Subscription Price. Prior to the Expiration Date, each of those prices when set
will not exceed the higher of the last sale price or current asked price of the
Common Stock on the New York Stock Exchange, plus, in each case, an amount equal
to an exchange commission, and any offering price set on any calendar day will
not be increased more than once during that day. Any offering by the Dealer
Manager or any Selling Group Member may include Shares acquired through the
exercise of Rights. As a result of these offerings, the Dealer Manager and
Selling Group Members may realize profits or losses independent of the Dealer
Manager's financial advisory fee and any Selling Group Member fee received by
them.

Under applicable law, during the Subscription Period, the Dealer Manager
may bid for and purchase Rights for certain purposes. Those purchases will be
subject to certain price and volume limitations when the Common Stock is being
stabilized by the Dealer Manager or when the Dealer Manager owns Rights without
an offsetting short position in the Common Stock. Those limitations provide,
among other things, that subject to certain exceptions, not more than one bid to
purchase Rights may be maintained in any one market at the same price at the
same time and that the initial bid for or purchase of Rights may not be made at
a price higher than the highest current independent bid price on the New York
Stock Exchange. Any bid price may not be increased, subject to certain
exceptions, unless the Dealer Manager has not purchased any Rights for a full
Business Day or the independent bid price for those Rights on the New York Stock
Exchange has exceeded the bid price for a full Business Day.

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<PAGE> 61

CUSTODIANS AND TRANSFER
AND DIVIDEND-PAYING AGENT

PNC Bank, National Association, 200 Stevens Drive, Lester, Pennsylvania
19113 acts as the global custodian for the Fund's assets (the "Custodian").
Citibank, N.A., Paseo de la Reforma 390, 06600 Mexico, D.F. acts as the
sub-custodian for the Fund's assets in Mexico (the "Mexican Sub-Custodian"). PNC
Bank, National Association, 400 Bellevue Parkway, Wilmington, Delaware 19809
acts as the Fund's dividend paying agent, transfer agent and registrar.

The Fund holds its Mexican securities listed on the Mexican Stock Exchange
in an account maintained by the Mexican Sub-Custodian, with Indeval. Indeval
charges a monthly custody fee of 0.003% of the market value of assets held by
each brokerage firm or account holder. To the extent necessary, shares which are
reserved for Mexican ownership are held in a separate account maintained by the
Mexican Sub-Custodian with Indeval under the Master Trust arrangement. Citibank,
N.A. has custody of the Fund's convertible debt securities.

LEGAL MATTERS

With respect to matters of United States law, the validity of the Shares
offered hereby will be passed on for the Fund by Rogers & Wells, 200 Park
Avenue, New York, New York 10166. Certain matters of United States law will be
passed on for the Dealer Manager by Willkie Farr & Gallagher, 153 East 53rd
Street, New York, New York 10022. Matters of Mexican law will be passed on for
the Fund and the Dealer Manager by Ritch, Heather y Mueller, S.C., Amberes No.
5-PH Col. Juarez, 06600 Mexico, D.F., Mexico. Counsel for the Fund and the
Dealer Manager will rely, as to matters of Maryland law, on Piper & Marbury
L.L.P., 36 South Charles Street, Baltimore, Maryland 21201.

The Mexican Adviser is a Mexican company and Dr. Luis Rubio, a director of
the Fund, is a resident of Mexico. Substantially all of the assets of the
Mexican Adviser and its directors and of Dr. Rubio are located in Mexico. As a
result, it may not be possible for investors to effect service of process within
the United States upon such persons or to enforce against them in United States
courts judgments predicated upon the civil liability provisions of the federal
securities laws of the United States. The Fund has been advised by its Mexican
counsel, Ritch, Heather y Mueller, S.C., that there is doubt as to the
enforceability, in original actions in Mexican courts, of liabilities predicated
solely on the U.S. federal securities laws and as to the enforceability in
Mexican courts of judgments of U.S. courts obtained in actions predicated upon
the civil liability provisions of the U.S. federal securities laws.

EXPERTS

The financial statements included in the Fund's Annual Report to
Stockholders as of July 31, 1994 have been incorporated by reference in this
Prospectus in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of that firm as experts in auditing and
accounting. Price Waterhouse LLP is located at 1177 Avenue of the Americas, New
York, New York 10036.

OFFICIAL DOCUMENTS

The tabular and other statistical information set forth in this Prospectus
is, unless otherwise indicated, based upon or derived from public official
documents or information of the Mexican Government, its ministries and Banco de
Mexico.

FURTHER INFORMATION

Further information concerning these securities and their issuer may be
found in the Registration Statement of which this Prospectus constitutes a part
on file with the U.S. Securities and Exchange Commission.

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<PAGE> 62

FINANCIAL STATEMENTS

The Fund's Annual Report for the fiscal year ended July 31, 1994 (the
"Annual Report") and Semi-Annual Report for the six months ended January 31,
1995, which either accompany this Prospectus or have previously been provided to
the person to whom this Prospectus is being sent, are incorporated herein by
reference with respect to all information other than the information set forth
in the Letter to Stockholders included therein. The Fund will furnish, without
charge, a copy of its Annual Report and Semi-Annual Report, upon request to PNC
Bank, National Association, 400 Bellevue Parkway, Wilmington, Delaware 19809,
(800) 852-4750.

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<PAGE> 63

APPENDIX A

THE UNITED MEXICAN STATES

The information in this section is based on material obtained by the Fund
from the Form 18-K filed by the United Mexican States with the U.S. Securities
and Exchange Commission on June 30, 1995, and various additional Mexican
governmental and other sources believed to be accurate but which have not been
independently verified by the Fund, the U.S. Co-Adviser or the Mexican Adviser.

References in this Appendix A to "US$", "$", "U.S. dollars" or "dollars"
are to United States dollars, references to "Ps." and "pesos" are to Mexican
pesos prior to January 1, 1993 and references to "NPs." and "new pesos" are to
Mexican nuevos pesos on and after January 1, 1993, when the new peso replaced
the peso at the rate of one nuevo peso per one thousand pesos. In certain cases,
historical financial data and economic information set forth herein have been
restated in new pesos. Unless otherwise indicated, (a) U.S. dollar equivalents
of peso or new peso amounts as of a specified date prior to December 20, 1994
are based on the free exchange rate for such date published for statistical
purposes by Banco de Mexico, and U.S. dollar equivalents of peso or new peso
amounts for a period ending on or prior to December 31, 1994 are based on the
average of such published daily free exchange rates for such period and (b) U.S.
dollar equivalents of new peso amounts as of a specified date on or after
December 20, 1994 are based on the exchange rate for such date announced by
Banco de Mexico for the payment of obligations denominated in currencies other
than pesos or new pesos and payable within Mexico, and U.S. dollar equivalents
of new peso amounts for a period ending after December 31, 1994 are based on the
average of such announced daily exchange rates for such period. The exchange
rate announced by Banco de Mexico on July 20, 1995 (and published on July 21,
1995) was $1.00 = NPs. 6.1583. See "The External Sector of the Economy--Exchange
Controls and Foreign Exchange Rates."

The new peso has depreciated substantially in relation to the U.S. dollar
since the end of 1994, when the Federal Government of Mexico (the "Mexican
Government") allowed the new peso to float freely against the U.S. dollar, and
the Mexican Government has established a broad economic reform program in
response to these and other events. See "Recent Developments". Due to the recent
volatility of the new peso/dollar exchange rate, the exchange rate on any date
subsequent to the date hereof could be materially different from the rate
indicated above. See "The External Sector of the Economy--Exchange Controls and
Foreign Exchange Rates".

The fiscal year of the Mexican Government ends December 31. The fiscal year
ended December 31, 1994 is referred to herein as "1994" and other years are
referred to in a similar manner.

GENERAL

AREA, POPULATION AND SOCIETY

Mexico, a nation formed by 31 states and a Federal District (comprising
Mexico City), is the fifth largest nation in the American continent and the
thirteenth largest in the world, occupying a territory of 759,529 square miles
(1,967,183 square kilometers). To the north, Mexico shares a border of 1,931
miles (3,107 km) with the United States of America, and to the south it has
borders with Guatemala and Belize. Its coastline extends over 6,303 miles
(10,143 km) along both the Gulf of Mexico and the Pacific Ocean.

Mexico is the second most populous nation in Latin America, with a
population of 81.2 million reported in the 1980 census. Approximately 71% of
Mexico's population is located in urban areas. Mexico's three largest cities are
Mexico City, Guadalajara and Monterrey, with estimated populations in 1990 of
15.0 million, 2.8 million and 2.5 million, respectively. The annual rate of
population growth averaged 3.3% in the 1960s and 1970s. In the 1980s, Government
efforts in the areas of family planning and birth control, together with
declining birth rates among women under 35 and those living in urban areas,
resulted in a reduction of the population growth rate to an estimated 1.7% in
1995.

Mexico is generally classified as a middle income developing country and
had a per capita GNP in 1993 of $3,610, compared with $24,740 in the United
States, $2,840 in Venezuela, $3,170 in Chile and $2,930 in Brazil. Life
expectancy in Mexico was 71 years in 1993, compared with 76 years in the United
States, 72

A-1
<PAGE> 64

years in Venezuela, 74 years in Chile and 67 years in Brazil. Adult illiteracy
was estimated at 13% in 1993, compared with less than 5% in the United States,
12% in Venezuela, 7% in Chile and 19% in Brazil. Infant mortality in 1993 was
35.4 per 1,000 live births in Mexico, compared with 8.6 in the United States,
15.6 in Chile, 22.6 in Venezuela and 57 in Brazil.

FORM OF GOVERNMENT

The present form of government was established by the Constitution, which
took effect on May 1, 1917. The Constitution establishes Mexico as a Federal
Republic and provides for the separation of the executive, judicial and
legislative branches of government. The President and the members of Congress
are elected by popular vote of Mexican citizens who are 18 years of age and
older.

Executive authority is vested in the President, who is elected for a
six-year term. The current President of Mexico is Ernesto Zedillo Ponce de Leon,
whose term is scheduled to expire on December 1, 2000. The Constitution provides
that the President may serve only one six-year term and may never be re-elected.
The executive branch consists of 17 ministries, the office of the Federal
Attorney General, the Federal District Department (Mexico City) and the office
of the Attorney General of the Federal District, the chief officials of all of
which are appointed by the President. Pursuant to the Constitutional amendments
which took effect on December 31, 1994 (the "Constitutional Amendments"), the
appointment of the Federal Attorney General and senior employees (empleados
superiores) of the Ministry of Finance and Public Credit are subject to
ratification by the Senate.

Legislative power is vested in a bicameral Congress composed of the Senate
and the Chamber of Deputies. Senators serve six-year terms and Deputies' terms
are for three years. Members of neither house are permitted to serve consecutive
terms in the same chamber. There are two Senators from each of the 31 states and
two from the Federal District. In accordance with constitutional amendments
which became effective on September 3, 1993, there will be four Senators from
each state and four from the Federal District beginning with the next senatorial
elections. The Chamber of Deputies is composed of up to 500 Deputies, 300
elected directly from the electoral districts and 200 elected by a system based
on the proportion of the vote received by each minority party.

The judicial branch is headed by the Supreme Court of Justice. The Supreme
Court has 11 regular members who are appointed for 15 year terms (except in the
case of the 11 newly selected members, whose appointments range from eight to
twenty years) by the Senate from a pool proposed by the President. Other courts
include circuit courts, district courts and other courts of local and special
jurisdiction.

The dominant political party in Mexico, Partido Revolucionario
Institucional (the Institutional Revolutionary Party, the "PRI"), has held a
majority in Congress and has won all presidential elections since 1929.
Currently, the PRI holds 61 out of the 64 seats in the Senate, 320 of the 500
seats in the Chamber of Deputies and all but four of the state governorships.

Since 1930, the Mexican political arena has been relatively stable. The
level of continuity and stability brought by the dominance of the PRI is
virtually unparalleled in Latin America. In government since its creation in
1929, the PRI has won all 14 presidential elections to date and, as such, is the
world's longest ruling non-communist political party. The PRI candidate for the
presidency has traditionally achieved an overwhelming majority of the votes
cast: 83% in 1970, 87% in 1976 and 68% in 1982. Until 1988, the PRI candidate
had never lost any of the gubernatorial or senatorial elections. Currently, the
Partido Accion Nacional (the National Action Party, or the "PAN"), the oldest
opposition party in the country, holds four state governorships. In the most
recent elections held on May 28, 1995, the PRI narrowly won the gubernatorial
contest in the Yucatan. The other election, in the State of Guanajuato, was won
by the PAN.

On August 21, 1994, elections were held to select a new President of Mexico
for a six-year term beginning on December 1, 1994. In addition, three-quarters
of the seats in the Senate and all of the seats in the Chamber of Deputies were
up for election. Based on the preliminary election results released by the
Instituto Federal Electoral ("IFE") on August 29, 1994, Ernesto Zedillo Ponce de
Leon, the candidate of the PRI won the election, subject to Congress approval,
with 50.18% of the votes, the candidate of the PAN was

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second with 26.69% of the votes and the PRD was third with 17.08% of the votes.
With respect to the Congressional elections, the PRI maintained the majority in
both chambers, with 93 seats in the Senate and 298 seats in the Chambers of
Deputies, the PAN has the second largest representation with 25 seats in the
Senate and 120 seats in the Chamber of Deputies and the PRD has the third
largest representation with 10 seats in the Senate and 72 seats in the Chamber
of Deputies.

FOREIGN AFFAIRS

Mexico maintains diplomatic relations with 175 countries throughout the
world. It is a charter member of the United Nations and is a founding member of
the Organization of American States ("OAS"), the International Monetary Fund
("IMF"), the International Bank for Reconstruction and Development ("World
Bank"), the International Finance Corporation ("IFC") and the Inter-American
Development Bank ("IDB"). Mexico is also a member of the General Agreement on
Tariffs and Trade ("GATT") and a non-borrowing regional member of the Caribbean
Development Bank. In 1991, Mexico became a founding member of the European Bank
for Reconstruction and Development ("EBRD") and was admitted into the Pacific
Basin Economic Co-operation Conference. On April 14, 1994, Mexico was admitted
as a member of the Organization for Economic Cooperation and Development
("OECD"), making it the first member to be admitted into the OECD since 1973.
Mexico became a member of the World Trade Organization ("WTO") on January 1,
1995, the date on which the WTO superseded the GATT.

RECENT DEVELOPMENTS

EVENTS DURING 1994

During the period from 1982 through 1994, Mexico pursued far-reaching and
comprehensive adjustment policies designed to reform its economy and achieve a
return to sustained economic growth. These policies included fiscal discipline,
tax reform, trade liberalization, opening the economy to foreign investment,
reform of certain public sector prices to conform to market conditions,
deregulation, privatization of certain non-strategic public sector enterprises
and an exchange rate and monetary policy aimed at slowing the rate of inflation
in Mexico to levels approximating those of its major trading partners. See "The
Economy-- General".

While successful in reducing inflation from 159.2% in 1987 to 7.1% in 1994
and achieving real GDP growth averaging 3.0% over the 1990-1994 period, the
Mexican economy had certain weaknesses by 1994 that made it unable to withstand
the severe internal and external political and economic shocks that occurred in
1994, resulting in the destabilization of the Mexican economy at the end of
1994, a crisis of confidence on the part of foreign portfolio investors and an
economic and financial crisis facing the Mexican Government since the end of
1994.

A weakness of the Mexican economic model arose from the Mexican
Government's exchange rate policy. Over the period from December 1987 through
December 1994, representatives of the Mexican Government, business and labor
entered into a series of social accords designed to limit price and wage
increases so as to lower the rate of inflation, which had by 1987 reached
159.2%. Among the elements included in the first accord was a commitment by the
Mexican Government to maintain a fixed peso/dollar exchange rate from February
to December 1988. Thereafter, the Mexican Government implemented a schedule of
gradual devaluation of the peso at rates of 16.7% in 1989, 11.4% in 1990, 4.5%
in 1991 and 2.4% in 1992, as compared with annual inflation rates of 19.7% in
1989, 29.9% in 1990, 18.8% in 1991 and 11.9% in 1992. From October 1992 through
December 20, 1994, the new peso/dollar exchange rate was allowed to fluctuate
within a band that widened daily. The ceiling of the band, i.e., the maximum
selling rate, depreciated at a daily rate of 0.0004 new pesos (equal to
approximately 4.5% per year), while the floor of the band, i.e., the minimum
buying rate, remained fixed. During this period, Banco de Mexico intervened in
the foreign exchange market as the peso/dollar exchange rate reached either the
floor or the ceiling of the band. While the Mexican Government's exchange rate
policy contributed to general economic stability, encouraged foreign portfolio
investment and helped reduce inflation, over time it led to a progressive
overvaluation of the new peso. The

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appreciation of the new peso made imported consumer goods and services
relatively more accessible in comparison with domestic products, contributing to
the growth in the current account deficit, which rose from 3.0% of GDP in 1990
to 7.8% of GDP in 1994.

In order to finance the growing current account deficit, Mexico relied on
substantial inflows of foreign direct investment and portfolio investment. From
1990 through 1993, the capital account surplus exceeded the current account
deficit, leading to an accumulation of international reserves to the level of
$24.5 billion at the end of 1993. From 1992 through 1994, increasing amounts of
capital inflows were made up of foreign portfolio investment, including
investments in the Mexican stock market and investments in short-term Mexican
Government and private sector debt instruments, such as bank certificates of
deposit. The portfolio investors were attracted to Mexico because of its
relatively high real interest rates and high returns on equity investments,
compared to returns on investments in developed countries, and its relatively
stable exchange rate. The portfolio investment flows were, however, by their
nature less stable than direct foreign investment (because investors could
generally liquidate their portfolio investments at any time) and left Mexico
vulnerable to losing large amounts of foreign capital during 1994.

During 1994, internal and external events combined to complicate the
management of the Mexican economy and, in particular, adversely affected the
capital inflows needed to finance the current account deficit. The U.S. monetary
authorities took measures to increase interest rates in the United States in
order to control inflationary pressures in that country and to defend a
weakening dollar. The progressive increases in interest rates in the United
States during 1994, as well as the prospect of further increases in those rates,
made Mexican investments and investments in other emerging markets relatively
less attractive to foreign portfolio investors and led to a reluctance on the
part of investors to commit capital at fixed interest rates or for long periods
of time in those markets.

The economic situation deteriorated further due to a series of internal
disruptions and political events that undermined the confidence of investors in
Mexico during 1994. At the beginning of the year, armed insurgents attacked (and
in some cases temporarily seized control of) several villages in the southern
state of Chiapas. While the Mexican Government responded by providing military
support to the local authorities and publicly offering to negotiate a peaceful
resolution that would address the underlying concerns of the local population,
the conflict remained a source of debate and uncertainty for the remainder of
the year. Negotiations with the insurgents continued through the spring of 1994,
but subsequently were broken off. In December, the Mexican Congress approved the
creation of a Congressional peace commission, to be formed by members of both
chambers of Congress, which would be responsible for mediating the negotiations
between the Government and the insurgents. By late December 1994, however, the
insurgents had not yet agreed to resume negotiations and the region experienced
additional incidents of civil unrest.

The Mexican Presidential and Congressional elections held in 1994 furnished
additional grounds for investor unease. In March 1994, Luis Donaldo Colosio, the
candidate of the PRI, the dominant political party in Mexico, was assassinated.
That event, together with the general uncertainty regarding the outcome and
fairness of the Presidential and Congressional elections scheduled to occur in
August 1994, led to pressures on the foreign exchange market. While that
uncertainty abated after Ernesto Zedillo Ponce de Leon of the PRI was elected
President in August 1994 in an election that was widely perceived as fair and
open, substantial outflows of foreign capital occurred in the weeks preceding
the elections.

Other destabilizing events that occurred during the year included the
assassination of Jose Francisco Ruiz Massieu, the former secretary-general of
the PRI, and the kidnapping of several prominent businessmen. Despite the fact
that the Chiapas conflict has been confined to a relatively small geographic
area and that the Mexican Government condemned the assassinations and
kidnappings as criminal acts, these events caused some foreign investors to
believe that the Mexican political system was less stable than previously had
been believed.

At the end of the first quarter of 1994, the Mexican authorities responded
to the pressure on the new peso/dollar exchange rate that resulted from certain
of the above-mentioned events by permitting the exchange rate to depreciate, but
always within the limit of the Banco de Mexico intervention band established in
the most recent social accord. In addition, in order to retain the capital of
investors who perceived a risk of

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further devaluation of the new peso, the Mexican Government issued increasing
amounts of Bonos de la Tesoreria de la Federacion ("Tesobonos"), short-term
notes denominated in dollars but payable in new pesos indexed to the value of
the dollar. The Mexican Government also increased interest rates on its new
peso-denominated internal debt in an attempt to maintain capital inflows. While
the Mexican Government was aware of the large current account deficit and the
unease of foreign investors, it believed throughout much of 1994 that the real
exchange rate remained competitive, particularly given the continued robust
growth of exports of manufactured goods and the continued diversification of
Mexican exports, and that the factors that had provoked uncertainty among
foreign investors were transitory. The Mexican Government's attempts to
stabilize the exchange rate and restore capital inflows were not, however,
successful and the Mexican Government suffered a substantial loss in gross
international reserves in 1994, from the level of $24.5 billion at the end of
1993 to $17.2 billion on October 31, 1994. During the second half of December
1994, foreign capital continued to flee the country as investors grew even more
concerned, resulting in a strong demand for dollars. Given the loss in reserves
that had occurred throughout the year, it became impossible to maintain the new
peso within the band established by the most recent social accord, and on
December 20, 1994, the Mexican Government increased the ceiling of the
intervention band by NPs. 0.53. That action proved to be insufficient to address
the concerns of foreign investors, and the demand for foreign currency
continued. The exchange rate immediately depreciated to the newly established
upper limit of the band. On December 22, 1994, the Mexican Government eliminated
the intervention band and allowed the new peso to float freely against the
dollar. A further sharp and rapid devaluation of the new peso ensued, with the
new peso losing 35.1% of its value relative to the dollar between December 21,
1994 and December 31, 1994. By December 31, 1994, the country's international
reserves had dropped to $6.1 billion.

The devaluation at the end of 1994 has had a number of adverse
repercussions on the Mexican economy. First, the weaker value of the new peso
relative to the dollar increased the cost, in new peso terms, of imported goods
and services, and thereby increased the rate of inflation in Mexico. To the
extent that employers adjusted wages upward to compensate for the decline in
purchasing power resulting from the devaluation, and then adjusted prices to
reflect increased wage costs, additional inflationary pressures have arisen. The
Mexican Government currently projects an inflation rate (measured by the
increase in the National Consumer Price Index ("NCPI") from December 1994 to
December 1995) of 42% in 1995.

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Second, the devaluation caused the new peso value of Mexico's external
public debt and its dollar-denominated Tesobonos to increase significantly, from
25.6% of GDP at November 30, 1994 to 39.9% of GDP at December 31, 1994. At
December 31, 1994, Mexico's public sector and private sector debt can be
summarized as follows:

<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
(IN MILLIONS OF
U.S. DOLLARS)(2)
--------------------
<S> <C>
Public Sector
Net Internal Debt(1).................................................... $ 31,397
External Debt........................................................... 85,436
Long-term............................................................ 72,964
Short-term........................................................... 12,472
Private Sector
Commercial Bank External Debt........................................... $ 25,124
Long-term............................................................ 14,274
Short-term........................................................... 10,850
Other Private Sector External Debt...................................... 22,074
Long-term............................................................ 13,866
Short-term........................................................... 8,208
</TABLE>

- ---------------
(1) This figure does not include approximately $12 billion of Tesobonos sold by
Banco de Mexico in open-market operations to regulate liquidity.

(2) Preliminary.

Source: Ministry of Finance and Public Credit.

Third, the devaluation led to a lack of confidence on the part of investors
in Mexico's ability to repay its short-term obligations and, consequently, a
reluctance of investors to reinvest in Mexico's maturing Tesobonos. As a result,
Mexico faced a liquidity crisis linked closely to the $29.2 billion of
short-term Tesobonos outstanding at the end of 1994 and maturing in 1995. Demand
for foreign currency resulting from the above factors and the conversion by
certain investors of the new peso proceeds of maturing Tesobonos increased the
pressure on the exchange rate. The value of the new peso continued to
deteriorate during early 1995, with the new peso/dollar exchange rate announced
by Banco de Mexico falling to a low of NPs. 7.558 = $1.00 on March 13, 1995, a
29.8% decline from its value on December 31, 1994. The country's international
reserves also fell, as many foreign investors did not choose to reinvest in
maturing Government debt, including Tesobonos and Cetes (Treasury bills). At
January 31, 1995, Mexico's gross international reserves totaled $3.483 billion.

Fourth, the devaluation created concerns about the stability of the Mexican
banking system. The devaluation of the new peso, higher domestic interest rates,
higher unemployment, lower government spending, lower retail sales and
anticipated recession in 1995 have combined to weaken the quality of the assets
of Mexican banks. By December 31, 1994, past-due loans represented approximately
7.4% of total commercial bank loans, and, on average, Mexican banks had
provisions covering only 47.9% of past-due loans. By March 31, 1995, past-due
loans had increased to 9.8% of total loans, although the portion of the past-due
loans as to which Mexican banks had provisions had increased to 67.4% of such
loans. In addition, the new peso-denominated equity of Mexican banks is now a
proportionately smaller percentage of their total assets, with certain banks
having difficulty meeting required capital adequacy levels. As of December 31,
1994, the foreign currency-denominated liabilities of Mexican commercial banks
totalled approximately $25.1 billion, of which $14.3 billion had a maturity of
longer than 365 days.

These concerns have led to sharply higher interest rates, both domestically
and externally, on Mexican public and private sector debt and sharply reduced
opportunities for refinancing or refunding maturing debt issues. During the
first four months of 1995, interest rates on 28-day Cetes averaged 55.8%, as
compared with an average interest rate of 14.1% during 1994. Mexican equity
securities have also been adversely affected by

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events in recent months, with the Mexican Stock Market Index (as defined under
"Financial System -- The Securities Markets") falling 36.3% in new peso nominal
terms from December 20, 1994 to February 27, 1995, although the Stock Market
Index subsequently recovered somewhat, increasing 34.4% in new peso nominal
terms from February 27, 1995 to May 31, 1995. Overall, the Stock Market Index
fell 18.1% in nominal new peso terms and 36.4% in real terms in the first five
months of 1995.

THE GOVERNMENT'S RESPONSE

In order to address the adverse economic situation that developed at the
end of 1994, the Zedillo Administration announced in January 1995 a new economic
program and a new accord among the Mexican Government, business and labor, the
Acuerdo de Unidad Para Superar la Emergencia Economica (Agreement to Overcome
Mexico's Economic Emergency, or "AUSEE").

It became clear during the first two months of 1995, however, that the
AUSEE would have to be reinforced in order to restore stability to Mexico's
financial and foreign exchange markets. On March 9, 1995, the Government
accordingly announced the Programa de Accion para Reforzar el AUSEE (Action
Program to Strengthen the AUSEE, or "PARAUSEE"), which strengthened key aspects
of the AUSEE. The PARAUSEE, together with the international support package
described below, form the basis of Mexico's 1995 economic plan (the "1995
Economic Plan").

The objectives of the 1995 Economic Plan are:

- To stabilize financial markets.

- To mitigate the inflationary effects of the devaluation of the new
peso and to ensure that the inflationary impact will be transitory.

- To maintain the solvency of the banking sector.

- To deepen Mexico's structural reforms, in order to increase the
flexibility of the economy's adjustment process, improve Mexico's
international competitiveness, promote domestic competition and
reassure long-term investors of the strong underlying fundamentals of
the Mexican economy.

- To ensure that the burden of economic adjustment is shared by all
sectors, while protecting the poorest segments of the population.

The central elements of the PARAUSEE are fiscal reform, aimed at increasing
public revenues through price and tax adjustments and reducing public sector
expenditures; restrictive monetary policy, characterized by limited credit
expansion; stabilization of the exchange rate while maintaining the current
floating exchange rate policy; reduction of the current account deficit;
introduction of certain financial mechanisms (described below) to enhance the
stability of the banking sector; and maintenance and enhancement of certain
social programs, to ease the transition for the poorest segments of society.

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The following table summarizes the key economic indicators for 1995, as
projected in January 1995 (under the AUSEE) and in March 1995 (under the
PARAUSEE), as compared with the actual results of the Mexican economy in 1994.

<TABLE>
<CAPTION>
1995 PROJECTIONS AS OF
--------------------------------
ACTUAL JANUARY MARCH
1994 (AUSEE) (PARAUSEE)
------------- ------------- --------------
<S> <C> <C> <C>
Primary balance (% of GDP)....................... 2.3% 3.4% 4.4%
Average new peso/dollar nominal exchange rate.... 3.2(1) 4.5 6.0
Inflation (December-December).................... 7.1% 19.0% 42.0%
Current account deficit.......................... $28.8 billion $14.1 billion $ 2.4 billion
</TABLE>

- ---------------
(1) Average free exchange rate published daily by Banco de Mexico for
statistical purposes.

The specific components of the 1995 Economic Plan are as follows:

Foreign Exchange Policy. The Mexican Government intends to maintain its
current floating exchange rate policy, with Banco de Mexico intervening in the
foreign exchange market from time to time to minimize volatility and ensure an
orderly market. The Mexican Government is also promoting market-based mechanisms
for stabilizing the exchange rate. On March 19, 1995, Banco de Mexico approved
the establishment of over-the-counter forward and options contracts in Mexico on
the new peso between banks and their clients. Trading of new peso futures
contracts on the Chicago Mercantile Exchange ("CME") began on April 25, 1995.
The Mexican Stock Exchange also intends shortly to introduce futures on the new
peso/dollar exchange rate, and amendments to its internal rules have already
been introduced to permit spot peso-dollar trading. These initiatives are
designed to contribute to the Mexican Government's efforts to restore confidence
in the Mexican economy by providing an important risk-management tool for
investors.

The Mexican Government's 1995 Economic Plan projects an average nominal
exchange rate for the year of 6.0 new pesos/dollar.

