<PAGE> 1
THE MEXICO EQUITY AND INCOME FUND, INC.
March 15, 1996
DEAR FUND SHAREHOLDER,
We are pleased to present you with the unaudited financial statements of The
Mexico Equity and Income Fund, Inc.("the Fund") for the six month period from
July 31, 1995 to January 31, 1996.
The past six months have been a volatile period for both the Mexican market
and the Fund. The Mexican market had shown signs of a recovery between July and
September, however depreciation of the peso between September and November cut
the rally short. While the peso reached as low as N$8.1/U.S.$ in November of
1995, increasing investor confidence and intervention by the Mexican Central
Bank stabilized the currency's decline. Since then, the peso has traded in a
fairly stable range between N$7.5-N$7.8/U.S.$. Despite the volatility of the
period, the Mexican market appreciated 6.1% in U.S. dollar terms between July
31, 1995 and January 31, 1996, bolstered by declining interest rates in the U.S.
and generally improved sentiment towards emerging markets at the beginning of
1996.
The macroeconomic picture has improved in Mexico and the Mexican Adviser
estimates that GDP growth for 1996 will be roughly 2.5%. While interest rates
were almost as high as 60% in mid-November in response to the peso's
depreciation, the rate on 28-day Cetes (Mexican T-Bills) declined from 38.6% at
the end of July of 1995 to 36.4% at the end of January of 1996. Monthly
inflation for January of 1996 was 3.6%, down from a monthly rate of 8% for April
of 1995.
The Fund continues to provide investors with broad exposure to Mexico, and
as of January 31, 1996, the portfolio was invested in 49 securities in 12
sectors. To provide you with a more detailed macroeconomic picture as well
further insight about why the Fund is invested in particular sectors and
securities, the Mexican Adviser has provided its views about the Mexican economy
as well as descriptions of the Fund's key sector holdings and top ten equity
positions.
The Fund's net asset value is calculated weekly and published in The Wall
Street Journal every Monday under the heading "Closed End Funds." The Fund's net
asset value is also published in The New York Times on Mondays and in Barron's
on Saturdays. The Fund is listed on the New York Stock Exchange, ticker symbol
"MXE."
We thank you for your participation in the Fund. If you have any questions
or would like updates on the Fund, please call our toll-free number at
1-800-421-4777. This number also provides callers with a recorded monthly update
that reviews the markets in which the Fund invests as well as specific details
about the Fund, its portfolio, and performance.
Sincerely,
/s/ ALAN RAPPAPORT
-----------------------
ALAN RAPPAPORT
CHAIRMAN AND PRESIDENT
1
<PAGE> 2
REPORT OF THE MEXICAN ADVISER
ECONOMIC OUTLOOK
Mexico's financial situation appears to have stabilized and there has been
gradual improvement in the economic scenario. We believe the improvement is
attributable to the fiscal and monetary tightening imposed by the government,
the financial package provided by international institutions and the support
mechanisms developed by the government for consumers, corporate debtors and the
financial system.
After 13 months of severe adjustment, two key economic indicators, monthly
inflation and the 28-day Cetes' rate, have sharply declined. At the end of
January of 1996, monthly inflation was at 3.6% and the Cetes' rate was at 36.4%,
down from 8% inflation which occurred in April of 1995 and an 82% Cetes' rate
which occurred in March of 1995. The peso exchange rate, however, closed at
N$7.4/U.S.$ after starting the period at N$6.1/U.S.$.
While GDP contracted 6.9% in 1995, several positive signs indicate that the
Mexican financial crisis may have reached its lowest point. For example:
- The IMSS (Mexican Social Security Institute) beneficiaries indicator
revealed the creation of 100,000 permanent jobs in the fourth quarter of
1995;
- Intermediate goods imports have been recovering since August of 1995. This
is a sign that, we believe, indicates that production will start
improving; and
- Some industries such as the steel and mining-metallurgic sectors have been
able to expand the export markets. Additionally, the automotive industry,
one of the sectors most affected by the financial crisis, reported a 38%
increase in plant dealer sales in December of 1995 against the previous
month.
We are encouraged by these positive signs of recovery and we currently
estimate GDP growth of 2.5% for 1996.
We believe recent significant capital flows into the money and stock markets
were attributable to a downward trend in interest rates in Europe and the U.S.,
an increase in international liquidity, and the perception that Mexico's
financial crisis has passed. The government's successful placements of U.S.$4.7
billion in bonds during the last four months also helped to improve both
Mexico's perceived image in the global capital markets and its financial
situation.
THE MEXICAN STOCK MARKET
Between July 31, 1995 and January 31, 1996, the Mexican Bolsa increased 6.1%
in U.S. dollar terms. The Bolsa performed well between the end of July and
mid-September, rising 5.9%; however, the Bolsa declined approximately 19% in
U.S. dollar terms between September 14, 1995 and December 14, 1995 as domestic
political uncertainties and concern over U.S. Treasury Bill interest rates led
to a flight of capital from Mexico and a depreciation of the peso. Since
mid-December, improved investor sentiment towards emerging markets and declining
interest rates in the U.S. have led to a significant inflow of foreign capital
into the Mexican market. Between December 14, 1995 and January 31, 1996, the
Bolsa increased roughly 24% in U.S. dollar terms. The market's volatility is
expected to continue.
