-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D6iLccEV8eZYjt2andD0HHBS5mV2MDg79QBZh6g+WubNVx6zI+z+O5GAw5rvWwNE rabGzFpwBzcJ8bYFXqzjxg== 0000950123-96-001858.txt : 19960426 0000950123-96-001858.hdr.sgml : 19960426 ACCESSION NUMBER: 0000950123-96-001858 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960131 FILED AS OF DATE: 19960425 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEXICO EQUITY & INCOME FUND INC CENTRAL INDEX KEY: 0000863900 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133576061 STATE OF INCORPORATION: MD FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06111 FILM NUMBER: 96550755 BUSINESS ADDRESS: STREET 1: WORLD FINANCIAL CTR STREET 2: 200 LIBERTY ST CITY: NEW YORK STATE: NY ZIP: 10281 BUSINESS PHONE: 2126675000 MAIL ADDRESS: STREET 1: OPPENHEIMER TOWER STREET 2: 200 LIBERTY STREET, 38TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10281 FORMER COMPANY: FORMER CONFORMED NAME: MEXICO CONVERTIBLE ADVANTAGE FUND INC DATE OF NAME CHANGE: 19900807 FORMER COMPANY: FORMER CONFORMED NAME: MEXICO ADVANTAGE FUND INC DATE OF NAME CHANGE: 19900805 N-30D 1 THE MEXICO EQUITY AND INCOME FUND, INC. 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 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 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 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%
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 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 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 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 7 PORTFOLIO OF INVESTMENTS THE MEXICO EQUITY AND JANUARY 31, 1996 (UNAUDITED) INCOME FUND, INC.
No. of Shares Security Value - --------- -------------------------------------------------------------- ------------- 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 -------------
7 8 PORTFOLIO OF INVESTMENTS THE MEXICO EQUITY AND JANUARY 31, 1996 (UNAUDITED) (CONTINUED) INCOME FUND, INC.
No. of Shares Security Value - --------- -------------------------------------------------------------- ------------- 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 ------------- Par (000) - --------- 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 -------------
8 9 PORTFOLIO OF INVESTMENTS THE MEXICO EQUITY AND JANUARY 31, 1996 (UNAUDITED) (CONTINUED) INCOME FUND, INC.
Par (000) Security Value - --------- -------------------------------------------------------------- ------------- 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 ------------- No. of Shares - --------- UNITED STATES -- 7.34% 9,626,528 Temporary Investment Fund, Inc. (Cost $9,626,528)............. 9,626,528 ------------- TOTAL INVESTMENTS (COST $126,238,413)++ -- 100%............... $131,136,807 =============
- --------------- * 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 =============
MXP -- Mexican Pesos See accompanying notes to financial statements. 9 10 STATEMENT OF ASSETS AND LIABILITIES THE MEXICO EQUITY AND JANUARY 31, 1996 (UNAUDITED) INCOME FUND, INC. 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 =============
See accompanying notes to financial statements. 10 11 STATEMENT OF OPERATIONS THE MEXICO EQUITY AND FOR THE SIX MONTHS ENDED JANUARY 31, 1996 (UNAUDITED) INCOME FUND, INC. 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 ============
See accompanying notes to financial statements. 11 12 STATEMENT OF CHANGES IN NET ASSETS THE MEXICO EQUITY AND INCOME FUND, INC.
FOR THE SIX MONTHS ENDED FOR THE YEAR JANUARY 31, 1996 ENDED (UNAUDITED) JULY 31, 1995 ---------------- ---------------- 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 ============= =============
See accompanying notes to financial statements. 12 13 FINANCIAL HIGHLIGHTS THE MEXICO EQUITY AND (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) INCOME FUND, INC.
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 ---------------- ------------- ------------- ------------- ------------- -------------- 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%
- ------------------------ * 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 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 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 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 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 18 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) THE MEXICO EQUITY AND JANUARY 31, 1996 (UNAUDITED) INCOME FUND, INC. NOTE E: QUARTERLY RESULTS OF OPERATIONS: (UNAUDITED)
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 ------- ------ ------- ------ --------- ------- --------- ------- 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
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 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 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 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
NOMINEES VOTES FOR VOTES ABSTAINED -------------------------------------------------------- --------- --------------- Alan Rappaport.......................................... 8,526,039 258,304 Carroll Brewster........................................ 8,515,008 269,335 Sol Gittleman........................................... 8,508,499 275,844
II. RATIFICATION OF PRICE WATERHOUSE LLP AS THE INDEPENDENT ACCOUNTANTS OF THE FUND
VOTES FOR VOTES AGAINST VOTES ABSTAINED --------- ------------- --------------- 8,556,099 61,625 166,619
21 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. -----END PRIVACY-ENHANCED MESSAGE-----