Fiscal Reform. Fiscal measures have been undertaken to increase the
Mexican Government's primary balance and promote private sector savings. Public
sector revenues are expected to increase under the 1995 Economic Plan as a
result of an increase (approved by the Congress on March 17, 1995 and effective
as of April 1, 1995) in the general value-added tax ("VAT") rate from 10% to 15%
(except in the Mexico-United States border region and in duty-free zones, where
the VAT rate will remain at 10%, and except with respect to pharmaceutical
products and food, which continue to be subject to a VAT rate of 0%). In
addition, the price of gasoline and diesel fuel will increase by 48.5% in 1995,
as a result of a gradual 1.6% increase during the first two months of 1995, a
one-time increase of 35% in March 1995 and a gradual increase of 8.3% during the
remainder of the year. Residential natural gas and electricity prices increased
by 20% in March 1995, and will increase each month thereafter by 0.8%, resulting
in an aggregate increase of 32% by the end of 1995. Prices of other services,
such as railroads, airports and highways, will also gradually be increased by an
average of 2.5% per month, with aggregate annual increases limited to 30%. The
prices of all other goods provided by the public sector for which international
market prices are available as a comparison will be adjusted to eliminate
subsidies. The Government also has increased the amount that may be deducted in
respect of depreciation in 1995, a measure which should provide an enhanced
incentive for investment.

During the same period, a 9.8% reduction (in real terms) in public spending
is planned, equivalent to 1.6% of GDP. The reduction in public spending will
occur primarily through departmental rationalization, staff reductions and
hiring freezes, as well as the postponement of new infrastructure projects. The
Government hopes, to the extent possible, to preserve spending for health,
education, worker training and efforts to combat poverty.

Monetary Policy; Prices and Wages. In the short term, the goal of monetary
policy under the 1995 Economic Plan is to stabilize the exchange rate in order
to induce capital inflows. Domestic credit will be tightened when the exchange
rate depreciates, capital outflows take place or inflation is higher than
projected. Banco de Mexico intends to limit net domestic credit expansion in
1995 to NPs. 10 billion, which is designed

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to result in a real decrease in the monetary base of more than 20% from its
level on December 31, 1994. In addition, new reserve requirements were
introduced by Banco de Mexico to facilitate the regulation of liquidity.
Pursuant to these requirements, which took effect on March 11, 1995, a bank that
overdraws its account with Banco de Mexico must subsequently deposit funds, and
maintain amounts on deposit, at least equal to the amount of the overdraft.
Substantial fines may be imposed if a bank fails to make and maintain such
deposits. The new reserve requirements are intended to reduce Banco de Mexico's
daily net extension of credit.

An important element of the 1995 Economic Plan is the moderation of the
inflationary pressures created by the devaluation of the new peso. The Mexican
Government's restrictive monetary policy is designed to help control inflation.
In addition, the Mexican Government hopes that businesses will increase prices
only in the proportion that products sold in Mexico are comprised of imported
components. Nonetheless, the Mexican Government currently projects an inflation
rate (December 1994 - December 1995) of 42.0% during 1995, as compared to 7.1%
during 1994.

A 7% nominal increase in the minimum wage took effect on January 1, 1995,
and a further 12% nominal increase took effect on April 1, 1995, as compared
with the 4% increase agreed in December 1994. Wage increases for workers earning
more than the minimum wage will be negotiated between employers and such
workers. Under the PARAUSEE, productivity bonuses will be maintained and tax
benefits for workers will be extended to those earning less than four times the
minimum wage (as opposed to twice the minimum wage under the AUSEE).

Mechanisms to Strengthen the Stability of the Banking Sector. A primary
objective of the 1995 Economic Plan is to stabilize and strengthen the banking
sector. The Mexican Government is committed to ensuring depositor safety, and,
to that end, has recently taken a number of interrelated steps. First, the
Mexican Government has put in place the Programa de Capitalizacion Temporal
(Temporary Capitalization Program, or "PROCAPTE"), administered by the Fondo
Bancario de Proteccion al Ahorro (Banking Fund for the Protection of Savings, or
"FOBAPROA"). PROCAPTE is a voluntary program designed to assist banks with
capitalization levels below 8% of risk-weighted assets, and is intended for use
by viable banks that are currently or are expected to be facing short-term
capital needs. Under PROCAPTE, FOBAPROA advances funds to participating banks in
exchange for five-year mandatorily convertible subordinated bonds. The banks
must deposit with Banco de Mexico the funds raised from the issuance of the
bonds, thereby neutralizing any monetary impact. If a participating bank's
capital falls below a specified level while the bonds are outstanding, or if the
bonds are not repaid prior to their five-year maturity, the bonds will be
converted to equity at a rate based on the book value of the bank at the time of
conversion. Banks benefiting from PROCAPTE must maintain capitalization levels
at least equal to 9.0% of their risk-weighted assets (which may decline to 8.5%
if the decrease is caused by the creation of general reserves). Second, the
Mexican Government intends to increase by $3 billion FOBAPROA's capitalization
fund, which is used to recapitalize banks that face severe capital shortfalls
and are not viable as ongoing entities. Third, FOBAPROA has also made foreign
exchange available through a foreign exchange credit window to help banks meet
dollar liquidity needs. As of May 31, 1995, outstanding drawings under this
program amounted to $2.2 billion.

Recent amendments to Mexican banking law have broadened the scope for
investment by foreign and Mexican investors in the equity of Mexican financial
institutions, by increasing the percentage of the capital stock of most existing
Mexican financial institutions that can be owned by non-Mexicans, increasing the
percentage of the capital stock of such institutions that can be owned by
Mexican corporations (as opposed to Mexican individuals) and increasing, subject
to regulatory approval, the percentage of the capital stock of each such
institution that can be owned by any single investor. These amendments also
grant the Comision Nacional Bancaria y de Valores (National Banking and
Securities Commission, or "CNBV"), an entity resulting from the merger on May 1,
1995 of the Comision Nacional Bancaria (the National Banking Commission) and the
Comision Nacional de Valores (the National Securities Commission), powers of
administrative and management intervention in financial holding companies
similar to the CNBV's existing powers with respect to banks and securities
dealers.

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According to published reports, the Mexican Bankers Association ("ABM")
indicated that Mexican banks had accumulated overdue debt of almost NPs. 93
billion as of May 12, 1995, compared with about NPs. 50 billion as of mid-May of
1994. According to such reports, the President of the ABM stated that, by late
May 1995, Mexican banks had restructured more than 45,000 loans thus far in
1995, totaling NPs. 15.7 billion (not including the loans restructured pursuant
to the Government restructuring support program described below).

To reduce the risk of lower asset quality, required loan-loss reserves are
being increased. The new CNBV guidelines require minimum loan-loss reserves
equal to the greater of 60% of past-due loans and 4% of total loans. The
increased reserve requirements are estimated to require an additional NPs. 4.4
billion of reserves. Other measures to strengthen the financial sector include a
significant enhancement of the CNBV's supervisory activities through closer and
more frequent inspections and heightened reporting requirements.

The Mexican Government has also announced a debt restructuring support
program, designed to help restructure past-due loans of borrowers facing cash
flow constraints. The restructuring program will cover five types of loans:
small- and medium-size business loans; mortgage loans; foreign
currency-denominated loans; and certain debt of states and municipalities.
Restructured loans will be converted into new financial instruments,
inflation-indexed units of account ("UDIs"), with maturities ranging from five
to 12 years, which are designed to mitigate the short-term effect of inflation
on borrowers and improve asset quality of banks. UDIs are units of account whose
value in new pesos is indexed to inflation on a daily basis, as measured by the
change in the NCPI. Under a UDI-based loan, the borrower's nominal new peso
principal balance is converted to a UDI principal balance and interest on the
loan is calculated on the outstanding UDI balance of the loan. Principal and
interest payments are made by the borrower in an amount of new pesos equivalent
to the amount due in UDIs at the stated value of UDIs on the day of payment.

UDI loans will be made by special trusts set up by commercial banks for
this purpose and are to be funded through long-term UDI bonds to be purchased by
Banco de Mexico. The outflow of money to commercial banks will in turn be
neutralized by the purchase by such banks of Mexican Government bonds. The
maximum size of the restructuring program is currently estimated at NPs. 160
billion, which represents approximately 28% of all commercial bank loans at
March 31, 1995.

Structural Reform. While the Mexican Government anticipates a 2%
contraction in real GDP growth during 1995, it nonetheless expects that
increased productivity and competitiveness of the economy will be achieved
through deregulation and increased private sector investment. Changes to the
Political Constitution of Mexico (the "Constitution") which permit the Mexican
Government to privatize railway and satellite communications services have been
approved and have become effective. Pursuant to these changes, Congress has
recently enacted legislation which contemplates the auction of 50-year private
concessions to operate parts of Mexico's railway system, and has, as part of the
telecommunications liberalization described below, enacted legislation to
provide for the auction of private concessions to operate satellite
telecommunications systems. In addition, the Mexican Government has announced
plans to privatize, within the current legal framework, power generating plants
and secondary petrochemical plants, airports, ports and highways. The Mexican
Congress has also approved amendments to the law regarding the natural gas
industry, which will allow Mexican private-sector companies (which may be owned
by non-Mexican companies or individuals) to take part in the storage,
distribution and transportation of natural gas, and has enacted legislation on
civil aviation which provides for the granting of 30-year concessions allowing
private companies to operate commercial air transportation services within
Mexico. See "The Economy--The Role of the Government in the Economy;
Privatization" and "Principal Sectors of the Economy--Petroleum and
Petrochemicals--Distribution".

Finally, as noted above, the Mexican Congress has recently approved a
telecommunications liberalization law. Pursuant to this law and upon the
expiration in 1996 of the concession granting exclusivity to Telefonos de Mexico
(the national domestic and long-distance telephone company, "Telmex") with
respect to domestic and international long-distance telephone services in
Mexico, 30-year concessions will be granted for the establishment of public
telecommunications networks, without payment of a licensing fee. In addition,
20-year concessions for use of portions of the radio spectrum for
telecommunications purposes will be auctioned. See "The Mexican Economy--The
Role of the Government in the Economy; Privatizations".

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Through these measures, as well as the proposed sale by the Mexican
Government of its remaining 22% interest in Bancomer, S.A. ("Bancomer") and
certain other state-owned institutions, the Mexican Government hopes to
encourage private investment and to generate substantial privatization revenues
over a three-year period. The devaluation of the new peso, assuming that
inflationary pressures are held in check, should also increase the
competitiveness of Mexican exports and assist the Mexican Government in meeting
its target for merchandise export growth of 23% during 1995.

International Support. Since January 1, 1995, the Mexican Government has
engaged in a series of discussions with the International Monetary Fund ("IMF"),
the International Bank for Reconstruction and Development (the "World Bank"),
the Inter-American Development Bank ("IDB") and the U.S. and Canadian
Governments in order to obtain the international financial support necessary to
relieve Mexico's liquidity crisis and aid in restoring financial stability to
Mexico's economy. The proceeds of the loans and other financial support have
been and will be used to refinance public sector short-term debt, primarily
Tesobonos, to restore the country's international reserves and to support the
banking sector.

The largest component of the international support package is up to $20
billion in support from the United States Government pursuant to four related
agreements entered into on February 21, 1995 (the "February 21 Agreements"). The
February 21 Agreements contemplate that these resources are to be made available
to Mexico in the form of (i) medium-term (i.e., up to five-year) new peso/dollar
swap transactions entered into between the U.S. Treasury Department, acting
through the Exchange Stabilization Fund ("ESF"), and Mexico, (ii) guarantees by
the U.S. Treasury Department, acting through the ESF, of debt securities with a
tenor of up to ten years issued by Mexico and (iii) short-term swap transactions
entered into by Banco de Mexico with the U.S. and Canadian Governments pursuant
to the North American Framework Agreement of April 26, 1994 (the "NAFA"). The
resources are being used by Mexico to stabilize its foreign exchange markets,
principally by refinancing short-term Government debt, including Tesobonos.
Under the February 21 Agreements, provision of these resources depends upon the
satisfaction by Mexico of certain economic, monetary and fiscal conditions,
including compliance with the targets of the IMF stand-by program described
below.

Pursuant to the February 21 Agreements, Petroleos Mexicanos ("Pemex") and
its sales affiliates have instructed their foreign buyers of crude oil and oil
derivatives (with certain exceptions) to make payments to designated accounts of
Petroleos Mexicanos and its affiliates with a bank in New York and have
instructed that bank to credit the amounts received to an account of Banco de
Mexico with the Federal Reserve Bank of New York ("FRBNY"). Banco de Mexico has
the right to withdraw the funds deposited in the FRBNY account so long as there
is no payment default by Mexico under the February 21 Agreements or the NAFA. In
the event of any such payment default, FRBNY has the right to debit and set-off
the funds in the account to repay any amounts due and payable by Mexico under
the February 21 Agreements and the NAFA.

As of May 31, 1995, $2.0 billion of swaps between Banco de Mexico and the
U.S. Government pursuant to the NAFA was outstanding and $8.0 billion of swaps
between the Mexican Government and the U.S. Government pursuant to the February
21 Agreements was outstanding. In addition, $237 million of swaps between Banco
de Mexico and the Canadian Government pursuant to the NAFA was outstanding. The
Mexican Government has used the approximately $10.2 billion of proceeds of such
swaps to refinance maturing short-term debt, including Tesobonos. An additional
$10.0 billion of resources from the U.S. Government may become available under
the NAFA and the February 21 Agreements, subject to the conditions referred to
above. The Mexican Government currently intends to draw less than this sum in
the second half of 1995 (through the issuance of guaranteed securities pursuant
to the February 21 Agreements and/or by entering into swaps pursuant to the
February 21 Agreements), leaving the balance available for contingencies. The
Mexican Government expects to enter into an additional swap with the U.S.
Government pursuant to the February 21 Agreements during July 1995.

On February 1, 1995, the IMF approved a $17.75 billion stand-by loan
program for Mexico, based upon its review and approval of Mexico's economic
program. On February 6, 1995, Mexico received $7.75 billion in disbursements
under its IMF stand-by program, in the form of purchases of Special Drawing
Rights by Banco de Mexico. An additional $10 billion of medium-term resources
will become available to Mexico beginning in

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the second half of 1995, if Mexico meets an agreed-upon set of quarterly
economic, monetary and fiscal targets under the program. The Mexican Government
expects to request a waiver of certain targets agreed in the IMF program based
on the performance of the Mexican economy during the first quarter of 1995 and
on the revisions made to the Government's economic program in March 1995.

On June 23, 1995, the Mexican Government entered into agreements with the
World Bank and the IDB providing for up to $2.75 billion in adjustment loans, of
which $1.75 billion will be used to support the Mexican financial system and
$1.00 billion will be used to support the Mexican Government's provision of
essential social services. Subject to the satisfaction of certain conditions,
the Mexican Government expects to draw half of the available funds under these
facilities during 1995 and the balance during 1996. It is anticipated that the
first drawing will take place during July 1995 (of $875 million under the
adjustment loan for the Mexican financial system).

Modified Debt Profile. Using resources made available through the
international support package as well as operations by Banco de Mexico, the
Mexican Government expects by the end of 1995 to significantly alter its debt
profile. The outstanding Tesobono balance was reduced to $16.2 billion at the
end of the first quarter of 1995, and a further reduction in the amount of
outstanding Tesobonos is anticipated during the remainder of 1995, with the
Mexican Government currently projecting an outstanding Tesobono balance of $9.9
billion at the end of the second quarter, $2.5 billion at the end of the third
quarter and $0.2 billion at the end of the fourth quarter. Moreover, by the end
of 1995, it is projected that over 75% of Mexico's net internal debt will be
denominated and payable in new pesos, as compared with only 44% of such debt at
the end of 1994.

ECONOMIC AND POLITICAL DEVELOPMENTS IN 1995

The effects of the devaluation of the new peso, as well as the Mexican
Government's response to that and related events, are apparent in the
performance of the Mexican economy during the first quarter of 1995. Monetary
policy has been tightened, with the monetary base declining from NPs. 56.9
billion at December 31, 1994 to NPs 46.2 billion at May 31, 1995.

Recent trade figures also show a correction in the trade deficit during the
first four months of 1995. In January 1995, the trade deficit contracted by
approximately $0.9 billion, a 64% decrease over January 1994. Exports in January
1995 increased by 39.3% compared to January 1994, while imports increased by
only 12.2%. In February 1995, Mexico registered its first trade surplus since
November 1990, of $234.9 million, as compared with a trade deficit of $1.5
billion in February 1994. Exports increased 28.7% over their level in February
1994, while imports fell by 7.3%. In March 1995, Mexico registered a surplus in
the trade balance of $459.6 million, as compared with a trade deficit of $1.3
billion in March 1994. Exports increased 32.2% and imports fell 2% in March 1995
over their level in March 1994. In April 1995, Mexico registered a surplus in
the trade balance of $801.0 million, as compared with a trade deficit of $1.4
billion in April 1994. Exports increased 23.4% and imports fell 16.2% in April
1995 in comparison with April 1994. In May 1995, Mexico registered a surplus in
the trade balance of $588 million, as compared with a trade deficit of $1.5
billion in May 1994. Exports increased 30.3% and imports fell 8.4% in May 1995
in comparison with May 1994. Overall, the trade balance reached a surplus of
$1.9 billion in the first five months of 1995, as compared with a trade deficit
of $7.2 billion during the same period of 1994.

During the first quarter of 1995, the current account deficit totaled $1.2
billion, 82.0% lower than the current account deficit for the first quarter of
1994. The capital account surplus during the first quarter of 1995 was $2.5
billion, 74.3% lower than the capital account surplus during the first quarter
of 1994.

The outstanding principal amount of Tesobonos was reduced sharply during
the first quarter of 1995, from $29.2 billion as of December 31, 1994 to $16.2
billion as of March 31, 1995. By June 30, 1995, the outstanding principal amount
of Tesobonos had declined further to $10.5 billion, a cumulative 65.8% decline
from the figure as of December 31, 1994. This reduction was accomplished
primarily through the payment of maturing Tesobonos and the repurchase (through
auctions) by Banco de Mexico of outstanding Tesobonos held by Mexican commercial
banks in exchange for the cancellation of liabilities of those banks with Banco
de Mexico. By the end of the first quarter of 1995, 80.2% of Mexico's external
public sector debt and outstanding

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<PAGE> 75

Tesobonos consisted of long-term (i.e., one year or more) maturities, as
compared with 69.0% at the end of 1994.

Banco de Mexico is currently disclosing reserve figures on a weekly basis.
On June 23, 1995, Mexico's international reserves amounted to $10.335 billion,
as compared to $6.148 billion at December 31, 1994 and $24.538 billion at
December 31, 1993.

According to preliminary estimates, during the first quarter of 1995 real
GDP decreased by 0.6% as compared with the same period of 1994. The Government
anticipates a sharper contraction of GDP during the second quarter of 1995, as
compared with the same period of 1994. For the year as a whole, the Mexican
Government currently projects a 2% decline (in real terms) in GDP.

Lower- and middle-income members of society have been particularly harshly
affected by the economic developments since the beginning of 1995, mainly as a
consequence of increased unemployment, higher inflation, higher financial
payments and unavailability of credit. The Government has estimated that 945,000
Mexican workers have lost their jobs during the first four months of 1995 as a
result of the current economic crisis, and additional job losses are expected
during the second quarter of 1995. Increases in crime and poverty have also been
reported. The fact that Mexico does not have an unemployment benefits scheme or
a fully developed social welfare system has contributed to the impact of the
economic crisis (although certain features of Mexican society, such as the
support provided by extended families, may have helped to mitigate the effects
of the economic crisis to some extent).

During the first quarter of 1995, budgetary public sector revenues exceeded
budgetary public sector expenditures (excluding off-budget revenue and
expenditures of the public sector) by approximately NPs. 8.88 billion in nominal
terms, or approximately NPs. 30.54 million in constant pesos with purchasing
power as of December 31, 1980, an increase of 80% in real terms over the surplus
registered in the same period of 1994. The public sector primary surplus was
25.77 billion in nominal terms, or approximately NPs. 88.62 million in constant
1980 pesos, an increase of 96.8% in real terms over the primary surplus
registered during the same period of 1994.

On May 31, 1995, President Zedillo announced the Plan Nacional de
Desarrollo 1995-2000 (1995-2000 National Development Plan, or the "Development
Plan"). The Development Plan covers five topics: sovereignty; the rule of law;
democratic development; social development; and economic growth. The fundamental
strategic objective of the Development Plan is to promote vigorous and
sustainable economic growth. Among other things, the Development Plan calls for
steps to increase domestic savings, preference to be given to channeling foreign
investment into direct productive investment, the elimination of unnecessary
regulatory obstacles to foreign participation in productive activities and
further deregulation of the economy. The Development Plan also states that the
Government must maintain fiscal discipline over the medium-term and that
exchange-rate policy should systematically avoid overvaluation of the real
exchange rate and should, in concert with other policy instruments, seek to
ensure that evolution of the exchange rate is conducive to price stability. In
addition, the Development Plan contemplates various steps to strengthen the rule
of law in Mexico, including consolidating and coordinating the activities of
various security organizations and police forces in Mexico and intensifying
efforts to combat organized crime.

In the domestic political arena, the Mexican Government has renewed its
efforts to resolve its differences with the insurgents in the Chiapas region, by
facilitating their participation in the political process, following an attempt
at negotiations with the insurgents (and a withdrawal of certain military forces
from the region) in January 1995 and a resumption of certain of military
activity in February.

On March 9, 1995 Congress approved a law granting temporary amnesty to
insurgents who participate in peace talks with the Mexican Government, and on
March 13, the law establishing the framework for these peace talks took effect.
The insurgents agreed on March 17 to resume talks with the Mexican Government,
and a meeting between representatives of the Ministry of the Interior and the
insurgents was held on April 9. Additional meetings took place on April 22, May
12, and during the period June 7-11. The parties have agreed to resume talks in
July 1995.

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On January 17, 1995, the major political parties of Mexico entered into a
new accord to further the opening of the political process in Mexico.

The Government believes that these reforms, together with the changes in
the Mexican economy since 1982, will help restore order to the foreign exchange
markets and enable the Mexican economy to recover, in the medium-term, from the
economic crisis experienced in recent months. In the short-term, however, higher
inflation, higher interest rates, and a contraction in GDP are expected. In
addition, in the medium-term, significant new investment in infrastructure,
industrial and agricultural modernization, training and environmental protection
will be required for continued growth and development. The Mexican economy is
likely to continue to be subject to the effects of adverse domestic and external
factors such as declines in foreign direct and portfolio investment, high
interest rates and low oil prices, which may lead to volatility in the foreign
exchange and financial markets. However, although no assurances can be given,
the Mexican Government believes that Mexico's decreased reliance on oil exports,
lower debt levels and debt servicing requirements, reduced reliance on
short-term financing, export growth potential, domestic investment and the
reforms described above should significantly reduce the economy's vulnerability
to further external shocks, restore the economy to the path of sustainable
growth and enable the economy to adjust in an orderly fashion to the December
1994 devaluation of the new peso.

THE MEXICAN ECONOMY

GENERAL

During the period from World War II through the mid-1970s, Mexico enjoyed
sustained and stable growth in per capita income and GDP.

In the early 1970s, the major industrial countries began to experience
severe inflation. The fixed exchange rates in place since the Bretton Woods
accords were replaced by floating exchange rates and the 1973 oil shock brought
financial stability to the international economy. At the same time, Mexico
embarked on an active and expansionary economic policy oriented towards economic
growth and more equitable income distribution. These goals were promoted through
Government spending and high tariffs and other barriers to foreign competition
and were largely funded by oil export revenues and greatly increased external
borrowings. The steep decline in oil prices in 1981 and 1982, together with high
international interest rates and the credit markets' unwillingness to refinance
maturing external Mexican credits, led in 1982 to record inflation, successive
devaluations of the peso by almost 500% in total, a public sector deficit of
16.9% of GDP and, in August of 1982, a liquidity crisis that precipitated
subsequent restructurings of a large portion of the country's external debt.

In the decade that followed, Mexico consistently pursued far-reaching and
comprehensive adjustment policies designed to reform its economy and assure the
return to sound and sustained economic growth. These policies, set forth in the
national Development Plans of the former President Miguel De la Madrid
(1983-1988) and former President Salinas (1989-1994) administrations have
included prudent fiscal discipline, a reduction in Mexican Government subsidies,
tax reform, the limitation of Mexican Government investment to large
infrastructure projects, trade liberalization, opening of the economy to foreign
investment, reform of public sector prices to conform to market conditions
deregulation and privatization of non-strategic public sector enterprises,
encouragement of increased domestic, public and private savings and of private
sector co-investment with the Mexican Government and renegotiation of the
country's foreign debt. The Mexican Government's policies have been furthered by
a series of short-term programs, including the Programa Inmediato de
Recuperacion Economica (Immediate Program for Economic Recovery, or "PIRE"), the
Programa de Aliento y Crecimiento (Program for Encouragement and Growth, or
"PAC") and by social pacts, including the Pacto de Solidaridad Economica
(Economic Solidarity Pact, or "PSE"), the Pacto para la Estabilidad y
Crecimiento Economico (Pact for Stability and Economic Growth, or "PECE,"
covering 1989-1992) and the Pacto para la Estabilidad, la Competividad y el
Empleo (Pact for Stability, Competitiveness and Employment, or "New PECE,"
covering 1993), which contained a commitment by the Mexican

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Government to maintain strict fiscal discipline and, under the PSE and PECE,
commitments by all sectors of the economy to restrain wage and price increases.

On September 24, 1994, the Mexican Government, together with the business
and labor sectors, entered into an agreement that effectively extends PECE for
1995. Such agreement is named Pacto para el Bienestar, la Estabilidad y el
Crecimiento (the Agreement for the Wellbeing, Stability and Growth, or "PABEC")
(see "--Prices and Wages" below).

THE ROLE OF THE GOVERNMENT IN THE ECONOMY; PRIVATIZATIONS

Since 1983, the Mexican Government has sought as a matter of priority to
sell to the private sector its interest in all non-strategic commercial
enterprises. In 1982, the Mexican Government owned or controlled 1,155 public
sector enterprises. By December 31, 1993, the number of Mexican Government-owned
businesses had been reduced to 210. In part as a result of these privatizations,
the share of Mexican Government expenditures in GDP fell from 41.8% in 1982 to
29.4% in 1993. The importance of subsidies also diminished significantly.
Enterprises privatized include the two national airlines, copper, iron and coal
mines, hotels, Telefonos de Mexico S.A. (the national telephone company,
"Telmex"), the state-owned steel industry and all eighteen state-owned
commercial banks, including the country's two largest commercial banks, Banco
Nacional de Mexico S.A. ("Banamex") and Bancomer S.A. ("Bancomer").

The petroleum industry and the electrical power sector are the two most
important strategic sectors that are required by the Constitution to remain in
Mexican Government hands.

In April 1995, the Mexican Government announced the formation of a
Divestiture Council to coordinate upcoming privatizations in areas such as
airports, ports, highways, power generating plants and secondary petrochemical
plants.

GROSS DOMESTIC PRODUCT

In 1986, partially as a result of Mexico's debt crisis and the dramatic
fall in oil prices, real GDP declined sharply by 3.8%. Since then, however,
growth has resumed at moderate rates. Real GDP grew 3.3% in 1989, 4.4% in 1990,
3.6% in 1991, 2.8% in 1992 and 0.7% in 1993 and is estimated to have grown 3.5%
in 1994.

The following table sets forth the contribution to Mexico's GDP by major
sectors of the economy for the years indicated.

REAL GDP BY SECTOR
(IN MILLIONS OF NEW PESOS)(1)

<TABLE>
<CAPTION>
% OF
1989 1990 1991 1992 1993 1994(2) TOTAL
-------- -------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Agriculture, livestock, fisheries and
forestry(3)............................. NPs395.0 NPs408.8 NPs412.7 NPs408.8 NPs414.4 NPs433.4 7.4
Mining, petroleum and gas................. 182.9 188.0 189.5 192.9 195.0 199.1 3.4
Manufacturing............................. 1,105.1 1,203.9 1,252.3 1,280.7 1,271.0 1,317.8 22.5
Construction.............................. 250.4 267.8 274.3 296.7 304.0 322.1 5.5
Electricity, gas and water................ 76.5 78.7 80.8 83.2 86.7 93.7 1.6
Commerce, restaurants and hotels.......... 1,302.0 1,355.1 1,413.6 1,464.3 1,444.7 1,487.7 25.4
Transportation and communication.......... 326.1 346.7 356.9 384.9 408.0 439.3 7.5
Financial services, insurance and real
estate renting and social and community
services................................ 1,458.5 1,496.4 1,562.4 1,580.8 1,621.0 1,669.2 28.5
Subtotal.................................. 5,116.8 5,345.5 5,542.6 5,700.9 5,744.8 5,962.3 -
Less adjustment for banking services...... (69.4) (74.0) (79.8) (85.0) (94.5) (105.4) (1.8 )
-------- -------- -------- -------- -------- --------
Total gross domestic product.............. NPs5,049 NPs5,277 NPs5,469 NPs5,620 NPs5,659 NPs5,857 100%
======== ======== ======== ======== ======== ========
</TABLE>

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

Note: Totals may differ due to rounding.

(1) Constant pesos with purchasing power at December 31, 1980, expressed
in new pesos.

(2) Preliminary.

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(3) The GDP figure relating to agricultural production during 1991, 1992
and 1993 set forth in this table and elsewhere in this prospectus are
based on figures for the 1991, 1992 and 1993 "agricultural years,"
with the exact definition of the "agricultural year" varying from
crop to crop based on the season during which it is grown. Calendar
year figures are used for the other components of GDP.

Source: Banco de Mexico, Instituto Nacional de Estadistica, Geografia e
Informatica ("INEGI")

The following table sets forth the annual change in Mexico's real GDP by
sector for the periods indicated.

REAL GDP GROWTH BY SECTOR

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994(1)
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
GDP (at 1980 prices)................... 1.2% 3.3% 4.4% 3.6% 2.8% 0.7% 3.5%
Agriculture, livestock, fisheries and
forestry............................. (3.2) (2.8) 6.8 1.1 (1.4) 2.6 2.0
Mining, petroleum and gas.............. 0.4 (0.6) 2.8 0.8 1.8 0.9 1.6
Manufacturing.......................... 3.2 7.2 6.1 4.0 2.3 (0.8) 3.6
Construction........................... (0.4) 2.1 7.0 2.4 7.8 2.8 6.4
Electricity, gas and water............. 6.0 7.7 2.9 2.7 3.0 4.2 7.7
Commerce, restaurants and hotels....... 2.1 3.8 4.1 4.3 3.6 (1.3) 2.8
Transportation and communications...... 2.3 4.1 6.7 5.8 7.6 3.3 7.8
Financial services, insurance and real
estate renting and social and
community services................... 2.1 4.3 5.6 7.5 4.3 5.9 7.1
</TABLE>

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

(1) Preliminary.