ECONOMIC AND POLITICAL ISSUES FOR 1996
In the political arena, 1996 may be a difficult year due to internal and
external factors. During 1996, campaigning will most likely begin in
anticipation of elections in 1997 for Congress, Governors and the Major of the
Federal District. This could put pressure on reforms now occurring among the
different
2
<PAGE> 3
political parties. In terms of external factors, Mexico could be affected by the
political campaign in the U.S.
We believe that growth in 1996 will depend on three variables: direct
foreign investment, exports and other capital inflows. We estimate that much of
the growth will be dependent upon the export sector's performance. According to
the Bank of Mexico, a significant percentage of exporting companies have idle
capacity; therefore, these companies should be able to meet the demands of
export growth. The Bank of Mexico also stated that direct foreign investment
should rise to approximately U.S.$6.3 billion from an estimated U.S.$6.0 billion
figure for 1995.
FUND'S PERFORMANCE
For the six month period between July 31, 1995 and January 31, 1996, the
Fund's total NAV return was 7.9%. In comparison, the Mexican Bolsa increased
6.1% in U.S. dollar terms for the same period.
SECTORAL BREAKDOWN
During the six month period between July 31, 1995 and January 31, 1996, the
significant changes in the Fund's sector allocation included: increases in
specialty stores, paper, financial groups, communications, steel and industrial
conglomerates; decreases in food, beverage and tobacco and retailing.
SECTOR ALLOCATION AS OF 1/31/96
<TABLE>
<S> <C>
INDUSTRIAL CONGLOMERATES 17.6%
COMMUNICATIONS 3.8%
MINING 4.7%
OTHER 4.7%
CONSTRUCTION MATERIALS 12.5%
PAPER PRODUCTS 6.1%
CONVERTIBLE DEBENTURES 2.9%
FOOD, BEVERAGES & TOBACCO 13.4%
TRANSPORTATION 2.7%
RETAILING 7.5%
CASH & SHORT TERM HOLDINGS 7.3%
FIXED INCOME 16.9%
</TABLE>
FUND'S STRUCTURE AND INVESTMENT STRATEGY
As of January 31, 1996, the portfolio was 73% invested in equities, 15%
invested in short-term fixed income peso-denominated instruments and Mexican
Cetes, 9% invested in U.S. dollar-denominated United Mexican States Bonds and
U.S. temporary cash, and 3% in convertible debentures. Additionally, the Fund
was 35% invested in export-oriented companies with 50% or more of their revenues
in U.S. dollars.
3
<PAGE> 4
REVIEW OF KEY SECTORS AND TOP HOLDINGS
As of January 31, 1996, the Fund was invested in 49 securities in 12
sectors. Among the sectors in which the Fund invests, the following were of
strategic importance:
REVIEW OF KEY SECTORS HOLDINGS
STEEL
The production of liquid steel during 1995 reached 12.1 million tons, thus
establishing a new record for the third consecutive year. This represents an
increase of 20.1% over the prior year. The growth of finished products and flat
products was 15.6% and 35.4% during 1995, respectively, while production of
non-flat products was only 1.5%. The contraction that the construction sector
suffered and the added difficulty faced by non-flat product versus flat product
exports explains this differential.
- --------------------------------------------------------------------------------
CEMENT
During 1995, there was a 25% decline in domestic demand for cement and a 47%
decline for ready mix concrete. However, demand has been recovering since the
third quarter of 1995. As compared with the second quarter of 1995, cement
demand increased 13% and ready mix demand increased 5% in the third quarter of
1995.
- --------------------------------------------------------------------------------
MINING
Mexico's mining output rose 11% in 1995 over 1994 with silver production up
7% (2.5 million kgs.) and gold production up 36% (18.9 thousand kgs.). During
1995, the largest output increase among non-ferrous industrial metals over 1994
was copper which was up 11% (370 thousand tons) followed by lead which increased
10% (179 thousand tons) while zinc production fell 1.2% (355 thousand tons).
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS AS OF JANUARY 31, 1996
8.5% OF THE FUND'S NET ASSETS WERE INVESTED IN CORPORACION INDUSTRIAL SAN LUIS,
S.A. DE C.V. (SAN LUIS)
San Luis is an industrial conglomerate, primarily focused in the auto parts
(73% of San Luis' sales) and mining (27% of San Luis' sales) sectors. With 90%
of its sales abroad, San Luis is one of the most export-oriented companies
listed on the Mexican Stock Exchange and provides a natural hedge against
depreciation of the peso.
- --------------------------------------------------------------------------------
3.9% OF THE FUND'S NET ASSETS WERE INVESTED IN CEMEX, S.A. DE C.V. (CEMEX)
Cemex is Mexico's largest cement manufacturing group and is the fourth
largest worldwide. The company is geographically diversified with operations in
five countries around the globe, and through its trading and distribution
network, Cemex has a presence in 54 countries. Cemex is a market leader in
Mexico, Spain, Venezuela, Panama and the Caribbean and also has an important
presence in the southern United States.
4
<PAGE> 5
- --------------------------------------------------------------------------------
3.8% OF THE FUND'S NET ASSETS WERE INVESTED IN GRUPO INDUSTRIAL BIMBO, S.A. DE
C.V. (BIMBO)
Bimbo is the country's largest bread loaf manufacturer with a 90% domestic
market share. It owns 49 factories in 16 cities, and with 12,000 distribution
routes, the company is able to make 400,000 sales visits a day, reaching even
the smallest towns and catering to nearly one million clients. Bimbo also sells
in Guatemala, Chile, Venezuela, Argentina and the U.S.
- --------------------------------------------------------------------------------
3.8% OF THE FUND'S NET ASSETS WERE INVESTED IN TELEFONOS DE MEXICO, S.A. DE C.V.
(TELMEX)
Telmex is currently the only licensed provider of fixed-link
telecommunications services in Mexico. The company owns all of Mexico's public
exchanges and the nationwide network of local phone lines and long distance
transmission facilities. Through its 20 subsidiaries, Telmex provides a variety
of telecommunications-related and value-added services. At the end of 1995,
Telmex had a total of 8.8 million lines in service, representing growth of 3.6%
over the previous year.
- --------------------------------------------------------------------------------
3.4% OF THE FUND'S NET ASSETS WERE INVESTED IN DESC. SOCIEDAD DE FOMENTO
INDUSTRIAL, S.A. DE C.V. (DESC)
Desc, one of Mexico's largest industrial groups, is a diversified company
focused in six business sectors: automotive parts and components, chemicals,
consumer products, agribusiness, real estate and financial services. The company
is the largest and most diversified automotive parts manufacturer in Mexico.
- --------------------------------------------------------------------------------
3.3% OF THE FUND'S NET ASSETS WERE INVESTED IN CIFRA, S.A. DE C.V. (CIFRA)
Cifra is the leading retailer in Mexico and is dedicated to satisfying the
needs of the Mexican consumer through a variety of formats. The company operates
a range of clothing stores, supermarkets and restaurant chains oriented for a
wide range of income groups.
- --------------------------------------------------------------------------------
3.0% OF THE FUND'S NET ASSETS WERE INVESTED IN COMPANIA INDUSTRIAL SAN
CRISTOBAL, S.A. DE C.V. (CRISOBA)
Crisoba is the second largest company marketing products and systems for
personal care and cleansing for both the consumer and institutional markets.
Additionally, the company participates in the printing and writing paper
markets. In terms of volume, Crisoba is the leader in the institutional market
(11% of sales) and the second largest force in the consumer (58% of sales) and
the printing and writing paper (31% of sales) markets.
- --------------------------------------------------------------------------------
2.8% OF THE FUND'S NET ASSETS WERE INVESTED IN GRUPO FINANCIERO BANCOMER, S.A.
DE C.V. (GFB)
GFB is a leading Mexican financial services holding company with the
strongest financial distribution network in Mexico. It has four subsidiaries: a
commercial bank, a brokerage house, a leasing company and a warehousing company.
Bancomer, the commercial banking unit, accounts for 84.3% of the groups
earnings, maintains a solid 9.4% financial margin, and with 933 branches
throughout the country, is the largest retail bank in Mexico.
5
<PAGE> 6
- --------------------------------------------------------------------------------
2.7% OF THE FUND'S NET ASSETS WERE INVESTED IN TRANSPORTACION MARITIMA MEXICANA,
S.A. DE C.V. (TMM)
TMM is the largest maritime shipping company in Mexico. Its main activities
involve liner services, other maritime services and non-shipping activities.
Over the past few years, TMM has become known for its strategic alliances, such
as those with Hapag-Lloyd (Germany), Compagnie Generale Maritime (France),
Companhia Maritima Nacional (Brazil) and American President Lines (U.S.) in
maritime transportation, and with J.B. Hunt (U.S.) in land transportation.
Sincerely,
/s/ MA. EUGENIA PICHARDO
----------------------------------
MA. EUGENIA PICHARDO
Portfolio Manager, Acci Worldwide
S.A. de C.V.
6
<PAGE> 7
PORTFOLIO OF INVESTMENTS THE MEXICO EQUITY AND
JANUARY 31, 1996 (UNAUDITED) INCOME FUND, INC.
<TABLE>
<CAPTION>
No.
of Shares Security Value
- --------- -------------------------------------------------------------- -------------
<C> <S> <C> <C>
MEXICO -- 92.66%
COMMON STOCK -- 72.85%
Chemicals -- 1.84%
968,000 Cydsa, S.A. A................................................. $ 2,406,848
-------------
Communications -- 3.81%
2,930,000 Telefonos de Mexico, S.A. de C.V. L........................... 4,992,147
-------------
Construction Materials -- 12.51%
500,000 Apasco, S.A. de C.V. ......................................... 2,601,902
430,000 Cemex, S.A. de C.V. A*........................................ 1,644,633
940,000 Cemex, S.A. de C.V. CPO....................................... 3,576,087
1,040,000 Corporacion Geo, S.A. de C.V. B*.............................. 3,461,957
217,000 Empresas ICA Sociedad Controladora, S.A. de C.V.*............. 2,945,421
73,700 Tamsa ADR*.................................................... 598,813
196,500 Tubos de Acero De Mexico, S.A. de C.V. ....................... 1,577,874
-------------
16,406,687
-------------
Drugs and Cosmetics -- 1.34%
460,000 Nadro, S.A. de C.V. L......................................... 1,750,000
-------------
Financial Groups -- 1.11%
650,000 Grupo Financiero Bancomer S.A. de C.V. B*..................... 272,011
588,000 Grupo Financiero Banorte S.A. de C.V. B*...................... 818,087
566,000 Grupo Financiero GBM Atlantico, S.A. de C.V. B*............... 369,130
-------------
1,459,228
-------------
Food, Beverages, and Tobacco -- 13.38%
1,100,000 Embotelladora del Valle de Anahuac, S.A. de C.V. B*........... 1,016,304
500,000 Empresas La Moderna, S.A. de C.V. A*.......................... 2,289,402
417,000 Gruma, S.A. de C.V. B*........................................ 1,356,950
1,215,000 Grupo Industrial Bimbo, S.A. de C.V. A........................ 5,084,511
1,500,000 Grupo Industrial Maseca, S.A. de C.V. B....................... 1,084,239
450,000 Grupo Modelo, S.A. de C.V. C.................................. 2,109,375
78,000 Sigma Alimentos, S.A. de C.V. BCP*............................ 557,446
1,800,000 Sistema Argos, S.A. de C.V. B................................. 1,161,685
1,553,000 Tablex S.A. de C.V. 2*........................................ 2,890,774
-------------
17,550,686
-------------
</TABLE>
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS THE MEXICO EQUITY AND
JANUARY 31, 1996 (UNAUDITED) (CONTINUED) INCOME FUND, INC.