Source: Banco de Mexico, INEGI

The deceleration of economic growth can be attributed to several factors.
First, economic activity in Mexico has been affected by the worldwide recession,
and in particular, the economic recession of its principal trading partner, the
United States. Second, structural changes in the Mexican economy, and the
opening of the economy to foreign competition, have resulted in slower growth in
certain sectors of the economy that have not adapted to the new economic
environment. Finally, the increased level of investment registered in Mexico in
recent years has not yet translated into an increase in productive capacity in
certain sectors sufficient to meet aggregate demand.

PRICES AND WAGES

Between 1977 and 1981, the expansion of public sector expenditures
contributed to an average annual inflation rate (measured by the NCPI) of 22.4%
for the period, compared to average annual rates of 2.5% between 1960 and 1971
and 16.6% between 1972 and 1976.

In the 1980s, the Mexican Government's debt service burden and large
devaluations of the peso added further inflationary pressures. The NCPI rose
105.7% in 1986, and another 159.2% in 1987. In December 1987, the Mexican
Government reached an agreement with labor and business representatives, the
PSE, to curb the economy's inflationary pressures by freezing wages and prices.
The PSE included the implementation of restrictive fiscal and monetary policies,
the elimination of certain trade barriers and the reduction of import tariffs.
After substantial increases in public sector prices and utility rates, price
controls were introduced. These policies contributed to lower consumer inflation
rates of 51.7% in 1988, 19.7% in 1989, 29.9% in 1990, 18.8% in 1991, 11.9% in
1992, and 8.0% in 1993 and 7.1% in 1994.

In December 1988, the PSE was succeeded by the PECE. The PECE has been
extended on seven occasions. On September 24, 1994, the Mexican Government,
together with the business and labor sectors, entered into an agreement that
effectively extended the PECE for 1995. In order to address the adverse economic
situation that developed at the end of 1994, the Zedillo Administration
announced in January 1995, a new economic program and a new accord among the
Mexican Government, business and labor, the Acuardo

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<PAGE> 79

Para Superar la Emergencia Economica (Agreement to Overcome Mexico's Economic
Emergency, or "AUSEE"). See "Recent Developments -- The Government's Response."

The following table shows in percentage terms the changes in price indices
for the periods indicated.

CHANGES IN PRICE INDICES

<TABLE>
<CAPTION>
NATIONAL NATIONAL
PRODUCER CONSUMER
PRICE INDEX PRICE INDEX
----------- -----------
<S> <C> <C>
1987................................................................ 166.5% 159.2%
1988................................................................ 37.3 51.7
1989................................................................ 15.6 19.7
1990................................................................ 29.2 29.9
1991................................................................ 11.0 18.8
1992................................................................ 10.6 11.9
1993................................................................ 4.6 8.0
1994................................................................ 9.1 7.1
</TABLE>

- ---------------
Source: Indicatores Economicos, Banco de Mexico

INTEREST RATES

Following the signing of the PECE in December 1987, domestic interest rates
began to fall but they did not decline as rapidly as inflation. The interest
rate on 28-day treasury bills ("Cetes") declined from an average of
approximately 157.1% in January 1988 to slightly above 40% in August 1988.
Falling commodity prices, a drop in Mexico's non-oil exports, increasing
imports, continued high debt service payments and a decline in international
reserves increased the perception of risk in the Mexican economy. This
perception, combined with the government's tight monetary policy, caused
interest rates to rise again. The rate on Cetes rose to 52% in December 1988. As
a result of lower inflation,the foreign debt renegotiations, the reduction of
the public sector borrowing requirements and capital inflows, domestic interest
rates declined thereafter. In 1989, the average rate on Cetes was approximately
45.0% and a year later it declined to 34.8%. For 1994, the average 28-day Cetes
rate was approximately 14.1%.

THE EXTERNAL SECTOR OF THE ECONOMY

FOREIGN TRADE

The import substitution economic development model that Mexico adopted in
the 1940s to promote industrialization through protection of local industries,
and which in its latter stages was financed by the expansion of oil exports and
debt accumulation, gave way in the late 1980s to a more outward-looking approach
concentrating on export-led growth.

To foster non-oil exports, the Mexican Government has promoted a
comprehensive set of trade, fiscal, financial and promotional measures designed
to create a macroeconomic environment in which exports will be more competitive.
The Mexican Government's decision to join GATT in 1986 has resulted, among other
things, in an important reduction in the protection traditionally given to
domestic producers. Average tariff rates declined from 22.6% in 1986 to 13.1% in
1990. A five tier tariff structure was established at the end of 1987 with a
maximum rate of 20%. In December 1987, the surcharge of 5% on imports was
abolished. By 1993, approximately 98.4% of tariff items and 78.5% of imports by
value were exempt from import permits and other non-tariff barriers. By reducing
the cost of imported goods, the opening of domestic markets to foreign products
has also complemented fiscal and monetary policies aimed at reducing domestic
inflation.

In recent years, the composition of Mexico's non-oil exports has also
changed. Manufactured goods have increased while primary sector exports have
declined. In 1994, 82.8% of Mexico's non-oil exports were

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represented by manufactured goods compared to 68.4% in 1990. During the same
period, agriculture and live stock products decreased from approximately 6.3% of
total non-oil exports in 1990 to 4.4% in 1994.

From 1983 to 1987, imports of goods were generally depressed, primarily as
a result of the general contraction of the Mexican economy. The growth of
exports and the reduction of imports resulted in trade surpluses that averaged
$9.0 billion per year during the period, and were largely used to finance net
transfers of Mexico's external creditors. However, since 1988 imports have
increased dramatically, reflecting increased demand resulting from a resumption
of growth in the Mexican economy, the modernization of Mexico's industrial
facilities and the decrease in tariffs that accompanied Mexico's entry into
GATT.

Mexico reported a deficit in its trade balance (exclusive of in-bond
industry) of approximately US$4.4 billion in 1990 and reported US$11.3 billion,
US$20.7 billion, US$13.5 billion and US$18.5 billion in trade deficits in 1991,
1992, 1993 and 1994, respectively. This recent deterioration in Mexico's trade
balance is largely due to the strong growth of imports in response to trade
liberalization and reduced levels of oil prices.

On August 20, 1992, Mexico signed an Agreement on Economic Cooperation with
Costa Rica, El Salvador, Honduras and Guatemala as a step towards establishing a
free trade area by the end of 1996. Mexico signed a free trade agreement with
Chile, which went into effect on January 1, 1992. Mexico has also taken
important steps to increase its trading relations with Europe and the Pacific
rim countries. For example, on February 18, 1992, Mexico and France signed a
Framework Agreement for Cooperation that aims to encourage bilateral cooperation
through increased trade and investment.

NAFTA became effective January 1, 1994 and establishes a free trade zone
between Mexico, Canada and the United States. NAFTA has removed many customs
duties imposed on goods traded among Canada, Mexico and the United States; it
has removed or relaxed many investment restrictions on foreign investment in
banking, insurance and other financial services, it has liberalized trade in
services and provided protection of intellectual property rights; it has created
a specialized means for settlement of, and remedies for, trade disputes arising
under NAFTA; it has promoted trilateral, regional and multilateral cooperation
and certain new laws and regulations to promote these goals. Certain provisions
of NAFTA will continue to be implemented over the next few years. Although not
part of the NAFTA accords, there have been certain supplemental agreements
entered into by the governments of Canada, Mexico and the United States that
cover labor and environmental issues. The Mexican Government believes that NAFTA
has provided permanent access to Mexican exports to U.S. and Canadian markets.
The Mexican Government continues to eliminate certain restrictions on foreign
investment and believes these measures will attract foreign investment in
Mexico. As a result, NAFTA has had certain favorable effects on employment,
wages and economic growth in Mexico, although the current economic situation has
caused an increase in inflation, and generally, a slow down of the Mexican
economy. In addition, Mexican producers and service providers have been subject
to increased foreign competition as tariffs on certain imported goods and
protection of certain industries from foreign competition has been reduced.
These effects were felt initially after Mexico's entry into GATT in 1986, and
resulted in certain changes in the composition of Mexico's economic activity.

BALANCE OF INTERNATIONAL PAYMENTS

In 1983, 1984, 1985 and in 1987, the current account of the balance of
payments was in a surplus position, with surpluses of $5.4 billion, $4.2
billion, $1.2 billion and $3.8 billion respectively. The current account deficit
observed in 1986 ($1.6 billion) was due to a sharp fall in oil prices, which
more than halved oil exports from $14.6 billion in 1985 to $6.3 billion in 1986.
In 1988, 1989 and 1990, the current account showed deficits of $2.5 billion,
$6.1 billion and $7.1 billion, respectively, due primarily to the increase in
private sector imports and the Government's trade liberalization policies. In
1991, Mexico recorded a current account deficit of $13.79 billion, again due to
a surge in imports resulting from the country's economic recovery and lower
tariffs.

In 1994, Mexico recorded a current account deficit of $28.8 billion.
Although the current account deficit has risen from 1988 to 1994, much of the
increase in Mexico's imports is attributable to the expansion of Mexican
industry associated with increased investment, especially direct foreign
investment, the start of NAFTA and a greater demand for Mexican exports using
imported components. In 1994, 70.6% (US$56.5 billion) of Mexico's imports were
of intermediate and capital goods. Most imports in 1994

A-18
<PAGE> 81

originated from the United States (69%), followed by Japan (6%), Germany (3.9%),
Canada (2%), France (1.9%), Spain (1.7%), and Brazil (1.5%).

The following table sets forth the principal items of Mexico's balance of
payments for the periods indicated.

BALANCE OF PAYMENTS (1)
(IN BILLIONS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
1990 1991 1992 1993 1994(2) 1995(3)
------ ------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Current Account............... $ (7.5) $ (14.6) $ (24.4) $(23.4) $(28.8) $(1.4)
Capital Account............... 8.2 25.0 26.6 32.6 11.5 1.3
Change in Gross International
Reserves.................... 3.4 7.8 1.2 6.1 (18.9) 0.7
</TABLE>

- ---------------
(1) Totals may differ due to errors, omissions and rounding.

(2) Preliminary.

(3) First Quarter 1995.

Source: Banco de Mexico

EXCHANGE CONTROLS AND FOREIGN EXCHANGE RATES

From late 1982 until November 10, 1991, Mexico maintained a dual foreign
exchange rate system, with a "controlled" rate and a "free market" rate. The
controlled exchange rate applied to certain imports and exports of goods,
advances and payments of registered foreign debt, funds used in connection with
the in-bond industry and payments of royalties and technical assistance under
registered agreements. The free market rate was applicable to all other
transactions.

The dual system assisted in controlling the value of the peso, especially
in 1983 and 1985. In later years, the difference between the two rates was not
significant. The average differential between the rates was 3.5% in 1987, 2.2%
in 1988, 3.1% in 1989, 1.4% in 1990 and 0.4% as of November 10, 1991. Mexico
repealed its exchange control rules effective November 11, 1991 and now
maintains only a free, or market, exchange rate.

From 1982 through November 10, 1991, Mexican residents and companies were
entitled to purchase and were obligated to sell foreign currencies for certain
purposes at a controlled rate of exchange (the "Controlled Rate") that was set
daily by the Mexican Central Bank. For all transactions to which the Controlled
Rate did not apply, foreign currencies could also be purchased, if they were
available, or sold at the free-market rate (the "Free Market Rate"), which was
generally higher than the Controlled Rate. The Controlled Rate and the Free
Market Rate were held nearly constant from December 1987 through December 1988.
The price of one dollar at the Controlled Rate increased at a regular rate of
0.001 new pesos per day from December 1988 through May 28, 1990, 0.0008 new
pesos per day from May 29 to November 12, 1990, and 0.0004 new pesos per day
until November 10, 1991. Effective November 11, 1991, the Controlled Rate was
abolished.

From November 11, 1991 to October 20, 1992, Banco de Mexico permitted the
Free Market Rate to fluctuate according to supply and demand within a band, the
lower limit of which was fixed at 3.0152 new pesos per dollar and the upper
limit of which increased by 0.0002 new pesos per day from 3.0862 new pesos per
dollar. On October 20, 1992, Banco de Mexico announced that, until January 1,
1994, the Free Market Rate would be permitted to fluctuate within a band, the
lower limit of which was 3.0512 new pesos per dollar and the upper limit of
which would increase by 0.0004 new pesos per day. On October 3, 1993, Banco de
Mexico announced that this policy would be extended until December 31, 1994.
Fluctuations outside these limits were to be stabilized through open market
transactions effected by Banco de Mexico. Prior to December 22, 1994, the
Mexican Government had permitted the peso/dollar exchange rate to fluctuate
within a band. The ceiling of the band, which was the maximum selling rate,
increased 0.0004 new pesos daily, while the floor of the band, which was the
minimum buying rate, remained fixed. On December 22, 1994 the Mexican Government

A-19
<PAGE> 82

eliminated the intervention band and allowed the new peso to float freely
against the dollar. A further sharp and rapid devaluation of the new peso
ensued, with the new peso losing 35% of its value relative to the dollar between
December 21, 1994 and December 31, 1994. By December 31, 1994, Mexico's
international reserves had dropped to US$6.1 billion.

From January 1 through August 21, 1994, there was increased volatility in
the new peso/dollar exchange rate, with the value of the new peso relative to
the dollar declining at one point to an exchange rate of NPs. 3.375 to US$1.00,
a decline of approximately 8.69% from the high of NPs. 3.1060 reached in early
February. This increased volatility has been attributed to a number of political
and economic factors, including investor reactions to the increase in U.S.
interest rates, lower than expected economic growth in Mexico, uncertainty
concerning the Mexican presidential elections in August 1994 and certain related
developments. In March 1994, the U.S. Treasury Department and Canada announced
that they had extended to Mexico a swap line of credit in the amount of US$8.8
billion for use in connection with any intervention by Banco de Mexico in
support of the new peso.

The following table shows the peso to dollar exchange rates for the dates
and periods indicated.

EXCHANGE RATES
(PESOS PER DOLLAR)

<TABLE>
<CAPTION>
FREE MARKET RATE CONTROLLED RATE(1)
---------------------------- ----------------------------
YEAR END OF PERIOD AVERAGE(2) END OF PERIOD AVERAGE(2)
- ----------------------------------------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
1987..................................... 2,227.5 1,405.8 2,198.5 1,366.7
1988..................................... 2,297.5 2,289.6 2,257.0 2,250.3
1989..................................... 2,680.75 2,483.4 2,637.0 2,453.2
1990..................................... 2,943.15 2,838.4 2,939.4 2,807.3
1991..................................... 3,071.00 3,015.7 3,065.4 3,006.8
1992..................................... 3,115.4 3,094.7 -- --
1993(3).................................. 3.1059 3.1077 -- --
1994(3).................................. 5.3250 3.3751 -- --
</TABLE>

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

(1) Controlled Rate through November 10, 1991 only.

(2) Annual average of the daily rates published by Banco de Mexico.

(3) New Pesos.

Source: Banco de Mexico

Pursuant to modifications made to article 28 of the Mexican Constitution
and the creation of a new law, the Ley del Banco de Mexico (The Law for the Bank
of Mexico) approved by the Mexican Congress during late 1993, the Banco de
Mexico became independent of the Mexican Government on April 1, 1994. The
objective is to have Mexico's central bank take such measures as may be needed
to maintain the purchasing power of Mexico's currency. To achieve this end the
Banco de Mexico may not be ordered by any governmental authority to grant any
entity either public or private credit. The Banco de Mexico is controlled by a
Board of Governors made up of five Governors, which are appointed for staggered
terms and may not be removed from office. These measures are designed to foster
greater stability in the value of the new peso.

DIRECT FOREIGN INVESTMENT IN MEXICO

Under the Mexican Constitution and the Foreign Investment Law business
activities related to petroleum, basic petrochemicals, nuclear power, mining of
certain minerals, electricity, railways and telecommunications, among others,
are served exclusively to the Mexican public sector, and business activities
related to radio and television and public transportation are reserved
exclusively to Mexican investors. Furthermore, ownership by foreigners of real
property in zones along the country's borders and seacoasts is restricted. While
some other restrictions apply, in recent years, Mexico has been opening its
market to greater direct foreign investment.

On December 28, 1993, a new Ley de Inversion Extranjera ("Foreign
Investment Law") went into effect. The Foreign Investment Law established a new
set of rules to provide legal certainty to foreign

A-20
<PAGE> 83

investors and promote the country's competitiveness. The new Foreign Investment
Law liberalizes certain restrictions on foreign investment in Mexico,
permitting, if certain conditions are satisfied, the ownership by foreign
investors of 100% of the capital stock of a Mexican company. The law also sets
forth which activities of the economy continue to be reserved to the Government
or to the Mexican investors and lists the different activities in which foreign
investment may not exceed 10%, 25%, 30% and 49% of the total investment. The
Government recognizes that Mexico is competing for capital with many other
countries, including the former communist nations in Eastern and Central Europe,
but believes that, because of the increased competitiveness and productivity of
its economy, Mexico will be able to maintain access to sources of investment
capital.

If certain requirements are met, the Foreign Investment Law allows foreign
investors to purchase equity securities traded on the Mexican Stock Exchange
that would otherwise be restricted to Mexican investors. Thus, with the
authorization of the Ministry of Commerce and Industrial Development, investment
trusts may be established by Mexican banks acting as trustees. These trusts
issue ordinary certificates of participation that may be acquired by foreign
investors; the certificates grant only economic rights to their holders and do
not confer voting rights in the companies whose stock is held by the trusts
(such voting rights being exercisable only by the trustee).

During 1994, new direct foreign investment in Mexico totaled US$8.0
billion, representing a 42.1% increase over 1993. US$1.0 billion corresponded to
projects authorized by the National Foreign Investment Commission ("NFIC") and
US$7.0 billion corresponded to 3,997 projects that were only required to be
registered with the National Registry of Foreign Investments ("RNIC"). At
December 31, 1994, total accumulated direct foreign investment in Mexico,
including new foreign investment projects authorized by the NFIC, amounted to
approximately US$56.0 billion. Of the total direct foreign investment
accumulated at the end of 1994, excluding that in securities, 40% has been
channeled to manufacturing, 39.9% to services, 56.0% to commerce, 3.5% to
construction, 0.2% to mining and agriculture.

PUBLIC FINANCE

At the beginning of 1983, in the wake of the financial crisis which began
in 1982, the Mexican government began to reform Mexican public finance. The
reform consisted of a substantial reduction in the number of enterprises under
public sector control and increased fiscal discipline which resulted in a
reduction in government expenditures. At the same time fiscal revenues have
increased as a result of tax reforms which broadened the tax base. The combined
effect of these policies has created a surplus in the primary fiscal balance,
which is measured as the difference between non-formed public sector revenues
and expenditures. The primary fiscal balance which amounted to a deficit
equivalent to 8% of GDP in 1981, registered a surplus equal to 8.7% of GDP in
1991 and 2.3% in 1994.

As a result of the fiscal policy implemented, the public sector deficit was
reduced from 16.0% of GDP in 1987 to a surplus of 0.5% in 1992 (exclusive of the
revenues from the sale of Government owned enterprises). For 1994, preliminary
figures indicate a deficit of 0.3% of GDP (exclusive of the revenues from the
sale of Government-owned enterprises).

The federal budget of the Mexican Government consists of revenues and
expenditures of the federal government and of certain government agencies whose
particular budgets require specific legislative approval ("budget-controlled
agencies"). Among the most important budget-controlled agencies are Pemex,
Compania Nacional de Subsistencias Populares ("Conasupo"), Comision Federal de
Electricidad, Ferrocarriles Nacionales de Mexico and the social security and
social welfare agencies.

A-21
<PAGE> 84

FEDERAL GOVERNMENT BUDGET

The following table sets forth the actual and budgeted revenues and
expenditures of the Mexican Government.

REVENUES AND EXPENDITURES OF THE MEXICAN GOVERNMENT(1)
(IN BILLIONS OF NEW PESOS)

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC 31, 1988 DEC 31, 1989 DEC 31, 1990 DEC 31, 1991 DEC 31, 1992 DEC 31, 1993 DEC 31, 1994(2)
------------- ------------- ------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........ 65.5 90.2 117.7 177.4 210.4 194.8 213.5
PEMEX......... 13.5 18.0 26.1 31.2 34.5 35.0 31.1
Other......... 52.1 72.2 91.6 146.2 176.0 159.8 182.3
Taxes....... 47.3 60.9 79.1 103.5 126.5 143.0 160.0
Other
Non-tax
Revenues... 4.7 11.3 12.5 42.6 49.4 16.8 22.3
Expenditures.... 103.3 115.8 137.1 149.4 164.4 190.7 223.4
Current....... 98.8 107.5 118.7 125.9 139.0 162.9 191.3
Interest
Payments... 59.3 57.4 57.4 42.4 35.6 28.9 27.1
Transfers... 11.1 12.7 13.6 21.0 39.0 59.0 77.2
Capital....... 7.5 9.9 18.3 19.6 24.9 22.3 29.9
Adjustments..... (3.0) (1.6) 0.2 3.8 0.4 5.5 2.2
Budgetary
surplus or
(deficit)..... (37.8) (25.6) (19.4) 28.0 46.0 4.1 (9.9)
</TABLE>

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

(1) Negative figures indicate a deficit.

(2) Preliminary.

Source: Banco de Mexico, Secretaria de Hacienda y Credito Publico

Revenues of the Mexican Government consist principally of income taxes
imposed on individuals and on businesses (including budget--and
administratively-controlled agencies), value added tax, excise taxes, duties on
imports and exports and capital receipts. The Mexican Government's expenditures
consist of current expenditures and capital expenditures and include allocations
to budget--and administratively-controlled agencies.

A-22
<PAGE> 85

EXTERNAL DEBT

The following table sets forth a summary of the total external public debt
of Mexico and debt ratios for the year 1988 through 1994.

TOTAL EXTERNAL DEBT
(IN BILLIONS OF U.S. DOLLARS, EXCEPT PERCENTAGES)(1)

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994(2)
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total External debt................................... $101.8 $ 95.3 $104.3 $116.6 $117.6 $131.9 $142.6
Total External debt as a percentage of GDP............ 58.7% 46.1% 42.7% 40.6% 35.7% 35.9 37.8
Total External debt as a percentage of exports of
goods and services.................................. 241.8 198.1 186.1 201.5 190.7 194.6 182.6
</TABLE>

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

(1) Amounts calculated using the Controlled Exchange Rate.

(2) Preliminary.

Source: Banco de Mexico, Secretaria de Hacienda y Credito Publico

DEBT RECORD

Following the restructuring in 1946 of debt incurred prior to the
Revolution of 1910, all external debt issued, assumed or guaranteed by the
Mexican federal government was fully serviced until August 1982, when the
Mexican Government requested and received from its major international bank
creditors a 90-day rollover of principal payments on most public sector external
debt. Based on the "restructure principles" which were established in December
1982, the government signed an agreement in October 1983 with international bank
creditors to restructure, over eight years with a four year grace period,
approximately $23 billion of public sector debt maturing between August 1982 and
December 1984. Further negotiations on the restructuring of certain public debt
were carried out during 1985 and 1987.

The 1989-92 Financing Package for Mexico, implemented in March 1990, was
intended to reduce the principal amount of, and the debt service burden
associated with, Mexico's commercial bank debt, and to secure sufficient future
financing to allow Mexico to resume sustained economic growth. The Financing
Package offered commercial banks options for debt reduction, interest reduction
and new money. Under the interest reduction option, existing indebtedness was
exchanged for 30-year bonds ("Par Bonds") that, in the case of bonds denominated
in U.S. dollars, bear interest at the fixed rate of 6.25% per annum. Under the
principal reduction option, existing indebtedness was exchanged for 30-year
bonds ("Discount Bonds") having a principal amount equal to 65% of the principal
amount of such existing indebtedness and an interest rate of LIBOR plus 13/16%
per annum. Under the new money option, certain banks committed to provide Mexico
with new money (through a combination of bonds, traditional bank credits and
bank credits prepayable to fund trade credits or public sector loans) over three
years in an aggregate amount equal to 25% of their holdings of then existing
indebtedness.

A-23
<PAGE> 86

APPENDIX B

[FORM OF SUBSCRIPTION CERTIFICATE]

<TABLE>
<S> <C>
BY MAIL, EXPRESS MAIL BY HAND:
OR OVERNIGHT COURIER:
PNC Bank, National Association PNC Bank, National Association
c/o ACS c/o PNC Trust Company
915 Broadway, 5th Floor 40 Broad Street, 5th Floor
New York, New York 10010 New York, New York 10004
</TABLE>

THE MEXICO EQUITY AND INCOME FUND, INC.
SUBSCRIPTION RIGHT FOR SHARES OF COMMON STOCK

This Subscription Certificate represents the number of Rights set forth on
the reverse side. The registered holder hereof (the "Holder") is entitled to
acquire one (1) Share of the Common Stock of The Mexico Equity and Income Fund,
Inc. (the "Fund") for each three (3) Rights held pursuant to the Primary
Subscription upon the terms and conditions and at the Subscription Price for
each share of Common Stock as specified in the Fund's Prospectus dated July 24,
1995 (the "Prospectus"). The terms and conditions of the rights offering (the
"Offer") set forth in the Prospectus are incorporated herein by reference.

To subscribe for Shares of Common Stock, the Holder must present to PNC
Bank, National Association (the "Subscription Agent"), prior to 5:00 p.m.,
New York time, on the Expiration Date, either:

(1) a properly completed and executed Subscription Certificate and a
money order or check drawn on a bank located in the United States of America
and payable to The Mexico Equity and Income Fund, Inc. for an amount equal
to the number of Shares subscribed for under the Primary Subscription (and,
if such Holder is electing to exercise the Over-Subscription Privilege,
under the Over-Subscription Privilege) multiplied by the Subscription Price;
or

(2) a Notice of Guaranteed Delivery guaranteeing delivery of (i) a
properly completed and executed Subscription Certificate and (ii) a money
order or check drawn on a bank located in the United States of America and
payable to The Mexico Equity and Income Fund, Inc. for an amount equal to
the number of Shares subscribed for under the Primary Subscription (and, if
such Holder is electing to exercise the Over-Subscription Privilege, under
the Over-Subscription Privilege) multiplied by the Subscription Price (which
certificate and money order or check must then be delivered by the close of
business on the third Business Day after the Expiration Date) (the "Protect
Period").

If the Holder of this certificate is entitled to subscribe for additional
shares pursuant to the Over-Subscription Privilege, Part B of the Subscription
Certificate must be completed to indicate the maximum number of Shares for which
such privilege is being exercised.

No later than seven Business Days following the Protect Period, the
Subscription Agent will send to each Exercising Rights Holder (or, if the Fund's
shares are held by Cede or any other depository or nominee, to Cede or such
other depository or nominee), the share certificates representing the Shares
purchased pursuant to the Primary Subscription and, if applicable, the
Over-Subscription Privilege, along with a letter explaining the allocation of
Shares pursuant to the Over-Subscription Privilege. Any excess payment to be
refunded by the Fund to an Exercising Rights Holder who is not allocated the
full amount of Shares subscribed for pursuant to the Over-Subscription Privilege
will be mailed by the Subscription Agent. An Exercising Rights Holder will have
no right to rescind a purchase after the Subscription Agent has received a
completed Subscription Certificate or a Notice of Guaranteed Delivery. Any
excess payment to be refunded by the Fund to a Rights Holder will be mailed by
the Subscription Agent to him as promptly as practicable.

If the Holder does not make payment of any amounts due in respect of Shares
subscribed for, the Fund and the Subscription Agent reserve the right to (i)
find other stockholders for the subscribed and unpaid for Shares; (ii) apply any
payment actually received by it toward the purchase of the greatest whole number
of Shares which could be acquired by such holder upon exercise of the Primary
Subscription and/or Over-Subscription Privilege, and/or (iii) exercise any and
all other rights and/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 Shares.

This Subscription Certificate may be transferred, in the same manner and
with the same effect as in the case of a negotiable instrument payable to
specific persons, by duly completing and signing the assignment on the reverse
side hereof. Capitalized terms used but not defined in this Subscription
Certificate shall have the meanings assigned to them in the Prospectus, dated
July 24, 1995, relating to the Rights.

THE MEXICO EQUITY AND INCOME FUND, INC.

By:
--------------------------------------
Alan H. Rappaport
Chairman

THIS SUBSCRIPTION RIGHT IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED
(BUT ONLY INTO SUBSCRIPTION CERTIFICATES EVIDENCING A WHOLE NUMBER OF RIGHTS)
AT THE OFFICE OF THE SUBSCRIPTION AGENT
Any questions regarding this Subscription Certificate and the Offer may be
directed to the Information Agent,
Shareholder Communications Corporation
toll-free at (800) 733-8481, ext. 318, or collect at (212) 805-7000.

B-1
<PAGE> 87

<TABLE>
<S> <C>
SUBSCRIPTION CERTIFICATE NUMBER:
NUMBER OF RIGHTS:
MAXIMUM NUMBER OF PRIMARY SHARES
CUSIP NO:
EXPIRATION DATE: August 15, 1995
</TABLE>

PLEASE COMPLETE ALL APPLICABLE INFORMATION

SECTION I: TO SUBSCRIBE: I hereby irrevocably subscribe for the dollar
amount of Common Stock indicated as the total of A and B and C below upon the
terms and conditions specified in the Prospectus related hereto, receipt of
which is acknowledged.

TO SELL: If I have checked either the box on line D or the box on line E, I
authorize the sale of Rights by the Dealer Manager according to the procedures
described in the Prospectus. The check for the proceeds of sale will be mailed
to the address of record.

PLEASE CHECK ('X') BELOW:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
/ / A. Primary Subscription /3 = .000 X $ 9.125 = $
(Rights Exercised) (Full Shares of (Subscription Price) (Amount Required)
Common Stock
Requested)
/ / B. Over-Subscription Privilege .000 X $ 9.125 = $ (*)
(Full Shares of (Subscription Price) (Amount Required)
Common Stock
Requested)
</TABLE>

--------------------
(*) The Primary Over-Subscription Privilege may be exercised only by Record
Date Stockholders who exercise all of the Rights issued to them, as
described in the Prospectus.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
/ / C. Secondary Over-Subscription Privilege .000 X $ 9.125 = $ (**)
(Full Shares of (Subscription Price) (Amount Required)
Common Stock
Requested)
</TABLE>

Amount of Check or Money Order Enclosed (Total of A + B + C) = $

Make check payable to "The Mexico Equity and Income Fund, Inc."