<TABLE>
<CAPTION>
No.
of Shares Security Value
- --------- -------------------------------------------------------------- -------------
<C> <S> <C> <C>
MEXICO -- 92.66% (CONTINUED)
Industrial Conglomerates -- 17.55%
400,000 Alfa, S.A. de C.V. A.......................................... $ 5,407,609
550,000 Desc. Sociedad de Fomento Industrial, S.A. de C.V. A*......... 2,107,337
287,000 Desc. Sociedad de Fomento Industrial, S.A. de C.V. B*......... 1,162,038
300,000 Desc. Sociedad de Fomento Industrial, S.A. de C.V. C*......... 1,210,598
270,000 Grupo Carso S.A. de C.V. A1*.................................. 1,874,592
2,030,000 Corporacion Industrial San Luis, S.A. de C.V. CPO............. 11,253,261
-------------
23,015,435
-------------
Manufacturing -- 0.37%
233,000 Vitro S.A. de C.V.*........................................... 479,929
-------------
Mining -- 4.65%
262,171 Grupo Mexico S.A. de C 108E Series Warrants (Exp.
8/15/2001)*................................................. 1,025,887
600,000 Grupo Mexico, S.A. de C.V. B*................................. 2,453,804
600,000 Industrial Penoles, S.A. de C.V. ............................. 2,616,848
-------------
6,096,539
-------------
Paper Products -- 6.05%
390,000 Compania Industrial San Cristobal, S.A. de C.V. A*............ 4,000,678
527,000 Grupo Industrial Durango, S.A. de C.V. A*..................... 1,918,967
120,000 Kimberly Clark de Mexico, S.A. de C.V. A...................... 2,013,587
-------------
7,933,232
-------------
Retailing -- 7.51%
3,450,000 Cifra, S.A. de C.V. C*........................................ 4,378,125
1,500,000 Controladora Comercial Mexicana, S.A. de C.V. B*.............. 1,019,022
500,000 Grupo Elektra, S.A. de C.V. CPO*.............................. 3,376,359
1,500,000 Grupo Gigante, S.A. de C.V. B*................................ 291,440
700,000 Organizacion Soriana, S.A. de C.V. BCP........................ 787,500
-------------
9,852,446
-------------
Transportation -- 2.73%
422,000 Transportacion Maritima Mexicana, S.A. de C.V. A*............. 3,583,560
-------------
TOTAL COMMON STOCK (COST $90,526,001)......................... 95,526,737
-------------
<CAPTION>
Par
(000)
- ---------
<C> <S> <C> <C>
CONVERTIBLE DEBENTURES -- 2.94%
$243 GFB 95-2 50.81%, 04/28/02+.................................... 3,390,661
$500 Tubos de Acero de Mexico, S.A. de C.V. 7.5%, 6/12/97**........ 463,850
-------------
TOTAL CONVERTIBLE DEBENTURES (COST $4,493,652)................ 3,854,511
-------------
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS THE MEXICO EQUITY AND
JANUARY 31, 1996 (UNAUDITED) (CONTINUED) INCOME FUND, INC.
<TABLE>
<CAPTION>
Par
(000) Security Value
- --------- -------------------------------------------------------------- -------------
<C> <S> <C> <C>
SHORT-TERM OBLIGATIONS -- 16.87%
PROMISSORY NOTES -- 11.20%
24,350 MXP Atlanti M6213 49.50%, 05/22/96................................ $ 3,308,424
22,000 MXP Bancomer 6054 34.30%, 02/01/96................................ 2,989,130
39,000 MXP Gnafin M6084 50.25%, 02/22/96................................. 5,298,914
22,782 MXP Intenal 6062 34.90%, 02/06/96................................. 3,095,389
-------------
TOTAL PROMISSORY NOTES (COST $14,365,566)..................... 14,691,857
-------------
MEXICAN GOVERNMENT BONDS -- 5.67%
31,250 MXP Cetes B960215 48.00%, 02/15/96................................ 4,245,924
$3,000 United Mexican States Libor/Cetes Bond 37.23%, 11/27/96....... 3,191,250
-------------
TOTAL MEXICAN GOVERNMENT BONDS (COST $7,226,666).............. 7,437,174
-------------
TOTAL SHORT-TERM OBLIGATIONS (COST $21,592,232)............... 22,129,031
-------------
TOTAL MEXICO (COST $116,611,885).............................. 121,510,279
-------------
<CAPTION>
No.
of Shares
- ---------
UNITED STATES -- 7.34%
<C> <S> <C> <C>
9,626,528 Temporary Investment Fund, Inc. (Cost $9,626,528)............. 9,626,528
-------------
TOTAL INVESTMENTS (COST $126,238,413)++ -- 100%............... $131,136,807
=============
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Non-income producing security
** At fair value as determined by the Board of Directors
+ Variable rate security: Interest rate represents rate as of January 31, 1996
++ Aggregate cost is the same for Federal income tax purposes.
The aggregate gross unrealized appreciation (depreciation) for all securities is as follows:
Excess of market value over tax cost $ 20,566,881
Excess of tax cost over market value (15,668,487)
-------------
$ 4,898,394
=============
</TABLE>
MXP -- Mexican Pesos
See accompanying notes to financial statements.
9
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES THE MEXICO EQUITY AND
JANUARY 31, 1996 (UNAUDITED) INCOME FUND, INC.
<TABLE>
<S> <C>
ASSETS:
Investments at value (Cost $126,238,413).................................... $ 131,136,807
Cash (including Mexican Pesos of $162,692 with a cost of $162,506).......... 162,692
Receivables:
Interest............................................................... 1,504,204
Maturities............................................................. 8,906,773
Securities sold........................................................ 241,177
Prepaid insurance........................................................... 26,393
-------------
Total Assets...................................................... 141,978,046
-------------
LIABILITIES:
Payable for securities purchased............................................ 9,168,739
Due to Mexican Adviser...................................................... 56,235
Due to Co-Adviser........................................................... 43,257
Due to Administrator........................................................ 21,629
Accrued expenses............................................................ 158,822
-------------
Total Liabilities................................................. 9,448,682
-------------
NET ASSETS.................................................................. $ 132,529,364
=============
NET ASSET VALUE PER SHARE ($132,529,364/11,825,273)......................... $11.21
=======
Net assets consist of:
Capital stock, ($.001 par value; 11,825,273 shares issued and outstanding
100,000,000 shares authorized)............................................ $ 11,825
Paid in capital............................................................. 131,313,104
Undistributed net investment income......................................... 5,116,413
Accumulated net realized loss on investments and foreign currency related
transactions.............................................................. (8,856,533)
Net unrealized appreciation in value of investments and on translation of
assets and liabilities denominated in foreign currency.................... 4,944,555
-------------
$ 132,529,364
=============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 11
STATEMENT OF OPERATIONS THE MEXICO EQUITY AND
FOR THE SIX MONTHS ENDED JANUARY 31, 1996 (UNAUDITED) INCOME FUND, INC.
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Net of taxes withheld of $246,895)................................. $ 5,929,250
Dividends.................................................................... 130,360
------------
Total Investment Income............................................ 6,059,610
------------
EXPENSES:
Investment advisory fees..................................................... 561,112
Administration fees.......................................................... 121,981
Custodian fees............................................................... 32,159
Transfer agent fees.......................................................... 20,008
Directors' fees.............................................................. 11,780
Legal fees................................................................... 96,381
Printing..................................................................... 37,361
Audit fees................................................................... 26,199
Insurance.................................................................... 25,879
Miscellaneous................................................................ 16,992
Amortization of organization costs........................................... 1,494
------------
Total Expenses..................................................... 951,346
------------
Net Investment Income........................................................ 5,108,264
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY
HOLDINGS AND TRANSLATION OF OTHER ASSETS AND LIABILITIES DENOMINATED IN
FOREIGN CURRENCY:
Net realized loss from:
Security transactions through affiliated brokers............................. (1,026,072)
Security transactions through non affiliated brokers......................... (56,111)
Foreign currency related transactions........................................ (4,797,205)
------------
(5,879,388)
------------
Net change in unrealized appreciation in value of investments and translation
of assets and liabilities denominated in foreign currency.................. 8,459,413
------------
Net realized and unrealized gain on investments, foreign currency holdings
and translation of other assets and liabilities denominated in foreign
currency................................................................... 2,580,025
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......................... $ 7,688,289
============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS THE MEXICO EQUITY AND
INCOME FUND, INC.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JANUARY 31, 1996 ENDED
(UNAUDITED) JULY 31, 1995
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income......................................... $ 5,108,264 $ 7,139,249
Net realized loss on investments and foreign currency related
transactions................................................ (5,879,388) (5,237,431)
Net change in unrealized appreciation (depreciation) in value
of investments and translation of assets and liabilities
denominated in foreign currency............................. 8,459,413 (46,358,221)
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations............................................. 7,688,289 (44,456,403)
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ($0.09 and $0.03 per share)............. (1,025,251) (258,764)
Net realized gains ($3.90 per share).......................... -- (33,639,303)
---------------- ----------------
Decrease in net assets from distributions................ (1,025,251) (33,898,067)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of 3,000,000 shares in connection with
rights offering (net of sales commission of $623,997 and
deferred offering costs of $663,810)........................ 26,087,193 --
Value of 199,811 shares issued in reinvestment of dividends... -- 2,753,390
---------------- ----------------
Net increase in net assets resulting from capital share
transactions........................................... 26,087,193 2,753,390
---------------- ----------------