(**) The Secondary Over-Subscription Privilege may be exercised by any
Exercising Rights Holders, as described in the Prospectus.

/ / D. Sell any remaining unexercised Rights

/ / E. Sell all of my Rights

F. The following Broker-Dealer is hereby designated as having been
instrumental in the exercise of the Rights:

<TABLE>
<S> <C>
/ /Oppenheimer & Co., Inc. Account #
/ /Other Firm: Account #
</TABLE>

I hereby agree that if I fail to pay in full for the Shares for which I have
subscribed, the Fund may exercise any of the remedies provided for in the
Prospectus.

<TABLE>
<S> <C> <C>
Please provide your Day ( )
Signature of Subscriber(s) telephone number
Evening ( )
</TABLE>

SECTION II: TO TRANSFER RIGHTS: (except pursuant to D and E above)
For value received, of the Rights represented by this Subscription
Certificate are assigned to:

<TABLE>
<S> <C>
Social Security Number or Tax ID of Assignee (Print Full Name of Assignee)
Signature(s) of Assignee(s) (Print Full Address including postal Zip Code)
</TABLE>

The signature(s) must correspond with the name(s) as written upon the face
of this Subscription Certificate, in every particular, without alteration.

IMPORTANT: For Transfer, a Signature Guarantee must be provided by an
eligible financial institution as defined in Rule 17 Ad-15 of the Securities
Exchange Act of 1934, as amended, subject to the standards and procedures
adopted by the issuer.

<TABLE>
<S> <C>
SIGNATURE GUARANTEED BY:
</TABLE>

PROCEEDS FROM THE SALE OF RIGHTS MAY BE SUBJECT TO WITHHOLDING OF U.S. TAXES
UNLESS THE SELLER'S CERTIFIED U.S. TAXPAYER IDENTIFICATION NUMBER (OR
CERTIFICATION REGARDING FOREIGN STATUS) IS ON FILE WITH THE SUBSCRIPTION AGENT
AND THE SELLER IS NOT OTHERWISE SUBJECT TO U.S. BACKUP WITHHOLDING.

/ / CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE DATE HEREOF AND
COMPLETE THE FOLLOWING:

NAME(S) OF REGISTERED OWNER(S):
WINDOW TICKET NUMBER (IF ANY):
DATE OF EXECUTION OF NOTICE OF GUARANTEED DELIVERY:
NAME OF INSTITUTION WHICH GUARANTEED DELIVERY:

B-2
<PAGE> 88

APPENDIX C

[FORM OF NOTICE OF GUARANTEED DELIVERY]

NOTICE OF GUARANTEED DELIVERY FOR SHARES OF COMMON STOCK OF
THE MEXICO EQUITY AND INCOME FUND, INC.
SUBSCRIBED FOR UNDER PRIMARY SUBSCRIPTION AND THE
OVER-SUBSCRIPTION PRIVILEGE

As set forth in the Prospectus under "The Offer--Payment for Shares," this
form or one substantially equivalent hereto may be used as a means of effecting
subscription and payment for all Shares of The Mexico Equity and Income Fund,
Inc. Common Stock subscribed for under the Primary Subscription and the Over-
Subscription Privilege. Such form may be delivered by hand or sent by facsimile
transmission, overnight courier or mail to the Subscription Agent.

The Subscription Agent is:

PNC Bank, National Association

By Mail, Express Mail, By Hand:
or Overnight Courier:
c/o ACS c/o PNC Trust Company
915 Broadway, 5th Floor 40 Broad Street, 5th Floor
New York, New York 10010 New York, New York 10004

By Facsimile:

Telecopier

(212) 505-4576

Confirm by Telephone
(212) 505-4559

DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION
OF INSTRUCTIONS VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN
AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY

The New York Stock Exchange member firm or bank or trust company which
completes this form must communicate the guarantee and the number of Shares
subscribed for (under both the Primary Subscription and the Over-Subscription
Privilege) to the Subscription Agent and must deliver this Notice of Guaranteed
Delivery, guaranteeing delivery of (i) payment in full for all subscribed Shares
and (ii) a properly completed and executed Subscription Certificate (which
certificate and check must then be delivered by the close of business on the
third business day after the Expiration Date) to the Subscription Agent prior to
5:00 p.m., New York time, on the Expiration Date (August 15, 1995, unless
extended). Failure to do so will result in a forfeiture of the Rights.

C-1
<PAGE> 89

GUARANTEE

The undersigned, a member firm of the New York Stock Exchange or a bank or
trust company, guarantees delivery to the Subscription Agent by the close of
business (5:00 p.m., New York City time) on the third business day after the
Expiration Date (August 15, 1995, unless extended) of (A) a properly completed
and executed Subscription Certificate and (B) payment of the full Subscription
Price for Shares subscribed for in the Primary Subscription and pursuant to the
Over-Subscription Privilege, as subscription for such Shares is indicated herein
or in the Subscription Certificate.

<TABLE>
<S> <C>
NUMBER OF SHARES SUBSCRIBED FOR IN THE
PRIMARY SUBSCRIPTION FOR WHICH YOU ARE
GUARANTEEING DELIVERY OF RIGHTS AND
PAYMENT: ________________________________

NUMBER OF SHARES SUBSCRIBED FOR PURSUANT TO
THE PRIMARY OVER-SUBSCRIPTION PRIVILEGE FOR
WHICH YOU ARE GUARANTEEING DELIVERY OF
RIGHTS AND PAYMENT: ________________________________

NUMBER OF SHARES SUBSCRIBED FOR PURSUANT TO
THE SECONDARY OVER-SUBSCRIPTION PRIVILEGE
FOR WHICH YOU ARE GUARANTEEING DELIVERY OF
RIGHTS AND PAYMENT: ________________________________

Number of Rights to be delivered: ________________________________

Total Subscription Price payment to be
delivered: ________________________________

Method of Delivery [circle one]: A. Through DTC*
B. Direct to Corporation
</TABLE>

Please note that if you are guaranteeing for over-subscription Shares and
are a DTC participant, you must also execute and forward to PNC Bank, National
Association a Beneficial Owner Certification Form.

_________________________________________ _________________________________________
NAME OF FIRM AUTHORIZED SIGNATURE

_________________________________________ _________________________________________
ADDRESS TITLE

_________________________________________ _________________________________________
ZIP CODE NAME (PLEASE TYPE OR PRINT)

_________________________________________ _________________________________________
NAME OF REGISTERED HOLDER (IF APPLICABLE) DTC PARTICIPANT NUMBER

_________________________________________ _________________________________________
TELEPHONE NUMBER DATE
</TABLE>

* IF THE RIGHTS ARE TO BE DELIVERED THROUGH DTC, A REPRESENTATIVE OF THE
FUND WILL PHONE YOU WITH A PROTECT IDENTIFICATION NUMBER, WHICH NEEDS TO
BE COMMUNICATED BY YOU TO DTC.

C-2
<PAGE> 90

APPENDIX D

[FORM OF NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM]

THE MEXICO EQUITY AND INCOME FUND, INC.
RIGHTS OFFERING
NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM
PLEASE COMPLETE ALL APPLICABLE INFORMATION

<TABLE>
<S> <C>
BY MAIL, EXPRESS MAIL BY HAND:
OR OVERNIGHT COURIER:

PNC Bank, National Association PNC Bank, National Association
c/o ACS c/o PNC Trust Company
915 Broadway, 5th Floor 40 Broad St. 5th Floor
New York, New York 10010 New York, New York 10010
</TABLE>

THIS FORM IS TO BE USED ONLY BY NOMINEE HOLDERS TO EXERCISE THE
OVER-SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH THE
PRIMARY SUBSCRIPTION PRIVILEGE WAS EXERCISED AND DELIVERED THROUGH THE
FACILITIES OF A COMMON DEPOSITORY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION
PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION CERTIFICATES.

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

THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S
PROSPECTUS DATED JULY 24, 1995 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY
REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE FUND.

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

VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00
PM, NEW YORK TIME, ON AUGUST 15, 1995, UNLESS EXTENDED BY THE FUND (THE
"EXPIRATION DATE").

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

1. The undersigned hereby certifies to the Subscription Agent that it is a
participant in _______________________ [Name of Depository] (the "Depository")
and that it has either (i) exercised the Primary Subscription Privilege in
respect of Rights and delivered such exercised Rights to the Subscription Agent
by means of transfer to the Depository Account of the Fund or (ii) delivered to
the Subscription Agent a Notice of Guaranteed Delivery in respect of the
exercise of the Primary Subscription Privilege and will deliver the Rights
called for in such Notice of Guaranteed Delivery to the Subscription Agent by
means of transfer to such Depository Account of the Fund.

2. With respect to Record Date Stockholders, the undersigned hereby
exercises the Primary Over-Subscription Privilege to purchase, to the extent
available, ____ shares of Common Stock and certifies to the Subscription Agent
that such Primary Over-Subscription Privilege is being exercised for the account
or accounts of persons (which may include the undersigned) on whose behalf all
primary subscription rights have been exercised.(*)

3. With respect to any Exercising Rights Holders, the undersigned hereby
exercises the Secondary Over-Subscription Privilege to purchase, to the extent
available, ____ shares of Common Stock.

4. The undersigned understands that payment of the Subscription Price per
share of each share of Common Stock subscribed for pursuant to the
Over-Subscription Privilege must be received by the Subscription Agent at or
before 5:00 p.m. New York time on the Expiration Date and represents that such
payment, in the aggregate amount of $___________________, either (check
appropriate box):

/ / has been or is being delivered to the Subscription Agent pursuant to
the Notice of Guaranteed Delivery referred to above,

/ / is being delivered to the Subscription Agent herewith,

/ / has been delivered separately to the Subscription Agent; and, in the
case of funds not delivered pursuant to a Notice of Guaranteed
Delivery, is or was delivered in the manner set forth below (check
appropriate box and complete information relating thereto):

/ / uncertified check

/ / certified check

/ / bank draft

__________________________________________________________ _____________________________________________________________
Primary Subscription Confirmation Number Name of Nominee Holder

__________________________________________________________ _____________________________________________________________
Depository Participant Number Address

_____________________________________________________________
City State Zip Code

By: _________________________________________________________
Name: Title:

Contact Name: ____________________________________________

Phone Number: ____________________________________________

Dated: _________________, 1995
</TABLE>

(*) PLEASE ATTACH A BENEFICIAL OWNER LISTING CONTAINING THE RECORD DATE SHARE
POSITION, THE NUMBER OF PRIMARY SHARES SUBSCRIBED FOR AND THE NUMBER OF
SHARES REQUESTED IN THE PRIMARY OVERSUBSCRIPTION AND THE SECONDARY
OVERSUBSCRIPTION, IF APPLICABLE, BY EACH SUCH OWNER.

D-1
<PAGE> 91

THE MEXICO EQUITY AND INCOME FUND, INC.

BENEFICIAL OWNER CERTIFICATION

The undersigned, a bank, broker or other nominee holder of Rights
("Rights") to purchase shares of Common Stock, $0.001 par value ("Common
Stock"), of The Mexico Equity and Income Fund, Inc. (the "Fund") pursuant to the
Rights offering (the "Offer") described and provided for in the Fund's
Prospectus dated July 24, 1995 (the "Prospectus"), hereby certifies to the Fund
and to PNC Bank, National Association, as Subscription Agent for such Offer,
that for each numbered line filled in below the undersigned has exercised, on
behalf of the beneficial owner thereof (which may be the undersigned), the
number of Rights specified on such line pursuant to the Primary Subscription (as
defined in the Prospectus) and such beneficial owner wishes to subscribe for the
purchase of additional shares of Common Stock pursuant to the Over-Subscription
Privilege (as defined in the Prospectus), in the amount set forth in the third
column of such line:

<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
NUMBER OF RIGHTS REQUESTED REQUESTED
EXERCISED PURSUANT TO PURSUANT TO
PURSUANT TO PRIMARY SECONDARY
RECORD DATE PRIMARY OVER-SUBSCRIPTION OVER-SUBSCRIPTION
SHARES SUBSCRIPTION PRIVILEGE PRIVILEGE
----------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1)
----------------- ----------------- ----------------- -----------------
2)
----------------- ----------------- ----------------- -----------------
3)
----------------- ----------------- ----------------- -----------------
4)
----------------- ----------------- ----------------- -----------------
5)
----------------- ----------------- ----------------- -----------------
6)
----------------- ----------------- ----------------- -----------------
7)
----------------- ----------------- ----------------- -----------------
8)
----------------- ----------------- ----------------- -----------------
9)
----------------- ----------------- ----------------- -----------------
10)
----------------- ----------------- ----------------- -----------------
</TABLE>

_______________________________________________
Name of Nominee Holder

By: ___________________________________________
Name:
Title:

Dated: __________________________________, 1995

Provide the following information if applicable:

<TABLE>
<S> <C>
_______________________________________________________ Name of Broker: __________________________________________________
DEPOSITORY TRUST CORPORATION ("DTC") PARTICIPANT NUMBER

_______________________________________________________ Address: _________________________________________________________
DTC PRIMARY SUBSCRIPTION CONFIRMATION NUMBER(S)
</TABLE>

D-2
<PAGE> 92

================================================================================

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE HEREIN, IN
CONNECTION WITH THIS OFFER, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE. HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS
REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE SUPPLEMENTED OR AMENDED
ACCORDINGLY.
------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary..................... 3
Fee Table.............................. 11
Financial Highlights................... 12
Market and Net Asset Value
Information.......................... 13
The Offer.............................. 14
The Fund............................... 22
Use of Proceeds........................ 23
Risk Factors........................... 23
Investment Objective and Policies...... 29
Investment Restrictions................ 34
Management of the Fund................. 35
The Mexican Securities Market.......... 41
Portfolio Transactions................. 48
Dividends and Distributions; Dividend
Reinvestment Plan.................... 49
Net Asset Value........................ 50
Taxation............................... 51
Common Stock........................... 56
Distribution Arrangements.............. 58
Custodians and Transfer and Dividend-
Paying Agent......................... 59
Legal Matters.......................... 59
Experts................................ 59
Official Documents..................... 59
Further Information.................... 60
Financial Statements................... 61
Appendix A--The United Mexican
States............................... A-1
Appendix B--Form of Subscription
Certificate.......................... B-1
Appendix C--Form of Notice of
Guaranteed Delivery.................. C-1
Appendix D--Form of Nominee Holder
Over-Subscription Exercise Form...... D-1
------------------
</TABLE>

NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE FUND SINCE THE DATE HEREOF.

================================================================================

3,000,000 SHARES

THE MEXICO EQUITY AND
INCOME FUND, INC.

COMMON STOCK

ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE FOR SUCH SHARES OF COMMON STOCK

-------------------------------
P R O S P E C T U S
-------------------------------

OPPENHEIMER & CO., INC.

JULY 24, 1995

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

<PAGE> 93

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(1) FINANCIAL STATEMENTS

Portfolio of Investments at July 31, 1994.+

Statement of Assets and Liabilities at July 31, 1994.+

Statement of Operations for the fiscal year ended July 31, 1994.+

Statement of Changes in Net Assets for each of the two fiscal years ended
July 31, 1994 and 1993.+

Financial Highlights.+

Notes to Financial Statements.+

Report of Independent Accountants dated September 23, 1994.+

Portfolio of Investments at January 31, 1995 (Unaudited).++

Statement of Assets and Liabilities at January 31, 1995 (Unaudited).++

Statement of Operations for the six months ended January 31, 1995
(Unaudited).++

Statement of Changes in Net Assets for the six months ended January 31,
1995 (Unaudited) and for the fiscal year ended July 31, 1994.++

Financial Highlights.++

Notes to Financial Statements.++
- ---------------

+ Incorporated by reference to the Fund's Annual Report for the year ended
July 31, 1994, filed on October 3, 1994.

++ Incorporated by reference to the Fund's Semi-Annual Report for the six
months ended January 31, 1995, filed on March 31, 1995.

(2) EXHIBITS

<TABLE>
<S> <C> <C>
(a)(1) -- Articles of Incorporation (previously filed as Exhibit 1 to the
Registrant's Registration Statement on Form N-2 (File No. 33-35089)).
(a)(2) -- Articles of Amendment to the Articles of Incorporation (previously filed
as Exhibit 1(b) to Pre-Effective Amendment Nos. 2 and 3 to the
Registrant's Registration Statement on Form N-2 (File No. 33-35089)).
(b) -- Amended and Restated By-Laws (previously filed as Exhibit 2(b) to
Pre-Effective Amendment No. 2 to the Registrant's Registration Statement
on Form N-2 (File No. 33-35089)).
(c) -- Inapplicable.
(d)(1) -- Specimen certificate for Common Stock, par value $.001 per share
(previously filed as Exhibit 4 to Pre-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form N-2 (File No. 33-35089)).
(d)(2) -- Form of Subscription Certificate (included on pages B-1 to B-3 of the
Prospectus forming part of this Registration Statement).
(d)(3) -- Form of Notice of Guaranteed Delivery (included on pages C-1 to C-2 of
the Prospectus forming part of this Registration Statement).
(d)(4) -- Form of Nominee Holder Oversubscription Exercise Form (included on pages
D-1 to D-2 of the Prospectus forming part of this Registration
Statement).
(d)(5) -- Form of Subscription Agent Agreement between the Fund and PNC Bank,
National Association.*
(d)(6) -- Form of Information Agent Agreement between the Fund and Shareholder
Communications Corporation.*
</TABLE>

C-1
<PAGE> 94

<TABLE>
<S> <C>
(e) -- Dividend Reinvestment Plan (previously filed as Exhibit 10(b) to
Post-Effective Amendment No. 5 on Form N-2 to the Registration Statement
under the Investment Company Act filed on November 27, 1991 (File No.
811-06111)).
(f) -- Inapplicable.
(g)(1) -- Investment Advisory Agreement dated as of October 14, 1991 between the
Registrant and Acci Worldwide, S.A. de C.V. (previously filed as Exhibit
6(a) to Post-Effective Amendment No. 5 on Form N-2 to the Registration
Statement under the Investment Company Act filed on November 27, 1991
(File No. 811-06111)).
(g)(2) -- U.S. Co-Advisory Agreement dated as of August 14, 1990 between the
Registrant and Advantage Advisers, Inc. (previously filed as Exhibit 6(b)
to Post-Effective Amendment No. 5 on Form N-2 to the Registration
Statement under the Investment Company Act filed on November 27, 1991
(File No. 811-06111)).
(h)(1) -- Form of Dealer Manager Agreement between the Fund and Oppenheimer & Co.,
Inc.*
(h)(2) -- Form of Soliciting Dealer Agreement between the Fund and Soliciting
Dealers.*
(h)(3) -- Form of Selling Group Agreement between the Dealer Manager and Selling
Group Members.*
(i) -- Inapplicable.
(j)(1) -- Custodian Services Agreement dated as of August 13, 1990 between
Registrant and PNC Bank, National Association (previously filed as
Exhibit 9(a) to Post-Effective Amendment No. 5 on Form N-2 to the
Registration Statement under the Investment Company Act filed on November
27, 1991 (File No. 811-06111)).
(j)(2) -- Sub-Custodian Agreement dated as of August 21, 1990 among Citibank, N.A.,
the Registrant and PNC Bank, National Association (previously filed as
Exhibit 9(b) to Post-Effective Amendment No. 5 on Form N-2 to the
Registration Statement under the Investment Company Act filed on November
27, 1991 (File No. 811-06111)).
(k)(1) -- Transfer Agency Services Agreement dated as of August 14, 1990 between
Registrant and PNC Bank, National Association (previously filed as
Exhibit 10(a) to Post-Effective Amendment No. 5 on Form N-2 to the
Registration Statement under the Investment Company Act filed on November
27, 1991 (File No. 811-06111)).
(k)(2) -- Administration Agreement dated as of August 14, 1990 between Registrant
and Oppenheimer & Co., Inc. (previously filed as Exhibit 10(c) to
Post-Effective Amendment No. 5 on Form N-2 to the Registration Statement
under the Investment Company Act filed on November 27, 1991 (File No.
811-06111)).
(k)(3) -- Sub-Administration Agreement and Accounting Services Agreement dated as
of August 14, 1990 by and between Oppenheimer & Co., Inc. and PFPC Inc.
(previously filed as Exhibit 10(d) to Post-Effective Amendment No. 5 on
Form N-2 to the Registration Statement under the Investment Company Act
filed on November 27, 1991 (File No. 811-06111)).
(l)(1) -- Opinion and Consent of Rogers & Wells.*
(l)(2) -- Opinion and Consent of Piper & Marbury L.L.P.*
(l)(3) -- Opinion and Consent of Ritch, Heather y Mueller, S.C.*
(m) -- Irrevocable Appointment of Agent For Service of Process, Pleadings and
Other Papers by Corporation Non-Resident Investment Adviser by Acci
Worldwide, S.A. de C.V. (previously filed on Form 5-R on June 28, 1990
(File No. 801-37171)).
(n) -- Consent of Independent Accountants.*
(o) -- Inapplicable.
(p) -- Inapplicable.
(q) -- Inapplicable.
</TABLE>

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

* Filed herewith.

C-2
<PAGE> 95

ITEM 25. MARKETING ARRANGEMENTS

See Exhibits (h)(1), (h)2) and(h)(3) to this Registration Statement.

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the expenses to be incurred in connection
with the Offer described in this Registration Statement:

<TABLE>
<S> <C>
Registration Fees............................................................... $ 27,969
National Association of Securities Dealers, Inc. fees........................... 8,611
New York Stock Exchange listing fee............................................. 10,500
Printing (other than stock certificates)........................................ 160,000
Fees and expenses of qualification under state securities laws (including fees
of counsel)................................................................... 17,500
Accounting fees and expenses.................................................... 18,000
Legal fees and expenses......................................................... 125,000
Dealer Manager expense reimbursement............................................ 100,000
Information Agent's fees and expenses........................................... 38,000
Subscription Agent's fees and expenses.......................................... 30,000
Miscellaneous................................................................... 14,420
--------
Total......................................................................... $550,000
========
</TABLE>

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

None.

ITEM 28. NUMBER OF HOLDERS OF SECURITIES (AS OF JULY 20, 1995)

<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- ----------------------------------------------------------------------------- --------------
<S> <C>
Common Stock, $0.001 par value per share..................................... 1,720
</TABLE>

ITEM 29. INDEMNIFICATION

Section 2-418 of the General Corporation Law of the State of Maryland,
Article XI of the Fund's Articles of Incorporation, Article VII of the Fund's
By-Laws and the Dealer Manager Agreement filed as Exhibit (h)(1) provide for
indemnification.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act") may be permitted to directors, officers and
controlling persons of the Fund, pursuant to the foregoing provisions or
otherwise, the Fund has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Fund of
expenses incurred or paid by a director, officer or controlling person of the
Fund in the 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 Fund 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 Act and will be governed by the final adjudication of
such issue.

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

The description of the business of the Mexican Adviser and U.S. Co-Adviser
is set forth under the caption "Management of the Fund" in the Prospectus
forming part of this Registration Statement. Neither the Mexican Adviser nor the
U.S. Co-Adviser has any other business of a substantial nature.

C-3
<PAGE> 96

Information as to the directors and officers of each of the Mexican Adviser
and the U.S. Co-Adviser is included in the Mexican Adviser's and the U.S.
Co-Adviser's respective Forms ADV (File No. 801-37171 and 801-36997,
respectively) and is incorporated herein by reference thereto.

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS

The accounts and records of the Registrant are maintained at the office of
PNC Bank, National Association, 400 Bellevue Parkway, Wilmington, Delaware
19809.

ITEM 33. UNDERTAKINGS

(a) Registrant undertakes to suspend the offering of its shares until it
amends its Prospectus if:

(1) subsequent to the effective date of this Registration Statement,
the net asset value per share declines more than 10% from its net asset
value per share as of the effective date of the Registration Statement; or

(2) the net asset value increases to an amount greater than its net
proceeds as stated in the Prospectus.

(b) Registrant hereby undertakes:

(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;

(ii) to reflect in the prospectus any facts or events after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and

(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.

(2) that for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
bona fide offering thereof.

(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

(4) that for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(c) To comply with the restrictions on indemnification set forth in
Investment Company Act Release No. IC-11330, September 2, 1980.

C-4
<PAGE> 97

SIGNATURES

Pursuant to the requirements of the Securities Act of 1993 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and the State of New York,
on the 21st day of July, 1995.

THE MEXICO EQUITY AND INCOME FUND,
INC.

By: /s/ ALAN H. RAPPAPORT

Alan H. Rappaport
Chairman

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- -------------------------------------- -----------------
<C> <S> <C>
/s/ ALAN H. RAPPAPORT President, Director and Chairman of July 21, 1995
- ------------------------------------- the Board of Directors
Alan H. Rappaport (Chief Executive Officer)
- ------------------------------------- Director July , 1995
Carroll W. Brewster

* Director July 21, 1995
- -------------------------------------
Frederick M. Bohen

* Director July 21, 1995
- -------------------------------------
Sol Gittleman

* Director July 21, 1995
- -------------------------------------
Luis Rubio

* Vice President and Treasurer July 21, 1995
- ------------------------------------- (Principal Financial and Accounting
Dennis Feeney Officer)

/s/ ALAN H. RAPPAPORT
*By:
Alan H. Rappaport
Attorney-in-Fact
</TABLE>

C-5
<PAGE> 98
EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- --------------- ---------
<S> <C> <C>
(a)(1) -- Articles of Incorporation (previously filed as Exhibit 1 to the
Registrant's Registration Statement on Form N-2 (File No. 33-35089)).
(a)(2) -- Articles of Amendment to the Articles of Incorporation (previously filed
as Exhibit 1(b) to Pre-Effective Amendment Nos. 2 and 3 to the
Registrant's Registration Statement on Form N-2 (File No. 33-35089)).
(b) -- Amended and Restated By-Laws (previously filed as Exhibit 2(b) to
Pre-Effective Amendment No. 2 to the Registrant's Registration Statement
on Form N-2 (File No. 33-35089)).
(c) -- Inapplicable.
(d)(1) -- Specimen certificate for Common Stock, par value $.001 per share
(previously filed as Exhibit 4 to Pre-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form N-2 (File No. 33-35089)).
(d)(2) -- Form of Subscription Certificate (included on pages B-1 to B-3 of the
Prospectus forming part of this Registration Statement).
(d)(3) -- Form of Notice of Guaranteed Delivery (included on pages C-1 to C-2 of
the Prospectus forming part of this Registration Statement).
(d)(4) -- Form of Nominee Holder Oversubscription Exercise Form (included on pages
D-1 to D-2 of the Prospectus forming part of this Registration
Statement).
(d)(5) -- Form of Subscription Agent Agreement between the Fund and PNC Bank,
National Association.*
(d)(6) -- Form of Information Agent Agreement between the Fund and Shareholder
Communications Corporation.*
(e) -- Dividend Reinvestment Plan (previously filed as Exhibit 10(b) to
Post-Effective Amendment No. 5 on Form N-2 to the Registration Statement
under the Investment Company Act filed on November 27, 1991 (File No.
811-06111)).
(f) -- Inapplicable.
(g)(1) -- Investment Advisory Agreement dated as of October 14, 1991 between the
Registrant and Acci Worldwide, S.A. de C.V. (previously filed as Exhibit
6(a) to Post-Effective Amendment No. 5 on Form N-2 to the Registration
Statement under the Investment Company Act filed on November 27, 1991
(File No. 811-06111)).
(g)(2) -- U.S. Co-Advisory Agreement dated as of August 14, 1990 between the
Registrant and Advantage Advisers, Inc. (previously filed as Exhibit 6(b)
to Post-Effective Amendment No. 5 on Form N-2 to the Registration
Statement under the Investment Company Act filed on November 27, 1991
(File No. 811-06111)).
(h)(1) -- Form of Dealer Manager Agreement between the Fund and Oppenheimer & Co.,
Inc.*
(h)(2) -- Form of Soliciting Dealer Agreement between the Fund and Soliciting
Dealers.*
(h)(3) -- Form of Selling Group Agreement between the Dealer Manager and Selling
Group Members.*
(i) -- Inapplicable.
(j)(1) -- Custodian Services Agreement dated as of August 13, 1990 between
Registrant and PNC Bank, National Association (previously filed as
Exhibit 9(a) to Post-Effective Amendment No. 5 on Form N-2 to the
Registration Statement under the Investment Company Act filed on November
27, 1991 (File No. 811-06111)).
(j)(2) -- Sub-Custodian Agreement dated as of August 21, 1990 among Citibank, N.A.,
the Registrant and PNC Bank, National Association (previously filed as
Exhibit 9(b) to Post-Effective Amendment No. 5 on Form N-2 to the
Registration Statement under the Investment Company Act filed on November
27, 1991 (File No. 811-06111)).
(k)(1) -- Transfer Agency Services Agreement dated as of August 14, 1990 between
Registrant and PNC Bank, National Association (previously filed as
Exhibit 10(a) to Post-Effective Amendment No. 5 on Form N-2 to the
Registration Statement under the Investment Company Act filed on November
27, 1991 (File No. 811-06111)).
(k)(2) -- Administration Agreement dated as of August 14, 1990 between Registrant
and Oppenheimer & Co., Inc. (previously filed as Exhibit 10(c) to
Post-Effective Amendment No. 5 on Form N-2 to the Registration Statement
under the Investment Company Act filed on November 27, 1991 (File No.
811-06111)).
(k)(3) -- Sub-Administration Agreement and Accounting Services Agreement dated as
of August 14, 1990 by and between Oppenheimer & Co., Inc. and PFPC Inc.
(previously filed as Exhibit 10(d) to Post-Effective Amendment No. 5 on
Form N-2 to the Registration Statement under the Investment Company Act
filed on November 27, 1991 (File No. 811-06111)).
(l)(1) -- Opinion and Consent of Rogers & Wells.*
(l)(2) -- Opinion and Consent of Piper & Marbury L.L.P.*
(l)(3) -- OPINION AND CONSENT OF RITCH, HEATHER Y MUELLER, S.C.*
(m) -- IRREVOCABLE APPOINTMENT OF AGENT FOR SERVICE OF PROCESS, PLEADINGS AND
OTHER PAPERS BY CORPORATION NON-RESIDENT INVESTMENT ADVISER BY ACCI
WORLDWIDE, S.A. DE C.V. (PREVIOUSLY FILED ON FORM 5-R ON JUNE 28, 1990
(FILE NO. 801-37171)).
(n) -- CONSENT OF INDEPENDENT ACCOUNTANTS.*
(o) -- INAPPLICABLE.
(p) -- INAPPLICABLE.
(q) -- INAPPLICABLE.
</TABLE>

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

* Filed herewith.

<PAGE> 1
EXHIBIT (d)(5)

SUBSCRIPTION AGENT AGREEMENT

This Subscription Agent Agreement (the "Agreement") is made as
of July __, 1995 between The Mexico Equity and Income Fund, Inc., a Maryland
corporation (the "Fund") and PNC Bank, National Association, as subscription
agent (the "Subscription Agent"). All terms not defined herein shall have the
meaning given in the prospectus (the "Prospectus") included in the Registration
Statement on Form N-2 (File Nos. 33-83820 and 811-06111) filed by the Fund with
the Securities and Exchange Commission on September 12, 1994, as amended by any
amendment filed with respect thereto (the "Registration Statement").

WHEREAS, the Fund proposes to make a subscription offer by
issuing certificates or other evidences of subscription rights, in the form
designated by the Fund (the "Subscription Certificates"), to stockholders of
record (the "Stockholders") of its common stock, par value $0.001 per share
("Common Stock"), as of a record date specified by the Fund (the "Record Date"),
pursuant to which each Stockholder will have certain rights (the "Rights") to
subscribe for shares of Common Stock (the "Shares"), as described in and upon
such terms as are set forth in the Prospectus, a final copy of which has been
or, upon availability promptly will be, delivered to the Subscription Agent; and

WHEREAS, the Fund wishes the Subscription Agent to perform
certain acts on behalf of the Fund, and the Subscription Agent is willing to
perform such acts, in connection with the distribution of the Subscription
Certificates and the issuance and exercise of the Rights to subscribe therein
set forth, all upon the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the foregoing and of the
mutual agreements set forth herein, the parties agree as follows:

1. APPOINTMENT.

The Fund hereby appoints the Subscription Agent to act as subscription
agent in connection with the distribution of Subscription Certificates and the
issuance and exercise of the Rights in accordance with the terms set forth in
this Agreement, and the Subscription Agent hereby accepts such appointment.

2. FORM AND EXECUTION OF SUBSCRIPTION CERTIFICATES.

(a) Each Subscription Certificate shall be irrevocable and fully
transferable. The Subscription Agent shall, in its capacity as Transfer Agent of
the Fund, maintain a register of Subscription Certificates and the holders of
record thereof (the "Rights Holders"). Each Subscription Certificate shall,
subject to the provisions thereof, entitle each Rights Holder to the following:

<PAGE> 2

(1) The right to acquire during the Subscription Period, at
the Subscription Price, one Share for every three Rights held (the
"Primary Subscription"); and

(2) The right to subscribe for additional Shares, subject to
the availability of such Shares and to the allotment of such Shares as
may be available among Rights Holders who exercise Over-Subscription
Rights on the basis specified in the Prospectus (the "Over-Subscription
Privilege").

3. RIGHTS AND ISSUANCE OF SUBSCRIPTION CERTIFICATES.

(a) Each Subscription Certificate shall evidence the Rights of the
Stockholder therein named to purchase Shares upon the terms and conditions
therein and herein set forth.

(b) Upon the written advice of the Fund, signed by any of its duly
authorized officers, the Subscription Agent will, from a list of the Fund's
Stockholders, which list will be compiled by the Subscription Agent in its
capacity as Transfer Agent of the Fund, prepare and record Subscription
Certificates in the names of the Stockholders, setting forth the number of
Rights to subscribe for the Shares calculated on the basis of one Right for each
share of Common Stock recorded on the books in the name of each such Stockholder
as of the Record Date. The number of Rights that are issued to Stockholders will
be rounded up, by the Subscription Agent, to the nearest whole number of Rights
evenly divisible by three. In the case of shares of Common Stock held of record
by a Nominee Holder, the number of Rights issued to such Nominee Holder will be
adjusted, by the Subscription Agent, to permit rounding up (to the nearest whole
number of Rights evenly divisible by three) of the number of Rights to be
received by beneficial holders for whom the Nominee Holder is the holder of
record only if the Nominee Holder provides to the Subscription Agent on or
before the close of business on the fifth business day prior to the Expiration
Date written representation of the number of Rights required for such rounding.
Each Subscription Certificate shall be dated as of the Record Date and shall be
executed manually or by facsimile signature of a duly authorized officer of the
Fund. No Subscription Certificate shall be valid for any purpose unless so
executed. Should any officer of the Fund whose signature has been placed upon
any Subscription Certificate cease to hold such office at any time thereafter,
such event shall have no effect on the validity of such Subscription
Certificate.

(c) Upon the written advice of the Fund, signed as by any of its duly
authorized officers, as to the effective date of the Registration Statement, the
Agent shall promptly deliver the Subscription Certificates, together with a copy
of the Prospectus and any other document as the Fund deems necessary or
appropriate, to all Stockholders with record addresses in the United States
(including its territories and possessions and the District of Columbia).
Delivery shall be by first class mail (without registration or insurance). The
Subscription Agent will mail a copy of the Prospectus, a special notice and
other documents as the Fund deems necessary or appropriate, if any, but not
Subscription Certificates, to Stockholders whose record addresses are outside
the United States (including its territories and possessions and the District of
Columbia) ("Foreign Stockholders"). Delivery to Foreign Stockholders shall be by
air mail (without registration or insurance) or for those Foreign Stockholders
having APO or FPO addresses, by first class mail (without registration or
insurance).

<PAGE> 3

(d) The Subscription Agent shall hold the Rights issued by the Fund to
Foreign Stockholders for such Foreign Stockholders' accounts until instructions
are received to exercise, sell or transfer the Rights. If no instructions have
been received by 12:00 Noon, New York City time, three Business Days prior to
the Expiration Date, the Subscription Agent will use its best efforts to sell
the Rights of those registered Foreign Stockholders through or to the Dealer
Manager in accordance with Section 5(b) hereof. The proceeds net of commissions,
if any, from the sale of those Rights will be remitted to the Foreign
Stockholders.

4. EXERCISE.

(a) Exercising Rights Holders may acquire Shares in the Primary
Subscription and pursuant to the Over-Subscription Privilege by delivering to
the Subscription Agent as specified in the Prospectus (i) the Subscription
Certificate, duly executed by such Exercising Rights Holder in accordance with
and as provided by the terms and conditions of the Subscription Certificate,
together with (ii) the purchase price of $_____ for each Share subscribed for by
exercise of such Rights, in U.S. dollars by money order or check drawn on a bank
located in the United States, in each case payable to the order of the Fund.

(b) Rights may be exercised at any time after the date of issuance of
the Subscription Certificates with respect thereto, but no later than 5:00 P.M.
New York City time, on the Expiration Date, or such later date as the Fund may
designate. For the purpose of determining the time of the exercise of any
Rights, delivery of any material to the Subscription Agent shall be deemed to
occur when such materials are received at the Shareholder Services Division of
the Subscription Agent as specified in the Prospectus.

(c) Notwithstanding the provisions of Section 4(a) and 4(b) hereof
regarding delivery of an executed Subscription Certificate to the Subscription
Agent prior to 5:00 p.m. New York City time, on the Expiration Date, if prior to
such time the Subscription Agent receives a Notice of Guaranteed Delivery by
facsimile (telecopy) or otherwise from a bank, a trust company or a New York
Stock Exchange 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, and (ii) a properly completed and executed Subscription Certificate,
then such exercise of Rights in the Primary Subscription and pursuant to the
Over-Subscription Privilege shall be regarded as timely, subject, however, to
receipt of the duly executed Subscription Certificate and full payment for the
Shares by the Subscription Agent within three Business Days after the Expiration
Date (the "Protect Period").

(d) Within seven Business Days following the end of the Protect Period,
the Subscription Agent shall send to each Exercising Rights Holder (or, if
shares of Common Stock on the Record Date are held by a Nominee Holder, to such
Nominee Holder) the share certificates representing the Shares acquired in the
Primary Subscription, and, if applicable, pursuant to the Over-Subscription
Privilege, along with a letter explaining the allocation of Shares pursuant to
the Over-Subscription Privilege. Any excess payment ("Excess Payment") to be
refunded by the Fund to an Exercising Rights Holder who is not allocated the
full amount of shares of Common Stock subscribed for pursuant to the
Over-Subscription Privilege, shall be

<PAGE> 4

mailed by the Subscription Agent to such Exercising Rights Holder as described
in Section 9(b) hereof.

5. TRANSFER OF RIGHTS.

(a) Rights Holders who do not wish to exercise any or all of their
Rights may instruct the Subscription Agent to sell any unexercised Rights by
delivering to the Subscription Agent at least three Business Days prior to the
Expiration Date Subscription Certificates representing the Rights to be sold
with the appropriate instructions to sell the Rights. Upon timely receipt by the
Subscription Agent of appropriate instructions to sell the Rights, the
Subscription Agent shall use its best efforts to complete the sale. The
Subscription Agent shall remit the proceeds of sale, net of any commissions to
the appropriate Rights Holder. The Subscription Agent shall also use its best
efforts 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 and
Rights of Foreign Stockholders who do not respond to the Agent by 12:00 Noon,
New York City time, three Business Days prior to the Expiration Date. Such sales
will be made, net of any commissions, on behalf of such Stockholders. The
Subscription Agent will hold the proceeds from those sales for the benefit of
such Stockholders until such proceeds are either claimed or escheat.

(b) The Subscription Agent may retain Oppenheimer & Co., Inc.
("Oppenheimer") to act as its broker in carrying out the sale on a best efforts
basis of any Rights to be sold pursuant to Sections 3(c) and 5(a), provided the
brokerage fees charged by Oppenheimer in connection with any such sales are not
in excess of the usual and customary brokerage fees for such transactions. The
Subscription Agent also may sell the Rights to Oppenheimer as principal provided
that such sales are made at the then current market price for the Rights less an
amount not in excess of the usual and customary brokerage fee that would have
been payable had such sales been conducted through a broker.

(c) Rights Holders may transfer a portion of the Rights evidenced by a
single Subscription Certificate (but in a number evenly divisible by three) by
delivering to the Subscription Agent within at least one Business Day prior to
the Expiration Date 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, the Subscription
Agent shall issue a new Subscription Certificate evidencing the balance of the
Rights to the transferring Rights Holder or, if the transferring Rights Holder
so instructs, to an additional transferee.

6. VALIDITY OF SUBSCRIPTIONS.

Irregular subscriptions not otherwise covered by specific instructions
herein shall be submitted to an appropriate officer of the Fund and handled in
accordance with such officer's instructions. Such instructions will be
documented by the Subscription Agent indicating the instructing officer and the
date thereof.

<PAGE> 5

7. OVER-SUBSCRIPTION PRIVILEGE.

Shares not subscribed for in the Primary Subscription will be offered,
by means of the Primary Over-Subscription Privilege, to the Stockholders who
have exercised all exercisable Rights issued to them and who wish to acquire
more than the number of Shares for which the Rights issued to them are
exercisable. Stockholders should indicate, on the Subscription Certificate
submitted with respect to the exercise of the Rights issued to them, how many
Shares they are willing to acquire pursuant to the Primary Over-Subscription
Privilege. If a sufficient number of Shares remain, all over-subscriptions will
be honored in full.

If subscriptions for Shares pursuant to the Primary Over-Subscription
Privilege exceed the number of Shares available, the available Shares will be
allocated, pursuant to the terms of the Prospectus, first among Stockholders who
subscribe for an aggregate of 100 or fewer Shares. Any Shares remaining
thereafter will be allocated among all other Stockholders. In each case, if
insufficient Shares are available to permit such allocation, Shares will be
allocated pro rata among the Stockholders being prorated, based on the number of
Shares such Stockholders subscribed for in the Primary Subscription relative to
the aggregate number of Shares subscribed for in the Primary Subscription by all
such Stockholders then being prorated.

Any Exercising Rights Holder is entitled to subscribe for Shares which
are not otherwise subscribed for in the Primary Subscription or pursuant to the
Primary Over-Subscription Privilege. Exercising Rights Holders should indicate,
on the Subscription Certificate submitted with respect to the exercise of any
Rights, how many Shares they are willing to acquire pursuant to the Secondary
Over-Subscription Privilege. If sufficient Shares remain, all over-subscriptions
by Exercising Rights Holders will be honored in full. If remaining Shares are
insufficient to permit such allocation, such Shares will be allocated pro rata
among Exercising Rights Holders being prorated, based on the number of Shares
such Exercising Rights Holders subscribed for in the Primary Subscription
relative to the aggregate number of Shares subscribed for in the Primary
Subscription by all such Exercising Rights Holders then being prorated.

The percentage of Shares each over-subscribing Exercising Rights Holder
may acquire may be rounded up or down to result in delivery of whole Shares. The
Subscription Agent shall advise the Fund immediately upon the completion of the
allocation set forth above as to the total number of Shares subscribed and
distributable.

8. DELIVERY OF SHARE CERTIFICATES.

The Subscription Agent will deliver (i) certificates representing those
Shares purchased pursuant to exercise of Primary Subscription Rights as soon as
practicable after the corresponding Rights have been validly exercised and full
payment for such Shares has been received and cleared and (ii) certificates
representing those Shares purchased pursuant to the exercise of the
Over-Subscription Privilege as soon as practicable after the Expiration Date and
after all allocations have been effected.

<PAGE> 6

9. HOLDING PROCEEDS OF RIGHTS OFFERING IN ESCROW.

(a) All proceeds received by the Subscription Agent from Rights Holders
in respect of the exercise of Rights shall be held by the Subscription Agent, on
behalf of the Fund, in a segregated, interest-bearing escrow account (the
"Escrow Account"). Pending disbursement in the manner described in Section 4(d)
above, funds held in the Escrow Account shall be invested by the Subscription
Agent at the direction of the Fund.

(b) The Subscription Agent shall deliver all proceeds received in
respect of the exercise of Rights (including interest earned thereon) to the
Fund as promptly as practicable, but in no event later than seven Business Days
after the end of the Protect Period. Proceeds held in respect of any Excess
Payment shall be refunded to the appropriate Exercising Rights Holders within
ten Business Days after the end of the Protect Period.

10. REPORTS.

(a) Daily, during the period commencing on the Record Date, until
termination of the Subscription Period, the Subscription Agent will report by
telephone or telecopier (by 12:00 Noon, New York City time), confirmed by
letter, to a designated officer of the Fund, daily data regarding Rights
exercised, the selling price of Rights, the total number of Shares subscribed
for, payments received therefor, the number of Rights sold and the net proceeds
thereof, bringing forward the figures from the previous day's report in each
case so as to show the cumulative totals and any such other information as may
be mutually determined by the Fund and the Subscription Agent.

(b) The Subscription Agent will inform the Dealer Manager orally, on
each Business Day during the Subscription Period (to be followed by written
confirmation), as to the number of Rights that have been exercised since its
previous daily report to the Dealer Manager and, not later than 12:00 Noon (New
York City time) on the third day after the end of the Protect Period, will
provide the Dealer Manager with a written statement as to the total number of
Rights exercised (separately setting forth the number of Rights exercised by
Stockholders).

11. LOSS OR MUTILATION.

If any Subscription Certificate is lost, stolen, mutilated or
destroyed, the Subscription Agent may, on such terms which will indemnify and
protect the Fund and the Subscription Agent as the Subscription Agent may in its
discretion impose (which shall, in the case of a mutilated Subscription
Certificate include the surrender and cancellation thereof), issue a new
Subscription Certificate of like denomination in substitution for the
Subscription Certificate so lost, stolen, mutilated or destroyed.

12. COMPENSATION FOR SERVICES.

The Fund agrees to pay to the Subscription Agent compensation for its
services as such in accordance with its Fee Schedule attached, dated November
__, 1994, and attached hereto as Schedule A. The Subscription Agent agrees that
such compensation shall include all services

<PAGE> 7

as Transfer Agent and Registrar provided in connection with the offering of the
Rights. The Fund further agrees that it will reimburse the Subscription Agent
for its reasonable out-of-pocket expenses incurred in the performance of its
duties as such.

13. INSTRUCTIONS AND INDEMNIFICATION.

The Subscription Agent undertakes the duties and obligations imposed by
this Agreement upon the following terms and conditions:

(a) The Subscription Agent shall be entitled to rely upon any
instructions or directions furnished to it by an appropriate officer of the
Fund, whether in conformity with the provisions of this Agreement or
constituting a modification hereof or a supplement hereto. Without limiting the
generality of the foregoing or any other provision of this Agreement, the
Subscription Agent, in connection with its duties hereunder, shall not be under
any duty or obligation to inquire into the validity or invalidity or authority
or lack thereof of any instruction or direction from an officer of the Fund
which conforms to the applicable requirements of this Agreement and which the
Subscription Agent reasonably believes to be genuine and shall not be liable for
any delays, errors or loss of data occurring by reason of circumstances beyond
the Subscription Agent's control, including, without limitation, acts of civil
or military authority, national emergencies, labor difficulties, fire, flood,
catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.

(b) The Fund will indemnify the Subscription Agent and its nominees
against, and hold it harmless from, all liability and expense which may arise
out of or in connection with the services described in this Agreement or the
instructions or directions furnished to the Subscription Agent relating to this
Agreement by an appropriate officer of the Fund, except for any liability or
expense which shall arise out of the negligence, bad faith or willful misconduct
of the Subscription Agent or such nominees.

14. CHANGES IN SUBSCRIPTION CERTIFICATE.

The Subscription Agent may, without the consent or concurrence of the
Stockholders in whose names Subscription Certificates are registered, by
supplemental agreement or otherwise, concur with the Fund in making any changes
or corrections in a Subscription Certificate that it shall have been advised by
counsel (who may be counsel for the Fund) is appropriate to cure any ambiguity
or to correct any defective or inconsistent provisions or clerical omission or
mistake or manifest error therein or herein contained, and which shall not be
inconsistent with the provision of the Subscription Certificate except insofar
as any such change may confer additional rights upon the Stockholders.

15. ASSIGNMENT; DELEGATION.

(a) Neither this Agreement nor any rights or obligations hereunder may
be assigned or delegated by either party without the written consent of the
other party.

<PAGE> 8

(b) This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns. Nothing in
this Agreement is intended or shall be construed to confer upon any other person
any right, remedy or claim or to impose upon any other person any duty,
liability or obligation.

16. GOVERNING LAW.

The validity, interpretation and performance of this Agreement shall be
governed by the laws of the State of New York.

17. SEVERABILITY.

The parties hereto agree that, if any of the provisions contained in
this Agreement shall be determined invalid, unlawful or unenforceable to any
extent, such provisions shall be deemed modified to the extent necessary to
render such provisions enforceable. The parties hereto further agree that this
Agreement shall be deemed severable, and the invalidity, unlawfulness or
unenforceability of any term or provision thereof shall not affect the validity,
legality or enforceability of this Agreement or of any term or provision hereof.

18. COUNTERPARTS.

This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which together shall be considered
one and the same agreement.

19. CAPTIONS.

The captions and descriptive headings herein are for the convenience of
the parties only. They do not in any way modify, amplify, alter or give full
notice of the provisions hereof.

20. FACSIMILE SIGNATURES.

Any facsimile signature of any party hereto shall constitute a legal,
valid and binding execution hereof by such party.

21. FURTHER ACTIONS.

Each party agrees to perform such further acts and execute such further
documents as are necessary to effect the purposes of this Agreement.

<PAGE> 9

22. ADDITIONAL PROVISIONS.

Except as specifically modified by this Agreement, the Subscription
Agent's rights and responsibilities set forth in the Transfer Agency Services
Agreement between the Fund and the Subscription Agent are hereby ratified and
confirmed and continue in effect.

THE MEXICO EQUITY AND INCOME
FUND, INC.

By:_______________________________
Alan H. Rappaport
President and Chairman of
the Board

PNC BANK, NATIONAL ASSOCIATION

By:_______________________________
Name:
Title:

<PAGE> 10
[LETTERHEAD]

SCHEDULE A

November 3, 1994

Alan H Rappaport, President
The Mexico Equity and Income Fund, Inc.
Oppenheimer & Co., Inc.
World Financial Center
200 Liberty Street
New York, NY 10281

Dear Mr. Rappaport:

We welcome the opportunity to propose our servicing capabilities and
fees for the upcoming Rights Offering for The Mexico Equity and Income Fund,
Inc.

Based on the following assumptions PNC Bank, N.A. will provide the
services described in Exhibit A.

- 1,700 direct fund accounts; 11,300 broker street name accounts.

- Elapsed processing and administration time 90-100 days.

- Work in conjunction with an experienced Information Agent.

- Proration calculated on record date share balance for direct and
street name accounts (initial 2,000 street name accounts covered under
the base fee).

- All payments (initial and oversubscription) required by Expiration
Date for the Guarantee of Delivery.

- Interest on all receipts accrue to the benefit of the fund.

- PNC performs processing and distribution of solicitation fee.

A PNC Financial Services Group Company

<PAGE> 11
The Mexico Equity and Income Fund, Inc.
Page 2

We propose a base fee of $25,000 for subscription agent services as
described above plus an additional $6.00 per account fee will be applied for
all accounts participating in the oversubscription allocation in excess of the
initial 2,000 accounts.

The out of pocket expenses including but not limited to are as follows:

- Postage
- New York City drop window charges
- Overnight delivery charges
- Cost of checks, envelopes
- Printing / duplicating costs

An administrative fee of $3,500 will be charged in the event the offer
does not become effective. This amount includes:

1) Reviewing Registration Statement and forms with Fund's attorneys.

2) Coordinate and perform mailing of press releases and warning
letters.

3) Coordinate and plan mailing of Prospectus.

Should you have any questions or need additional information, feel free
to contact either Bob Diaczuk at (302) 791-1043 or myself.

Sincerely,

/s/ ROBERT J PERLSWEIG
- -----------------------------
Robert J Perlsweig
Executive Vice President

RJP/clc

cc: R. Diaczuk
<PAGE> 12
Exhibit A

SUBSCRIPTION AGENT SERVICES

- - Review registration statement and forms with Fund's Attorneys.

- - Coordinate mailing of warning letters.

- - Prepare record date list.

- - Imprint subscription certificates with name, address, certificate number, and
number of rights.

- - Coordinate mailing of Rights Certificates.

- - Provide management with daily activity summary.

- - Interact daily with dealer manager, administrator.

- - Process exercised rights certificates.

- - Deposit checks / reconcile daily.

- - Maintain and settle Guarantee of Deliveries.

- - Solicit and receive subaccounting for proration.

- - Calculate proration.

- - Prepare and mail refund checks (if applicable).

- - Prepare and mail stock certificates for primary and over-subscription shares.

- - Solicit and pay fees to soliciting dealers.

- - Prepare, mail invoices for additional monies, due to higher than estimated
subscription price.

<PAGE> 1

EXHIBIT (d)(6)

[SHAREHOLDER COMMUNICATIONS CORPORATION LOGO]

AGREEMENT

This document will constitute the agreement between THE MEXICO EQUITY &
INCOME FUND, INC. (the "FUND"), with its principal executive offices at 200
Liberty Street, New York, NY 10281 and SHAREHOLDER COMMUNICATIONS CORPORATION
("SCC"), with its principal executive offices at 17 State Street, New York, NY
10004, relating to a Rights Offering (the "OFFER") of the Fund.

The services to be provided by SCC will be as follows:

(1) INDIVIDUAL HOLDERS OF RECORD AND BENEFICIAL OWNERS

Target Group. SCC estimates that it may call between 2,106 to
2,503 of the approximately 20,500 outstanding beneficial and
record shareholders. The estimate number is subject to adjustment
and SCC may actually call more or less shareholders depending on
the response of the OFFER or at the FUND's direction.

Telephone Number Lookups. SCC will obtain the needed telephone
numbers from various types of telephone directories.

Initial Telephone Calls to Provide Information. SCC will begin
telephone calls to the target group as soon as practicable. Most
calls will be made during 10:00 A.M. to 9:00 P.M. on business days
and only during 10:00 A.M. to 5:00 P.M. on Saturdays. No calls
will be received by any shareholder after 9:00 P.M. on any day, in
any time zone, unless specifically requested by the shareholder.
SCC will maintain "800" lines for shareholders to call with
questions about the OFFER. The "800" lines will be staffed Monday
through Friday between 9:00 a.m. and 9:00 p.m.

Remails. SCC will coordinate remails of offering materials to the
shareholders who advise us that they have discarded or misplaced
the originally mailed materials.

Reminder/Extension Mailing. SCC will help to coordinate any
targeted or broad-based reminder mailing at the request of the
FUND. SCC will mail only materials supplied by the FUND or
approved by the Fund in advance in writing.

Subscription Reports. SCC will rely upon the transfer agent for
accurate and timely information as to participation in the OFFER.
<PAGE> 2
[SHAREHOLDER COMMUNICATIONS CORPORATION LOGO]

(2) BANK/BROKER SERVICING

SCC will contact all banks, brokers and other nominee
shareholders ("intermediaries") holding stock as shown on
appropriate portions of the shareholder lists to ascertain
quantities of offering materials needed for forwarding to
beneficial owners.

SCC will deliver offering materials by messenger to New York City
based intermediaries and by Federal Express or other means to
non-New York City based intermediaries. SCC will also follow-up
by telephone with each intermediary to insure receipt of the
offering materials and to confirm timely remailing of materials to
the beneficial owners.

SCC will maintain frequent contact with intermediaries to
monitor shareholder response and to insure that all liaison
procedures are proceeding satisfactorily. In addition, SCC will
contact beneficial holders directly, if possible, and do whatever
may be appropriate or necessasry to provide information regarding
the OFFER to this group.

SCC will, as frequently as practicable, report to the Fund with
response from intermediaries.

(3) PROJECT FEE

In consideration for acting as Information Agent SCC will
receive a project fee of $10,000.

(4) ESTIMATED EXPENSES

SCC will be reimbursed by the FUND for its reasonable
out-of-pocket expenses incurred provided that SCC submits to the
FUND an expense report, itemizing such expenses and providing
copies of all supporting bills in respect of such expenses. If
the actual expenses incurred are less than the portion of the
estimated high range expenses paid in advance by the FUND, the
FUND will receive from SCC a check payable in the amount of the
difference at the time that SCC sends its final invoice for the
second half of the project fee.

SCC's expenses are estimated as set forth below and the
estimates are based largely on data provided to SCC by the FUND.
In the course of the OFFER the expenses and expense categories may
change due to changes in the OFFER schedule or due to events
beyond SCC's control, such as delays in receiving offering
material and related items. In the event of significant change or
new expenses not originally contemplated, SCC will notify the FUND
by phone and/or by letter for approval of such expenses.

<PAGE> 3
[SHAREHOLDER COMMUNICATIONS CORPORATION LOGO]

<TABLE>
<CAPTION>
Estimated Expenses Low Range High Range
------------------ --------- ----------
<S> <C> <C>
Distribution Expenses.................................... $ 4,500 $ 6,500

Telephone # look up
5,850 to 7,120 @ $.50 .................................. 2,925 3,560

Outgoing telephone 2,106 to 2,503
initial outgoing telephone
calls @ $3.75 ........................................... 7,897 9,611

Incoming "800" calls
877 to 1,915 @ $3.75..................................... 3,288 7,181

Miscellaneous, data processing, postage, deliveries
Federal Express and mailgrams............................ 1,000 2,000
------- -------
Total Estimated Expenses............................ $19,611 $28,852
======= =======
</TABLE>

(5) PERFORMANCE

SCC will use its best efforts to achieve the goals of the FUND but
SCC is not guaranteeing a minimum success rate. SCC's Project Fee
as outlined in Section 3 or Expenses as outlined in Section 4 are
not contingent on success or failure of the OFFER.

SCC's strategies revolve around a telephone information campaign.
The purpose of the telephone information campaign is to raise the
overall awareness among shareholders of the OFFER and help
shareholders better understand the transaction. This in turn may
result in higher overall response.

(6) COMPLIANCE

The FUND will be responsible for compliance with any regulations
required by the Securities and Exchange Commission, National
Association of Securities Dealers or any applicable federal or
state agencies.

In rendering the services contemplated by this Agreement, SCC
agrees not to make any representations, oral or written, to any
shareholders or prospective shareholders of the FUND that are not
contained in the FUND's Prospectus, unless previously authorized to
do so in writing by the FUND.

(7) PAYMENT

Payment for one half the project fee ($5,000) and one half the
estimated high range expenses ($14,426) for a total of $19,426 will
be made at the signing of this contract. The balance, if any, will
be paid by the FUND due thirty days after SCC sends its final
invoice.

<PAGE> 4

[SHAREHOLDER COMMUNICATIONS CORPORATION LOGO]

(8) MISCELLANEOUS

SCC will hold in confidence and will not use nor disclose to third
parties information we receive from the FUND, or information
developed by SCC based upon such information we receive, except
for information which was public at the time of disclosure or
becomes part of the public domain without disclosure by SCC or
information which we learn from a third party which does not have
an obligation of confidentiality to the FUND.

In the event the project is canceled for an indefinite period of
time after the signing of this contract and before the expiration
of the OFFER, SCC will be reimbursed by the FUND for any expenses
incurred and not less than 100% of the project fee.

The FUND agrees to indemnify, hold harmless, reimburse and defend
SCC, and its officers, agents and employees, against all claims or
threatened claims, costs, expenses, liabilities, obligations,
losses or damages (including reasonable legal fees and expenses)
of any nature, incurred by or imposed upon SCC, or any of its
officers, agents or employees, which results, arises out of or is
based upon services rendered to the FUND in accordance with the
provisions of to this AGREEMENT, provided that such services are
rendered to the FUND without any negligence, willful misconduct,
bad faith or reckless disregard on the part of SCC, or its
officers, agents and employees.

This agreement will be governed by and construed in accordance with the
laws of the State of New York. This AGREEMENT sets forth the entire AGREEMENT
between SCC and the FUND with respect to the agreement herein and cannot be
modified except in writing by both parties.

IN WITNESS WHEREOF, the parties have signed this AGREEMENT this 24th
day of July 1995.

THE MEXICO & INCOME FUND, INC. SHAREHOLDER COMMUNICATIONS
CORPORATION

By /s/ Alan H. Rappaport By /s/ Robert S. Brennan
----------------------------- ----------------------------
Alan H. Rappaport Robert S. Brennan
President and Senior Account Executive
Chairman of the Board

<PAGE> 1
EXHIBIT (H)(1)

THE MEXICO EQUITY AND INCOME FUND, INC.

3,000,000 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF TRANSFERABLE RIGHTS
TO SUBSCRIBE FOR SUCH SHARES OF COMMON STOCK

DEALER MANAGER AGREEMENT

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

July 24, 1995

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

<PAGE> 2

THE MEXICO EQUITY AND INCOME FUND, INC.