Total increase (decrease) in net assets............. 32,750,231 (75,601,080)
---------------- ----------------
NET ASSETS:
Beginning of period........................................... 99,779,133 175,380,213
---------------- ----------------
End of period (including undistributed net investment income
of $5,116,413 and $1,033,400 respectively).................. $132,529,364 $ 99,779,133
============= =============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 13
FINANCIAL HIGHLIGHTS THE MEXICO EQUITY AND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) INCOME FUND, INC.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX AUGUST 21,
MONTHS ENDED FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR 1990*
JANUARY 31, 1996 ENDED ENDED ENDED ENDED THROUGH
(UNAUDITED) JULY 31, 1995 JULY 31, 1994 JULY 31, 1993 JULY 31, 1992 JULY 31, 1991
---------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period........................... $ 11.31 $ 20.33 $ 18.51 $ 16.03 $ 15.08 $ 11.27***
-------- ------------- ------------- ------------- ------------- -------
Net investment income.............. 0.44 0.82 0.51 0.68 0.83 1.42
Net realized and unrealized gains
(losses) on investments, foreign
currency holdings, and
translation of other assets and
liabilities denominated in
foreign currencies............... 0.29 (5.98) 5.47 3.33 1.09 2.97
-------- ------------- ------------- ------------- ------------- -------
Net increase (decrease) from
investment operations............ 0.73 (5.16) 5.98 4.01 1.92 4.39
-------- ------------- ------------- ------------- ------------- -------
Less distributions
Dividends from net investment
income........................... (0.09) (0.03) (0.42) (0.77) (0.96) (0.58)
Distributions from net realized
gains............................ -- (3.90) (1.67) (0.76) (0.01) (0.00)
-------- ------------- ------------- ------------- ------------- -------
Total dividends and
distributions.................... (0.09) (3.93) (2.09) (1.53) (0.97) (0.58)
-------- ------------- ------------- ------------- ------------- -------
Capital share transactions
Anti-dilutive effect of dividend
reinvestment..................... -- 0.07 -- -- -- --
Dilutive effect of rights
offering......................... (0.74) -- (2.07) -- -- --
-------- ------------- ------------- ------------- ------------- -------
Total capital share transactions... (0.74) 0.07 (2.07) -- -- --
-------- ------------- ------------- ------------- ------------- -------
Net asset value,
end of period.................... $ 11.21 $ 11.31 $ 20.33 $ 18.51 $ 16.03 $ 15.08
============== =========== =========== =========== =========== ============
Per share market value,
end of period...................... $ 10.25 $ 11.25 $ 21.25 $ 18.625 $ 14.875 $ 13.00
TOTAL INVESTMENT RETURN BASED ON
MARKET VALUE+...................... (2.30)%++ (31.96)% 41.4% 37.1% 22.8% 18.3%++
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's)....................... $132,529 $ 99,779 $ 175,380 $ 117,627 $ 101,190 $ 94,741
Ratio of expenses to average net
assets........................... 1.56%** 1.71% 1.64% 1.63% 1.62% 1.98%**
Ratio of net investment income to
average net assets............... 8.38%** 5.73% 2.75% 4.14% 5.10% 12.18%**
Portfolio turnover................. 11.32% 50.52% 43.57% 44.21% 15.08% 8.18%
</TABLE>
- ------------------------
* Commencement of Operations
** Annualized
*** Initial public offering price $12.00 per share less underwriting discount of
$0.60 per share and offering expense 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 loads or brokerage commissions.
++ Not annualized.
See accompanying notes to financial statements.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS THE MEXICO EQUITY AND
JANUARY 31, 1996 (UNAUDITED) INCOME FUND, INC.
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Mexico Equity and Income Fund, Inc. (the "Fund") was incorporated in
Maryland on May 24, 1990 and commenced operations on August 21, 1990. The Fund
is registered under the Investment Company Act of 1940, as amended, as a
closed-end non-diversified management investment company. Prior to commencing
its operations on August 21, 1990, the Fund had no activities other than the
sale of 8,772 shares of capital stock to Oppenheimer & Co., Inc. at $11.40 per
share. Significant accounting policies are as follows:
PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. All securities for which market quotations are readily
available are valued at the last sales price prior to the time of determination
of net asset value, or, if no sales price is available at that time, at the
closing price last quoted for the securities (but if bid and asked quotations
are available, at the mean between the current bid and asked prices, rather than
the quoted closing price). Forward contracts are 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. 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 it is determined by the Directors not to represent fair value. All
other securities and assets are carried at fair value as determined in good
faith by, or under the direction of, the Directors, including securities
totalling $463,850 (0.3% of net assets) at January 31, 1996 which were valued in
this manner.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income, including the accretion of discount and
amortization of premium on investments, is recorded on an accrual basis;
dividend income is recorded on the ex-dividend date or when known. The
collectibility of income receivable from foreign securities is evaluated
periodically, and any resulting allowances for uncollectible amounts are
reflected currently in the determination of investment income.
TAX STATUS: No provision is made for U.S. Federal income or excise taxes
as it is the Fund's intention to qualify as a regulated investment company and
to make the requisite distributions to its shareholders which will be sufficient
to relieve it from all or substantially all U.S. Federal income and excise
taxes. Net investment income and realized capital gains differ for financial
statement and tax purposes primarily because of post October foreign exchange
losses.
The character of distributions made during the year for net investment
income or net realized gains for financial reporting purposes may differ from
their ultimate characterization for Federal income tax purposes.
In accordance with U.S. Treasury regulations, the Fund elected to defer
$6,214,350 of net realized foreign currency losses and $856,057 of net realized
capital losses arising after October 31, 1994. Such losses are treated for tax
purposes as arising on August 1, 1995.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) THE MEXICO EQUITY AND
JANUARY 31, 1996 (UNAUDITED) INCOME FUND, INC.