3,000,000 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF
TRANSFERABLE RIGHTS TO SUBSCRIBE
FOR SUCH SHARES OF COMMON STOCK

DEALER MANAGER AGREEMENT

July 24, 1995

OPPENHEIMER & CO., INC.
Oppenheimer Tower
World Financial Center
New York, New York 10281

Dear Sirs:

The Mexico Equity and Income Fund, Inc., a corporation formed under the laws of
the State of Maryland (the "Fund"), Acci Worldwide, S.A. de C.V., a limited
liability company formed under the laws of the United Mexican States (the
"Mexican Adviser"), and Advantage Advisers, Inc., a corporation formed under the
laws of the State of Delaware (the "U.S. Co-Adviser"), each confirms its
agreement with and appointment of Oppenheimer & Co., Inc., a corporation formed
under the laws of the State of Delaware ("Oppenheimer"), to act as dealer
manager, subject to the terms and conditions set out below, with respect to the
proposed issuance by the Fund to its stockholders of transferable rights
entitling the holders thereof to subscribe for shares of the Fund's Common
Stock, par value $.001 per share.

1. DEFINITIONS

The following terms have the following meanings when used in
this Agreement:

(a) "Acts" means the Securities Act and the Investment Company
Act collectively.

(b) "Administration Agreement" means the Administration
Agreement, dated as of August 14, 1990, between the Fund and Oppenheimer, as
amended.

(c) "Agreement" means this Dealer Manager Agreement as
originally executed and as amended, modified, supplemented or restated from time
to time.

<PAGE> 3

(d) "Business Day" means any day on which trading is conducted
on the New York Stock Exchange, Inc.

(e) "Code" means the Internal Revenue Code of 1986, as amended.

(f) "Commission" means the U.S. Securities and Exchange
Commission.

(g) "Common Stock" means the Fund's Common Stock, par value
$.001 per share.

(h) "Custodian Agreement" means the Custodian Services
Agreement, dated as of August 13, 1990, between the Fund and PNC Bank.

(i) "Effective Date" means the date on which the Registration
Statement is declared effective by the Commission.

(j) "Exchange Act" means the U.S. Securities Exchange Act of
1934.

(k) "Exercising Rights Holders" means Rights Holders purchasing
Shares in the Primary Subscription, including those who purchase Shares pursuant
to the Over-Subscription Privilege.

(l) "Expiration Date" means August 15, 1995, unless extended by
the Fund and the Dealer Manager.

(m) "Information Agent" means Shareholder Communications
Corporation, a corporation formed under the laws of the State of Delaware.

(n) "Information Agent Agreement" means the agreement dated
July 24, 1995, between the Fund and the Information Agent, as the same may be
amended from time to time.

(o) "Investment Advisers Act" means the U.S. Investment
Advisers Act of 1940, as amended.

(p) "Investment Company Act" means the U.S. Investment Company
Act of 1940, as amended.

(q) "Mexican Advisory Agreement" means the Investment Advisory
Agreement, dated and effective as of October 14, 1991, between the Fund and the
Mexican Adviser.

(r) "Mexican Stock Exchange" means the Bolsa Mexicana de
Valores, S.A. de C.V.

(s) "Mexico" means the United Mexican States.

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<PAGE> 4

(t) "NYSE" means the New York Stock Exchange, Inc.

(u) "Offer" means the offer of Shares contemplated by the
Fund's proposed issuance of Rights as more fully described in the Prospectus.

(v) "Plan" means the Fund's Dividend Reinvestment Plan, as
amended.

(w) "PNC Bank" means PNC Bank, National Association, a
corporation formed under the laws of the Commonwealth of Pennsylvania.

(x) "Primary Subscription" means the right of a Rights Holder
to acquire during the Subscription Period at the Subscription Price one Share
for each three Rights held.

(y) "Prospectus" means the prospectus contained in the
Registration Statement, including any amendments or supplements thereto.

(z) "Record Date" means July 21, 1995.

(aa) "Record Date Stockholders" means the Fund's stockholders
of record as of the close of business on the Record Date.

(bb) "Registration Statement" means the Registration Statement
on Form N-2 (File Nos. 33-83820 and 811-06111) under the Acts, and any
amendments to that Registration Statement, relating to the Offer, initially
filed by the Fund with the Commission on September 12, 1994.

(cc) "Rights" means the transferable rights proposed to be
issued by the Fund to Record Date Stockholders, which rights entitle such
stockholders to subscribe for Shares.

(dd) "Rights Holders" means the holders of Rights.

(ee) "Rules and Regulations" means the rules and regulations
adopted by the Commission under the Securities Act and/or the Investment Company
Act.

(ff) "Securities Act" means the U.S. Securities Act of 1933, as
amended.

(gg) "Shares" means an aggregate of 3,000,000 shares of the
Fund's Common Stock for which Rights Holders may subscribe.

(hh) "Subscription Agent" means PNC Bank.

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<PAGE> 5

(ii) "Subscription Agent Agreement" means the agreement dated
as of July 24, 1995, between the Fund and the Subscription Agent, as the same
may be amended from time to time.

(jj) "Subscription Period" means the period of time beginning
on July 26, 1995 and ending at 5:00 p.m., New York time, on the Expiration
Date, unless extended by the Fund and the Dealer Manager.

(kk) "Subscription Price" means the Subscription Price per
Share of $9.125.

(ll) "Transfer Agency Agreement" means the Transfer Agency
Services Agreement, dated as of August 14, 1990, between the Fund and PNC Bank.

(mm) "U.S. Co-Advisory Agreement" means the U.S. Co-Advisory
Agreement, dated and effective as of August 14, 1990, between the Fund and the
U.S. Co-Adviser.

2. THE OFFER

The Fund is proposing to issue transferable Rights to Record
Date Stockholders, which Rights will entitle the holders thereof to subscribe
for Shares. Under the Fund's proposal, each Record Date Stockholder will be
issued one transferable Right for each full share of Common Stock owned on the
Record Date. The number of Rights to be issued to Record Date Stockholders will
be rounded up to the nearest number of Rights evenly divisible by three. No
fractional Shares will be issued. The Rights will entitle the Rights Holders to
acquire in the Primary Subscription at the Subscription Price one Share for each
three Rights held. All Rights will be able to be exercised immediately upon
receipt and until 5:00 p.m. on the Expiration Date. Any Record Date Stockholder
who fully exercises all Rights initially issued to him will be entitled to
subscribe for, subject to allotment, Shares that were not otherwise subscribed
for by others in the Primary Subscription (the "Primary Over-Subscription
Privilege"). In addition, any Rights Holder who exercises Rights will be
entitled to subscribe for, subject to allotment, Shares that were not otherwise
subscribed for in the Primary Subscription or in the Primary Over-Subscription
Privilege (the "Secondary Over-Subscription Privilege" and, together with the
Primary Over-Subscription Privilege, the "Over-Subscription Privilege").
Additional terms and conditions of the Offer are set out in the Prospectus.

3. APPOINTMENT OF DEALER MANAGER

The Fund appoints Oppenheimer as the exclusive dealer manager
in connection with the Offer and Oppenheimer accepts that appointment. The Fund
also authorizes Oppenheimer to form and

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<PAGE> 6

manage a group of securities dealers (each, a "Selling Group Member," and,
collectively, the "Selling Group") to solicit the exercise of Rights and sell
Shares purchased by Oppenheimer from the Fund through the exercise of Rights.
Oppenheimer represents and warrants that it is a broker-dealer registered under
the Exchange Act.

4. REPRESENTATIONS AND WARRANTIES OF THE FUND AND THE ADVISERS

(a) The Fund represents and warrants to Oppenheimer that:

(i) the Registration Statement has been prepared by
the Fund and filed with the Commission in accordance with the requirements of
the Acts and the Rules and Regulations;

(ii) the Registration Statement has been declared
effective by the Commission, the Commission has not issued any order preventing
or suspending the use of the Prospectus, and the Fund has not received any
notice from the Commission pursuant to Section 8(e) of the Investment Company
Act with respect to its registration thereunder;

(iii) the Registration Statement complies, and any
post-effective amendment to the Registration Statement filed with the Commission
after the Effective Date, the Prospectus, and the Prospectus as amended or
supplemented, will comply in all material respects with the Acts and the Rules
and Regulations;

(iv) on the Effective Date, the Registration
Statement did not, and any post-effective amendment to the Registration
Statement filed with the Commission after the Effective Date, will not, contain
any 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, and the Prospectus did not, and the Prospectus as amended and
supplemented, will not, contain any 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, in light of the circumstances under which they were
made, not misleading, except that this representation and warranty does not
apply to statements or omissions in the Registration Statement or the Prospectus
or any such supplement or amendment thereto made in reliance upon and in
conformity with information furnished to the Fund in writing by Oppenheimer
expressly for use therein;

(v) all contracts and other documents required to be
described in, or filed as exhibits to, the Registration Statement under the Acts
have been so described or filed;

-5-

<PAGE> 7

(vi) the financial statements of the Fund, together
with related notes and schedules, included in the Registration Statement and the
Prospectus present fairly, in all material respects, the financial position of
the Fund as at the date thereof and the results of its operations for the period
specified in conformity with U.S. generally accepted accounting principles;

(vii) Price Waterhouse LLP, the accountants who
audited the financial statements of the Fund included in the Registration
Statement and in the Prospectus, are independent public accountants as required
by the Acts and the Rules and Regulations;

(viii) the Fund has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Maryland. The Fund has no subsidiaries and does not control, directly or
indirectly, any corporation, partnership, joint venture, association or other
business organization. The Fund is duly qualified and in good standing as a
foreign corporation authorized to transact business in each jurisdiction in
which the nature of its activities or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the Fund. The Fund has the corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus. The Fund
owns or possesses or has obtained all material United States and Mexican
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to own, lease and operate its properties and to carry
on its businesses as contemplated in the Prospectus, and no such license,
permit, consent, order, approval or other authorization contains a materially
burdensome restriction other than as disclosed in the Registration Statement and
the Prospectus;

(ix) the Fund is registered with the Commission
under the Investment Company Act as a non-diversified, closed-end management
investment company. The Fund is, and at all times through the Expiration Date
will be, in compliance with the terms and provisions of the Acts except for
non-compliance that would not have a material adverse effect. No person is
serving or acting as an officer or director of, or investment adviser to, the
Fund except in accordance with the provisions of the Investment Company Act and
the Investment Advisers Act;

(x) there is no litigation or governmental or other
proceeding or investigation before any court or before or by any governmental
agency or body or self-regulatory authority pending or, to the Fund's knowledge,
threatened against, or involving the properties or business of, the Fund;

-6-

<PAGE> 8

(xi) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus there has
been no material adverse change in the condition (financial or otherwise) or net
assets of the Fund, or in the management, capital stock, investment objectives,
investment policies, earnings, liabilities, business affairs or business
prospects of the Fund, whether or not arising in the ordinary course of
business;

(xii) the Fund is not (A) in violation of its
Articles of Incorporation or By-Laws, or (B) in violation of any material law,
order, rule or regulation applicable to it of any court, federal, state or
foreign governmental agency or body or self-regulatory authority, stock exchange
or securities association having jurisdiction over it or its properties or
operations, or (C) in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to which it
is a party or by which it or its properties may be bound or affected;

(xiii) the execution, delivery and performance by
the Fund of this Agreement, the Subscription Agent Agreement and the Information
Agent Agreement, and the consummation of the transactions contemplated herein
and therein are within the corporate power and authority of the Fund, have been
duly authorized by all necessary corporate action and proceedings on the part of
the Fund and do not and will not conflict with, or constitute a breach of or a
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property of the Fund pursuant to, any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which the Fund is a
party or by which it or any of its property may be bound or affected, nor will
such action result in any violation of the provisions of the Articles of
Incorporation or By-Laws of the Fund or (assuming compliance by Oppenheimer with
all applicable securities and blue sky laws and regulations of those
jurisdictions in which it will engage in the solicitation of the exercise of
Rights) of any law, rule or regulation or any judgment, order or decree of any
court or governmental agency or body or self-regulatory authority having
jurisdiction over the Fund or any of its properties or assets;

(xiv) each of this Agreement, the Subscription Agent
Agreement and the Information Agent Agreement has been duly and validly executed
and delivered by or on behalf of the Fund. The Subscription Agent Agreement and
the Information Agent Agreement, assuming due and valid execution and delivery
by the other parties thereto, constitutes the legal, valid and binding
obligation of the Fund, enforceable against the Fund in accordance with its
terms, except that the enforceability of the terms hereof and thereof may be
limited by applicable bankruptcy,

-7-

<PAGE> 9

insolvency, reorganization or other similar laws relating to or affecting
creditors' rights generally and by general equitable principles regardless of
whether such enforceability is considered in a proceeding in equity or at law,
and except to the extent that the enforceability of the indemnification and
contribution provisions contained therein may be limited under federal and state
securities laws;

(xv) no consent, approval, authorization or order of
any court or governmental agency or body or self-regulatory authority is
required for the consummation by the Fund of the transactions contemplated by
this Agreement, the Subscription Agent Agreement or the Information Agent
Agreement, except such as may be required under the Acts, the Exchange Act or
foreign or state securities or blue sky laws in connection with the distribution
of the Rights and the issue and sale of the Shares;

(xvi) this Agreement, the Fund's Articles of
Incorporation and By-Laws, the Mexican Advisory Agreement, the U.S. Co-Advisory
Agreement, the Administration Agreement, the Custodian Agreement, the Fund's
Sub-Custodian Agreement, the Information Agent Agreement, the Transfer Agency
Agreement, the Subscription Agent Agreement and the Plan conform in all material
respects to the descriptions thereof in the Prospectus and there are no other
agreements or documents to which the Fund is a party which are required under
the Acts to be described in the Prospectus;

(xvii) the Articles of Incorporation and the By-Laws
of the Fund, the Mexican Advisory Agreement, the U.S. Co-Advisory Agreement, the
Administration Agreement, the Custodian Agreement, and the Transfer Agency
Agreement comply in all material respects with all applicable provisions of the
Investment Company Act;

(xviii) the Mexican Advisory Agreement, the U.S.
Co-Advisory Agreement, the Administration Agreement, the Custodian Agreement,
the Transfer Agency Agreement and the Plan are in full force and effect and
neither the Fund nor, to the Fund's knowledge, any other party to any such
agreement is in default thereunder and, to the knowledge of the Fund, no event
has occurred which with the passage of time or the giving of notice would
constitute a default thereunder;

(xix) the authorized, issued and outstanding capital
stock of the Fund is as set forth in the Prospectus. The Offer, the Rights and
the Shares have been duly authorized and, when issued, paid for and delivered as
described in the Registration Statement, the Shares will be validly issued and
fully paid and nonassessable. The Rights, the Shares and the Common Stock
conform in all material respects to the descriptions thereof contained in the
Prospectus. The issuance of the Shares

-8-

<PAGE> 10

is not subject to any preemptive, registration or other similar rights;

(xx) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, there has
been no transaction entered into by the Fund which is material to the Fund other
than those in the ordinary course of business, and there has been no dividend or
distribution of any kind declared, paid or made by the Fund on any class of its
capital stock;

(xxi) the Rights and the Shares have been approved
for listing on the NYSE, subject to official notice of issuance;

(xxii) the Fund has not taken, and will not take,
directly or indirectly, any action designed to, or which might be reasonably
expected to, cause or result in stabilization or manipulation of the price of
the Rights or the Shares;

(xxiii) the Fund is a regulated investment company
under Subchapter M of the Code;

(xxiv) no taxes or charges of any kind are or will
be payable in or to Mexico, or any political subdivision thereof, by Oppenheimer
with respect to this Agreement or the distribution of the Rights and the issue
and sale of the Shares;

(xxv) all advertisements prepared by the Fund for
use in connection with the Offer comply with the requirements of the Acts;

(xxvi) the Fund is registered with the Ministry of
Finance and Public Credit of Mexico as a foreign financial institution.

(b) The U.S. Co-Adviser represents and warrants to Oppenheimer
that:

(i) the U.S. Co-Adviser has been duly organized and
is validly existing as a corporation in good standing under the laws of the
State of Delaware, with the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus;

(ii) the U.S. Co-Adviser is duly qualified to conduct
business in, and is in good standing in, each jurisdiction in which the nature
of its activities or the character of its assets requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on the U.S. Co-Adviser;

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<PAGE> 11

(iii) the U.S. Co-Adviser is duly registered as an
investment adviser under the Investment Advisers Act, and is not prohibited by
the Investment Advisers Act or the Investment Company Act from acting under the
U.S. Co-Advisory Agreement as an investment adviser to the Fund;

(iv) the execution, delivery and performance by the
U.S. Co-Adviser of this Agreement, and the consummation of the transactions
contemplated herein are within the corporate power and authority of the U.S.
Co-Adviser, have been duly authorized by all necessary corporate action and
proceedings on the part of the U.S. Co-Adviser and do not and will not
constitute a breach of or default under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property of the U.S. Co-Adviser
pursuant to, any material contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which the U.S. Co-Adviser is a party or by which it
or any of its property may be bound or affected nor will such action result in
any violation of the provisions of the Certificate of Incorporation or By-Laws
of the U.S. Co-Adviser or of any law, rule or regulation or any judgment, order
or decree of any court or governmental agency or body or any self-regulatory
authority having jurisdiction over the U.S. Co-Adviser or its assets;

(v) each of this Agreement and the U.S. Co-Advisory
Agreement has been duly and validly executed and delivered by or on behalf of
the U.S. Co-Adviser. The U.S. Co-Advisory Agreement, assuming due and valid
execution and delivery by the other parties thereto, constitutes the legal,
valid and binding obligation of the U.S. Co-Adviser, enforceable against the
U.S. Co-Adviser in accordance with its terms, except to the extent such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting creditors' rights
and general principles of equity, and except to the extent that the
enforceability of the indemnification and contribution provisions contained
herein may be limited under federal and state securities laws;

(vi) no consent, approval, authorization or order of
any court or governmental agency or body or self-regulatory authority is
required for the consummation by the U.S. Co-Adviser of the transactions
contemplated by this Agreement;

(vii) the U.S. Co-Advisory Agreement is in full
force and effect and neither the U.S. Co-Adviser nor, to the U.S. Co-Adviser's
knowledge, any other party to such agreement is in default thereunder and, to
the knowledge of the U.S. Co-Adviser, no event has occurred which with the
passage of time or the giving of notice would constitute a default thereunder;

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<PAGE> 12

(viii) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, there has
been no material adverse change in the condition (financial or otherwise) of the
U.S. Co-Adviser;

(ix) there is no litigation or governmental or other
proceeding or investigation before any court or before or by any governmental
agency or body or any self-regulatory authority pending or, to the U.S.
Co-Adviser's knowledge, threatened against, or involving the properties or
business of, the U.S. Co-Adviser which is likely to have a material adverse
effect on the Fund or likely to have a material adverse effect on the ability of
the U.S. Co-Adviser to perform its obligations hereunder or under the U.S.
Co-Advisory Agreement.

(i) the Mexican Adviser has been duly organized and is
validly existing as a corporation under the laws of Mexico, with the corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus;

(ii) the Mexican Adviser is duly qualified to conduct
business in each jurisdiction in which the nature of its activities or the
character of its assets requires such qualification, except where the failure to
be so qualified would not have a material adverse effect on the Mexican Adviser;

(iii) the Mexican Adviser is duly registered as an
investment adviser under the Investment Advisers Act, and is not prohibited by
the Investment Advisers Act or the Investment Company Act from acting under the
Mexican Advisory Agreement as an investment adviser to the Fund;

(iv) the execution, delivery and performance by the Mexican
Adviser of this Agreement, and the consummation of the transactions contemplated
herein, are within the corporate power and authority of the Mexican Adviser,
have been duly authorized by all necessary corporate action and proceedings on
the part of the Mexican Adviser and do not and will not constitute a breach of
or default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property of the Mexican Adviser pursuant to, any material
contract, indenture, mortgage, loan agreement, note, lease or other instrument
to which the Mexican Adviser is a party or by which it or any of its property
may be bound or affected nor will such action result in any violation of the
provisions of the By-Laws (Estatutos Sociales) of the Mexican Adviser or of any
law, rule or regulation or any judgment, order or decree of any court

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<PAGE> 13

or governmental agency or body or self-regulatory authority having jurisdiction
over the Mexican Adviser or its assets;

(v) each of this Agreement and the Mexican Advisory
Agreement has been duly and validly executed and delivered by or on behalf of
the Mexican Adviser. The Mexican Advisory Agreement, assuming due and valid
execution and delivery by the other parties thereto, constitutes the legal,
valid and binding obligation of the Mexican Adviser, enforceable against the
Mexican Adviser in accordance with its terms, except to the extent such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting creditors' rights
and general principles of equity, and except to the extent that the
enforceability of the indemnification and contribution provisions contained
herein may be limited under federal and state securities laws;

(vi) no consent, approval, authorization or order of any
court or governmental agency or body or self-regulatory authority is required
for the consummation by the Mexican Adviser of the transactions contemplated by
this Agreement;

(vii) the Mexican Advisory Agreement is in full force and
effect and neither the Mexican Adviser nor, to the Mexican Adviser's knowledge,
any other party to such agreement is in default thereunder and, to the knowledge
of the Mexican Adviser, no event has occurred which with the passage of time or
the giving of notice would constitute a default thereunder;

(ix) there is no litigation or governmental or other
proceeding or investigation before any court or before or by any governmental
agency or body or self-regulatory authority pending or, to the Mexican Adviser's
knowledge, threatened against, or involving the properties or business of, the
Mexican Adviser which is likely to have a material adverse effect on the ability
of the Mexican Adviser to perform its obligations hereunder or under the Mexican
Advisory Agreement.

(d) Any certificate signed by any officer of the Fund, the
Mexican Adviser or the U.S. Co-Adviser and delivered to Oppenheimer or to
counsel for Oppenheimer shall be deemed a representation and warranty by the
Fund or such adviser, as the case may be, to Oppenheimer as to the matters
covered thereby.

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<PAGE> 14

5. SOLICITATION OF THE EXERCISE OF RIGHTS; FINANCIAL ADVISORY
SERVICES

(a) On the basis of the representations and warranties, and
subject to the terms and conditions, set forth in this Agreement:

(i) Oppenheimer agrees to (1) solicit, in accordance with
the Acts, the Exchange Act and its customary practice, the exercise of the
Rights, subject to the terms and conditions of, this Agreement, the Subscription
Agent Agreement and the procedures described in the Registration Statement, and
(2) form and manage the Selling Group to (i) solicit, in accordance with the
Acts, the Exchange Act and Oppenheimer's customary practice, the exercise of
Rights, subject to the terms of this Agreement, the Subscription Agent Agreement
and the procedures described in the Registration Statement, and (ii) sell Shares
purchased by Oppenheimer from the Fund as provided herein. No securities dealer
shall be considered a Selling Group Member until it shall have entered into a
Selling Group Agreement with Oppenheimer in substantially the form of Exhibit A
hereto;

(ii) Oppenheimer is authorized to buy and exercise Rights
and to sell Shares to the public or to Selling Group Members at the offering
price set by Oppenheimer from time to time. Sales of Shares by Oppenheimer or
Selling Group Members shall be at not more than the offering price set by
Oppenheimer from time to time. Such offering price shall not be increased more
than once during any calendar day and at the time any such price is set shall
not be less than the Subscription Price specified in the Prospectus nor more
than the greater of the last sale or the current offering price on the New York
Stock Exchange, plus an exchange commission;

(iii) the Fund agrees to furnish, or cause to be furnished,
to Oppenheimer, lists, or copies of those lists, showing the names and addresses
of, and number of Shares held by, Record Date Stockholders as of the Record
Date, and to use its best efforts to advise Oppenheimer, or cause it to be
advised, on each Business Day during the Subscription Period as to any transfers
of Rights, and Oppenheimer agrees to use such information only in connection
with the Offer, and not to furnish the information to any other person except
for Selling Group Members or other securities brokers and dealers that
Oppenheimer or the Fund has requested to solicit exercises of Rights;

(iv) the Fund will arrange for the Subscription Agent to
inform Oppenheimer orally, on each Business Day during the Subscription Period
(to be followed by written confirmation), as to the number of Rights that have
been exercised since its previous daily report to Oppenheimer under the
provision of this Section 5(a)(iv) and, not later than 10:00 a.m. (New York City

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<PAGE> 15

time) on August 21, 1995, to provide Oppenheimer with a written statement as to
the total number of Rights exercised (separately setting forth the number of
Rights exercised by Record Date Stockholders);

(v) Oppenheimer agrees to notify the Fund on or prior to
August 21, 1995 of the Shares purchased by Oppenheimer through the exercise of
Rights and sold to the public or to each Selling Group Member and the total
amount of the commissions payable by the Fund pursuant to Section 6 of this
Agreement in connection with such sales.

(b) Oppenheimer agrees to provide to the Fund, in addition to
the services described in paragraph (a) of this Section 5, financial advisory
services in connection with the Offer and general financial advisory services to
the Fund. No advisory fee, other than the fees provided for in Section 6 of this
Agreement and reimbursement of Oppenheimer's out-of-pocket expenses as described
in Section 8(c) of this Agreement, will be payable by the Fund to Oppenheimer in
connection with the general financial advisory services provided by Oppenheimer
in accordance with this paragraph (b) unless the Fund requests Oppenheimer to
provide additional services with respect to a particular transaction involving
the Fund, in which event the fees payable to Oppenheimer will be mutually agreed
upon by the Fund and Oppenheimer.

(c) The Fund and Oppenheimer agree that Oppenheimer and each
Selling Group Member is an independent contractor with respect to its
solicitation of the exercise of Rights, the purchase of Rights or the sale of
Shares as contemplated by this Agreement and with respect to the performance of
financial advisory services to the Fund contemplated by this Agreement, and
Oppenheimer represents and warrants that it is not a partner or agent of any
other securities broker, dealer or other person soliciting the exercise of
Rights, the purchase of Rights or the sale of Shares as contemplated by this
Agreement, or of the Fund or any of its affiliates.

(d) In rendering the services contemplated by this Agreement,
neither Oppenheimer nor any Selling Group Member will be subject to any
liability to the Fund, the Mexican Adviser or the U.S. Co-Adviser or any of
their affiliates, for any act or omission on the part of any securities broker
or dealer (other than Oppenheimer or such Selling Group Member) or any other
person, and neither Oppenheimer nor any Selling Group Member will be liable for
acts or omissions in performing its obligations under this Agreement, except for
any losses, claims, damages, liabilities and expenses determined in a final
judgment by a court of competent jurisdiction to have resulted directly from any
acts or omissions undertaken or omitted to be taken by Oppenheimer or such
Selling Group Member by reason of its willful

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<PAGE> 16

misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations and duties under this
Agreement.

6. DEALER MANAGER AND SOLICITATION FEES

(a) The Fund agrees to pay in New York Clearing House (next
day) funds on August 30, 1995, to Oppenheimer, as compensation for its services
to the Fund as financial advisor in connection with the Offer, a fee equal to an
amount computed by multiplying (i) .01 by (ii) the aggregate number of Shares
purchased in the Offer by (iii) the Subscription Price.

(b) The Fund agrees to pay in New York Clearing House (next
day) funds on August 30, 1995 to Oppenheimer for its own account a fee equal to
an amount computed by multiplying (A) .025 by (B) the number of Shares purchased
pursuant to each subscription form relating to the Rights upon which Oppenheimer
is designated (other than Shares purchased by Oppenheimer through the exercise
of Rights and sold to the public or to Selling Group Members) plus the number of
Shares sold by Oppenheimer to the public as indicated in the notice provided by
Oppenheimer to the Fund pursuant to Section 5(a)(v) of this Agreement, by (C)
the Subscription Price.

(c) The Fund agrees to pay in New York Clearing House (next
day) funds on August 30, 1995 to Oppenheimer for the account of each Selling
Group Member a fee equal to an amount computed by multiplying (A) .025 by (B)
the number of Shares purchased pursuant to each subscription form relating to
the Rights upon which the Selling Group Member is designated plus the number of
Shares sold by Oppenheimer to such Selling Group Member for sale to the public
as indicated in the notice provided by Oppenheimer to the Fund pursuant to
Section 5(a)(v) of this Agreement, by (C) the Subscription Price.

(d) The Fund agrees to pay in New York Clearing House (next
day) funds on August 30, 1995 (i) to each securities broker or dealer who has
executed the Fund's Soliciting Dealer Agreement (other than Oppenheimer or any
Selling Group Member) designated on any subscription form related to the Rights
("Listed Broker"), a fee equal to an amount computed by multiplying (A) .005 by
(B) the number of Shares purchased pursuant to each subscription form upon which
the Listed Broker is designated by (C) the Subscription Price and (ii) to
Oppenheimer a fee equal to an amount computed by multiplying (A) .025 by (B) the
number of Shares purchased pursuant to each subscription form upon which no
Selling Group Member or Listed Broker is designated by (C) the Subscription
Price.

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<PAGE> 17

7. CONDITIONS OF OPPENHEIMER'S OBLIGATION

The obligations of Oppenheimer under this Agreement are subject
to the satisfaction of each of the following conditions:

(a) The Registration Statement shall have become effective not
later than 5:30 P.M., New York City time, on the date of this Agreement, or at
such later time and date as may be consented to by Oppenheimer, and if the Fund
has elected to rely upon Rule 430A under the Securities Act, the Subscription
Price and any price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been transmitted to
the Commission for filing pursuant to Rule 497(h) of the Securities Act within
the prescribed time period, and the Fund shall have promptly provided evidence
satisfactory to Oppenheimer of such timely filing, or a post-effective amendment
providing such information shall have been promptly filed and declared effective
in accordance with the requirements of Rule 430A under the Securities Act.

(b) No stop order suspending the effectiveness of the
Registration Statement under the Securities Act shall have been issued and no
proceedings for that purpose, or under Section 8(e) of the Investment Company
Act, shall be pending or contemplated by the Commission.

(c) The representations and warranties of the Fund, the Mexican
Adviser and the U.S. Co-Adviser contained herein shall be true and correct in
all material respects when made and at all times during the Subscription Period
and the Fund, the Mexican Adviser and the U.S. Co-Adviser shall have each
performed all covenants and agreements and satisfied all conditions contained
herein required to be performed or satisfied by them on or before the date
hereof.

(d) On the date hereof, (i) the Registration Statement and the
Prospectus shall contain all statements which are required to be stated therein
in accordance with the Acts and in all material respects shall conform to the
requirements of the Acts, the Fund shall have complied in all respects with Rule
430A under the Securities Act (if it has elected to rely thereon) and neither
the Registration Statement nor the Prospectus shall contain any 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, (ii) there
shall not have been, since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse change in
the condition, financial or otherwise, of the Fund, the Mexican Adviser or the
U.S. Co-Adviser, or in the management, capital stock, investment objectives,
investment policies, earnings, liabilities, business affairs or business
prospects of the Fund, whether or not arising in the ordinary

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<PAGE> 18

course of business, from that set forth in the Registration Statement and the
Prospectus, (iii) no litigation or governmental or other proceeding or
investigation before any court or before or by any governmental agency or body
or any self-regulatory authority shall be pending or, to the knowledge of the
Fund, threatened against, or involving the properties or business of, the Fund
and no litigation or governmental or other proceeding or investigation before
any court or before or by any governmental agency or body or any self-regulatory
authority shall be pending or, to the knowledge of the Mexican Adviser or the
U.S. Co-Adviser, threatened against, or involving the properties or business of,
either the Mexican Adviser or the U.S. Co-Adviser which is likely to have a
material adverse effect on the Fund or likely to have a material adverse effect
on the ability of the Mexican Adviser or the U.S. Co-Adviser to perform their
respective obligations hereunder or under the U.S. Co-Advisory Agreement or the
Mexican Advisory Agreement, as the case may be, (iv) none of the Fund, the U.S.
Co-Adviser or the Mexican Adviser shall be in default in the performance or
observance of any contract to which it is a party and which is material to the
transactions contemplated by this Agreement, (v) no proceedings shall have been
instituted or threatened by the Commission which would adversely affect the
Fund's standing as a registered investment company under the Investment Company
Act or the standing of either the Mexican Adviser or the U.S. Co-Adviser as a
registered investment adviser under the Investment Advisers Act.

(e) Oppenheimer shall have received, on the date hereof,
certificates of the President of the Fund, the Director General of the Mexican
Adviser and the President of the U.S. Co-Adviser, each dated as of the date
hereof, certifying as of such date, to the extent appropriate, as to the matters
set forth in Sections 7(a), (b), (c) and (d).

(f) At the time of execution of this Agreement, Oppenheimer
shall have received from Price Waterhouse LLP a letter, dated such date and, in
form and substance satisfactory to Oppenheimer, to the effect that:

(i) they are independent accountants with respect to the
Fund within the meaning of the Securities Act and the applicable Rules and
Regulations;

(ii) in their opinion, the financial statements examined by
them and included or incorporated by reference in the Registration Statement
comply as to form in all respects with the applicable accounting requirements of
the Acts and the respective Rules and Regulations; and

(iii) in addition to the procedures referred to in clause
(ii) above, they have performed other specified

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<PAGE> 19

procedures, not constituting an audit, with respect to certain amounts,
percentages, numerical data and financial information appearing in the
Registration Statement, which have previously been specified by Oppenheimer and
which shall be specified in such letter, and have compared certain of such items
with, and have found such items to be in agreement with, the accounting and
financial records of the Fund.

(g) On the date hereof, Oppenheimer shall have received the
favorable opinion, dated as of the date hereof, of Rogers & Wells, counsel for
the Fund, in form and substance satisfactory to counsel for Oppenheimer, to the
effect that:

(i) The Fund has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Maryland.

(ii) The Fund has the corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus, to execute and deliver this Agreement, the Subscription Agent
Agreement and the Information Agent Agreement, and to perform its obligations
hereunder and thereunder.

(iii) The Fund is duly qualified and in good standing as a
foreign corporation authorized to transact business in each jurisdiction in
which the nature of its activities or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the Fund.

(iv) The Offer, the Rights and the Shares have been duly
authorized and the Shares, when issued and delivered by the Fund as described in
the Registration Statement against payment of the Subscription Price, will be
validly issued and fully paid and nonassessable; the issuance of the Shares
pursuant to the Offer is not subject to any preemptive, registration or other
similar rights.

(v) Each of this Agreement, the Subscription Agent
Agreement and the Information Agent Agreement has been duly authorized,
executed and delivered by the Fund and complies in all material respects with
all applicable provisions of the Investment Company Act; each of the
Subscription Agent Agreement and Information Agent Agreement, assuming due and
valid execution and delivery thereof by the other parties thereto, constitutes
a legal, valid and binding obligation of the Fund, enforceable against the Fund
in accordance with its terms, except to the extent such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other similar
laws relating to or affecting creditors' rights and general principles of
equity and except to the extent that the enforceability of the

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<PAGE> 20

indemnification and contribution provisions contained in this Agreement may be
limited under federal and state securities laws.

(vi) The Registration Statement is effective under the
Securities Act and, to the best of their knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued under the Securities
Act or proceedings for that purpose, or under Section 8(e) of the Investment
Company Act, shall have been initiated or threatened by the Commission.

(vii) On the date hereof, the Registration Statement (other
than the financial statements and schedules incorporated by reference therein,
as to which no opinion need be rendered) complies as to form in all material
respects with the requirements of the Acts; they have participated in the
preparation of the Registration Statement and Prospectus and have no reason to
believe that the Registration Statement, on the date hereof, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus, on the date the Registration Statement became effective,
contained an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (except for financial
statements, schedules and other financial, economic and statistical information
contained or incorporated by reference in the Registration Statement or the
Prospectus, as to which counsel need express no belief).

(viii) The Rights, the Shares and the Common Stock conform
in all material respects to the description thereof contained in the Prospectus,
and the forms of certificate used to evidence the Rights and the Shares are in
due and proper form and comply in all material respects with all applicable
statutory requirements.

(ix) To the best of their knowledge, there are no legal or
governmental proceedings pending or threatened against the Fund.

(x) To the best of their knowledge, there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments of
the Fund required by the Acts to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed as exhibits thereto; the descriptions thereof are
correct in all material respects; to the best of their knowledge, no default
exists in the due performance or observance of any material obligation,
agreement, covenant or condition contained in any contract, indenture, loan
agreement, note or lease so described, referred to or filed.

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<PAGE> 21

(xi) No consent, approval, authorization or order of any
United States federal or State of New York court or governmental agency or body
or of any self-regulatory authority in the United States is required in
connection with any of the transactions contemplated hereunder and under the
Subscription Agent Agreement and Information Agent Agreement, except such as has
been obtained or such as may be required under state securities or blue sky
laws; the distribution of the Rights and the issue and sale of the Shares and
the execution and delivery of this Agreement, the Subscription Agent Agreement
and Information Agent Agreement, and the consummation of the transactions
contemplated herein and therein will not conflict with or constitute a breach
of, or default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Fund pursuant to, any
material contract, indenture, mortgage, loan agreement, note, lease or other
instrument known to them 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 the provisions of the Articles of
Incorporation or By-Laws of the Fund, or any applicable United States federal or
State of New York law, order, rule or regulation or any United States federal or
State of New York court having jurisdiction over it or its properties or
operations.

(xii) The Fund is registered with the Commission under the
Investment Company Act as a non-diversified, closed-end management investment
company, and all required action has been taken by the Fund under the Acts with
respect to the distribution of the Rights and the issue and sale of the Shares;
the provisions of the Articles of Incorporation and By-Laws of the Fund comply
as to form in all material respects with the requirements of the Investment
Company Act.

(xiii) The information in the Prospectus under the captions
"Taxation - United States Federal Income Taxes" and "Common Stock," to the
extent that it constitutes matters of United States law or legal conclusions,
has been reviewed by them and is correct in all material respects.

In rendering their opinion, Rogers & Wells (A) may rely as to matters involving
the application of the laws of the State of Maryland, on the opinion of Piper &
Marbury L.L.P., a copy of which shall be delivered to Oppenheimer, and as to
matters involving the application of laws of any jurisdiction other than the
States of New York or Maryland or the United States, to the extent they deem
proper and specified in such opinion, upon the opinion of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for Oppenheimer, (B) shall state that they have reviewed the opinion of Ritch,
Heather y Mueller, S.C. concerning matters of Mexican law, and that such opinion
is satisfactory to them in form and scope and that in

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<PAGE> 22

their opinion Oppenheimer is justified in relying on such opinion, (C) may rely
as to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Fund and public officials and (D) in connection with
the advice to be rendered by Rogers & Wells in accordance with the second clause
of paragraph (vii) above, such counsel may state that it does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, except to the limited
extent set forth in paragraph (xiii) above.

(h) On the date hereof, Oppenheimer shall have received the
favorable opinion, dated as of the date hereof, of Rogers & Wells, counsel for
the U.S. Co-Adviser, in form and substance satisfactory to counsel for
Oppenheimer, to the effect that:

(i) The U.S. Co-Adviser has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Delaware.

(ii) The U.S. Co-Adviser has the corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus and to execute and deliver this Agreement and to
perform its obligations hereunder.

(iii) The U.S. Co-Adviser is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which the nature of its activities or the character of its assets requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the U.S. Co-Adviser.

(iv) The U.S. Co-Adviser is duly registered as an
investment adviser under the Investment Advisers Act; and to the best of their
knowledge after due inquiry, the U.S. Co-Adviser is not prohibited by the
Investment Advisers Act or the Investment Company Act from acting under the U.S.
Co-Advisory Agreement as an investment adviser to the Fund as contemplated by
the Prospectus.

(v) This Agreement has been duly authorized, executed and
delivered by the U.S. Co-Adviser.

(vi) To the best of their knowledge, there are no legal or
governmental proceedings pending or threatened against the U.S. Co-Adviser.

(vii) Neither the execution and delivery of this Agreement
nor the performance by the U.S. Co-Adviser of its obligations hereunder will
conflict with, or constitute a breach

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<PAGE> 23

of, or a default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the U.S. Co-Adviser,
pursuant to any material contract, indenture, mortgage, loan agreement, lease or
other instrument known to them to which the U.S. Co-Adviser is a party or by
which it is bound or to which any property or assets of the U.S. Co-Adviser are
subject, nor will such action result in any violation of the Articles of
Incorporation or By-Laws of the U.S. Co-Adviser, or any applicable United States
federal or State of New York law, order, rule or regulation of the or any United
States federal or State of New York court having jurisdiction over it or its
properties or operations.

(viii) The Mexican Adviser is duly registered as an
investment adviser under the Investment Advisers Act; and to the best of their
knowledge after due inquiry, the Mexican Adviser is not prohibited by the
Investment Advisers Act or the Investment Company Act from acting under the
Mexican Advisory Agreement as investment adviser to the Fund as contemplated by
the Prospectus.

(i) On the date hereof, Oppenheimer shall have received the
favorable opinion, dated as of the date hereof, of Mijares, Angoitia, Iruirta y
Fuentes, S.C., counsel for the Mexican Adviser, in form and substance
satisfactory to counsel for Oppenheimer, to the effect that:

(i) The Mexican Adviser has been duly organized and is
validly existing as a corporation under the laws of Mexico.

(ii) The Mexican Adviser has the corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus and to execute and deliver this Agreement and to
perform its obligations hereunder.

(iii) The Mexican Adviser is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which the nature of its activities or the character of its assets requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the Mexican Adviser.

(iv) This Agreement has been duly authorized, executed and
delivered by the Mexican Adviser. This Agreement, assuming due and valid
execution and delivery by the other parties thereto, constitutes the legal,
valid and binding obligation of the Mexican Adviser, enforceable against the
Mexican Adviser in accordance with its terms, except to the extent such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting creditors' rights
and general principles

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<PAGE> 24

of equity and except to the extent that enforceability of the indemnification
and contribution provisions contained in this Agreement may be limited under
federal and state securities laws.

(v) To the best of their knowledge, there are no legal or
governmental proceedings pending or threatened against the Mexican Adviser.

(vi) Neither the execution and delivery of this Agreement
nor the performance by the Mexican Adviser of its obligations hereunder will
conflict with, or constitute a breach of, or a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Mexican Adviser, pursuant to any material contract, indenture,
mortgage, loan agreement, lease or other instrument known to them to which the
Mexican Adviser is a party or by which it is bound or to which any property or
assets of the Mexican Adviser are subject, nor will such action result in any
violation of the Articles of Incorporation or By-Laws of the Mexican Adviser, or
any applicable law, order, rule or regulation of the United Mexican States or
any state government or any court or governmental agency or body or
self-regulatory authority having jurisdiction over it or its properties or
operations.

(j) On the date hereof, Oppenheimer shall have received an
opinion, dated the date hereof, in form and substance satisfactory to counsel
for Oppenheimer of Ritch, Heather y Mueller, S.C., special Mexican counsel for
the Fund, to the effect that:

(i) Except for such consents, approvals, licenses and
authorizations as shall be specified in such counsel's opinion, all of which
have been obtained and are in full force and effect and all conditions of which
have been fully satisfied, there are no other consents, approvals, licenses or
authorizations required by any party to this Agreement, the Subscription Agent
Agreement or the Information Agent Agreement, from any governmental agency or
body or self-regulatory authority in or of Mexico for (A) the execution,
delivery or performance of this Agreement, the Subscription Agent Agreement or
the Information Agent Agreement, or (B) the Offer, the distribution of the
Rights and the issue and sale of the Shares in the manner contemplated hereunder
or by the Registration Statement and the Prospectus.

(ii) There are no Mexican statutes or regulations or, to
such counsel's knowledge, legal or governmental proceedings materially affecting
the operation of the Fund, the Mexican Adviser or the U.S. Co-Adviser as
contemplated by the Prospectus, except such as are described in the Prospectus;
such counsel does not know of any contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments affecting the

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<PAGE> 25

Fund, the Mexican Adviser or the U.S. Co-Adviser other than those described or
referred to in the Registration Statement (or previously or presently filed with
the Commission) or the Prospectus.

(iii) The information contained in the Registration
Statement at the time such Registration Statement became effective and in the
Prospectus, as amended or supplemented if applicable, to the extent it relates
to matters of Mexican law or Mexican legal conclusions, is accurate and
complete.

(iv) The choice of the laws of the United States and New
York State to govern this Agreement, the Subscription Agent Agreement and the
Information Agent Agreement is in each case a valid choice of law under the laws
of Mexico, and accordingly would be applied by the courts of Mexico if any such
agreement or any claim made thereunder is or are brought before such court upon
proof of the relevant provisions of the United States or New York State; no
provision in said agreements conflicts with public policy in Mexico.

(v) To the best knowledge of such counsel, there is no
pending or threatened action, suit or proceeding before any court or
governmental agency or body or self-regulatory authority or any arbitrator
questioning the validity of this Agreement, the Subscription Agent Agreement or
the Information Agent Agreement or affecting the conduct of the Fund as
described in the Prospectus or involving or affecting the Mexican Adviser or the
U.S. Co-Adviser.

(vi) No stamp duty or other documentary tax is payable in
Mexico in respect of the execution, delivery or performance of this Agreement,
the Subscription Agent Agreement or the Information Agent Agreement; no stamp
duty or other documentary tax would be charged on, and no other deduction will
be made by any court in Mexico from, the amount awarded in any judgment rendered
in respect of any of the documents or instruments referred to in this paragraph
or any rights thereunder or relating thereto; no stamp duty or other documentary
tax of Mexico would be payable in connection with the exercise of rights or
duties under any such documents or instruments by any person.

(vii) The information in the Prospectus under the caption
"Taxation - Mexican Taxes," to the extent that it constitutes matters of Mexican
law or legal conclusions, has been reviewed by them and is correct.

(viii) No taxes or charges of any kind are or will be
payable in or to Mexico, or any political subdivision thereof, by Oppenheimer
with respect to this Agreement or the distribution of the Rights and the issue
and sale of the Shares.

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<PAGE> 26

(k) The favorable opinion, dated as of the date hereof, of
Willkie Farr & Gallagher, counsel for Oppenheimer, with respect to the matters
set forth in (iv), (vii) and (xii) of subsection (g) of this Section.

In rendering their opinion, Willkie Farr & Gallagher (A) may
rely as to matters involving the application of the laws of the State of
Maryland, on the opinion of Piper & Marbury L.L.P., a copy of which shall be
delivered to Oppenheimer, and as to matters involving the application of laws of
any jurisdiction other than the States of New York or Maryland or the United
States, to the extent they deem proper and specified in such opinion, upon the
opinion of other counsel of good standing whom they believe to be reliable and
who are satisfactory to counsel for Oppenheimer, (B) may rely as to matters of
fact, to the extent they deem proper, on certificates of responsible officers of
the Fund and public officials and (C) in connection with the advice rendered by
Willkie Farr & Gallagher in connection with the second clause of paragraph (vii)
of subsection (g) of this Section, such counsel may state that it does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus.

(l) On the date hereof, counsel for Oppenheimer shall have been
furnished with such documents and opinions as they may reasonably require for
the purpose of enabling them to pass upon the distribution of the Rights and the
issue and sale of the Shares as contemplated herein and related proceedings, or
in order to evidence the accuracy of any of the representations or warranties,
or the fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Fund, the Mexican Adviser and the U.S. Co-Adviser in
connection with the distribution of the Rights and the issue and sale of the
Shares as herein contemplated shall be satisfactory in form and substance to
Oppenheimer and counsel for Oppenheimer.

(m) The Rights and the Shares shall have been duly authorized
for listing on the New York Stock Exchange.

If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by Oppenheimer by notice to the Fund at any time prior to or during the
Subscription Period and such termination shall be without liability of any party
to any other party except as provided in Section 8(c). Notwithstanding any such
termination, the provisions of Sections 9 and 10 shall remain in effect.

8. COVENANTS OF THE FUND AND THE ADVISERS

(a) The Fund agrees with Oppenheimer as follows:

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(i) The Fund will use its best efforts to cause the
Registration Statement to become effective under the Securities Act, and will
advise Oppenheimer promptly as to the time at which the Registration Statement
and any amendment thereto (including any post-effective amendment) becomes so
effective. The Fund will notify Oppenheimer immediately, and confirm such notice
in writing (A) of the effectiveness of the Registration Statement and any
amendment thereto (including any post-effective amendment), (B) if Rule 430A
under the Securities Act is used, when the Prospectus is filed with the
Commission pursuant to Rule 497(h) of the Securities Act (which the Fund agrees
to file in a timely manner in accordance with such Rule), (C) of the receipt of
any comments from the Commission, (D) of any request by the Commission for any
amendment or supplement to the Registration Statement or the Prospectus or for
additional information, (E) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of the Prospectus, or the initiation of any
proceedings, investigative or otherwise, for any such purpose, (F) of the
institution of any procedures pursuant to Section 8(e) of the Investment Company
Act, (G) of the suspension of the qualification of the Rights or the Shares for
offering or sale in any jurisdiction, or the initiation or threatening of any
proceedings for any such purpose and (H) of the happening of any event during
the period described in Section 8(a)(iii) which in the judgment of the Fund
makes any statement in the Registration Statement or the Prospectus untrue in
any material respect or which requires the making of any changes in or addition
to the Registration Statement or the Prospectus in order to make the statements
therein not misleading in any material respect. If at any time the Commission
shall issue any order suspending the effectiveness of the Registration Statement
or an order pursuant to Section 8(e) of the Investment Company Act, the Fund
will make every reasonable effort to obtain the withdrawal of such order at the
earliest possible moment.

(ii) The Fund (A) will give Oppenheimer 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 Oppenheimer
in connection with the distribution of the Rights and the issue and sale of the
Shares, which differ 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 with the Commission pursuant to Rule 497 of
the Securities Act), whether pursuant to the Investment Company Act, the
Securities Act, or otherwise, (B) will furnish Oppenheimer and to the Selling
Group Members and other dealers (whose names and addresses Oppenheimer will
furnish to the Fund) 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 (C)

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<PAGE> 28

will not file any such amendment or supplement or use any such prospectus to
which Oppenheimer or counsel for Oppenheimer shall reasonably object.

(iii) If, during such period as in the reasonable opinion
of counsel to Oppenheimer the Prospectus is required by law to be delivered, any
event shall occur as a result of which it is necessary to amend or supplement
the Prospectus in order to make the Prospectus not misleading in light of the
circumstances existing at the time they are delivered to a purchaser, or if for
any other reason it shall be necessary to amend or supplement the Prospectus in
order to comply with the law, the Fund will forthwith amend or supplement the
Prospectus by preparing and furnishing to Oppenheimer and to the Selling Group
Members and other dealers (whose names and addresses Oppenheimer will furnish to
the Fund) a reasonable number of copies of an amendment or amendments of, or a
supplement or supplements to, the Prospectus (in form and substance satisfactory
to counsel for Oppenheimer), so that, as so amended or supplemented, the
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
light of the circumstances existing at the time the prospectuses are delivered
to a purchaser, not misleading and will comply with law.

(iv) The Fund will make generally available to its security
holders as soon as practicable, but not later than 60 days after the close of
the period covered thereby, financial statements (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Fund's fiscal quarter next
following the "effective date" (as defined in Rule 158 under the Securities Act
or any successor rule or regulation thereto) of the Registration Statement.

(v) The Fund will furnish to Oppenheimer, without charge, a
manually executed copy of the Registration Statement, including all exhibits,
and any amendments thereto, and will furnish to Oppenheimer, without charge,
copies, in reasonable quantities, of the Registration Statement and any
amendments thereto, in each case as soon as available and in such additional
quantities as Oppenheimer may from time to time reasonably request.

(vi) The Fund will use its best efforts, in cooperation
with Oppenheimer, to qualify the Rights and the Shares for offering and sale
under the applicable securities laws of such states of the United States as
Oppenheimer may designate, and will maintain such qualifications in effect for
so long as reasonably required for distribution of the Rights and the issue and
sale of the Shares; provided, however, that the Fund will not be obligated to
file any general consent to service of process or

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<PAGE> 29

to qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not now so qualified. The Fund will file such
statements and reports as may be required by the laws of each jurisdiction in
which the Rights and the Shares have been qualified as above provided.

(vii) For a period of five years from the date hereof, the
Fund will furnish to Oppenheimer copies of all annual reports, semiannual
reports, quarterly reports and current reports filed with the Commission, and
such other documents, reports and information as shall be furnished by the Fund
to its stockholders generally.

(viii) The Fund agrees to furnish to Oppenheimer from time
to time during the period when the Prospectus is required to be delivered under
the Securities Act or the Exchange Act such number of copies of the Prospectus
(as amended or supplemented) as Oppenheimer may reasonably request for the
purposes contemplated by the Securities Act or the Exchange Act. The Fund
consents to the use of the Prospectus and any amendment or supplement thereto by
Oppenheimer, both in connection with the distribution of the Rights and the
issue and sale of the Shares and for such period of time thereafter as the
Prospectus is required by law to be delivered in connection therewith.

(ix) Without the prior written consent of Oppenheimer, the
Fund will not issue, sell, contract to sell, register with the Commission, or
otherwise dispose of, directly or indirectly, any equity securities of the Fund
(or any securities convertible into or exercisable for equity securities of the
Fund), within 120 days after the date of the Prospectus, except for (i) the
distribution of the Rights and the issue and sale of the Shares pursuant hereto
and (ii) shares of Common Stock issued pursuant to the reinvestment of dividends
or distributions under the Plan.

(x) The Fund will use the net proceeds received by it from
the exercise of the Rights and the purchase and sale of the Shares in the manner
specified in the Prospectus under the caption "Use of Proceeds."

(b) Each of the Mexican Adviser and the U.S. Co-Adviser
covenants and agrees with Oppenheimer to use its best efforts to cause the Fund
to comply with each of its covenants and agreements contained in Section 8(a).

(c) The Fund will pay all costs, expenses, fees and taxes
incident to (i) the preparation, printing and filing of the Registration
Statement and of each amendment thereto, the Prospectus and any amendments or
supplements thereto, (ii) the printing of this Agreement, (iii) the preparation,
issuance and delivery of the certificates for the Rights and the Shares, (iv)

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<PAGE> 30

the fees and disbursements of the Fund's counsel and accountants, (v) the
qualification of the Rights and the Shares under securities laws in accordance
with the provisions of Section 8(a)(vi) of this Agreement, including filing fees
and any fees or disbursements of counsel for Oppenheimer in connection therewith
and in connection with the preparation of the Blue Sky Survey, (vi) furnishing
such copies of the Registration Statement and the Prospectus and all amendments
and supplements thereto, as may be reasonably requested for use in connection
with the distribution of the Rights and the issue and sale of the Shares, (vii)
the printing and delivery to Oppenheimer of copies of the Blue Sky Survey and
any legal investment survey, (viii) the fees and expenses (other than legal
expenses) incurred with respect to the filing with the National Association of
Securities Dealers, Inc., (ix) the fees and expenses incurred with respect to
the listing of the Rights and the Shares on the NYSE and the registration
thereof under the Exchange Act and (x) an aggregate of $100,000 toward
reimbursement in part of the costs and expenses of Oppenheimer.

If the Offer is not consummated because any condition to
obligations of Oppenheimer set forth in Section 7 hereof is not satisfied when
and as required to be satisfied, or because of any refusal, inability to perform
any agreement herein when and as required to be performed or to comply when and
as required with any provision hereof, the Fund agrees to reimburse Oppenheimer
upon demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the Offer.

9. INDEMNIFICATION

(a) The Fund, the Mexican Adviser and the U.S. Co-Adviser
jointly and severally agree to indemnify and hold harmless Oppenheimer and each
person, if any, who controls Oppenheimer within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act against any and all losses,
claims, damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), as incurred, to which they, or any of them, may become subject under
the Securities Act, the Exchange Act or other federal or state law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities arise out of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus or any amendment thereof or supplement thereto, or
arise out of or are based upon any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that (A)

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<PAGE> 31

such indemnity shall not inure to the benefit of Oppenheimer (or any person
controlling Oppenheimer) on account of any losses, claims, damages or
liabilities arising from the distribution of the Rights and the issue and sale
of the Shares if such untrue statement or omission or alleged untrue statement
or omission was made in the Registration Statement or the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with information
furnished in writing to the Fund by Oppenheimer specifically for use therein;
and (B) the indemnity agreement contained in this subsection (a) with respect to
any untrue statement or alleged untrue statement contained in, or omission or
alleged omission from the Prospectus and corrected in any supplement or
amendment thereto shall not inure to the benefit of Oppenheimer on account of
any losses, claims, damages or liabilities incurred by Oppenheimer arising from
the distribution of the Rights and the issue and sale of the Shares if a copy of
the supplement or amendment to the Prospectus shall not have been sent or given
to such person in any case where such delivery was required by the Securities
Act; and provided further that the obligation of the Mexican Adviser under this
Section 9(a) shall not apply to any loss, claim, damage or liability to the
extent arising out of or based upon any untrue statement or alleged untrue
statement of or omission or alleged omission contained in the Prospectus (or any
amendment or supplement thereto) except in respect of information contained
under the captions "Management of the Fund -- The Mexican Adviser," "The Mexican
Securities Markets" and "Appendix A -- The United Mexican States" and with
respect to information relating to the Mexican Adviser under the caption
"Prospectus Summary;" and provided further that the obligation of the U.S.
Co-Adviser under this Section 9(a) shall not apply to any loss, claim, damage or
liability to the extent arising out of or based upon any untrue statement or
alleged untrue statement of or omission or alleged omission contained in the
Prospectus (or any amendment or supplement thereto) except in respect of
information contained under the caption "Management of the Fund -- The U.S.
Co-Adviser," and with respect to information relating to the U.S. Co-Adviser
under the caption "Prospectus Summary;" and provided further that the Mexican
Adviser and the U.S. Co-Adviser shall be liable to any party indemnified by them
under this Section 9(a) only to the extent that the Fund fails to indemnify them
and hold harmless such indemnified party pursuant to this Section 9(a) and (ii)
any failure of the Fund to consummate the Offer, including any failure of the
Fund to issue the Rights or issue and sell the Shares, (iii) any action taken or
omitted to be taken in connection with the Offer by Oppenheimer with the consent
of the Fund, (iv) any action taken or omitted to be taken in connection with the
Offer by the Fund and/or the Mexican Adviser and the U.S. Co-Adviser (provided,
however, that the Fund shall not be liable for any action or inaction of the
Mexican Adviser and/or the U.S. Co-Adviser with respect to this clause (iv)),
(v) any breach by the Fund and/or the Mexican Adviser and the U.S. Co-Adviser of
any representation

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<PAGE> 32

or warranty, or any failure by the Fund and/or the Mexican Adviser and the U.S.
Co-Adviser to comply with any agreement or covenant contained in this Agreement
(provided, however, that the Fund shall not be liable for any breach or failure
to comply of the Mexican Adviser and/or the U.S. Co-Adviser with respect to this
clause (v)) or (vi) any of the other transactions contemplated by the Offer or
by Oppenheimer's performance of its obligations under this Agreement provided no
willful misfeasance, bad faith or gross negligence by Oppenheimer in the
performance of its duties, or reckless disregard of its duties. The
indemnification obligations under this Section 9(a) will be in addition to any
liability which the Fund, the Mexican Adviser or the U.S. Co-Adviser may
otherwise have.

(b) Oppenheimer agrees to indemnify and hold harmless the Fund,
the Mexican Adviser and the U.S. Co-Adviser, their respective directors and each
officer of the Fund who signs the Registration Statement, and any person
controlling the Fund, the Mexican Adviser or the U.S. Co-Adviser to the same
extent as the foregoing indemnity from the Fund, the Mexican Adviser and the
U.S. Co-Adviser to Oppenheimer but only with reference to information furnished
in writing by Oppenheimer expressly for use in the Registration Statement and
the Prospectus or any supplement or amendment thereto. The Fund, the Mexican
Adviser and the U.S. Co-Adviser each acknowledge that the statements set forth
in the stabilizing legend on the inside front cover page, the second paragraph
of text under the sub-heading "--The U.S. Co-Adviser," the text under the
subheading "--Administrator" and the first, third, sixth and seventh paragraphs
of text under the heading "Distribution Arrangements" in the Prospectus
constitute the only information furnished in writing by or on behalf of
Oppenheimer for inclusion in the Prospectus.