The Fund is subject to the following withholding taxes on income from
Mexican sources:
Dividends distributed by Mexican companies are not subject to Mexican
withholding tax if such dividends are paid out of taxed profits. Dividends
distributed by Mexican companies from other sources are subject to a 34%
withholding tax.
Interest income on debt issued by the Mexican federal government and
certain other public sector obligations is not subject to withholding.
Withholding tax on interest from other debt obligations is at a rate of 4.9%.
Gains realized by the Fund from the sale or disposition of equity
securities that are listed and traded on the Mexican Stock Exchange are exempt
from Mexican withholding tax if sold through the stock exchange. Gains realized
from the sale or disposition of debt securities are not presently subject to
taxation, provided that such securities were originally issued to the Fund or
that no more than 10% of the Fund's shares are owned by Mexican residents. Gains
realized outside the Mexican stock exchange are subject to withholding at a rate
of 20% of the amount received or, upon the election of the Fund, at 30% of the
gain.
FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, assets and liabilities at the
current peso exchange rate on the valuation date, and
(ii) purchases and sales of investment securities, income and expenses at
the peso rate of exchange prevailing on the respective dates of such
transactions.
Securities denominated in currencies other than U.S. dollars are subject to
changes in value due to fluctuations in foreign exchange.
The Fund does not generally isolate the effect of fluctuations in foreign
exchange rates from the effect of fluctuations in the market prices of
securities. However, the Fund does isolate the effect of fluctuations in foreign
currency rates when determining the gain or loss upon the sale of foreign
currency denominated debt obligations pursuant to U.S. Federal income tax
regulations; such amounts are categorized as foreign exchange gain or loss for
both financial reporting and income tax reporting purposes. The Fund reports
certain foreign exchange realized gains and losses on all other foreign currency
related transactions as components of realized gains and losses for financial
reporting purposes, where as such components are treated as ordinary income for
Federal income tax purposes.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic origin
as a result of, among other factors, the level of governmental supervision and
regulation of foreign securities markets and the possibilities of political or
economic instability.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: 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
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) THE MEXICO EQUITY AND
JANUARY 31, 1996 (UNAUDITED) INCOME FUND, INC.
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. Risks may arise upon entering into
these contracts from the potential inability of counterparties to meet the terms
of their contracts and from unanticipated movement in the value of a foreign
currency relative to the U.S. dollar.
DISTRIBUTION OF INCOME AND GAINS: The Fund intends to distribute to
shareholders, at least annually, substantially all of its net investment income,
including foreign currency gains, and to normally distribute annually any net
realized capital gains in excess of net realized 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 interest of the Fund's shareholders generally. An
additional distribution may be made to the extent necessary to avoid payment of
a 4% Federal excise tax.
Distributions to shareholders are recorded on the ex-dividend date. The
amount of dividends and distributions from net investment income and net
realized gains are determined in accordance with Federal income tax regulations,
which may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their Federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income and net realized gains. To the
extent they exceed net investment income and net realized gains for tax
purposes, they are reported as distributions of additional paid-in capital.
During the year ended July 31, 1995, the Fund reclassified $5,847,086 from
accumulated net realized loss on investments and foreign currency related
transactions to undistributed net investment income as a result of permanent
book and tax differences relating primarily to foreign currency losses. Net
investment income and net assets were not affected by the change.
OTHER: Costs incurred by the Fund in connection with its organization are
being amortized on a straight-line basis over a five-year period beginning at
the commencement of operations of the Fund.
NOTE B: MANAGEMENT, INVESTMENT ADVISORY, AND ADMINISTRATIVE SERVICES
Acci Worldwide, S.A. de C.V. serves as the Fund's Mexican Adviser (the
"Mexican Adviser") under the terms of the Advisory Agreement (the "Advisory
Agreement"). Pursuant to the Advisory Agreement, the Mexican Adviser makes
investment decisions for the Fund and supervises the acquisition and disposition
of securities by the Fund. For its services, the Mexican Adviser receives a
monthly fee at an annual rate of .52% of the Fund's average monthly net assets.
A 10% value added tax on the management fees was paid through August 31, 1994;
the Mexican Adviser has
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) THE MEXICO EQUITY AND
JANUARY 31, 1996 (UNAUDITED) INCOME FUND, INC.
obtained a ruling from the Mexican Treasury Department whereby the payment of
such tax is no longer required.For the six months ended January 31, 1996, these
fees amounted to $243,962.
Advantage Advisers, Inc., a subsidiary of Oppenheimer & Co., Inc. serves as
the Fund's U.S. Co-Adviser (the "Co-Adviser") under the terms of the U.S.
Co-Advisory Agreement (the "Co-Advisory Agreement"). Pursuant to the Co-Advisory
Agreement, the Co-Adviser makes all investment decisions regarding the Fund's
convertible debt securities jointly with the Mexican Adviser and provides advice
and consultation to the Mexican Adviser on investment decisions for the Fund.
For its services, the Co-Adviser receives a monthly fee of .40% of the Fund's
average monthly net assets. For the six months ended January 31, 1996, these
fees amounted to $317,150.
Oppenheimer & Co., Inc. serves as the Fund's administrator (the
"Administrator"). The Administrator provides certain administrative services to
the Fund. For its services, the Administrator receives a monthly fee at an
annual rate of 0.20% of the value of the Fund's average monthly net assets. For
the six months ended January 31, 1996, these fees amounted to $121,981.
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
telephone conference. In addition, the Fund reimburses the directors for travel
and out-of-pocket expenses incurred in connection with Board of Directors
meetings.
NOTE C: CAPITAL STOCK
The authorized capital stock of the Fund is 100,000,000 shares of common
stock, $.001 par value. During the six months ended January 31, 1996, the Fund
issued 3,000,000 shares in connection with a rights offering of the Fund's
shares. Shareholders of record on July 24, 1995 were issued one transferable
right for each share of common stock owned, entitling shareholders the
opportunity to acquire one newly issued share of common stock for every three
rights held at a subscription price of $9.125 per share. Offering costs of
$663,810 attributed to the rights offering were charged to additional paid-in
capital, of which $100,000 was paid to Oppenheimer & Co. as reimbursement for
its expenses. Additionally, the Fund paid $623,997 for sales commissions of
which Oppenheimer & Co. received $273,750 for financial advisory services and
$179,179 for solicitation fees.
NOTE D: PORTFOLIO ACTIVITY
Purchases and sales of securities other than short-term obligations,
aggregated $18,654,634 and $10,025,492 respectively, for the six months ended
January 31, 1996.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) THE MEXICO EQUITY AND
JANUARY 31, 1996 (UNAUDITED) INCOME FUND, INC.
NOTE E: QUARTERLY RESULTS OF OPERATIONS: (UNAUDITED)
<TABLE>
<CAPTION>
NET REALIZED &
UNREALIZED GAIN NET INCREASE
(LOSS) ON (DECREASE) IN
INVESTMENTS, FOREIGN NET ASSETS
INVESTMENT NET INVESTMENT CURRENCY & RELATED RESULTING FROM
INCOME INCOME TRANSACTIONS OPERATIONS
------------------ ------------------ --------------------- --------------------
TOTAL PER TOTAL PER TOTAL PER TOTAL PER
(000) SHARE (000) SHARE (000) SHARE (000) SHARE
------- ------ ------- ------ --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
October 31, 1993................. $ 948 $ 0.15 $ 433 $ 0.07 $ 16,853 $ 2.65 $ 17,286 $ 2.72
January 31, 1994................. 1,233 0.14 559 0.07 51,118 5.97 51,677 6.04
April 30, 1994................... 1,575 0.18 928 0.11 (32,325) (3.75) (31,397) (3.64)
July 31, 1994.................... 2,853 0.33 2,216 0.26 5,264 0.60 7,480 0.86
October 31, 1994................. 1,954 0.23 1,198 0.14 13,326 1.54 14,524 1.68
January 31, 1995................. 1,345 0.15 705 0.08 (70,301) (8.13) (69,596) (8.05)
April 30, 1995................... 2,840 0.32 2,476 0.28 (5,929) (0.67) (3,453) (0.39)
July 31, 1995.................... 3,167 0.36 2,760 0.32 11,308 1.28 14,069 1.60
October 31, 1995................. 2,640 0.23 2.155 0.19 (10,933) (0.85) (8,778) (0.66)
January 31, 1996................. 3,420 0.29 2.953 0.25 13,513 1.14 16,466 1.39
</TABLE>
NOTE F: TRANSACTIONS WITH AFFILIATES
BROKERAGE COMMISSIONS: Acciones y Valores de Mexico, S.A. de C.V., the
parent company of the Mexican Adviser, received total brokerage commissions of
$58,251 during the six months ended January 31, 1996.
NOTE G: OTHER
At January 31, 1996, substantially all of the Fund's assets were invested
in Mexican securities. The Mexican securities markets are substantially smaller,
less liquid, and more volatile than the major securities markets in the United
States. Consequently, acquisitions and dispositions of securities by the Fund
may be inhibited.
18
<PAGE> 19
THE MEXICO EQUITY AND
INCOME FUND, INC.
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
19
<PAGE> 20
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 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
commissions 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.
RESULTS OF ANNUAL SHAREHOLDERS MEETING
The Fund held its annual shareholders meeting on November 8, 1995. At the
meeting, shareholders elected each of the nominees proposed for election to the
Fund's Board of Directors and ratified the
20
<PAGE> 21
selection of Price Waterhouse LLP as the independent accountants of the Fund for
the year ending July 31, 1996. The following table provides information
concerning the matters voted on at the meeting:
I. ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
NOMINEES VOTES FOR VOTES ABSTAINED
-------------------------------------------------------- --------- ---------------
<S> <C> <C>
Alan Rappaport.......................................... 8,526,039 258,304
Carroll Brewster........................................ 8,515,008 269,335
Sol Gittleman........................................... 8,508,499 275,844
</TABLE>
II. RATIFICATION OF PRICE WATERHOUSE LLP AS THE INDEPENDENT ACCOUNTANTS OF THE
FUND
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES ABSTAINED
--------- ------------- ---------------
<S> <C> <C>
8,556,099 61,625 166,619
</TABLE>
21
<PAGE> 22
THE MEXICO EQUITY &
INCOME FUND, INC.
INVESTMENT ADVISERS
ACCI WORLDWIDE, S.A. de C.V.
ADVANTAGE ADVISERS, INC.
ADMINISTRATOR
OPPENHEIMER & CO., INC.
SUB-ADMINISTRATOR
PFPC INC.
TRANSFER AGENT AND REGISTRAR
PFPC INC.
CUSTODIANS
PNC BANK, N.A.
CITIBANK, N.A.
THE
MEXICO
EQUITY
&
INCOME
FUND, INC.
SEMI-ANNUAL REPORT
JANUARY 31, 1996
ADVANTAGE ADVISERS, INC.