(c) Any party that proposes to assert the right to be
indemnified under this Section 9 shall, promptly after receipt of notice of
commencement of any action, suit or proceeding against any such party in respect
of which a claim is to be made against an indemnifying party or parties under
this Section, notify each such indemnifying party of the commencement of such
action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 9(a) or 9(b) shall be available to any
party who shall fail to give notice as provided in this Section 9(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was prejudiced by the failure to give such notice,
but the omission so to notify such indemnifying party of any such action, suit
or proceeding shall not relieve it from any liability that it may have to any
indemnified party for contribution or otherwise than under this Section. In case
any such action, suit or proceeding shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be

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<PAGE> 33

entitled to participate in, and, to the extent that it wishes, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and the approval by the indemnified party of such counsel, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses, except as provided below and except for the reasonable costs
of investigation subsequently incurred by such indemnified party in connection
with the defense thereof. The indemnified party shall have the right to employ
its counsel in any such action, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the employment of counsel
by such indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded that there
may be a conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in which case
the indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the indemnifying parties
shall not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of which cases
the fees and expenses of counsel shall be at the expense of the indemnifying
parties. An indemnifying party shall not be liable for any settlement of any
action, suit, proceeding or claim effected without its written consent, which
consent shall not be unreasonably withheld. 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.

10. CONTRIBUTION

In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 9 is due in
accordance with its terms but for any reason is held to be unavailable to an
indemnified party, then each indemnifying party under Section 9 shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages and liabilities (including any investigation, legal and
other expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting any contribution received by the Fund, the Mexican Adviser and the
U.S. Co-Adviser from persons other than Oppenheimer, such as persons who control
the Fund, the Mexican

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<PAGE> 34

Adviser and the U.S. Co-Adviser within the meaning of the Securities Act,
officers of the Fund who signed the Registration Statement and directors of the
Fund, who may also be liable for contribution) in such proportion as is
appropriate to reflect the relative benefits received by the Fund, the Mexican
Adviser and the U.S. Co-Adviser on the one hand and Oppenheimer on the other
from the distribution of Rights and the issue and sale of the Shares or, if such
allocations are not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 9 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Fund, the Mexican Adviser and the U.S. Co-Adviser on the one hand and
Oppenheimer on the other in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Fund, the Mexican Adviser and the U.S. Co-Adviser on the one hand and
Oppenheimer on the other shall be deemed to be in the same proportion as the
total net proceeds from the subscription for the Shares (before deducting
expenses) received by the Fund bears to the aggregate financial advisory and
soliciting fees received by Oppenheimer pursuant to Section 6 hereof (such fees,
the "Aggregate Fees"). The relative fault of the Fund, the Mexican Adviser and
the U.S. Co-Adviser on the one hand and Oppenheimer on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact related to information supplied by the Fund,
the Mexican Adviser and the U.S. Co-Adviser or Oppenheimer and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Fund, the Mexican Adviser and the U.S.
Co-Adviser and Oppenheimer agree that it would not be just and equitable if
contribution pursuant to this Section 10 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 10, (i) in no case shall Oppenheimer be required to contribute any
amount in excess of the Aggregate Fees and (ii) the Fund, the Mexican Adviser
and the U.S. Co-Adviser shall be liable and responsible for any amount in excess
of the Aggregate Fees; provided, however, that 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. For purposes of this Section 10, each person, if
any, who controls Oppenheimer within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act shall have the same rights to
contribution as Oppenheimer, and each person, if any, who controls the Fund, the
Mexican Adviser or the U.S. Co-Adviser within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, each officer of the Fund
who shall

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<PAGE> 35

have signed the Registration Statement and each director of the Fund, the
Mexican Adviser and the U.S. Co-Adviser shall have the same rights to
contribution as the Fund, the Mexican Adviser and the U.S. Co-Adviser, subject
in each case to clauses (i) and (ii) in the immediately preceding sentence of
this Section 10. Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect of which a claim for contribution may be made against another party
or parties under this Section, notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
from whom contribution may be sought shall not relieve the party or parties from
whom contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section. No party shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
without its written consent.

11. EFFECTIVE DATE; TERMINATION

(a) This Agreement shall become effective upon the later of (i)
execution and delivery hereof by the parties hereto and (ii) release of
notification of the effectiveness of the Registration Statement by the
Commission.

(b) This Agreement may be terminated after it becomes effective
by Oppenheimer by notifying the Fund, the Mexican Adviser and the U.S.
Co-Adviser at any time:

(i) if any of the following has occurred: (A) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, any adverse change or development involving a prospective
adverse change in or affecting the condition, financial or otherwise, of the
Fund, the Mexican Adviser or the U.S. Co-Adviser or earnings, affairs, or
business prospects of the Fund, the Mexican Adviser or the U.S. Co-Adviser
whether or not arising in the ordinary course of business, which would, in
Oppenheimer's sole judgment, make the solicitation of the exercise of the Rights
or the issuance and sale of the Shares in the manner contemplated by the
Prospectus impracticable, (B) any outbreak of hostilities, any escalation in any
hostilities in which the United States or Mexico is engaged, or other national
or international calamity or crisis or material change in economic conditions,
if the effect of such outbreak, calamity, crisis or change in the financial
markets of the United States or elsewhere would, in Oppenheimer's sole judgment,
make the solicitation of the exercise of the Rights or the issuance and sale of
the shares in the manner contemplated by the Prospectus impracticable, (C)
suspension of trading in securities on the NYSE or the Mexican Stock Exchange or
a material limitation on prices (other than limitations of a type which are
described in the Prospectus and limitations on hours or numbers

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<PAGE> 36

of days of trading) for securities on any such exchange, (D) the enactment,
publication, decree or other promulgation of any U.S. federal or state or
Mexican statute, regulation, rule or order of any U.S. federal or state or
Mexican court or other governmental authority which in Oppenheimer's sole
opinion materially and adversely affects, or will materially and adversely
affect, the business or operations of the Fund, the Mexican Adviser or the U.S.
Co-Adviser, (E) declaration of a banking moratorium by either U.S. federal or
New York State or Mexican authorities, (F) the taking of any action by any U.S.
federal or state or local government or agency in respect of its monetary or
fiscal affairs which in Oppenheimer's sole opinion has a material adverse effect
on the financial markets in the United States or (G) existing financial,
political or economic conditions in Mexico, or international monetary
conditions, shall have undergone a material change which in Oppenheimer's sole
opinion makes the solicitation of the exercise of the Rights or the issuance and
sale of the Shares in the manner contemplated by the Prospectus impracticable.

(ii) at or before the Expiration Date if any of the
conditions specified in Section 7 shall not have been fulfilled when and as
required by this Agreement.

If this Agreement is terminated pursuant to this Section,
Oppenheimer shall not be under any liability to the Fund, the Mexican Adviser or
the U.S. Co-Adviser and neither the Fund, the Mexican Adviser nor the U.S.
Co-Adviser shall be under any liability to Oppenheimer except to the extent
provided in Section 8(c). Notwithstanding any such termination, the provisions
of Sections 9 and 10 shall remain in effect.

12. MISCELLANEOUS

These respective agreements, representations, warranties,
indemnities and other statements of the Fund, the Mexican Adviser, the U.S.
Co-Adviser or their respective officers and of Oppenheimer set forth in or made
pursuant to this Agreement shall remain in full force and effect, regardless of
any investigation made by or on behalf of Oppenheimer or the Fund, the Mexican
Adviser, the U.S. Co-Adviser or any of the officers, directors or controlling
persons referred to in Sections 9 and 10 hereof, and shall survive delivery of
and payment for the Shares. The provisions of Sections 8(c), 9 and 10 hereof
shall survive the termination or cancellation of this Agreement.

This Agreement has been and is made for the benefit of
Oppenheimer, the Fund, the Mexican Adviser, the U.S. Co-Adviser and their
respective successors and assigns and, to the extent expressed herein, for the
benefit of persons controlling any of Oppenheimer, the Fund, the Mexican Adviser
or the U.S. Co-

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<PAGE> 37

Adviser, directors and officers of the Fund, the Mexican Adviser and their
respective successors and assigns, and no other person shall acquire or have any
right under or by virtue of this Agreement. The term "successors and assigns"
shall not include any purchaser of Shares merely because of such purchase.

All notices and communications hereunder shall be in writing
and mailed or delivered, or transmitted by telephone or telegraph if
subsequently confirmed in writing, to Oppenheimer, at Oppenheimer Tower, World
Financial Center, New York, New York 10281, Attention: Legal Department, to the
Fund at Oppenheimer Tower, World Financial Center, New York, New York 10281, c/o
Oppenheimer & Co., Inc., Attention: President; to the Mexican Adviser at Paseo
de la Reforma 398, 06600 Mexico, D.F., Mexico, c/o Acciones y Valores de Mexico,
S.A. de C.V., Attention: Director General; and to the U.S. Co-Adviser at
Oppenheimer Tower, World Financial Center, New York, New York 10281, c/o
Oppenheimer & Co., Inc., Attention: President.

This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.

This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.

-36-

<PAGE> 38

Please confirm that the foregoing correctly sets forth the
agreement among the Fund, the Mexican Adviser, the U.S. Co-Adviser and
Oppenheimer.

Very truly yours,

THE MEXICO EQUITY AND
INCOME FUND, INC.

By:____________________________
Alan H. Rappaport
President and Chairman of
the Board of Directors

ACCI WORLDWIDE, S.A. DE C.V.

By:____________________________
Maria Eugenia Pichardo
Director General

ADVANTAGE ADVISERS, INC.

By:____________________________
Alan H. Rappaport
President

Confirmed and Accepted

OPPENHEIMER & CO., INC.

By:____________________________
Dennis Feeney
Executive Vice President

<PAGE> 1
EXHIBIT (h)(2)

THE MEXICO EQUITY AND INCOME FUND, INC.

RIGHTS OFFERING FOR SHARES OF COMMON STOCK

SOLICITING DEALER AGREEMENT

THE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK TIME, ON AUGUST 15, 1995,
UNLESS EXTENDED.

To Securities Dealers and Brokers:

The Mexico Equity and Income Fund, Inc. (the "Fund") is issuing
to its stockholders of record ("Record Date Stockholders") as of the close of
business on July 24, 1995 (the "Record Date") transferable rights ("Rights") to
subscribe for an aggregate of 3,000,000 shares of Common Stock (the "Shares") of
the Fund upon the terms and subject to the conditions set forth in the Fund's
Prospectus dated July 24, 1995 (the "Offer"). Each Record Date Stockholder is
being issued one Right for each full share of Common Stock owned on the Record
Date. The Rights will be traded on the New York Stock Exchange. The Rights
entitle the Record Date Stockholders and holders of Rights acquired during the
Subscription Period (as hereinafter defined) to acquire at $9.125 per Share (the
"Subscription Price"), one Share for each three Rights held. No fractional
Shares will be issued. The Subscription Period commences on July 26, 1995 and
ends at 5:00 p.m., New York time, on August 15, 1995, unless extended (the
"Expiration Date"). Record Date Stockholders who fully exercise all Rights
issued to them and, secondarily, holders of Rights acquired during the
Subscription Period, are entitled to subscribe for Shares which were not
otherwise subscribed for by others in the primary subscription (the
"Over-Subscription Privilege"). Shares acquired pursuant to the
Over-Subscription Privilege are subject to allotment, as more fully discussed in
the Prospectus.

For the duration of the Offer, the Fund will pay Soliciting
Fees (as defined below) to any qualified broker or dealer who solicits the
exercise of Rights in connection with the Offer and who complies with the
procedures described below (a "Soliciting Dealer"). Upon timely delivery to PNC
Bank, National Association, the Fund's Subscription Agent for the Offer, of
payment for Shares purchased pursuant to the exercise of Rights and of properly
completed and executed documentation as set forth in this Soliciting Dealer
Agreement, a Soliciting Dealer will be entitled to receive a soliciting fee
equal to 0.50% of the Subscription Price per Share purchased pursuant to
exercise of the Rights (the "Soliciting Fee"). A qualified broker or dealer is a
broker or dealer that is a member of a registered national securities exchange
in the United States or the National Association of Securities Dealers, Inc.
("NASD") or any foreign

<PAGE> 2

broker or dealer not eligible for membership who agrees to conform to the Rules
of Fair Practice of the NASD in making solicitations in the United States to the
same extent as if it were a member thereof.

The Fund hereby agrees to pay the Soliciting Fees payable to
the Soliciting Dealers and to indemnify each Soliciting Dealer against all
losses, claims, damages and liabilities to which such Soliciting Dealer may
become subject as a result of (a) any untrue or alleged untrue statement of a
material fact in the Prospectus, as amended or supplemented from time to time,
or the omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or (b)
any actions taken or omitted to be taken in connection with the performance by
such Soliciting Dealer of its services as a Soliciting Dealer, except to the
extent any such loss, claim, damage or liability results from the negligence,
willful misconduct or bad faith of such Soliciting Dealer in performing its
services as a Soliciting Dealer. 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 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 Oppenheimer & Co., Inc., the
Dealer Manager in connection with the Offer (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 for its own account or for the account of any affiliate of the Soliciting
Dealer, except that the Dealer Manager shall receive the Soliciting Fees with
respect to Shares purchased pursuant to an exercise of Rights for its own
account provided that such Shares are offered and sold by the Dealer Manager to
its clients. 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 respect in any 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

-2-

<PAGE> 3

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 Dealer Manager must have received from such Soliciting Dealer no later than
5:00 p.m., New York time, on the Expiration Date, a properly completed and duly
executed Soliciting Dealer Agreement (or a facsimile thereof). In addition, the
Subscription Agent must have received from such Soliciting Dealer either (i) a
properly completed and duly executed Subscription Certificate with respect to
Shares purchased pursuant to the exercise of Rights and full payment for such
Shares by no later than 5:00 p.m., New York time, on the Expiration Date; or
(ii) a Notice of Guaranteed Delivery guaranteeing delivery to the Subscription
Agent by close of business on the third New York Stock Exchange trading day
after the Expiration Date, of a properly completed and duly executed
Subscription Certificate with respect to Shares purchased pursuant to the
exercise of Rights and full payment for such Shares. In the case of a Notice of
Guaranteed Delivery, Soliciting Fees will only be paid after payment and
delivery in accordance with such Notice of Guaranteed Delivery has been
effected. Soliciting Fees will only be paid to a Soliciting Dealer who is
designated on the Subscription Certificate. If no Soliciting Dealer is
designated, the Soliciting Fee will be paid to the Dealer Manager.

All questions as to the form, validity and eligibility
(including time of receipt) of the 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 or the Fund's 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.

Execution and delivery of this Soliciting Dealer Agreement and
the acceptance of Soliciting Fees from the Fund by a Soliciting Dealer
constitute a representation and warranty 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, 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
may lawfully be made, and the applicable rules and regulations of any self-

-3-

<PAGE> 4

regulatory organization or registered national securities exchange, including,
without limitation, Section 24 of Article III of the Rules of Fair Practice of
the NASD; (iii) in soliciting purchases of Shares pursuant to the exercise of
the Rights, 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; (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) the Soliciting Fees being paid by the Fund
pursuant to the terms hereof are not being paid with respect to Shares purchased
by the Soliciting Dealer pursuant to an exercise of Rights 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 accepting Soliciting Fees, a Soliciting
Dealer will be deemed to have agreed to indemnify the Fund against losses,
claims, damages and liabilities to which the Fund may become subject as a result
of the breach of such Soliciting Dealer's representations and warranties made
herein and described above. In making the foregoing representations, Soliciting
Dealers are reminded of the possible applicability of Rule 10b-6 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.

Soliciting Fees due to eligible Soliciting Dealers will be paid
promptly after consummation of the Offer. Upon expiration of the Offer, no
Soliciting Fees will be payable to Soliciting Dealers with respect to Shares
purchased thereafter.

This Soliciting Dealer Agreement may be signed in two or more
counterparts, each of which will be an original, with the same effect as if the
signatures were on the same instrument.

This Soliciting Dealer Agreement will be governed by the laws
of the State of New York.

Please list on the Appendix attached to this Agreement and
forming part of this Soliciting Dealer Agreement the number of Shares purchased
pursuant to the exercise of the Rights by each beneficial owner whose purchases
you, as a Soliciting Dealer, have solicited. All amounts beneficially owned by a
beneficial owner, whether in one account or several, and in however many
capacities, must be aggregated for purposes of

-4-

<PAGE> 5

completing the table in the Appendix to this Agreement. Any questions as to what
constitutes beneficial ownership should be directed to the Fund. The number of
shares not listed in the Appendix for reasons of inadequate space should be
listed on a separate schedule attached to, and forming part of, this Soliciting
Dealer Agreement.

Please execute this Soliciting Dealer Agreement below accepting
the terms and conditions hereof and confirming that you are a member firm of a
registered national securities exchange or 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 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.

Very truly yours,

Alan H. Rappaport
President and Chairman
of the Board of Directors

ACCEPTED AND CONFIRMED

_________________________________ _____________________________________
Printed Firm Name Address

_________________________________ _____________________________________
Authorized Signature Area Code and Telephone Number

_________________________________
Name and Title

Dated: __________________________________

ALL SOLICITING DEALER AGREEMENTS SHOULD BE
RETURNED TO OPPENHEIMER & CO., INC. BY FACSIMILE
(TELECOPIER), ATTENTION: GAYLE MATTIMOE,
AT (212) 667-5084. FACSIMILE TRANSMISSIONS MAY
BE CONFIRMED BY CALLING (212) 667-4749.

ALL QUESTIONS CONCERNING SOLICITING DEALER AGREEMENTS SHOULD BE
DIRECTED TO SHAREHOLDER COMMUNICATIONS CORPORATION AT
(800) 773-8481, EXT. 318 OR (212) 805-7000 (COLLECT).

-5-

<PAGE> 6

APPENDIX TO SOLICITING DEALER AGREEMENT

TO BE COMPLETED BY THE SOLICITING DEALER

<TABLE>
<CAPTION>
BENEFICIAL OWNERS NUMBER OF SHARES PURCHASED
- -----------------------------------------------------------------------------------------------------
<S> <C>
Beneficial Owner No. 1.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 2.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 3.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 4.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 5.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 6.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 7.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 8.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 9.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 10.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 11.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 12.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 13.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 14.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 15.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 16.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 17.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 18.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 19.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 20.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 21.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 22.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 23.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 24.
- -----------------------------------------------------------------------------------------------------
Beneficial Owner No. 25.
- -----------------------------------------------------------------------------------------------------
TOTAL:
- -----------------------------------------------------------------------------------------------------
</TABLE>
-6-

<PAGE> 1
EXHIBIT (H)(3)

THE MEXICO EQUITY AND INCOME FUND, INC.
SELLING GROUP AGREEMENT

July 24, 1995

Oppenheimer & Co., Inc.
World Financial Center
200 Liberty Street
New York, New York 10281

Dear Sirs:

We understand that The Mexico Equity and Income Fund, Inc., a
Maryland corporation (the "Fund"), proposes to issue to its shareholders of
record as of July 24, 1995 rights ("Rights") entitling their holders to
subscribe for an aggregate of 3,000,000 shares ("Shares") of the Fund's Common
Stock, par value $.001 per share ("Common Stock"). We further understand that
the Fund has appointed you as the exclusive Dealer Manager in connection with
the offer of Shares contemplated by the proposed issuance of Rights (the
"Offer").

We hereby express our interest in participating in the Offer as
a Selling Group Member.

We hereby agree with you as follows:

We have received and reviewed the Prospectus dated July 24,
1995 (the "Prospectus") relating to the Offer 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 amended or supplemented, if applicable) and such Offering Materials.

II.

From time to time during the subscription period (the
"Subscription Period") commencing on July 26, 1995 and ending at 5:00 p.m., New
York time, on August 15, 1995, unless extended (the "Expiration Date"), we may
solicit the exercise of Rights in

<PAGE> 2

connection with the Offer. We will be entitled to receive fees in the amounts
and at the times described in Article IV of this Agreement with respect to
Shares purchased pursuant to the exercise of Rights and with respect to which
PNC Bank, National Association (the "Subscription Agent") has received, no later
than 5:00 p.m., New York time, on the Expiration Date, either (i) a properly
completed and duly executed Subscription Certificate (in the form attached to
the Prospectus), 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 (in the form attached to the Prospectus) guaranteeing to
the Subscription Agent by the close of business of the third New York Stock
Exchange trading day after the Expiration Date of 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 except that we may receive such fees with
respect to Shares purchased pursuant to an exercise of Rights for our own
account provided that such Shares are offered and sold by us to our clients. 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 Agreement and, in particular, that we will not be entitled
to receive any fees under the Fund's 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"), and 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 your
customary practice and subject to the terms of the Subscription Agent Agreement
between the Fund and the Subscription Agent, a form of which was filed as an
exhibit to the Registration Statement (as defined below) of which the Prospectus
is a part, and the procedures described in the Fund's registration statement on
Form N-2 (File No. 33-83820, as amended (the "Registration Statement").

<PAGE> 3

III.

From time to time during the Subscription Period, we may
indicate interest in purchasing Shares from you as Dealer Manager. We understand
that from time to time you intend to offer Shares obtained by you through the
exercise of Rights to Selling Group Members who have so indicated interest at
prices which shall be determined by you (the "Offering Price"). We agree that
with respect to any such Shares purchased by us from you 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 purchased them from you. Shares not sold by us at such
Offering Price may be offered by us after the next succeeding Offering Price is
set at prices not in excess of the latest Offering Price set by you. You agree
that you will set a new Offering Price prior to 4:00 p.m., New York time, on
each New York Stock Exchange trading day.

We agree to advise you from time to time upon request, prior to
the termination of this Agreement, of the number of Shares remaining unsold
which were purchased by us from you and, on your request, we will resell to you
any of such Shares remaining unsold at the purchase price thereof if in your
opinion such Shares are needed to make delivery against sales made to other
Selling Group Members.

Any Shares purchased hereunder from you shall be subject to
regular way settlement through the facilities of the Depository Trust Company.

IV.

We understand that you will remit to us, on or shortly after
August 30, 1995 (or, if the Expiration Date is extended, on such later date not
more than 15 days after the Expiration Date as you may determine), following
receipt by you from the Fund, a fee, equal to an amount computed by multiplying
(i) .025, by (ii) the sum of (a) the number of Shares purchased 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 Article II of this Agreement, plus (b) the number of Shares sold by you to
us in accordance with Article III of this Agreement (less any Shares resold to
you pursuant to the second paragraph thereof), by (iii) the subscription price
of $9.125. Your only obligation to us with respect to payment of the foregoing
fee is to remit to us amounts owing to us actually received by you from the
Fund.

<PAGE> 4

Except as aforesaid, you shall be under no liability to make any payments to us
pursuant to this Agreement.

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.

VI.

We represent and warrant that we are a member in good standing
of the National Association of Securities Dealers, Inc. (the "NASD") and, in
making sales of Shares, agree to comply with all applicable rules of the NASD
including, without limitation, the NASD's Interpretation with Respect to
Free-Riding and Withholding and Section 24 of Article III of the NASD's Rules of
Fair Practice.

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 represent and warrant that we have at all times complied
with the provisions of Rule 10b-6 under the Securities Act applicable to the
Offer and 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 (including discretionary accounts), except as provided
in Articles II and III hereof and except that we may buy or sell Rights or
Shares in brokerage transactions on consolidated 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

<PAGE> 5

prospectus, we will, upon your request, promptly forward copies thereof to such
persons.

We represent and warrant that we have 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.

VII.

Nothing contained in this 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 Article IV of this 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 Agreement.

VIII.

We agree to pay any transfer taxes which may be assessed and
paid on account of any sales or transfers for our account and a percentage,
based upon the ratio of the fees payable to us pursuant to Article IV of this
Agreement to the aggregate fees payable by the Fund to you and all Selling Group
Members pursuant to Article IV of each Selling Group Agreement, of (i) all
expenses incurred by you in investigating or defending against any claim or
proceeding which is asserted or instituted by any party (including any
governmental or regulatory body) other than a Selling Group Member relating to
the Registration Statement, any preliminary prospectus, the Prospectus (or any
amendment or supplement thereto) or any Offering Materials and (ii) any
liability, including attorneys' fees, incurred by you in respect of any such
claim or proceeding, whether such liability shall be the result of a judgment or
as a result of any settlement agreed to by you, other than any such expense or
liability as to which you receive indemnity pursuant to Article VII of this
Agreement or indemnity or contribution from the Fund.

<PAGE> 6

Our agreements contained in this Article VIII shall remain operative and in full
force and effect regardless of (i) any investigation made by or on behalf of any
Selling Group Member or any person controlling any Selling Group Member or by or
on behalf of the Fund, its directors or officers or any person controlling the
Fund and (ii) acceptance of and payment for the Shares.

IX.

All communications to you relating to the Offer will be
addressed to the Syndicate Department, Oppenheimer & Co., Inc., World Financial
Center, 200 Liberty Street, New York, New York 10281, Attention: Joseph Missett.

This Agreement will be governed by the laws of the State of New
York.

Very truly yours,

_____________________________________
[Firm Name]

By___________________________________
Name:
Title:

Confirmed and Accepted
this ___ day of _________, 1995

OPPENHEIMER & CO., INC.

By_____________________________
Name:
Title:

<PAGE> 1

EXHIBIT(l)(1)

[ROGERS & WELLS LETTERHEAD]

July 24, 1995

The Mexico Equity and Income Fund, Inc.
Oppenheimer Tower
World Financial Center
200 Liberty Street
New York, New York 10281

Ladies and Gentlemen:

We have acted as counsel for The Mexico Equity and Income Fund, Inc., a
Maryland corporation (the "Fund"), in connection with the preparation and
filing with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "1933 Act"), and the Investment Company Act of 1940, as
amended, of a Registration Statement on Form N-2 (File Nos. 33-83820 and
811-06111) (the "Registration Statement") relating to the issuance by the Fund
of transferable rights (the "Rights") to subscribe for up to 3,000,000 shares
of Common Stock of the Fund, par value $0.001 per share (the "Shares").

In rendering the opinions expressed herein, we have examined and relied
upon originals or copies, certified or otherwise identified to our
satisfaction, of such corporate records, documents, certificates and other
instruments as we have deemed necessary or appropriate.

Based upon the foregoing, and on such examinations of law as we have
deemed necessary, we are of the opinion that:

1. The Fund has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Maryland.

2. The issuance of the Rights and the sale of the Shares have been
duly authorized and the Rights, when issued as contemplated in the Registration
Statement, will be legally issued and the Shares, when issued and paid for as
contemplated in the

<PAGE> 2

[ROGERS & WELLS LETTERHEAD]

- 2 -

The Mexico Equity and July 24, 1995
Income Fund, Inc.

Registration Statement, will be legally issued, fully paid and nonassessable.

We consent to the filing of this opinion with the Securities and
Exchange Commission as an Exhibit to the Registration Statement and to the
reference to this firm under the heading "Legal Matters" in such Prospectus. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required under Section 7 of the 1933 Act or the Rules and
Regulations of the Securities and Exchange Commission thereunder.

As to certain matters governed by the laws of the State of Maryland, we
have relied on the opinion of Piper & Marbury L.L.P., a copy of which is
attached hereto.

Very truly yours,

<PAGE> 1

EXHIBIT (l)(2)

[PIPER & MARBURY L.L.P. LETTERHEAD]

July 24, 1995

Rogers & Wells
200 Park Avenue
New York, New York 10166

Re: The Mexico Equity and Income Fund, Inc.

Ladies and Gentlemen:

We have acted as Maryland counsel to The Mexico Equity and Income
Fund, Inc., a Maryland corporation (the "Company"), in connection with the
Company's registration statement on Form N-2, including all amendments or
supplements thereto, filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended (File Nos. 33-83820 and 811-06111) (the "Registration Statement"),
and the issuance of the rights (the "Rights") to subscribe for shares of the
Company's Common Stock, par value of $.001 per share (the "Shares") in
accordance with the terms of the Registration Statement.

In this capacity, we have examined the Company's charter and by-laws,
the proceedings of the Board of Directors of the Company relating to the
issuance of the Rights and the Shares and such other statutes, certificates,
instruments, documents and matters of law relating to the Company as we have
deemed necessary to the issuance of this opinion. In such examination, we have
assumed the genuineness of all signatures, the conformity of final documents in
all material respects to the versions thereof submitted to us in draft form,
the authenticity of all documents submitted to us as originals, and the
conformity with originals of all documents submitted to us as copies.

Based upon the foregoing and limited in all respects to applicable
Maryland law, we are of the opinion and advise you that:
<PAGE> 2
Rogers & Wells
July 24, 1995
Page 2

1. The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Maryland.

2. The issuance of the Rights and the sale of the Shares have
been duly authorized; when issued as contemplated in the Registration
Statement, the Rights will be validly issued; when issued and paid for upon
exercise of the Rights as contemplated in the Registration Statement, the
Shares will be validly issued, fully paid and nonassessable.

You may rely upon this opinion in rendering your opinion to the
Company which is to be filed as an exhibit to the Registration Statement. We
hereby consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving our consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Act or the
Rules and Regulations of the Commission thereunder.

Very truly yours,

/s/ PIPER & MARBURY L.L.P.

<PAGE> 1
EXHIBIT (l)(3)

[RITCH, HEATHER Y MUELLER, S.C. LETTERHEAD]

July 24, 1995

The Mexico Equity and Income Fund, Inc.
Oppenheimer Tower
World Financial Center
200 Liberty Street
New York, New York 10281

Ladies and Gentlemen:

We have acted as Mexican counsel for the Mexico Equity and Income Fund,
Inc., a Maryland corporation (the "Fund"), in connection with the preparation
and filing with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "1933 Act"), and the Investment Company Act of
1940, as amended, of a Registration Statement on Form N-2 (the "Registration
Statement") relating to the issuance by the Fund of transferable rights (the
"Rights") to subscribe for up to 3,000,000 shares of Common Stock of the Fund,
par value $0.001 per share (the "Shares").

As such counsel, it is our opinion that the conclusions based on
Mexican tax law expressed under the section captioned "Taxation -- Mexican
Taxes" in the Prospectus contained in the Registration Statement are true and
correct.

We consent to the filing of this opinion with the Securities and
Exchange Commission as an Exhibit to the Registration Statement and to the
reference to this firm under the heading "Legal Matters" in such Prospectus. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required under Section 7 of the 1933 Act or the rules and
regulations of the Securities and Exchange Commission thereunder.

Very truly yours,
Ritch, Heather y Mueller, S.C.

/s/ JOSE RAZ-GUZMAN
-----------------------
Jose Raz-Guzman
Partner

<PAGE> 1

EXHIBIT (N)

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Pre-Effective Amendment No. 3 to the registration
statement on Form N-2 (the "Registration Statement") of our report dated
September 23, 1994, relating to the financial statements and financial
highlights appearing in the July 31, 1994 Annual Report to Shareholders of The
Mexico Equity and Income Fund, Inc., which is incorporated by reference into
the Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" and "Experts" in the Registration Statement.

Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
July 24, 1995